The Public Accounts Committee of the UK’s House of Commons, in a report – BBC strategic financial management – has expressed concerns that the BBC, “at a critical juncture” in its history, appears “complacent and unconcerned” in the face of a series of commercial and financial challenges:

• the time people spend using its services is declining
• it recently lost its place as the media provider that young people spend most time with
• around 200,000 new households each year choose to opt out of paying for the TV licence
• licence fee sales have fallen by nearly half a million in the past two years
• there is considerable uncertainty about the impact of the loss of government funding for free TV licences for the over-75s

The BBC is currently in negotiations with the government about the future level of the licence fee but “appears to have put off the hard choices” about the cuts to frontline staff and content that it concedes it will be forced to make.

The Committee calls the BBC’s aim to increase its commercial returns by 30 per cent over five years “unambitious”: commercial returns currently represent less than 6 per cent of the income the BBC gets from the licence fee. Plans for an increased presence in the nations and regions are “unconvincing”.

“We can see the BBC might be reticent to share detailed plans at this delicate moment, in the middle of licence fee negotiations, but we expected a clearer vision of how it will address the decline in its audiences and revenues, and manage the global transition from traditional TV viewing to online,” commented Meg Hillier MP, Chair of the Public Accounts Committee.

“The BBC has enjoyed a truly unique position of privilege and trust, it should have been capitalising on the cosy buffer of its guaranteed income from taxpayers. Moving bits of this Titanic organisation around the country, reorganising the deckchairs, just won’t cut it in the face of intense and rapidly changing global competition. The BBC needs to radically re-engineer its offer,” she asserted.

PAC report conclusions and recommendations:

4. The BBC appears complacent about the threat it faces from declining audiences. Each year people spend less time watching BBC TV and 200,000 more households choose to opt out of paying for the licence fee. Yet when pressed, the BBC seem unconcerned by the decline, maintaining that overall the number of users it reaches is high compared to other broadcasters. Nor was the BBC able to demonstrate to us a clear understanding of why increasing numbers of households are forgoing the TV licence. The BBC recognises that the rapid shift to online media and changes in consumer habits during the pandemic has seen people discover more choice elsewhere. However, it does not appear to have a sufficiently detailed plan for how to address this; it was, for example, unable to articulate why bringing BBC Three back to terrestrial TV would help stop viewers moving away. Addressing audience decline and better understanding the value it can bring is critical to the BBC’s financial health: as the BBC’s own research has shown, people are less likely to pay the licence fee if they do not view licensable content.

Recommendation: The BBC should identify what more it needs to do to fully understand why increasing numbers of households are watching the BBC less and legally choosing not to have a TV licence. It should update the Committee on its plan to reverse the decline in its audiences within three months. 

5. The BBC’s plans for an increased presence in the nations and regions seem unclear and disjointed. In March 2021, the BBC announced that it would increase programming spending outside of London by £700 million by 2027-28. However, the BBC is also planning a number of efficiency measures around the UK, including making 600 redundancies in its Nations & Regions division and reducing its regional news output. As a result of this inconsistency, it remains to be seen whether this means that the number of people it employs outside of London will increase or decrease. We are also sceptical about the BBC’s claim that viewers outside of London will have more of a voice as a result of relocating jobs to the regions, where these jobs are of national relevance, such as the production of national news. More generally, we are not clear how the BBC intends to find an additional £700 million for the nations and regions, given that it does not yet know the outcome of its licence fee negotiations, or how it will rationalise its estate in line with its new regional plans. We are also concerned that due to the apparent lack of clear, joined-up plans, there may be a risk that the BBC could end up making staff redundant in one area only then to rehire them in a separate area down the line, leading to unnecessary voluntary redundancy pay-outs.

Recommendation: The BBC must be clear and transparent about what it is trying to achieve with its plans to increase its presence in the nations and regions, in terms of, for example, the value that this is designed to generate, both locally and nationally. We expect to return to the BBC’s plans in this area in due course. 

6. There is considerable uncertainty over the BBC’s financial future, which its financial plans do not appear to address adequately. The BBC Director-General has four new strategic priorities for the organisation – delivering high-quality content, developing the online presence further, growing commercial income, and a renewed commitment to impartiality. These will require increased investment, but the BBC was short on detail on how these will be paid for, other than through commercial returns and the BBC taking tough choices in areas such as content where it will probably have to make fewer programmes but ensure that their impact is high. The BBC is committed to making further savings in future, but appears unable to achieve its existing £1 billion savings target in full. In parallel, the BBC is currently negotiating with government on the future level of the licence fee. The BBC has not, however, modelled the impact on its finances of potential fundamental changes to the licence fee from 2022-23. We would expect to see clearer financial plans from the BBC, including how future investment will be paid for.

Recommendation: The BBC should set out how it will achieve its £1 billion savings target by March 2022, and produce a revised financial plan on completion of the licence fee negotiations, incorporating the outcome of these negotiations and detailing how it will pay for new investment while continuing to make savings. 

7. At times, the BBC has deferred difficult measures and ducked the hard choices necessary over cuts to frontline content. The BBC is candid about its view that, having driven down costs in back-office functions, it now sees no scenario in which it can avoid making tough choices about frontline services such as content. While we recognise that these choices are difficult, the BBC was unable to name any recent content cuts or future plans to cut content, despite plans to only produce 80 per cent of its current programming. At this stage, we would expect to see a clearer articulation of which programming the BBC views as a priority going forward. This seems to be part of a general pattern of avoiding hard choices. For example, the BBC delayed more than once planned redundancies in its News and Nations & Regions divisions and its reforms to staff terms and conditions resulted in savings of less than 0.1 per cent of the total staff pay bill over seven years.

Recommendation: The BBC needs to take decisions about those areas of content it plans to cut from its programming and the financial and audience consequences of these cuts as a matter of urgency, and should write to the Committee within six months with more details of its plans in this area. 

8. The BBC appears unambitious about setting targets for the financial returns generated by its commercial subsidiaries.The BBC’s net returns from its commercial activities, at under 6 per cent of licence fee income, are not at a level to make a significant contribution to its overall income position. The BBC has recently set its main commercial subsidiary, BBC Studios, a target to grow its financial returns by a further 30 per cent over the next five years. However, the BBC concedes there is potential to go a lot further than this and acknowledges that it does not know where the ceiling is on its commercial returns. The BBC could be more ambitious in its commercial plans by, for example,  setting targets for how it will make greater use of its archive. The BBC considers that greater access to investment capital would help it to compete better and generate further growth in its commercial returns. However, its commercial borrowing is subject to limits, imposed by DCMS, which date to 2003. 

Recommendation: 

a) The BBC should explore how it could be more ambitious in its targets for commercial returns, including making more use of the BBC archive, and write to the Committee, outlining its plans, within six months.

b) As part of the current licence fee negotiations, the BBC and DCMS should work together to review the current borrowing limits to identify whether they continue to meet the BBC’s business needs and future investment plans.

Other posts by Colin Mann:

1. Analysis: SVoDs drive $220bn content spend
2. A TikToking clock heading towards regeneration – or not?
3. European pay-radio: Getting ready

Categories: Articles, Broadcast, Business, FTA, Funding, Policy, Regulation

Tags: BBC, Meg Hillier MP