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The BBC no longer washes whiter

About the author
David Elstein is Chairman of the Board of openDemocracy Ltd. He is also Chairman of the Broadcasting Policy Group. He is a director of Kingsbridge Capital Advisors, and a supervisory board member of two German cable companies. He has also chaired Sparrowhawk Media, the British Screen Advisory Council, the Commercial Radio Companies Association, Really Useful Theatres, XSN plc, Sports Network Group, Silicon Media Group, Civilian Content plc and the National Film and Television School. He was also a director of Virgin Media Inc and Marine Track Holdings plc. Previously he launched Channel 5 as its Chief Executive, worked for BSkyB as head of programming, was Director of Programmes at Thames Television, Managing Director of Primetime Productions and Managing Director of Brook Productions Ltd. His career as a producer/director started at the BBC in 1964, and his production credits include The World At War, This Week, Panorama, Weekend World, A Week In Politics, Nosenko and Concealed Enemies. He has been a visiting professor at the universities of Westminster, Stirling and Oxford, having been the inaugural Visiting Professor in Broadcast Media at Oxford in 1999. His six lectures there were entitled "The Political Structure of UK Broadcasting 1949-99". He was the lead author of the Broadcasting Policy Group's 2004 publication, "Beyond The Charter: The BBC After 2006". He has been external editor of the Media&Net theme of openDemocracy.
In the first issue of openDemocracy, Andrew Graham offers a seductive version of the case for public service broadcasting. It is pitched outside the specifics of any territory – using terms such as “market failure”, “merit goods”, “public goods”, “externalities” and so on. I wish I could be as purist in response, but inevitably will need to refer to the UK experience from which Andrew clearly draws, if only to rebut in concrete terms some of the wishful thinking of his generalities.

Rooting the debate in the UK

In the UK, “public service broadcasting” embraces specific obligations placed on private channels. Andrew clearly regards this activity as an inadequate representation of the public interest. His prime emphasis is on the virtues of publicly owned broadcasters. That is the nub of the argument.

Indeed, Andrew’s is really a defense of the British system couched in the theory of the market place. He has been a major influence on British broadcasting. He partnered Gavyn Davies in writing a set of essays in 1997 that provided much of the thinking for the report by a panel chaired by Davies on the funding of the BBC published in 1999, and which supported further publicly funded expansion by the BBC.

Andrew is also a non-executive director of Britain’s Channel 4, a state-owned TV channel, which is financed by advertising, but has a public service remit – originally, serving minorities, currently shifting to the support of “innovation”.

I am going to refute Andrew Graham’s case by looking at the British context. This is not because I think the argument is not of global importance: it is. But if his case cannot be sustained in the United Kingdom – and I think experience shows that it cannot – then it won’t hold anywhere.

The costs of public service

Andrew claims to offer an economic case for public service broadcasting without once asking what level of expenditure on it could be justified. In the UK, the total cost of public service broadcasting is now acknowledged to be in the region of at least £3.5 billion every year. This includes the BBC licence fee, the BBC’s free access to valuable spectrum, Channel 4’s free access to valuable spectrum and the reduced spectrum fees charged to Channels 3 and 5 in exchange for their accepting public service obligations.

This is a vast sum of money. One could well ask what degree of “market failure” requires such a massive intervention by the state. In truth, the market has never been given the chance to fail in the UK. The public sector long pre-dated any market provision, when the BBC emerged in its current form between 1922 and 1927. Both in the provision of radio and then television, it is rooted in a past where spectrum scarcity not market opportunity predominated. Spectrum was thought of as a national resource and public asset and monopoly was conceived as the best way to ensure its use for the public good. The market was seen not so much as having failed as simply not being appropriate.

Even when spectrum was slowly released into private hands after 1945 it was surrounded with protective mechanisms: sector-specific ownership rules, content requirements and restraints. Indeed, private operators were so hedged in by non-commercial obligations that they too described themselves as public service broadcasters, so blurring the distinction between themselves and the BBC. There never has been a market in broadcasting that could “fail”.

A proper justification

I do not oppose public sector broadcasting as such. What I do not accept is that it embodies the virtues Andrew, Gavyn Davies and others attribute to it. On the contrary, it is demonstrably not the case that broadcasting which comes from the public sector is inherently superior.

To justify themselves, public sector broadcasters need to do two things: to pay a proper price for their spectrum (so as to prevent market distortion) and to be funded by consent (that is, either advertising or subscription but not a licence fee). To put it another way, for publicly funded broadcasting to be able to justify itself as a public service, it needs to offer the public good value for money – which would be reflected in take-up if subscriber funded.

Instead, in his effort to avoid allowing viewers to decide what is in their interests, Andrew Graham presents a three-fold case for public sector broadcasting in terms of: production, consumption and democracy.

A new monopoly?

With respect to production, he concedes that scarcity of spectrum meant there could not be a proper market in analogue broadcasting. He then insists that the coming digital revolution will also lead to monopoly if left to commercial interests, but of a different kind. Now, we are told, the problem that has to be counteracted is monopoly due to the price of entry into the marketplace.

It is true that economies of scale exist in broadcasting, and digital allows new forms of ownership convergence – market conditions that might justify public intervention. Yet barriers to entry are far lower now than they ever were, there are many new entrants to the UK market alone every year, and the penalties of over-ambitious mergers (undigested component companies, internal feuding, historic incompatibilities) are increasingly evident. The collapse in the market value of AOL/Time-Warner since the merger was announced is salutary.

The end of spectrum scarcity has at long last allowed consumer preferences to be meaningfully expressed. The success of scores of new channels – not dependent on any public funding or spectrum allocation, but surviving on subscription and advertising revenues – is testimony to the failure of public service broadcasting, both in its pious claims and its blinkered view of the world.

Public dross and private quality

With respect to consumption Andrew describes broadcasting as including “merit goods” – those that we might consume less of than is good for us if left to the market. Yet all our experience tells us that publicly owned broadcasters produce their fair share of dross, while privately owned broadcasters are more than capable of turning up with “merit goods”, defined technically or literally. And is the total supply of “merit goods” in broadcasting worth the huge subsidy that the public service system currently enjoys? Is there no more efficient way of delivering such material to the consumer?

The market failure argument also assumes that consumers are inadequately informed, and need public provision to counter this effect. Again, this theoretical objection looks pretty unconvincing in practice – the vast majority of television viewing is to programmes and services with which consumers are clearly thoroughly familiar and between which they are well able to discriminate. And again, even if there were some marginal truth in this point, one must ask what level of intervention is required to correct it.

Andrew talks of “externalities” – undesirable by-products of broadcasting such as violent or pornographic content. Yet there is abundant evidence that the UK’s publicly owned channels include in their schedules their fair share of violent or sexual content (pornography as such is barred by common law and industry-wide regulation). And there is no evidence that the existence of the BBC and Channel 4 serve to reduce the amount of such content on privately owned channels.

Nor is there evidence that different “purposes” inspire BBC producers and commissioning editors. This may be true at the margin, but 90% of the output on BBC1 and BBC2 is indistinguishable from what appears on commercial television. BBC executives are just as ratings-conscious as their commercial competitors while Andrew’s touching belief that BBC soaps are somehow different in kind from private sector ones will, I suspect, have to wait a long time to be justified in aesthetic theory.

Independent of the state?

Finally, Andrew proposes that public sector broadcasting is essential for democracy. But it is simply naïve to define it as being independent of the state. His approach requires us to forget a large part of broadcasting history. The BBC’s experience is that such independence is very hard to establish and maintain. When your finances depend – directly or indirectly – on government decisions, there is an inevitable tendency to keep close to the decision-makers. Indeed, there are countless examples of BBC behaviour being the direct opposite of the independence Andrew advocates: but very few from the private sector.

This is also reflected in editorial integrity. It was not the BBC but its commercial competitors who broke the long diplomatic silence over discrimination and gerrymandering in Northern Ireland. Nor are public sector broadcasters perceived as more transparent or neutral than private ones. The BBC recently admitted that only 34% of those surveyed thought it “accountable”. And ITC surveys have consistently reported the public view of BBC News as less impartial than ITN or even Sky.

Perhaps the most puzzling of Andrew’s arguments is that public sector channels are needed to counteract the audience fragmentation caused by the rapid expansion of channels. Unless the laws of mathematics have been suspended, it seems to me that publicly owned channels – unless they have no viewers – can only add to the fragmentation process. In any event, the disadvantages of fragmentation – in the democratic, economic or cultural terms used by Andrew – are far from being self-evident.

In general, Andrew ascribes to “the market” all kinds of theoretical behaviour not necessarily evinced in practice. He talks of the “untrammeled” market – which of course does not exist in broadcasting – and of a market that “does not care” and which produces no responsible or quality products. Clearly, the citizen’s “right not to be misrepresented” (in Andrew’s language) does not extend to private sector broadcasters!

Market failure

But where Andrew is silent is on the well-established deficiencies of public sector broadcasters themselves in terms of costs and value for money. Two decades of “slimming down” at the BBC have reduced staffing from a bloated 25,000 to 24,000 employees. Meanwhile, it is still engaged on what its former Director-General described as its “imperial march” into new digital territory – more channels, more services, more costs.

The BBC’s underlying funding structure – a compulsory flat-rate licence fee of over £100 a year levied on every household with a TV – is inherently regressive, consequently unpopular, and is dependent for survival on Downing Street goodwill, which in turn compromises the BBC’s independence.

The new services compound this unhealthy situation: funded by the licence fee, they constitute a £200 million annual forced transfer from the poorest fee-payers (who cannot afford digital television) to the wealthier ones (who can). The BBC understands the profound unfairness of this: but still prefers corporate expansion to social justice.

Channel 4 is in the same game. Its staff numbers have quadrupled since launch, despite its core obligation – running one public service channel for minorities – being unchanged. In 1999 alone, its overhead costs increased by 30%, driven not just by staff numbers, but by exceptionally generous salaries and fringe benefits.

I have written about both providers elsewhere but here is just one recent example of the public waste which takes place in the name of public service. Channel 4 has a statutory obligation to return half of any surplus cash it generates to the Treasury. Instead, it consistently finds ways of spending its surplus on ventures of dubious value and legality. A whole new loss-making service, E4, has been created, apparently to absorb the pay television rights of two US series (Friends and ER) bought at a cost of over £100 million. Small wonder that the Conservative Party has called for £140 million a year to be diverted from Channel 4 to more worthy cultural objectives.

The case they need to make

There is a reasonable case for public service broadcasting in the sense of asking licensed broadcasters using public spectrum to undertake specific programming obligations in exchange for reduced spectrum fees. This variation on planning gain should be explicitly costed, so that the public can see what they are getting, and at what price. Public sector broadcasters can also negotiate reduced spectrum fees (all the way down to zero) if their programming remits so justify.

A case can be made for stand alone public sector broadcasters where they offer the consumer demonstrable value for money in terms of good quality at a low price thanks to efficiency and absence of dividends. Alternatively, they must persuade consumers to pay for a set of non-market virtues, such as public service ethos, commitment to active citizenship, or absence of profit motive. Such a model might incorporate a mutual structure but in any event would depend upon subscription or advertising funding (just as do the BBC’s joint venture channels with the commercial company, Flextech).

In the future, when every TV has a digital attachment, a compulsory flat-rate licence fee will be rendered anachronistic, and subscription technology will make it easy for the BBC to offer an array of services, individually priced, which consumers can choose. Market pressure will drive out inefficiency (especially if spectrum is properly priced). Public sector status will either prove to have consumer value, or not.

This future is coming. Meanwhile, the sheer scale of current public intervention into broadcasting needs to be challenged. The BBC’s regressive funding basis has become even more regressive in the digital age while Channel 4 uses its free spectrum to fund adventures such as a horseracing channel. Evidence from around the world does not suggest that other countries have developed public sector broadcasting which is an improvement on Britain’s.

The presumption that public sector broadcasting offers inherent superiority is very far from being demonstrated, by Andrew Graham or anyone else. Indeed, the clear failure of their arguments lends force to the opposite presumption.

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