The Blog

BBC Licence Fee: Supports Commercial Broadcasters, too

The Committee suggests that the licence fee should be extended to cover catch-up TV and that some BBC services might be provided on subscription. But beyond this it recommends only "careful thought".

The Commons Select Committee on the future of the BBC says that some see the TV licence fee as an anachronism. It says that the principle of the licence fee in its current form is becoming harder and harder to sustain and sees no long term future for it.

The Committee should be careful what it wishes for. The licence fee does more than fund the BBC. It helps to fund ITV and every other advertising-funded and pay TV broadcaster in the UK.

The licence fee is payable by every television household in the UK. It is a tax or impost on the reception in the UK of any and all broadcast television services, not just the BBC. It is a tax on watching television generally. Suggestions that the BBC should encrypt its transmissions miss the point. The logic of the universal licence fee would require every broadcaster to encrypt its transmissions.

Alongside the BBC Charter is an agreement between the BBC and the government under which the government agrees to pay to the BBC out of money provided by Parliament sums up to an amount equal to the net licence revenue. In return, the BBC agrees to do a number of things including not spending the money on a TV, radio or online service which is wholly or partly funded by advertisements, subscription, sponsorship, pay-per-view or any other alternative means of finance.

In other words, at the heart of the funding arrangements for the BBC, there is a deal. The BBC gets the proceeds of the licence fee and in return it agrees not to compete with other broadcasters for funding from advertising or subscription.

If there were no such deal and, say, the BBC took advertising, the balance of supply and demand in the sale of advertising airtime would change. Prices would fall and the revenue of ITV, Channel Four and other advertising-funded broadcasters would also fall - that was the lesson taught by the Peacock Report in 1986 on financing the BBC.

Peacock showed that if the BBC were to take advertising, an increase in the volume of television advertising would lead to a decline in advertising expenditure and losses for ITV.

The market has changed since Peacock's time but the relationship between the licence fee, the BBC's exclusion from advertising as a source of funding and the consequent increase in the value of television advertising for others, including ITV, remains.

The prohibition on the BBC taking advertising as part of the agreement by which licence fee revenues are paid to it therefore supports ITV, and all other ad-funded broadcasters, by limiting the volume of airtime available for advertising and thereby driving up its value.

So the licence fee is not just a means of funding the BBC. It supports the current market structure with a mix of funding from the licence fee, advertising and subscription. Whilst changes in technology,

services and audience behaviour may affect the design, implementation and enforcement of the licence fee, there is nothing anachronistic in the underlying rationale for it.

The licence fee is part of a wider regulatory settlement that, directly or indirectly, underpins the funding of all UK television broadcasters. If there were no long-term future for the licence fee, there would be no long-term future for that settlement.

The Committee suggests that the licence fee should be extended to cover catch-up TV and that some BBC services might be provided on subscription. But beyond this it recommends only "careful thought".

I agree. But, since the scope and impact of the licence fee extends well beyond the BBC, the thinking needs to take into account the wider settlement of which the licence fee is only part.

It may well be that linear television sustained by licence fee, advertising and subscription funding has no long term future; but that is a bigger debate than one about whether the licence fee itself is an anachronism. It does not make sense to consider the future of the licence fee until that bigger debate has taken place.

The current funding settlement sustains a sector which delivers a number of advantages to the public, both as citizens and consumers. It may be that they could be delivered some other way, and cogent arguments have been made for competitive instead of regulated provision.

But change, if it is to come, needs at least the careful thought that the Committee mentioned to be applied to the structure of the market as a whole and not just to one element of it, such as the licence fee.