BBC Broadcasting and the Economic Context

Part of the DUV : Sozialwissenschaft book series (DUVSW)


With questions of finance being of overriding concern to policy-makers and broadcasters alike, the following chapters will investigate issues of BBC finance whilst also examining some economic trends at different times. While the years leading up to the 1980s will be covered briefly, the period from 1980 onwards is covered in greater detail because:
  • By the beginning of the Eighties the BBC found itself in an acute revenue squeeze because of a declining income in real terms that was not adjusted adequately.

  • The Conservative Party has been governing the United Kingdom since 1979. Consequent-ly, the party’s general economic policies as well as their approach towards the BBC had significant impacts on developments at the Corporation.

  • In 1986, the last Committee of Inquiry (Peacock Committee) investigated into areas of broadcasting. Originally, the Committee’s task was to examine alternative options of paying for the BBC’s services. However, its members eventually conducted a full-scale inquiry into various aspects of broadcasting. Since the recommendations of the Peacock Committee not only shaped the debate of the years to come extensively, but also had a considerable impact on the British broadcasting landscape of the 1990s, some of the Committee’s findings will be discussed in greater detail.

The central aim of the following account is therefore to find out to what extent questions of finance and economic approaches towards the BBC have played a role in shaping the Corporation of the 1990s.


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  1. 1.
    Rowland, Willard D. Jr. (1991): Public Service Broadcasting: Challenges and Responses. In: Blumler, Jay G. and Nossiter, T. J. (eds.) (1991): Broadcasting Finance in Transition. A Comparative Handbook. Oxford: Oxford University Press, p. 322.Google Scholar
  2. 2.
    Most of the public inquiries into broadcasting until then had been concerned with structures and public accountability. This also changed in the 1980s when the focus of the debate shifted to economics. Symptomatically, the title of the 1985 public inquiry conducted by Peacock was Financing the BBC. Google Scholar
  3. 3.
    In this context it is important to acknowledge the special economic nature of broadcasting ‘products’: the expense involved in producing or purchasing a television programme is usually a fixed cost. Once produced, it can be supplied to any number of viewers with the additional costs being virtually zero. However, since broadcasting programmes can also be used to generate direct income (selling audiences to advertisers; offering programmes on a subscription basis) they are also treated as economic or ‘private’ goods. In particular the radical free marketers are of the opinion that broadcasting should be treated like any other good. This implies neglecting broadcasting’s cultural significance for society at large. Will Bracken and Scott Fowler postulate in an ASI publication: “The BBC produces a product as does the British press, a chocolate factory, or a car manufacturer.” Bracken and Fowler (1993), p. 10.Google Scholar
  4. 4.
    Most of the contributions to Veljanovski (1989a) start from the assumption that broadcasting should be treated like any other economic activity and should be provided competitively, without regulation, unless there are compelling reasons for doing so. Moreover, it is argued that “[...] the justification for the existing system and the rationale for the state’s encroachment on the media are rapidly being undermined by technological advances, and the growing demand that it is the viewers and not broadcasters and regulators who should decide what we see, hear and read.” (Preface, p. x). This approach indicates a shift from regarding broadcasting as a ‘public’ good to defining it as a ‘private’ concern.Google Scholar
  5. 5.
    Neo-liberals postulate that in a highly fragmented market with no more frequency shortages, regulation in the traditional form would no longer be necessary because the number of channels (and the assumed variety) would remove the need for regulation. Broadcasting could then simply be left to market forces as has been the case with the British press for decades.Google Scholar
  6. 6.
    Anthony Smith describes the breaking of the BBC’s monopoly as “[...] an extension and duplication of monopoly, disguised as economic pluralism.” Smith, Anthony (1986): Licences and liberty: public service broadcasting in Britain. In: MacCabe, Colin and Stewart, Olivia (eds.) (1986): The BBC and Public Service Broadcasting. Manchester: Manchester University Press, p. 4.Google Scholar
  7. 7.
    Between 1955 and 1969, television advertising revenue grew at an average annual rate of about seven per cent, mainly because of a rising structural demand for the medium and above average consumer expenditure. See Congdon et al. (1992), p. xxiv. Since the value of advertising airtime was far in excess of any conceivable costs of producing programmes, the government imposed a special levy on the ITV companies’ profits, which in turn reduced the incentive to control costs and, consequently, led to wasteful practices. Since 1 January 1990, the TV Levy has been a mixed tax on advertising revenue and domestic profits.Google Scholar
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    BBC 2 started broadcasting in 1964, Radio I went on air in 1967, and local BBC radio stations were set up from 1967 onwards (see chapter 1.5).Google Scholar
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    Madge (1989), p. 13.Google Scholar
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    Mulgan, Geoff (1993b): Reinventing the BBC. In: Mulgan, Geoff and Paterson, Richard (eds.) (1993): Reinventing the Organisation. London: British Film Institute, pp. 71–72. Concerning the tendency to organise everything in markets, Anthony Smith remarks that “Markets were thought to be not merely convenient instruments for setting prices, but have been elevated into being the actual means for creating a new democracy of taste and choice.” Smith (1993a), p. 121.Google Scholar
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    Smith (1986), p. 2. In the same book, William Maley presents a point of view that is directly opposed to the one outlined by Smith. See Maley, William (1986): Centralisation and censorship. In: MacCabe, Colin and Stewart, Olivia (eds.) (1986): The BBC and Public Service Broadcasting. Manchester: Manchester University Press, pp. 32–45.Google Scholar
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    Barnett and Docherty (no year). Quotation from the chapter The Millenial [sic] Vision: Peacock and Broadcasting in the UK, p. 7.Google Scholar
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    See Madge (1989), pp. 153–154.Google Scholar
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    It is interesting to note that only a few British media economists point to the trends and experiences in the United States, where a commercially developed multi-channel television system has been operating for a long time. One exception is Cave, Martin and Melody, William (1989): Models of Broadcast Regulation: The UK and North American Experience. In: Veljanovski, Cento (ed.) (1989): Freedom in Broadcasting. London: Institute of Economic Affairs.Google Scholar
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    Smith, Anthony (1991): Keynote: Public service broadcasting meets the social market. In: Miller, Nod and Allen, Rod (eds.) (1991): And now for the BBC... Proceedings of the 22nd University of Manchester Broadcasting Symposium. London: John Libbey, p. 6. This follows what Jeremy Tunstall refers to as the British tradition of “[...] minimalist legislation and the voluntary principle.” Tunstall (1983), p. 237 (author’s own emphasis).Google Scholar
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    Smith (1991), p. 7. Services that improved considerably after privatisation were, for example, British Airways and British Telecom.Google Scholar
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    Madge (1989), p. 211 (my emphasis).Google Scholar
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    Smith (1986), p. 2. Because of broadcasting’s special nature as a key instrument of democracy Richard Collins and James Purnell also argue the case against deregulation, and in particular against privatisation of the BBC. See Collins, Richard and Purnell, James (1995): The Future of the BBC. Commerce, Consumers and Governance. London: Institute for Public Policy Research, pp. 11–13.Google Scholar
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    See Thatcher (1995), pp. 635–638. The Broadcasting Act 1990 is the most striking piece of evidence for the above assumption: not only were the ITV licences sold to the highest bidder but, even more important for broadcasting in Britain as a whole, the rules for the formerly highly regulated ITV stations (which also had to operate according to public service principles) were further relaxed. Only because of intensive lobbying about what should be written in the Act were more and more elements of control finally reinserted: this concerned the auctioning process; the creation of supervisory institutions; rules governing adjacent mergers and hostile takeovers; and forms of compulsory programming. Thus, it is rather doubtful whether the ‘consumer’ would have benefited from the form of deregulation as it was originally intended. The opposite seems to be the case: increased competition (and the need to generate additional income because of the pay-outs for the franchises) is very likely to reduce programme diversity because of the risks associated with innovation. In this context Andrew Graham and Gavyn Davies argue the case for a positive regulatory pressure within the system because they regard regulation, at best, as negative since it cannot promote the desirable. See Graham, Andrew and Davies, Gavyn (1992): The Public Funding of Broadcasting. In: Congdon, Tim, et al. (1992): Paying for Broadcasting: The Handbook. London: Routledge, pp. 189–195 and p. 219, in particular p. 191.Google Scholar
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    Brittan, Samuel (1989): The Case for the Consumer Market. In: Veljanovski, Cento (ed.) (1989): Freedom in Broadcasting. London: Institute of Economic Affairs, p. 40.Google Scholar
  22. 22.
    Thatcher (1995), p. 635. Breaking the BBC and ITV duopoly was therefore placed high on Thatcher’s priority list. See Thatcher (1995), p. 636.Google Scholar
  23. 23.
    Thatcher (1995), p. 635.Google Scholar
  24. 24.
    Barnett and Curry (1994), p. 111.Google Scholar
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    See Thatcher (1995), p. 636.Google Scholar
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    Members of the Peacock Committee included some influential individuals who were clear advocates of liberal free-market economics, such as Alan Peacock himself, Samuel Brittan of the Financial Times (both were also closely associated with the Institute of Economic Affairs), and Peter Jay, then economics editor of The Times, who had used his 1981 MacTaggart lecture to argue that the media was in need of liberation from state control as had happened to the press long ago. Other members included Alastair Hetherington, editor of The Guardian between 1956 and 1975 and controller of BBC Radio Scotland between 1975 and 1978; Jeremy Hardie, former deputy chairman of the Monopolies and Mergers Commission; Peter Reynolds; Anthony Quinn and Judith Chalmers, the latter three all being affiliated to the Conservative Party. The selection of members leads Tom O’Malley to speak of a “[...] built-in Tory bias [...] [chosen] from an extremely narrow social group with an equally narrow range of political opinion and relevant expertise.” O’Malley (1994), p. 94.Google Scholar
  27. 27.
    Peacock Report (1986), para 1.Google Scholar
  28. 28.
    This was reflected in the government’s 1988 White Paper which states that “The Government places the viewer and the listener at the centre of broadcasting.” 1988 White Paper, para 1.2. According to Ian Hargreaves, “This consumer-focused approach to policy has also been used to justify a number of moral and political interventions in broadcasting in recent years.” Hargreaves, Ian (1993): Sharper Vision. The BBC and the Communications Revolution. London: Demos, p. 11.Google Scholar
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    Peacock Report (1986), para 592 (my emphasis).Google Scholar
  30. 30.
    Andrew Goodwin and Garry Whannel stress that “The irony of this new economistic approach to broadcasting is that by supposedly opening up the market to free consumer choice, it will precisely destroy the ability of the broadcasting industry to offer the range of choice currently available.” Goodwin, Andrew and Whannel, Garry (eds.) (1990): Understanding Television. London: Routledge, p. 29. Anthony Smith comments on the issue that “The consumer cannot shoulder all of the burdens of the citizen. [...] The consumer is another of the illusions of individualism.” Smith (1993a), pp. viii-ix. Peacock’s assumption implies that the consumer is the best judge of his/her interests. What it fails to take into account is that consumers can only make effective choices if they • have enough information about what they are buying; and • can learn by doing. Moreover, consumers do not automatically choose the patterns of goods and services which are in their best interests. Another point Peacock fails to take into account is that consumers are not all equal in their purchasing power.Google Scholar
  31. 31.
    According to Peacock, the council would provide public money for worthy programme ideas that advanced “[...] knowledge, culture, criticism and experiment [...].” Peacock Report (1986), para 563. The BBC would be free to compete for these funds, but would have no privileged right to them.Google Scholar
  32. 32.
    See Peacock Report (1986), chapter 12, in particular paras 592–708. However, even in the third stage there would still be the need for a body (like the Public Service Broadcasting Council) to ensure the production of programmes at risk in a purely market-driven system.Google Scholar
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    O’Malley and Treharne (1993), p. 9 (authors’ own emphasis).Google Scholar
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    Peacock Report (1986), paras 592 and 593 (my emphasis).Google Scholar
  35. 35.
    The reduced urgency to offer its services by means of subscription is outlined by Brittan (1989), pp. 46–48. Disadvantages of a subscription-based system are outlined by Garnham (1994), pp. 15–18. Garnham points out that while subscription services are likely to ensure more consumer satisfaction in under-supplied areas, they will be subject to the same oligopolistic tendencies that characterise private commercial broadcasting and the film industry.Google Scholar
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    See Peacock Report (1986), paras 615–619. Peacock concluded wisely that “[...] the introduction of advertising on television is likely to reduce consumer choice and welfare. It could do so both by driving the BBC into a ratings war and by putting financial pressure on ITV companies, which would make it more difficult for them to meet IBA requirements.” Peacock Report (1986), para 617. It was, in particular, Samuel Brittan and Peacock himself who believed that consumer sovereignty was much more likely to be achieved through subscription than by the BBC carrying advertising.Google Scholar
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    See Peacock Report (1986), paras 637–644 and recommendation 7. However, five Committee members went further, suggesting that Radios 1 and 2 should be privatised and financed by advertising. See Peacock Report (1986), recommendation 7a. Financing Radios 1 and 2 by advertising had been suggested earlier in the Adam Smith Institute’s Omega Report in 1984. See Adam Smith Institute (1984), pp. 41–42.Google Scholar
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    See Peacock Report (1986), paras 620–628. Samuel Brittan states that Peacock specifically rejected the idea of indexing the licence fee to the BBC’s own level of pay costs because it would have led to “[...] inefficiency, waste and lax pay settlement.” Alan Peacock quoted in Brittan (1991), p. 347. Different options for the application of price cap controls and their implications are investigated by Foster, Robin (1992): Public Broadcasters: Accountability and Efficiency. David Hume Institute, Edinburgh: Edinburgh University Press, pp. 38–42.Google Scholar
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    In 1984 the BBC had asked for a steep rise in the licence fee from £46 to £65 in order to keep pace with inflation and finance its expansion into breakfast and daytime television (see also chapter 3.4.3).Google Scholar
  40. 40.
    For example: between 1985 and 1991 labour costs in the service sector rose 1.3 per cent more per annum than the RPI. “From 1986–91, the real licence fee receipts, deflated by the labour cost index, actually fell by 0.9 per cent per annum.” Graham and Davies (1992), p. 206 (authors’ own emphasis).Google Scholar
  41. 41.
    Thatcher remarks in her memoirs: “I felt that index-linking the licence fee achieved [...] to make the BBC more cost-conscious and business-like.” Thatcher (1995), p. 636.Google Scholar
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    See Peacock Report (1986), paras 645–651 and Broadcasting Act 1990, section 186.Google Scholar
  43. 43.
    The BBC workforce had been reduced by 7,000 between 1986 and 1993. Another 3,000 redundancies were expected by 1996. Other cuts between 1986 and 1993 were planned as follows: reduction of television studios and stages from 27 to 14; closure of 17 radio stations; reduction of television outside broadcast units from 23 to 14 and radio outside broadcast units by 20. See Extending Choice (1992), p. 52.Google Scholar
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    Generally, production costs in the independent sector are estimated to be between 10 to 35 per cent cheaper than at the BBC, even though salaries are higher. This is partly due to the fact that independents usually hire employees on short-term contracts and are largely exempt from employment costs such as pensions, national insurance and training.Google Scholar
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    Rowland (1991), p. 325.Google Scholar
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    Madge (1989), p. 213. One of the few attempts to challenge the report on economic grounds was a paper prepared for the Greater London Council on behalf of the London Centre for Information and Communication Policy Studies. For an outline of its contents see Hood and O’Leary (1990), pp. 113–116.Google Scholar
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    Barnett and Docherty (no year). Quotation from the chapter The Millenial [sic] Vision: Peacock and Broadcasting in the UK, p. 27.Google Scholar
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    Tom O’Malley analyses in greater detail how the Home Office under Douglas Hurd dealt with the recommendations made by Peacock. See O’Malley (1994), pp. 126–135.Google Scholar
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    In the epilogue to the report, the Committee’s members warned that their recommendations were “[...] designed to form part of a coherent strategy. It is not possible to pick and choose at will among them, without destroying the whole thrust.” Peacock Report (1986), para 710.Google Scholar
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    O’Malley (1994), p. 15. This aspect has been discussed in greater detail in chapter 3. Google Scholar
  54. 54.
    Hussey, Marmaduke (1988): A New Agenda at the BBC. Speech by BBC Chairman Mr Marmaduke Hussey to the Institute of Directors Annual Convention on 23 February 1988. [Unpublished manuscript] London: BBC, p. 10.Google Scholar
  55. 55.
    Michael Grade became controller of BBC 1 in 1984 and director of Programmes for BBC Television in 1986. He also applied for the job of Director-General in 1987, which was then awarded to Michael Checkland. Grade eventually left the Corporation to become chief executive of Channel 4 in November 1987 after disagreements with John Birt, then Deputy Director-General at the BBC. Horrie and Clarke postulate that “Grade had tried to find a way of working with Birt but it was impossible. There was enormous confusion over Birt’s role in the BBC which, for some reason, Checkland had not been able to clear up.” Horrie and Clarke (1994), p. 140. (See also chapter 5.1.4.) In early 1997 Grade announced that he would be leaving Channel 4 in summer that year.Google Scholar
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    Grade (1992). Grade’s attack was directed primarily at the ‘new’ management methods of Checkland and Birt (see also chapters 5.1 and 5.5).Google Scholar
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    Graham and Davies (1992), pp. 173–174 (authors’ own emphasis). A number of commentators have pointed out why it is impossible to create a perfectly competitive market in broadcasting and eradicate monopolistic structures. That is why they argue for continued intervention, even once technology has allowed for a multitude of options. See for example Garnham (1994) and Hopson (1992), p. 12. See also Graham and Davies (1992), who outline where the market does not provide the desired results, and consequently argue for public funding of part of the broadcasting system; and Collins and Purnell (1995), p. 10. Collins and Purnell identify three reasons for market failure: asymmetric information, barriers to entry and an insufficient nexus between buyer and seller.Google Scholar
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    Setting the Level of the Television Licence Fee. A Study for the Department of National Heritage. Management Summary. [In future referred to as Touche Ross Report for the Department of National Heritage (1993)] London: HMSO, 1993, p. 17. See also 1994 White Paper, para 5.26 where the above position has been confirmed.Google Scholar
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    This strategy has been confirmed in the 1994 White Paper and the new BBC Charter. See 1994 White Paper, paras 1.11–1.12 and 1996–2006 Charter, clauses 3. (c) and 3. (u).Google Scholar
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    See for example Extending Choice (1992), pp. 52–55.Google Scholar
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    1994 White Paper, para 5.23.Google Scholar
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    The BBC’s borrowing, which had stood at £183 million in August 1993, had been reduced to £80 million by April 1995. Under its 1981–1996 Charter the BBC could borrow up to £200 million (or £250 million with the approval of the Secretary of State — see 1994 White Paper, para 5.27). But since the BBC became committed to wiping out all its deficits by the end of 1996 (the 1994 White Paper asked the BBC to reduce it to a small operating margin), one way of achieving this was a further reduction of the workforce. See also Culf, Andrew: BBC staff face fresh wave of job cuts. In: The Guardian, 22.4.1995, p. 1. The commitment to wipe out its borrowings also affected the commissioning of new programmes. In March 1995 the BBC issued a moratorium on programme commissioning which lasted for six weeks. See Baker, Matt and Busfield, Steve: BBC halts commissions. In: Broadcast, 3.3.1995, p. 1 and chapter 5.3.2. Google Scholar
  67. 67.
    Barnett, Steven: Comment. In: The Guardian 2, 24.4.1995, p. 13 (author’s own emphasis). It was assumed that most areas of the BBC would have to make efficiency savings of up to eight per cent by 1996/97. See Culf, Andrew: BBC programme freeze ends but job fears stay. In: The Guardian, 1.5.1995, p. 2.Google Scholar
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    ‘Liberal’ in this context meaning less regulation and letting the market be a decisive factor.Google Scholar
  69. 69.
    Regarding the BBC, this could mean the end of the universality approach which implies that there is one broadcasting institution catering for all parts and tastes of society some of the time. Moreover, consumer sovereignty achieved through subscription would also be anathema to other fundamental principles of public service broadcasting, such as the broadcaster’s duty to innovate and surprise, and independence from commercial pressure (see also chapter 2.3.2).Google Scholar

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