public service broadcasting in the digital age

Economic viewpoints

© Institute of Economic Affairs 2005. Published by Blackwell Publishing, Oxford

Blackwell Publishing, Ltd.

P U B L I C S E R V I C E B R O A D C A S T I N G I N T H E D I G I T A L A G E

David Elstein

1

A number of reviews of the BBC and public service broadcasting have been

conducted recently. The issues of public service broadcasting, the licence fee and

the governance of the BBC are all interlinked. Contestability of funding for public

service broadcasting is desirable. Funding of public service broadcasting should

be overseen by a body that is independent of the BBC. The funding should come

from a progressively reduced licence fee as the BBC moves to a subscription

service.

Introduction

Despite the BBC Charter Review, the central issue relating to public service broadcasting (PSB) remains unresolved: is there a continuing need for public service broadcasting when the original justification for its provision – spectrum scarcity – has disappeared, and the public has hundreds of TV and radio channels from which to choose?

In discussing this question, this paper will focus on the views offered by the BBC itself, the Department of Culture, Media and Sport (DCMS) in its Green Paper, the Burns Committee appointed by the DCMS, the regulator Ofcom and, where appropriate, two organisations which I chair, the Broadcasting Policy Group and the Commercial Radio Companies Association.

Approaches to public service broadcasting

There are two approaches to PSB – narrow and broad. The narrow argument is simple. We trust consumers to choose goods at least as important as broadcasting, without massive publicly funded provision: food, newspapers, magazines, CDs, telephony, clothes, housing, holidays, cars, and so on. By way of contrast, defence, law and order, border controls, health, education, roads and mass transit depend wholly or substantially on the public purse. So why do we place broadcasting in the second category rather than the first?

One argument is culture: just as the Arts Council funds a wide range of cultural activity, so broadcasting has a significant impact on

national culture. However, most supporters of the broad PSB argument are uncomfortable with the Arts Council analogy, as, if it is accepted, the logic of the position leads to the replacement of the licence fee with direct public funding. Opposition to this is usually expressed as concern for editorial independence. The real concern, of course, is that direct public funding might well be accompanied by a requirement for much greater accountability than the BBC, Channel 4 or even ITV and Channel 5 are prepared to accept. This general argument, in any case, gives no clue as to how, let alone at what cost, to intervene.

A second argument derives from the origins of PSB: that when spectrum was scarce, it was incumbent on governments to extract the optimum social value from it, rather than just rely on market allocation. As a result, all terrestrial broadcasters, BBC and commercially funded, were successfully required to fulfil implicit and explicit PSB obligations, and the public has been conditioned to expect their delivery, even as it exercises wider choice in the digital environment. This is the ‘why fix what ain’t broke?’ approach: our broadcasting system is much admired, the BBC is more trusted than Westminster, even in multi-channel homes the audience spends more time watching the terrestrials than the hundreds of new channels combined, and so on.

A third argument emerges from this: that mixed provision of content is in itself of public value. To those who argue – incontrovertibly – that the bulk of the licence fee (itself 90% of all public provision for broadcasting) is spent on bog-standard entertainment, the riposte is that the public seem


iea

e c o n o m i c a f f a i r s d e c e m b e r 2 0 0 5 69

content with what is offered (BBC1 is consistently more popular than ITV1) and that failure to serve a broad range of public taste would undermine the licence fee mechanism. The presence of a wide range of types and quality of content within a single source, emanating from a trusted and reputable provider, ensures that society can sample plentiful information, entertainment and educative material for a single fixed fee.

The BBC has gone beyond that argument in recent months, claiming that it generates public value through its activities over and above the market value of the programmes it generates. The argument is that broadcasting is still characterised by what economists call ‘market failure’ – not literally, but in the sense that it has impacts, positive and negative, over and above the mere fact of consumption. In simple terms, programmes can be good for you or bad for you. Unfortunately, we have no means of measuring either the goodness or badness, let alone deciding how much – if anything – to spend to correct this so-called market failure, or how and where to spend it.

Both the BBC and Ofcom have toiled like Hercules to try and define the characteristics and purposes of PSB: again, unfortunately, these definitions are so vague that virtually any programme shown, not just by the BBC, but by most commercial broadcasters, can claim to meet one or more of the attributes offered. Ofcom studiously ignored the request from the Broadcasting Policy Group to name a single BBC programme in recent years that failed to meet its PSB definition. We can only conclude that such elastic definitions provide no useful guide to action.

The narrow view of PSB recognises that even a well-functioning broadcast market may not deliver a full range of content, especially in those genres which cost significantly more per viewer than the average. There may therefore be a case for funding additional content out of the public purse: a good part of Radio 4’s output, for instance, could not be afforded if it depended on advertising or subscription to pay for it.

The ‘broad PSB’ camp dislikes this argument, not least because it segments the BBC’s output between market products (those that could be readily supported by the market without any need for public funding) and non-market products, implicitly leading to replacement of the licence fee by a combination of consumer funding (directly through subscription or indirectly through advertising) and government funding (carefully filtered through an independent distribution agency).

Public service broadcasting and the licence fee

Different views on the nature of PSB have different implications for the future of the licence fee. As a result, support for or opposition to the licence fee

drives much of the discussion over the future of PSB: that most experts expect the licence fee to be overtaken by technology in the next few years only adds to the oddity of the debate. The BBC and its former chairman, Gavyn Davies, have added to the confusion by trying to place some kind of moral value on the licence fee, as compared with voluntary subscription. They claim that because broadcasting is what economists call a ‘public good’ – in that one person’s consumption is not at the expense of any other person’s – the correct mode of delivery is free-to-air. They then argue that the licence fee is free-at-the-point-of-use, and thereby socially superior to subscription.

Of course, ‘free-at-the-point-of-use’ is a deliberately fraudulent concept. It is no different from subscription and both are equally different from true free-to-air. You cannot legally watch any television until you pay the licence fee: then you can watch as many free-to-air programmes as you like until your licence runs out. Similarly, if you pay a subscription for one or more services, you can watch as much of them as you like for as long as the subscription lasts.

The BBC is simply trying to disguise the unpleasant truth that you cannot watch genuinely free-to-air channels like ITV until you have paid an involuntary subscription to the BBC.

PSB reviews by DCMS, Ofcom and the Burns Committee

What is remarkable about the current state of the argument over PSB is that the battle lines are now so clearly drawn. The BBC has managed to gather a significant degree of support for its opening positions from the DCMS, whilst giving ground on governance structures, with the DCMS Green Paper substituting its preferred idea of a BBC Trust for the Michael Grade proposals for reforms of the Governors.

But the most recent submission from Ofcom shows strong movement towards the recommendations put forward by the Burns Committee, which were seemingly overridden by the DCMS almost as soon as they were published. Having nursed its idea of a Public Service Publisher for some months, Ofcom has now subordinated that concept to broader support of the case for a body dedicated to direct funding of PSB, as recommended by Burns (and, a year earlier, by the Broadcasting Policy Group). It asserts that ‘securing the BBC is not the same as securing PSB for the future’, especially when a key objective is preserving a plurality of PSB providers.

Both Burns and Ofcom recommended that a proportion of the licence fee be allocated to supporting alternative PSB suppliers. Burns felt that its proposed PSB Commission would work best if it decided what proportion of the licence fee went to the BBC and what should go to other suppliers. Both


70 p u b l i c s e r v i c e b r o a d c a s t i n g i n t h e d i g i t a l a g e

Burns and Ofcom regard an element of contestability (competitive bidding by suppliers for public funds) as a key ingredient of a dynamic PSB system. But this process of top-slicing the licence fee – supported by Lord Birt amongst others – is seen by the BBC as the thin end of the wedge, which is why Ofcom tried to split the difference by arguing for the BBC to be guaranteed the basic licence fee but for the contestable fund to come from an enhancement of the licence fee.

However, adding some £15 to the £126 licence fee is an unappetising prospect, especially if it is explicitly targeted at replacing the non-market programming which ITV and Channel 5 are expected by Ofcom to drop as digital take-up progresses. The regressive nature of the licence fee will seem even more oppressive for the poorest, 150,000 of whom are already prosecuted each year for failing to pay.

Burns, as it happens, argued that the licence fee would become increasingly difficult to sustain with the spread of conditional access, and that a lower licence fee, combined with subscription for some services, might be the model for the future: so taking the curse off the Ofcom model, but posing even more of a threat in the eyes of the BBC. The Green Paper wanted to push reviews of both future BBC funding and wider PSB issues back towards the end of digital switchover: Ofcom has now called for these reviews to be complete by 2010, suggesting they need to start within a couple of years.

Phasing out the licence fee: proposals of the Broadcasting Policy Group

The Broadcasting Policy Group (BPG), anticipating all these arguments, called 16 months ago for all income from a progressively reducing licence fee to pass through a Public Broadcasting Authority (what Burns re-labelled the PSB Commission), for it to be fully contestable (though with the expectation that the BBC would win the bulk of it), and with the BBC’s digital services switching to subscription at the earliest opportunity (so allowing the compulsory licence fee to be cut back proportionately). We argued that this would align the BBC with a rapid move to digital, introduce far more consumer choice into broadcasting funding, and in due course restrict the licence fee (as it transmuted to direct government provision) to funding content the market could not supply, or not supply in sufficient quantity or quality. The regressive burden of the licence fee would be eliminated at the same time. Bit by bit, the Burns and Ofcom positions have moved the debate closer to the BPG model.

Who controls the Trust?

The Ofcom response to the Green Paper also alights on the governance proposals for the BBC as a key to the outcome. A paper from a governance expert commissioned by commercial radio had persuasively argued that regulation of the BBC needed to be external, not internal. Burns agreed. The Green Paper called for a BBC Trust to replace the Governors, separate from the Executive Board. Ofcom has now noted the ambiguity of this concept, and called for the new body to be entitled simply ‘The Trust’, so as to prepare it for a Burns-type role overseeing all PSB activity.

Ofcom goes further, arguing that the proposed Executive Board breaches standard UK governance models, in allowing the Chief Executive to be his own Chairman, and in having a minority of non-executive members: ‘it is necessary,’ concludes Ofcom, ‘to provide a clear justification of why the BBC should be a special case’.

Ofcom has also spotted the glaring weakness in the Green Paper proposals for market impact assessments for new BBC services. It calls for the right to conduct such assessments with respect to any significant change in existing BBC services, not just new launches: otherwise, to evade the market impact provisions, the BBC could just re-name existing services and set off in completely new directions. Understandably, this has caused a row between Ofcom and the BBC. But it is another indication that the Green Paper did not settle the key issues, and that BBC governance, BBC competitiveness, BBC funding and BBC dominance of PSB supply are all still being fiercely argued.

There are many forces driving the PSB debate. Financially, technologically and conceptually, the old PSB model is under strong challenge. Contestability of PSB funding, plurality of PSB supply, conditional access revenue models and modern governance thinking are all pushing in the same direction: a separation of BBC oversight from the BBC itself, a separation of PSB supply from the tight control of broadcasters, a separation of the concept of PSB from both the licence fee and spectrum scarcity, and a separation of broadcast content as between market supply and non-market supply.

Those casual observers who see almost no significance in the difference between something called ‘The BBC Trust’ and something else called ‘The Trust’ can be forgiven: but it is a litmus test for the future of public service broadcasting in the digital age.

1. This paper was presented to the IEA Broadcasting conference in June 2005.

David Elstein

is Chairman of the British Screen Advisors Council.

public service broadcasting in the digital age

Documents