First up, a declaration of interest. Some very good friends of mine work, or have worked, for the BBC. I have sat, amicably, on numerous industry boards alongside senior BBC executives. I am currently chair of judges for the radio industry awards scheme, The ARIAs, which relies on BBC support, and is a set of awards they normally do well in. I’m sure in the future I’ll be involved in other projects which affect, or connect to, the BBC. It’s impossible, in the UK, to have played any sort of prominent role in broadcasting and not to have had some sort of relationship with the corporation. That being said, I have never actually worked for the beeb, and at my stage of life and career, I doubt an offer of employment is heading my way.
So why should I, a pure commercial radio veteran, who has spent all of his career competing with BBC services, care about the current debate about future BBC funding? Well, I think there is a good chance that one particular direction of travel being discussed as a future funding model, a subscription based approach, could lead to the up-ending of the whole of the UK’s radio ecosystem - BBC and commercial - to literally no-one’s listening benefit.
I will leave others to argue about BBC political reporting bias, and if that perception is sufficient reason to change its funding model, or what the role of its TV services are in a world exploding with subscription based choice (Sky, BT, Netflix, Amazon, Apple, Disney etc etc), or if the fact younger viewers are spending far less time consuming BBC product is enough to force through change, and whether or not it is too “metropolitan elite” and not representative of the country as a whole. I understand all those arguments and we should always be challenging an organisation that takes in £3.7Bn of our money compulsorily on these matters, and more. Of course we should. And these beefs with the beeb seem to be the main driving forces behind this debate in advance of licence renewal in 2027 - and they are all focussed, as so much debate on the BBC tends to be, in the main on its various TV channels.
The debate seems to end up either with an argument for the licence fee being retained, or for BBC TV to end up behind a paywall as a subscription service, paid for by choice rather than mandate. I think that is the essence of the dilemma, as I cannot see a partially free/partially paywalled service working, and straight up funding via the tax-payer is a non-starter. It surely must be one or the other. Licence fee or voluntary subscription. And voluntary subscription must inevitably mean lower income.
My concern is that those arguing for the BBC to be turned into a subscription based service are completely ignoring its potential effect on radio. I think the same issues I will outline below probably apply to the BBCs online services as well, but I am going to ignore online and digital simply for the sake of brevity.
It’s technically possible for the BBCs TV services to be placed behind a subscription paywall, although Freeview is not really encryptable as it stands and this might require new hardware to be purchased which would be a big impediment. But even if that’s all possible at some point, radio can’t be encrypted. In the UK all radio is free-to-air, and the prospect of scrambling the DAB signals and selling new boxes to decode them is pie-in-the-sky.
So, given they cannot be bundled as “added value” in a subscription package, and will have to remain free for all to consume, why would a subscription-based BBC TV operation support its current radio channels. Assuming subscriptions brought in less than a compulsory licence fee (and this surely must be the case otherwise the BBC would already have pursued that route), any BBC TV subscription service will be desperately fighting for its share of an overall pool of TV subscriptions, and will not be able to, or want to, fritter away subscription revenues on output that doesn’t retain or enhance its subscription model. Free to air radio just doesn’t fit into that business environment.
The obvious, simplistic, but ultimately catastrophic, answer will soon present itself - let the BBC radio networks join the thriving commercial sector in taking ad revenues to fund themselves - either within a joint corporate structure with BBC TV, or spun off in some fashion, with OFCOM mandated formats similar to the current BBC service agreements (the Irish equivalent, RTE Radio, already takes advertising, folk will point out).
The reason this is catastrophic is that the maths simply don’t work. BBC radio in the UK (including BBC local radio) has roughly the same audience market share as commercial radio (51% vs 47%). However, It costs the BBC £650m to produce this output. In order to run BBC radio as a single entity simply at break even, it would require someone to bring in roughly £800m in ad revenues to support that level of programme cost (after royalties and sales costs have been deducted). But commercial radio only currently takes £450m in national income (I’m ignoring local income for a moment, as the BBCs national radio services are the dominant factor here), and as any economist will tell you, if you double the supply of something with no particular increase in demand, prices will go down. So a doubling of radio ad space for sale won’t double that national revenue take from £450m to £900m. In fact, given how fierce the ad sales market is (TV, outdoor, digital, press and magazines won’t disappear) you might not get much extra income at all. Even if income did go up by, say, 75% or so to £800m in total (a highly ambitious figure in my view, given all players will drop prices to secure revenues), and this was spread evenly between the existing commercial players and the BBC radio services in line with market share, no one would win. The BBC radio networks would only keep around £325m after royalties and sales costs, and would therefore be facing 50% reductions in overheads just to break even, and the commercial players could very well be plunged into losses with a 15% drop in their revenue base. You couldn’t “privatise” BBC Radio on this basis, as there would be no profits to base any privatisation value on.
Keeping all of the BBC radio services together therefore makes little commercial sense (and might be challenged by the CMA in any event simply due to its size). The only practical way to mitigate this is to break up the Radio services and treat them differently, hypothetically as follows:
BBC local radio would almost certainly have to be closed down. At £150m or so to run per annum it carries a larger cost than any of the National networks, and the chances of any significant funding via advertising through growth in local ad revenues is non-existent (local commercial radio ad income is c£100m and falling). Local income for radio is in sharp decline and the older audiences delivered by BBC local would not be sufficiently attractive to stem that retrenchment. I doubt national advertisers would find buying the network attractive either. Closing BBC local radio would be a huge political issue of course, and would still leave the rest of BBC radio needing to trim costs from £500m to £300m - some 40% - hence the need to do something else radical.
BBC R4/5 could/would probably be merged, and alongside Radio 3 could/would be given some form of continued “Grant in Aid” scheme funding (perhaps through the Arts Council, to put some distance between them and Government). Along with the BBC nations and regions radio services, and Asian network (which are all highly politically sensitive), in total the current costs of these services are c£350m, so with some brutal merging might be reduced to £300m. This is a big, politically sensitive number for the government to be handing over from the public purse - but the alternative of 40%-50% cuts and decimating the ad market is surely politically even worse? And all this would come at the horrible risk of making these stations feel much more subject to regulatory/political capture. All of the digital offshoots would have to go too I suspect as simply being unsustainable within a constrained GiA budget
This would leave just R1/R2 - which might well be effectively privatised. Even here I would worry about sufficient extra ad income being available, and the strategists inside Global, Bauer, NewsUK and other organisations would have to make some pretty careful calculations before bidding, about how much of the existing R1/R2 audiences would stay in an ad-funded environment, and what the overall effect on the size of the radio ad market will be. Undoubtedly many of the programming elements which make R1 and R2 unique would be lost in the move to the commercial sector.
So both the BBC radio networks and the big commercial players (Global, Bauer and NewsUK) would all be affected, in whatever scenario can be envisaged. I simply cannot see a way in which UK radio in its current form survives the collateral damage to BBC radio and knock-on effects on the commercial sector that the elimination of the licence fee would entail. Both sectors would become poorer, and both would inevitably sacrifice any non-essential output for cost savings. Can you imagine what 40% cuts to BBC network radio services will sound like, or what would be lost in a merged R4/5live? The quality, breadth and depth of their output will be immeasurably damaged. No doubt there are efficiencies to be made, but the size of cuts likely to be needed goes way beyond anything a firm of management consultants might suggest I’m sure.
In principle, and as someone who generally supports a libertarian approach to economics, I can obviously see why mandatory poll-taxes are bad things. I can also see arguments both for looking at the level of the licence fee and whether it should be constrained, and also whether or not greater external scrutiny of the BBCs editorial output is needed - but both of these points are outside the scope of this blog, and areas that will come under separate debate elsewhere. Whether or not they require the wholescale dismemberment of the current funding model is open to debate.
However, as regards the totality of the effect the licence fee has had on the UK media landscape, in my view this particular poll-tax has allowed a critical industry sector, broadcasting, to survive and thrive on more than just ad revenue and subscription, by adding in the licence fee income. That three legged funding approach has fostered one of the best broadcast eco-systems (TV and radio) in the world. There is more than just economics at play here too. BBC news is the most highly regarded source of information we have - critical to a healthy democracy - and much of its integrity is driven by its radio services; we punch way above our weight culturally across the world because of our strong TV sector, underpinned by the BBC and cross-fertilised by radio; and finally the supply of advertising is essential for a free market economy to operate, and commercial radio is a vital cog in that structure.
For all these reasons, alongside the obvious damage it would do the the medium I have worked in for 40 years, I’m just not convinced that this is all worth sacrificing on the altar of changing a satisfactory (if disliked) licence fee to a voluntary subscription model, as a “punishment” for something the BBC may or may not have done, or because of a particular philosophical dislike of publicly-funded broadcasting, or because you are unhappy with the editorial line taken by The Today programme on R4. We are in danger of throwing out both the baby and the bath with the bath water here if we are not careful.