The Welsh Media XII (b): Funding Public Service Broadcasting

(Title Image: BBC)

One of the big questions regarding independence and broadcasting is how would Public Service Broadcasting (PSB) be paid for?

Depending on your point of view and personal tastes, the licence fee is either a complete bargain for what you get and funds a world-class broadcasting service, or it’s an oppressively-enforced stealth tax which stifles competition and leads to over-inflated salaries for various “luvvies”.

With the recent announcement that most over-75s will no longer receive a free TV licence, the issue of how to pay for the BBC (and S4C) is likely to be raised yet again – perhaps even be an issue at the next UK general election.

Several countries in Europe and the Anglosphere have already scrapped their licence fees. These include New Zealand (1999), Belgium (abolished in Wallonia in 2018, rest of Belgium in 2001), Finland (2013), Malta (2012), Iceland (2007) and Sweden at the start of 2019.

How much money does PSB need?

First of all, it’s worth considering how much it costs to make a TV or radio programme.

According to the BBC’s annual report for 2018-19 (pdf – p167), the BBC raised £184million in revenues from the licence fee in Wales (£154.50 for colour) and spent £179million.

Based on figures in S4C’s 2018 annual report (pdf – p76 to 79), each hour of independently-commissioned programming costs about £35,000 – though this ranges from up to £151,000-an-hour for drama to under £30,000 an hour for factual, current affairs and sports coverage. Production costs-per-hour for S4C are almost a third of that of the BBC average – so independent commissioning, and the production of programming in Wales, does seem to have a cost-benefit (Part XIIa), but that’s likely down to the range of programming types than any inherent “cheapness”.

The actual cost of each hour of programming on television – once fees for repeats etc. to fill air time is included – is just under £11,000. Based on figures in the 2017-18 BBC annual report, the equivalent figure for radio is about £1,940-per-hour.

(Pic: S4C)

An annual commissioning budget of around £100million should be, on paper, enough to commission 2,857 hours a year of original/first-run TV programming in English and Welsh – about 7 hours a day.

This compares to (2017-18) 1,762 hours of first-run programming commissioned by S4C, 508 statutory hours provided by BBC to S4C and 616 hours of programming commissioned by BBC Wales (Part VII) – so it’s about the same.

In practice, 2,857 hours would be a rough figure as more ambitious productions (like dramas) and serialised programmes like Pobol y Cwm will cost more to make, while money for news, children’s programmes and live sport will stretch further.

As for what would be commissioned and how many hours, that would be entirely down to programme commissioners (or a Commissioning Body). I suspect quality will become more important than quantity as streaming takes hold, so we’re likely to have more repeats on broadcast television with fewer hours of higher-quality programming commissioned for primetime on radio and TV.

£30million ought to be enough to cover PSB radio based on Irish figures. In theory, all of this would leave £54million for everything else based on 2018-19 Welsh licence fee income.

That “everything else” would include distribution and transmission costs (£25million in 2019 for BBC Wales – though this figure might be double-counted and already included in the programme commissioning costs, potentially allowing an increase in the commissioning budget to £155million for TV and radio combined), online services (£12million in 2019), to fund the transmission of repeats (up to £1,000 an hour), to fund bodies like the National Orchestra (£5million), public news agency or press support system (optional), programme development (£1million in 2019), film grants and to buy rights to foreign programming.

The Republic of Ireland spends (pdf – p31) about €22.8million a year (£21million) on overseas rights (including but not limited to the BBC) and, presumably, a similar budget would be needed for Wales to continue to broadcast popular shows from the BBC and other producers. Of course, there are likely to be some pan-UK or Anglo-Welsh productions which would offset these costs.

A ballpark “funding floor” of £220million (the £194million identified above plus another £25-26million or so for contingencies and other costs) should be enough to cover all PSB-related broadcasting and the rights to BBC, ITV and other foreign programming (assuming a £35,000-per-hour domestic TV production cost) – though the more money the better and the figure doesn’t include potential commercial income. The only question left to ask is where would that money come from?

Raising funds for Public Service Broadcasting

Option One: Continue with the licence fee

As mentioned earlier, according to the BBC’s annual report for 2018-19 (pdf – p167), the BBC raised £184million in revenues from the licence fee in Wales and spent £179million. Total direct expenditure on PSB broadcasting in Wales (once S4C’s budget is included) is around £263million. This also, presumably, doesn’t factor in the cost of free licences for the over-75s, which are – as said – due to be scrapped for most people.

This option would likely mean either having to increase the licence fee to around £180 a year (which would raise roughly £220million based on the 2018-19 BBC figures) or keeping the licence fee broadly the same and topping it up with £36-40million or so in direct government grants.

Option Two: Change the licence fee into a general Broadcasting & Telecommunications Charge

Under this scenario, all households would pay a fee regardless of whether they have a television set or not (which will become more relevant as streaming increases in popularity). It can either be collected in the same manner as TV licences, or another way would be to add it to line rental for broadband and landline telephones as an annual or monthly fee. While traditional TV licences would be scrapped under such a system, it would mean line rental could rise from around £17-a-month to £29-30-a-month (£154.50 charge) or £32-a-month (£180 charge). This could also include a levy on mobile and pay-TV subscriptions to bring in additional funds.

Option Three: Scrap the licence fee and replace it with a hypothecated levy on income tax

Based on calculations by the Welsh Public Policy Institute (pdf – p67), a 1p increase in the basic rate of income tax would near enough raise the same amount as the licence fee (£184million); add the same increase to the higher and additional rates of income tax and it would raise around £218million in total – very close to the ballpark £220million figure. Scrapping the TV licence may prove popular and under an income tax-based system the chances of evasion are slimmer, but it would mean that in times where income tax revenues decrease, the budget for broadcasting would decrease with it, while it wouldn’t take inflation into account – possibly requiring top-ups from the government and the setting of some sort of funding floor. While such a system would be based on ability to pay, it would mean the wealthy paying significantly more, proportionally, for the same service – maybe up to ten times the current licence fee.

Option Four: Direct funding from the government with no change in tax

Scrapping licence fees without raising taxes would no doubt be popular with the public, but it would also mean having to find the money from Wales’ recently-estimated £27.1billion in tax revenues. Of course, additional money could be found from advertising and commercial activities to reduce the burden, but I don’t think this would work and would probably cause an unnecessary fiscal headache.

Stand-alone or combined option: Allow PSBs to advertise

Adverts are unpopular, but S4C advertises so we’re used to PSBs advertising to a certain extent.

Allowing PSBs to advertise and use product placement – as they’ve done in the Republic of Ireland – would likely generate a fair amount of income (even as advertising revenues decline) and could even lead to the licence fee being cut or frozen. As mentioned in Part VII, ITV Wales proportionally – after taking Wales’ lower economic productivity into account – “raises” about £67million a year (STV made £126million) and S4C raised about £2.4million from advertising and commercial activities. So a conservative target of raising £25-40million from television and radio advertising on the Welsh equivalent of the BBC might take a Welsh PSB budget up to £245-260million, or could enable the licence fee to be cut.

Ad slot fees depend on the time of day and the number of potential viewers/listeners. It’s said a 30-second slot on ITV ranges from £3,000-£10,000 depending on the time of day, while it’s about half that on Channel 5 and even lower on pay-TV providers like Sky. There’s also the option of including ads on on-demand players similarly to All4.

The EU caps advertising to 12 minutes-per-hour, while Ofcom sets a limit of 7 minutes-per-hour for public service broadcasters that show advertisements (like Channel 4 and S4C) and 9 minutes for other broadcasters.

In terms of radio advertising, total UK income was £713.3 million in 2018 and has experienced year-on-year increases, though it’s still dwarfed by TV advertising. As mentioned in Part VI, according to Ofcom (pdf – p43), commercial radio revenues in Wales work out at around £19.6million (£6.33-per-head; 3.1million population).

In terms of the best option, I lean towards:

  • A hypothecated 1% income tax for broadcasting.
  • Allowing advertising on public broadcasters, with a target of raising at least £25million a year (at current prices).
  • Setting a funding floor of £220million for public service broadcasting (so any shortfalls are made up with direct government grants).
  • A fixed, automatically deducted, £50 annual fee/credit system for people of state pension age, low-income workers (self-employed, part-time etc.), full-time students and the unemployed instead of the income tax (which would itself generate another £25million+ from pensioners alone based on mid-2018 population estimates). It could be waived for the very elderly (aged 85+), those requiring large amounts of care and carers.

The licence fee isn’t a terrible idea, but turning it into a straight-up tax is perhaps a bit more honest. All of these measures could potentially result in a PSB budget of anything up to £280million+ based on current prices (current PSB spending in Wales is around £263million), probably wouldn’t require any additional government funding and would perhaps leave less well off households marginally better off than under the current licence fee. The real difficulty would come in the behind-the-scenes deckchair re-arranging to set up a Welsh broadcaster.