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Licence to thrill

    As a free-market conservative, the BBC has long troubled me. There is no doubt that it produces some excellent programmes. In fact, it is usually my first port of call when I switch on in the evenings. And in all honesty – compared to my Sky subscription packages - I don’t have to pay a lot to watch it. The BBC’s own estimates of its costs show that of my £145.50 licence fee each year the cost of the BBC’s TV channels to me is about £7.85 per month.

    But, the more I worry myself with the thought, the more I can’t get over the fact the funding system gives it such an unfair advantage over other broadcasters. The TV licence fee makes the BBC a television gatekeeper. A gatekeeper who says to viewers: “You have to pay to come and see my gardens, but even if you don’t want to see my gardens, you are going to have to pay me to see Mr. Murdoch’s. And then pay him as well”. This may have been fair when the BBC WAS television, but in a multi-broadcaster environment it represents a severe restriction of competition.

    There is no doubt that the Beeb is regarded by many as a national institution – a bastion of Britishness, an impartial news broadcaster (careful ), perhaps even a teacher. But it has to face up to the fact that people of my generation by-and-large just see it as another broadcaster.

    The digital switchover next year represents an opportunity to fundamentally reform the way that the BBC is funded. The licence fee system is no longer appropriate, for numerous reasons:

    1) It is anti-competitive – all TV viewers are supposed to pay it regardless of which television stations they intend to watch. This makes the BBC a toll booth for TV viewers.

    2) It distorts the wider news market – it enables the BBC to cross-subsidise its radio and website. This may appear beneficial to users who can access news for free – but in reality they are already paying inefficiently through their TV licence fee.

    3) It is unfair – it force charges people for the production of shows that could and are provided by the market for free elsewhere. Fewer people watch the BBC’s output these days, and many others free-ride on licence fee payers by watching shows on iPlayer.

    4) It is badly used – in part to pay high salaries to ‘celebrity’ hosts, with the justification of having to pay competitive market rates to attract talent. But, in every other sense, the BBC takes itself out of the competitive market.

    5) It does not provide accountability – there is no mechanism for consumers to hold the BBC to account for the quality and content of its output, as they still have to pay for it if they want to watch TV more generally.

    The arguments against the removal of the licence fee usually come in two forms: that the BBC is able to invest its guaranteed income to produce higher quality programming (particularly educational features), and that the system provides universality of BBC coverage.

    Universal coverage may well have been true when the analogue signal was transmitted and all you needed was an aerial to receive a picture. The nature of the public good meant that the licence fee made sense then. But with the existence of digital decoders, the public good argument is no longer valid. Plus, universality does not occur – only those able to afford £145.50 are granted this ‘universal’ television service.

    Meanwhile, the argument that the BBC might currently provide better quality educational programming may well be valid. But this still doesn’t provide any justification for the licence fee being the best way to fund it. Indeed, if universality and implied societal benefits are really the most important function, then the BBC should be funded by direct government grants - making it free at the point of delivery with a much tighter remit to provide content that would not be provided in a free broadcasting market.

    If we want the BBC to continue to provide a range of broadcasting content and services, on the other hand, then I think it should operate under a partial or full subscription service which will subject it to competition. This would evidently improve both efficiency and accountability – allowing customers to tailor packages to suit their demands. People will be able to stop paying for the service if they are not satisfied with the quality, whilst competition will improve the broadcaster’s efficiency. We need only point to the success stories of other privatised industries to show the scale of the benefits available to both investors and consumers.

    Whether you agree with me on subscription, or indeed the introduction of advertising, being the answer will depend on how you define the question. If you judge the BBC by what it does – providing a raft of different shows, bidding for sports coverage, embracing reality TV – then you will see the benefits that the competitive pressure of subscription will bring. But if you instead see the BBC as a merit good which should be universally accessible, then you might instead feel that the licence fee is a regressive tax which is too restrictive.

    Like AV, the licence fee system therefore represents an unhappy compromise between two more extreme positions. The merit good argument is all that remains as justification for a state broadcaster – but this does not provide any justification for the maintenance of the funding status quo.

    Ryan joined the Centre for Policy Studies in January 2011, having previously worked for a year at the economic consultancy firm Frontier Economics.

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