On July 15, the BBC’s top brass (ie Director-General Tony Hall and Director of Strategy James Purnell) gave evidence to the Commons Culture, Media and Sport Committee on the future of BBC funding. There was no surprise in their unswerving preference for maintaining the licence fee; but their dismissal of the subscription option was underpinned by a novel element: a post that day on the BBC’s blog by their colleague James Heath, the BBC’s Head of Policy.
It is not that long a document: but it is packed with 40 statements that are tendentious, over-stated, inaccurate or untruthful. I have chosen to call them lies, because there is not the slightest attempt to present any kind of balanced picture. It is a bad faith exercise, and deserves the strongest epithet in condemning it.
1) Subscription would “unavoidably change the nature of the BBC”
Some people, of course, would undoubtedly welcome such a change; but it is certainly not “unavoidable”. Just think of subscription as the licence fee without compulsion. This might change the BBC’s total income (up or down) but there is no reason why no longer prosecuting 182,000 people a year for non-payment, or imprisoning 50 of them for persistent non-payment, should change the BBC’s “nature”, or its public purposes, or its commitment to public service broadcasting.
2) “Subscription is not the answer as long as you want the BBC to remain a universal, public service broadcaster”
Universal availability is the most commonly cited difference between licence fee funding and subscription funding: and is also the most deliberately misleading. BBC TV – at least, in its live transmission format – is only “universally” available to those who pay for a TV licence. You can choose not to pay, and not watch, which is exactly how subscription works; or you can watch, but not pay, and wait for the BBC to take you to court for the infliction of a criminal record (in a subscription system, that could not happen, as non-payers would simply not be able to gain access to the content). Sky TV is “universally” available: it is just that 45% of households decline to pay for it. And there would be absolutely no reason for the BBC to change its output at all if it decided to make the licence fee voluntary: it can certainly remain a “public service broadcaster”.
3) Only the licence fee allows the BBC “to surprise and inspire each and every one of us”
A subscription-funded BBC could choose to “surprise and inspire each and every one of us”; or it might choose not to; but the funding mechanism makes no difference.
4) Only the licence fee allows the BBC to deliver “social and cultural benefits at scale”
That the BBC delivers some such benefits is evident; but there is no necessary connection between such benefits and the licence fee: a government grant system could be designed to do the same – and so could a subscription system. Of course, if the licence fee became voluntary, the chances are that there would be reduced take-up of these “benefits”: but that would be because people had exercised choice (not a word you will ever find in any of these BBC propaganda sheets). If the present scale of delivery requires criminalisation of non-payers and imprisonment of persistent non-payers, it must be asked whether the benefit to the many is worth the pain to the few. If “scale” can only be delivered at the point of a gun, I can do without scale.
5) Subscription cannot maintain the “current level of overall choice and investment in British content”
It is, of course, possible that converting the BBC to subscription might reduce those levels; so could leaving the BBC dependent upon the licence fee, given the propensity of ministers to impose obligations on the BBC which do not generate content (roll-out of broadband, funding BBC Monitoring), and the strong likelihood that in any event the licence fee would continue to be frozen, such that the pressure of cost inflation would reduce the value of content investment.
Of course, Heath could be making two other (equally superficial) points. First, that UK broadcasters funded by subscription spend a lower proportion of their income on content than those funded by the licence fee or advertising; and secondly, that removing a ring-fenced funding source (the licence fee) would place more competitive pressure on broadcasters reliant on subscriptions.
However, there is no inherent reason why the BBC – if adopting subscription – would choose to spend any lower proportion of its income on content than currently. And given that subscription revenue is rising much more quickly than either the licence fee or TV advertising revenue, being part of a more dynamic income stream is likely to have beneficial effects, even if that stream is more visibly competitive.
In any case, looking at snapshots of spending levels misses the direction of travel. For more than a decade, Ofcom has noted how the proportion of its TV income the BBC spends on content has barely risen, and has on occasion declined quite sharply, whilst that of subscription-funded broadcasters has risen markedly. Indeed, Sky alone now spends more on non-sport UK original content than BBC2, and could soon match BBC1.
6) Subscription will not “maximize the value for money that the public as a whole gets from the BBC”
The implication of this curious phrase is that only the licence fee will “maximize” the “value for money” that the public “as a whole” gets from the BBC. The giveaway phrase is “as a whole”, suggesting that even those who choose not pay for the BBC derive “value for money” from the licence fees they don’t pay (which may be true of evaders, but is only true of those non-evaders who do not watch live television because the BBC gives away its radio services – more on that later). How do you measure “value for money” (the only measure Heath offers, later, will be dealt with later)? And how do you know you have “maximized” it? This is all rhetoric, beyond proof or disproof, so it may or may not be a lie: given the general level of dishonesty, a lie seems likeliest.
7) Under subscription, the BBC’s “incentives would change”
The BBC’s incentives would only change if the BBC decided to change them. Making the licence fee voluntary is not a reason for doing so.
8) Subscription systems price their offerings at the “revenue maximizing level”
Some systems might well do this, but it is not a necessary aspect of subscription. A publicly-owned BBC, not required to make a profit, could be required to set its prices at break-even. After all, Channel 4 is funded overwhelmingly by advertising, but is not required to maximize its profits, as its publicly-owned status overrides any such incentive, placing its public service obligations first.
9) “Previous research” shows that the BBC would have to price itself at £20 per month under a voluntary subscription system
There has not been any independent and substantial research into subscription funding as an alternative to the licence fee for a long time, and this “research” – like so much else in the blog – has to be treated as pure assertion. We have no idea what criteria were used, what assumptions were made, and what calculations were involved. As an antidote to this non-research, I have constructed the following scenario:
a) Current household structure: 21m pay their own licence fee; 4m over-75s paid by Dept of Welfare and Pensions; 1m+ evaders; 1m non-users;
b) Pricing: multi-set fee £12 per month inc VAT (i.e., less than the current licence fee to cover all sets in the same home, including i-Player); single-set fee £6 pm (useful for students, OAPs, etc); £6 pm for i-Player alone; no access without payment;
c) Response: 2 million homes choose not to subscribe; 2m under-75s choose single-set; 2m over-75s choose single-set (the only sub level that will be paid by DWP); 2m over-75s choose to pay their own multi-set cost; 18m under-75s choose multi-set (inc i-Player); 1m subscribe just to i-Player;
d) Outcome: BBC TV annual revenues net of VAT £2.7bn (£425m more than present cost of BBC TV, and £1bn more than the present cost of BBC TV content); govt revenues increase by £540m from VAT and £438m from the reduced cost of over-75s licences (only now payable for single-set subscriptions, on the assumption that multi-set subscribers can afford £12 pm); this is needed to pay for BBC radio (£650m) and S4C, local TV, broadband roll-out and BBC Monitoring (£278m last year, projected £237m this year);
e) As the BBC never stops telling us what wonderful value the licence fee is, it seems reasonable to assume that just 8% of homes would decline to pay even half the licence fee to retain all BBC TV output, which many of them currently spend nearly 10 hours a week watching; so we can see that apart from the 2m over-75s households which can afford to pay £12 pm for multi-set and i-Player access, all other households would pay less (not 65% more) for current BBC TV output.
10) “The BBC would become much less affordable”
Or, as my scenario demonstrates, rather more affordable, but no longer requiring criminal sanctions to enforce payment for the BBC, or huge amounts of court time (paid for by taxpayers, not the BBC) to inflict criminal records on 1 million people every six years.
11) “Our reach among the public would suffer”
Well, yes, if an additional 1 million households drop out of watching BBC TV, then the reach figures for BBC TV would decline. But those reach figures currently include the 1 million+ households that evade the licence fee, and are freeloaders. Surely we would all be better off if reach measured just legal viewing. And – by the way – BBC TV reach is something that matters to a licence-fee-funded BBC, but not to a rationally-funded BBC (or to those who pay for it, either way).
12) “Subscription channels are very good at serving specific audiences”
The implication is that generalist channels cannot be funded by subscription; an assertion for which there is no proof. Sky 1 is a general entertainment channel (no news and sport, which are provided by dedicated channels, but with drama, comedy, game shows, reality series, quizzes and documentaries). The simple fact is that, as subscription channels only emerged after generalist terrestrial ones, the initial commercial imperative was to differentiate in order to attract customers: but although premium channels (sport and recently released movies) remain unique to the pay sector, the vast majority of pay-TV channels are packaged siblings straddling a swathe of the entertainment or factual arenas (including the package half-owned and editorially controlled by the BBC: UKTV). There is nothing here that entails the impossibility of supporting the licence-fee-funded BBC portfolio of channels (BBC1, BBC2, BBC3 if it survives that long, BBC4, CBeebies, CBBC, BBC Parliament, BBC News Channel and Alba) through subscription.
13) “The social and cultural value of the BBC comes from its universal availability”
The myth of “universality” is actually quite a recent invention. Until 1955, the BBC was a voluntary subscription service: one fee for radio, another for what was then known as BBC TV (i.e. BBC 1). Both services were in theory “universally” available (at least where their transmitters reached), but not universally adopted; just as Sky TV is today. The situation changed when ITV was launched in 1955, at which point a deal was done to make the licence fee payable before you could legally watch any television, including ITV. It was the popularity of ITV which helped drive take-up of television. The separate radio licence fee was abolished in 1971, on grounds of cost.
When BBC2 was launched, its limited transmission capacity meant it was clearly not universally available, and payment for it was effectively optional (through it being, initially, the only additional channel provided for in the enhanced colour TV licence fee). When a committee chaired by Gavyn Davies (just before he became chairman of the BBC) recommended that a separate fee be charged for the BBC’s planned new digital channels, the BBC (after initial hostility, partly predicated on the theory of “universality”) supported the idea. That was 1999: so the notion that “the” licence fee guarantees “universality” only really dates from the day Tony Blair vetoed the Davies digital licence fee proposal, under pressure from ITV and BSkyB, eager to eliminate any factor that might affect their own digital plans (coincidentally, James Purnell was a key aide to Blair at the time).
So the simple truth is this: the “social and cultural value of the BBC” comes from its remit, the public ownership that underpins its remit, the output that reflects that remit, and its take-up by consumers: not from its “universal availability” (which is anyway shared by dozens of other channels on the Freeview platform, most of which make little claim to “social and cultural value”).
14) “1 in 25 of the US population watched the biggest episode of Breaking Bad, compared to 1 in 5 of the UK population that watched Sherlock on BBC1”
It is a strange aspect of BBC ideology to identify size of audience as a virtue that differentiates licence-fee-funded BBC1 from subscription-funded AMC (the network that broadcast Breaking Bad). What about the licence-fee-funded dramas on BBC2, which barely average a 4% share (like that for Breaking Bad)? Are they proof that licence-fee funding is a mistake? How about the dramas on BBC3, which achieve even smaller shares? Would the BBC really like to revert to the pre-ITV days, when BBC dramas would achieve a 100% share of TV viewing? Is there something significant about a lot of people watching the same content at the same time (millions of Americans caught up with Breaking Bad online or by buying boxed sets)?
All that Heath is describing is a UK broadcast ecology that is still a decade behind that of the US, in terms of choice and multiplicity of channels. Typically, in the US, the top ten non-network programmes will achieve audience levels of about 60% of the top ten network programmes. Currently, in the UK, the relativity is more like 20%: but that will change, inexorably, year by year. And in due course, a subscription-funded BBC may have the courage and the resources to provide dramas as good as the very best offered to US viewers by subscription channels (Breaking Bad, The Sopranos, Six Feet Under, John Adams, Mad Men, Ray Donovan, The Wire, Treme, Homeland), not to mention on-line services that charge a monthly fee, like Netflix (where for £6 you can watch the entire first and second series of both House of Cards and Orange is the New Black).
15) A subscription-funded BBC would “focus on services and content of appeal to those with the highest willingness to pay”
Perhaps a BBC management as cynical as the current incumbents might do this, but there is absolutely no reason to do so. As I have demonstrated above, the current BBC suite of channels could very comfortably be provided by charging less than the current licence fee under a voluntary subscription service.
In any case, does anyone know which services appeal primarily to those “with the highest willingness to pay”, as opposed to those with the highest ability to pay? So far, the assembled great minds of TV have yet to come up with a luxury brand to match Louis Vuitton, Burberry or Ferrari.
16) “Some audiences would have to be prioritised over others”
The notion that only subscription channels engage in audience targeting is perverse, coming from a BBC that is notorious for setting target audience profiles for even the most mundane of daytime reality shows. BBC targeting is designed to “cover the waterfront”, which in practice means that many commissions are designed to appeal to particular demographic groups at different times of day, to cover the gaps in the rest of the commissioning process. BBC3 is targeted at 16-34s (not least because the average age of the audience for BBC1, BBC2 and BBC4 is 60). So for that channel, that audience is “prioritised” over others. This is a foolish as well as a misleading dictum.
17) “People’s wants as consumers would take precedence over their needs as citizens”
Even if this were a bad outcome (which I am not sure it would be), it is an entirely voluntary one. Changing the way the BBC is financed does not require a change in its remit or its public service obligations, especially if it remains in public ownership. A subscription-funded BBC would still enjoy many state-provided assets: the best transmission arrangements, the best slots on the electronic programme guides, the advantages of 95 years of brand-building. It would be perfectly possible to impose on a subscription-funded BBC the same programme obligations as currently prevail, and perhaps require that news and other public affairs programmes be broadcast unencrypted, so that even the minority who decline to pay for the BBC will still retain access to its news. Almost certainly, the BBC would also make sports content obtained under the listed events rules (if they survive) freely available, so as to comply with the requirement that these events are only broadcast by channels with 95% reach.
18) “Mixed funding” means “a bigger overall pot for investment in talent”
I dealt with this point under 5). Theoretically, having a dedicated household tax raising over £3bn a year to add to the advertising and subscription revenue streams should optimize the “investment pot”. But with the licence fee declining in value as governments freeze its level and divert the income it generates to non-content projects, the BBC is actually under continuous pressure to spend less on “talent”: last year, it spent just £1.727bn out of its £3.7bn TV licence fee income on TV programmes (and only a proportion of even that £1.727bn would have been spent on “talent”). That was 9% less than the previous year.
Of course, a further £250m was spent on content for Radio 1, 2, 3, 4 and 5, and £105m on S4C, but the eye-watering numbers in the latest BBC Annual Report are what is spent on “non-talent” areas: £410m on “infrastructure and support” for BBC TV; £138m on distribution; £174m on BBC online activity; £150m on broadband roll-out; £72m on marketing; £102m on licence fee collection; £100m on pension fund deficit reduction. Basically, for every £2 spent on content production (not all of it on “talent”), the BBC spent £1 on non-content stuff.
The dynamic nature of the subscription market – over 60% of UK households are connected to pay services, through satellite, cable or broadband – means that a well-run subscription-funded BBC, streamlined so as to just look after its TV services, could expect to expand its investment in talent, rather than face the prospect of a steady erosion.
19) The UK pay-TV sector is “largely focused on the acquisition of premium content”
I suspect that the management of BSkyB spends about 5% of its time dealing with premium content. The underlying structure of its movie deals was settled decades ago. The sports channels involve regular tussles with challenger channels (Setanta, ESPN, BT Sport), but even the biggest contracts only come up for renewal every three or four years.
In recent years, BSkyB has spent a good deal of its time trying to expand its mainstream offerings (Sky Atlantic, huge investment in Sky 1) and technology options (telephony, broadband, HD, 3D, multi-room, Sky Go). The market for subscribers to Sky Sports and Sky movie packages has been virtually static for years. Outside Sky and BT, the proportion of time spent by the scores of pay-TV operators in the UK on “premium content” is zero.
20) Subscription broadcasters have invested significantly less in UK original content, in total and as a proportion of their revenues”
This carefully stated position is technically correct, but suffers from “snapshot” mentality. History is important here. When Sky launched in 1988, the natural strategy was to offer what terrestrial TV had failed to offer: plenty of high quality sport (like overseas cricket), recently released movies and 24-hour news. It made no sense to spend available money on expensive drama and comedy unless you could deliver something better than the established channels offered. As the market matured, and pay channels could build on a profitable base, it became economic to commission domestic product (especially once the price of acquired US series – so clearly superior to UK equivalents – rose sharply).
It took HBO 20 years before it commissioned its first original drama series. Today, nearly 30 years later, it is the dominant force in US TV drama, and regularly wins the most Emmy nominations (these days, other cable channels compete for second place, ahead of nearly all the old US networks). Sky’s origination budget (excluding sport) is roughly 50% higher than BBC2’s. Other pay-TV channels are following suit, mostly at the features and reality level: even UKTV, controlled by the BBC, is commissioning original content these days. Yet again, Heath is looking backwards, not forwards: he is not stating an untruth, but he is trying to mislead.
21) “The costs of operating a subscription service would be significantly greater than those of collecting the licence fee (at around £100m pa)”
The cost of collecting the licence fee, of course, is only part of the licence fee equation. The cost to the taxpayer of prosecuting 182,000 people every year must be somewhere between £50m and £100m (assuming each prosecution costs between £250 and £500 to mount). Rather more importantly, a whole raft of spending obligations comes as part of the licence fee deal: £105m for S4C, £150m for broadband roll-out, £23m for local TV and BBC Monitoring, and – as from this year – £245m for BBC World Service radio: or £523m in all, plus the £650m cost of BBC radio (which should not be funded by a TV licence fee).
There is another wrinkle to this: although many subscriptions would be paid directly to the BBC, the likelihood is that the existing pay-TV operators (BSkyB, Virgin Media, BT and TalkTalk) would want to get in on the act, especially in the early days of the change, offering to collect the BBC sub as part of their monthly charge to consumers (with single-set access and multi-set access accommodated in line with current charging systems). In particular, BT and TalkTalk would most likely want to use such an opportunity to push their YouView set-top boxes. So for two-thirds of potential subscribing homes, the BBC might well not have to create a new charging mechanism.
That said, operating a conditional access system is inherently more expensive than collecting the licence fee, not least because the hidden cost of enforcement of the licence fee is not currently borne by the BBC. However, the considerable excess available to the BBC in the 9) scenario above gives very substantial leeway to cover those costs.
22) “To quote BSkyB, ‘£100m is nothing compared to what they would have to spend on marketing to retain their subscribers’”
This is probably the only quote from BSkyB you will see cited approvingly by the BBC for some time, so enjoy it. The truth, of course, is that Sky has no desire to see the BBC competing in the arena it dominates: and I know from my four years of personal experience at Sky that its believing subscription to be the most honest form of funding broadcasting does not equate to wanting the BBC to give up the unpopular and non-competitive licence fee. I recommend a long spoon.
As for the sums, the BBC already spends £72m a year on marketing, over and above the £102m cost of collecting the licence. Of course, Sky spends about £1bn a year on marketing, but that includes their broadband and telephony offers as well as their TV service (which requires hefty spend to offset the arrival of BT Sport). The BBC’s output is much better known and viewed much more heavily than Sky’s own, and will have had 95 years of brand marketing behind it by the earliest time subscription could be introduced, so even a £350m a year marketing and subscriber management cost would be a generous provision: and the economics I have set out above easily provide for this.
23) “those paying would have to spend more to get a subscription-funded BBC”
Not if you follow the scenario in 9) above.
24) “The result would be many more losers than winners”
Actually, as per 9) above, the exact opposite: 19 million winners (plus, of course, the BBC and the Treasury), and 2 million losers (the over-75s who choose to pay for a multi-set option).
25) “Subscription would exclude many who highly value BBC services...”
Nobody would be excluded, except by their own choice.
26) “...but couldn’t afford to pay a revenue maximising price”
The price need not be revenue maximizing, as shown in 9) above, and all households that currently pay for their own TV licence would actually be charged less than currently under the 9) scenario – so unless Mr Heath believes that the people who are dragged into court and prosecuted for non-payment simply cannot afford to pay for the BBC (which would be a significant admission on his part), he is 100% wrong.
27) “this would be unfair and sub-optimal...”
Except that it wouldn’t be – indeed, subscription would be much fairer than the licence fee, in allowing choice (ah, that missing word...) and aligning payment to services actually used. Indeed, even if subscription led to higher monthly fees than the current licence fee level, it might still be “fairer”: after all, there is considerable evidence that a substantial proportion of households would willingly pay more for the BBC, but are enabled to pay less by the criminal sanctions applied to people who want to watch TV, but do not think having the BBC is worth the current licence fee level. As for “sub-optimal”, what that really means is that the BBC would rather have criminal sanctions forcing the maximum number of households to support the BBC, whether they like to or not, so that wealthier households can be charged less than they say they are willing to pay. By these standards, easily the “fairest” and most “optimal” arrangement for funding the BBC would be a government grant (whereby a progressive tax system delivers the fairness, and free access to all BBC services with no criminal sanctions, delivers the optimality).
28) “sub-optimal given the low marginal cost of making our content available to additional viewers”
The marginal cost of delivery would be an issue if we regarded the BBC as a public service equivalent to the NHS, the police, defence or the fire brigade. Then, of course, we would deliver it out of taxation, as in 27) above. But the BBC is not an “essential” service like those: that it has near-universal take-up is a function primarily of the licence fee being a requirement to enable legal viewing of any live TV broadcast, and the criminal penalties attached to non-payment.
The fact that the marginal cost of supplying each consumer may be nil or nearly nil does not determine optimality. The BBC does not give away surplus copies of the Radio Times that have not been sold (though it derives no value from their return). Nor do cinemas give away empty seats. Even supermarkets – after reducing prices as food reaches its sell-by date – do not then give away that food to their customers when the sell-by date expires: they donate it to charity, or dispose of it. The BBC certainly has some “public service” value: but the vast majority of what it offers is simply entertainment. No-one needs to be threatened with imprisonment for failing to pay for it. Marginal cost of supply is not the issue.
29) “Many others would pay a higher price for a less good service”
That would be true if the BBC were determined to make it true: but as 9) above makes clear, a transition to subscription could just as easily deliver the same quality service for a lower price initially, with every reason to expect higher quality in due course.
30) “Those who currently value the BBC at less than the cost of the licence fee could potentially opt out – but the effect would be to reduce welfare overall”
And here we have the clear admission: people should be forced to pay for the BBC at the current level of the licence fee, whether or not they agree it is good value, because “overall welfare” would otherwise be reduced. In this Stalinist vision of the world, choice has absolutely no value (the word itself is studiously avoided), and compulsion in the shape of criminal sanctions is justified because bludgeoning the poor allows the wealthy to pay less than might otherwise be the case, and the total number of people exposed to BBC content (Mr Heath’s apparent definition of “welfare”) is maximized.
31) The cost of the BBC’s services per viewer hour “is significantly lower than the cost of subscription-funded services...which Prof Patrick Barwise has calculated [as]...9.2p and 24.9p respectively”
Without wishing to criticise Paddy Barwise – a well-known expert on these matters – I fear that Mr Heath is again wilfully misleading his readers. With penal sanctions available to force even the most impoverished households to contribute to the BBC’s revenues, its cost per hour of viewing is accordingly quite low. No doubt if Sky could threaten people with imprisonment if they failed to pay their monthly subscription, the Barwise figure for the hourly cost of viewing subscription services would reduce dramatically.
But it is not even clear that this approach is the correct one. When I wrote about this three years ago (“What can we learn from Mad Men?”), I measured the cost per hour per viewer of watching BBC programmes, and the cost per hour per viewer of watching all non-BBC programmes (not just those from subscription channels) in Sky households. The figures were 14p and 13p respectively. Both will have risen subsequently (the BBC’s because its level of viewing has fallen, Sky’s because its prices have risen) but the relativity remains little changed.
It is not even as if this calculation were relevant: choice is the key missing factor (still unmentioned by Mr Heath). Very few people choose to do without BBC TV, because that also requires, in law, giving up all other live TV. By contrast, nobody is forced to subscribe to Sky: that is a household choice.
32) “Subscription is the least favoured method of funding the BBC (behind advertising), and support for it has, in fact, declined by half in the last ten years”
This raises a rather more profound issue than Mr Heath perhaps realises. For the last ten years, there has been virtually no discussion of how to finance the BBC on the BBC, which is itself responsible for over 60% of the news and current affairs consumed by UK adults. Meanwhile, the licence fee is constantly touted by the BBC (just as in the Heath blog) as the best way of funding the organisation. The current acting chair of the BBC Trust, Diane Coyle, in promoting her (failed) bid to become the successor to Lord Patten, argued that the licence fee was the most popular way of funding the BBC: as if that made it also the best way! (Would she feel it the best way if the licence fee were not the most popular mechanism?)
Interestingly, in the entire history of the BBC, no-one has ever been appointed to the Board of Governors (in the past) or the BBC Trust (currently) who has openly questioned the licence fee. This is in itself puzzling, as a large minority – sometimes a majority – of people questioned by pollsters over the years have expressed a dislike of the licence fee, or its level, or both. To have the organisation with the largest influence on public opinion in the UK solidly in favour of just one funding mechanism for the BBC, with no dissent at management or governance level, is clearly unhealthy. It even suggests that the BBC is able to veto the appointment of possible members of the Trust who might disagree (the BBC is advertising for two Trust members currently: we shall see).
So let us go back those ten years: and lo and behold, the BBC did indeed mount a single programme on the subject (at a time when both the Broadcasting Policy Group, which I chair, and the expert committee, set up by Tessa Jowell and chaired by Lord Burns, had issued reports recommending a process of switching from the licence fee to subscription). It was a “live” edition of Panorama, presented by Gavin Essler, with studio audiences watching – and voting – in different locations. I was allowed a little less than ten minutes to make the case for subscription; Mark Byford, acting Director-General of the BBC, argued for the licence fee. A poll commissioned by Panorama found that 36% of respondents opted for subscription, with the rest equally split between advertising and the licence fee (these figures are illustrated in Mr Heath’s previous blog, on the licence fee). The studio voters broadly agreed.
In the last ten years, the number of households taking out subscriptions for pay-TV, mobile telephony and online video content has increased substantially. The technical case for subscription is now that much stronger following the switchover to digital terrestrial transmission, as Lord Burns confirmed to both the current House of Commons inquiry into the future of the BBC, and to the Our Beeb/City University seminar in July. So why would support for subscription have halved since 2004? Perhaps the BBC’s total commitment to the licence fee, its constant propaganda for the licence fee, its refusal to commission any independent research into subscription, its powerful control of the consumption of information, and its suppression of any discussion on its many channels of the different merits of alternative funding mechanisms might just have something to do with it.
33) Subscription “would face major execution challenges”: “pay-TV users have set-top boxes (STBs) with conditional access modules (CAM) that enable subscription”; but “11.5 million households have free-to-air TV only” and “almost 20 million households have at least one free-TV set”
Mr Heath fails to provide one crucial fact (which, of course, he is undoubtedly familiar with) that perhaps explains this situation. When the BBC decided to rescue the Digital Terrestrial Television venture – which had almost collapsed with the failure of ITV Digital – it launched Freeview as an incentive for households to upgrade their analogue TV sets to digital. But – as the then Director-General, Greg Dyke, brazenly admits in his memoirs – the BBC insisted that all Freeview STBs be “dumb”: that is, no CAM was to be included in them, even though the cost of including one was trivial as a part of the overall cost. Indeed, whatever stock of STBs that had CAMs already installed had to have them removed.
Greg is engagingly frank about this remarkable insistence: it was intended to create an insurmountable obstacle to a possible switch to subscription funding for the BBC (which would require “smart” STBs, embodying CAMs). It is a truly wonderful piece of BBC hypocrisy to cite the “dumb” STB mountain as a “major execution challenge” without admitting that it was self-inflicted with the precise purpose of creating a “major execution challenge”. To withhold that information in this context is irrefutable evidence of my contention that the entire blog is an exercise in deliberate deceitfulness.
Fortunately, the challenge is not, in practice insurmountable. In the first instance, one could take a detached view, and say the problem is really the BBC’s, not anyone else’s. After all, no-one subsidised the much larger process of digital switchover itself (apart from the fund for the elderly and disadvantaged): it was up to each household to decide whether or not to upgrade each analogue TV before they became obsolete, and to pay for it. Of course, any delay in swapping a “dumb” STB for a “smart” one would delay that household’s ability to pay for BBC channels to be received and viewed on that set after the introduction of subscription. This might restrict the BBC’s income for a period, but only in relation to first and second sets (the multi-set subscription suggested in 9) above would not be affected by the household’s failure to upgrade third or fourth sets).
Of course, the BBC might find this “transition gap” financially uncomfortable, and look for ways of bridging it (perhaps persuading ministers that giving up the licence fee required some kind of cushioning). However, the incentive for households to retain access to BBC channels on most sets in the home would be strong, and at a likely cost of £20 per STB upgrade, well within the reach of a typical household.
Another problem might be those households which have invested heavily in modern TV set upgrades already (such as high definition sets). These typically have Freeview built in to the receiver, but not necessarily a CAM (or a slot for a smart card that could decrypt encrypted BBC signals). Again, the solution would be to acquire a “smart” STB for each set requiring upgrading: the kind of process which is a standard part of typical household expenditure. In due course, all set manufacturers would probably include a CAM in standard equipment.
Even if subscription were to be introduced in 2017 (when the current licence fee arrangement is due to expire), there would be ample time for most households to make the necessary upgrades, if a decision were to be announced this year, and STB manufacturers had a sufficient head start. In practice, given the likelihood of no decision ahead of the election, the introduction of subscription would either be unduly bumpy, or slightly delayed.
34) The “estimated cost is £500 million”
I think this is meant to frighten the horses. The figure may well be correct, but the intention is to mislead. As noted above, this type of upgrade is routinely assumed to be the responsibility of consumers: if they want the software, they will invest the £20 in the hardware. But there are two other factors Mr Heath carefully fails to mention.
The BBC ended the last financial year with £526m cash in hand. In its annual report, it says that the money is earmarked to pay for the BBC World Service (£245m) and the costs of S4C, local TV and broadband roll-out (£230m, down from £271m in the previous year). As none of that money would be payable by the BBC if it gave up the licence fee, it is clear that the BBC itself could fund the upgrade for Freeview-only TV sets or STBs almost in its entirety (even if – obviously – the transition were not made this year, it is clear that the BBC will have to make similar provisions every year for as long as the licence fee lasts). In any case, the Treasury is sitting on accumulated savings of £400m on the digital switchover project, paid for out of ring-fenced amounts within many years’ worth of licence fee income. Again, this is enough to pay for almost all the estimated costs of the upgrade. So: no need to be frightened.
35) “It is not technically feasible to encrypt the BBC’s radio broadcasts...what would happen to BBC Radio?”
It makes no sense for a TV fee to fund a radio service, especially a service from just one supplier. If Parliament wants to finance public service radio, then it should make available the £650m annual cost of BBC Radio; and perhaps introduce for the first time a contestable element, which would allow commercial radio stations to bid for public funds to finance the kind of output (drama, investigative documentary, current affairs, scripted comedy) that is beyond the reach of advertising-funded services. In any event, if radio is to continue to be provided free to everyone, whether or not they pay the licence fee, it cannot make sense to require voluntary subscribers to BBC TV to pay for an expensive radio service for all and sundry. That can only be a charge to the public purse.
One side benefit of such a re-arrangement would be the effective splitting off of BBC Radio from BBC TV, allowing it far greater creative and editorial autonomy. It would be a useful step in breaking down that daunting 60% share of news and current affairs consumption that the BBC – with a single centralised editorial process – currently controls.
36) Could there be “a cheaper ‘core’ licence fee funded BBC with remaining services available on a subscription basis”?
Nice try, Mr Heath: this is the Gavyn Davies proposal from 1999. Of course, it has been overtaken by events, as all the BBC services designed to be funded by a separate digital licence fee (as recommended by Davies, and endorsed by both the BBC and the DCMS at the time) were instead funded from an enhanced single licence fee. And in 1999, with full digital switchover at least seven years away, it was not realistic to transfer the main licence fee to a CAM-managed mechanism, as would have been immediately possible with the then new digital BBC channels. Today, it would be quixotic to retain a “core” licence fee, still enforced by criminal sanctions, and then invite consumers to upgrade their Freeview boxes so as to receive “premium” services.
37) “We modelled a scenario where BBC Three, BBC Four, BBC iPlayer and BBC Online were made available on a subscription basis”
More dust in your face. The underlying assumption here is that BBC1 and BBC2 would be funded by a cheaper basic licence fee: but even if the full costs of those four services designated to be subscription-funded were removed from the current budget, the licence fee would still need to be £130, would still cost over £100m a year to collect, and would still involve all the expense incurred by the court system and the hardship to hundreds of thousands people subjected to prosecution that is currently required.
Meanwhile, the chances of raising any significant revenue to fund BBC Three and BBC Four as presently constituted would inevitably be low: any pay platform could tell you very quickly that even a fee of £1 a month for both channels would be an ambitious ask; and inviting consumers to upgrade equipment just to pay £1 a month, or even £2, to receive just two channels makes little sense.
Mr Heath rather ostentatiously ducks the challenge from Lord Burns (and his own Director-General) as to the way to manage the iPlayer, which is visibly already eroding the logic of the licence fee by making all BBC content available for free soon after it is broadcast live. Lord Burns correctly argues that access to the iPlayer should be charged for, which is very easy for an internet-only service (and is assumed in 9) above). If Tony Hall wants to enhance the iPlayer, and even make a much richer selection of content from the BBC archive available by that route, then a two-tier charge is the obvious answer.
As for BBC Online, which the licence fee funds to the tune of £174m per annum, there is no way in the world that such a sum, or anything like it, could be recovered from installing a paywall, or selling advertisements. It is a moot point as to whether a subscription-funded BBC TV, no longer required to fund BBC Radio, would continue to provide an online service at this level of expenditure, pull back to a more realistic level, split the costs of whatever service is offered with BBC Radio, or hand this, too, back to the Treasury as a “public service” project to be provided free to all comers. For the purposes of 9) above, I have left it moot.
All these speculations from Mr Heath are simply distractions. The issue for the BBC to examine is not how to fund the margins through subscription, but the whole of BBC TV. Unfortunately, we cannot trust the BBC to undertake the necessary research honestly, if at all, as this blog makes only too clear.
38) “Those wishing to continue to receive all current services would pay double the licence fee (ie c£12.55 per month extra)”
The absurdity, irrelevance and dishonesty of this version of a hybrid “model” is fully exposed. Who on earth would pay £150 a year just to receive BBC Three, BBC Four, the iPlayer and BBC online? No-one would, of course. What Mr Heath carefully fails to discuss is the actual hybrid model proposed in 9): whereby the current suite of channels is the basic subscription (either single-set or multi-set); the iPlayer is delivered through the internet, either as a stand-alone service or as part of a subscription (either single-set or multi-set); and premium services are over and above. What might these be? The archive-rich version of the iPlayer is one possibility; a sports service is another (the BBC accumulates a mass of sports rights which it cannot fully deploy on its entertainment channels); perhaps an arts channel, or a documentaries channel; perhaps even a BBC film channel, wrapping premieres of the films the BBC finances with the film packages from home and abroad that can be readily obtained in the open market.
All those options can be explored in the future: meanwhile, as 9) above has shown, the current set of channels can be delivered for less than the licence fee presently costs – indeed, for millions of homes, at half the present cost.
39) “Some people would pay significantly more for the same services and others would pay a bit less for a lot fewer services”
What is Mr Heath trying to tell us? That the BBC’s managers are so inept that they cannot envisage actually how to run a subscription service? The truth is rather more subtle.
Last year, I was invited by Mr Heath’s predecessor in his post, John Tate, to participate in a serious analysis – led by a team from Ernst and Young – to judge various scenarios for the BBC to assess in planning its licence fee and Charter renewal strategy. The consensus was that an increase in the value of the licence fee to the BBC would be very hard to obtain, other than as a short term boost designed to prepare the BBC for replacing the licence fee with subscription before 2020.
Indeed, we recommended (long before decriminalisation was endorsed by the House of Commons this year) that criminal penalties be removed for licence fee evaders, as a bargaining chip in what might be a very tough negotiation. Whether output would actually be encrypted, or households invited to become “members” of the BBC and voluntarily fund it was not fully resolved (partly because of uncertainty over a timetable for equipment upgrade).
One major advantage of this course of action would have been to release BBC Worldwide from the tight borrowing limits constraining its international growth that licence fee funding entails. Armando Iannucci is not the only person who sees glowing prospects for the sale of BBC channels once subscription funding is adopted.
Mr Tate left the BBC last December. I have heard nothing more of the EY report. The simple truth seems to be that the BBC – both management and Trust – is not only unwilling to contemplate a subscription option, but would rather peddle the stale falsehoods set out in this blog than face the issue honestly.
40) “The BBC would be erecting a pay-wall around the digital future”
Ignoring the foolish attempt to give a charging mechanism a bad name (what, after all, is the licence fee other than a pay-wall?), one can only ask why the BBC in 1999 agreed to a “pay-wall” (if one can call a £2 a month charge even a ha-ha, let alone a wall) for its future digital services? Is a SIM card for a mobile phone a “pay-wall”, or just a basic mechanism to pay for a service? Why is the BBC so determined to fill our heads with nonsense?
I have noted that the word “choice” is wholly absent from this blog: so is decriminalisation, which has been brought centre stage by a clause in the current Deregulation Bill, providing for a 12-month consultation over how to remove criminal sanctions for licence fee evasion, and place the licence fee on the same footing as other services to the home, such as telephony (unpaid gas, water and electricity bills are also not liable to criminal proceedings, but cannot be completely withdrawn, so such measures as cash meters are deployed to staunch losses).
Needless to say, the BBC is not keen on decriminalisation, and warns that it could easily result in revenue losses in the hundreds of millions of pounds, as more people work out that the cost to the BBC of pursuing evaders – absent the heavy helping hand of the courts – would be greater than any recouped payments. Perhaps the BBC has a cunning plan to re-invent criminal sanctions under another heading, or simply hopes that blogs like this one will persuade enough MPs to drop the idea, given that encryption of signals, and adoption of subscription technology – something the BBC would clearly rather die in a ditch than ever agree to – is the obvious corollary of decriminalisation.
The mystery remains: the BBC is convinced that the licence fee is tremendous value for money, but – knowing that this “value” can only be delivered through compulsion – is determined to resist any attempt to put the issue to the test by allowing people to decide for themselves on the merits. As a result, it ignores the huge potential subscription funding offers, and leaves itself at constant risk of being squeezed further by politicians who see the licence fee as a convenient funding source for all kinds of government expenditure. As a result, the viewer is increasingly short-changed, with 16% of a frozen fee diverted to non-BBC projects. This blog is testimony to a complete failure of nerve at Broadcasting House.
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