House of Commons - Future of the BBC - Culture, Media and Sport

Future of the BBC - Culture, Media and Sport Contents

4 Scope and scale

"The public look to the BBC to provide some of the essentials of their daily lives. But while it must remain a great national institution, it should be as small as its mission allows."—Michael Grade, BBC Chairman, June 2004, in Building public value, the BBC's vision for its future after its 2006 Charter expiry.

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86. Many of the criticisms we heard about the BBC from competitors and commentators were to the effect that the BBC does too much—spreading its remit too broadly, or otherwise occupying space that others could, and would, fill. What the BBC can do is limited by both what it is legally allowed to do and the amount of money available to it. However, in neither of these areas is the BBC merely a passive recipient. The BBC Trust maintains that the scope and scale of the BBC is ultimately determined by the purposes set for it and the amount of funding provided to it.[116] Yet the BBC itself unquestionably has a significant role in determining how big or small it is and the scope of its activities.

87. While the public purposes and the requirement for the Trust to set multi-year purpose remits are fixed in the Charter (along with the Trust function of "defining suitable performance criteria and measures against which the effective promotion of the public purposes will be judged"), they are not set in stone for subsequent Charters, and the BBC can express its view on their evolution, including any desired expansion, contraction or redefinition. Moreover, the Trust sets the detail and the content of the service licences (which define the scope of each service, its aims and objectives, its headline budget and, where appropriate, other important features). The Trust also determines the BBC's priorities and the practical scope and scale of the BBC. Put another way, the Trust has a significant degree of power and discretion in determining what the BBC actually does.

88. Moreover, the amount of funding provided to the BBC does not appear without any context: while the BBC cannot guarantee the level of funding it receives, the BBC itself is largely responsible for identifying its funding needs and putting forth its funding requests, depending not only on its assessment of licence fee payers' interests but the BBC's own ambitions for its scope and scale. For instance, the BBC can seek to: launch new or close existing services; propose new activities or reduce existing ones; or alter the level of provision of individual services or particular activities, subject to the parameters of the Charter and Framework Agreement with the Secretary of State (the latter of which also can be altered by agreement).

89. The brake on the ambitions of the BBC is provided not only by the Trust but also by Government. In its bid in November 2005 for a new licence fee settlement, for instance, the BBC sought a licence fee increase of RPI plus 2.3% a year from April 2007 to fund, among other things, a new requirement of £641 million for local investment including "ultra-local" television services. The then Minister for Media and Tourism, James Purnell, stated that the BBC's licence fee proposal was being considered by the Government as the BBC's "opening bid" and it was ultimately awarded a lower sum than sought. Following the BBC Executive's formal proposal for new local video services in the new Charter period, the BBC Trust refused permission because it would not improve services enough to justify either the investment of licence fee funds or the negative impact on commercial media. Instead, it believed "the BBC's priority should be improving the quality of existing regional services."[117]

90. The Trust claims that it is difficult to put a complete stop to any significant parts of BBC activity, such is the support and loyalty shown by audiences to the services used. According to the BBC Executive, the BBC's remit requires it to provide something of value for everyone and to offer a wide range of programmes and services in doing so. It noted, for instance, that when audiences are asked which of the 14 main genres covered by the BBC are important, they support nearly all of them in terms of the BBC serving the good of society as a whole.[118]

91. While it is true that the BBC has had to change plans to close down services because of the vociferous support of people who valued the threatened services, any estimate as to how widely listeners/viewers as a whole value specific services or genres depends critically on the exact question put to those surveyed. For example, different polls attempting to discover the value of the BBC as a whole resulted in figures of 57% support in a YouGov poll of May 2012 that asked "Do you think that there should or should not be a publicly-funded broadcasting service, such as the BBC?", compared with an 80% figure for a BBC poll asking the question "Would you miss the BBC if it no longer existed". Statistics from such broadly-worded surveys are not helpful in determining what the BBC should be offering and how much it should spend. Relevant follow-up questions to such research, to get a fuller picture, would ideally ascertain how willing respondents were to pay for all of the services for the good of society, how much they were willing to pay, and the extent to which they consumed content from particular genres.

92. Through the setting of the licence fee, the Government of the day can, if they wish, either squeeze or boost the BBC's funding and, therefore, affect the scale of the BBC's services and ambitions, even within a secure Charter period. Moreover, the Government is not required to pay to the BBC the whole of the licence fee revenue received. Lesser sums can be paid out as the Secretary of State may, with the consent of the Treasury, determine.[119] As we have set out above, the Government froze the licence fee and the BBC agreed to its funding additional services and new responsibilities under the 2010 settlement, at a time when all public spending was being cut. The BBC has stated that the freeze will equate to a 26% real terms cut in its funding by 2017.

93. In response, the BBC put in place a series of productivity and savings measures as part of the DQF programme. DQF involved some upfront service reductions—for example there are now no first-run daytime programmes on BBC Two and 'network' programmes are aired as part of local radio schedules at non-peak times. The more recent proposal to "re-invent" BBC Three online was also, in part, a response to the financial challenges of the licence fee settlement, although the BBC has also said that "people who watch BBC Three are more likely to be online and want new content and new forms of content online'" and described the planned closure of the linear channel and move online as "the direction of travel … earlier than what we might have liked, but it is what we would have done in the long term to give young audiences what they tell us they want".[120]

A smaller BBC

94. In 2011, Mark Thompson, the then Director General, spoke of a BBC that would become smaller in many ways but with a breadth of services and a creative fire-power which remained formidable.[121] He said that the 2010 Licence Fee settlement meant "some difficult and sometimes painful choices for the BBC" but that everyone inside the Corporation also had to accept that it would still leave the BBC with resources and capabilities and strategic options far greater than those enjoyed by almost all of its commercial counterparts. The BBC 2010 strategy review laid out a series of core principles, which included "doing fewer things better" whilst maintaining distinctiveness. The question which arises, though, is what is the optimal size for the BBC to deliver its core public purposes and what practical limits can be put in place to prevent it over-reaching itself.

95. As part of the debate into the future of the BBC, Professor Patrick Barwise and Professor Robert G. Picard completed a study comparing the 2012 television market with what it might have looked like if there were no BBC television.[122] Their work was intended to provide a basis for examining the possible long-term effects on UK-originated production if the BBC's funding and share of industry revenue continued to reduce. The study also was designed to test the claim that BBC television "crowds out" content investment by commercial broadcasters. Overall, their conclusion was that without BBC television there could be as much as 25% less investment in content made by UK broadcasters and that spend on first-run UK content would be between 25% and 50% lower.

96. The modelling applied assumed that commercial broadcasters would continue to invest the same proportion of their total income in content as before, despite their revenues growing as a result of not being "crowded out" by the BBC. Under this scenario, given there would be no BBC television, it was predicted that the growth in commercial revenues would not be sufficient to cover the loss of the BBC's licence fee-funded television content. Again under these circumstances, assuming there would be an uptake in pay-TV, overall people would either be "paying slightly more for slightly less choice" on television than they currently did with the licence fee, or "paying slightly less for much less choice".[123] The study did not take into account the impact on BBC radio and BBC online.

97. In 2012, the BBC's share of total television industry revenue had fallen to 22.1%, from 47.8% in 1985, although this reduction was not a steady fall: It was less severe in the period between 1998 and 2012 owing to a more generous licence fee settlement to enable the BBC to launch its new digital channels. BBC television now accounts for about one-third of total television viewing; by comparison it had nearly half of all viewing in 1985. Professors Barwise and Picard forecast, based on current policy and market trends, that by 2016, the last year of the current BBC Charter, total industry revenue, including that from online television, would have grown to £14.4bn, of which only £2.6bn (18.5%) would be BBC income allocated to television. In their view, a key policy question is what happens after 2016: If the BBC licence fee were to remain frozen and more and more of it was used to fund other activities whilst the rest of the market grew, then within a generation the BBC could be reduced to a "minor sideshow, the UK equivalent of PBS in America".[124]

98. In a critique of the Barwise/Picard study, David Elstein considered that it was risky to base a thesis on a snapshot analysis. For instance, there was evidence from Ofcom's annual public service broadcasting reviews to show that spending on first-run origination could decline even while television revenues were rising and that BBC spending on first-run origination has declined even as the licence fee revenue increased. Mr Elstein argued that if the BBC were to disappear from the scene, as was being hypothesized, a whole raft of established and popular productions would suddenly be available for others to do.[125] He thought it was simply illogical to imagine that no increase in share of revenue would go on origination, which was an underlying assumption of the study. He also noted:

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The debate between Professor Barwise and Mr Elstein continued in exchanges into which we were copied, but without reaching an agreed conclusion.

99. We recognise that, when assessing the value of the BBC, its contribution to UK originated content is just one measure. Professor Beckett told us that to measure the BBC in terms of the amount of first-run content as being the consumer's primary judgement of whether they were getting good media is "nonsense".[127] There are of course many other measures including the reach, quality and impact of programmes and services delivered that should be considered but also, significantly, whether or not people regard paying the television licence as good value in view of what is provided for them as consumers and as citizens.

Something for everyone

100. Some, including the BBC itself, argue that, given its funding basis, the BBC is obliged to provide something for everyone.[128] Yet as Professor Beckett told us, universality should not mean the BBC trying to do everything and while the BBC has made some retreats, for example from major live football coverage, it needed to reconsider what it was doing in a more systematic way. In his view, the BBC has done an outstanding job of improving the quality of its core mass services but, in a world where quality mass entertainment was becoming ever more dominant in the commercial sphere, the BBC should concentrate on the added value of more intelligent, innovative, challenging content.[129]

101. While none of the BBC's commercial competitors is arguing for it to become a narrowly focused PSB broadcaster producing only content that the market would not provide, there is a fundamental view that its licence fee funding means that it must act differently to the rest of the market. There is a strong expectation that it must create innovative content and formats and bring new talent to the fore.[130] Yet several witnesses complained that the BBC was by habit fixated on audience share and ratings rather than understanding its place in the broadcasting ecology and focusing on its distinctive role and strengths. Gavyn Davies thought that the BBC paid too much attention to ratings because there was no other "currency" for them. He explained:

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102. Similarly, while it is generally accepted that the BBC does a lot of things that the market would not replicate at the same scale or volume by itself, several witnesses found that the BBC's schedules too often contain programmes and formats that are seen elsewhere. For instance, we were told there was no obvious justification for the BBC buying in formats such as The Voice for the UK audience.[132] Lord Burns worried that over a 10-year period BBC One had ended up looking too commercial and had relegated quite a lot of what would be regarded as public service broadcasting to BBC Two, BBC Four and its children's channels.[133] He observed:

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103. While ITV did not think that the BBC should be precluded from providing popular content, they wanted its more mainstream material to be produced in a distinctive way that perhaps commercial broadcasters would find difficult to do themselves. In their view, the BBC should not be relying on old tried and tested formats or copying ideas of, or buying in formats from, other broadcasters. Instead, it should be using the financial security provided by the licence fee to develop new formats and content and show that it was fostering new talent. ITV suggested that one possible way to promote such behaviour could be to specify a clear framework in a new BBC Charter and Agreement which set out specific requirements for the distinctiveness of the BBC's services and output.[135] For instance, requirements such as a minimum number of unique titles in the evening schedule or a mandate for a variety of formats and genres of programming on BBC One could be codified in the Framework Agreement and regular reviews conducted to monitor compliance.

104. Many of our witnesses said that the BBC's public funding means that it must take risks in addressing socially valuable genres such as children's, arts, religious and regional programming where there is under-provision. Nevertheless, according to Channel 4, the BBC could be accused of spreading itself too thinly or attempting to be all things to all people.[136] They told us while appealing to the nation as a whole was a key part of the BBC's mission, it should not be seeking to serve the needs of niche groups at the expense of serving the needs of the wider population. For instance, the BBC should not be replicating provision where other PSBs had remits specifically designed to cater for these audiences. In ITV's opinion the issue of the BBC crowding out others was due to a significant extent to the disproportionate size of the BBC's budgets compared with those of most of its competitors. They explained:

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105. In its third review of public service broadcasting, Ofcom has noted that while the public service broadcasters as a whole (BBC and commercial PSBs) continue to account for the bulk of investment in first-run non-sport UK content, there has been a substantial fall in spend on all programmes, and investment in new first-run UK originations is substantially down since 2008, with a 17.3% real-terms decline in programme spend by the PSBs. However, non-PSB channels (the non-PSB portfolio channels of ITV and Channel 4 such as ITV2 and E4 and other multichannel broadcasters combined) have increased their investment in non-sport first-run originations by 43% since 2008, accounting now for 15% of all non-sport investment in first run programmes in 2013, up from 9% in 2008. Whereas in the past the BBC and commercial PSBs have been the sole providers of public service content, other entrants—with no public service funding, privileges or obligations—are contributing. News, arts and documentary programmes are among this output.

106. The Commercial Broadcasters Association (COBA) pointed out that non-PSB broadcasters in the commercial sector were one of the fastest growing parts of the UK television industry, doubling direct employment in the last decade, raising investment in UK content by 30% in the three years since 2011, albeit from a very low base, and increasing commissioning from independent producers by 50% in 2012. According to COBA, the multichannel sector accounted for 18% of all new UK television production and in many areas this commercially-funded content was comparable to PSB content.[138] BSkyB told us that, in 2014, they planned to invest £600 million in their own production and origination of content. This would be a significant increase, given that in 2013 the combined spend by commercial PSBs on their portfolio channels[139] and the multichannel sector[140] on first-run UK originations, excluding spend on sports programming, was only £345 million.[141] Even the 2013 spend represented a 43% increase in real terms from the equivalent spend in 2008.

107. We were told that one of the ways in which the marketplace has changed since the last Charter Review is the waning ability of commercial broadcasters to finance public service content by themselves. Gavyn Davies explained that, owing to the profound changes in the advertising market, particularly the move from expensive broadcast advertising to online advertising, it was becoming increasingly difficult for the private sector to sustain the traditional model of public service broadcasting, free-to-air, funded by advertising.[142] Mr Davies also drew attention to a proclivity in broadcasting towards a kind of natural market concentration and how such consolidation could threaten the health of public service broadcasting. He told us:

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Enabling others

108. A way in which the BBC might use its privileged and publicly-funded position to help support public service contributions by others is through taking a more collaborative approach to the provision and production of content. Professor Beckett advocated the BBC collaborating and commissioning externally much more, including making partnerships with non-UK producers. He saw a need for the BBC to become an "open source" studio organisation that used its resources and facilities as the support structure for local and national content creation rather than always seeking to provide these services itself.[144] If more people participated in production in this way and more organisations had a stake in the BBC, then the Corporation would become more accountable and responsive. Similarly, Channel 4 believed that if the BBC were to engage in considered partnerships in areas where others had better expertise it could deliver an effective means of maximising the value of the licence fee.[145] Undoubtedly, the BBC has had a record of working in partnerships over the current Charter period.

Example of partnerships the BBC has undertaken since 2007

·  Arts Council: several projects undertaken with the BBC such as The Space, a digital arts media service and commissioning programme.

·  The BBC Academy partnered with Channel 4 and ITV on a number of initiatives to improve diversity in the media industry.

·  BBC Alba and MG Alba's provision of a Gaelic television service.

·  BBC Films—co-produces approximately eight British films a year.

·  Creative Skillset: joint work on training and qualifications for the creative industries.

·  Open University—OU programmes co-produced by the BBC, as well as joint online initiatives.

·  Playlister—links to online streaming sites to allow BBC users to tag and play back music and clips which have featured in BBC material.

·  Radioplayer—partnership with commercial radio that allows audiences to access radio stations online via a single console.

·  S4C—BBC Cymru Wales provides a minimum of 10 hours of Welsh language programmes a week to S4C including its news service and the long-running TV-drama Pobol y Cwm.

·  YouView—a partnership which built an open, internet-connected TV platform.[146]

109. The Arts Council would like the BBC to engage in more joint editorial relationships and create shared spaces within existing BBC online platforms and channels to help bring the arts to wider public attention.[147] This, they suggested, could be achieved by re-defining the BBC's remit in a future Charter and fundamentally increasing its partnership potential by extending to other public bodies and cultural organisations the special privileges it currently grants to the Open University. The Arts Council believed this could address many of the current barriers which prevent more collaboration, and could be an alternative to distributing the licence fee to other players.

What next?

110. In his first major speech as Director General, Lord Hall outlined his vision for a more personalised BBC, delivered through the iPlayer, where the BBC would be in a position to recommend content to individuals based on their viewing habits, and the launch of the "BBC Store", a new commercial service allowing the audience to buy and keep BBC programmes on a download-to-own basis.[148] Not all were won over by his vision. Lis Howell, Deputy Head of the Journalism department, City University, was critical of Lord Hall's speech, describing it as "a very well-crafted piece of marketing which dealt at great length on technological advances which … weren't that dramatic at all", and "not so much Netflix as net curtain—a thin veil with holes in it, stopping you from looking too closely".[149]

111. Nevertheless, the viewing of television content online is growing in popularity. Ofcom reports that a third of adults (32%) now use the internet to watch catch-up TV (such as BBC iPlayer, Sky Go, ITV Player and 4OD) and that 14% of adults use their mobile phone for watching TV programmes/catch-up content.[150] This being the case, interactive services and a personalised BBC could and should increasingly over the coming years facilitate a more direct engagement between the BBC and its viewers and listeners, allowing them to provide feedback on BBC output and set out their views on the breadth of the services provided.

112. We welcome the fact that Lord Hall has made partnerships one of his key ambitions over the next few years. We believe the BBC and its audiences have gained greatly from the Corporation working with others during the present Charter period. In order to ensure maximum public value, the BBC must be required to harness such joint working arrangements wherever it can appropriately do so if it is to continue to benefit from the privilege of public funding. Increasing its partnership potential should be a core purpose of the BBC.

113. While it is the case that the BBC's purposes and funding will determine some parameters for the BBC's scope and scale, it is also the Framework Agreement between the BBC and the Secretary of State and the interpretations and decisions taken by the Trust and any successor oversight body that affect these. In practice the level of the funding will be the main lever in preventing the BBC overreaching its remit as set out in the Framework Agreement.

114. The BBC's audience share of television, comprising about a third of all UK television viewing, although it has fallen over the last couple of decades, continues to demonstrate the BBC's central presence in the life of the country.

115. We consider that the BBC Trust's view that it is difficult to put a stop to any significant parts of BBC activity, citing the support shown by the audiences to individual services, is questionable. The BBC must make the most effective use of licence fee payers' money and should not be trying to do everything itself. The BBC needs to be able to make bigger, braver decisions on its strategy and inevitably must do less in some areas. Similarly, we challenge the BBC's justification for doing all that it currently does in order to provide "something for everyone".

116. It is not incompatible for the BBC to provide "something for everyone" across its output whilst also reducing provision in areas that are over-served or where the public service characteristics of its output are marginal, or where others are better placed to deliver excellence and better value for money. The BBC has been given a privileged position and substantial public funding to serve under-served and under-represented audiences, as well as mass audiences, with content not created for commercial gain, allowing it to take risks and be distinctive, challenging, original and innovative.

BBC One +1

117. As part of its proposal to move BBC Three online, the BBC Executive wants to launch a time-shifted version of its linear BBC One channel, a BBC One +1 service, in peak time—broadcasting an additional version of the output one hour later—and to extend CBBC, the BBC children's channel, by an hour each evening.[151] The BBC has said that the proposal for a plus-1 channel is simply a case of it catching up with the rest of the market. ITV do not share this view. While they support the proposal to move BBC Three online, they oppose the move for a repeat channel, which they think would offer very little new to viewers at a cost that could instead be spent on creating new programming. They identified a contradiction in the BBC's reason as follows:

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118. As part of a package of changes associated with moving BBC Three online, Ofcom announced in January 2015 that a market impact assessment would include the BBC's proposal to launch a plus-1 channel for BBC One. The BBC Executive said that their analysis indicated that the commercial impact of the plus-1 channel would be small and that impact on commercial advertising revenues would be minimal—potentially leading to a loss in revenues in the television advertising market of less than 0.5%.[153] We do not find that the BBC has made a convincing case for launching a BBC One +1 service. Whilst we appreciate how such channels can be of particular value to commercial broadcasters, in bolstering audience share and generating advertising revenue through the additional viewing, we do not believe in the BBC's case such a channel would represent public service value given the potential adverse impact on competitors and the availability of most BBC content on the iPlayer shortly after its initial airing. If the BBC no longer requires the scarce digital terrestrial spectrum it was granted and has used in the evenings for BBC Three, then it should be obliged to give this valuable public resource up for alternative, public value use.

Radio services

119. We heard similar complaints about the BBC in respect of some its national radio stations being too middle-of-the-road and having an adverse impact on commercial radio's capacity to generate advertising income. Given its receipt of the licence fee, the BBC is expected to do a type of public service broadcasting that would not be economically viable for commercial radio. Despite this, RadioCentre, a trade body for commercial radio companies, told us that the BBC has explicitly chosen to use its spending power to grow audiences of its flagship national radio services, particularly Radio 1 and Radio 2. Since 1999, they estimated that the shift in listeners to the BBC had cost the commercial radio industry around £54 million a year.[154] From 1999 to 2014, commercial radio's share of the market has gone down from 48% to 42%.[155]

BBC Radio in the UK

In 2013/14 the BBC spent a total of £650m on domestic radio, of which £115.4m was spent on output for English local radio services. Radio 1 cost £40.2m and had a weekly reach of 20% of the population. Radio 2 cost £47.8m and reached 28.9% of the population: it had the highest radio audience in the UK of any station.

120. According to RadioCentre, the BBC's presence in the marketplace made it "a lot, lot harder" for commercial radio.[156] The combined programming budgets of Radios 1 and 2 were greater than the equivalent budget for every commercial radio station in the country.[157] Given that commercial radio stations depend on advertising revenue, they need to maximise audiences. Despite BBC radio not being under the same obligation, and there being an expectation of BBC content being distinctive, Global[158] complained that Radio 1's daytime playlists were dominated by music that was in the charts and widely played on commercial radio, with new music and specialist music shows being broadcast only off-peak or during the night.[159] The BBC, on the other hand, gave examples of how Radio 1 and 1Xtra's schedules included a mix of news, speech and live events coverage.[160] Both stations run a 15-minute news programme twice a day, Newsbeat, and shorter news bulletins throughout the schedule, which reach over one million young people on average a week, and between them they featured over 40 new documentaries a year. In addition, the BBC set out how its music output on Radio 1 was different to comparable stations in that:

· 55% of the songs played on Radio 1 in the daytime were not played on any comparable station;

· While 52% of the tracks played by Capital could be heard on Radio 1, only 3% of the tracks played on Radio 1 could be heard on Capital;

· Across a month (all hours), Radio 1 played 3,613 different tracks—compared to just 188 a month on Capital; and

· 54% of Radio 1's playlist included artists without a top 10 single, compared to 9% on Capital.

121. Global argued that there should be a lot more distinctive output on Radios 1 and 2. They believed that the BBC concentrates too much on maximising listener numbers and hours spent listening rather than focusing on high-quality and distinctive content and underserved audiences. Will Harding, Group Director of Strategy at Global, explained:

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122. We also heard other complaints about Radio 5 Live and Radio 3. UTV Media, owners of TalkSPORT, described a dilution of 5 Live's news remit which they also attributed to the BBC's attempt to maximise ratings.[162] According to UTV's analysis, in 2010 just 45% of 5 Live's output consisted of news, against a service licence requirement of 75%. The Friends of Radio 3, a society of radio listeners, were concerned that the BBC's attempting to make everything "accessible" to everyone led to "dumbing down".[163] They argued that the BBC's allocation of services and funding disproportionately centred on entertainment for a wide audience and consequently audiences with a special interest in the arts and other minority interests were particularly poorly served. Global thought that the BBC's funding priorities were wrong. They considered the BBC's local and regional stations were "very poor relations" to its national stations.[164] Similarly, RadioCentre believed that if the BBC focused more on underserved audiences, i.e. younger audiences and those over 65, the scale and size of the BBC's footprint could reduce.[165] Undeniably, however, in radio as elsewhere the BBC faces a difficult balancing act: the narrower the focus, the lower the reach and the more likely it will be criticised for failing in terms of audience reach. Regarding Radio 4, with its flagship news and current affairs programmes, witnesses from the commercial sector agreed that this station would not exist without funding from the licence fee.

123. Several witnesses have questioned the effectiveness of the current governance mechanisms in holding the BBC Executive to account for delivery of public value on radio. While RadioCentre was not necessarily arguing for an enforced reduction in the BBC's market share, they wanted tighter, more demanding public service targets in place. Instead, what had happened, in their view, was that the Trust had largely endorsed the populist direction of the BBC's radio services.[166] Put more bluntly, Global said that the Trust had simply failed as the overseer of BBC output.[167]

Patrolling the borders

124. Lord Grade described the BBC Trust's role as one of patrolling the borders between the public and private sectors in the media.[168] Since its formation, the Trust has issued and conducted service licence reviews and public value tests as a way of monitoring the BBC's public value and constraining any adverse impacts on the commercial sector. David Liddiment, the longest serving BBC Trustee,[169] described how the BBC's service licences worked:

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125. According to the BBC, the service licence regime has created a "step-change in accountability" inside and outside the Corporation.[171] Lord Grade, who as Chairman of the Board of Governors was principally behind the concept of service licences, described them as "instrumental".[172] Since their introduction, he noted that complaints from the private sector against the BBC had been far fewer than they used to be. However, while RadioCentre found the reviews a welcome improvement on the previous regulation of BBC services, they believed the licences suffered from imprecise and unquantifiable targets which ultimately made it very difficult to judge the overall performance of a service, and consequently the system failed to maximise public value.[173] They argued that the conditions and targets laid out in service licences were ultimately worthless if they were not enforced and accompanied by sanctions.[174]

PUBLIC VALUE TESTS

126. Public value tests (PVT) were introduced at the same time as service licences. Since 2007, any proposal by the BBC to launch a new service, or make a significant change to an existing one, should undergo a public value test by the Trust which is informed by a market impact assessment conducted by Ofcom. The Trust uses these tests to assess the value to the public of a new BBC service and also to estimate the impact it could have on the wider market. Proposed closures of BBC services are also subject to a test. So far the Trust has completed only four public value tests, just one of which was negative: a proposal (discussed earlier) for online local video service. At the time of publishing our report, the BBC Executive's plans for the closure of BBC Three as a linear channel and the introduction of a BBC One +1 service were before the Trust. In this case, we were surprised by the length of time it had taken for the public value test process to start. Despite Lord Hall announcing his proposal in March 2014, it was not until December, nine months later, that the Trust confirmed the formal proposal had been submitted which would allow the public value test to begin. We note that Ofcom's market impact assessment is taking a comprehensive approach, considering the impact of transferring £30 million of funding from BBC Three to BBC One's drama budget among the other changes announced.[175]

127. The delay in the proposal reaching the PVT stage illustrates a problem highlighted by the Commercial Broadcasters Association: COBA were concerned that the BBC Executive was able to announce significant proposals for new services without Trust approval, creating significant and unnecessary uncertainty in the market. They explained:

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COBA also pointed out that the current governance system did not allow industry views to be taken adequately into account when the Trust was considering the market impact on existing services. We note that BBC Store, the new download-to-own service, was approved by the Trust without any formal, direct consultation of industry by the Trust or Ofcom.[177] And more recently, the Trust, having sought Ofcom's advice, did not consider it necessary to carry out a public value test for a new Radio 1 video service.[178]In BSkyB's opinion, this only showed that "public value trumps market impact every time".[179]

128. The BBC is a powerful player in broadcasting and, given the broad scope of its public purposes and resources, there is a constant danger that it will, by accident or design, swamp smaller rivals and inhibit their ability to grow and develop. It therefore needs some boundaries, to ensure that the market overall is working to the public good and the licence fee payer is getting best value for money. To this end, we welcome the current Charter's introduction of service licences and public value tests and support their continuance. However, given the infrequency of service reviews and high thresholds for initiating public value tests, we believe that the body responsible for overseeing the BBC should be more willing to react to reasonable calls to test whether existing BBC services are fulfilling their public purposes and service remits. We recommend an additional means be developed to trigger public value and market impact tests where there is prima facie evidence of the BBC crowding out others' endeavours and having an adverse market impact. We believe the independent panel and Charter Review process should consider this as part of the review.

129. Under any new governance arrangements we believe that Ofcom should continue to provide market impact assessments that inform the public value tests, which would be undertaken by the body holding the BBC Executive to account for its public value. Ofcom should also be invited to give advice in areas where the BBC's market impact should be considered even where it does not involve a formal public value test.

115 Chairman's prologue to "Building public value: Renewing the BBC for a digital world" Back

116 BBC Trust (FBB0096), para 27 Back

117 http://www.bbc.co.uk/bbctrust/news/press_releases/2009/local_video_decision Back

118 BBC (FBB0097), para 30 Back

119 Framework Agreement clause 75(1) Back

120 http://www.bbc.co.uk/blogs/aboutthebbc/entries/fa632091-9a8c-304e-a479-e054dc368c47 Back

121 Speech by Mark Thompson, The BBC after DQF-speech at the Radio Festival, Salford, 1 November 2011 Back

122 What if there were no BBC television-The net impact on UK viewers, Patrick Barwise and Robert G. Picard, Reuter Institute for the Study of Journalism, February 2014 Back

123 Ibid, page 7 Back

124 What if there were no BBC television-The net impact on UK viewers, Patrick Barwise and Robert G. Picard, Reuter Institute for the Study of Journalism, February 2014, page 63 Back

125 David Elstein response to Barwise/Picard report, para 28, February 2014 Back

126 Ibid, para 32, February 2014 Back