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A few facts about the licence fee

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Check against delivery

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A couple of weeks ago I was lucky enough to spend an entire day at the Department of Culture, Media and Sport discussing the future funding of the ´óÏó´«Ã½.

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Outside it was a bright Spring day. People were eating ice-creams. Tony Blair was reshuffling his cabinet.

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Inside it was all market impact and consultant-speak. Indeed it was weeping and wailing – many of the commercial broadcasters had arrived in full sack-cloth and ashes.

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This was the Burns seminar – part of the admirably open process of public consultation and debate which the Department has run to air all of the issues around ´óÏó´«Ã½ Charte Renewal.

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Whatever you think about the Government's White Paper or about the future level of the licence fee, this has been by far the most visible and contestable charter process that has ever been.

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Anyway, like all good things, eventually the seminar had to come to an end and I walked out of the Department across Cockspur Street and down onto the Mall. To be greeted, like thousands of other Londoners and visitors, by a gigantic mechanical elephant.

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Now, having seen Planet Earth not to mention any number of Natural Worlds I feel like a bit of an old hand on the subject of elephants. Yes, there's a faint risk that they'll tread on people – last week's Hannibal on ´óÏó´«Ã½ ONE, by the way, hinted at just how messy this can be, though sadly without a really juicy computer-generated squish.

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So you need pretty foolproof crowd-control, not to mention elephant-control – but you have to admit there's still something rather awesome and life-enhancing, something miraculous really, about the fact that elephants even exist.

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Which brings me to the ´óÏó´«Ã½. There's something about the ´óÏó´«Ã½ which seems to bring out the animal metaphors. Gorillas. Sharks. Beached whales. We've been compared to all of them. But most often of all, to our most persistent critics we're the elephant – and a rather out-of-control elephant to boot.

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These critics hoped that the White Paper would rein this elephant in, limit its scope. In fact, the White Paper endorses a very different vision for the ´óÏó´«Ã½ – strengthening and enriching its existing services, developing new on demand and other digital services, playing a central role in building the infrastructure and the promotion and public awareness needed to create a digital UK.

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For those who wanted to see a weakened, constrained ´óÏó´«Ã½, the White Paper is therefore a bitter disappointment. Even today another high-minded coalition of commercial radio companies and newspaper groups, including the Rupert Murdoch-chaired News International, has emerged to warn of the perils of a rampant ´óÏó´«Ã½.

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They're concerned about the digital mission laid out for the ´óÏó´«Ã½ in the White Paper. I suspect that after two years of public debate their hopes of overturning the contents of the paper are not great – so they propose instead to limit the ´óÏó´«Ã½'s ability to deliver that mission by holding down the licence fee.

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To me, this doesn't make much sense: surely the right sequence of events is to arrive at a clear mission for the ´óÏó´«Ã½ and a clear set of public purposes and objectives – this is exactly what the White Paper does – and then work out how much it will cost for the ´óÏó´«Ã½ to deliver.

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To use the licence fee settlement retrospectively to rewrite the White Paper not only smacks of desperation but makes a mockery of the years of debate and analysis that led to this piece of settled public policy. But then there's much about the licence fee debate that doesn't quite add up.

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Are there genuine concerns and legitimate questions to ask about the level of the licence fee? Of course there are. But there are also honest misunderstandings, wilful errors and some wild urban myths.

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And self-interest. The ´óÏó´«Ã½'s critics have often accused it – and sometimes justly - of confusing self-interest with the public interest. But that's a charge one can equally level at some of the ´óÏó´«Ã½'s opponents in the licence fee debate.

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Listening to them at the Burns seminar, one could be forgiven for thinking that the only thing worthy of consideration in the debate was the question of market impact on them. The public, public value, the importance of the ´óÏó´«Ã½'s services to the public, hardly gets a glance in this particular distorting mirror.

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So this evening I thought I'd offer a few straightforward facts about the licence fee.

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The first fact is that over the last decade the licence fee has grown much more slowly than broadcast and online industry revenues.

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As a result, ´óÏó´«Ã½ revenue as a proportion of total industry revenue has steadily declined. In the early Nineties, ´óÏó´«Ã½ revenue accounted for around 46 per cent of total revenues. Today it stands around at 23 per cent. It's halved, in other words, over the past decade or so.

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What about the future? What happens if the Government accepts the ´óÏó´«Ã½'s own estimate of its future funding needs and gives it a licence fee that rises at 2.3 per cent above inflation?

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Again, reasonable mid-case assumptions about the growth of advertising and subscription suggest that the ´óÏó´«Ã½'s share of industry revenues will not grow but decline further to around 20 per cent or less.

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Our critics of course want to paint a very different picture. They want somehow to leave you with the impression that the ´óÏó´«Ã½'s revenue has been growing out of control, certainly much quicker than their own; that the Government was rather foolish and over-generous in its 2000 settlement; that this settlement has already caused grave damage to the commercial sector; and that it's imperative not to make the same mistake again.

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None of this is true. Nor has anyone produced a shred of evidence that it's true.

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The ´óÏó´«Ã½ was set pretty clear objectives by Chris Smith, the then Secretary of State, when the 2000 settlement was granted. As a number of independent speakers pointed out at the Burns seminar, the ´óÏó´«Ã½ has been strikingly successful in meeting those objectives.

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Our revenue has risen more slowly than any other sector in broadcasting but we've tried to invest the extra money in quality content and in innovation. And that presents a question for some of our more vociferous critics.

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In fact, the programming budget for the five main ´óÏó´«Ã½ radio networks has actually remained flat in real terms during the present settlement. But it's true that on both 1 and 2 we've tried to identify the very best talent – whether it's Chris Moyles or Jeremy Vine or Jonathan Ross – and then given them the creative space they need to do their best work.

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But there are plenty of commercially-funded broadcasters who are doing exactly the same both in radio and TV. Listen to Heart or Virgin or watch Channel 4 or indeed Five. Investment in content, creative risk-taking – that's what's paying off in these complex, fragmenting media markets.

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And, in terms of audiences, it's working at least as well for some of our commercially-funded colleagues as it for us. Where there's weakness or decline in the commercial sector, I believe that creative commitment is almost always the key factor.

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And to those who say that the ´óÏó´«Ã½'s 2.1 per cent annual television and radio growth was far too much, I think it is legitimate to ask: what happened to your 2.2 per cent annual growth? Or your 5.1 per cent annual growth? Where did that money go? Did you spend it on content? Did you focus on your audiences and your core creative proposition? If not, be careful before you lay the blame for your present problems at our door.

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One thing many commercial broadcasters point out is that the ´óÏó´«Ã½'s income is guaranteed between settlements whereas theirs has to be earned through short-run performance and inevitably fluctuates depending on market conditions.

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I think that's a fair point. My couple of years at Channel 4 provided a short, sharp lesson in the roller-coaster world of TV advertising – and from that vantage-point, the steady and pretty reliable arrival of licence fee feels like a rather amazing privilege. And it is an amazing privilege, one which the ´óÏó´«Ã½ should never forget and which brings with it unique obligations.

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In the past, the ´óÏó´«Ã½ has sometimes sounded rather arrogant or dismissive of the economic challenges that commercial broadcasters face – and that's just wrong. But it's also wrong to jump to the conclusion that the ´óÏó´«Ã½'s income should automatically track the ups and downs of different commercial broadcasting markets.

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The licence fee is a contract between the ´óÏó´«Ã½ and, ultimately, the British public for the delivery of content that furthers various public purposes. The need for that content – and the cost of providing it – doesn't reduce just because the TV or radio advertising markets have caught a cold.

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We have a system of public service television in which some of the content is delivered by the ´óÏó´«Ã½ and paid for through the licence fee and some is delivered by ITV, Channel 4 and Channel 5 and paid for by a proportion of their advertising income.

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And yet this is pretty much what some of our critics are suggesting. In ITN's submission to Burns, they argue that, while they have only six foreign bureaux, the ´óÏó´«Ã½ has 46. Wouldn't it be better if the ´óÏó´«Ã½ reduced the number of its bureaux from its current total down towards that lean, mean target of six?

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Now I believe that ITN is one of the jewels of the whole British model of public service broadcasting – and that a strong ITN is a real and valuable guarantor of plurality of news provision in this country. Nonetheless I think that this line of argument is deeply suspect.

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´óÏó´«Ã½ News serves more than 80 per cent of the UK population every week, not just on TV but across radio and the web. Globally, we serve an audience each week of over 250 million people. We're not just the most popular but also the most trusted international provider of news in the world.

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We admire ITN but our mission is significantly broader than theirs. Surely the right question to ask is what kind of global newsgathering infrastructure is needed for the ´óÏó´«Ã½ to deliver the best news in the world – to cover big, unexpected stories like the tsunami or the earthquake in Kashmir last year; to cover ongoing stories like the Israeli/Palestine conflict and Darfur; to unearth new stories and put them on the global agenda like the famine in Niger brought to the world's attention; and to cover them in multiple media, platforms and languages.

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And what would happen if ITN lost a contract and had to reduce their bureaux from six, say to three. Would they then argue that it would only be fair if the ´óÏó´«Ã½ benchmarked itself not against six bureaux but against three?

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A couple of weeks ago, we ran a full results service for the English local elections on TV, radio and the web. We believe these elections are always important – and are sometimes momentous. Now, for understandable commercial reasons, ITN and ITV no longer offer a results service around the local elections. And as far as I know, neither ICR nor IMR ever have. But we were able to have a presence at every count.

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Does this mean that the ´óÏó´«Ã½'s service is "unfair"? Would the public be better served if the ´óÏó´«Ã½ abandoned its local election service to maintain parity with ITV or ILR?

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Surely at a time when other broadcasters feel that commercial imperatives mean they cannot invest as much as they once did in journalism, it's more not less important that the ´óÏó´«Ã½ maintains and, where possible, increases the investment it makes in both resource and airtime.

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The same is true about the argument that the future level of the licence fee should be in some way linked to ITV's revenues. If ITV's revenue and its ability to invest, for instance, in original drama, declines so too apparently should the ´óÏó´«Ã½'s.

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But how exactly does that further the interests of the viewing public? And how does it further the interests of the UK's creative industries?

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In effect it proposes that, when advertising-funded investment in original production and creative talent is hit by cyclical downturns in advertising revenue, the right public policy is to reduce the ´óÏó´«Ã½'s ability to invest in production in talent at the same time and to the same extent.

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Instead of using the stability of the licence fee, in other words, to offset the ups and downs of the rest of the audio-visual economy, the proposal is to compound the problem.

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ITV of course has never argued that the licence fee should leap up if advertising revenue leaps up. That is a topic that never seems to come up in the boom years. No, this is intended as a strictly one-way ratchet.

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So what are we to make of this? Well, first it's clearly right that Government should consider the totality of industry revenue when it weighs the future level of the licence fee. As you've heard, the proportion of revenue coming to the ´óÏó´«Ã½ has fallen and will almost certainly continue to fall.

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But should the ´óÏó´«Ã½'s revenues be directly linked to those of ITV? I'm not convinced they should.

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The ´óÏó´«Ã½ manifestly provides services which go way beyond network television – and even in the context of TV, the ´óÏó´«Ã½ clearly sits alongside, not just ITV, but Channels 4 and 5, Sky and the rest.

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Indeed over the past decade the ´óÏó´«Ã½'s competitor-set has expanded from the usual suspects to include some of the biggest media and internet brands in the world: not just Sky but also MSN, Google, Yahoo, Apple. The days when you could say that the real competition or the real broadcasting market was the ´óÏó´«Ã½ plus ITV are long since gone.

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And I'm troubled by the idea of linking the ´óÏó´«Ã½'s funding to any one commercial player. In this disruptive second digital wave, who knows which commercial incumbents will prosper and which will struggle?

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There are so many factors at work: not just creative success and market conditions, but corporate strategy, mergers and acquisitions, the difficult bets that everyone has to place on different digital technologies.

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To some extent, the ´óÏó´«Ã½ and its funding represent a hedge against the uncertainties of this digital transition – link the ´óÏó´«Ã½'s fortunes to that of any one commercial player and the hedge is gone.

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I've argued this evening that – perhaps understandably – the ´óÏó´«Ã½'s commercial critics tend to place issues of market impact and what you could call ´óÏó´«Ã½/market parity above what I take to be the pre-eminent issue of public service delivery.

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But I want to go further and challenge some of the assertions that are made about market impact itself.

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To listen to some of our critics, you could be forgiven for believing that negative market impact, in other words the unfair distortion of existing markets for commercial competitors and the crowding out of future markets by the ´óÏó´«Ã½, was a matter of proven fact.

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More than that, that this is some kind of national scandal which the commercial players have known about and suffered from for years but which only now – and more in sorrow than in anger – they've decided to bring to the attention of the authorities.

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As it happens, this is a subject which has been very widely researched indeed. Every new digital service we have launched in this licence fee period has been subject to a market impact test before being agreed. Multiple studies of our core TV services have failed to demonstrate any negative market impact.

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Messrs Barwise, Gardam and Graf looked closely at the question of market impact and, again, determined that there was no conclusive evidence that there was any large-scale effect.

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There is no systematic evidence of any large-scale negative market impact or crowding out by the ´óÏó´«Ã½ at all. There's no independent report which proves it or even asserts it.

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Tim Gardam worried about the impact of the ´óÏó´«Ã½ on the speech-based radio station Oneword – in the event, Oneword was bought by Channel 4, it's received fresh investment and looks from the outside at least as if it's in good shape.

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Philip Graf worried about the distinctiveness of some of the ´óÏó´«Ã½'s website. We agreed and, as a result, we shut the offending pages – and suggested a 'precautionary' approach moving forward. Again that feels right: the new ´óÏó´«Ã½ governance arrangements, the Trust, the Public Value Test and the Market Impact Assessment are all predicated on just such a precautionary approach.

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But none of these reports found evidence that substantial crowding out was taking place. And common sense tells us that the UK has a thriving media environment. As you've heard, a licence fee growing in real terms over the past decade hasn't prevented every other kind of broadcasting revenue growing further and faster.

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Nor is there any evidence that the licence fee has slowed Britain's digital progress. On the contrary: without the 2000 settlement and the ´óÏó´«Ã½'s substantial investment in DTT, DAB and new digital services, the UK would not be the international digital success story it currently is.

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Moreover, to state the obvious, the public service ´óÏó´«Ã½ does not compete either for advertising or subscription revenue. In advertising, different commercial stations compete to maximise their share of commercial impacts. The ´óÏó´«Ã½ is not a player in this game.

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Indeed Charles Allan has argued in the past that strong ´óÏó´«Ã½ performance actually helps ITV commercially – he would rather viewers were taken out of the competition for commercial impacts than lose some of ITV's share of that market to other commercial players – though how this observation fits in with Charles's claim that the ´óÏó´«Ã½'s proposal for a higher licence fee threatens the very life-blood of ITV, I don't understand.

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The truth is that the biggest economic pressures advertising-funded broadcasters face are audience fragmentation, new platforms for advertising like the internet, and technologies which at least potentially threaten the traditional spot advertising model. The level of the licence fee will have precisely zero impact on all of these trends.

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It is reasonable for commercial broadcasters to insist that the ´óÏó´«Ã½'s services should be distinctive and that substantial changes to them, or proposals to launch new services, should not go ahead without careful scrutiny, consultation and assessment of the likely positive and negative market implications.

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This is why in its White Paper the Government has set out the most radical programme of governance reform in the ´óÏó´«Ã½'s history with the new independent ´óÏó´«Ã½ Trust at its heart.

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The new alliance of commercial media companies said today that the Trust's independence was 'largely illusory'. But, the ´óÏó´«Ã½ Trust doesn't exist yet so surely it's just a little bit early to form a definitive judgement on the question of independence.

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I believe that the creation of the Trust represents the last, best hope for independent governance of the ´óÏó´«Ã½ and that over the next Charter period the ´óÏó´«Ã½ Trust will bend over backwards to demonstrate its independence from management. They're more likely to overdo it than to slip into any of the old ways.

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And the system will be fully open to scrutiny. Service licences will define existing ´óÏó´«Ã½ services more clearly than ever before. The system of public value tests and market impact assessments will deal with the question of new service launches more transparently and objectively than in the past.

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The White Paper, in other words, contains a comprehensive set of answers to the question of market impact and predictability. It is illogical and, by the way, likely to be wholly ineffective to rely on an artificially low licence fee to deliver protection against adverse market impact.

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What matters in setting the licence fee is the task you want the ´óÏó´«Ã½ to do and the extent to which the ´óÏó´«Ã½ can be asked to meet its and the Government's new challenges – for instance the challenges of digital switchover – from existing resources. The debate about efficiency and value for money is an entirely proper one therefore.

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About that I want to make only a couple of observations.

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First that this is an issue that the ´óÏó´«Ã½ is taking more seriously today than ever before – our current programme will save more than £350m a year, and will also see more than 7,000 employees leaving the Corporation: it's an efficiency programme that no Government could have imposed on the ´óÏó´«Ã½ under any licence fee settlement.

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My second point is that, despite some rather wild talk at the Burns seminar, the debate about VFM [Value for Money] is taking place in quite a narrow range.

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In its licence fee submission the ´óÏó´«Ã½ has proposed that after the current efficiency drive that we should commit ourselves to a long-run continuous improvement programme delivering savings of 2.5 per cent per year. The Government's consultants PKF argue in their report that that figure could be three per cent. We believe that's too high if you also want to not just maintain but improve quality.

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Which brings me to my last set of facts about the licence fee. No tax or compulsory charge is ever going to be popular but – away from the endless industry debate about the charter and the licence fee – it is extraordinary how level-headed the public are about the question of paying for the ´óÏó´«Ã½.

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Over the past ten years, the licence fee has actually declined as a proportion of household income for everyone, including the poorest 10 per cent of households. If the UK economy grows in line with Treasury estimates, we predict that – even with the increase we have proposed – it will continue to decline as a burden both for average households and for the poorest.

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And yet clearly it is has gone up in real terms and we are arguing that it should continue to go up. If you look at Professor Paddy Barwise's recent report on the public's willingness to pay for the ´óÏó´«Ã½, however, the evidence is that a large majority of the public would be willing to pay more for a ´óÏó´«Ã½ offering the range of services and investments laid out in Building Public Value and the White Paper.

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It's a time of creative renewal at the ´óÏó´«Ã½. On the air, some real ambition and success – recognised a few days ago in both Baftas and Sonys. Programmes which challenge – like this week's The Line of Beauty – programmes which everyone finds themselves talking about – like The Apprentice.

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In terms of the future, we have articulated a clear creative vision as well as a strategy for technologies and platforms – we know that success at the ´óÏó´«Ã½ always begins and ends with the quality of our content. We have started to lay out our vision of our creative future and have produced a blueprint for our programmes and services for the next ten years.

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The debate about the licence fee will, of course, continue – and I know that the Voice of the Listener and Viewer will play an active and constructive role in that debate. There are plenty of proper questions still to resolve – to what extent and with what safeguards, for instance, should the ´óÏó´«Ã½ and the licence fee be asked to shoulder responsibility for targeted help on the road to digital switchover?

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We should all also be prepared to go on engaging with and listening to commercial broadcasters. Britain gains when all of Britain's broadcasters thrive, not just the ´óÏó´«Ã½.

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Of course the debate should be a vigorous one. But it should be based not on exaggeration and myth but on the real numbers and the real facts.

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Above all, it should recognise this central, inevitable fact: if you want the end – of a strong, evolving, digital ´óÏó´«Ã½ delivering outstanding content and leading in the building of a wider digital Britain – if that is the end you want, you also have to will the means.

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