Bigger or smaller? Who is right? Rupert or Tony?

An examination of the recent flow of speeches and deal proposals by leading media players, to see what clues to the future of the BBC they offer.

David Elstein
20 July 2014

At the OurBeeb/City University seminar on the licence fee on July 10, Tony Hall, the Director-General of the BBC, announced his intention to remove the commissioning guarantees the BBC currently provides for its in-house producers (50% of the total commissioning budget), ostensibly in return for BBC Production being allowed to compete for commissions from other broadcasters.

This is a good idea, but not a new one. Ten years ago, my colleagues and I on the Broadcasting Policy Group (BPG) recommended (in a pamphlet entitled “Beyond The Charter”) that BBC Production be spun off as a separate entity, allowing BBC Broadcast the full benefits of open competition in commissioning programmes for the BBC, and releasing BBC Production (the largest production unit in the UK) to serve non-BBC broadcasters, in the overall interests of a stronger creative economy. We were, by the way, widely condemned for this proposal: Jon Snow, amongst others, furiously denounced it as a plot to break up the BBC. Needless to say, the BBC dismissed it as unrealistic, unnecessary and unpatriotic.

The Hall proposal is rather more opaque than the BPG’s, in a number of ways (and Brian Winston has already pointed some of them out). Would BBC Production become entirely autonomous, or would the BBC adopt the ITV system, whereby ITV’s channels can select content from any supplier, including ITV Studios (which actually makes programmes rather than hiring out facilities, as its name implies), and ITV Studios can supply any broadcaster (eg Come Dine With Me, interminably, on Channel 4 and University Challenge on BBC2)?

Previously, where BBC internal resources were fully exposed to competition, they either were quickly shown to be loss-making, or were sold, or both. Outside broadcasts and video editing and graphics (embraced within a presentation department) went down that route, following the path set by transmission and engineering.

Remember producer choice?

When John Birt was Director-General (with Tony Hall at his elbow, as Director of News and Current Affairs), “producer choice” was introduced to force competitiveness on to internal resource suppliers. The inevitable logic was that eventually those buyers of internal resources – BBC Production – would in turn face the progressive force of external competition, as independent producers built on a statutory quota of 25% of BBC commissions, to the much higher level that their greater efficiency and broader creativity seemed likely to command.

Greg Dyke – Birt’s successor – halted that process, but his own successor – Mark Thompson – opened up a second tier of 25% of commissions in what was clumsily called the WOCC (“window of creative competition”): which still left a minimum of 50% reserved for in-house producers. But a problem not foreseen by those who had created the original 25% quotas for all the major UK broadcasters was that consolidation in the indie sector would take some of the best suppliers out of the definition of independent (that is, with no more than a minority stake owned by a broadcaster). As the major US media conglomerates bought up large swathes of the indie market, they soaked up most of the WOCC (as they did not qualify for the “pure” 25%, and obviously were not eligible for the reserved 50%).

A hidden agenda?

Open competition will inevitably drive down the proportion of BBC commissions captured by BBC Productions (whether spun off or retained as a unit). The inexorable logic will be that whatever financial losses BBC Production currently suffers (if they can even be measured) will be enlarged and thrown into high relief by the “compare and/or compete” mantra adopted by Hall. There will be major job losses: indeed, it is hard not to conclude that Hall’s belated conversion to the BPG idea is little more than cover for obtaining significant cost savings. That is the damaging legacy of the notorious 2010 licence fee settlement which inflicted a 26% reduction in BBC spending power.

If that reading is correct, or widely believed, the deep resentment at BBC management felt by its 20,000 staff will only be exacerbated: Lucy Adams, until recently the BBC’s Director of Human Resources, revealed the depth of this hostility in a speech delivered a few days after Hall’s. But that is not the only factor complicating the seemingly unobjectionable desire to obtain best value for licence fee payers and more opportunities for the BBC’s creative staff.

What Hall left in the small print of his presentation is that this promised land of transparency will only be entered if the BBC’s licence fee is renewed for a further lengthy period. That is a deal point ministers should quickly scotch: if you think this is such a good idea, Tony, power to your elbow – but don’t imagine you can avoid the issues around the financing of the BBC by pulling this card from your sleeve. (I will deal with “the BBC’s 40 lies about subscription” in my next post.)

Let’s talk “big”

Coincidentally, almost as soon as Hall had launched his initiative, Rupert Murdoch grabbed the headlines with his latest audacious corporate manoeuvre: a proposed $80 billion acquisition of Time Warner, the only provider of filmed content in the US comparable in size to Murdoch’s own 21st Century Fox. Such a merger – if accomplished, which would require overcoming resistance from the Time Warner board – would be just another in the consolidation process which characterizes the US media scene. Most such consolidation is vertical: Comcast cable bought the NBC channels it would otherwise pay to carry, which in turn had bought their most important suppliers, Universal and Wolf Films. This one is lateral, trying to ensure that no cable or internet operation, however large, could muscle favourable terms for content supply out of Fox.

Ironically, Time Warner is only “in play” because its board pursued a divestment strategy designed to reduce sprawl and build shareholder value (which it certainly did): but, in doing so, it made itself a target – and, indeed, it recently bemoaned the planned acquisition by Comcast of the cable division it spun off, Time Warner Cable, fearing that an even more powerful Comcast would impose less favourable terms for Time Warner’s content offerings.

On the same day as the Warner bid became public, another Murdoch-controlled business, BSkyB, sold a major stake in the UK’s largest advertiser-funded broadcaster, ITV, to Liberty Global – run by Murdoch’s long-term antagonist, John Malone, who recently bought Sky’s cable rival, Virgin Media, for $15 billion. What is going on there? Sky bought 17.9% of ITV ten years ago, rather expensively, precisely in order to prevent Virgin Media pursuing a purchase of ITV (UK media plurality rules forbade Sky itself buying ITV). Sky was eventually forced by the competition authorities to divest most of its ITV stake, for a massive loss, but has now recouped some of that loss (thanks to a recent recovery in the ITV share price) in disposing of nearly all (6.4%) its remaining stake. It is true that Virgin Media is these days run by a former Murdoch executive, but the truth is that – if anyone is going to buy ITV – Sky would rather it were Virgin Media than its new arch-rival, BT (for whom it is an obvious target).

So which way is up for the Beeb?

The BBC often complains that it is just a minor player in the rapidly enlarging UK media scene. So does shrinking or divesting its production arm make sense? After all, Channel 4 has often expressed regret that its publisher-broadcaster model excludes it from many of the ownership benefits in relation to programming whose value it has helped build through its commissioning, scheduling and marketing.

Little noted in the light of the Time Warner bid was another announcement from Fox: that it was merging its TV production and TV broadcast businesses. This move seems to be a response to weakening performance by the Fox entertainment channel, as its main hit, American Idol, continues its decline. The ostensible rationale is to squeeze the maximum value out of content created by the production arm, through the many exploitation windows available these days, especially domestically. Remarkably, over 90% of all the shows broadcast by the main US channels are currently commissioned from their own production arms: so much for “compete and compare”.

This is not the first time Murdoch has pushed these two businesses together: he did the same 15 years ago, only to split them again 5 years later. But then Murdoch is the least doctrinaire of media moguls. What works now may not work in the future. Yet maximizing the value of the content funded by the licence fee has always been the main argument for retaining a major in-house production arm at the BBC.

Almost certainly what has changed for the BBC is the need to cut costs. In-house production is simply less efficient, by its nature, than independent production, and the supposed “value” generated by BBC Worldwide in exploiting BBC intellectual property is heavily eroded by the excessive costs involved in its production. Interestingly, a key executive at BBC Production, Gary Younge, has publicly called for the production business, if divested, to be merged with BBC Worldwide. Ten years ago, as it happens, the BPG called for Worldwide to be divested anyway, so as to bring greater transparency into the way the largest UK distributor serves the UK creative economy. Deja vu.

A former BBC programme executive, Giles Oakley, has noted that the likeliest victims of Hall’s initiative will be the very BBC producers who joined the Beeb to make the kind of content the market would never supply. A more competitively driven BBC supply system is likely to make the BBC more efficient (offering the much-touted “better value for the licence fee payer”): but also more imitative of the market. So can the BBC retain its public service distinctiveness (such that remains) whilst edging ever closer to market-mimicking?

A $10 billion trifle

One area of production Hall explicitly stated would remain in-house was news. Indeed, he has previously expressed his ambition to double the size of the world audience for BBC News from 250 million to 500 million. How galling, then, to see the biggest overseas rival to BBC News, CNN, treated as a disposable trifle in a Fox-Warner tie-up (even Murdoch can see you cannot own both Fox News and CNN): a trifle valued at up to $10 billion!

By international standards, the BBC is a commercial tiddler – even Worldwide is probably worth little more than $3 billion (small change in the Fox-Warner context), and a third of that is attributable to a 50% stake in the commercial UKTV channels (a business most BBC executives wanted nothing to do with 23 years ago when it was first brought to them by Thames Television). Yet by UK standards, the BBC is still in many respects dominant: the largest producer of content, the largest distributor of content, the most viewed TV channel provider, the most listened-to radio provider, overwhelmingly the main provider of news consumed in the UK.

As Tony Hall struggles with the issues of scale and scope, efficiency and transparency, public service and value for money, funding certainty and accountability, he must wish he had the freedom of manoeuvre of a Murdoch. And as he contemplates an imminent retirement date (he already started drawing his BBC pension three years ago), he must marvel at the seeming unstoppability of Rupert, a mere twenty years his senior.

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