Abolish the licence fee to save the BBC

The corporation cannot compete with the internet giants unless it escapes the trap of taxpayer funding

The timing of Tony Hall’s planned departure as director-general of the BBC, six months from now, strongly suggests that the challenges facing the corporation and its funding model are reaching a critical point. In two years’ time, a “mid-term review” is due to take place of the last charter and licence fee settlement, negotiated in 2016. That was when the terms of the BBC Charter, and the licence fee as a mechanism, were entrenched until 2027.

Those terms were hailed at the time by the BBC as a victory: but the seeds of conflict had been sown. The first problem was the provision of free TV licences for the over-75s, funded by the Treasury since 2001. The deal saw an end date to free provision in 2020, unless the BBC chose to extend it.

Belatedly, the BBC decided that most of the 3.4 million homes excused payment would start receiving threatening letters in June demanding £154.50, or face prosecution. Many of them will be added to the 7 per cent of households that currently evade payment (and of whom only about 10 per cent end up facing a magistrate). At the same time, pressure is growing in Parliament for such evasion to be decriminalised, effectively making payment of the licence fee voluntary.

Meanwhile, a huge change in media technology is eroding the BBC’S position as a content provider. When Lord Hall was appointed seven years ago, Netflix barely had a foothold in the UK. Now, 10 million homes subscribe to it voluntarily, as do many more millions to Sky, Virgin Media, BT TV and Amazon. Soon, Disney and Apple – just two of over 70 such services in the US – will add to the competitive pressure.

Netflix and Youtube have eclipsed the BBC among viewers below the age of 24. Netflix spends over $10 billion a year on content, three times what the BBC can invest. Netflix can afford to spend five times as much per hour on drama as the BBC: no wonder The

Crown ended up there, rather than on BBC1.

The BBC is trapped by its funding mechanism. As long as the licence fee is compulsory, “something for everyone” has to be offered. Thus, the schedules are packed with daytime “fillers”, which have little value after first transmission (unlike premium drama). Also, the BBC feels it has to spend £236 million a year on its online provision, as part of its licence fee obligations.

The BBC cannot escape this trap until it switches to subscription itself. Instantly, it would be free of any future argument with politicians about the licence fee level. Like Sky, it could reshape its offerings into packages at different prices (all output, BBC One only, BBC Sport, BBC Arts, BBC Documentaries etc). It could offer these packages abroad, and earn much more than it derives from selling single programmes, territory by territory. Netflix has subscribers in 140 countries. The BBC brand remains hugely powerful abroad, and would be a great competitive advantage.

Of course, many households would have to upgrade their TV equipment to install conditional access systems. We would have to find a different way of funding most public service TV content, and all public service radio: a long overdue task. But we already have ITV, Channel 4 and Five required to supply some public service content in exchange for their gifted privileges (such as public spectrum): even a subscription-funded BBC might be required to provide, say, unencrypted news broadcasts in a similar exchange.

Perhaps the over-75s might be the first test bed of voluntary subscription (which would save the BBC the giant headache of selective prosecution). Interestingly, the BBC estimates that decriminalisation would only cost it £200 million a year, which suggests it believes, even without the benefit of encryption technology, that over 90 per cent of current licence holders would continue to pay voluntarily.

So Lord Hall’s successor should use the mid-term review process to secure enough time to convert the BBC to all the advantages of voluntary payment, thereafter deciding its own future, and removing all its internal problems from the harsh scrutiny that accompanies compulsory public funding (who asks about pay equality at Netflix, or ITV?). It is an enticing prospect for the right person.