The BBC and the Quest for Universality

Tim Davie (TD), the Director General of the BBC, set out his vision at the RTS recently for the future of the BBC. Keen to focus finite resources to best serve audiences and society, TD spoke of three priorities: (i) pursue truth with no agenda (ii) back British story-telling and (iii) bring people together. This was a thoughtful speech, well-argued in terms of the role the BBC should seek to play in a globalised and fragmented market.

I was, however, particularly struck by repeated references to the BBC as a “universal” public service. The idea of universality was peppered throughout the speech and was central to TD’s third priority of bringing people together, with references to “shared moments and common cultural experiences”, “communal moments” and “making sure no one is left behind”.

It all made sense, very laudable, but with one big catch. The challenge for the vision seems to be that the BBC is not a universal service, has not been for some time, and is becoming less so year on year. If we want the BBC to play the role that TD sets out, then this needs to be acknowledged and addressed.

This note is not a response to the whole of TD’s speech, it is really just a response to that one word: universal. My main observations can be summarised as follows:

• no longer universal, there has been a rapid decline to c85% of UK homes with a BBC licence fee;
• to all intents and purposes, the BBC is a subscription service and the distinction is important, because if the BBC does not accept this, it won’t assemble key skills needed to run the business and is at risk of strategic errors;
• if universality is important, as TD has argued, this has implications for future BBC offerings and the funding thereof: to restore universality, one option is to argue for the BBC as a truly compulsory service, paid for by all, with no opt-outs – but this looks tricky after 100 years of a broadly user-pays principle;
• an alternative path to restore universality is a genuinely free, core BBC service, cross-subsidised by a broader and deeper paid-for offering.

The awkward truth about universality, and the increasing lack thereof

The BBC’s annual report includes data for the number of “licences in force”, which has declined from a peak of 26.24m at March 2018 to 24.37m at March 2023. (Note: this includes licences for the over-75s which the BBC has paid for in recent years.)

This might appear initially to be a modest fall, only 7% from the 2018 peak, were it not for the growth in UK total household count, now well above 28m. A more striking picture is provided by the proportion of households which have a BBC licence (see chart).

Penetration had softened from nearly 98% in 2008 to remain above 96% at March 2017, but has since been in marked decline, at nearly 2% pa, in line with the streaming revolution kicking into gear. We are now down to nearly 85%, the decline is showing no sign of slowing down, and looks scarily like the UK version of the US cord-cutting phenomenon.

What’s going on here? Two main categories account for the recent fall from above 96% to c85% penetration:

• some are still watching, and should be paying, but are not (and are at risk of enforcement);
• some have opted out; they are not watching and have declared, quite legitimately, that they do not require a licence.

Taking the second category first, the licence fee (LF) is payable if you are equipped to receive broadcast services or are using iPlayer. This means that if you do not have a terrestrial, satellite or cable connection (any of which would bring broadcast channels into your home) and are just using the internet (with a laptop or connected TV) to watch streaming services (but not iPlayer), then you are exempt.

This is an increasingly common choice for those who prefer to avoid ￡169.50 (￡14.13 per month, since April) for the BBC. Many feel they can get by with some combination of Netflix, Disney+, Amazon Prime, etc, plus ITVX and Channel 4 (the streaming app), as long as they only use on-demand and don’t watch or record live content. This is a basic economic response in a competitive market, with people switching to other services which they consider give better value for money.

Returning to the first category, some are undoubtedly watching the BBC (among other broadcast services and probably using iPlayer also) and not paying. This is against the rules, but not everyone gets caught. A degree of evasion has always been an issue, and there is some debate about whether it has been increasing in recent years. If it has been increasing, this might be a reaction to the increased LF level and, for some, a sense of reduced value compared to other options in the market.

In this context, however, it is worth identifying a further category that I believe is growing, which sits somewhere between these two main categories. These are people who have largely opted out of the BBC – they have no broadcast reception – but occasionally cheat a little. They might, for example, watch the odd show on iPlayer on their laptop (and when asked if they have a licence, they say yes), or they use ITVX or Channel 4 for the odd live show. They are technically breaking the rules, of course, but in a way that is almost impossible to catch in the current set up.

Why? They justify it to themselves by saying that ￡169.50 to watch one show is unreasonable. They would be surprised to be told they were stealing or breaking the law and would argue that, as for other services in their lives, the BBC is asking for trouble if it does not offer an option for a weekly, or daily or pay-per-show option for those with only occasional interest. They don’t think they are doing anything wrong, if anyone is in the wrong, it is the BBC.

It’s not right, but as for other subscription providers dealing with piracy over the years, there are limits to what you can achieve with enforcement. At some point you have to engage with the world, and your customer base, as it is.

A preference for alternative metrics

This broad picture – a six-year decline from above 96% to below 86% penetration – often comes as a surprise because of the focus on other metrics. One such metric is average viewing, still sitting at c7 hours of BBC viewing per week (all adults, across BBC linear TV plus iPlayer). This is impressive on any analysis and a result that underpins wider statements about the good value offered by the LF. But underneath the average is a wide distribution, with some cohorts watching four or five hours per day and some watching only five or ten minutes, some nothing at all.

To illustrate the general issue of light and heavy viewers, analysis by Enders estimated that the heaviest viewing three deciles combined (70-100%) watched an average of 366 minutes (more than six hours) of all broadcast TV per day. At the other end of the distribution, the lightest viewing three deciles respectively watched an average of 25 minutes (20-29%), 12 minutes (10-19%) and 3 minutes (0-9%) per day. And BBC viewing is a fraction of these already small amounts.

The heavy viewers are indeed getting extraordinary value from the LF, but the light viewing cohorts are not getting good value at all. They are the ones most likely to be looking for ways to stop paying ￡169.50 pa.

The second consoling metric is reach, the number of households that are touched by the BBC in a period, in some way. Headline billing in the BBC annual report is given to reporting that 88% of adults “use the BBC on average per week”. Again, this continues to be impressive. But we need to be realistic. This figure suffers from the same averaging problem as above; the hint of this issue is that reach is only 76% for 16-34s.

But the bigger issue is that this could be television, but it could otherwise be radio or online services or something like BBC Sounds. The challenge here is that engaging with the BBC on the radio, or online does not require a licence, so does not underpin a willingness to pay the LF. Reach is a great metric if your focus is being relevant to the whole population, but when it comes to worrying about people choosing to pay the LF, not so good.

If it walks like a duck …

The BBC is widely described as a universal service, funded by a compulsory levy. This is not true. It is not universal, as illustrated in the chart above, and the LF is not a compulsory levy, with growing numbers of people quite legitimately choosing to arrange their TV watching affairs to avoid being liable to pay it.

The reality is that the BBC is a subscription service, paid for by c85% of population, a figure which is declining by c2% per annum. There is a strong aversion to accepting this description, perhaps because the word “subscription” is associated with Sky and Rupert Murdoch and this is not the sort of company that BBC supporters want to be keeping. But in the end, the BBC is a content proposition that some people choose to pay for and those who do not are excluded.

After a while it seems best to accept that if it walks like a duck and quacks like a duck, it is probably a duck. The BBC is a subscription service and is facing the same challenges as all other such services around the world, flowing largely from the rise of streaming and the associated entry of myriad new, low-priced (and some free) quality content offerings.

Does it matter?

I think this confusion over labelling matters. If a business does not understand what it is, the forces by which it is shaped, then it will not assemble the relevant skills to manage the business. Elsewhere, we are watching a cohort of US content companies try to become subscription businesses and then discover that it is difficult, that they lack many of the skills necessary to run such a business. I worry that the same is happening at the BBC. If you think you are funded by a compulsory levy, if you don’t accept you are a subscription business, then no surprise you do not have people experienced in customer acquisition, churn management, elasticity of demand, pricing strategy, etc. Why would you?

I see hints of this absence in the concern expressed in TD’s speech that “below inflationary settlements have chipped away at our income over many years”. Maybe, but a major factor behind falling income appears to be the decline in the number of homes choosing to pay for a LF, which has not kept pace with population growth, and some of this is a reaction to price. Indeed, the revenue situation might even have been worse if fully inflationary increases had been allowed, as these might have accelerated the volume decline further. This possibility does not naturally occur to the BBC, still in the mindset of being funded by a compulsory levy. But as every subscription operator knows, if your customers have a choice, not all price increases translate into improved revenue.

Further hints arise in TD’s suggested solution, which is to make the LF more “progressive”, by which the better-off would pay more and poorer households would pay less. There has been some debate about what this might mean in practice. It could suggest a means-tested approach: for example, instead of ￡169.50, some pay ￡200, while others pay ￡100, or some version of that.

Or it might involve a greater use of concessions (such as for the over-75s today), with more categories of people offered a LF for free. But of course, if more people pay zero, that reduces revenue, so the headline rate would have to rise to make up the gap, so we would end up at a similar point, with some (or most) asked to pay ￡200 and others paying zero.

But if the goal is universality, this approach could make things worse. Again, traditional thinking is that you raise the LF by 20% for some people, you get 20% more revenue from those people. Sadly, when these people have a choice, not necessarily so. A 20% price increase will likely see a material reduction in volume and a less-than-commensurate increase in revenue. Revenue might even decline in the medium term.

Raising the headline LF to ￡200 or more, to fund lower rates to others, will accelerate the pace of opting out. Pretending otherwise is to mis-diagnose the problem, in which some assume that everyone would pay for the BBC if only they could afford it, that the only problem is income. Again, in the real world, while there might be some degree of an income effect, there will also be an effect from increased price making substitutes look more attractive.

Light BBC viewers are not all poor, many of them are quite well off, but such people also respond to price signals, and asking them to pay 20-30% more will drive them away faster. At the same time, there is no guarantee that dropping the price to ￡100 will bring back many of those who have already opted out or stem the flow of those light viewers who are leaving as they gradually work out that they have a choice. So becoming more progressive sounds appealing, but I doubt it solves the core problem and might make it worse.

What are the alternatives?

So the BBC is not universal, is becoming less so with each passing year, and it’s refusal to accept this fact risks drawing it into strategies that will make matters worse.

One option is just to give up on the whole idea of universality itself, accept the genie is out of the bottle and it won’t go back. But if TD really does believe in universality, and many of the laudable ideas in his speech do rely on genuine universality, then I think he has two options to consider.

One is to start making the case for compulsion, a genuinely compulsory levy with no opt-outs. The other is to split the BBC into two parts, a genuinely free service funded by a second, broader and deeper, paid-for service. These two options are set out below.

Option 1: bite the bullet and make the case for genuine compulsion

Despite the enduring widespread reference to the LF as a “compulsory levy”, it has always been more of a user-pays idea. Or to be more accurate, user-pays, but subject to the complication that usage, or lack of usage, was often hard to observe and audit, so we adopted indirect means to infer probable usage.

At the start this was plain. You paid the LF if you had a radio or a TV set, otherwise you did not. We did not observe BBC consumption but were happy to infer it from radio and TV set ownership. Why else would you have bought one? There was no argument at this point that the BBC is a public good with wider benefits so all should pay, regardless of whether they use the service.

Things became slightly more complex when other (commercial) broadcast channels launched, but it was still basically user-pays, with reasonable inference. The logic now was that if you had a TV, you were very probably watching the BBC. There was a theoretical possibility that someone only watched ITV and C4, but this was ignored.

TV ownership became standard, reaching some 98%, but the LF was still user-pays. Penetration was so high that the BBC felt like a universal service, the LF a compulsory levy. But some still chose not to have a TV and they did not have to pay. Still no public good arguments that all should pay.

The multichannel era was when the situation was at its murkiest, when the inference of BBC viewing was at its weakest. Sky homes, for example, had extensive channel choice and while most watched plenty of BBC, it was perhaps more plausible that some did not. But they still had to pay the LF. The Sky platform brought the BBC channels into the home, and it was assumed that all were probably watching some BBC. The benefit of the doubt stayed with the BBC and a home equipped with a broadcast network could not prove otherwise.

Today, with the growth of IP-only homes (no terrestrial, satellite, or cable), things have become clearer again; users pay. If you use the iPlayer, you are asked to pay. If you connect to a broadcast network, which brings the BBC into your home, it is assumed you are probably viewing the BBC, so you are asked to pay.

But otherwise not, and this is no longer a quirky, niche category, easy to ignore. Now it is entirely plausible for a home to access a wide range of IP-delivered content, including streamers but also content from ITV and C4 and Sky, without connecting to a broadcast network, and they are not liable to pay the LF.

So now the weakness in the system is revealed. It was always user-pays, but almost everyone used, so almost everyone paid, and it felt close enough to being universal and compulsory. But it never was, and now the technology exists for people to prove that they are not users, and they are taking advantage.

One possible solution, therefore, is to stop messing around, stop pretending, and move to a fully compulsory system, no opt-outs, no ability not to pay because you are not watching the BBC. Such a levy would probably have to be collected through a broadband bill, or perhaps a council tax bill, as just about the only hooks that capture nearly everyone.

There is a respectable argument to be made here, one around the idea of the BBC as a public good. We all benefit as a society, so we all should contribute. But it is an argument that would need to be made, for the first time, and this is not yet happening. And there seem to be two major problems.

First, such a step would go against the approach of the last 100 years or so, which was clearly a user-pays principle. Why now, after 100 years of user-pays, do we suddenly abandon the idea and start making arguments about public goods? Were these not true in the past? Are they really more true now?

Second, the events and trends of last ten years or so are an especially challenging backdrop for such a switch. Consumers have experienced a revolution of unbundling, freedom and choice in their media services, and we have trained a population to be highly resistant to being told there is one service they must pay for, whether they want it or not. We have allowed people to opt out and the iPlayer messaging in recent years has reinforced this idea: you can watch online TV shows and not pay the LF, until you use iPlayer, then you have to pay. Do we now say: “well done, very clever, but we never meant for you actually to exercise choice, to opt-out, so we are now going to take that choice away”.

Further, notwithstanding the BBC’s valiant efforts at due impartiality, the sad fact is we live in an increasingly polarised world, and some people (on both sides of a debate) will never be happy with how the BBC reports the news. They will resist being told they must fund something they regard as biased or untrue, and their resistance will be all the greater the higher is the LF.

Perhaps if we have made this change ten or 15 years ago, it might have slipped through with limited opposition. But things look tougher now. All that said, perhaps this is the argument that TD is getting ready to advance. Because I don’t think he likes my second idea.

Option 2: move to a genuinely free core BBC service

If imposing compulsion at this late stage is too hard, another route to universality is a genuinely free service, available to all, with no LF or other gateway.

This might be a single scheduled, broadcast service, bringing all the content that is always name-checked when we talk about the role of the BBC bringing the nation together. It could include news and current affairs but would be much wider, not some sort of US PSB ghetto. It would include big sporting events (especially listed events) and other national events (elections, royal weddings, Glastonbury, Eurovision, etc), but also first run British drama, kids programming, etc.

This core, first-run service would be available on all platforms, all technologies – no more talk of early DTT switch-off to save a few pounds – with no charge, no LF. So far so good, universal purpose fulfilled, but how is it to be funded?

The answer is to cross-subsidise from something many people are willing to pay for. This would a broader and deeper TV service, best thought of as a souped-up iPlayer. This would bring a wider choice of programming, including acquired shows, but also would be the home of catch-up services, series stacking, archive, as well as access to the on-demand content on BBC Sounds.

This add-on service might sell for, say, ￡15 per month, a similar price point to other streaming services and I could imagine it being taken up by, say, 2/3 of the population; more than half, but less than the 85% of homes paying the LF today.

This would still leave a gap compared to the BBC’s current financial position. Options to close this gap would be to relieve the BBC of the burden of funding free licences for the over-75s (this could shift to the public purse, as for other social welfare grants, or be abandoned altogether, given the free core service), shifting the World Service to the public purse and efforts to generate more from BBC studios and other commercial activities.

I do not claim to be the only, or even the first, to propose such a split. John Mair, a former BBC producer, has suggested a similar split between a core and an add-on service. The main difference is that Mair proposes a ￡100 fee for the core service. I would argue that if you really want to secure the benefits of universality, you need to go the whole way and move to a free service. When you are below ￡10 per month, the cost and effort to collect the fee, plus the downside of excluding those who choose not to pay, can be greater than the revenue benefit from setting the non-zero fee.

Reasons to recommend this approach include the following:

• no more costs of collecting the LF and trying to detect and pursue non-payers;
• no more fines, no more sending people to jail, no more free-riding from people who should be paying and who abuse the system;
• no more people excluded from the BBC TV orbit on income grounds – while DTT continues, a Freeview box is all that is needed to participate;
• universality: a core BBC service would be readily available to all at key moments of national importance, even the lightest viewers not inclined to engage on a regular basis;
• the approach solves at a stroke the “problem” of homes with a dumb Freeview box and no broadband connection – no conditional access system is required for these homes;
• a mechanism to charge “subscribers” for the add-on BBC service, and to exclude others, is readily available today (connected TVs etc), without need to develop or mass-distribute any additional consumer hardware.

There will be objections. Some don’t like the idea of cross-subsidy, but that’s exactly what we have been doing with radio for decades. You don’t need a LF to listen to BBC radio (or visit BBC websites) today, and it is free to all, without advertising. Instead, it is cross-subsidised by the people willing to pay the LF for access to broadcast TV services (and by other commercial activities). My suggested approach merely shifts the line where the cross-subsidy occurs.

Of course, this second service would even more clearly be a subscription product, a bit too close to that Murdoch business model, which will be an anathema to some. But as I have argued above, it’s little different to the reality of today. If this is a problem, we can still call it a “licence fee” if it makes people feel better.