In Focus: The Case for Privatising the BBC: The Case for Privatising the BBC

In Focus: The Case for Privatising the BBC: The Case for Privatising the BBC

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Overview

The BBC holds a special place in the world of broadcasting. It derives its funding from a compulsory levy on people who may not even use the service. The protection it receives is justified on the grounds that it contributes to national welfare because of its role in ‘public service broadcasting’. The authors of this book argue that the BBC’s funding model is becoming untenable as technology changes. Furthermore, technology has also undermined the justification for government support for public service broadcasting. There is also major concern about bias at the BBC. However, the book concludes that bias is not confined to the BBC, but is common to all media providers. The problem is not bias as such, but the link between the BBC and the government, together with the compulsory funding model which does not allow people to not fund content of which they disapprove. Various options for reform are presented, concluding with a proposal for fullblown privatisation. It is concluded that this is the only way to realise the potential of an organisation that should be international in scope and which, under the current funding model, will become marginalised by media players operating worldwide across a range of platforms. This book is essential reading for anybody involved in public policy or the economics of broadcasting.

Product Details

ISBN-13: 9780255367271
Publisher: London Publishing Partnership
Publication date: 04/28/2016
Sold by: Barnes & Noble
Format: NOOK Book
Pages: 168
File size: 4 MB

About the Author

Philip Booth is Academic and Research Director at the Institute of Economic Affairs (IEA) and Professor of Finance, Public Policy and Ethics at St Mary’s University, Twickenham. He was formerly Professor of Insurance and Risk Management at the Cass Business School, where he also served as Associate Dean. He has an undergraduate degree in economics from the University of Durham and a PhD in finance. He is a Fellow of the Institute of Actuaries and of the Royal Statistical Society. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues. He has written widely, including a number of books, on investment, finance, social insurance and pensions, as well as on the relationship between Catholic social teaching and economics.
Ryan Bourne is Head of Public Policy at the IEA and a weekly columnist for City AM. He has previously worked at both the Centre for Policy Studies and Frontier Economics, and has written widely on a range of economic issues. He has both MA (Cantab) and MPhil qualifications in economics from the University of Cambridge.
Tim Congdon is often regarded as the UK’s leading ‘monetarist’ economist, and was one of the foremost advocates of so-called Thatcherite monetarism in the late 1970s and early 1980s. He is currently a professor of economics at the University of Buckingham, where he has established a new research institute, the Institute of International Monetary Research (www.mv-pt.org). His books include Money in a Free Society (New York: Encounter Books, 2011).
Stephen Davies is Head of Education at the IEA. From 1979 until 2009 he was Senior Lecturer in the Department of History and Economic History at Manchester Metropolitan University. He has also been a Visiting Scholar at the Social Philosophy and Policy Center at Bowling Green State University in Bowling Green, Ohio, and Program Officer at the Institute for Humane Studies at George Mason University in Virginia.
Cento Veljanovski is Managing Partner of Case Associates, and IEA Fellow in Law and Economics. He was previously Research and Editorial Director at the IEA (1989–91), and held academic positions at University College London (1984–87), Oxford University (1974–84) and other UK, North American and Australian universities. He holds several degrees in law and economics (BEc, MEc, DPhil). He has written many books and articles on media and broadcasting, industrial economics, and law and economics, including Selling the State: Privatisation in Britain (Weidenfeld: 1988) and, for the IEA, Freedom in Broadcasting (1988), The Economics of Law (1990; second edition, 2006) and, together with Cambridge University Press, Economic Principles of Law (2007).

Read an Excerpt

In Focus

The Case for Privatising the BBC


By Philip Booth

The Institute of Economic Affairs

Copyright © 2016 The Institute of Economic Affairs
All rights reserved.
ISBN: 978-0-255-36727-1


CHAPTER 1

INTRODUCTION: BROADCASTING IN THE TWENTY-FIRST CENTURY

Philip Booth and Stephen Davies


For the past few decades, the British public has been regaled at regular intervals by a pantomime that returns to the stage of public debate when the time for renewal of the BBC's charter comes around. We are told by one side that the licence fee should be abolished, and by the other side that to do so would destroy a great national institution. Meanwhile, the government of the day invariably uses the opportunity this presents to apply not-so-gentle pressure on the BBC's senior management, while the BBC itself tacks and trims to ensure that it gets the best deal possible. All this may soon be a thing of the past. This is not because of a decisive victory for one side or the other in the debate, or because of a popular resistance to payment (although there is such resistance, and it is widespread). Rather, it is because of a technological transformation that is rapidly making the entire debate moot: technology is changing the way that television in particular is made and above all consumed. This means that the licence fee is doomed and will have to be replaced, regardless of what people say or want.


The origins of the licence fee

The question of how to fund television and radio broadcasts arose almost as soon as the technology to make them became available. From an economist's point of view, broadcast radio and television programmes fall into the category of collective goods because they have the quality of non-rivalrous consumption. Having an additional person watch or listen to a broadcast does not impair the initial viewer or listener's consumption of the good. In theory, broadcasting also had the quality of excludability, and so could have been provided as a club good, whereby the service was provided to people in return for a subscription. The problem was that the technology to realise this kind of model was not originally available. This meant that broadcasting fell into the category of a public good, one that is both non-rivalrous in consumption and has non-excludability. In most countries, one of two solutions was adopted. The first solution was to provide radio and later television broadcasting as a pure public good, funded out of general taxation. The problem, of course, was that this had the potential to make broadcasting into an instrument of state propaganda. The second solution was to tie the public goods of radio and television broadcasting to the private good of advertising.

In Britain, however, a third route was adopted. Defenders of the licence fee sometimes present this as a matter of farsighted design, but, in fact, it happened by accident. When radio receivers first became available after Marconi's pioneering experiments, the Post Office was given a power to issue and charge for licences for radio receivers. This was partly a measure intended to control and regulate access, but it was also seen from the start as a revenue-raising device (at that time, the Post Office was one of the principal sources of government revenue). In 1922, manufacturers of radio receivers, along with the Post Office, created the British Broadcasting Company. This was initially funded by the sale of receivers but, as these became more common, the problems of non-rivalrous and non-excludable consumption also emerged – once a certain number of people had a receiver, there was much less incentive for others to also buy one, as they could listen to a broadcast on someone else's set without paying. The Post Office continued to charge for radio licences, and in 1927 the British Broadcasting Company became the British Broadcasting Corporation (BBC), with the Post Office handing over almost all the licence fee income to it. So, the funding of broadcasting by a system of licensing was stumbled upon through the hypothecation of what had been originally just another source of government revenue.


The evolution to a hypothecated television tax

This system, created in the 1920s, made the reception of broadcasts into a kind of club good, which combined a club system of payment by subscription with a monopoly single charge that went to one provider, even when (as after 1955) there were other providers. The system became consolidated and took on its present format in 1946 with the introduction of combined television and radio licences (separate radio-only licences continued to be sold until 1971). The crucial fact that made this feasible was that television broadcasts could only be received via a specific piece of equipment, the television set. That meant that excludability could be created by tying the ownership of the set to a charge that was then used to fund the broadcasts of the BBC (Briggs 1985). However, importantly, though it would have been technically feasible, it was not permitted to buy a piece of equipment that only received ITV programmes (not funded by the licence) and not pay a licence fee. If any television signals were received, the licence had to be bought. This meant that the licence fee was effectively a hypothecated tax (though it was not paid by people who wished to receive no television services whatsoever).

An enforcement mechanism was, of course, required, but this was feasible. The fact that a household is receiving signals can be detected. Furthermore, until recently, television sets were bulky and not easily portable, which meant that the charge for having a set could easily be linked to a specific address. The advent of portable televisions did not really affect this because their reception quality was often so poor that they never caught on as a common platform for watching programming. This meant that the fee became a tax on any household that had the means to receive television broadcasts.

The final piece of the technological jigsaw was that television receivers only had one use – that of receiving television and (sometimes) radio broadcasts. Consequently, anyone who owned one could be assumed to be using it to watch broadcast programming, and this prevented ambiguity. In later years, it became possible to claim that a set was only being used to watch purchased video recordings, but this was uncommon.

There was, of course, a problem of non-compliance. This was dealt with by making failure to pay the fee a criminal rather than a civil offence, and then prosecuting and heavily fining enough evaders to create a deterrent effect. Over time, the number of non-payers increased and reached the point where 10 per cent of all criminal prosecutions were for non-payment of the licence fee (Pirie 2015; Gentleman 2014).


The collapse of the justification for licence fee funding

All this has changed, and the combination of technological facts that made the licensing of receivers a practical way to fund broadcasting no longer exists. The first and fundamental change is that there is now a multiplicity of platforms or devices on which anyone can watch television programmes. You can watch them on laptops, tablets, e-readers and mobile phones. According to a recently released survey in the United States (US) by the Consumer Electronics Association (CEA), these are rapidly becoming the main platforms for television viewers among the so-called millennials (13- to 34-year-olds). Among this group, only 55 per cent reported using conventional televisions as their primary platform for watching television broadcasts, and the trend is clearly for this to become a minority pursuit (CEA 08/01/2015; see also Plunkett 2014).

The response of many at the BBC and elsewhere has been to argue that the majority of television viewing is still done in the traditional way by watching broadcast programmes on conventional television sets. However, the crucial fact is the trend identified in the CEA report and elsewhere. For example, the number of US households that receive television programming only via aerial (6 per cent) will soon be overtaken by those that receive it only via the Internet (currently 5 per cent). In other findings, in 2014, 46 per cent of US television-user households watched video on either a laptop, notebook or netbook (up from 38 per cent in 2013); 43 per cent watched video on a smartphone (up from 33 per cent in 2013); 35 per cent watched video on a tablet (up from 26 per cent in 2013); and 34 per cent watched video on a desktop computer (up from 30 per cent in 2013) (CEA 2014).

A very important point is that these devices are multifunctional – watching television streaming is only one of the many functions they can perform. Consequently, you can reasonably own one for many reasons other than receiving television programmes. In addition, they are typically highly portable; the survey showed that, for consumers, this is their most valuable quality when it comes to watching and listening to media of various kinds. Portability is the way of the future, it would seem. Just as the advent of the small and portable transistor radio destroyed the original radio licence, so portable devices such as mobile telephones, tablets and laptops look set to fatally undermine the television licence. On the one hand, it is extremely difficult to charge something akin to a television licence fee for a mobile phone (and also unjust if it is not used to watch television content). On the other hand, the charging of a licence fee for televisions (assuming it remains possible to define what a television is) might prevent that technology from evolving – there is, essentially, a tax incentive to use phones to watch television rather than use televisions to make phone calls.

What this means, of course, is that people can now watch television anywhere and, crucially, without having to buy a television receiver. This drastically weakens or even breaks the link between having a particular kind of device (which could be linked to an address) and watching television, which was the key to funding the broadcasts through a licence fee for the ownership of the device. Legally, people still need a television licence to watch programmes if they are watched as they are broadcast, regardless of the device used. The problem, of course, is that this is almost impossible to enforce, precisely because the devices in question are used for so many other purposes.

It might be possible to extend the principle of the licence fee and have a 'viewing charge' built in to the cost of every mobile phone, laptop, computer, e-reader and tablet. However, this does not seem likely simply because it would be extremely unpopular, and because it would be very difficult to assign such a charge to the BBC without expensive and complex administration. Any attempt to do this would also lead to many devices being purchased elsewhere in the European Union (EU), and this could not be stopped without breaching EU rules.


Television broadcasts are not a public good

Moreover, ever-larger amounts of television are being either recorded and watched later or viewed through streaming channels such as Netflix. According to very recent surveys, a majority of television content is now watched done on Netflix and other streaming sites (XStream 2015). Most watchers no longer watch shows as they come out; instead, they wait until the shows are available on Netflix or its rivals, and then watch them in large, advertisement-free chunks (Hearn 2015). A report from Nomura revealed that in the US year-on-year viewing figures over the three major networks declined by 12.7 per cent (Roetgers 2015). This is a catastrophic drop and reveals a fundamental shift in the way that television programming is being consumed. Among other things, this is leading, in turn, to profound changes in both viewing habits and the nature and content of programmes (Rainey 2015).

This has devastating implications for the commercial-advertising-funded model of television, as is now being widely pointed out (Wolk 2015). However, it also means that the fallback response to the growth in the range of platforms described above does not work. If people claim (probably truthfully) that they only watch television on their tablet or mobile device via their Netflix subscription, then, even according to the letter of the law, they cannot be charged the licence fee for use of the device in this way. The combination of the two developments of portable, multi-use platforms and delayed consumption of programmes via streaming sites means that the established model is simply blown out of the water.

Of course, the streaming services, together with satellite broadcasters such as Sky, demonstrate a further point. Broadcasting services are now 'excludable'. Compulsory finance for a product can be justified for a 'public' good where it is not possible to exclude non-payers. It is far more difficult to justify compulsory finance for 'club' goods where it is possible to exclude from consumption those who do not pay. Subscription is a more justifiable model for club goods.

Indeed, Netflix is now moving into the production side of the business. This will inevitably crowd out traditional production processes, whether funded by advertising or the licence fee. Instead, the funding will come primarily from a subscription charge. This is part of a wider revolution in the production of television, driven by the sharp decline in production costs and the appearance of dedicated channels and platforms such as YouTube and specialist niche channels based on that model. Much of the content that viewers consume will no longer be produced or (more importantly) delivered by large integrated networks such as the BBC (or, for that matter, ITV or Channel 4). So, the argument that some kind of secured income such as the licence fee is necessary to produce what consumers would like to have loses much of its force.


The licence fee debate should be dead – at least among economists

What all this means is that the whole repetitious argument about whether the television licence fee should be replaced is moot. While academics, politicians and journalists have debated these issues, a technological revolution has completely changed the landscape. In the future, it seems almost certain that the television set will cease to exist as a distinct kind of device, as it will come to be combined with other kinds of devices and platforms such as home computers. Many people will simply not have a conventional television set and will watch television shows on their mobile phone or laptop. They will not watch programmes in the way we have become used to, and the content will increasingly be produced and delivered by organisations very different from the networks and stations of the past, including the BBC. Indeed, it may no longer be meaningful to talk about 'television'. This diverse range of broadcasting provision needs a diverse range of funding sources, with some providers relying on different sources from others.


What might replace the licence fee model of funding the BBC?

The current line of defence is to say that, although the government has not stipulated that households must purchase a TV licence if they have any device capable of being used to watch television, people must still pay the fee if they use such a device to watch a programme at the time it is broadcast, even if they do not own a television set. This leads to situations such as students who are away from home at a student residence being asked to pay a licence fee if they have a laptop. This is both very difficult to enforce and, more importantly, impossible to enforce with any kind of consistency. This will undermine the legitimacy of the entire charge (to the extent that it still has any for many people). Imposing a charge on every single device at the point of sale would be subject to legal challenge from those claiming that they had no intention of using their device to watch television, and it would be highly unpopular.

One solution, which has been floated by the Select Committee on Culture, Media and Sport, is to move to the German model of a flat-rate charge levied on every single household and used only to fund a public broadcaster (Parliamentary Papers 2015). The Director General of the BBC, Tony Hall, has already supported this idea. However, there are serious and principled objections to this. It would effectively be a hypothecated household poll tax and, undoubtedly, would be extremely unpopular politically. Given that, the temptation for one party to pledge its abolition would be ultimately irresistible. This approach would also bring government even closer to the BBC and make the Corporation even more susceptible to political pressure than it is already.


(Continues...)

Excerpted from In Focus by Philip Booth. Copyright © 2016 The Institute of Economic Affairs. Excerpted by permission of The Institute of Economic Affairs.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents

Contents

The authors, viii,
Foreword, x,
Acknowledgement, xiii,
Summary, xiv,
List of tables, figures and boxes, xvii,
1 Introduction: broadcasting in the twenty-first century Philip Booth and Stephen Davies, 1,
2 Public service broadcasting: ownership, funding and provision Cento Veljanovski, 23,
3 The problem of bias in the BBC Ryan Bourne, 67,
4 Why is the BBC biased? Stephen Davies, 100,
5 Privatising the BBC Tim Congdon, 114,
About the IEA, 146,

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