Mind the Funding Gap: The potential of industry levies for continued funding of public service broadcasting

8/14/2019 Mind the Funding Gap: The potential of industry levies for continued funding of public service broadcasting

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MindthefundinggapThepotentialofindustryleviesfor

continuedfundingofpublic

servicebroadcasting

AnipprreportforBECTUandtheNUJ

March2009

ippr2009

InstituteforPublicPolicyResearchChallengingideas Changingpolicy

WWW.IPPR.ORG


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ippr|MindtheFundingGap:Thepotentialofindustryleviesforcontinuedfundingofpublicservicebroadcasting2

Aboutippr ............................................................................................................................. 3

Acknowledgements ............................................................................................................... 3

Executivesummary................................................................................................................ 4

Introduction........................................................................................................................... 6

1.PublicbroadcastservicesintheUK:anoverview............................................................. 7

2.Technologicalchallenges ................................................................................................. 12

3.Financialchallenges ........................................................................................................ 16

4.Thecurrentpolicycontext .............................................................................................. 22

5.Thepotentialofindustrylevies....................................................................................... 26

6.Thevalueofregulatoryassets......................................................................................... 357.Conclusion....................................................................................................................... 38

References ........................................................................................................................... 39

Appendix1:TheExpenditureandFoodSurvey(EFS)data................................................ 42

Contents


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TheInstituteforPublicPolicyResearch(ippr)istheUKsleadingprogressivethinktank,producingcutting-edgeresearchandinnovativepolicyideasforajust,democraticand

sustainableworld.Since1988,wehavebeenattheforefrontofprogressivedebateandpolicymakingintheUK.Throughourindependentresearchandanalysiswedefinenewagendasforchangeandprovidepracticalsolutionstochallengesacrossthefullrangeofpublicpolicyissues.

WithofficesinbothLondonandNewcastle,weensureouroutlookisasbroad-basedaspossible,whileourinternationalandmigrationteamsandclimatechangeprogrammeextendourpartnershipsandinfluencebeyondtheUK,givingusatrulyworld-classreputationforhighqualityresearch.

ippr,30-32SouthamptonStreet,LondonWC2E7RA.Tel:+44(0)2074706100

E:[email protected].

RegisteredCharityNo.800065

ThispaperwasfirstpublishedinMarch2009.ippr2009

Aboutippr

Acknowledgements

TheresearchforthisreportwasconductedbyKayWithersandHowardReed.Thereportwas

writtenbyKayWithers.Thereportrepresentstheviewsoftheauthorandnotnecessarilythoseofipprsdirectorsortrustees,orofBECTU(theBroadcastingEntertainmentCinematographandTheatreUnion)ortheNUJ(NationalUnionofJournalists).


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Publicservicebroadcasting(PSB)televisioncontentfundedeitherdirectlyorindirectlybythestateanddesignedtomeetspecificsocietalandculturalobjectivesisaculturallyand

economicallyvaluablepartoftheUKsmedialandscape.Itispopularandvaluedbycitizens,andpublicservicebrandssuchastheBBCandChannel4areinternationallyrespected.

TherecontinuestobedemandforpublicservicebroadcastingtobeproducedbymorethanonesourceintheUK,andforUK-basedproductionsthatrepresentthemanydiverseculturesandwaysoflifeintheUKtoday.

However,theUKsmedialandscapehasseenrapidchangeoverthepastdecadeandthedigitalrevolutionhaspresentedpublicservicebroadcasterswithhugechallenges.Theswitchtodigitalduetotakeplaceby2012meansthattheimplicitsubsidiesderivedfromspectrumallocationinthebroadcastingsystemwillfalldramaticallyinvalue.ThiswillpresentahugechallengetotheeconomicbasisonwhichtheUKsPSBsystemrelies.

ButPSBprovidershavealsorespondedtotechnologicalchange.Whilethegrowthoftheinternetsawearlypredictionsthattelevisionandbroadcastersinparticularwouldbecomeredundantinanewdigitalworld,PSBprovidershavediversifiedintheirofferings,enablingsomecontenttobeconsumedonlineviatheinternetandevenaccessedviathenewgenerationofsmartmobilephones.TheBBCsiPlayer,forexample,whichgivesaccesstoitsprogrammesfromtheprevioussevendaysonline,isoneofthemajorcontentsuccessstoriesofthepastfewyears.

Thefundinggap

Followingdigitalswitchover,thedeclineinvalueofspectrumgiftedtoPSBproviderswillcauseafundinggapofbetween145and235milliontoemerge.

ButPSBprovidersarealreadyfeelingthepressuresofthecurrenteconomicclimateandgreatercompetitionfromdigitalproviders.ThecontinuedpopularityanddesireforPSBamongBritishcitizensmeansthataddressingthefundinggapandongoingfinancialpressuresisamatterofgreaturgencyandimportance.

Bridgingthegap:industrylevies

Variousdifferentmethodsandmodelshavebeensuggestedtobridgethefundinggap.Onesolution,showntobepopularwithmembersofthepublic,istheintroductionofindustrylevies:putsimply,asurchargeortaxleviedoncertainsectionsofthemediaindustry,basedonannualrevenueorprofit.IndustryleviesexistinmanyEuropeannationsandarenotanewconcept.

Examplesoflevysystemsinclude:

Directmedialevies levieschargedonrevenuefromorganisationssuchasbroadcasters,cinemasorvideolabels

Newmedialevies levieschargedonorganisationssuchasInternetServiceProvidersandmobilephoneoperators.

A1percentlevyonpaytelevision(subscription-basedTVservices)intheUK,wouldyieldanestimated70millionperannum,basedonassessmentsfromtheUKstwomajorpayTVbroadcasters,VirginandSky.

A1percentlevyonthefivemajormobilephoneoperatorsintheUK(O2,Orange,T-Mobile,3andVodafone)wouldyieldanestimated208millionperannum.

Executivesummary


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Althoughthesefiguresremainestimatesasafinalmodelwouldlikelybedifferent,clearlythesemethodscouldgosomewaytowardsmeetingthefundinggapidentifiedbytheindustryregulatorOfcom,andensuringthefutureofPSBintheUK.

ThevalueofregulatoryassetsDigitalswitchoveralsopresentsanopportunityforrealisingvaluefromreleasedspectrumpreviouslyusedforbroadcastinganaloguetelevisionsignals.

Althoughestimatingtherevenuelikelytobegeneratedfromanyspectrumauctionisproblematic,theTreasurydoesnonethelesshavetheoptionofhypothecatinganyproceedstowardsfuturefundingofPSB.Thiswouldrepresentaone-offwindfallpaymentthatcouldprovidesomemuchneededassistanceintheshortterm.

Summingup

BothindustryleviesandregulatoryassetsprovidepossiblesourcesofrevenuethatcouldbedivertedintothePSBsysteminordertomaintainandstrengthenit.Introducingsucha

systemwouldbeaboldmove.However,thescaleofthechallengefacingtheUKsPSBsystemwouldseemtodemandradicalsolutions.Atfirstglance,leviesmaynotappearpoliticallypopularbutthereisastrongrationaleforconsideringthemasaseriousoption.


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Thefutureofpublicservicebroadcasting(PSB)televisioncontentfundedeitherdirectlyorindirectlybythestateanddesignedtomeetspecificsocietalandculturalobjectivesis

uncertain.Thecompoundingfactorsofanuncertaineconomicclimateandadownturninadvertisingrevenue,alongsiderapidtechnologicalchangeandtheloomingprospectofdigitalswitchover,havecreatedhugechallengesforpolicymakersandPSBproviders.Onethingisclear:thepublicstillvaluespublicservicesbroadcasting,andwantstoseeitontheirscreens.ButdespitereviewsbytheGovernmentandtheindependentregulatorandcompetitionauthorityfortheUKscommunicationindustries,Ofcom,itisstillunclearhowtoprovidethelevelandqualityofprovisiontowhichwehavebecomeaccustomed.

ThisreportwascommissionedbytheBroadcastingEntertainmentCinematographandTheatreUnion(BECTU)andtheNationalUnionofJournalists(NUJ)in2008,toexploreoneoptionforpayingforpublicservicecontentinthefuture:industrylevies.Thisoption(whichinvolvesapplyingsmallleviesortaxestodifferentelementsofthewidermediaindustry)has

beenindicatedtobepopularwiththepublicaccordingtoOfcomresearch.However,theproposalhasbeengrantedlittleattentioninrecentpolicydebates.Thisreportaimstoincreaseawarenessandgeneratedebateaboutthisoptionbyillustratingwhatalevysystemmightlooklike,andhowmuchfundingitcouldraise.

Section1providesabriefoverviewofpublicserviceprovisionintheUK,andexaminesitsvalue,includingcultural,societalandeconomiccontributions.Insections2and3weconsidersomeofthetechnologicalandfinancialchallengesthathavethreatenedthecurrentsystemandthemedialandscapemoregenerally.ThefollowingsectionprovidesabriefoverviewofrecentpolicydebatesanddevelopmentsbeforeinSection5wesetoutanin-depthconsiderationofwhatamedialevysystemmightlooklike.Wethenconsiderthecontinuingroleofregulatoryassetsforfundingmediacontent,inSection6,beforeproviding

afinalsummaryofthefindingsinsection7.

1.Introduction


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ThehistoryoftelevisionintheUKisinexorablylinkedwiththeconceptofpublicservicebroadcasting(PSB).Atitsinception,LordReith,theBBCsfirstchairman,established

televisionsearliestpurposetoinform,educateandentertain1

.Publicservicebroadcastingforinstance,contentbroadcastbyBBC,Channel4andsomecontentfromITVandFivetodayhasawidersetofobjectivesbuttheReithianprinciplesremainacornerstoneofthePSBethos.

Fornearlythreedecades,parliamentariansbackedthenotionofapubliclyfundedmonopolyinbroadcastprovision.Untilthe1950s,theBBCremainedtheonlynationaltelevisionbroadcasterintheUK,defendedbyaninfluentialparliamentarycommitteethatarguedtherightofaccesstothedomesticsoundandtelevisionreceiversofmillionsofpeoplecarrieswithitsuchgreatpropagandapowerthatitcannotbetrustedtoanypersonorbodiesotherthanapubliccorporation(Beveridge1951).

Discussionsaroundtheintroductionofcommercialtelevisionreflectanunderstandingofthepoliticaleconomyoftelevision:therelationshipbetweenpolicy,industryandoutput.Ithaslongbeenrecognisedthatwhatappearsontelevisiontosomeextentdependsontheinstitutionalcircumstanceswithinwhichtherelevantbroadcasteroperatesparticularlyinrelationtocommercialfundingmodels(Elliott1972,Gitlin1985,Hart1988).Whenfinallyintroduced,commercialtelevisionwasbeholdentostrongPSBobligations,andwaseffectivelyseenasanextensionofPSBprovisionratherthanprovidingpurelycommercialcompetition.

Withtheintroductionin1982ofChannel4apubliclyownedbroadcastingcompanyaimedatchallengingthepublicserviceduopolyofBBC1and2publicservicetelevisionwaschargedwithtakingmorerisks,behavingmoreinnovatively,andprovidingcontentforniche

audiencesotherwiseunderservedbytheBBC.Theadditionin1997ofFive,withlimitedpublicserviceobligations,hasmadeuptheterrestrialpublicservicebroadcastingofferingforthepast12years.

Today,publicservicetelevisioncontinuestobedeliveredbytheBBCandChannel4.Bothorganisationshavespecificpublicservicemissions:theBBCseekstoenrichpeoplesliveswithprogrammesandservicesthatinform,educateandentertain(BBC2009),whileChannel4aimstoprovideabroadrangeofhighqualityanddiverseprogrammingwhichdemonstratesinnovationappealstothetastesandinterestsofaculturallydiversesocietyandexhibitsadistinctivecharacter(CommunicationsAct2003).

Meanwhile,ITVandFivecontributesomelevelofpublicserviceprovision,deliveringcontentparticularlynationalandregionalnewsandprogramming(ITV)andchildrensprogramming

(Five)accordingtoquotassetbytheCommunicationsActandperiodicallyreviewedandmodifiedbyOfcom.

Theprinciplesofpublicservicebroadcasting,definedbyOfcom(Ofcom2004)areasfollows:

Informingourunderstandingoftheworld Toinformourselvesandothersandtoincreaseourunderstandingoftheworldthroughnews,informationandanalysisofcurrenteventsandideas

Stimulatingknowledgeandlearning Tostimulateourinterestinandknowledgeofarts,science,historyandothertopicsthroughcontentthatisaccessibleandcanencourageinformallearning

1.PublicbroadcastservicesintheUK:anoverview

1.TakenfromBBCsmissionstatementatwww.bbc.co.uk/info/purpose/accessed22March2009


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ReflectingUKculturalidentity ToreflectandstrengthenourculturalidentitythroughoriginalprogrammingatUK,nationalandregionallevel,onoccasionbringingaudiencestogetherforsharedexperiences

Representingdiversityandalternativeviewpoints Tomakeusawareofdifferentculturesandalternativeviewpoints,throughprogrammesthatreflectthelivesofotherpeopleandothercommunities,bothwithintheUKandelsewhere.

Therearesomeinherentcontradictionsintheseprinciples,withPSBatoncetaskedwithbringingaudiencestogetherforsharedexperienceswhilealsoensuringdiversityandrepresentingarangeofcommunitiesacrosstheUK.Thepublicsphere,asrepresentedbypublicservicebroadcasting,mustatoncebebothrepresentativeanduniting.

InorderforPSBtomaintainabalancebetweenthesesometimes-competingclaims,itmustnegotiatethepoliticsofdifferenceonadailybasis(Murdock1999).So,howcanbroadcastersmanagethis?IntheUK,thepluralityofpublicserviceprovisionmeansthat

bothaimscanbeaccommodated.Forexample,whiletheBBCworkstodeliverasharedculturalexperience,Channel4canproduceprogrammingthatappealstothetastesandinterestsofaculturallydiversesociety(Channel4,2008)andexposesmainstreamaudiencestowhatwouldotherwisebeminorityviews.

Theimportanceofplurality

TherehasbeenahugeincreaseinthenumberoftelevisionandradiochannelsandotherformsofentertainmentcontentsuchasDVDs,computergamesand,ofcourse,theinternet.Nevertheless,UKcitizenscontinuetovaluepluralitythenotionthatcertaintypesofprogrammesshouldbeshownonmorethanonechannelinpublicserviceprovision(IpsosMORI2008).

ResearchundertakenbyIpsosMORIhighlightedthestrengthofUKopinioninthisarea.Morethanfourinfiverespondents(86percent)statedthatitwasimportantthatnewsshouldbeshownonmorethanoneofthemaintelevisionchannels.Respondentsfeltthatnewswasthegenreinwhichmaintainingpluralitywasmostimportant.

Ahighproportion(76percent)alsobelieveditwasimportanttomaintainpluralityintheprovisionofregionalandnationalnews.WhenaskediftheBBCandITVshouldcontinuetoeachprovideregionalandnationalnews,83percentrepliedthattheyshould.Inthedevolvednations,thisviewwasevenstronger,beingheldbynineoutoftenrespondents.

Thosesurveyedalsobelieveditwasimportanttomaintainpluralityinsomeothergenres,includingfactualandcurrentaffairsprogramming.Almostfourinfive(77percent)thought

itimportantthatsuchprogrammingshouldbeshownonmorethanonechannel.Thiswaslargelybecausetheybelievedthatfactualandcurrentaffairsprogrammescontainedopinionsaswellasfacts,andthatitwasthereforecrucialthattheyconveyedavarietyofoutlooks.

Acrossseveralgenres,thekeyjustificationsforpluralitywerethatitwasnecessarytoensureaccountability,impartialityandquality.Respondentsfeltthatalackofpluralitywouldresultnotonlyinthepublicbeinglessinformedbut,becauseofalackofcompetition,adropinstandards.

Previousresearchhasshownthatdifferentproviderscaterfordifferentaudiences.Forexample,newsbulletinsfromITVattractaudiencesfromdifferentsocio-economicbackgroundstosimilarprogrammesonChannel4andBBC1(Ofcom2004b).Similarly,Channel4tendstoserveayoungeraudience,andinitsfuturevisionhasarguedforan

expansiontoitsremittofurtherenhanceprovisionforolderchildrenandyoungadults(Channel42008).Thisindicatesafurtherpurposeforplurality:thatofprovidingimprovedaccess,offeringthepublicanopportunitytofindinterestingandcomplementarycontentatdifferenttimesofdayondifferentnetworks(Foster2008).


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Toprovideplurality,thereisaneedforcontinuedproductionofcontentoriginatedintheUK,whetherinternational,nationalorregionalnews,currentaffairsandfactualprogramming,drama,childrenstelevisionorcomedy.ThemixedecologyofPSBintheUK(whichismadeupofabalanceofdifferentfunding,organisationalandoperationalmodels)

hassupportedhigh-qualityprogramming,andcontinuestounderpinthestrengthoftheUKsbroadcastingsector(Foster2008).InresearchbyOfcom,83percentofrespondentsbelieveditisimportantthatprogrammesmadeintheUKareshownonthemaintelevisionchannels(Ofcom2008).

TheeconomicvalueofpublicservicebroadcastingintheUK

CalculatingthevalueofPSBintheUKisextremelydifficult.Itcanberepresentedasameasureofthelevelofsubsidyitreceives,intermsoflicencefeeandregulatoryassets,asanestimateoftheopportunitycosts.However,thekeystrengthsandmeritsofPSBareoftennon-commercialinnature,andcapturingthevalueoftheseaspectscanbeacomplexexercise.

Variousstudieshaveinvestigatedtheextenttowhichcitizensarewillingtopayforpublicserviceprogrammingoncommercialchannels,inordertoputahypotheticalpriceonsomethingthatiscurrentlyreceivedforfree.ArecentstudyconductedaspartofOfcomsreviewofPSBfoundsignificantreadinessamongthosesurveyedtopayforPSBbeyondtheBBC.Approximatelythree-quartersofrespondentswerepreparedtopayforpublicserviceprogrammingonITV1,Channel4andFive,uptoanaveragevalueof3.50amonth,inadditiontothecurrentlicencefee.Thiswouldequateto42perhouseholdperannumover800millionperannumnationally.Clearly,thevaluethattheserespondentsputonPSBissignificantlyhigherthanthecostofactuallydeliveringsuchservices(Ofcom2008e).

IthasbeenclaimedthatPSBcancontributetothewidersocial,democraticandculturalhealthoftheUKthroughtherangeandqualityofitsbroadcasting(Banerjeeetal2006).In

thepast,theBBChasundertakensignificantworkinordertotranslateitsvaluebyutilisingtheconceptofpublicvalue.OneofitsaimshasbeentounderstandhowPSBcontributesvaluetopeopleasindividualsandcitizens,andtosocietyasawholeforexamplebycontributingtothewell-beingofsociety.

PSBalsohasanimpactontheperformanceofthewidereconomicmarket.RecentanalysisoftheeconomicimpactoftheBBConthecreativeeconomy(PwC2008)estimatesthatBBCspendingoncreativeactivitiesdefinedascontentanddistributionandexcludingoverheadsandinfrastructureprovidesagrossvalueaddedtotheUKeconomyofapproximately5billion.IncludingtheBBCsexpenditureonoverheadsandinfrastructure,thetotalgrossvalueaddedoftheBBCincreasestoaround6.5billion.Thisvalueisaccruedinanumberofwaysforexample,throughthevalueofexternalitiessuchaseducationandtrainingactivitiesthattheBBCundertakes,aswellasitsimpactonregeneration,networkingbuildingandclustering.

OtherstudiesassessingthevalueofPSBhaveincludedtheCardiffBusinessSchoolstudyontheeconomicimpactofS4C(DTZetal2007),whichfoundthattheWelshPSBproviderhadconsiderableindirectimpactonsuppliereffectsandincome-inducedeffects.Forexample,whenemployeesspendtheirwagesandtheirsalariesintheirlocalityongoodsandservices,thisinturngeneratesfurtherdemand.ThestudyfoundthatS4Cactivitywasfoundtosupportindirectly2,100full-timeequivalentjobsoverafive-yearperiod.ItconcludedthatthepresenceofS4Cwithinthecreativeindustriesaddedstabilityandcertainty,generatedanestimated87millionofvalueaddedfortheWelsheconomyin2006,andhenceencouraged

investment,skillsdevelopmentandcreativeexcellence.Inanotherstudy,theprofessionalservicesfirmPricewaterhouseCoopers(PwC)analysedtheimpactofChannel4ontheUKindependentsector,onthecreativeindustriesmore


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generally,andontheeconomyasawhole(PwC2007).ThestudyfoundthatChannel4supportsapluralityofindependentproducersandultimatelyensuresthatawiderangeofideasandvoicesreachthetelevisionscreen.ItarguedthatbycontributingtothedevelopmentofregionalclustersintheUKeconomy,thechannelbuckstheotherwise

London-centrictrendofthemediaandcreativeindustries,identifyingandnurturingtalentinanewanduniqueway.

TounderstandtheimpactofChannel4asapublicservicebroadcaster,PwCanalysedtheimpactsofchangingtheinstitutionalmodelofthechannelfromapubliclyowned,not-for-profitcorporationtoonethatoperatedinsteadonapurelycommercialbasis.Theypredictedthattheeffectwouldbe:

Increasedconsolidationandfewindependentproducers

AreductioninsizeandpluralityofChannel4sources

ArenewedfocusonLondon(reductionofactivityinthenationsandregions)

IncreasedbarriersfortalentReducedrisk-takingandlowerqualitylinkedtoreducedcertaintyoffunding.

Otherresearchhasestimatedthepossibleimpactofreducingthescaleandscopeofpublicfunding.In2006,mediaadvisersOliverandOhlbaumAssociatesarguedthatthecommercialrevenuegrowthresultingfromreducedpublicfundingtotheBBCwouldberelativelylow,andthattherewouldbeasubstantiallossofrecyclingeffectsthatis,theimpactoftheBBCstendencytospendlargeproportionsofitsrevenuewithintheUKcreativeeconomy.TheyestimatedthatforeveryonepoundofincometakenawayfromtheBBC,UKprogrammespendislikelytofallbyabout60pence(OliverandOhlbaumAssociates2006).

Meanwhile,OfcomhasstatedthatBBCsinvestmentinFreeviewhasbeencentraltothesuccessofDigitalTerrestrialTelevision(DTT),whichinturnislikelytoincreaseinter-platformcompetition.Thismayincreasecommercialrevenues,ascommercialadvertisingrevenueshaverisenfordigital-onlychannelsandmorehouseholdshavebeendrawnintothepayTVmarket.

Wecansee,therefore,thatinadditiontobeingvaluedbyUKcitizens,evidenceshowsthatPSBprovidersaddconsiderablevaluetothewidermediamarketthroughnetworkeffects,bytakingrisksthatarenotopentocommercialplayersandalsobypromotingandsustainingnewtechnicalstandardsandplatforms.

TheinternationalvalueofUKpublicservicebroadcasting

TheUKsystematicallyperformsbetterthanothercomparativenationswherebroadcastingisconcerned.TheBBCisaninternationallyrespectedmediabrand,withitsWorldServicereachingmillionsofpeopleworldwide.Similarly,manyprogrammesdevelopedbyChannel4,BBCandITVhavepopularityworldwide,andUKPSBcontentisfrequentlyhonouredontheinternationalawardscircuit.

InthecontextoftheUKscreativeindustries,broadcastingisapowerfulplayerininternationalmarkets.EstimatedtotalrevenuefromthesaleofUKTVprogrammesinternationallyin2005was632millionanincreaseof21percenton2004.In2007thisfigureroseto663million,accordingtotheUKTelevisionExportsSurvey(PACT2008)Thissurvey,carriedoutindependentlyonbehalfofUKTradeandInvestment(UKTI)andProducersAllianceforCinemaandTelevision(PACT,thetradebodyfortheindependent

television,film,animationandinteractiveindustries),concludedthatUKtelevisionprogrammescontinuetogrowinpopularityoverseas,withsalesofformatideasup53percent,to82million(PACT2008).


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PSBplaysanimmenselyimportantroleinasuccessfultelevisionindustrythatgeneratedrevenueof10.4billionin2007,morethanFrance(7billion),Germany(9.3billion),Italy(6.3billion)andCanada(4.4billion)(Ofcom2008b).

Meanwhile,comparedtoothercreativeindustrysectors,radioandtelevisionshowedabove-

averagegrowthof8percentperannum,comparedto4percentforthecreativeindustriesgenerallyand3percentfortheeconomyasawhole(DCMS2009).

Inotherrespects,too,theUKsPSBsectorperformswellincomparisontoitsinternationalcounterparts.In2007,first-runoriginatedoutputaccountedfor49percentofallhoursbroadcastbytheEuropeanPSBproviders,comparedto53percentintheUK.UKPSBprovidersalsobroadcastthelowestpercentageofacquiredcontent(5percent,comparedtotheEUaverageof15percent)(Ofcom2008b).

Conclusion

Publicservicebroadcastingcontinuestoberelevantandvaluedbycitizens,asillustratedbyviewinghabits,opinionpolls,andresearchintowillingnesstopay.ItalsoformsanimportantpartofasuccessfulUKbroadcastingindustry,andcontributestothegrowthandexpansionoftheUKcreativeindustriesmorewidely.ThisisanimportantfactorthatweshouldbecarefulnottooverlookparticularlygiventheGovernmentscommitmenttotransformtheUKintoaleadingknowledgeeconomyandthecontinuedemphasisonthefutureofourcreativeindustries.

ThevaluethatPSBdeliversbothintermsofeconomicbenefitsandimprovedwell-beingindicatethatPSBisnotjustaboutmarketfailure:italsoplaysacrucialroleinUKpubliclife.

OverthecomingsectionsweconsiderthestructuralchangesthreateningthecurrentbalanceoftheUKsbroadcastindustrychangesthatareimmediateandarelikelytobesevere.


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TheUKsmedialandscapehasseenrapidchangeoverthepastdecade.Innovationsintechnologyhaverevolutionisedthewaysinwhichpeopleaccess,consumeandindeedcreate

media.Themovefromanaloguetodigitalhasmeantthatcontentcanbedistributedmorequickly,easilyandcheaplythananaloguematerial,andcanbestoredforafractionofthecostwhiletakingupafractionofthespace.

ForPSBproviders,thedigitalplatformoffersbothanopportunityandathreat.Thebiggestchallengeistheendoftheanaloguecompact,inwhichbroadcastershavebeenoffereddiscountedorfreeairwavespectruminexchangeforbroadcastingpublicservicecontent.Theswitchtodigital,duetotakeplaceby2012,meansthatimplicitsubsidiesderivedfromspectrumallocationwillfalldramaticallyinvalue,andwillultimatelychallengetheeconomicbasisonwhichtheUKsPSBecosystemrelies.

Thissectionprovidesabriefoverviewofhowdevelopmentsintechnologyhaveimpactedonthemediasystem,fromtheperspectiveofthemediaconsumer,anddescribestheenvironmentinwhichPSBprovidersmustnowoperateandsurvive.

WelookattheeconomicconsequencesofthesechangesinmoredetailinSection3,butbriefly,themainchangesrelatetonewopportunitiesforaudiencestochangebehaviourinconsumption,contentcreationandcommunication.ForthetraditionalPSBmodel,themostimportantoftheseisconsumptiontrends.

Changesinconsumptiontrends

Todaysmedialandscapeisoneofvastchoice.Justover25yearsago,wesawthearrivaloftheUKsfourthterrestrialtelevisionchannel,Channel4.Today,theadventofdigitalhasseenthenumberofTVchannelsrockettomorethan400(Ofcom2008c).Take-upofmulti-

channeltelevisionhasincreasedrapidly:fiveyearsago,justoverhalf(54percent)ofUKhouseholdshadaccesstomulti-channeltelevision,butby2008thisproportionhadgrowntonearlynineoutoftenhouseholds(88percent)(ibid).Radiostationshavealsoproliferatedhugely,withdigitalradioprovidingaccesstoagreaternumberofnichestations,whileinternetradiooffersinstantaccesstostationsanywhereintheworld.

Meanwhile,internettake-uphasincreasedrapidlyoverthepastdecade.NearlytwothirdsofUKhouseholdshaveaccesstobroadbandinternet,andthisnumberissteadilygrowing.Theinternetitselfprovidesavastrangeofcontentfromthatprovidedbyexisting,traditionalmediaoutletstoblogsandotherformsofcontentgeneratedbyusersthemselves.Thescaleofcontentandinformationishuge.TheblogsearchengineTechnoratiestimatesthattherearenowwellinexcessof100millionblogs,whilethevideo-sharingwebsiteYouTubereceives

around65,000videouploadsonadailybasis.

Whatimpacthasthislevelofchoicehadonpeoplesconsumptionhabits?Thegrowingrangeofcompetingmediadoesnotseemtohaveimpactedontheamountoftimethatpeoplespendwatchingtelevision.DespitetherangeofDVDs,videogamesandinternetoptionsonoffer,televisionviewingperdayhasincreased.In2008,theaverageBritishviewerwatched26hours,18minutesoftelevisionperweekanincreaseof48minutesfrom2007(Thinkbox2009).

However,theproliferationofchannelshasmeantthatviewingpatternsarenowmorewidelydispersed,andwhilethemainfiveterrestrialchannelscontinuetomakeupthebulkoftelevisionviewing,theirshareofaudiencesisindecline(Ofcom2008c).In2002,these

channelsaccountedfor77.7percentofviewing,comparedto61percentin2007(Ofcom2008c).

2.Technologicalchallenges


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Theincreasedlevelofchoicehashadasignificantimpactonconsumptionofnewsandcurrentaffairsprogramming.Whereasviewersinanaloguehomeswatchedatotalof135hoursofnationalnewsonthefiveterrestrialchannelsin2006,multi-channelviewerswatchedonly77hours(Ofcom2007).Thelowestlevelsofconsumptionwereamongthe

1624agegroup,membersofwhomwatchedonly33hoursin2006.

Theinternetandonlinepublicservicecontent

Theinternetasasourceofnewsandinformationisgrowinginsignificance.However,terrestrialtelevisionremainsthemainsourceofnewsformostofthepopulation(65percent)(Ofcom2007).AnalysisbyOfcomsuggeststhattheinternetisseenasasourceofsupplementaryinformationratherthanaprimarysourceinitself(ibid).

Perhapsthebiggestindicatorofchangetocomeisthebehaviourofyoungeragegroups.Utilisingincreasesinbandwidthandthepotentialofsuperfastbroadband,1624yearoldsarebeginningtospendmoretimeonlinethanwatchingtelevision(EuropeanInteractiveAdvertisingAssociation[EIAA]2007).Asubstantialamountoftheiruseisdedicatedtotime

onsocialnetworkingsites.However,theinternetisincreasinglyseennotonlyasacommunicationtoolorarichsourceofinformation,butasapointofaccessforaudio-visualcontent,includingtelevisionprogrammes.Reactingtothistrend,PSBprovidershavemadeconsiderableinvestmentinordertoprovidepublicservicecontent(PSC)online.

Publicservicecontentonlinecurrentprovision

Wenowcometoconsiderpublicservicecontentanditsimportanceintheonlineworld,lookingatthescaleavailableasameasureoffinancialinvestment,andtheextenttowhichBritishaudiencesaccessandconsumePSC.

AspartofitssecondreviewofPSB,Ofcomcommissionedtworeportsassessingfirst,theavailabilityofPSConline(MTM2008a)andsecond,thelevelofeconomicinvestmentinPSC

online(MTM2008b).ThesetworeportscoveredalltypesofPSC,includingcontentthatmetpublicservice-typeprinciplesbutmayhavebeenprovidedbycommercialoperators,individualcitizensornon-governmentalorganisations,artorganisationsandcharities,andgovernmentorotherprovidersinadditiontothatprovidedbythepublicservicebroadcastersthemselves.

Theonlineavailabilityreport(MTM2008a)foundthatthereweresignificantlevelsofinformationandcontentaccessibleunderthebroadPSBcategories,including:

information,search,andreference

newsandcomment

businessandcommerceentertainmentandlifestyle

health

scienceandtechnology

politicsandgovernment.However,farlesscontentandinformationwasavailableinotherareas,suchas:

arts,cultureandheritage

children

teenscommunityandsocialaction

learningandeducation.


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Ultimately,becausetherearenodirectoriesofonlinecontent,andbecausethescaleofcontentissovastandchangingsorapidly,itisverydifficulttodetermineonceandforallhowmuchpublicservicecontentisoutthere.Itiseasiertodeterminethescaleofcontentprovidedbytraditionalpublicserviceprovidersandtheextenttowhichthisremainsacentral

componentofBritishinternetusersconsumption.Meanwhile,Ofcomsfinancialanalysisreport(MTM2008b)showedthatanumberofdifferentbodiesweremakingsignificantinvestmentinPSConline.Itidentifiedthefollowinglevelsofinvestmentduringthe2006/7period:

CentralgovernmentspendingonPSCintheregionof7090million ThelargestproportionofthiswasonthegovernmentonlineinformationserviceDirectGov,butthisfigurealsoincludesinvestmentbygovernmentdepartmentssuchastheformerDepartmentforEducationandSkillsontheteacher.netwebsite.

OnlinenewssectorannualspendingonPSCintheregionof200million Thisincludednewspapersandothermajoronlinenewsproviders,suchasSky.

PublicservicebroadcasterannualspendingonPSCestimatedat170million Thiswasthesecond-largestsegment.In2006/07theBBCspent116milliononbbc.co.ukandafurther37.7milliononBBCJam.

Thirdsectorinvestmentof6080milliononPSConlineThisincorporatedregisteredandunregisteredcharities,andvoluntaryandcommunityorganisations.

Localanddevolvedgovernmentinvestedintheregionof4555million ThisestimatewasbasedonananalysisofICTandeGovernmentspendingonPSConline.

Theeducationcategoryspentonly67million ThisincorporatedexpenditureonlearningresourcesnotcapturedinothercategoriessuchasgovernmentandPSBproviders.

Fromscheduledtoon-demandviewing

Oneofthemostsignificantimpactsoftheinternetonconsumptionofaudio-visualmediahasbeentheshiftfromlinear,scheduledviewingtoon-demandaccess.Theinternetisapulltechnology,wheremediaconsumersrequestcontentbyaccessingcertainwebsitesordownloadingcertaincontent.Thisisinstarkcontrasttobroadcast,whichisapushtechnology:itdeliverscontenttotheviewerwithouttheviewerhavingtospecificallyrequestit.

Thestorageanddistributionpotentialofdigitalcontenthasledtoinnovationsthatallowviewerstomoreeasilytime-shiftcontentthatis,towatchitwhentheywant,ratherthanwhenthescheduledictates.NewservicessuchasBTsInternetProtocolTelevision(IPTV)

serviceBTVisionandVirginMediason-demandserviceenabletelevisionviewerstorequestcontentanddownloadittotheirtelevision,inordertoviewitatatimeoftheirchoosing.

Personalvideorecorders(PVRs)haveenabledviewerstocreatetheirowntelevisionschedules,time-shiftingprogrammestostartanythingfromafewminutestoseveraldaysaftertheoriginalbroadcasttime.ViewerscanalsoautomaticallystoreentireseriesonPVRharddisks,inordertoviewthewholeseriesfromstarttofinishinonesitting,overaweekendorwhenevertheychoose,ratherthanwaitingforthetypicalweeklyinstalment.Theycanalsoskiporfast-forwardadvertisementsoncommercialchannelssomethingthathasbeenofsignificantconcernintermsoftheeconomicsofcommercialtelevision.

Withinthewiderculturalcontext,themainchallengeofon-demandhasbeencouchedin

termsofadecliningpowerofthetraditionalbroadcasterandthetraditionalbroadcastbrand.Previously,PSBprovidersinparticularbroughtpeopletogether,toviewthesameprogrammeatthesametime.Thissolidifiedtheirpositionbothintermsofindividualhouseholdsand


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families,andintermsofnationalimportance.ThelatterhasbeenparticularlytruewherechannelssuchastheBBChavebroughtpeopletogetherovereventsofnationalimportance,suchastheQueensCoronation,majorsportingevents,thefirstlandingonthemoon,andChristmastelevision.

Inrecognitionofitscentralimportanceindomesticlife,televisionhastypicallybeenscheduledaroundthefamily.Forexample,thewatershed,setat9pm,servestodrawanexplicitdistinctionbetweenthefamilyviewingcontent(whichusuallytakesplacebetween5.30pmand9pm)andtheadulttelevisionworldthatfollows.Inthisway,ithasbeenargued,televisionschedulingunderpinnedsocietysexpectationsofbehaviour(forexample,expectingchildrentobeinbedby9pm),andhelpedtoprovideasenseoforderandcontinuityinindividualslives(Silverstone1994).

Todaystechnologicaladvancesarethreateningtheimportanceofschedule,andalongsidethis,itisoftenspeculated,thepoweroftelevisionbrands.However,inreality,theimpactmaynotbeassevereassomehavepredicted.Forexample,researchintouseofPVRs(Barwise2005)hasshownthatconsumerstendtousethemtoshiftprogrammesbyaslittle

astenminutes,andprimarilyinordertofast-forwardadvertisementsratherthantodiscardthescheduleentirely.(Ofcourse,thisstillcreatessignificantproblemswheretheeconomicsoftelevisionbroadcastingisconcernedanissuethatweaddressinSection3.)

Moreover,PSBprovidershavebeguntoadapttothisculturalshift.ThemostsuccessfulexamplesofPSConlineprovidedbyPSBprovidershavebeenthosethatenableviewerstoaccesscontenton-demand,suchastheBBCsiPlayerand4oDfromChannel4.Useoftheseservicesisgrowingrapidly:inDecember2008,viewersaccessedBBCprogrammesviaiPlayerarecord41milliontimes.Meanwhile,Channel4son-demandserviceisparticularlypopularamongyoungeragegroups.OneinsixviewersofthetelevisionshowSkinswatchedtheprogrammeonline.

Conclusion

Thespeedandscaleofthetechnologicalchangesinthemediaoverthepastfewdecadeshasbeendramatic.Thesechangeshavecausedrapidchangewithinthewidertechnologicalandculturalcontexts,suchasallowingviewerstodefinetheirowntelevisionscheduleandaccesscontentonthemoveonmobiledevices,resultinginimmensechallengesforPSBproviders.

Nevertheless,inthemain,PSBprovidershavereactedproactivelytothesechanges,andhavesoughttoremainrelevantinanincreasinglyonline,on-demandworld.TraditionalPSBprovidershavemadesignificantinvestmentinPSConlineand,despitethehugescaleofcompetition,televisioncontentproducedbyPSBproviderscontinuestobeaccessedand

consumedinonlineenvironmentsthroughinnovationssuchasiPlayerand4oD.Continuedinvestment,innovationandavailabilityislikelytoremainimportant.PSConlineoriginatingfromawidevarietyofinternationalsourceshasbeenshowntomeetOfcomsprinciples1and2ofpublicservicedescribedinSection1(inotherwords,informingandstimulatinginterest).However,significantlylesscontentappearstomeetprinciples3and4(strengtheningculturalidentityandraisingawarenessofdifferentculturesandviewpoints).Thisisimportant,andechoesalong-heldconcernthatthehighlevelsofpersonalisationandchoiceaffordedbytheInternetwillleadusintodiscursiveghettos.

Aswesawintheprevioussection,UKviewersplaceconsiderableimportanceoncontinuedsharedexperiences,andonreversingtrendsoffragmentationwithinsociety.Eveninournewtechnologicalenvironment,traditionalPSB-typecontenthasavalueandrationale,andisessentialtoUKcitizens.

Inthenextsection,welookatthefinancialchallengesthatarecurrentlymountingandcouldactasabarriertomaintaininglevelsofpublicserviceinbothonandofflineenvironments.


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Intheprevioussection,wediscussedtheimpactoftechnologicalchangesonculturalfactors,suchasthewayweaccess,consumeandsharemediaandthewaysinwhichwecommunicate

witheachother.Weconcludedthat,despitethesechanges,PSBcontinuestoberelevantandimportanttoUKcitizens.ButshiftingconsumerbehaviourisnottheonlychallengefacedbyPSBproviders.Technologicaladvanceshaveresultedinmassivechangestotheeconomicbasisandbusinessmodelsoftelevision,presentingnewdifficultiesinfindingfunding.

ThissectionbrieflyoutlinesthefundingchallengescurrentlyfacedbyPSBprovidersintheUK.Itsetstheseoutwithinthewidereconomiccontext,consideringtheimpactandfurtherpressurescreatedbythecurrentrecession.Itthengoesontoconsiderwhichelementsofthemediaindustryareseeinggrowth(orthepotentialforgrowth),lookingatinfrastructureandsubscriptionservices,andcontentservices.Finally,itconsiderswhattheshiftsinrevenuemeanforpublicservicecontentparticularlycontentoriginatedintheUK.

FundingsourcesPSB,andthemassivefinancialinterventioninthemarketthatthisrepresents,haslongbeenjustifiedonthegroundsofmarketfailure.Inotherwords,withoutspecialdirectionandfundingtodoso,itisnotthoughtthatcommercialcompanieswouldinvestinPSBcontent.Thisisparticularlythecasesincethistypeofcontent(forexample,home-produceddrama,childrenstelevision,in-depthbroadcastnationalandregionalnewsandcurrentaffairsprogramming)isoftenexpensivetoproduce.

Table3.1showsthelevelofpublicinterventionstosubsidisePSBcontentstartingin2003/04andlookingforwardto2012/13.Providingaccuratefiguresforthelevelsofinterventionisnotoriouslydifficult.Thisisbecauseoftheimplicitnatureofsomeofthefunding,thelackofclearalternativescenariosagainstwhichtotestitsvalue,andlimitstotheavailabledata.

Themainsourcesoffundingarethelicencefeeandgiftedspectrum,thatisairwavespectrumprovidedfreetobroadcastersinexchangeforthemmeetingcertainpublicserviceobjectives(thelatterbeingmeasuredintermsofopportunitycosts).Opportunitycostsareparticularlydifficulttoestimate.Theyarebasedonlostadvertisingrevenuethatcouldhavebeengainedhadthebroadcastershownaprogrammethatwasmorecommerciallyattractive(intermsofaudienceandadvertising)instead.Forsomegenres,theopportunitycostisparticularlyacute,andgrowing.Forexample,asaudiencelevelsfornewsandcurrentaffairsprogrammesdecline,theopportunitycostsoftheseprogrammesshownduringprimetimegrowconsiderably.

3.Financialchallenges

Table3.1:Levelsofpublicinterventionstosubsidisepublicservicebroadcasting

Institution 2003/04 2007/08 2012/13

BBC(televisionandonline) 2,700 2,865 3,010

S4C/GMS 105 110 110

ITVplc 280 140 45

Channel4 175 175 80

Five 40 50 50

Otherlicensees 25 25 10

Total 3,325 3,365 3,305

CommercialPSBproviders 520 390 185

Source:Ofcomestimates,BBCannualreports,financialdatafrombroadcastersNote:Allfiguresinreal2007million.BBCdataforfinancialyears2003/4,2007/8,2012/13;othersfor2003,2008and2013respectively


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ThemostimportantstatisticshowninTable3.1isthedeclineinvalueofimplicitsubsidiesforthecommercialPSBprovidersfrom520in2003/4to185in2012/13.Thisrepresentsadeclineinthevalueofpublicsubsidiesof335millionsincetheintroductionoftheCommunicationsActin2003.Ifnothingchangesinthisscenario,theBBCwillreceive90per

centofallpublicsubsidies,upfrom80percentin2003(Ofcom2008).ThissituationwilldolittletopreservethepluralitythattheUKpublicsohighlyvalues.

Ofcomestimatesthatinorderforthesamelevelofpublicservicecontentavailabletodaytobeprovidedby2012,publicfundingofbetween330and420millionwillbenecessary.Existingregulatoryassetsarepredictedtocontribute185million,asoutlinedabove.Thisleavesafundinggapofbetween145millionand235million(Ofcom2008).

Thisestimateisbasedonanassessmentofthreefactors(Ofcom2008):

ThelevelofinvestmentcommercialPSBproviderswouldbelikelytomakeinarangeofdifferenttypesofprogramminginthefuture,basedontheirrelativeprofitability

Theamountofcontentthataudiencesarelikelytowantinthefuture,assumingthatcurrentdemanddoesnotchange

Whetherthewidermarketislikelytomakeagreaterorlessercontributiontoeachtypeofcontentinthefuture.

Ascompetitionforadvertisingrevenueincrease,dramaticdeclinesinprofitabilityareexpectedformanygenres.Inthefirstquarterof2009,advertisingrevenuesoncommercialtelevisionarepredictedtoexperiencea17percentfall(Sweney2009).Forexample,in2007,GooglesurpassedITV1sadvertisingrevenueforthefirsttime,andwiththegrowingrecession,theoutlookforITVisnotgood.Theadvertisingslowdownhasalreadyhadasignificantimpactonjobsandprogrammingatthebroadcaster,withseveralbroadcastsdelayedandfurtherjobcutspredictedoverthenextfewmonths.ThemanagingdirectorofITVbrandandcommercialhasannouncedthatthebroadcasterisscrappingforitslife(citedinHolmwood2009).

Thewidereconomiccontext

TheUKsmediaindustrycouldnotbeexpectedtobeimmunetothewidereconomicclimateinwhichitexists.TheUKeconomyispredictedtoshrinkbyupto4percentoverthecomingyear.Advertisingrevenueshavealreadyfallenintodecline,andarepredictedtoshrinkfurtherovertheperiodoftheeconomicdownturn.AdvertisingrevenueisstronglycorrelatedtoGDPgrowth,andastheUKmovesintoarecession,thisisbadnewsnotjustforPSBproviders,butalsoformanycommercialmediaproviders(Deloitte2009).

Forexample,newspapershavealreadybeguntomakesignificantcutbacks,including

sheddingstaffasthecombinationofdecliningadvertisingrevenueandtechnologicalchange(withmanynowaccessingnewsonline)hithome.Atarecenteventtodiscussthefutureofnewspapers,EmilyBell,contentdirectorofGuardianDigital,stated:

WecouldbeonthebrinkoftwoyearsofcarnageforWesternmedia.Inthe

UK,fivenationalscouldgooutofbusiness,andwecouldbeleftwithnoUK-

ownedbroadcasteroutsideoftheBBC.Wearefacingcompletemarketfailure

inlocalpapersandregionalradio.Thisisasystematiccollapsenotjusta

cyclicaldownturn.Eventhesurvivingbrandswillgothroughaperiodof

unprofitability.(citedinBeckett2008)

EvenmediamogulRupertMurdochhasinstructedNewsCorporationandthenewspapersin

theNewsInternationalstabletoprepareforaleanyearin2009(citedinSweney2008b).

ThisisnotasituationpeculiartotheUK.TheUShasexperiencedsimilarcasualties,withnewspapergiantTribune(owneroftheLosAngelesTimes,ChicagoTribune andBaltimore


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Sun,amongothers)filingforbankruptcyinDecember2008,theMinneapolisStarTribunefollowingsuitinJanuary2009,andsignificantjoblossesformediafirmBloomberginFebruary2009.Meanwhile,inFrance,PresidentSarkozyhasannouncedfinancialstateaidforthenewspaperindustry,includingtaxbreaksfordeliveryanddoublingthevalueof

governmentadvertisinginordertohelptheindustrythroughtherecession.WhilethedifficultiesfacedbyotherpartsofthemediaindustrydonothaveadirectimpactonPSB,theynonethelessmassivelychangethecontextinwhichthediscussionregardingfuturefundingtakesplace.Theformerassumptionthatmarketfailureislikelytoreducewiththeadvanceofdigitaltechnologiesisincreasinglydiscounted.Inanycase,therehavelongbeenconcernsaboutinvestmentinareassuchasnews.Whilemanyhavepreviouslyheraldedthepotentialoftheinternettoprovidenewscontent,researchhasshownthatprimarysourcesofnewsandnewsgatheringremainlimitedtoafewlargeplayers:itisopinion,ratherthanfacts,thathavemultipliedinthedigitalage(Davies2008).

Asothersourcesofpublicservicecontentcomeunderincreasingpressure,andcertaingenresbecomemorecostlyandcommerciallyattractive,PSBandinparticular,pluralityin

PSBprovisionislikelytobecomemoreimportanttocitizens,notlessso.

Mediarevenues

Alongsidetheeconomicdifficultiescurrentlybeingexperiencedacrossthemedia,therecontinuestobemoneyinthemediasystem.However,withchangingconsumerhabitsandbusinessmodels,incomeisshiftingfromtraditionalmediacompaniestonewentrants,duetoanumberoftrends:

Advertisingincomeisshiftingfromtraditionalterrestrialbroadcasttelevisiontodigitalandonlineservices.

Theeconomicsofonlineadvertisingarevastlydifferenttotelevisionadvertising

particularlyinthatonlineadvertisingissubstantiallycheaper.

Emergingbusinessmodelshaveresultedinpeopleincreasinglypayingforsubscriptionservices,suchaspayTV,voiceanddataservicesonmobilephones,andinternetservicesespeciallybroadband.

Wenowlookatthesetrendsinmoredetail.

Shiftsfromterrestrialtodigitalandonlineservices

Ofcomsanalysissuggeststhatstructuralchangesaredrivingadvertisingtowardsdigitalmedia.Itestimatesthatoverall,thecompoundannualgrowthrateforalladvertisingbetween2008and2020willbe0.6percent,withtelevisionadvertisingdecliningby0.8percentandresponseadvertising(advertisingtargetedaccordingtousersselections)growingby1.2percent(Ofcom2009).

Theriseininternetadvertisingspendisawell-documentedphenomenon,withmostattentionfocusedonthecompetingincomesofsearchgiantGoogleandITVasaindicationoftherapidlychangingtimes.In2002,Googleearned77millioninUKadvertising,whileGranadaandCarltonearnedacombined1.5billion.In2007,GooglesUKadvertisingrevenues(of1.3billion)outstrippedITVplcsnetadvertisingrevenuefromitsITV1licences(1.2billion)(Ofcom2008).Inthecontextofthecurrentrecession,Googlesprofitsareslowingbutnonethelesssignificant,withprofitsof275millionrecordedforthefinalquarterof2008.

Asaresultoftheanticipatedpotentialofonlineadvertising,someexistingcompanies,eagertomaintainastakeasrevenuesshifted,purchasedsomeemergingpopularinternetservicesforveryhighfigures.NewsInternationalspentUS$580milliononMySpacein2005,while


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GooglepurchasedYouTubeforUS$1.65billionin2006.Microsoftpaidout117millionfora1.6percentstakeinFacebookjustoverayearlater.

Sincepeopledonotpaytousetheseservices,theirvalueislargelydeterminedbytheirpopularityandthewiderpotentialtoconvertinvestmentintoadvertisingrevenue.However,

speculationbyplayerssuchasNewsInternationalonthepopularityofthesesiteshasnotbeenprovedwrong.MySpacehasinexcessof150millionusers,andisparticularlypopularamongyoungeragegroupsandformusicservices.In2007,YouTubewasthethirdmostpopularsitegloballyintermsofminutesspentonthesite.IntheUS,12.6billionvideoswerewatchedduringSeptember2008,whileintheUK55percentofinternetuserswatchedavideocliponline.Facebookisthefifthmostpopularsiteintermsofglobalminutes,andhasover120millionactiveusers(Meeker2008).Thereismuchspeculationastothelong-termpotentialforadvertisingrevenueofsomeinternetservicesinparticularsocialnetworkingsites.

Cheaperonlineadvertising

Onlineadvertisingiscomparativelycheaperthanotherformsofadvertising,suchasprintorbroadcast.Becauseoftheexpansivenatureoftheinternet,thesupplyofadvertisingspacecaneasilyexceedthedemandforadvertising.Thecostbothofbanneradsandrich-mediaadvertshavefallenasthenumberofimpressionsincreases(Meeker2008).

Thedifferenteconomicsatplayhaveprovedproblematicbothforbroadcastersseekingtomakecontentavailableandcommerciallyviableonline,andfornewspapers,whichareseeingsignificantgrowthinonlineusageatthesametimethatprintsalesfallintosharpdecline.

Fornewspapers,printcirculationhasanestimated10percentofthepotentialreachofonline,whileonlineadvertisingrevenuecontributesabout10percentoftotaladvertisingrevenue(Karp2007).

Meanwhile,thesuccessofsomeon-demandserviceshasbeenmutedforcommercialPSBprovidersbecausetheamountofadvertisingrevenuethatcanbegainedissignificantlyless.Channel4,forexample,showedjustthreeminutesofadvertisingduringanonlineversionoftheprogrammeSkins;ondigitaltelevision,thechannelshowsnineminutesofadvertisinginthesameperiod(onehour)(Sabbagh2009).Itisgenerallyconsideredthatonlineviewersarelesstolerantofadvertisingthantelevisionviewers.

Thisaside,thereisspeculationthatultimately,advertisingwillfolloweyeballs,andgraduallyonlineadvertisingrevenuewillincreaserapidly,attheexpenseofprintandtelevision.Thismay,however,dependoncompaniesdevelopingmoretargetedadvertisingtechniques,collectinggreaterdataabouttheirusers,andpushingmessagestothemonthisbasis.SocialnetworkingsitesandservicessuchasGooglesGmailemailservicewillhaveadefinite

advantageinthisregard.

Infrastructureandsubscriptions

Anothertrendinmediarevenueisthatincomeisincreasinglygeneratedthroughsubscriptionservices.IntheUK,thetwomajorpayTVoperatorsareBSkyBandVirginMedia.Despitetheeconomicdownturn,BSkyBcontinuestoseecustomergrowth.TheseresultsarepartiallyattributedtothesuccessandpopularityoftheSky+digitalrecorder.Atthetimeofwriting,thecostofabasicSkypackage(includingbroadbandandvoicetelephonyservices)is16.50permonth.Themostexpensivepackageis55.75permonth.Addedtothis,SkyearnsfurtherrevenuethroughtheSkyBoxOfficeservice,whichenablesviewerstopaytowatchpremiummoviesondemand.

Meanwhile,VirginMediaoffersarangeofpackagesincludingtelephony,broadband(includingfibreopticbroadband)andtelevision,rangingfrom5to38permonthforabundlethatincludesfreeUKcalls,fibre-opticbroadbandupto20Mbandaccessto165digitalchannels.


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Thepopularityofmobilebroadbandisalsogrowingrapidly.In2006,5millionmobileinternetmodemsweresold.Thevalueofmobilebroadbandisexpectedtorisetoinexcessof68millionby2012.WiththeintroductionoftheAppleiPhone,GooglesG1phone,theBlackberryStormandNokiaN97overthepastyear,mobilebroadbandtake-uphas

escalatedrapidlyintheUK.Thisispredictedtobeanareaofsignificantgrowthintheyearstocome.InJapan,mobilebroadbandusenearlymatchesthatofPCinternetuse.

Itistheseservicesthatarepredictedtobebestplacedtoseeouttherecession,sincetheirrevenuecomesfromsubscriptionsratherthanadvertising(ErnstandYoung2009).Notwithstandingthecurrenteconomicclimate,analystshaveidentifiedmobilebroadbandandsuperfastbroadbandasareaslikelytoexperiencesignificantgrowthinusersandincomeoverthenextfewyears(Meeker2008).

So,amidsuchrapidtechnologicalchangeandevolution,somecommercialentitiesarecontinuingtogainprofitfromthemediasector.Thesecompaniesare,ofcourse,providingservicesthatcustomersvalueanddesiretheywouldnotbesuccessfuliftheydidnot.Buttheirsuccessalsodependsonfactorsotherthansimplycommercialinvestmentand

exploitationofthemarket.Inordertosurvive,contentserviceswhichiswhat,ataverybasiclevel,thesecompaniesaresellingneedcontent.Thereisacomplexinterplaybetweeninvestmentinpublicservicecontentandthoseservicesoperatingoutsidethepublicservicesystem.Itistothisinterplaythatwenowturn.

InvestmentinUK-originatedproductions

IntheUK,publicservicechannelsaccountformorethan90percentofallspendingonoriginalUKtelevisionprogramming.AsidefromSky(throughSkyNewsandtheArtsChannel),theDiscoveryNetworkandthesocialnetworkingsiteBebo(whichhasmadeasmallinvestmentinoriginalcontent),themajorityofcommercialmediaplayersintheUKinvestlittleifanythinginoriginalUKcontent.

However,overfourfifthsofrespondentstotheOfcomsurveyagreedthatitisimportantforthemaintelevisionchannelstoprovideprogrammesthataremadeintheUKandreflectlifeintheUK(Ofcom2009).Inaddition,thesuccessstoriesofthedigitalmediaworldundoubtedlygainvaluefrompublicservicecontent.

Forinstance,bothYouTubeandGoogleVideoprovideaccesstopublicservicecontent,createdandinvestedinbypublicserviceproviders.AquicksearchofYouTubeUKrevealsthatoriginalprogrammessuchasMidsomerMurders(ITV),TrialandRetribution(ITV),LarkRisetoCandleford(BBC1),Wallander(BBC1),Skins(Channel4)andtheITCrowd(Channel4)canbeseeninfullonYouTubeortheGooglevideoservice.

Equally,ahugesellingpointofsuperfastormobilebroadbandistheanytime,anywhere

accesstoonesfavouritemusic,filmsandtelevisionprogrammes.Inthiscontext,theriseofcopyrightinfringementhasbeenthesubjectofhugedebateoverthepastfewyears,andislikelytocontinueintothefuture.Leavingthisthornyissuetooneside,itremainsafactthatcontentproducedasaresultofinvestmentbyPSBproviders(alongsideotheraudio-visualcontent,ofcourse)isastrongandattractivereasonforpeopletopayforbroadbandsubscriptionservices,whethermobileorfixed.

Forexample,whileVirginTVscablecustomerswatchedmorethan500millionitemsofbroadbandcontentlastyear,theBBCsiPlayeraccountedforalmost20percentofprogrammeswatched(Sweney2009c).

Elsewhere,theBBCiPlayer,availableonseveralsmartphonesincludingtheiPhoneandthe

NokiaN97,hasbeenattributedwithboostingthesuccessofmobiletelevisionanddrivinguptake.BBCwebsitesarethemostvisitedafterGooglebyBritains5.7millionsmartphoneusers(Khan2009).


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Despitethepromiseofuser-generatedcontent,mostmediaconsumerscontinuetovaluequality,andthereforeexpensive,productions(Deloitte2009).User-generatedcontentclearlyhasaroletoplayinadigitalmediaageitcanempowerpeople,givecitizensspacetohavetheirsay,andencourageandstimulatecreativitybutitisneverlikelytoreplacea

demandforqualitydrama,comedy,newsandcurrentaffairs.

Conclusion

TheeconomicchallengesfacingtheUKmediaindustryshouldnotunderplayed.Theyresultinpartfromthecurrenteconomicclimate,butarealsoduetoanumberofsector-specificfactors,includingtechnologicalandbehaviouralchange.Themultipliereffectofallthesefactorscombinedmeansthatmanyplayerswithinthemediaindustryfaceextremelychallengingtimesintheyearstocome.

Certainelementsofthemediaindustrycontinuetogainrevenue,buttheincreaseinspendingonsubscriptionservicesisunlikelytohelpfree-to-airpublicservicecontent.

ThechallengesfacingPSBareacute,andshouldnotbeconsideredinisolationfromthetrendsaffectingtherestoftheindustry.AdeclineincontentinvestmentacrosstheboardislikelytomeanthatPSBinparticular,apluralityofPSBprovisionwillbecomemore,notless,important.

Clearly,difficultdecisionsneedtobemadetoensurethatlevelsofpublicservicearemaintainedandtheUKsmediacontinuestomeettheneedsanddesiresofUKcitizens.Inthefollowingsection,weoutlinethepolicycontextwithinwhichoptionsarebeingproposed,andwithinwhichdecisionswillultimatelybetaken.Wethengoontohighlightthepotentialofoneparticularsolutionindustryleviesasamechanismfortransferringincomefromsomericherpartsofthemediaintofundingpublicservicecontentthatbenefitseveryonecommercialplayers,PSBproviders,citizensandsocietyasawhole.


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PSBhasbeenthefocusofsignificantattentionoverthepastyearwithpolicyreviewstakingplaceinGovernment(BERR2009)andOfcom(2009).Thissectionbrieflysummarisesthese

andprovidesarecenthistoricalcontexttosetoutthepolicycontextwithinwhichdecisionsaboutthefutureofPSBarebeingmootedandwillbetaken.

Itfocusesonfourkeydocuments:

TheCommunicationsAct2003

Ofcomsfirstreviewofpublicservicebroadcasting(Ofcom2004)

Ofcomssecondreviewofpublicservicebroadcasting(Ofcom2009)

TheDigitalBritainreview(BERR2009)

Eachoftheseisdescribedbelow.

TheCommunicationsAct2003

In2003,theCommunicationsActestablishedaconvergedregulatorforaconvergingmediamarket,intheformoftheOfficeofCommunications(Ofcom).Thisbodybroughttogetherthefivepre-existingregulatorsOftel,theRadiocommunicationsAgency,theRadioAuthority,theIndependentTelevisionCommission(ITC),andtheBroadcastingStandardsCommission(BSC).

TheCommunicationsActsetoutaframeworkforcontinuedpublicinterventioninordertopreservePSBinachangingtechnologicalenvironment,anddefinedwhattypesofprogrammesshouldcontinuetobeproduced.Itmadesomemovestostrengthencommercialbroadcasters,byderegulatingownershiprestrictionsandreducingcontentregulation.However,itstatedthatallterrestrialbroadcasterscontinuedtobetiedtostructuralsupportfortheUKproductionsectorintermsofquotasforUKoriginalproduction,regionalproductionandindependentproduction.

TheActalsosetoutOfcomsdutiesinrelationtoPSB,providingtheregulatorwithtwostatutoryobjectives:

ToreviewhowwelltheexistingpublicservicebroadcastersaremeetingthepurposesofPSB

TomakerecommendationstomaintainandstrengthenthequalityofpublicservicebroadcastingintheUK.

OfcomsreviewsofpublicservicebroadcastingInordertomeetthestatutoryobjectivessetoutabove,OfcomhasundertakentworeviewsofPSBsincetheCommunicationsActcameintoforce,asdescribedbelow.

Thefirstreview

Thefirstreviewtookplacein2004,andlaunchedaseriesofconsultationsseekingtodefinetheprinciplesofPSB,fromwhichthefourprinciplesmentionedinSection1emerged.Thisfirstreviewmademanyargumentsthatarestillconsideredpertinenttoday:

ThatterrestrialPSBwasunlikelytosurvivedigitalswitchover,asthevalueoflicencesforITVandFivedeclineandthefundingmodelforChannel4becameincreasingly

threatenedThatwithoutaction,theBBCwaslikelytobecomethesoleproviderofPSB

ThatinnovationinthePSBsectorwaslackingparticularlywhenlookingathowterrestrialchannelshadrespondedtotechnologicalchanges.

4.Thecurrentpolicycontext


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Oneofitskeyproposalswastheideaofapublicservicepublisher:afundthatcouldbedistributedtocreatorsofpublicservicecontentonlinetoprovidecompetitiontotheBBCandspurinnovationinonlineenvironments(Ofcom2007b).

Thesecondreview

Ofcomisobligedtoundertakearevieweveryfiveyears,butitbroughtforwardthetimingofitssecondreviewbyayear,inresponsetotherapidnatureofchangewithinthemedialandscape.Assuch,thissecondreviewtookplaceagainstabackdropofgrowingurgency.Duringthereviewprocess,ITVthreatenedtosurrenderitsterrestriallicenceearly,inacampaigntohaveitspublicserviceobligationsreduced,whileChannel4madeincreasinglyalarmingpredictionsregardingitsfuture.

Inphase1ofthesecondreview,Ofcomoutlinedfourdifferentmodelsofapublicservicelandscape,asfollows:

Model1 Maintainingthestatusquo(withdecliningpublicserviceresponsibilitiesforcommercialPSBprovidersoradditionalfundingtosupportthosewhichremain

highpublicpriorities)

Model2 RelyingsolelyontheBBC

Model3 TheBBCandChannel4actingasthemainprovidersofPSB,withlimitedfundingavailableforotherservicesdeliveredbyalternativeproviders

Model4 AreducedBBC,withcontestablefundingforallotherpublicserviceprovision.

Thefirstofthesefourmodels,elsewherelabelledevolution,gainedmostsupportfromresponsestotheconsultation.However,thisoptionwouldrequirebridgingasignificantfundinggaptomaintaincurrentlevelsofPSBprovision.Ofcomsreviewoutlinedthefollowingfouroptionsforfunding:

Directpublicfunding,includingdirecttaxation

Openinguplicence-feefundingorBBCassetstootherproviders(oftenreferredtoastop-slicing)

Regulatoryassets,includingprivilegedaccesstospectrumandincreasedadvertisingminutage

Industrylevies.

Duringthereviewprocess,theBBCputforwarditsownproposals,whichincludedsharing

technologysuchasiPlayerandpremisesfortheproductionofregionalnews,andwaivingthefeesitcurrentlychargesforpublishingtelevisionlistingsproposalsthatitestimatedcouldbeworthupto120million(BBC2008).TheseproposalswerebackedbyITV,whichwas,atthetimeofwriting,intheprocessofdrawingupaprovisionalagreementwiththeBBCdesignedtomakeregionalnewsmuchmorecost-efficient(McNally2009).TheproposalswerealsocautiouslywelcomebyChannel4.However,itisunlikelythattheyalonewouldbesufficienttobridgethefundinggapandprovidethefundsrequiredforcontinuedprovisionofPSBatcurrentlevels.

OfcomconcludeditssecondreviewwiththepublicationofPhase3:Puttingtheviewerfirst(Ofcom2009).Themainrecommendationsandfindingstoemergefromthiscanbesummarisedasfollows:

TheBBCshouldremainthecornerstoneofpublicservicebroadcastingintheUK,andshouldtakeonaroleofpioneeringthedevelopmentandtake-upofcontentacrossnewplatforms.


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Theideaoftop-slicingtheBBCsfundingforprogrammesandservicesshouldnotbepursued.However,thelicencefeeswitchoversurplus,allocatedtotheBBCtodriveforwardtheprocessofdigitaltake-upandswitchover,continuestobeacredibleoptionforbridgingthefundinggap.

Toensureplurality,asecondorganisationshouldbeestablishedalongsidetheBBC.Thisorganisationshouldhaveasustainableeconomicmodelandwithastrongpublicserviceroleembeddedatitscore,andshouldbebasedonpartnerships,jointventuresorevenmergersbetweenChannel4andotherorganisationssuchasBBCWorldwideorFive.

ThereshouldbeanimmediatereductioninpublicserviceobligationsforITVbut,goingforward,commerciallyownednetworksshouldretainamodestbutimportantpublicservicecommitment.

Thereviewprocessisnowcomplete,butOfcomstillhassubstantialfurtherworktotakeforward,including:

FurtheranalysisoftheproposalsputforwardbytheBBCtoshareinfrastructureandexpertiseinordertobridgethefundinggap(so-calledpartnershipproposals)

ImmediateconsiderationsregardingexactlywhereandbywhatextentITVslicenceobligationswillbereduced

FurtherexplorationofthesuggestedpartnershipmodelsinvolvingChannel4.

Ofcomsreviewprocesswascomplicatedbythefactthatagovernmentreview,DigitalBritain,ransimultaneouslytoitsfinalstages,anditsinterimreportalsomaderecommendationsforthefutureofPSB,describedbelow.

TheDigitalBritainreviewTheDigitalBritainreviewwassetupbytheUKGovernmentinlate2008andsponsoredbytheDepartmentforCulture,MediaandSport(DCMS)andtheDepartmentforBusiness,EnterpriseandRegulatoryReform(BERR).ItisheadedbyformerchairofOfcom,LordCarter.

Itsoriginalremitincludedevaluatingtheimpactofdigitalisationandthenewtechnologiesonpublicservicebroadcastingassetsandpublicservicelicences,bothintheUKasawhole,andinthenationsandregions.Thiswouldbecarriedoutalongsideavastrangeofotheractivities,includingexaminingoptionsformaximisingparticipationandlevelsofbroadbandserviceacrosstheUK,internetsafetyandmedialiteracy,andintellectualpropertyandtheproblemofpiracyonline.

AninterimreportwaspublishedinlateJanuary2009,shortlyafterthepublicationofOfcomsstatementonthefutureofPSB(BERR2009).Thekeyinterimrecommendationsareasfollows:

Beforethepublicationofthefinalreport,thecaseshouldbeconsideredforpublicincentivestoenablefurthernext-generationbroadbanddeployment.Onesuggestioninvolvesusingthelicencefeeswitchoversurplusforthispurpose.

Beforethepublicationofthefinalreport,toestablishwhetheralong-termsustainablesecondpublicserviceorganisationcanbedefinedanddesigned.SuchanorganisationwoulddrawinpartonChannel4sassetsbuthaveare-castremit.Thereviewshouldbeginbylookingatpossiblepartnershipswithpublicsectorbodies

forexample,betweenChannel4andBBCWorldwidebutshouldnotruleoutotheroptionsorsolutions,includingpartnershipswithprivateorganisationssuchasFive.

Thefinalreportisdueinspring2009.


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Conclusion

Whilediscussionsanddebatehavetakensignificantstepsforwardinsofarasdefiniteoptionsforthefuturearenowproposedandbeingdebated,therestillremainsmuchtodecidewhenitcomestothefutureofPSB.WiththepublicationofOfcomssecondreviewandthe

interimreportfromtheDigitalBritainreview,governmentandParliamenthaveanumberofrecommendationsonwhichtobuild.Butultimatelyitislikelythatnewlegislationwillberequired,andtheprospectofanewCommunicationsActremains.

TheneedforadditionalfundstosupportthePSBsystemisclear,andtheoptionoftop-slicingtheBBClicencefeeislargelydiscounted:Ofcom,theGovernmentandtheConservativePartyhavealldeclaredthattheyareagainstthisoption.Alternativesolutionshavebeenproposed(mostnotably,partnershipsbetweenChannel4andFiveandChannel4andBBCWorldwiderespectively),buttheexactmannerinwhichthesewouldbridgethefundinggapremainsunresolved.Boththesepartnershipproposalsinvolveinherentrisks,anditisnotyetclearhowfareithercouldgotoprovidealong-termsolutiontothestructuralchangesthatpresentthegreatestchallengestoPSBintheUK.

However,thereisonesolutionthattosomeseemsobviousbutthathasattractedlittleattentionwithinthedebatesofar:industrylevies.Inthenextsectionwesetoutsomebriefmodelstoillustratehowsuchasolutioncouldwork.


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ThesizeofthefundinggapestimatedbyOfcomthatwillbepresentifwearetomaintaincurrentlevelsofPSBissignificant.WehaveseenthatthefinancialchallengesforPSBare

largeandlikelytoremainsoastechnologicalchangecontinuestooccurandcompetitioncontinuestogrow.Ifwearetomaintaincurrentlevelsofpublicservicebroadcasting,newfundsneedtobereleasedtobridgethisfundinggapfrom2012,butdebatecontinuesaboutwheretosourcethesefunds.Onepossiblesolutioncouldbetosetindustrylevies.

PublicopinionresearchconductedforthePSBreview(Ofcom2008)foundthatregulatoryassetsandleviesweregenerallyconsideredplausiblesolutions,withtheotheroptiondirecttaxationtheleastpopularoption.Leviesarenotnew:levyschemesexisteffectivelyinsomeformorotheracrossEuropeandinothercountriessuchasCanada.

Inthissectionweconsiderarangeoftypesoflevy,someofwhichareinuseinothercountries,alongsideothersthatwouldrepresentanewstyleofpublicservicefunding.Thesectionincorporatescasestudiesofothercountriesthatuselevysystemstofundpublicservicemediatoillustratehowsuchschemesworkinpractice.Italsopresentsaseriesoffigures,whichareintendedtodemonstratehowlevysystemscould,anddo,work.ThereareseveraldifferentpermutationsthatcouldbeputintopracticetoclosepartorallofthefundinggapidentifiedbyOfcom.

Theleviesconsideredherearethoseseton:

Recordingequipmentorblankmedia

Retransmission

Directmedia

Newmedia.

Eachoftheseisdescribedbelow.

Recordingequipmentorblankmedialevies

Inordertocompensatecopyrightholdersforcopiesmadewithinfair-useorfair-dealingguidelines(inotherwords,nottocompensateforillegalfile-sharingorcopying),manycountriesinEuropehaveintroducedsmallsalestaxesorleviesplacedonrecordingequipmentorblankmedia.

Thenewestpieceofequipmenttowhichsuchalevycouldbeaddedisapersonalvideorecorder(PVR),whichallowsconsumerstorecordprogrammesfromtelevisiontoadigital

harddrivetowatchatalaterdate(commonlycalledtime-shifting).

TheUKisoneofthefewcountriesinEuropenottohavesuchatax.

Estimatedyieldfromrecordingequipmentorblankmedialevies

WeuseddatafromtheUKExpenditureandFoodSurvey(EFSseeAppendix1foradetaileddescriptionoftheEFSdata)toestimatetotalannualexpenditureonthefollowingcategoriesofgoodsthatwouldbesuitablecandidatesfortheimpositionofalevy:recordingequipment,blankmediaandcomputerequipment.Thesearedetailedbelow.

Recordingequipment

ThecategoriesofrecordingequipmentonwhichinformationisavailableintheEFScomprise:

Videocassetterecorders(VCRs)DVDplayers/recorders

5.Thepotentialofindustrylevies


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DigitalTVdecoders

Audioequipment(forexample,CDplayersandrecordersandhard-diskaudiorecorders).

WiththeexceptionofVCRs,noneofthesecategoriesofgoodsis100percentmadeupofrecordingequipment,assomeDVDplayers,digitalTVdecodersandaudioequipmentitemshavenorecordingfunction.HowevertheEFSdoesnotcollectseparatedatafor(forexample)DVDplayersasopposedtoDVDrecorders,sothesearethemostdisaggregatedcategoriesthatwecanusewiththedataavailable.

Figure5.1,below,showsaggregatetotalexpenditurefortheyears200206inclusiveforeachoftheseitems,asestimatedusingtheEFSdata.(TheresultsfromtheEFSarereweightedandgrosseduptonationalaggregatelevelstomakethemcompatiblewiththeotherstatisticspresentedinthisreport.)

ExpenditureonVCRshasbeenonadownwardtrendsincethefirstdatapointusedhere,in2002/03.By2005theobsolescenceoftheVCRmeantthatexpenditureonnewVCRswasnegligible.ExpenditureondigitalTVdecodersisrelativelystable,atalowlevelofaround100millionperyear.ExpenditureonDVDplayersandrecordersroserapidlybetween2003(thefirstyeartheywererecordedasaseparateitemofexpenditureintheEFS)and2005,butthendroppedtoaround200millionin2006.Expenditureonaudioequipmenthasbeenontheincrease,particularlybetween2005and2006.

Theestimatedyieldfromalevyonrecordingequipmentdependsverymuchonwhatitemsareincludedinthelevy.Totalexpenditureonaudioandvideorecordingandplaybackhardwarehasbeenroughlystable,atbetween1.5billionand1.6billionperyear(inrealterms)since2004.Ifalevywereintroducedonthiswiderangeofhardware,a1percentlevyontheretailpricewouldraiseamaximumofaround16million.However,itwouldprobablybedifficulttosecurepoliticalacceptabilityforalevythiswidelydefined,becausemuchaudiohardware(andsomevideohardware,albeitadecreasingproportion)isplayback-

onlyinotherwords,ithasnorecordingfunctionality.Ifahardwarelevywereconfinedtovideoproducts(ratherthanaudioproducts)only,thepotentialyieldwouldbemuchlower.In2006,totalexpenditureonDVDrecordersand

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lexpenditure,

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Figure5.1:

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expenditureon

recording(and

playback)

equipment,UK,

200206

Source:ExpenditureandFoodSurvey


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players,digitalTVdecodersandVCRswasonlyaround285million.Hencea1percentlevyonvideohardwarealonewouldraiselessthan3millionifexpenditurecontinuedatthislevel.However,spendingonvideohardwarein2006wasaround40percentlowerthanin2004.Thiswasprobablyduetoseveralfactors,includingdecreasinghardwarecosts,

increaseduseofPCstorecordvideo(apointwereturntobelow),andincreaseduseofdigitalvideodownloads.Ifthesetrendscontinue,thefuturerevenuestreamfromalevyonvideorecordinghardwarelooksverylimited.

Blankmedia

InformationisavailableintheEFSonthefollowingtypesofblankmedia:

Audiomedia(forexample,CDs,minidisks,cassettesandvinyl)

DVDs(blankandpre-recorded)

Videocassettes(blankandpre-recorded).

Figure5.2,below,showscalculationsofaggregatespendingoneachtypeofblankmedia,derivedinthesamewayasforFigure5.1.

Figure5.2showsthatexpenditureonvideocassettesfellfrom2003,andby2005hadreachednegligiblelevels.ExpenditureonaudiomediaandonDVDmediahasfallenmoreslowly(dataforDVDmediaareavailablefromtheEFSonlyafter2004).Totallingexpenditureacrossallthreemediatypesfor2005and2006suggeststhatoverallexpenditurereducedfromaround3.2billionin2005to2.6billionin2006.Becauseoftheexpansioninthemarketforaudioandvideostorage,andrecordingdevicesthatusesolid-statemedia(suchasiPodsandsimilarMP3devices,hard-diskvideorecorders,andsystemsbasedaroundcomputers),itislikelythatthemarketforblankmediaofthetypesshowninFigure5.2willshrinkfurtherinfutureyears.

A1percentlevyonsalesofallmediacoveredintheEFS(bothblankandpre-recorded)wouldhaveraisedaround26millionin2006(inApril2008prices).However,thisisanoverestimateofthepotentialrevenuefromalevyonblankmedia,astheEFSfiguresincludebothblankandpre-recordedmedia.Moreover,itislikelythatsalesofblankmediawillfallinfutureyears,reducingtheyieldfromalevystillfurther.

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Figure5.2:

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aggregate

expenditureon

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equipment,UK,

200206

Source:

ExpenditureandFoodSurvey


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Computerequipment

Giventhatpersonalcomputers(whetherlaptopordesktop)arebeingusedmoreandmorefordownloadingandviewingbroadcastmediacontentnowadays,wenowlookatfiguresfromtheEFSforexpenditureoncomputersandcomputercomponentsoverthelastfew

years.ThisdataisshowninFigure5.3,below.

Figure5.3showsthatin2005and2006,expenditureoncomputersandcomputercomponentsandperipheralsintheUKwasaround2.3billionincurrentprices.A1percentlevyoncomputerproductswouldraisearound23million.Oneadvantageofalevyoncomputersisthat,withtheincreasingimportanceofdigitaldownloadsasavehicleforthedeliveryofbroadcastmediacontent,spendingonPCsandothercomputersislikelytostayhighinrealtermsintheyearsforwardto2013,comparedwithsomeothercategoriesofexpenditureexaminedhere,whicharemorelikelytofall.However,noteverybodywhoownsacomputerwilluseitforviewingbroadcastvideoorlisteningtobroadcastaudio,sointhissenseitcouldbearguedthatacomputerlevywouldtargetthewrongconsumerstoalargeextent.

Whileblankmediataxeshaveprovedsuccessful,revenuesareindeclinealongwithsalesofrelevantequipment.Also,suchlevieshavetypicallybeenreservedforcompensatingrightsholders,anditisunlikelythatasystemwouldbeintroducedwithoutservingthissame

particularpurpose.ThisisespeciallythecasegiventhelevelofconcernregardingtheimpactofpiracyontheUKswidercreativeindustries(particularlythemusicindustry).

Nonetheless,consideringthecaseofthecopyrightindustries,therearesignsthattheGovernmentissomewhatsympathetictotheideaofcontributionstothecostofdealingwithpiracyfromthoseindustriesthatmanyhavearguedindirectlyenableorbenefitfromit(namely,internetserviceproviderssellingbroadbandsubscriptionsthatenabledownloadsofillegalcontent).TheinterimreportoftheDigitalBritainreviewhascommittedtoexploringthepossibilityfordistributorsandrightsholderstofundanewapproachtocivilenforcementofcopyrighttofacilitateandco-ordinateanindustryresponsetothischallenge(BERR2009).Thustheideaofindustry-wide(andindustry-funded)solutionstoproblemsthatthreatenthecontinuedwell-beingoftheUKscreativeindustries,whether

music,filmorPSB,shouldnotbeoutofthequestion.

Whileablankmedialevyisunlikelytodelivercontinuedfundingintothefuture,andifintroducedwouldmostlikelytobehypothecatedforcompensatingrightsholders,itprovides

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anillustrationofaschemethathasexistedforsometimeinmanyothercountries.Italsointroducestheprincipleofindustrycontributingcollectivelytoaddressamarketfailure.

Retransmissionlevies

TheretransmissionofaudiovisualworksisgovernedbytheBernConvention,theEuropeanDirective93/83/EECandnationalcopyrightlaw.Anyentitythatretransmitsaprotectedworkinthecontextofitseconomicactivitymustobtaintherightsholdersauthorisationtodoso.TheEUDirectiveandnationallawsaddthatarightsholdermustcalluponacollectingsocietysservicesinsteadofexercisinghisorherrightsindividuallythroughretransmissionoperators(althoughintheUK,suchlawsdonotapply).AcrossEurope,thesystemisorganisedbyAGICOA,whichcollected99.3millioninretransmissionleviesin2007.

Retransmissionleviesareusedin30Europeancountries,andapplytocableandsatelliteplatformsthatbroadcastcopyrightmaterialforwhichnodirectfeeispaidtotheoriginalcontentprovider.AUKequivalentwouldbeSkyorVirginMedia,whichbroadcastmaterialcreatedbytheBBC,Channel4orITVbutdonotpayforthecontent.Accordingtothelatest

availabledata,Skyhas9.07millionsubscribers(Sky2008)andVirgin3.57million(VirginMedia2008).Basedonthesefigures,anannual5flat-ratelevypersubscriberwouldraisearound45millionfromSkyandaround18millionfromVirginatotalof63million.

Itisworthnotinginthiscontextthatsubscriptionincomehasexceededtelevisionadvertisingincomeforthepastfiveyears,andthatthegapbetweenthetworevenuescontinuestogrow.In2007,subscriptionrevenuegrewby6.4percent,to4.3billion.Meanwhile,TVadvertiserrevenuerose2.2percentto3.5billionover2007followinganequivalentdeclinein2006(Ofcom2008b).WhilesubscriptionservicesandpayTVmayseemtobenefitfromthedigitalswitchover,commercialfree-to-airPSBprovidersaresuffering.

Directmedialevies

Directmedialeviesarechargedonrevenuefromorganisationssuchasbroadcasters,cinemasorvideolabels.ThismodelisinplaceinFrance,whereCNC(CentreNationaldela

Cinmatographie,broadlyequivalenttoourUKFilmCouncil)isfinancedthroughleviesofthiskind.ThesystemprovidesCNCwitharound500millionayeartofundtheproductionofFrench-languagefilm.

Table5.1:Incomesecuredfromretransmissionleviesworldwide,inEuros

TheNetherlands 25,480,546 Slovenia 437,005

Germany 15,887,794 Slovakia 217,933

Belgium 14,122,751 Iceland 102,211

Ireland 6,191,116 Serbia 99,062

Poland 5,361,796 Bulgaria 95,687

Denmark 3,756,875 Lithuania 94,946Spain 3,000,000 Estonia 83,369

Switzerland 2,690,460 Latvia 60,104

Sweden 1,927,641 Bosnia 50,894

Romania 1,618,287 Macedonia 35,916

Portugal 1,138,012 Albania 15,750

Specialauthorsshare 961,091 SouthAfrica 15,000

Austria 716,370 Canada 11,500

Hungary 682,662 Ukraine 7,981

Luxembourg 533,079


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AlevysystemsuchasthisintheUKwouldworkonthesamejustificationoftheretransmissionlevysystem,butwouldbeataxonrevenueratherthansubscribers.Thetaxcouldapplytopay-TVrevenues,forexample.

Table5.2demonstratesthebroadcasterrevenuefroma1percentlevyonpayTVintheUK,

basedonassessmentsfromtheUKstwomajorpayTVbroadcasters.

Table5.2:Estimatedyieldfromleviesonbroadcasterrevenue

Broadcaster 2007revenue(m) Estimatedyieldfrom1%levy(m)

Satellite/cable:

BSkyB 4,551 45

VirginMedia 2,486 25(consumercabledivision)

Total 7,037 70

Countrycasestudy1:PublicservicebroadcastinginCanada

Canadaprovidesoneexampleofacountrythatusesindustryleviestofundpublicservicebroadcasting.

TheCanadianBroadcastingCorporation(CBC)/RadioCanadaisCanadasnationalpublicservicebroadcaster.Itoffers29servicesonradio,televisionandtheinternet.CBChasaspecificremitsetoutunderthe1991BroadcastingAct,andaparticularemphasisonbroadcastingservicescontainingcontentthatisdistinctivelyCanadian.CBCisfundedthroughacombinationofdirectgovernmentfunding,licencefeeandadvertising.

PublicservicebroadcastingisalsoprovidedbytheAboriginalPeoplesTelevisionNetwork(APTN)andtheCable

PublicAffairsChannel(CPAC),alongsideeducationalcontentbroadcastbyCanadianprovincialbroadcasterssuchasTVOntario.Fundingfortheseadditionalbroadcasterscomesfromavarietyofmechanisms,includingindustrylevies.CPACisfundedbywhatisineffectavoluntaryindustrylevy:coverageoftheCanadianparliamentiscarriedbycableoperatorsinCanada,butreceivesnogovernmentfunding.

In1996,CanadaestablishedtheCanadianTelevisionFund(CTF).Thisisapublicprivatepartnershipbetweensatelliteservices,cablecompaniesandtheGovernmentofCanadafocusedtowardscreatinghighquality,distinctiveprogrammingfortelevision.Inessence,theCTFservestoensurethateachelementoftheCanadianbroadcastingsystemcontribute[s]inanappropriatemannertothecreationandpresentationofCanadianprogramming(CanadianBroadcastingAct1991).

TheCTFreceivesitsfundingfromtwoprimarysources:theDepartmentofCanadianHeritage,andbroadcasting

distributionundertakings.Inaddition,theCTFreceivesrevenuefromrecoupmentonproductioninvestmentsmadethroughitsEquityInvestmentProgram.UnderlicenceagreementswiththeCanadianRadio-televisionandTelecommunicationsCommission,broadcastingdistributionundertakingsarerequiredtocontributeupto5percentoftheirgrossbroadcastingrevenuetoCanadianprogramming,with1.55percenttobecontributedtoproductionfunds,ofwhichatleast80percentmustbedirectedtotheCTF.

In2007/08,CTFproductionfundingcontributionstotalledCA$242million.Contributionsweremadeto466televisionproductionsamountingtomorethan2,200hoursoforiginalcontent(CTF2008).Overits12-yearhistory,theCTFhascontributed$2.7billiontosupportover5,400productions.Thishasresultedinthecreationofmorethan27,000hoursofhigh-qualitytelevisionforCanadians,andhastriggeredmorethan$9billioninproductionvolumeacrossthecountry.


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Newmedialevies

AsimilarsystemtodirectmedialeviescouldbeappliedtoUKnewmediaforexample,byapplyingataxtointernetserviceprovidersandmobilephoneoperators,sothatanadditionallevyispaidalongsidemonthlysubscriptionorasapercentageofrevenue.Suchleviesare

notinwideoperationacrosstheworld,largelyduetotherelativelynewnatureofsuchtechnologiesandthepolicyacrossnationsofencouragingtake-up,particularlyofbroadband.

However,asdigitalmediamovesintomaturity,thisoptionmaybereviewedmoreclosely.Forexample,inFrance,PresidentSarkozyhasannouncedtheremovalofadvertisingfrompublictelevisionchannels.Therevenuepreviouslyraisedthroughadvertisingrevenueistobereplacedbytaxescollectedfrominternet,mobilephoneandcommercialbroadcastingcompanies.SarkozysproposalsarethatthelevyontherevenuesoftelephoneandInternetoperatorswouldbe0.9percent,and3percentforprivatechannels.Thelevyisexpectedtomakeuptheshortfallof800milliononceadvertisingisphasedout.

Newmedialeviescouldeithertaketheformofper-subscriberlevies,thatis,asurchargepaidperpayinguseroftheservice,orofapercentagetaxonannualrevenue.Wesetoutincomegeneratedbasedonthreedifferentexamples:per-subscriberleviesonbroadbandinternetprovision,per-subscriberleviesonsubscriptionstomobilephoneswithinternetcapabilities,andleviesonannualrevenueofmobilephoneproviders.

Per-subscriberleviesonbroadbandinternetprovision

FiguresfromtheOfficeforNationalStatistics(ONS)forAugust2008suggestthataround14.2millionhouseholdsnowhavebroadbandaccessintheirhomes(ONS2008a).Basedonthesefigures,anannualflat-ratelevyof5persubscriberwouldraise71million.

Countrycasestudy2:PublicservicebroadcastinginFinland

Finlandsstate-ownedbroadcasterYleisradioOy(YLE)hasabroadpublicserviceremit,withastrongemphasisonnews,educationalandculturaloutput.Inform,YLElooselyresemblestheBBC,operatingfivemainnationaltelevisionchannels.Twoarebothanalogueanddigitalfree-to-air,whiletheotherthreearedigital-onlyfree-to-air.Italsooperatessevenmainanaloguestationsthatbroadcastawiderangeofpublicservicecontent.

Additionalpublicservicecontentisbroadcastbynineothercommercialradiobroadcasters.Thesehavespecificremitstocaterforclassicalmusic,jazzmusic,youthmusic,Finnishpopularmusic,religiousprogramming,Russianlanguageprogramming,andLaplandtourism.

Fundingforpublicservicebroadcastingisdrawnfromtwomainsources:adirectlicencefeepaidforbycitizens,

whichcontributesthelargestshare,andanindustrylevypaidbycommercialbroadcastersinFinland.Underthelatter,broadcastersareobligedtopayaprogressiveproportionoftheirrevenuefrombroadcastingoperations(advertisingandsponsorship).

Followinglegislationin2002,theindustrylevyisduetobephasedoutby2010,withanexpectationthatcommercialoperatorspayfortheintroductionofdigitalinfrastructure.However,itprovidesaninterestingexampleofaprogressiveindustrylevy,withthescaleoffeesasfollows:

Broadcasterturnover(in1,000) Licencefeeatlowerlimit(in1,000) Licencefeeoverlimit%levy

3,4005,000 0 5

5,0006,700 84 7.5

6,70010,100 210 10

10,100+ 547 12.25


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Per-subscriberleviesonmobilephoneinternetusage

The2008reportMobileLife,producedbyCarphoneWarehouseandresearchedbytheLondonSchoolofEconomics,suggestedthataround15percentofmobilephoneusershadusedtheirphonetowatchTVordownloadmusicorvideoclipsfromtheinternet.Giventhat

around95percentofpeopleintheUK(includingchildren)ownamobilephone,andthatthecurrentpopulationoftheUKisaround61million(ONS2008b),anannuallevyof5onmobilephonesthatareusedtoaccessmusic,videoortelevisionwouldraisearound43millionperyear.However,asuseofmobi

Mind the Funding Gap: The potential of industry levies for continued funding of public service broadcasting

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