Reality Check for BBC

An interesting story on BBC in today’s WSJ. It appears that the British government is about to conduct a once-a-decade review of the Royal Charter that sets the BBC's terms of operation and funding. At the review, the government plans to access the role of public broadcasting in a rapidly changing and competitive media landscape. After public hearings around Britain, the government is expected to release preliminary proposals for the BBC's new charter in January.

Some history. Founded in 1922 by a group of radio manufacturers, the BBC was given its first Royal Charter and license fee in 1927. For decades, it was just two television channels and two radio stations, known for their news, costume dramas and comedies such as "Monty Python's Flying Circus" and "Fawlty Towers."

In the 1990s, facing intense competition from new media companies, the BBC sought to match its rivals by expanding broadly. When CNN shot to prominence during the 1991 Gulf War with its 24-hour news, the BBC quickly improvised a 24-hour radio news service, nicknamed "Scud FM." As companies such as BSkyB, which is controlled by Rupert Murdoch's News Corp., began offering Britons an increasing array of channels, the BBC added channels.

In recent years, the BBC has added five digital radio channels, at least four new free TV channels for U.K. homes with digital reception, 50 Web sites, and BBC America, a cable channel now available in 37% of U.S. homes with TVs. The BBC now has three 24-hour news and current-affairs channels -- a television and a radio channel for the domestic market, and BBC World for cable and satellite viewers outside the U.K.

The BBC's in-house TV production studios are the largest in Europe and maintain a wardrobe of 750,000 costumes. About 7,000 journalists, producers and cameramen work for BBC news and current affairs, compared with 1,000 news staffers at CNN. The BBC's sitcoms like "Coupling" and "The Office" and its acclaimed drama series "Upstairs Downstairs" are well-known internationally and widely available on DVD.

The BBC has become one of Britain's largest employers, with 27,000 employees world-wide. As of March, BBC television stations had a 37.8% market share in Britain, compared with 24.7% for its closest rival, ITV PLC. By contrast, America's Public Broadcasting Service -- a private nonprofit programming service that depends on private donations and public funds to support its operations -- has a 3% market share. The BBC operated on a budget of about $6.7 billion in 2003; PBS's budget totaled $319 million for the fiscal year ended in June 2003.

Of the BBC's funding, about $5 billion comes from a compulsory fee set by the government and levied on every television owner in the country, currently at about $218 a year for color television set owners and about $73 for black-and-white TVs. In 2002, the BBC took 112,000 Britons to court for nonpayment, out of 24 million households with televisions.


Fighting Against Times of Turmoil

Earlier this year, the authorities reproached BBC for running a radio news story that accused Britain's government of publishing intelligence it probably knew to be wrong to justify its policy on Iraq. The BBC's chairman and its chief executive resigned and the government is considering changing the role of the BBC's board of governors, which acts both as its regulator and adviser.

The channel has already started to respond to its critics. In June it said it would review its commercial activities including BBC Worldwide, the unit that sells the broadcaster's products and licenses and publishes magazines and TV programs such as "The Weakest Link," a quiz show that is shown in dozens of countries. The BBC Worldwide has been valued at as much as $3.6 billion, although only parts of the business are expected to be put up for sale. The channel has also agreed to proposals in the wake of Lord Hutton's report to set up a school to retrain its journalists.

In addition to exploring the sale of some of its commercial operations, the BBC is proposing to let viewers watch previously broadcast BBC programming free of charge and on-demand for up to seven days after the original broadcast. Another proposal is to offer a BBC Creative Archive online so broadband users could download and watch some BBC programs. The plan could forgo potential revenue, since the BBC would find it hard to sell DVDs of any shows available online.

Responding to Agitated Competitors

Competitors argue that the BBC should produce and broadcast only programming that commercial broadcasters can't or won't, filling gaps in the market rather than producing mainstream TV fare. They complain that the BBC uses public funds to compete with them, which violates the BBC's public-service mission.

For example, executives from The History Channel UK, which was launched in 1995, claim that the channel faces "the risk of foreclosure" now that it must compete head on with UK History, a station that a BBC joint venture started in 2002. For its part, the BBC says its job is to inform and entertain the widest swath of the British public possible, while also raising the standards of television across the country


Additionally, Viacom Inc.'s Nickelodeon, which produces shows for children and teens, lobbied hard and unsuccessfully to prevent the BBC from starting its own kids' channels, CBBC and CBeebies two years ago. Executives claim that the BBC has scheduled its shows to compete with Nickelodeon and another children's broadcaster, Walt Disney Co.'s Disney channel. However, The BBC's Ms. Thomson says its children's channels haven't significantly hurt rivals' bottom lines and believes that the BBC fills a need in the market with advertising-free TV and less aggressive cartoons that parents want.

Other competitors think the BBC shouldn't be chasing big ratings. Cable company Telewest Global Inc. contends that public-service broadcasters including the BBC should content themselves with lower ratings in order to keep "a focus on pure public service ... even if it means they may lose some viewers to more commercially oriented competitors." The BBC's executives see high ratings as necessary to justify public funding. They worry that if the BBC is perceived as a broadcaster that appeals mainly to the educated elite, it will eventually become difficult to keep the compulsory license fee.

While such moves may win over some support for BBC in the short-term, it's not clear whether it will be enough to stave off critics longer term. Earlier this year, a group of media executives wrote a detailed report arguing that the compulsory license fee makes no sense in a world where viewers may soon have access to as many as 400 digital channels. They concluded that in the next decade, the license fee should be scrapped. Instead, a smaller BBC should then fund itself mainly through subscriptions, while all broadcasters should be able to compete for public money to produce public-service programming.

But, nothing worries the BBC's executives more than the specter of one day being forced to plead for funding. "Is there a more depressing spectacle in broadcasting anywhere in the world than American PBS on radio and television passing round the begging bowl during pledge weeks just to survive?" said Michael Grade, the BBC's new chairman, in a June speech.