BBC commercial activities Contents

2Future challenges and risks

Risk taking

17.The BBC’s main commercial subsidiaries operate in sectors that are constantly changing, bringing many opportunities, challenges and risks. They face significant risks from changing audience behaviour, as people, particularly the young, spend less time watching “linear” TV channels and buy fewer DVDs. Instead, people are increasingly streaming programmes digitally via subscription video on demand services.26 The subsidiaries also operate in markets that are increasingly dominated by non-traditional media organisations which have entered the market and grown rapidly, including Netflix, Amazon and Google.27

18.All media companies are increasingly emphasising the development and ownership of content, and the related intellectual property (IP), as a means of guaranteeing their commercial future. The BBC told us that it considers that its position as a provider of high-premium, British-driven content will help it succeed in the global market.28 Just as importantly, the BBC also assured us that it had rigorous processes for opening, closing and changing commercial ventures, approving programmes, and managing strategic and operational risks. However, it accepted that some of its investments would win and some would lose, and it therefore looked to have a basket of investments to spread its risk.29

19.One venture that failed was BBC Store, which had allowed people to pay to download digital content from the BBC’s archives to own themselves. Despite what the BBC considered to be good research, the service had not proved popular as people preferred to access newer content elsewhere. BBC Store had consequently been losing money, and the BBC therefore moved quickly to close it. The relative speed of the closure reflected one of the lessons the BBC learned from its unsuccessful acquisition and ownership of Lonely Planet. The BBC had eventually sold this as it did not fit with the BBC’s mission and purposes and was not delivering value for the licence fee player, but the sale incurred a very large loss.30

Partnerships and joint ventures

20.The BBC told us that, in order to address the strategic issues it faced, its commercial subsidiaries had been changing how they do business by entering into increasing numbers of partnerships. For example, Worldwide sold part of BBC America to AMC in order to gain a partner that could help it improve its position in the US market. The UKTV partnership was also important in delivering money back to the BBC. As a result, Worldwide’s dependence on the revenue and returns from partnerships has increased. For example, in 2016–17 31% of its headline profits came from joint venture and associate companies, compared to 17% in 2012–13. The BBC also told us that co-productions were phenomenally important to it. About two-thirds of its TV drama was funded by this sort of commercial deal: for example, such deals provided 78% of the funding for “Blue Planet II”.31

21.The BBC assured us that it had rigorous processes for considering any prospective partnerships. It told us that it spent a lot of time on the pre-selection of partners in terms of their editorial values, and it would not enter into partnerships with those who wanted to go in an inappropriate direction creatively or were not editorially aligned with where the BBC wanted to take a business. It was only following such considerations that the BBC decided to sell part of BBC America to AMC and selected Sony in India as a partner for its BBC Earth Channel.32

22.We asked about the recent change in ownership of the BBC’s partner in UKTV, Scripps International. Scripps owned 50% of UKTV but was purchased by Discovery earlier in 2018. While acknowledging that it was still early days, we expressed concern that new partnerships sometimes did not work, and, more generally, we feel it is important that the BBC has contingency plans in place for all its partnerships. The BBC agreed that, when a partnership went wrong, it could go very wrong, but it noted that it had had a good relationship with Discovery in the past and was working with it to consider the future of UKTV.33

Merger of BBC Studios and BBC Worldwide

23.In April 2017, the BBC established its in-house production arm, BBC Studios, as a commercial company. In April 2018, it then merged this with its commercial distribution business, BBC Worldwide, creating a new BBC Studios.34 The BBC told us that establishing BBC Studios was the biggest change it had been through in a generation requiring, most significantly, a transformation in Studios’ culture as the BBC moved to open up almost all its production to competition by 2027. Ensuring the change worked was of the utmost concern to BBC management as the success of Studios over the next five years in developing content and the related IP was critical to the BBC.35

24.The BBC told us that BBC Studios was also fundamental in its battle to retain the creative talent it needed to develop the best content. Companies like Netflix had been able to outbid the BBC and lure talent away. Studios’ commercial status might give it greater flexibility over how it worked with talent in future. However, the BBC acknowledged that there was a risk of a “football-style transfer market” developing for talented generators of valuable IP, like natural history content, with a consequent impact on costs.36

25.Although the BBC acknowledged that there was real jeopardy around Studios’ prospects in the context of the global market and associated challenges, it was confident about the subsidiary’s opportunities for future growth. Studios had succeeded in winning business from both the BBC and other broadcasters in its first commercial year, including making a programme about fatbergs for Channel 4, shown the night before our evidence session. The BBC expected that both the production and distribution arms of the new BBC Studios would perform acceptably in their respective markets, commenting that both parts of the business at least “have to wash their face” in future.37