Wednesday, June 24, 2009

Why levies make sense (II)

By Edel Brosnan

Here's the full text of Professor's Patrick Barwise's address to the Federation of Entertainment Uinion's lunchtime conference on Monday (with thanks to Professor Barwise for permission to reproduce in full):

The invitation to speak at this event presented me with a dilemma.

I care passionately about public service broadcasting, by which I mean: a mixed economy providing a wide range of high-quality, universally available programmes, including a high proportion of UK-produced programmes, free-to-air at the point of consumption.

This system is now under threat for reasons we all know: one of its funding sources, TV advertising, is in slow, long-term structural decline and, right now, sharp cyclical decline. The three commercially funded PSBs – ITV, C4 and Five – are therefore having to reduce programme budgets. Meanwhile, the other funding source, the BBC licence fee, is under constant attack and the BBC too is making deep cuts.

At the same time, people like Steve Morrison at All3Media and Kay Withers at ippr have pointed out that there’s a fairly straightforward solution to this problem, by introducing new funding sources – especially industry levies - to complement advertising and the licence fee.

So why did the invitation to speak here in support of these sensible ideas pose a dilemma for me? The reason is the political and ideological context.

As things stand, neither main political party appears even to have considered industry levies as a way of ensuring the survival of PSB, although – as I’ll show shortly – once one starts looking at the numbers, it’s clear that such a levy ought to be a large part of the answer.

The closest either main party has come so far is the Digital Britain proposal of a 50p/month levy on fixed phone lines. But the aim is to earmark that to cover part of the cost of universal, or near-universal, superfast broadband. The benefits of superfast broadband are, in my view, highly questionable, but that’s another story.

The mood music from the Conservatives has so far been no more positive about industry levies, although my hope is that this will change as they come to realise how the Government is missing a trick.

Certainly, the Conservatives have been saying all the right things about the importance of the creative industries. Labour having, so to speak, shot its bolt with Digital Britain, the Conservatives now have the chance to respond with something better – if they can put aside their preconceptions and, to be fair, their justifiable concerns about placating certain newspaper proprietors.

The dilemma for me was therefore as follows: some type of industry levy is – once one looks at the numbers – obviously the right way to go. But by lending it my support in the current political climate, will I lose whatever very limited influence I have among those who determine policy for the communications industries?

Obviously, I’m here today, which means that, after thinking about it, I decided “To hell with that”. I’m an emeritus professor – it’s from the Latin. It means unpaid and fire-proof, and in my case politically independent. If someone in my position can’t speak truth to power, we’ve come to a pretty sorry pass.

So I’m going to make the na├»ve assumption that the politicians – regardless of what they may have said in the past on these issues – will open their minds and listen to the facts.

The most important of these facts is that the total revenue of the consumer telecoms and technology industries – including fixed and mobile telephony and broadband, internet advertising and hardware sales – is hugely bigger than the whole of broadcasting.

If you take nothing else from this talk, I hope you’ll take this. It explains both the solution and, unfortunately, much of the problem.

To put some numbers on this, in 2007, the total revenue of UK broadcasting – all TV including pay-TV, plus radio – was £12.4 billion. The revenue of consumer telecoms and the internet – in other words, excluding all the revenue from businesses and other organisations – was £27 billion, more than twice as much as the whole of broadcasting. In addition, UK consumers spent a further £15-20 billion on communications hardware.

Note that – to varying degrees – the growth of all these industries relies on the continuing supply of high-quality PSB content. In most cases, that reliance is increasing.

Note also that, even today, telecoms and the internet are much more expensive for the consumer than broadcasting. Even if we exclude the cost of hardware, and despite huge improvements in price-performance, the cost per person per hour of consumer telecoms and the internet in 2007 was still £1.20 – more than ten times the 11 pence per hour for TV and 100 times the 1.2 pence per hour for radio.

That 11 pence per hour for total TV includes pay TV. If we look at just public service television, the cost per hour is even less. Pay TV channels are still watched less than PBS channels but pay TV revenue is now much higher than advertising revenue, which is, in turn, still significantly higher than the proportion of the licence fee that goes to BBC television.

Yes, you did hear that right: despite all the talk of an “imbalance” in favour of the BBC, right now - in the depths of an advertising recession - TV advertising revenue is still significantly more than the proportion of licence fee revenue that goes to BBC Television. If you include the pay TV revenue of Sky and Virgin (which are also commercial TV companies), total commercial revenue – from subscriptions and advertising – is about three times the licence fee revenue of BBC television. So yes, there’s an imbalance, but it’s the opposite of the claim that BBC Television has more resources than commercial TV. Of course their situations are very different, but let’s get the facts right.

The second key fact is that over 90% of the investment in UK production is by the BBC and the commercially funded PSBs. What Ofcom has shown – and is not, I think, in dispute – is that the pressure on budgets means that that investment by these four PSBs is decreasing, despite the fact that people are watching, if anything, more TV than before and the total revenue going into the communications industries is growing.

Of course, other traditional media are also suffering, none more so than local newspapers, because the internet is killing classified advertising. The wider challenge is to ensure the continuation of both public service broadcasting across all genres and professional journalism across all media.

Now I said that the huge scale of the consumer telecoms and technology industries explains both the solution and much of the problem. This is even more the case if one includes pay TV in the equation.

The positive implication is that, if the net is spread widely, even a very small revenue levy can generate enough to fill the PSB funding gap.

Others such as Steve Morrison, Kay Withers and Mark Oliver have looked at the options and the numbers more closely than I have. But for a rough idea: consumer telecoms, technology and pay TV have combined annual revenue of roughly £50 billion. A simple 1% levy on that would therefore generate about £500 million per annum. To put this in perspective, the funding gap for C4 in 2012 is roughly £100-150 million per annum. That’s all we need to ensure continuing plurality in PSB.

Of course there will be many executional issues if we take this route: fierce debates about the right combination of levies, spending priorities, market distortion and state aid, accountability, and so on. But don’t let anyone suggest that a levy is inherently difficult or impractical.

For instance, as Steve Morrison has pointed out, only five of the 27 countries in the EU don’t have a levy on the sales of new recording equipment. In alphabetical order, these are Cyprus, Ireland, Luxemburg, Malta, and the UK. Five years ago, Germany already collected 146 million Euros and France 168 million Euros from this source alone. The impact on hardware sales seems to have been minimal. We could probably solve the C4 funding gap if we did this and nothing else.

Are we really so arrogant as a nation, and is Europe now such a dirty word, that we feel we have nothing to learn from the practical experience of Germany, France and the rest of Europe?

When it comes to dubious propaganda about the so-called “race” towards universal fast broadband, I note that we’re all too keen to learn from Johnny Foreigner. But that seems to apply only when he’s throwing money at fat pipes.

And incidentally, when it comes to PSB and TV production, Johnny Foreigner has far less to lose than we do.

This leads me to the negative implication of the huge scale of the telecoms, technology and pay-TV industries, which is that, because of their size, they have enormous resources and lobbying power. In addition, I don’t think you have to be a Marxist or a paranoid schizophrenic to note that the dominant pay-TV operator is controlled by Rupert Murdoch and that this might, at the margin, influence politicians’ willingness to introduce a levy on pay TV, however small and however great the benefits for the British public and the creative industries.

All of this is in an ideological climate which, despite the banking crisis, the Metronet fiasco, and other examples, still insists that the free market is the answer to almost everything.

A further problem is that the power imbalance between public service broadcasting and the big battalions of telecoms, technology and pay TV is also reflected in Whitehall and the Cabinet. The creative industries are represented by DCMS under Ben Bradshaw, who’s been there for just a couple of weeks. The big battalions are represented by the new BIS under Lord Mandelson. Who do you think has more influence in the corridors of power?

So there we have it. The key fact is that consumer telecoms, technology, and pay TV are vastly bigger than public service broadcasting.

On the plus side, this means that even a tiny revenue levy on these industries would generate enough resources to fill the funding gap for PSB and, indeed, local media. The bad news is that it also means that the big battalions’ vast resources and influence seem likely to prevent the introduction of any such levy, however small, unless those in power show the vision and leadership to do what’s right.

Ultimately, it will be up to the politicians, but if enough of us make enough noise about this, reason may prevail despite the powerful forces marshalled against these ideas.

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