Saturday, 22 February 2014

Ray Snoddy: Scandal-hit BBC is facing its toughest and most unpredictable licence fee negotiations

Media correspondent Ray Snoddy argues in the wake of current scandals facing the BBC that the up-coming licence fee negotiations, coinciding with the re-negotiation of a new ten-year royal charter, could be the most difficult and unpredictable there has ever been.

He claims it would be 'crazy' to try to close down BBC Four and BBC Three, describing Four as "the best thing the BBC does" while Three provides a link with younger audiences.

Snoddy, contributing to a new book Is the BBC Crisis? also suggests the Irish may well have found the ‘least bad’ system for funding public service broadcasting.

There has been an unvarying pattern with BBC licence fee negotiations over the years. Once the vested interests and differing shades of political ideology have been stripped away it has usually come down to horse-trading over money.

The BBC asks for more than it expects to get and implies that the end of civilisation is nigh if its ‘entirely reasonable’ demands are not met. The government of the day lops off a noticeable percentage so that it can appear to be tough and, above all else, not seem to be a patsy of the BBC, or to pay the Corporation back for previous sleights.

Labour governments tend to be a little more generous because of a warmer emotional attachment to concepts of public service broadcasting. This always has to be tempered by an appreciation of the impact of what is essentially a poll tax on the poorer voters. In general, a deal is done, the BBC makes some short-term cuts and then somehow, as if by magic, the Corporation finds enough
money to continue expanding. 

The ‘magic’, of course, has included an increasing population, or more precisely, a growth in the creation of new households, each liable to pay the fee. Two licence fee campaigns, however, stand out from the general run. The first was the award in 1985 of a £58 licence fee accompanied by a fundamental review of the financing of the BBC under the chairmanship of the free market economist Professor Alan Peacock. 

While the then-Home Secretary Leon Brittan emphasised that the purpose of the Peacock Committee was to come up with options rather than recommendations, it was widely seen as Margaret Thatcher’s revenge on the Corporation. The BBC may have been given a relatively generous settlement for now, but that would certainly not be the end of the matter. Opening up the BBC to advertising and greater competition was the obvious longer-term solution.

Peacock, supported by another economist, Samuel Brittan, of the Financial Times, realised that advertising on the BBC would devastate the economics of commercial television. They, therefore, came to the ‘wrong’ political answer – that the licence fee was the ‘least bad’ system and that it should be indexed to inflation, though pensioners dependent on benefits should be exempt. It was a process that lasted 14 months and had the effect of putting to rest, at least for a generation, some of the more extreme theories about the financing of the BBC.

They included everything from abolishing the licence fee to privatising the Corporation or even breaking it up.

The 2010 licence fee settlement was ‘by far the most exciting so far’

Peacock clearly made an impact and in retrospect can be seen as rather forward looking. But in terms of sheer drama, the 2010 licence fee settlement was by far the most exciting so far, the most compressed in time there has ever been – a settlement where pragmatism and pressing financial realities largely swept aside ideology. 

Those close to the process say that George Osborne’s Treasury would have welcomed a ‘scale and scope’ investigation into everything the BBC does and into whether it provides value for money or not. There was the implication that the Chancellor of the Exchequer wanted to explore options for a much smaller BBC, reduced to a more tightly defined range of overt public service responsibilities.

All such-longer term thinking was thrown out of the window by the fast approaching Comprehensive Spending Review (CSR), the attempt to cut the budget deficit by reducing public spending drastically. During the negotiations the BBC, and the then-Culture Secretary Jeremy Hunt, thought a plan to force the BBC to pay the free licence fees of the over-75s had been rejected. 

Work and Pensions Secretary Iain Duncan Smith, desperate to get the £600 million cost (and rising) off his departmental budget, had apparently persuaded Osborne and Prime Minister David Cameron to his point of view. There were implicit threats of resignations from the BBC Chairman Sir Michael Lyons and Director-General Mark Thompson in the face of what was seen as a crude threat to the BBC’s independence. 

Apart from the initial £600 million a year bill, in an ageing population, the BBC would face an open-ended call on its finances. The Lib-Dem media spokesman Don Foster played an important role in alerting his leader, Nick Clegg, to the scale of the possible crisis. The entire BBC Trust was on the verge of resigning en masse.

It was a gloomy Thompson who headed for home in Oxford by train on the evening of Monday 18 October 2010 believing the game was up and that the battle of the over-75s licence fees had been lost. And then the call came that something was changing in the mood of Downing Street and could he get back to London as soon as possible? Thompson got off the train at Slough, crossed platforms and returned to London and straight to Hunt’s office at the Department of Culture, Media and Sport for what turned out to be a night of negotiations. 

The pensioner’s plan was dropped but Thompson had to decide whether to enter last-minute negotiations of the sort that would give horse trading a bad name, or risk a prolonged ‘traditional’ round of licence fee negotiations that could have spread out across 2011 with unpredictable consequences.

Thompson and the BBC Trust choose the bird in the hand – a licence fee frozen until 2016 while at the same time taking over the BBC World Service, Monitoring services and most of the cost of the Welsh Fourth channel. In addition, the BBC would have to find £40 million for Hunt’s pet project – local television. There had been nothing like it before, but despite cost cuts of 16 per cent or £700 million and 2,000 job losses, Mark Thompson insisted that the deal was ‘the best of the available outcomes for the BBC and actually a pretty good outcome’.

How scandals created 'a perfect storm' for the BBC

In the wake of current scandals facing the BBC, the up-coming licence fee negotiations, coinciding with the re-negotiation of a new ten-year royal charter, could be the most difficult and unpredictable there has ever been. The march of technology, the current political terrain and an unprecedented raft of scandals could all combine to create a perfect storm for the BBC. 

Certainly the BBC will never before have entered a licence fee round surrounded by the debris of such a number of internal embarrassments, many of them shrieking managerial incompetence.

The Pollard inquiry into the Newsnight affair found executives functioning in silos and communicating poorly with each other. The Public Accounts Committee (PAC) may have almost wilfully misunderstood the role of the BBC Trust – setting strategy rather than getting involved in the day-to-day operations of the organisation. 

But the PAC, under Margaret Hodge, did ruthlessly expose the fact that a number of departing senior executives left with more than their contractual entitlement, creating an impression of both waste and cronyism a the top of the organisation.

In terms of managerial competence the fiasco of the nearly £100 million wasted on the Digital Media Initiative is probably the most serious. Consultants Pricewaterhouse Coopers (PwC) found that the system designed to share digital and audio content across the Corporation had shown serious weaknesses in project management. 

The BBC had also taken too long ‘to realise that the project was in serious trouble and was unlikely to deliver its objectives’. There will almost certainly be further embarrassments to come for the BBC from the inquiry into the activities of Jimmy Savile. Each of the scandals is very different but they appear to share several things in common – complacency, arrogance and a lack of openness. Naturally the political vultures have already been circling with the Conservative Party Chairman, Grant Shapps, warning that the BBC could lose exclusive rights to the licence fee unless it tacked what he described as a culture of secrecy, waste and unbalanced reporting. 

Culture Secretary Maria Miller suggested that without urgent action on governance, negotiations on a new royal charter could be brought forward. It is difficult to predict what influence the electoral timetable will have on the future of the BBC. If talks are brought forward to this year (2014) then the Lib-Dems could have a restraining influence on gut Tory desires for a smaller BBC that would represent a lesser interference with the workings of the media market.

Wait until after general election day on 7 May 2015 and the Conservatives could have free rein over the future of the BBC if they win an absolute majority. The need for a further round of Conservative-Lib-Dem Coalition cannot be ruled out entirely.

Calls for a smaller BBC

Meanwhile a couple of off-stage interventions have, deliberately or not, fed into the emerging Conservative agenda for a smaller BBC, or one that no longer has access to all the proceeds of the licence fee. In an interview on Radio 5 Live, the BBC’s most senior presenter, David Dimbleby, who ran unsuccessfully for the director-general’s job in 1987 and equally unsuccessfully for the chairmanship in 2004, outlined his vision for a very different Corporation. 

Dimbleby wondered whether the BBC had become too big and too powerful and asked if some licence fee money could not be used to help fund other commercial broadcasters so that a greater diversity of voices could be heard. BBC Four and BBC Two could be merged and then cut some of the gardening and cookery programmes. The corporation’s online presence could also be reduced to prevent the BBC crushing local newspapers.

At around the same time, Roger Mosey, former Editorial Director and Head of News at the BBC was making similar points in an article in The Times. The scale of BBC News and its dominance in the market made BBC executives uncomfortable, argued the executive who had recently taken up the post of Master of Selywn College, Cambridge. He added, in the Murdoch-owned newspaper which has campaigned for years for a smaller BBC, that two good TV channels might be better than four with resources spread too thinly. If implemented this would mean the closure of BBC Three and BBC Four. Mosey also advocated an element of ‘top-slicing’ the licence fee to give to other broadcasters.

Other ideas already circulating is one from Steve Morrison, the former Chief Executive of Granada, now Chairman of All3Media, the independent production company. Morrison believes the BBC should be allowed to hold on to all of its licence fee – but on one condition: that independent producers should have the right to compete for an extra 25 per cent of programme budgets.

ITV later went further by arguing that all BBC output, apart from news, should be contestable in return for keeping all of its licence fee. The independent sector is already guaranteed 25 per cent of BBC output and can already compete for an additional 25 per cent. If the Morrison idea were adopted, the BBC would have absolute control of only 25 per cent of its non-news output.

Technological change, and the fact that more and more homes have a wide range of devices able to receive high quality online video from the internet and from OTT (over the top) suppliers such as Netflix, could raise questions over the wisdom, and even practicality, of continuing to try to impose a compulsory licence fee to watch television up to the year 2026. 

What if more and more people say they do not watch live television and only use computers and tablets to watch recorded material and, therefore, believe they should be exempt from paying the licence fee? There will almost certainly be a fundamental examination of the scope, purpose and funding of the BBC in the next few years whether it takes the shape of a formal inquiry or not.

The best hope for the BBC is that all the scandals will finally be out of the way before then, and that a nearly new management under Director-General Tony Hall will have put in place structures to try to ensure nothing of the like happens again. In the meantime a few concluding thoughts might help.


First, the idea that the BBC is too large and powerful seems misplaced. By definition the frozen licence fee and the 2,000 lost jobs means that the Corporation will become smaller in absolute terms. Even more important the BBC will inevitably continue to become smaller in relative terms given the
growing competition in the market from satellite broadcaster BSkyB, the arrival of BT in the television market in a serious way and the impact of new players such as Netflix. 

It would also seem crazy to try to close down BBC Four and BBC Three. Four is the best thing the BBC does and Three provides a necessary link with younger audiences. People like cookery and gardening programmes and there seems no good reason to reduce their number if you want to justify a universal licence fee.

Top-slicing of the licence fee seems like a reasonable idea but actually isn’t. It was thoroughly considered last time in the context of Channel 4 and rejected. The problem revolves around issues such as what new programmes should be funded by such methods, where are they going to be shown and who should benefit?

Should money go to multi-millionaire independent producers or swell the profits of ITV or Richard Desmond’s Channel 5? It is obvious that as a society we can decide to have any shape or size of BBC
we want. But remember that public service broadcasters across European are  facing an increasing squeeze on their finances and if such institutions are  irreparably damaged or lost they will never return. The signs are that the public,  despite everything, is broadly satisfied by the current range of services provided  by the BBC, and within reason, can be persuaded to fund them. All hell breaks loose when the BBC announces the planned closure of even an obscure, minority music station.

But if the decision is to continue with the licence fee system, and it still looks like the ‘least bad’ way of funding public service broadcasting, then the issue of  who pays in the internet age should be clarified. The government could do worse than look at Ireland where the issue has been tackled and action taken.

The Irish have gone for a ‘public service broadcasting charge’ which is ‘device independent’ and does not rely on the television set. It also will apply to ‘occupiers’ rather than owners which should help to eliminate the free-rider  problem – the one-in-five Irish households who do not pay the licence fee at present. It could be part of a comprehensive licence fee and Royal Charter settlement that draws on the wisdom of Sir Alan Peacock – index the licence fee  while taking pensioners on benefit out of the equation.

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