Speech to the Social Market Foundation Conference
I am grateful to David Lipsey and the Social Market Foundation for this opportunity to set out my thoughts about the future of broadcasting and public service broadcasting (PSB) in particular.
Television and radio touch all our lives. Their influence on social, cultural, commercial and political activity is far reaching. Every man, woman and child is a consumer of television and radio.
Decisions on how they are regulated, on controls over ownership, on digital switchover, on the BBC Charter, and many other matters don't just concern every family in the land. They affect how Britain exploits the huge economic opportunity which broadcasting represents.
I'm on the early stages of a journey of exploration which started last September when I took on the DCMS portfolio within the Shadow Cabinet. Today what I want to do is float ideas, share thoughts, not set out Conservative Party policy. I will do that at a later date, after I've attended a few more events like this one.
I start from the position of being on the side of the consumer. I want more progress to higher quality, better value, more control for viewers and listeners. Delivering these aims will open up greater opportunities for broadcasters.
In charting a course for broadcasting's future we mustn't be prisoners of the past. Harnessing new technology for the benefit of consumers as well as suppliers involves new ideas and concepts.
Trusting consumers doesn't always come easily to powerful people in either politics or broadcasting. Viewers and listeners weaned on an out of date model of passive consumption of television and radio deserve to be treated better.
Now is the time to move towards a market in broadcasting where viewers pay for what they choose to watch and not for much else; time to reduce the distorting effects of the BBC licence fee; and to set the BBC itself free to grow in competition with other suppliers.
Let me, at the outset, salute the industry's considerable achievements. The BBC has a distinguished history. It set high standards which were rightly and widely admired. ITV opened up new horizons, Channel Four provided an innovative model of a publicly owned television channel and Sky TV enormously enhanced viewer choice. The newcomer, Channel Five, has its own angle on news and arts coverage. As it happens all these success stories have been facilitated by applying Conservative philosophy to a rapidly changing industry.
Broadcasting is and will remain one of the most important industries in the twenty-first century. Fortunately it's an industry where Britain enjoys advantages - a large pool of entrepreneurial and creative talent, a fine record of public service and other broadcasting, the English language and a country in which people from all over the world like to live and work. British influence on the development of the media industry should be considerable.
Now viewers and listeners enjoy wider choice decisions about ownership of media companies should be left to the competition authorities. The market will protect consumer interests provided there is competition between suppliers. If unfair, monopolistic or anti-competitive practices creep in the authorities have backstop powers to intervene.
On matters of taste and decency regulators should concentrate on the prevention of harm rather than offence. This may sometimes involve taking a stronger line than now, for example, over material which may encourage aggressive or violent behaviour.
The present structure of broadcasting in Britain is a historical accident. Radio, and television, developed as state-owned monopolies funded by the licence fee, a television tax which is highly regressive. Gradually this monopoly evolved into a comfortable duopoly and eventually into today's multi-channel environment.
But payment methods haven't expanded to match the range of channels. Broadcasting companies and programme makers exercise great power over consumers. There's been an assumption that schedulers know best, that the consumer is a passive creature, content to flop down in front of the screen and accept a diet someone else has chosen.
Today some viewers are starting to consume television when it suits them, choosing from a bigger menu and exercising more control, maybe accessing one item in a news bulletin and pursuing it in more depth. In future more people will do this and it's time to throw overboard outdated assumptions about how television should be paid for.
3. THE FUTURE
The future is digital. The Government must drive the switchover from analogue to digital more effectively than they have done so far. Without real leadership their target date for switchover won't be achieved. As a Sky subscriber and a former customer of ITV Digital I know how unreliable the reception of the terrestrial service was, a failing for which Ministers cannot entirely escape responsibility.
The extra quality, choice and potential for interactivity on digital justifies moving ahead quickly, regardless of any residual value in the analogue spectrum. Britain's leadership of the digital television revolution must not be thrown away.
Switchover requires a thriving terrestrial platform, alongside satellite and cable. Without that the exclusion of many homes from cable by geography would mean that satellite exercised a monopoly over much of Britain.
Ideally all three platforms will offer viewers free to air and pay TV channels, even if in the short term the survival of digital terrestrial television involves a limited period of only free to air. However viewers shouldn't be encouraged to buy equipment which denies them the chance to upgrade to pay channels at a later date.
An all digital Britain will widen the range of payment options, for the benefit of both viewers and suppliers. It'll end licence fee evasion, saving £140 million a year, more than 5 per cent of the BBC's total income.
Radio is a very important part of PSB and I'll speak in more detail about it on another occasion. For today let me just say that Britain enjoys high quality radio. Wider choice and higher standards will be possible as digital radio becomes the norm.
As far as possible the future of broadcasting should be determined by consumers not politicians. The market is the best guarantor of efficient delivery.
If the market is to work properly changes are needed. The distorting effect of the television tax must be reduced. Consumers must increasingly pay for what they watch, not for what suppliers choose to sell them.
4. PAYING FOR BROADCASTING
No other industry prices its products in the way broadcasting does. All viewers pay the television tax even if they never watch the channels it pays for. Severing the financial relationship between consumers of a product and its suppliers is seldom helpful.
Buyers of books aren't forced to pay an entry fee to get into a bookshop before they know what books are on sale. Lovers of music don't pay a lump sum covering the cost of dozens of compact discs even though they know they will only want to listen to a handful. Theatre tickets aren't sold in a block which gives entry to certain plays selected by someone else before the theatregoer has been told which they are.
The structure of the publishing, music and theatre industries isn't the same as television but there are enough similarities to question why television is sold this way.
The answer lies in history. To get broadcasting going the television tax (originally a radio tax) was introduced. It may have been right in the early days that this tax funded all broadcasting. Today the situation has changed.
The television tax affects the behaviour not just of the BBC but other broadcasters too. It limits the power of consumers to determine what they are offered. It's a crude and undiscriminating way to charge for television. It wouldn't survive if consumers were used to paying for what they want and nothing else.
The television tax provides a smokescreen behind which other broadcasters price their products in a similar way. Sky has revolutionised viewer choice, winning a large market share on the back of a bold and well judged strategic gamble. It's been able to bundle its product, like that of the cable companies, in a way which does not suit all consumers, partly because the market has been conditioned by the television tax.
Let's take this a stage further. If the consumer, having paid the television tax, equivalent to the price of entry into the bookshop, is a sports lover, he or she is then asked by pay television suppliers for a further entry fee to get inside the section containing sports books. There is no opportunity to state a preference for, say, tennis and rugby over golf and cricket.
Pay television subscribers, unlike television taxpayers, do at least buy their product voluntarily. For many people a single comprehensive subscription may be convenient. But now digital makes pay per view (PPV) easy, subscription to a pre-packaged bundle of channels shouldn't be the only option.
PPV should be widely available so consumers can access programmes individually. Subscribers to one sports channel, for example, should be allowed to buy individual sports programmes on other channels on PPV in the same way subscribers to The Economist who receive a discount by buying a year's issues at a time can buy a single issue of the Spectator at the full cover price when they want to.
The present system restricts choice and insults the viewer's intelligence. It could be replaced by one which gives viewers and listeners the power that cinema and theatregoers, that readers of books, magazines and newspapers take for granted. PPV isn't a burdensome addition to charges already levied but an alternative which enhances viewer choice and control out of all recognition with past practice.
It's time for boldness and imagination. Why shouldn't quality programmes be made in a freer market? The free market in book publishing doesn't mean only trashy books get published. Trashy books do get published but quality books emerge as well.
At present the sole recipient of the television tax is constantly accused of dumbing down. It's hardly surprising the BBC is tempted to compete for audience but it cannot be said too often that ratings are a lousy guide to whether the BBC is carrying out its PSB role.
The success of Hello Magazine hasn't put The Economist out of business. Suppose, however, both were published by one tax funded organisation and supplied free to all readers. It is a sure bet The Economist would be the one threatened with the chop when a commercially orientated chief executive took charge.
Promoting a television market where consumers are king requires a fresh approach to the television tax and a rethink of the role of PSB.
5. PUBLIC SERVICE BROADCASTING
PSB is a public good on which public money can properly be spent. There's a debate to be had whether that money should come from a hypothecated television tax or from general taxation, which is how the excellent BBC World Service is funded. However, the constant struggle of the World Service for proper funding isn't an encouraging precedent for the general taxation option.
A twenty first century model of PSB may still involve, at its core, an organisation whose main purpose is the delivery of certain specified obligations. But other channels apart from the BBC have an important PSB role and I applaud how they discharge their responsibilities. The public interest in the new century will only be properly served if there continues to be the widest possible choice for consumers, catering for all manner of individual tastes. However this morning I want to focus on the BBC.
Many attempts have been made to define PSB and it's often easier to say what it is not rather than what it is. I certainly don't regard all the BBC's output as constituting PSB. Plainly many viewers and even some BBC management don't think so. Gavyn Davies didn't claim it was in his 1999 Report on Future Funding.
An important function of PSB is to remedy market failure. Taxpayer's money can justifiably be used to fund broadcasting to ensure the supply of programmes which serve a public interest but which would not get made if the free market alone determined supply.
Annex B of the Government's own document - rather grandly entitled "The Policy" - refers to the General Public service broadcasting Remit whose first provision is "disseminating information, education and entertainment".
Back in the days of the BBC monopoly -as it happens anxieties over concentration of ownership weren't so widely aired then, those concerns have grown louder as ownership has become more, not less diverse - back in those far off days, entertainment deserved inclusion within this definition of PSB.
Today, however, the duty of a public service broadcaster to entertain is dramatically less now so much entertainment is available on other free to air channels. Market failure no longer applies.
Information and education have stronger claims for inclusion within PSB, as does news and current affairs. Although Sky News has emerged as a valuable additional news provider alongside BBC and ITN, the regional news coverage of both BBC and ITV fulfils an important PSB function and might not be supplied by the market.
The same is true of serious current affairs programmes. On The Record may not reach those elusive younger viewers who increasingly don't vote but does contribute to political discussion. Regular viewing of Channel Four News and Newsnight not only allows time for dinner but also keeps viewers in touch with what's happening at home and abroad. Neither would necessarily survive without a PSB obligation.
In assessing where market failure applies there is a distinction between what the market supplies free to air and what it supplies on pay TV. This is more difficult territory. If croquet is covered on a pay channel does a free to air channel need to do so? Is croquet PSB? If it isn't what difference is there between croquet and cricket, or golf, or rugby, or tennis? Or even, dare I say it, football?
It's doubtful if much sport can still be defined as PSB. And one model for the BBC I'll float in a minute would allow viewers to enjoy the same sports coverage as now without paying more.
Harder to judge is the extent to which drama, music and the visual and performing arts are PSB. Maintaining a significant British production capacity in these areas is desirable and reliance on the market may not achieve this goal. How these important elements are defined within a PSB remit requires further consideration.
There is also the question of how the PSB package should be delivered. Should it be divided up into a series of individual components and bids invited from broadcasters able to deliver them? Or should PSB be bundled as a single package and put out to tender?
This might appeal to free market theorists but it wouldn't recognise reality. The BBC, despite faults which its detractors are quick to highlight, would deservedly have a head start in bidding to perform the PSB roles. A tender process would be cumbersome and expensive.
The aim must be to deliver PSB as efficiently as possible. A new approach to BBC funding, overhauling the television tax, can encourage this.
6. THE FUTURE OF THE TELEVISION TAX
Much discussion over BBC Charter renewal will concern funding.
I want the BBC enjoy the potential for a greater increase in its income than the television tax could ever provide. It is, after all, an internationally recognised brand, capable of considerable growth.
Unlocking this potential depends on reforming the television tax. I hope the Secretary of State's mind isn't as closed as her recent FT interview suggested when she was quoted as saying that a significant change to the funding of the BBC lies "somewhere between the improbable and the impossible".
The BBC receives approximately £2.1 billion direct from television tax payers and another £390 million paid by the Treasury on behalf of households exempt from the tax, giving a total income of around £2.5 billion.
Various options exist after the present Charter expires. At one extreme the BBC could be funded from advertising. But advertising revenue, as recent events have shown, is not infinitely expandable. This option would be unpopular with existing advertising funded channels and would not promote consumer choice. I do not support it.
An alternative would be for the BBC to rely entirely on subscription or PPV. This would reduce its audience and unless those viewers who remained paid a higher subscription than the present television tax, money for programmes would be reduced.
At the other extreme the television tax could continue, maybe growing in real terms as it has done recently. This alternative enjoys some support but is hard to justify unless everything the BBC does constitutes public service broadcasting.
Changes to the present funding arrangements are therefore likely and I want to explore another option - shall I call it the Middle Way - because unlike the Secretary of State I want the BBC released from the shackles of the television tax.
There's nothing magical about an income figure of £2.5 billion. Could a high quality PSB function be provided for £2 billion? Or £1.5 billion? Perhaps PSB only needs one national television channel, not two?
Now is the time to examine just how much television taxpayers should have to pay for the BBC's PSB functions. I suspect that most television taxpayers believe it's significantly less than £2.5 billion.
Once a figure is decided the BBC would sign a public service agreement committing them to providing the core public service programmes. Its finances would be subject both to external audit and scrutiny by Parliament through the Public Accounts Committee and the Select Committee.
But as I said a moment ago, I want the BBC to have more income, not less, so in addition to receiving this slimmed down television tax, it would be given new freedom to offer consumers additional television and radio channels on subscription or PPV.
Under the Middle Way there'd be no ceiling on the BBC's income. Its substantial reputation and assets could be exploited at home and overseas, creating new opportunities for programme makers and management. The BBC could grow without artificial constraints, develop new markets and improve services to consumers.
A whole range of specialist new television channels and radio stations could emerge. All viewers would have more to spend as a result of the lower television tax. The market for pay television is growing. Would consumers not gain from competition, for example, between a subscription funded BBC Sport channel and other sports channels?
No doubt it will be claimed that EU rules make it hard for the BBC to operate a dual structure of this sort. As Commissioner Reding pointed out recently to the Joint Scrutiny Committee examining the draft Communications Bill, total transparency is needed if a state controlled taxpayer funded body starts to compete in the market place. I hope that regulatory structures will not impede the evolution of the BBC.
How far the BBC would grow under this model would depend on how successful it was at making programmes which consumers were willing to pay for. If its output is as good as its champions say, it has much to gain from greater exposure to the market. Timing the introduction of this new model would depend in part on the progress towards digital switchover and the start of the new Charter period is probably too soon for such radical changes. In any case they could be introduced gradually. But the time to debate whether they are desirable is now.
In considering the future of broadcasting generally and the renewal of the BBC Charter in particular our aims should be:
1) to enhance viewer choice and control
2) to help the BBC exploit its unique assets and reputation at the same time as preserving a properly funded PSB role
3) to ensure that other broadcasters are free to develop as they wish
4) to encourage a diversity of payment methods so that viewers increasingly watch what they pay for
5) to help Britain maintain a leading role in broadcasting.
Tessa Jowell's rejection of changes to BBC funding must not be the last word on this important issue. Viewers and listeners deserve better. The ideas floated above are just that - ideas.
I hope they will stimulate debate, enhance consumer power, widen the influence of the BBC and ensure that British broadcasters are leaders in this century as they were in the last.