Fairer, better quality, more dynamic: the end of the licence fee and the case for subscription

The retention of the unique licence fee system for funding the BBC has sustained a lot of criticism in recent years, but with 95% of British households paying the fee, the defence usually centres on its guarantee of universalism. Is that a misnomer - and would a subscription model not be better for everyone?

David Elstein
2 July 2012

At the ourBeeb session with Greg Dyke, the former Director General expressed real anxiety about the 2010 licence fee settlement that had been accepted by the BBC. What were the three greatest problems facing the Beeb, he was asked?  "Money, money and money."

With the licence fee frozen in nominal value till 2017, with inflation potentially averaging 3% annually, and with hundreds of millions of pounds in extra spending obligations (the World Service, S4C, broadband roll-out, local TV, BBC Monitoring), the squeeze on every area of output would in Greg's view be deeply painful, especially as the BBC had ruled out the closure of entire services.

Greg also noted that the progressive adoption of internet-connected TV would once again change the context in which the BBC operated. Indeed, as more and more people - especially young people - watched television on their computers, and abandoned old-fashioned TV sets, enforcement of the licence fee might become problematic.

Liz Forgan was untroubled by the prospect of the BBC being forced to make cost savings of 5% a year for seven years in a row. In her view, the BBC had always been too well padded (and she spent several years on its board of management): but the vulnerability of the licence fee made her wonder whether this was not time to consider switching to something she had previously rejected: subscription.

She turned to me - for the obvious reason that this is the form of funding the BBC that I have advocated for nearly 30 years. Greg was quick to say that he thought the BBC would be better off in terms of income under a subscription system - a view shared by his immediate predecessor as Director General, John Birt. But both of them still preferred the licence fee because it guaranteed universal availability of BBC content. 

John Birt's view was that the very people who stood to benefit most from a licence-funded BBC - children from working-class families, lacking the cultural breadth enjoyed by middle-class children - were the ones most likely to find their parents opting out of paying for the BBC if they had a choice.
Helena Kennedy expressed a very similar view. So I felt obliged to point out that universality - the virtue to which she and Greg were appealing - only applied to the obligation to pay the licence fee.  There was no obligation actually to view any programmes. It is important to understand the difference between universality, legitimacy and accountability.

There was no opportunity at the Greg Dyke session to explain what I meant by this. Universality is a rather late recruit to BBC dogma: Right up until the BBC monopoly on TV broadcasting was broken in 1955, the BBC would never have mentioned the word. After all, its services were explicitly targeted at those willing to pay, and as some services, such as television in its early days, were not available throughout the country, it made absolute sense to connect programming provision to individual payers, not universal consumers.

That clear link was broken when ITV was introduced in 1955. At that point, the TV licence fee became a pre-condition of watching any TV, not just BBC TV, and a crucial link of accountability and legitimacy was broken. Fortunately, there was no part of the UK where ITV was available and BBC TV wasn’t. Yet the theory of universality - such as it was - was still a long way in the future.

All fees to the BBC remained service-based. Radio involved one fee; television another; and when colour was brought in, an extra fee was payable by those who wanted colour: so it was rather like Sky's present-day pricing - basic fee, then premium, and extra for high definition. 

Eventually, it became inefficient to charge a separate fee for radio - but that was an economic decision, not one based on a theory of universal provision. Today, the vast majority of households have a TV licence, and pay the full colour television fee - few people even know there is a lower fee for black and white reception. Yet even as recently as 12 years ago, the BBC was proposing to charge a differential digital licence fee for its new digital services, such as BBC3 and BBC4.  

So the theory of universality is very much an ex post facto justification for the licence fee; and the fact that BBC radio is available for anyone, without the need to pay any fee, confirms that universal availability is not specifically connected to payment of the licence fee. This is something that Tony Ageh probably does not fully understand about the BBC's history, which explains why his attractive vision of a digital space does not reflect the BBC's actual economics. The BBC has a flourishing DVD business in the UK, and a legal agreement for programme supply to the pay-TV service UKTV (which it half owns). It is not going to abandon those revenue streams in pursuit of opening up its archives for free access to all-comers, who would have to include non-payers of the licence fee, licence fee evaders, distributors of commercial content who currently licence expensive clips from the BBC, and tens of millions of non-UK residents eager to freeload on the backs of genuine licence holders.

Strictly speaking, Sky TV's "availability" is near-universal, in technical terms: you just have to pay a subscription to receive Sky, which in theory is no different to paying a licence fee to receive TV at all.  The only real difference is that you have to pay the BBC licence fee before you can legally receive Sky programmes, but not the other way round.  

There are two claims made for subscription as a means of funding the BBC which bear on accountability and legitimacy. The first is very obvious: if people choose not to pay for the BBC, it must say something about either the quality of the BBC's services, or the price being asked for them. At the moment, that clearly cannot apply to a licence fee which says nothing about quality or price.

The second is in some ways the obverse of the first: if people choose to pay for your services, that must say something about the legitimacy of your claim to be offering quality output. Of course, consumer choice is not the be all and end all of broadcasting, particularly public service broadcasting. But the fact is that the great majority of all BBC TV output is very similar to that provided by commercially-funded broadcasters, including Channel 4 - it can't be argued that this special form of funding delivers a special type of content.

The two most common arguments against subscription are that it explicitly excludes non-payers, and that the pressure of seeking subscriber approval would distort the BBC's priorities.

The exclusion point is a puzzle. If people choose not to pay for something, is it reasonable to claim they have been "excluded"? Is it actually better to force people to pay for something, even if they may not want it, on penalty of prosecution if they fail to do so? The paradox of this critique is that subscription would almost certainly make it cheaper for poorer households to receive BBC output, partly because single-set households would only pay a fraction of the amount that households with many TV sets would have to pay if they wanted the BBC available on all their televisions.

As for pressure on the BBC to make certain types of programmes, what is beyond dispute - indeed, the BBC says so itself - is that the licence fee mechanism forces the BBC to make "something for everyone", and to pursue a programming policy that maximises reach and audience share. The logic of such a policy is clear: if the BBC share of viewing fell too far, the political viability of a compulsory licence fee would be thrown in to doubt.

By contrast, subscription systems are largely immune to the pressures of audience share and reach. The key to success is to have enough quality programmes that subscriptions are not cancelled, however little actual viewing of the service takes place. That is why I have long argued that subscription systems are "highest common factor" whereas licence fee funding inevitably tends towards "lowest common denominator". The spectacular creative success of HBO and several other US subscriber channels supports this analysis.

For me, the biggest question that arises from any discussion of whether to replace the licence fee with subscription is what would happen to the public service content that the BBC unquestionably produces at the moment.

If Dyke and Birt are correct in predicting that the BBC would thrive if funded by voluntary subscription, it is open to government to insist on a set of public service commitments that would have to be fulfilled if the BBC were to retain the highly valuable broadcasting benefits it currently enjoys, such as the first two places on all electronic programme guides, and the dominant position in the digital terrestrial multiplex system.

So it would be possible, in my view, to require the BBC to make its core news and children's services available at no cost, even to non-subscribers. Another obligation might be to continue to provide radio services at no cost to the consumer. However, beyond that I have long advocated that such a switch in funding mechanisms should be accompanied by the creation of a contestable public service content fund, to which the BBC could make bids, just as other broadcasters and new media outlets might do.  

My working assumption has been that the VAT generated by switching to subscription would be the natural basis for supporting such a public service content fund. So, all in all, subscription is not only fairer to the poor, equitable in allowing consumers choice, practical in allowing the BBC to prosper by participating in the most dynamic form of broadcast funding, predicated on incentivising quality rather than maximizing viewership, but also superior to the licence fee in allowing accountabilty and providing legitimacy.

Against all that, the somewhat spurious claim that the licence fee guarantees universality needs to be treated with some caution. It certainly should not be decisive in settling the argument.

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