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The Economic Impact of the BBC on the UK Creative and Broadcasting Sector INCLUDING an INDEPENDENT ASSESSMENT and REPORT by PRICEWATERHOUSECOOPERS (Pwc)

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The Economic Impact of the BBC on the UK Creative and Broadcasting Sector INCLUDING an INDEPENDENT ASSESSMENT and REPORT by PRICEWATERHOUSECOOPERS (Pwc) THE BBC TRUST CONCLUSIONS: The economic impact of the BBC on the UK creative and broadcasting sector INCLUDING AN INDEPENDENT ASSESSMENT AND REPORT BY PRICEWATERHOUSECOOPERS (PwC) July 2008 1 BBC TRUST CONCLUSIONS Background The BBC Trust commissioned PwC in January 2008 to conduct research into the economic impact of the BBC’s publicly funded services on the UK broadcasting and creative sector. Of course, this is not the only work in the area: the Department for Culture Media and Sport (DCMS) Creative Economy Programme and the DCMS paper,“Creative Britain: New Talent for the New Economy” have estimated the overall value of the creative industries.This report is also published at a time when both OFCOM is conducting its second Public Service Broadcasting (PSB) review and the Scottish broadcasting Commission is surveying the current state of television production and broadcasting in Scotland. Whilst the role of the BBC has been debated in a wide body of literature, the economic impact of the BBC has only been assessed in relation to the launch of specific services, such as iPlayer or the Gaelic Digital Service.This report aims to bridge this gap and provide a broader assessment of the economic impact of BBC’s licence fee funded activities on the creative economy. Because the report was limited to the BBC’s licence fee funded activities, the report does not include BBC World Service (funded by Grant in Aid from the Foreign and Commonwealth Office) and BBC Worldwide which is a commercial subsidiary of the BBC. The objective of this report The BBC Trust bases its decisions on evidence. Many of the BBC’s economic decisions provoke strong opinions ranging from those who call for the end of the licence fee, a BBC reduced in scale or that the BBC should do more in certain genres or geographic locations.At the same time we know from independent research commissioned by DCMS that the creative industries are major contributors to the UK economy. The purpose of this report is to provide the Trust with a factual basis to engage with a range of public debates and as a guide for those areas of the BBC’s activity the Trust should pay the closest attention to in future. The report does not assess either the policy behind the current funding model or how efficiently the BBC spends its income, but rather seeks to understand the economic impacts of current and planned expenditure on the wider creative sector. Hence the report’s focus is to provide a qualitative assessment of the by­products of the BBC’s expenditure on the UK’s media and broadcasting sector. The report has three main objectives: ➣ To provide the Trust with a qualitative assessment of both the positive and negative economic impacts generated by the BBC on the wider creative sector.This assessment was not designed to question the current funding model for the BBC or how efficiently the BBC spends that money, but rather the economic impacts of that expenditure on this sector. Hence the report’s focus is to provide a qualitative assessment of the by­products of the BBC’s current and planned expenditure on the UK’s media sector; 2 ➣ To attempt to quantify these benefits and costs of the BBC’s economic impact in this area; ➣ To provide an assessment of the benefits and costs at a UK plus nations and regions level. The main evidence from the PricewaterhouseCoopers Review PwC undertook a comprehensive review which utilised independent experts, relevant literature and a wide ranging consultation with stakeholders. Because of this, the report has been able to draw on a diverse range of opinions. The report identifies the BBC as having a pivotal role in the stimulation, development and sustenance of the creative sector in the UK. Significant investment in both in­house and independent production by the BBC underpins a sector which is becoming increasingly important to the UK economy.The stable nature of this BBC investment in creative production helps sustain a level of vibrant creative activity in all parts of the value chain. Many stakeholders identified the stability the BBC brings to the sector as a major benefit. Alongside this impact on investment, the report identifies the BBC as having a number of positive impacts within the creative sector. Firstly, the BBC plays a key unique role in training staff within the sector. Secondly BBC investment in the regions has led to creative clusters, such as Bristol or South Wales.This is helping to make broadcasting less London centric than it has been historically. It also brings the benefits of licence fee funded investment to the wider economy. Finally, the BBC has played a leading role in promoting early adoption of new technologies and platforms, such as digital television or DAB radio. Against this, the report acknowledges that the BBC may generate both direct and indirect negative impacts on commercial business models. One direct negative impact stems from the BBC attracting audience share away from commercial broadcasters.This might make it harder for other broadcasters to increase advertising or subscription revenues.The indirect impacts of the BBC stem from how its investment decisions might have wider and unforeseen ramifications in the broadcasting sector. For example, the BBC has been dynamic in launching a range of free services, such as iPlayer.Whilst this service has been praised widely, it may impact on the ability of potential competitors to launch or sustain equivalent services on a paid for basis. The relationship between the BBC and its commercial partners and suppliers was also identified by the report as an area which may warrant further consideration. Feedback from some stakeholders suggests that the BBC may further enhance its positive economic impact by improving how it works with partners and suppliers, particularly in the regions. The overall positive economic impact of the BBC’s expenditure on creative activities, including expenditure on overheads and infrastructure, was estimated to be approximately £6.5bn per annum or more than £5bn in the creative sector alone. In addition, PwC have estimated that, when compared to a hypothetical scenario which replaces the BBC with a commercial broadcaster, the current structure delivers an estimated £4.4bn of additional economic impact. 3 Finally, the report suggests that whilst the BBC has had a positive role in promoting new technology, it questions whether sometimes this may lead to the market not adopting what is proved to be ultimately the best technological solution. The Trust’s conclusions The stable funding of the BBC, through a long­term licence fee, is a privilege for the BBC, but also a vital source of stability for the whole UK broadcasting industry. Assessing the economic impact of any organisation is inherently complex.This is especially true of the BBC which has a uniquely broad and diverse remit. Nevertheless, it is clear that the BBC plays a pivotal role in the UK broadcasting sector.The qualitative and quantitative aspects of this role appear to be largely positive.The report suggests that the BBC plays a leading role in the UK creative and broadcasting sector by helping to stimulate, develop and sustain investment in high quality broadcast content.This role will only be enhanced by the growing importance of the creative sector to the UK economy.Without the positive impact of the BBC, other parts of the creative sector, ranging from the UK film industry to orchestras and language services to the nations, could be greatly diminished or lost. In addition to the direct impact of BBC’s investment in the UK’s creative industry, there are also several spillover effects.The BBC’s ability to provide significant and stable investment, even during periods of economic downturn, has provided critical mass to many creative and broadcasting companies and the sector as a whole.The BBC’s leading role as a trainer of talent, from journalists to production staff, has provided the sector with a pool of talent to draw upon.The BBC’s role in developing new technology and platforms, such as digital television or DAB radio, has helped develop and grow the sector. The BBC generates around twice the economic value of the licence fee invested in it. For the most part the value of the BBC is additive – commercially­funded broadcasters would not gain significantly from a BBC funded by commercial means, although a smaller or commercially­funded BBC would mean lower investment in the production sector. The report estimates the overall economic impact, or the ‘Gross Value Added’ (GVA) of the BBC at approximately £6.5bn, and £5bn of that is in the creative sector alone. Given the diverse portfolio of activities undertaken by the BBC, this quantification can be only a broad approximation. Nevertheless, even allowing for a margin of error, it is clear that the BBC does generate substantial GVA to the UK creative sector and the wider economy. Interestingly, attempting to refine this estimate to take account of potentially different market structures does not generate significantly different results.The report considered a number of different hypothetical scenarios with different funding models (a mix of licence fee, subscription and advertising revenues) for the BBC. It was found that unless an advertising funded BBC significantly increased the level of advertising expenditure in the sector, the overall economy of the commercial broadcasting sector is not highly sensitive to these scenarios. 4 In other words, a substantial reduction in or removal of licence fee funding would serve to reduce the available funding for the broadcasting sector as a whole. Indeed, a commercially funded BBC would simply serve to draw advertising revenue away from other broadcasters.
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