BBC Trust, the Economic Impact of the BBC on the UK Creative
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Entertainment & Media Strategy, Regulation & Valuation BBC Trust The economic impact of the BBC on the UK creative economy Appendices July 2008 pwc Important Notice These Appendices have been prepared by PricewaterhouseCoopers LLP (“PwC”) for the BBC Trust in connection with the economic impact of the BBC on the creative economy under the terms of the PwC engagement letter with the BBC Trust dated 9 January 2008 (the “Engagement”). These Appendices contain information obtained or derived from a variety of sources as indicated within the Appendices. PwC has not sought to establish the reliability of those sources or verified the information so provided. Accordingly no representation or warranty of any kind (whether express or implied) is given by PwC to any person (except to the BBC Trust under the relevant terms of the Engagement) as to the accuracy or completeness of the report. Moreover these Appendices are not intended to form the basis of any investment decisions and does not absolve any third party from conducting its own due diligence in order to verify its contents. PwC accepts no duty of care to any person (except to the BBC Trust under the relevant terms of the Engagement) for the preparation of the Appendices. Accordingly, regardless of the form of action, whether in contract, tort or otherwise, and to the extent permitted by applicable law, PwC accepts no liability of any kind and disclaims all responsibility for the consequences of any person (other than the BBC Trust on the above basis) acting or refraining to act in reliance on the Appendices or for any decisions made or not made which are based upon such Appendices. UK Copyright Notice © 2008 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP a limited liability partnership incorporated in England or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate legal entity. Contents 1. OUR TERMS OF REFERENCE 2 2. LITERATURE REVIEW 4 2.1 Introduction 4 2.2 The creative industries 4 2.3 Rationale for intervention 9 2.4 Externalities 17 2.5 Analogous impact studies 23 2.6 Reviews of BBC services and market impact assessments 27 2.7 Best practice impact assessment methods 32 3. KEY FINDINGS FROM SEMINAR 35 3.1 Introduction 35 3.2 The creative economy 35 3.3 Rationale for intervention 35 3.4 Specific impacts 36 3.5 Counterfactual 38 3.6 Scope and use of the study 38 4. LIST OF HYPOTHESISED IMPACTS 39 4.1 Introduction 39 4.2 Hypotheses to assess 39 4.3 Prioritisation of impacts 52 5. LIST OF STAKEHOLDER SUBMISSIONS 54 6. ESTIMATION OF REVENUES IN THE COUNTERFACTUAL 55 6.1 Counterfactual revenues from TV advertising 55 6.2 Counterfactual revenues from radio advertising 62 6.3 Counterfactual revenues from online 65 6.4 Total revenues 66 7. FURTHER GROSS VALUE ADDED AND NET VALUE ADDED RESULTS 67 7.1 Gross value added and gross employment impact of the BBC’s spending on creative activities 67 7.2 Net value added of the BBC’s spending on creative activities 69 1 1. Our terms of reference Below, we present the terms of reference as presented on the BBC Trust website on 18 February 2008 (http://www.bbc.co.uk/bbctrust/research/economic_impact/index.html) Study into the economic impact of the BBC on the UK 18 February 2008 Sir Michael Lyons, Chairman of the BBC Trust, announced in his Royal Television Society Fleming Memorial Lecture in November 2007 that the Trust was commissioning a wideranging study of the BBC’s economic value. The Trust has now agreed the terms of reference for the study. Summary terms of reference The main goals of the study into the economic impact of the BBC on the UK, to be conducted by PricewaterhouseCoopers, are to: • Identify the most important types of benefits and costs • Provide evidence on the scale of these benefits and costs, either in monetary terms, where relevant, or using other indicators where this is more meaningful The study will provide evidence of the scale of these benefits and costs both at the level of the UK as a whole, and for each of the four nations and the English regions (where relevant). The Trust will use the results of this study to help inform its judgements on future priorities and investment decisions. The study will focus on the BBC’s operations alongside other broadcasters and creative businesses in the UK. The project will examine the economic impacts of the BBC’s activities across all media, and in particular will consider new distribution channels (such as the internet) as well as the more traditional media of television and radio. The study will examine the role the BBC can play in relation to: • The supply chain, including upstream (such as independent producers) downstream (for example, distribution via third parties) or horizontally related (for example, if investment by the BBC in a particular area creates a cluster of similar businesses) • Training and talent • Risktaking and innovation • The use of the BBC brand • Investment in content • Positive or negative effects (externalities) from promotion (for example, giving a new writer airtime) • Joint ventures 2 How the study will be conducted The Trust would expect the study to comprise: • A review of the existing academic and policy literature on the economic impact of the BBC and public service broadcasters more generally • Consultation with industry stakeholders, in particular other broadcasters and major players in the creative industry, to obtain views and evidence as to what are regarded as the most important economic effects of the BBC’s activities • Compilation of relevant data • Analysis of information and evidence provided by the BBC and others It is the Trust’s intention that the study will be published in early summer 2008. 3 2 Literature review 2.1 Introduction In this section we provide a summary of the key findings of our review of the literature relevant to this study. We selected the literature for review with the following objectives in mind: • To obtain a workable definition of the creative economy; • To highlight hypotheses to test and counterfactuals from previous academic and policy literature based upon the rationale for intervention in public service broadcasting, and the role of the BBC in particular; • To consider the implications of the findings of a selection of analogous economic impact studies for the methods used in our study; • To set the context for this study with respect to existing impact assessments of the BBC’s activities, which also inform the selection of counterfactual scenarios; and • To summarise best practice impact assessment methods to inform methods used in this study. The structure of this section follows these objectives. Much of the academic literature on public service broadcasting and the creative industry has focused on the rationale for intervention in the market, i.e. the economic (or political and social) justifications for public service broadcasting, rather than its economic impact. This literature review focuses on economic impacts to businesses in line with the terms of reference for this study. Therefore we have not included the wide ranging literature on social, political impacts or consumer impacts (including assessments 1 of consumers’ willingness to pay for the BBC ) of public service broadcasting. 2.2 The creative industries 2.2.1 Definition of the creative industries This study aims to identify and estimate economic impacts of the BBC on the creative industries or the creative economy. We understand from the Trust that the creative industries were selected as the basis for this study because the BBC’s economic impact is likely to be most important in these sectors. Whilst clearly the BBC has economic impacts across other sectors, focussing on the creative industries should capture the most important economic impacts of the BBC. To identify and estimate these impacts it is important to ascertain a workable definition of the creative industries. We describe some of the definitions used in the literature below. According to the Department of Culture, Media and Sport (DCMS), “The creative industries are those industries that are based on individual creativity, skill and talent. They are also those that have the potential to create wealth and jobs through 2 developing intellectual property” . 1 For instance: Work Foundation (2006), “Willingness to Pay for the BBC during the next Charter period – A report prepared for the Department for Culture, Media and Sport”; and BBC/Human Capital (2004), “Measuring the Value of the BBC”. 2 http://www.culture.gov.uk/what_we_do/Creative_industries/ 4 3 Specific sectors identified by DCMS (2001) as “creative industries” are: advertising, architecture, the art and antiques market, crafts, design, designer fashion, film and video, interactive leisure software, music, the performing arts, publishing, software and computer services, television and radio. However, the Centre for Urban and Regional Development at Newcastle University (CURDS) suggests that the creative industries may encompass a broader range of activities and industries than those defined by DCMS: “… It [the creative economy] has obvious overlaps with tourism and hospitality, and has specific overlaps in certain 4 business activities in knowledge intensive business services...” Richard Florida (2002) describes the creative economy in terms of the creative individuals within it, under the title of “creative class”: “The distinguishing characteristic of the creative class is that its members engage in work whose function 5 is to “create meaningful new forms.” Florida denotes three groups of workers who may perform some creative economic activity: • A “supercreative core” includes “scientists and engineers, university professors, poets and novelists, artists, entertainers, actors, designers, and architects, as well as the “thought leadership” of modern society: nonfiction writers, editors, cultural figures, thinktank researchers, analysts, and other opinionmakers.