Measuring the Value of the BBC A report by the BBC and Human Capital October 2004 Contents Management Summary.........................................................................................3 Background...........................................................................................................5 Methodology .......................................................................................................10 Results................................................................................................................17 Conclusions ........................................................................................................27 Appendix 1..........................................................................................................36 Appendix 2..........................................................................................................37 Appendix 3..........................................................................................................38 2 Management Summary In May 2004 Human Capital and GfK Martin Hamblin carried out a study with the BBC to measure the value it creates. The research set out to investigate how much people think the BBC is worth and how that value is divided between its different services. In addition, it looked at how the introduction of a subscription system might affect the value generated by the BBC. A key aim of the research was to understand how the BBC is perceived as a public service broadcaster, offering value to people not only as consumers or individuals but also as citizens. To this end it investigated not only how much people would be willing to pay if the BBC was a subscription service but, most importantly, how much it is worth to the country as a whole. The research involved interviews with 2,257 people across the UK. It was preceded by a series of detailed pilots, which were used to refine the methodology and a qualitative study which enabled us to probe people’s responses in some depth. The study revealed that there is overwhelming support for the BBC across the UK. 81% of the population agree that the BBC is worth the £121 per year which the licence fee currently costs. On average, people actually value the BBC at around twice the rate of the licence fee, that is £20 a month or £240 a year. Young men with multichannel television value the BBC the most highly and some are prepared to pay as much as £50 per month. All of the BBC’s constituent services, from the terrestrial channels through to radio and BBCi, are perceived to deliver considerably more value than they cost. The digital services, however, stand out in particular for generating a remarkable amount of value from a relatively low cost base. This is made possible, to a great extent, by the large reach and promotional power of the BBC’s terrestrial channels and the ability to window content between the different platforms. In addition, they benefit from the values of trust and quality which are associated with the BBC’s terrestrial brands. Digital households tend to value the BBC’s digital services the most highly as they are already in the habit of paying relatively expensive multichannel subscriptions. High quality programming is considered to be the most vital component in creating value. Of the many genres broadcast on television, news, regional news and soaps are considered to be the most important. Home-produced programmes are also valued highly, especially British comedy, drama and film. 3 Even blockbuster movies are seen as important for the country as a whole, proving that public service television need not be confined to the traditionally “worthy” genres. Finally this research investigated the possible outcome of introducing a subscription system in place of the licence fee. It revealed that the BBC would maximise its revenue by charging £13 a month (a 30% increase). At this price 14.8m households would subscribe but 9.7m would not. Consumers would be worse off by £300m a year and the BBC would lose a further £523m a year in revenue. As a result those who chose to subscribe would end up paying more than the current licence fee for a lower standard of service. Also, of course, a non-universal BBC would not be able to carry out its citizenship roles, including support for democracy, education, culture and social cohesion. 4 Background The BBC is funded by a licence fee, which is compulsory for every TV-owning house in the UK. In return it is expected to deliver the best possible value for money to the UK population. Over recent years the value generated by the BBC for individuals and for society as a whole has come under increasing scrutiny. Two trends, in particular, mean the BBC needs to have a better understanding of the value it creates: • Regulation of commercial broadcasting increasingly involves quantifying the value of both public and commercial channels in order to assess the value created by new services such as BBC News 24 or platforms like Freeview. • In the past, when spectrum was limited, consumer welfare was addressed mainly through content regulation. As spectrum becomes more plentiful and the number of commercial broadcasters increases, there will be more emphasis on competition regulation. More recently the importance of valuing the BBC has been brought to the fore by the OFCOM review of public service broadcasting and the impending 2006 BBC Charter review. This is not the first study of its kind. The valuation of public services is an area of growing interest and importance. Recently major studies have been carried out on the British Library, the Danish National Theatre and the Irish broadcaster RTÉ1. The first large-scale valuation of the BBC took place in 1987. Commissioned by the Home Office, it explored the viability of introducing a subscription system for BBC One and BBC Two. The report concluded in favour of the licence fee. It acknowledged that the introduction of subscription might lead to a more consumer-focused, efficiently-run BBC but argued that the losses, both of revenue and audience numbers, would simply be too great to justify such a system. In 1990, Andrew Ehrenberg and Pam Mills at the London Business School conducted a seminal piece of research on the value of the BBC. They investigated whether viewers would pay a voluntary subscription for BBC television and how much they would be willing to pay. This took place fourteen 1 See Appendix 1 for details of relevant studies into valuing cultural public services 5 years ago, when there were four channels to choose from and the annual licence fee was £71. Ehrenberg and Mills showed that, at that time, 90% of respondents were willing to pay a voluntary subscription of £72 for both BBC One and BBC Two. Their final report recommended against subscription, due to the high operating costs it would entail. Instead, it recommended that the BBC should “retain the licence fee but raise it to be closer to a free-market price, enabling the BBC to show more good programmes”. The most recent valuation of the BBC was carried out in 2000 for the Radiocommunications Agency. This project used conjoint analysis to determine people’s willingness to pay for viewing television. It investigated potential subscription prices for the five terrestrial channels as a whole and for a package of satellite channels. It did not, however, seek to value each of the BBC’s individual services. Ehrenberg and Mills looked purely at consumer willingness to pay. They were interested in how much people would pay for a subscription to the BBC. Our research re-values the BBC for the digital age and investigates whether the consumer value alone is an adequate measure of the entire perceived value of the BBC. With this in mind we set out to answer four key questions: • What is the perceived consumer value of the BBC? • What is the perceived total value of the BBC? • Is there a difference between the total value and the consumer value? • If so, to what extent can the difference between the two correctly be identified as citizen value? In this way our research explored the different terms of the equation in Figure 1. Total Value of the Consumer Value Citizen Value BBC =+ Figure 1 There are generally held to be two possible approaches to measuring value. The first is to calculate revealed preference, or what people actually consume, using BARB and RAJAR data. This, however, is problematic: 6 • Reach and share are difficult to put a value on when there is no industry standard. The best method would probably be to compare the price per viewer, per hour. In this calculation the BBC comes out at 4.7p, whereas Sky, for example, would be 38.5p2. • Consumption tells us nothing about the quality of experience people have. • Measuring consumption takes no consideration of externalities such as educational, democratic, social and cultural benefits. The second approach is to look at stated preference, or what people say they value. This involves measuring which genres people value or their perception of the quality of the BBC’s output. Neither stated preference nor revealed preference, however, give any indication of how much people believe the BBC is actually worth. Measuring the value of the BBC does not easily lend itself to a traditional cost- benefit analysis. In deciding, for example, whether to build a road, it would be possible to think first about the cost of building it and then about the benefits it would offer – the impact it would have on journey times and the amount of economic growth it would create. If, in the final analysis, the benefits outweighed the costs, the project would be given the go-ahead, subject to any other (eg. environmental) factors. The BBC does not fit as easily into this type of analytical framework. Whilst its costs can be calculated relatively easily, there is far less clarity surrounding the benefits. This is because so many of them are not economic. The social conscience encouraged by Crimewatch, the political stimulation provided by Question Time, the goodwill spread by Children in Need; these represent just a few examples. Indeed, the BBC generates a whole raft of democratic, cultural, educational and social benefits, which must be factored into its overall valuation.