A new report released by the UK’s House of Lords today claims that advertising and subscription-based funding models for the BBC won’t work, and that the government must look to alternative solutions as it considers the broadcaster’s future.
The Lords’ BBC Future Funding report, released by the Communications and Digital Committee, is the result of an inquiry into how the BBC should be funded in the future. The inquiry was launched shortly after the government announced it would freeze the license fee for two years, and pledged to abolish it entirely in 2027.
The Lords report agrees that there are flaws in the current license fee model, and that there is a case for wholesale change in the way the organisation is funded. And it was unequivocal that the BBC as a whole has to change, to better suit current public needs.
But two potential replacements for the license fee – a switch to a subscription model a la Netflix, or a full reliance on advertising – were dismissed by the report. A universal household levy linked to council tax bills, a ring-fenced income tax and reforms to the existing licence fee to provide discounts for low-income households were all floated as more viable alternatives.
“Decimated revenues” for other PSBs
The introduction of advertising wouldn’t be wholly new for the BBC as an organisation – after all its commercial arm runs ads on BBC content abroad.
But a switch to relying on ad revenues would be a dramatic change for the broadcaster – and one which wouldn’t work, according to the report.
“Substituting the licence fee entirely for advertising would provide insufficient income whilst decimating the revenues of other public service broadcasters,” said the report.
The UK’s total TV ad market is worth around £4.3-4.4 billion per year, according to data from Ampere Analysis cited by the report, while the radio advertising market is worth approximately £700 million. But the license fee currently provides around £3.7 billion of the BBC’s total funding. So to replace the license fee, the BBC would need to either attract £3.7 billion worth of new ad money into TV and radio, or it would have to steal a large share of revenues from rival PSBs.
In reality, the BBC’s ad revenues would likely fall far short of replacing the license fee, meaning it would have to make billions of pounds worth of cuts to its programming.
The Lords committee was similarly doubtful about a wholly subscription-based model.
As with advertising, subscription revenues would be very unlikely to plug the gap left by the license fee. If the BBC charged £15 per month for a subscription (which would be more expensive than a standard Netflix subscription), and matched Netflix’s 14 million UK subscribers, there would still be a £1.4 billion hole in its budget.
A subscription model would also compromise the BBC’s position as a public service broadcaster, since all access to public service content would be locked behind a paywall.
Reforms needed
The Lords committee did however list several concerns about the current model. One primary issue is that a flat license fee for all households is regressive, placing a greater burden on poorer households who are less able to afford the fee. The license fee is also still linked to ownership of a television set, which the committee says looks “increasingly outdated” given the amount of consumption which happens outside the living room.
The committee also warned that the BBC has work to do to reform its output, in order to better serve the public.
“The BBC must do more to maintain the legitimacy of public funding by doing a better job of representing the full range of perspectives and communities that make up our diverse society,” said the report. “It must adapt its services to remain relevant to younger audiences while supporting those who will rely on linear TV for at least the next decade. And it must make choices and be honest about what it can and cannot deliver in the context of rising costs, restricted funding, and a ruthlessly competitive future marketplace. It otherwise risks a future of gradual stagnation and decline.”
And in the context of “defund the BBC” protests on social media, the committee said that the BBC must do more to win continued support for public funding.
But the Lords committee says the BBC still has a vital role to play, challenging the broadcaster to redefine its role and publish a new vision for how it will deliver for audiences and benefit the nation.
