ourBeeb

A Freedom of Information request, the BBC, and the case for subscription

The BBC’s paternalistic conflation of the license fee with universalism is increasingly indefensible against competing examples of public service programming. While the organisation is tight-lipped about the future of its funding model this information must be made available to those who currently foot the bill. 

David Elstein
27 July 2012

Dan Hancox is encouraging us to submit queries to the BBC under the Freedom of Information Act: an enterprising initiative I fully support. However, there is a little bit of history here, from July 2009, when Tony Curzon Price submitted an FOIA request to the BBC.

He asked for “any internal documents concerning the future of the licence fee and the BBC iPlayer”, including “any documents relating to measures to tackle licence fee evasion on the iPlayer, including a subscription service, an extra licence for the iPlayer and increasing the cost of the licence fee”.

He finally received a full response in March 2010, nine months later. Why the delay? The BBC was understandably not willing to disclose its strategies for dealing with licence fee evasion, so some of the 16 documents eventually offered had been redacted. It was also not willing to disclose any detailed legal advice about how and whether the use of computers to watch BBC content on the iPlayer – but not live – might need to be drawn into the licence fee regime: an issue Greg Dyke mentioned at his session with ourBeeb.

Most of the documents disclosed were internal emails from May to July 2008, but there appears to have been no internal discussion about moving from the licence fee to subscription funding (which would overtake the iPlayer issue) since – wait for it – May 1995, seventeen years ago, when an internal think tank concluded that “subscription is inevitable eventually, so we must start to look at how we will sell the concept”.

Of course, this cannot be the whole story. We know from the period of the 1999 Davies Committee Report on the future funding of the BBC that there was a strong internal debate about whether additional BBC digital channels should be paid for out of the basic licence fee, or only by owners of digital TV equipment.

The first option was less risky, and preserved the somewhat tenuous notion that BBC services needed to be universally available, not restricted by a fee structure. The second seemed much fairer, as it made those who were willing to invest in digital hardware pay for the additional services that only they would be able to view, and did not penalise those who either could not afford to upgrade to digital, or did not want to do so. 

Of course, the question begged by this debate was why the BBC needed to launch new services, anyway. The answer was that the institution could not risk being stuck in analogue transmission mode, at a time when the far greater channel choice promised by digital technology was being rolled out. BSkyB was planning a rapid transition to digital, and cable companies were likely to follow suit. Government was keen to avoid Sky gaining pre-emptive control of digital TV, and had encouraged the launch of DTT (Digital Terrestrial Television), in which the BBC has been allocated some prime spectrum.

New BBC services – a 24-hour news channel, a dedicated children’s channel, a youth-oriented channel, a Parliamentary channel and an up-market “knowledge” channel – were seen as essential to DTT take-up, but a one-off uplift in the licence fee to finance them was politically too risky.  Either the BBC must swallow the cost, or find additional finance itself.

Meanwhile, the two leading ITV companies, Granada and Carlton, were encouraged to launch a pay-service on DTT, in competition with Sky and cable: a disastrous venture which cost them over £1 billion before it collapsed.

The chair of the committee of inquiry into how the BBC should solve the funding dilemma was the City economist (and close friend of New Labour) Gavyn Davies. His committee plumped for a digital licence fee, following the precedent of an additional fee on top of the radio licence when television was first introduced, and a supplementary fee when 625-line sets were launched which could receive colour broadcasts. To this day, there is still a difference between a black-and-white TV licence fee (£49-00) and a colour TV licence fee (£145-50), although the separate radio fee has been abandoned (costing more to collect than it was worth).

This recommendation must have caused some serious head-scratching in the BBC. After all, it had just commissioned, as part of the Davies process, a report on pay-TV from the now defunct consultancy, London Economics. The report’s outspoken political hostility to subscription can be read as part of the FOIA disclosures from the BBC. It says:

“Since the premise of subscription television rests on the exclusion of non-paying viewers, it is incompatible with the fundamental principle of a public service offering, which entails universal availability and accessibility. This would imply that none of the BBC public services could ever be offered on a subscription basis without ceasing to be a public service.”

By this definition, even the licence fee is surely illegitimate – insofar as failure to buy one excludes the non-payer from access to any television services. The notion that pay-TV services actively want to exclude people is, of course, grossly misleading. Anyone who wants to subscribe can; anyone who doesn’t want to subscribe is free not to do so.

Specifically, the London Economics report seemed to argue that any separate charge for digital channels would disqualify them as public services: not a position the BBC could adopt as it announced its readiness to accept the Davies panel’s decision. But then ITV and Sky lobbied Tony Blair hard to block the digital licence fee, on the grounds that it might inhibit the take-up of the digital technology on which they had placed large bets.

The digital licence fee died, not because it was wrong in principle, but for reasons of short-term vested interest (of course, Sky might also have calculated that a pathway to subscription funding for the BBC might not be in its own long-term interests: a BBC competing for subscription revenue would be formidable).

So the BBC absorbed the cost of the new services within the basic licence fee. Gavyn Davies subsequently became chairman of the BBC, and in due course published an economic welfare justification for the licence fee, based on research commissioned – as the BBC had often done in the past – from outside consultants (not provided in the FOIA pack, presumably because the results have already published).

As previous exercises demonstrated, a large majority of those questioned were happy to pay for the BBC voluntarily, at the level of at least the licence fee. Most of this majority were willing to pay a good deal above the licence fee level, just to retain access to the BBC’s TV services. A minority would choose not to subscribe to the BBC, if the cost were equivalent to the licence fee: not surprising, given that 6% of homes deliberately evade the licence fee currently, and 2% claim not to have a television set.

In this version of welfare economics, choice is ascribed zero value, and the compulsion involved in forcing people to pay the licence fee if they want to watch any television, but would be happy to do without BBC television, does not register as a welfare loss. On this logic, however few people choose to opt out of paying for (and receiving) BBC television, those willing to pay voluntarily for the BBC would either receive a worse service (if the charge were no higher than the licence fee), or they would pay more for the same service. The net result – inevitably – would be a “welfare loss” for the majority that would be bound to outweigh the “welfare gain” of money saved for the opters-out.

This kind of voodoo economics is embedded in the documents disclosed under Tony’s FOIA application. A 2004 report commissioned from consultants Human Capital showed that 81% of those polled were willing to pay at least the level of the licence fee to keep the BBC, and that most of these would pay significantly more. (Human Capital falsely interpreted this as overwhelming support for the compulsory nature of licence fee itself, rather than for the acceptability of the present cost of having BBC TV, but let that pass.)

The revenue-maximising monthly fee turned out to be 30% above the licence fee: but even that would – almost inevitably – leave the BBC with lower revenue, because nearly 40% of homes would drop out at that level. Of course, this calculation, with its loaded assumptions, results in the predictable outcome that “those who choose to subscribe would end up paying more than the current licence fee for a lower standard of service”.

The problem is that the “single fixed fee” for all current and future BBC services is a non-starter of a scenario. The strongest likelihood is that a basic BBC service would be offered at a discount to the current licence fee, with layered options above that level, including new premium services, such as arts and sport. Moreover, as each television would require separate enablement, and the average household owns three sets, the higher income strata would take out more than one subscription (at a discount, as with Sky and Virgin Media).

Nor does it make sense to assume that, if BBC television were funded by voluntary subscription, those who choose to pay would agree to subsidise BBC radio, which absorbs some 20-25% of all BBC content costs. If government wants BBC radio to be provided to all at no cost, it must pick up the tab. Likewise, some of the BBC’s public service television output should be paid for out of a contestable public service fund.

As it happens, my working assumption has always been that the VAT charged on BBC subscriptions (which would bring the average cost for subscribers up to around the current licence fee level) would be enough to finance such a fund. This would disentangle the current confusion, whereby a compulsory tax on televisions funds both entertainment (which should be paid for by consumers voluntarily) and public service content (which is properly a charge on central tax receipts, along with other arts and educational ventures).

The overall result of this separation of revenues and charges cannot be precisely predicted: but the one-dimensional straw man version offered by Human Capital and other such loaded exercises can certainly be discarded. Given that the average individual spends nine hours a week watching BBC television, the chances that 40% would give that up that habit in order to save what might be as little as £5 a month seems low.

One such survey commissioned by Ofcom concluded that a BBC funded by a flat rate subscription would earn just £113 million a year – a tiny fraction of its current licence fee income. As HBO, in a fiercely competitive US market, earns twelve times that amount, whilst attracting just 1% of total US viewing, it beggars belief that the BBC, with a 32% viewing share, and an array of addictive programming, would do vastly worse, even in a much smaller – though much less competitive – market. It is worth noting that the two most recent Directors-General of the BBC believe that the BBC would earn more from subscription than from the licence fee.

What is odd about all these attempts to “prove” that the BBC could not survive without the licence fee is that they “prove” something very different: that only the threat of prosecution and a criminal record keeps the BBC funded in its present form. Yet what does this entail? A magistrate wrote to The Times in 2003 about her intense frustration with the persistent targeting of the poorest sector of the community by the licence fee enforcers.

Mrs Joan Horton, in her letter, said:

“As a JP, I have for 20 years had the difficult task of sentencing TV licence defaulters, followed some months later by the often hopeless task of fine enforcement. Unlike other offenders, TV licence evaders are predominantly female, many of them benefit recipients with children. The majority are single, struggling to keep their families financially afloat. Food and electricity tokens often take priority over a weekly TV licence payment.

Last week in the fine default court I adjudicated on just such a case. A woman had had two licence evasion fines plus costs imposed within a short period. Her income, rent arrears and general circumstances meant there was no hope of extracting the whole sum. A bailiff’s visit had been unproductive as she had no assets worth taking. We had to remit a large part of the fines and costs, so as to leave a more manageable sum that would take a year to clear at £2 a week. What a waste of public money and court resources.

Surely this system is a nonsense. Other than to collect the fee, there is no public interest need for TV set owners to be centrally registered. Licence fees cost millions each year to collect, plus further huge sums from the taxpayer for fine enforcement. There is also an inequity in being forced to pay for one service before being permitted to use any of its many competitors.

The BBC is a public service. As such, it could receive a grant directly from the Exchequer, with its editorial independence protected by statute. With the millions saved on collection and enforcement, the compensating adjustment to income tax would be tiny, with most households breaking even. Vitally, thousands of low-income households would be relieved of an onerous burden. The forgetful and disorganised would not be criminalised. Hundreds of hours of court time could be freed to reduce the oft-complained-of delay in hearing trials."

Notably, in its reply to Tony’s FOIA request, the BBC emphasised that “the BBC/TV Licensing does not prosecute except where it is in the public interest to do so...a magistrate would not permit a prosecution to take place if there was not sufficient evidence and public interest.”

These weasel words are deliberately misleading. Licence fee evasion is an absolute offence. There is no defence available once the facts on non-payment have been established. Magistrates have no discretion in the matter. Indeed, because of the sheer volume of prosecutions – 150,000 a year – the coalition proposes to remove magistrates from the process where a plea of guilty is submitted. The courts will simply rubber stamp the BBC/TV Licensing decision to criminalise all the people Joan Horton so eloquently describes.

My first proposal to George Entwistle, who is due to take over as Director-General of the BBC in September, is that he spend every Monday morning in a magistrate’s court until he has heard 4,000 evaders being convicted (enough to pay his annual salary). The money the BBC earns from the prosecution process is a trivial 0.3% of its total income, and costs a good deal more than that to collect. The whole point is to intimidate the poor by – as Joan Horton says – criminalising the forgetful and the disorganised.

But this is not the most hypocritical aspect of the BBC’s aversion to any alternative to the licence fee. The Human Capital report somewhat pompously asserted that “it is simply not appropriate to incentivise the BBC to focus on delivering value to the better off”. Yet this is exactly what the BBC does, day in, day out. As the Human Capital research showed, a majority of people would be willing to pay more for the BBC than they currently do: but the cost to them is deliberately kept down by forcing millions of people to pay the licence fee who would prefer not to, even if that meant giving up BBC TV, or who can only afford a reduced price for BBC services.

Exactly the same can be said of the decade of BBC provision of digital channels ahead of digital switchover (which will be completed later this year): for years, all the people who were able to afford the upgrade to digital were subsidised by those who could not or did not do so – a further example of how the claim to “universality” of provision is regularly compromised by differentiation of service.

The peculiar nature of some of the arguments commissioned by the BBC to discredit subscription can sometimes be risible. Human Capital imagines two children, rich A and poor B, who might be candidates for a trip to France. A has probably already been, so B would probably benefit more. “A profit-maximizing pay broadcaster” would send A (presumably because A’s parents can afford to pay more), whereas the BBC should always be looking to send B.

Why a subscription-funded publicly-owned BBC would be “profit-maximizing” (Channel 4, a publicly owned commercial broadcaster, does not “maximize” profits) is unexplained. Why only one trip to France is available is also unexplained. As we know from endless studies, the BBC actually “super-serves” the middle class – just think about Radio 4, paid for by the TV licence fee, forcibly extracted from the poorest of the poor on pain of criminalisation, and overwhelmingly middle-class in its tone and audience.

The putative trip to France reminds me of an old story about BBC audience research. An enthusiastic BBC producer wanted to encourage visits to France, by making a series of programmes about travelling there. He commissioned “before and after” research into willingness to visit France. The research showed a diminished desire amongst those who had viewed the series. They had been put off by the realisation that people in France spoke French.

There is a strong element of paternalism in the anti-subscription argument. Human Capital warned that adopting voluntary payment would mean that the “power of universality would be lost” – a phrase eerily echoing Lord Reith’s reference to “the brute force of monopoly”, which allowed the BBC to pursue its cultural agenda in the days before there were any other UK broadcasters.

Without this “power”, argues Human Capital, “a non-universal BBC would not be able to carry out its citizenship roles, including support for democracy, education, culture and social cohesion”. Quite why a non-universal BBC would be unable to “support democracy, education and culture” (I can do without the social cohesion, thank you) is not clear. Of course, the BBC’s reach and audience share would diminish without forcible funding and distribution, but that does not entail abandoning its public service content (even if it were differently funded).

Arguably, this “power of universality” is a bigger problem than the supposed gains from universality are a benefit (especially given the very substantial social costs of those benefits). We have in recent years seen the BBC significantly increase its share of news consumption, at the expense primarily of ITN and commercial radio news.

Over 60% of all news consumption is now of BBC content, and despite the vast increase in the number of news sources, that 60% figure is likely to rise: the only news source where the BBC does not feature is newspapers, whose share is in freefall. Even in news sourced from the internet, the BBC has a commanding 47% share.

The report from London Economics (written in 1999) carefully examined the future prospects for pay-TV, to see what marginal opportunities there might be for the BBC, given that substituting subscription for the licence fee itself was forbidden territory. Using estimates from specialist media firms, it predicted a steady rise in pay-TV homes and revenues through to 2005, but failed to look beyond, believing that the trend line would flatten out. In fact, the £3.7 billion of revenue forecast for 2005 has turned into nearly £11 billion in 2012. By choosing to exclude itself from the fastest growing revenue stream in UK broadcasting, the BBC effectively settled for second-class status.

When BBC employees are fired by the thousands as a result of the last licence fee settlement, and when programme budgets inevitably suffer the squeeze that a reduction in real revenue of at least 20% inflicts, perhaps discarded staff and short-changed viewers will reflect on the massive lost opportunity that resulted from clinging to an outdated funding mechanism and an ill-thought-through ideology.

That ideology underpins one of the BBC’s most successful initiatives – making available at no charge through the iPlayer, for a limited number of days, all its broadcast content immediately after first transmission. For millions of people, the easy way to watch BBC content – without paying a licence fee – is through the stored content on the iPlayer. Of course, the rules require that you own a TV licence if you watch any live broadcast, not just the BBC’s: but all the major channels now have their equivalents of the iPlayer, so the scenario implicit in Tony Curzon Price’s FOIA inquiry remains a possibility.

That is why many people expect a crunch will come should the BBC seek political support for legislation requiring all owners of computers, laptops, tablets and even smart phones to hold a television licence, on the grounds that they are all technically capable of receiving live broadcast signals. That, of course, was the point of Tony’s original FOIA request, for which a proper response would be very welcome.

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