Licence to change: BBC future funding Contents

Summary of conclusions and recommendations

BBC purpose

1.The BBC plays a key role in bringing the nation together—most importantly at times of crisis, celebration and big national moments, such as sporting events. This role as a national glue will only become more important, and more complex, in the context of increasing social, cultural and demographic change. (Paragraph 25)

2.The BBC’s mission to ‘inform, educate, entertain’ has stood the test of time. But the way in which it is delivered needs to change for it to remain relevant in this rapidly changing market and society. The BBC needs to be guided in how it should change by a clearly articulated strategic purpose and vision, as we set out in Chapter 3. (Paragraph 26)

3.The concept of universality remains integral to the BBC but suffers from a lack of clarity. It does not necessarily mean delivering everything for everyone across every platform, or that everyone must pay the same. We call on the BBC to provide a clear definition of its understanding of universality in response to this report, detailing how this, alongside its strategic purpose, will shape its future decisions on its programming and allocation of resources. (Paragraph 34)

4.The BBC plays an important role in providing services that are underserved by the private sector. But this should not be its sole focus: we do not support a market failure model for the BBC. The corporation also plays a central role in supporting and shaping the UK’s creative economy. This market-shaping work should feature prominently in the future vision we are calling for. (Paragraph 45)

5.When responding to the independent review the Government must set out how the BBC’s future funding model and remit will incentivise the corporation to strike the right balance between addressing market failure and shaping markets for the benefit of the UK creative industries and wider economy. In response to this report the Government should commit to commissioning and publishing independent market impact studies ahead of any decision on the BBC’s future funding model. (Paragraph 46)

6.The BBC continues to provide an essential international service which promotes UK democratic values and informs people across the world. It delivers this through a range of means, including entertainment. This is ever more important in an era of declining press freedom and rising authoritarianism. When responding to its independent review the Government should commit to safeguarding the work of the BBC World Service, and if necessary enhancing it. (Paragraph 50)

7.When responding to the results of its independent review the Government should publish an assessment of the benefits that the BBC’s international output, including the World Service, provides to UK soft power and wider objectives in foreign policy, international trade and inward investment. This should set out how changes to the BBC’s funding might affect these benefits. The BBC should provide the Government with scenarios and estimates to inform this work. The Government should provide an interim update on this work by 1 December 2022. (Paragraph 51)

Strategic challenges

8.The BBC faces major challenges. The decade ahead will be characterised by rising competition and costs, and constrained funding. It will need to adapt to a digital future while serving those who will continue to rely on linear services for at least the next decade. It must deliver programming and news that matter, and balance the growing expectation for personalised content against its enduring unifying mission. It must compete with vastly better funded international streaming giants and respond to growing questions about its value in the face of expanding consumer choice and failure properly to represent all sectors of the UK. And it will need to explain more clearly to audiences the relationship between what it is for and how it should be funded. Achieving this will require a more clearly articulated strategic vision that goes beyond its existing published strategies. (Paragraph 83)

9.The BBC should publish a comprehensive long-term vision that sets out its role, and how it will deliver value and distinctiveness in a rapidly changing world. This vision must include costed options for future funding mechanisms, and how these would affect the BBC’s ability to deliver on its mission in the next decade and beyond. This vision must be driven by a positive approach from the leadership. It will require fresh thinking and a more open-minded approach than has been shown in the past. It should include what the BBC will stop doing, what it needs to do differently and what it will start doing. This would provide clarity to the commercial sector, and greater structure and transparency to help Ofcom, Parliament and the public hold the BBC to account. The BBC should submit this work to the Government’s independent review. (Paragraph 84)

10.The BBC cannot provide content that pleases everyone all the time. Yet we continue to hear that the BBC is not representing widely held perspectives in the UK, which often do not divide neatly along party political lines. The legitimacy of a future funding model risks being undermined by dissatisfied audiences and declining viewing share. We note the BBC’s diversity initiatives and encourage it to continue to improve its on- and off-screen representation. The BBC should also embrace this opportunity to show more overtly that it respects, understands and reflects all sectors of UK society. (Paragraph 85)

11.The BBC will need to operate in a more flexible and nimble regulatory framework in future. It currently takes too long for sensible changes to be introduced. We welcome Ofcom’s recent proposals to update the BBC’s Operating Licence better to incorporate the BBC’s online services and give the BBC greater flexibility in how it meets audience needs. In response to this report, Ofcom should set out how it intends to provide a swifter approach to regulatory changes. The Government should likewise outline its plans for introducing regulatory updates. (Paragraph 86)

Funding models

12.When responding to the results of its independent review, the Government should publish its assessment of how alternative funding options relate to the principles of independence, transparency, legitimacy, sufficiency and sustainability, fairness, and proportionality. (Paragraph 91)

13.The licence fee is one option for funding the BBC. But it is not the only option. Our evidence was clear that many of the apparent advantages of the licence fee are under threat, and it has several drawbacks. Making the licence fee more progressive would be an improvement, as fees could be raised without disproportionately targeting those least able to afford them. But this should not preclude a comprehensive assessment of alternative funding options. (Paragraph 102)

14.A purely advertising-funded BBC is highly unlikely to be viable. It would likely mean a multi-billion pound reduction in income for the BBC whilst damaging the rest of the public service broadcasting sector which relies on advertising. The BBC’s programming may need to scale back to refocus on core public service programming under a significantly reduced budget, and still generate income from these genres that are typically least attractive to advertisers. Alternatively, the BBC may be incentivised to refocus on entertainment attractive to advertisers and spend the minimum amount possible to meet its public service broadcasting obligations. As the overall funding level would be significantly less, both entertainment and core public service programming would likely decline in quality. We do not recommend the BBC moves to a purely advertising-funded model. (Paragraph 110)

15.A subscription service would generate insufficient income whilst introducing disproportionate barriers to access. This would undermine the BBC’s ability to deliver a valued service to the UK. There would also be major technical difficulties to overcome. We do not recommend the BBC moves to a purely subscription-funded model. (Paragraph 118)

16.As these fully commercial options are not viable, continued public funding must be retained to ensure the BBC can deliver on its purpose. (Paragraph 119)

17.We reiterate our view set out in previous reports that an independent body should be established. This would provide recommendations to Government on the level at which the licence fee, or a new form of public funding, should be set. (Paragraph 120)

18.A hypothecated income tax could be a more progressive model of public funding which takes account of individuals’ ability to pay. However, it may be more exposed to fluctuations than the current system, may prove politically controversial, and raises questions about its fairness, particularly for households with multiple occupants. (Paragraph 126)

19.A telecommunications levy would offer few advantages over the licence fee, and its potentially negative impact on broadband access would make it less fair. (Paragraph 130)

20.A universal household levy could offer a viable alternative to the licence fee. It would need to be means-tested to make it fairer than the current model. Linking the fee to council tax offers one route to achieving this via an existing system. This could also reduce collection costs. (Paragraph 135)

21.When responding to the results of its independent review, the Government should analyse the implications of retaining an opt-in approach, or changing the funding model to a universal levy which everybody has to pay, as would be the case under a household levy, communications levy, or hypothecated income tax. The BBC should undertake a similar assessment. (Paragraph 136)

22.We do not recommend that the BBC is funded by Government grant. (Paragraph 139)

Future transition

23.We do not recommend contestable funding as a primary alternative to the licence fee. However, the Government should consider the merits of contestable funding as an additional supplement to support underserved areas of public service content. This would need to be separate from the BBC’s existing income. (Paragraph 142)

24.We welcome the BBC’s commercial strategy and encourage it to continue to diversify its sources of revenue. But such income is limited. Without major changes, this will not offset the BBC’s reliance on wider public funding in the near future. (Paragraph 148)

25.A hybrid domestic subscription offers an opportunity for the BBC to maintain a broad range of quality programming without requiring regular rises in the licence fee or alternative method of public funding. It would give audiences choice over whether to pay for the full range of BBC output while ensuring the BBC’s core programming remains universally accessible. But there would be significant commercial risk with no guarantee of success. It may involve trade-offs with universal access, which would have to be viewed as acceptable by audiences. (Paragraph 157)

26.There are a range of possible versions of such a service, with varying levels of investment and risk. For an expansive version, multi-billion upfront investment would be needed to build a sufficient content library. A less expansive version, experimenting with new payment models and content strategies, would involve less investment and risk, but could provide a basis for possible future expansion. (Paragraph 158)

27.An international subscription service offers a further option for generating commercial income. It would avoid compromising universal access for domestic consumers. As with a hybrid domestic subscription, an international subscription service would involve commercial risk with no guarantee of success. We recommend the BBC explores and publishes costed options for hybrid domestic and international subscription models. (Paragraph 164)

28.The costs and complexities of developing conditional access technology for digital terrestrial television would be disproportionate to the benefits. We do not recommend the Government pursues this. (Paragraph 168)

29.We do not recommend a funding model that places BBC radio behind a paywall unless and until both FM and DAB radio listening decline to the point that a switch-off is feasible. We do not believe this is likely within the next 15 years at least. (Paragraph 171)

30.A second digital switchover, whereby digital terrestrial television, and DAB and FM radio would be turned off, is unlikely to be feasible until the early 2030s at the earliest. If conditional access were not developed for DTT and DAB, this would make full subscription unfeasible until this point. Were such a plan to become feasible its benefits would need to be balanced against the needs of households less able to pay for and use new technologies. (Paragraph 177)

31.Current connectivity would support a hybrid online subscription model, as described in paragraph 157. The feasibility of these models will be determined primarily by decisions about the BBC’s purpose and commercial viability, not technological factors. (Paragraph 180)

32.The market for subscription services is becoming increasingly competitive and saturated. If the BBC were to develop a top up subscription service, preparations to launch would need to begin before the end of the current Charter period. (Paragraph 183)

33.The political constraints surrounding the decision on the BBC’s funding raise serious questions about the commercial viability of a hybrid subscription model. The Government must take account of how the timetable of the political process will affect the viability of some funding models. This should not, however, delay the BBC coming forward with the new strategic vision that we are calling for. (Paragraph 187)

34.We were concerned that the Government did not have a specific plan for public consultation on the future BBC funding model. This risks undermining the legitimacy of any changes it may propose. (Paragraph 194)

35.Decisions on the BBC’s role and future must not be left to the last minute before the renewal of the next Charter. And these decisions should be taken more transparently than has previously been the case. (Paragraph 195)

36.The Government should publish a plan and timeline for how it intends to engage the public in discussions and decisions about the BBC’s future funding model. It must commit to holding national public consultation in advance of it proposing a funding model. These could take the form of citizens’ assemblies. The Government’s proposed funding model must be debated in Parliament in advance of any decision to introduce it. (Paragraph 196)

37.The BBC must use the debate on its future funding to embrace its challenges and seize the opportunity to generate momentum for change. The Reithian mission must be adapted for the next quarter of the 21st century. This will require confident and clear proposals from the BBC. Urgent thought is required about how the BBC fulfils its purpose in a changing society and market context. Regulation and the Government must play their part in furnishing the BBC with the tools it needs to transform itself successfully. But it is a discussion the BBC must lead, and it should consider creative and expansive ways to engage citizens. The question of the future funding model is important but only one part of this necessary broader re-evaluation. (Paragraph 200)

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