When Culture Secretary Nadine Dorries recently announced a two-year TV licence fee freeze (on top of the almost 30 per cent cumulative cut in the BBC’s real funding since 2010), she also confidently tweeted that this would be the last ever licence fee settlement because, from 2028, the BBC would be funded in a new way, widely assumed to be via subscriptions, the funding model favoured by most right-wing Conservatives.
This major policy change was news to Dorries’s cabinet colleagues, who soon forced her to backtrack. But on 1st March, the Times reported Andrew Neil—still licking his wounds after his brief, ill-fated spell at GB News—calling for the BBC to be funded by a “hybrid subscription model,” with public funding for “programming the market doesn’t do” (news, current affairs and arts) and subscriptions for everything else. The article said this model had “gained traction among Tory MPs,” citing former culture secretary John Whittingdale as one example.
These latest proposals raise questions about the practicalities and likely consequences of switching all or part of the BBC’s core funding from the licence fee to subscriptions.
Free-market enthusiasts like the Institute of Economic Affairs have been advocating a switch to subscriptions since the 1980s without ever spelling out the specifics, such as how the different BBC services would be packaged and priced. (For instance, would all the BBC’s services be put into a single bundle with an all-in price or would there be different tiers at different price levels? What would happen to BBC Radio, BBC Online, the BBC World Service and all the other activities currently funded out of licence fee income? Would households with members aged 75-plus and receiving Pension Credit still have free access to all BBC services?) If there’s now a proper, evidence-based debate on the pros and cons of alternative long-term BBC funding models, with subscriptions as one of the options, they’ll finally—after almost 40 years—have to put up or shut up.
Here, we aim to short-circuit some of that debate by explaining why the BBC won’t be funded by subscriptions in 2028—or even, in our view, in 2048 or any time after that.
Why the BBC won’t be funded by subscriptions in 2028
This is the easy bit. For any subscription service, you need to know which customers have paid and you need “conditional access” (CA) technology to exclude those who haven’t. But, at present, 10.7m UK households (38 per cent) watch television only through Freeview, which has no CA capability. People in these homes tend to be older and a disproportionate number are living alone and/or with disabilities. For many, the BBC is a lifeline. Another 1.6m pay-TV homes have Freeview on a second set. In 2021, Freeview accounted for 46 per cent of all television viewed on a TV set—and over half of the viewing of BBC TV.
No government would dare deny so many voters the ability to access the BBC’s services, even if they were willing to pay a subscription, because the CA technology is not yet in place. So, to enable a switch to subscriptions, the government’s options would be to either invest in a complex, controversial and expensive re-equipment and communications programme to ensure that every household had CA technology on every device they used to access the BBC, or wait for this to happen organically, with little or no government intervention. The first option is highly unattractive, both politically and fiscally, and certainly won’t happen by 2027/28. And the second will take even longer—but how much longer?
How long before everyone has fast broadband?
Realistically, it’s hard to see how a switch to BBC subscriptions would be technically feasible until fast broadband is both universally available across the country and universally adopted in every home—at a significant cost to those who otherwise would not have adopted it—enabling the BBC to switch off its TV broadcasting network. BBC Online could also be limited to subscribers if the government wished. BBC Radio would, presumably, still be free and universally available, funded in another way, such as out of general taxation.
We are still a long way from universal access to fast broadband. In the third quarter of 2021, 66 per cent of UK households had a video on demand subscription like Netflix. But that means 34 per cent (almost 10m) did not. This includes the 4 per cent living in areas without superfast broadband coverage (faster than 30 megabits per second) and, within that, the 2 per cent in areas without even “decent” broadband coverage (slower than 10Mbps, the bare minimum for acceptable online TV).
If the government really pushed the rollout of fast broadband across the whole country and complemented this investment—for the first time—with a joined-up communication strategy (and perhaps some subsidies for poorer households) to encourage late adopters to go online, we think it might be technically feasible to replace the TV licence fee with BBC subscriptions by the mid-to-late 2030s, although that may be optimistic.
Clearly, the BBC will not be funded by subscriptions in 2028. But what about the longer-term picture, once subscription funding is at least technically feasible? Suppose we look further ahead to, say, 2048 and assume that by then the government has managed to crack the conditional access problem. The rational policy—and political—question at that point is: what would be the impact on households and voters of the long-heralded switch to subscriptions?
What would be the impact on households and voters of switching the BBC to subscription funding once it’s technically feasible?
Obviously, the likely consequences will depend on the specific proposal. As already noted, proponents of the subscriptions model have so far been extremely vague about that. But even without a concrete proposal about what the offer would be, how it would be priced and how other BBC services—notably radio—would be funded, there are two things we can confidently say if the funding were switched to subscriptions:
- First, the BBC would no longer be an inclusive, universally available public service broadcaster
- Second, to sustain its investment in local, regional, national and international content, the average subscription level would need to be much higher than the licence fee—although no one (including those advocating a switch to subscriptions) knows how much higher it would need to be.
The BBC would no longer be an inclusive, universally available public service broadcaster
If the BBC were funded by subscriptions, not every household would subscribe (otherwise, what’s the point?) so it would no longer be available in every home—a shared source of information, entertainment and trusted news, drawing people together across the country.
To those who see no value in public service broadcasting this wouldn’t be a problem. But it certainly wouldn’t help unite or level up the country: we now have clear evidence that people in countries with strong public service broadcasters (including the UK) are more resilient to online disinformation. The value of such resilience should be obvious as we finally emerge from a pandemic prolonged by anti-vax disinformation, while the US (with highly partisan commercial broadcasters and minimal public service broadcasting) struggles with QAnon, “Stop the Steal” and other divisive conspiracy theories.
Subscription funding would also potentially distort the BBC’s services by giving it an incentive to prioritise programmes likely to appeal to middle- and upper-income households, maximising both the number of subscribers and how much they would be willing to pay. It would lose the inclusivity that has always been central to its mission and culture.
To sustain the BBC’s programme budgets, the average subscription would need to be much higher than the licence fee
Even the most fanatical free marketeers have never, to our knowledge, claimed that, for the same range and quality of BBC services, the average subscription would be less than the licence fee. They’ve simply ducked the question.
In reality, the average subscription would need to be much higher, to cover both the missing revenue from households who chose not to subscribe and the huge marketing and customer service costs inherent in any subscription system.
To illustrate the scale of these costs, consider Sky—widely seen as a well-managed company that runs a tight ship. In 2017-18, Sky’s sales, general and administration expenses in the UK and Ireland were £2.7bn—35 per cent of its direct consumer revenue—and a whopping 80 percent of the BBC’s total licence fee revenue after “top-slicing” (where licence fee revenue is diverted by the government to fund the BBC World Service, broadband rollout, the Welsh language channel S4C and other activities beyond the BBC’s core UK services). In the same year, the licence fee-funded BBC’s general overheads were only 5.7 per cent of its total costs (which were roughly equal to its total income).
A switch to subscriptions would increase the BBC’s general overheads by a factor of about four, to at least 20 per cent of licence fee revenue.
But no one knows how much higher the average BBC subscription would have to be
It gets worse. Increasing the average BBC subscription price by 20 per cent-plus to cover these higher overheads would increase the proportion of households choosing not to subscribe, further reducing its revenue, the money available to invest in programmes and, therefore, what subscribers got for their money—a vicious circle.
No one knows how much higher the average BBC subscription would have to be to reach a steady state—where the income was enough to cover its higher overheads and the revenue lost from non-subscribers while maintaining its programme investment. But it’s hard to see a subscription model being sustainable with an average subscription less than 50 per cent higher than the licence fee. It could be far more—no one knows.
The politics of selling subscriptions in 2048
For those whose answer to every question (“Could you please pass the salt?”, “Will you marry me?”—you name it) is always “Let the market decide,” there’s no need to think about what the consequences of a switch to subscriptions might be. But politicians don’t have that luxury. Before legislating a switch, they’d have to think about the likely impact on viewers and listeners for political reasons alone (and even more so if they also cared about the public interest). And, unlike with the funding cuts imposed by George Osborne in 2010 and 2015, and now Dorries in 2022, they’d surely have to consult the public and parliament before introducing such a big change. So, what would be the public’s response to such a consultation?
“Pay 50 per cent more—but you now have a choice!”
Persuading the public to support a switch to subscription funding would be quite a challenge, especially once the implications were spelt out.
Even now, when these implications are not widely understood, subscriptions are not a popular option. When, in December 2021, YouGov asked a random sample of British adults “Thinking about how the BBC is funded, which of the following would you most like to see?”, only 16 per cent chose subscriptions.
This type of survey does not explore people’s reasons for their responses. But our hunch is that most respondents knew that typical pay-TV subscriptions for Sky or Virgin Media cost substantially more than the £13.13/month TV licence fee and correctly assume that a subscription-funded BBC would also cost them more.
It would be helpful to know something about the beliefs and assumptions of the 16 per cent who did choose subscriptions as their preferred BBC funding model. Our guess is that they are skewed towards households with relatively light usage of BBC services, especially BBC TV, and that most of them assume they would therefore pay less under a subscription model because they would be paying only for the programmes and services they consumed. However, we have no data on this, nor on how many of them really would end up paying less given the economics of the subscription model. But the key point is that even without the implications of subscription funding being widely understood, only 16 per cent chose it.
The proportion choosing the subscription model would doubtless be even lower once its implications were spelt out. “Pay 50 per cent more than you’re currently paying for the same thing—but you now have a choice!” doesn’t sound very appealing.
Nevertheless, the general idea of choice does have some appeal, especially if you believe the myth that large numbers of households are forced to pay the licence fee but get no benefit (at least, as consumers) as they never use the BBC’s services.
In reality, 99 per cent of households use the BBC in a single week. The idea that a material number get no direct benefit over a whole year is nonsense.
However, many people take the BBC for granted. In 2015, a BBC-commissioned study invited a representative sample of the 30 per cent of people who said the licence fee did not represent good value for money to live without the broadcaster for nine days, in return for nine days’ licence fee (£3.60 in 2015). After just over a week with no BBC, two-thirds had changed their minds, having realised now much they used, enjoyed and relied on it and how little it was costing them. Our understanding is that the BBC has now replicated this study, with identical results, to be published shortly.
Exposing the BBC subscriptions fantasy to the cold light of reality
After almost 40 years, we may at last be approaching the point where those proposing a switch from licence fee funding to BBC subscriptions will have to spell out the specifics and likely outcome.
For starters, they’ll have to explain how and when they plan to ensure that all the relevant devices have conditional access technology, so that those who haven’t paid a subscription can be excluded. For the reasons we’ve explained, we think that in practice, this will require universal access to and adoption offast broadband—optimistically, in the mid- to late 2030s.
Looking further ahead, those advocating a switch to subscriptions, once it’s technically feasible, will have to come clean on two additional issues.
First, the reality that a subscription-funded BBC would no longer be a universally available, inclusive public service broadcaster. Instead, it would be available only to subscribers and it would have an incentive to prioritise programmes and services for the better-off households most able to pay.
Second, the question of how the BBC’s services would be packaged and priced—allowing for the fact that, to cover the revenue lost from non-subscribers and a fourfold increase in general overheads (while maintaining its programming investment), the average subscription would need to be much higher than the licence fee.
Our hunch is that once the idea of switching to subscriptions is finally exposed to the cold light of these realities, it will be seen as a fantasy.
That applies whether the proposal is for a “full-fat” free-market model, with all the BBC’s core funding provided by subscriptions, or a “semi-skinned” hybrid model, as proposed by Andrew Neil. In fact, the hybrid model would be even less efficient because most of the increase in overheads would be the same whether subscriptions were used for all or only some of the BBC’s core funding. They would therefore represent an even higher proportion of subscription revenue.
All told, the BBC’s funding certainly won’t be switched to subscriptions in 2027/28, and even in the long term, switching would mean a more expensive and less inclusive service. In the words of Sir Humphrey, “Very brave, minister.”
