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MindthefundinggapThepotentialofindustryleviesfor
continuedfundingofpublic
servicebroadcasting
AnipprreportforBECTUandtheNUJ
March2009
ippr2009
InstituteforPublicPolicyResearchChallengingideas Changingpolicy
WWW.IPPR.ORG
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Aboutippr ............................................................................................................................. 3
Acknowledgements ............................................................................................................... 3
Executivesummary................................................................................................................ 4
Introduction........................................................................................................................... 6
1.PublicbroadcastservicesintheUK:anoverview............................................................. 7
2.Technologicalchallenges ................................................................................................. 12
3.Financialchallenges ........................................................................................................ 16
4.Thecurrentpolicycontext .............................................................................................. 22
5.Thepotentialofindustrylevies....................................................................................... 26
6.Thevalueofregulatoryassets......................................................................................... 357.Conclusion....................................................................................................................... 38
References ........................................................................................................................... 39
Appendix1:TheExpenditureandFoodSurvey(EFS)data................................................ 42
Contents
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TheInstituteforPublicPolicyResearch(ippr)istheUKsleadingprogressivethinktank,producingcutting-edgeresearchandinnovativepolicyideasforajust,democraticand
sustainableworld.Since1988,wehavebeenattheforefrontofprogressivedebateandpolicymakingintheUK.Throughourindependentresearchandanalysiswedefinenewagendasforchangeandprovidepracticalsolutionstochallengesacrossthefullrangeofpublicpolicyissues.
WithofficesinbothLondonandNewcastle,weensureouroutlookisasbroad-basedaspossible,whileourinternationalandmigrationteamsandclimatechangeprogrammeextendourpartnershipsandinfluencebeyondtheUK,givingusatrulyworld-classreputationforhighqualityresearch.
ippr,30-32SouthamptonStreet,LondonWC2E7RA.Tel:+44(0)2074706100
E:info@ippr.orgwww.ippr.org.
RegisteredCharityNo.800065
ThispaperwasfirstpublishedinMarch2009.ippr2009
Aboutippr
Acknowledgements
TheresearchforthisreportwasconductedbyKayWithersandHowardReed.Thereportwas
writtenbyKayWithers.Thereportrepresentstheviewsoftheauthorandnotnecessarilythoseofipprsdirectorsortrustees,orofBECTU(theBroadcastingEntertainmentCinematographandTheatreUnion)ortheNUJ(NationalUnionofJournalists).
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Publicservicebroadcasting(PSB)televisioncontentfundedeitherdirectlyorindirectlybythestateanddesignedtomeetspecificsocietalandculturalobjectivesisaculturallyand
economicallyvaluablepartoftheUKsmedialandscape.Itispopularandvaluedbycitizens,andpublicservicebrandssuchastheBBCandChannel4areinternationallyrespected.
TherecontinuestobedemandforpublicservicebroadcastingtobeproducedbymorethanonesourceintheUK,andforUK-basedproductionsthatrepresentthemanydiverseculturesandwaysoflifeintheUKtoday.
However,theUKsmedialandscapehasseenrapidchangeoverthepastdecadeandthedigitalrevolutionhaspresentedpublicservicebroadcasterswithhugechallenges.Theswitchtodigitalduetotakeplaceby2012meansthattheimplicitsubsidiesderivedfromspectrumallocationinthebroadcastingsystemwillfalldramaticallyinvalue.ThiswillpresentahugechallengetotheeconomicbasisonwhichtheUKsPSBsystemrelies.
ButPSBprovidershavealsorespondedtotechnologicalchange.Whilethegrowthoftheinternetsawearlypredictionsthattelevisionandbroadcastersinparticularwouldbecomeredundantinanewdigitalworld,PSBprovidershavediversifiedintheirofferings,enablingsomecontenttobeconsumedonlineviatheinternetandevenaccessedviathenewgenerationofsmartmobilephones.TheBBCsiPlayer,forexample,whichgivesaccesstoitsprogrammesfromtheprevioussevendaysonline,isoneofthemajorcontentsuccessstoriesofthepastfewyears.
Thefundinggap
Followingdigitalswitchover,thedeclineinvalueofspectrumgiftedtoPSBproviderswillcauseafundinggapofbetween145and235milliontoemerge.
ButPSBprovidersarealreadyfeelingthepressuresofthecurrenteconomicclimateandgreatercompetitionfromdigitalproviders.ThecontinuedpopularityanddesireforPSBamongBritishcitizensmeansthataddressingthefundinggapandongoingfinancialpressuresisamatterofgreaturgencyandimportance.
Bridgingthegap:industrylevies
Variousdifferentmethodsandmodelshavebeensuggestedtobridgethefundinggap.Onesolution,showntobepopularwithmembersofthepublic,istheintroductionofindustrylevies:putsimply,asurchargeortaxleviedoncertainsectionsofthemediaindustry,basedonannualrevenueorprofit.IndustryleviesexistinmanyEuropeannationsandarenotanewconcept.
Examplesoflevysystemsinclude:
Directmedialevies levieschargedonrevenuefromorganisationssuchasbroadcasters,cinemasorvideolabels
Newmedialevies levieschargedonorganisationssuchasInternetServiceProvidersandmobilephoneoperators.
A1percentlevyonpaytelevision(subscription-basedTVservices)intheUK,wouldyieldanestimated70millionperannum,basedonassessmentsfromtheUKstwomajorpayTVbroadcasters,VirginandSky.
A1percentlevyonthefivemajormobilephoneoperatorsintheUK(O2,Orange,T-Mobile,3andVodafone)wouldyieldanestimated208millionperannum.
Executivesummary
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Althoughthesefiguresremainestimatesasafinalmodelwouldlikelybedifferent,clearlythesemethodscouldgosomewaytowardsmeetingthefundinggapidentifiedbytheindustryregulatorOfcom,andensuringthefutureofPSBintheUK.
ThevalueofregulatoryassetsDigitalswitchoveralsopresentsanopportunityforrealisingvaluefromreleasedspectrumpreviouslyusedforbroadcastinganaloguetelevisionsignals.
Althoughestimatingtherevenuelikelytobegeneratedfromanyspectrumauctionisproblematic,theTreasurydoesnonethelesshavetheoptionofhypothecatinganyproceedstowardsfuturefundingofPSB.Thiswouldrepresentaone-offwindfallpaymentthatcouldprovidesomemuchneededassistanceintheshortterm.
Summingup
BothindustryleviesandregulatoryassetsprovidepossiblesourcesofrevenuethatcouldbedivertedintothePSBsysteminordertomaintainandstrengthenit.Introducingsucha
systemwouldbeaboldmove.However,thescaleofthechallengefacingtheUKsPSBsystemwouldseemtodemandradicalsolutions.Atfirstglance,leviesmaynotappearpoliticallypopularbutthereisastrongrationaleforconsideringthemasaseriousoption.
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Thefutureofpublicservicebroadcasting(PSB)televisioncontentfundedeitherdirectlyorindirectlybythestateanddesignedtomeetspecificsocietalandculturalobjectivesis
uncertain.Thecompoundingfactorsofanuncertaineconomicclimateandadownturninadvertisingrevenue,alongsiderapidtechnologicalchangeandtheloomingprospectofdigitalswitchover,havecreatedhugechallengesforpolicymakersandPSBproviders.Onethingisclear:thepublicstillvaluespublicservicesbroadcasting,andwantstoseeitontheirscreens.ButdespitereviewsbytheGovernmentandtheindependentregulatorandcompetitionauthorityfortheUKscommunicationindustries,Ofcom,itisstillunclearhowtoprovidethelevelandqualityofprovisiontowhichwehavebecomeaccustomed.
ThisreportwascommissionedbytheBroadcastingEntertainmentCinematographandTheatreUnion(BECTU)andtheNationalUnionofJournalists(NUJ)in2008,toexploreoneoptionforpayingforpublicservicecontentinthefuture:industrylevies.Thisoption(whichinvolvesapplyingsmallleviesortaxestodifferentelementsofthewidermediaindustry)has
beenindicatedtobepopularwiththepublicaccordingtoOfcomresearch.However,theproposalhasbeengrantedlittleattentioninrecentpolicydebates.Thisreportaimstoincreaseawarenessandgeneratedebateaboutthisoptionbyillustratingwhatalevysystemmightlooklike,andhowmuchfundingitcouldraise.
Section1providesabriefoverviewofpublicserviceprovisionintheUK,andexaminesitsvalue,includingcultural,societalandeconomiccontributions.Insections2and3weconsidersomeofthetechnologicalandfinancialchallengesthathavethreatenedthecurrentsystemandthemedialandscapemoregenerally.ThefollowingsectionprovidesabriefoverviewofrecentpolicydebatesanddevelopmentsbeforeinSection5wesetoutanin-depthconsiderationofwhatamedialevysystemmightlooklike.Wethenconsiderthecontinuingroleofregulatoryassetsforfundingmediacontent,inSection6,beforeproviding
afinalsummaryofthefindingsinsection7.
1.Introduction
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ThehistoryoftelevisionintheUKisinexorablylinkedwiththeconceptofpublicservicebroadcasting(PSB).Atitsinception,LordReith,theBBCsfirstchairman,established
televisionsearliestpurposetoinform,educateandentertain1
.Publicservicebroadcastingforinstance,contentbroadcastbyBBC,Channel4andsomecontentfromITVandFivetodayhasawidersetofobjectivesbuttheReithianprinciplesremainacornerstoneofthePSBethos.
Fornearlythreedecades,parliamentariansbackedthenotionofapubliclyfundedmonopolyinbroadcastprovision.Untilthe1950s,theBBCremainedtheonlynationaltelevisionbroadcasterintheUK,defendedbyaninfluentialparliamentarycommitteethatarguedtherightofaccesstothedomesticsoundandtelevisionreceiversofmillionsofpeoplecarrieswithitsuchgreatpropagandapowerthatitcannotbetrustedtoanypersonorbodiesotherthanapubliccorporation(Beveridge1951).
Discussionsaroundtheintroductionofcommercialtelevisionreflectanunderstandingofthepoliticaleconomyoftelevision:therelationshipbetweenpolicy,industryandoutput.Ithaslongbeenrecognisedthatwhatappearsontelevisiontosomeextentdependsontheinstitutionalcircumstanceswithinwhichtherelevantbroadcasteroperatesparticularlyinrelationtocommercialfundingmodels(Elliott1972,Gitlin1985,Hart1988).Whenfinallyintroduced,commercialtelevisionwasbeholdentostrongPSBobligations,andwaseffectivelyseenasanextensionofPSBprovisionratherthanprovidingpurelycommercialcompetition.
Withtheintroductionin1982ofChannel4apubliclyownedbroadcastingcompanyaimedatchallengingthepublicserviceduopolyofBBC1and2publicservicetelevisionwaschargedwithtakingmorerisks,behavingmoreinnovatively,andprovidingcontentforniche
audiencesotherwiseunderservedbytheBBC.Theadditionin1997ofFive,withlimitedpublicserviceobligations,hasmadeuptheterrestrialpublicservicebroadcastingofferingforthepast12years.
Today,publicservicetelevisioncontinuestobedeliveredbytheBBCandChannel4.Bothorganisationshavespecificpublicservicemissions:theBBCseekstoenrichpeoplesliveswithprogrammesandservicesthatinform,educateandentertain(BBC2009),whileChannel4aimstoprovideabroadrangeofhighqualityanddiverseprogrammingwhichdemonstratesinnovationappealstothetastesandinterestsofaculturallydiversesocietyandexhibitsadistinctivecharacter(CommunicationsAct2003).
Meanwhile,ITVandFivecontributesomelevelofpublicserviceprovision,deliveringcontentparticularlynationalandregionalnewsandprogramming(ITV)andchildrensprogramming
(Five)accordingtoquotassetbytheCommunicationsActandperiodicallyreviewedandmodifiedbyOfcom.
Theprinciplesofpublicservicebroadcasting,definedbyOfcom(Ofcom2004)areasfollows:
Informingourunderstandingoftheworld Toinformourselvesandothersandtoincreaseourunderstandingoftheworldthroughnews,informationandanalysisofcurrenteventsandideas
Stimulatingknowledgeandlearning Tostimulateourinterestinandknowledgeofarts,science,historyandothertopicsthroughcontentthatisaccessibleandcanencourageinformallearning
1.PublicbroadcastservicesintheUK:anoverview
1.TakenfromBBCsmissionstatementatwww.bbc.co.uk/info/purpose/accessed22March2009
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ReflectingUKculturalidentity ToreflectandstrengthenourculturalidentitythroughoriginalprogrammingatUK,nationalandregionallevel,onoccasionbringingaudiencestogetherforsharedexperiences
Representingdiversityandalternativeviewpoints Tomakeusawareofdifferentculturesandalternativeviewpoints,throughprogrammesthatreflectthelivesofotherpeopleandothercommunities,bothwithintheUKandelsewhere.
Therearesomeinherentcontradictionsintheseprinciples,withPSBatoncetaskedwithbringingaudiencestogetherforsharedexperienceswhilealsoensuringdiversityandrepresentingarangeofcommunitiesacrosstheUK.Thepublicsphere,asrepresentedbypublicservicebroadcasting,mustatoncebebothrepresentativeanduniting.
InorderforPSBtomaintainabalancebetweenthesesometimes-competingclaims,itmustnegotiatethepoliticsofdifferenceonadailybasis(Murdock1999).So,howcanbroadcastersmanagethis?IntheUK,thepluralityofpublicserviceprovisionmeansthat
bothaimscanbeaccommodated.Forexample,whiletheBBCworkstodeliverasharedculturalexperience,Channel4canproduceprogrammingthatappealstothetastesandinterestsofaculturallydiversesociety(Channel4,2008)andexposesmainstreamaudiencestowhatwouldotherwisebeminorityviews.
Theimportanceofplurality
TherehasbeenahugeincreaseinthenumberoftelevisionandradiochannelsandotherformsofentertainmentcontentsuchasDVDs,computergamesand,ofcourse,theinternet.Nevertheless,UKcitizenscontinuetovaluepluralitythenotionthatcertaintypesofprogrammesshouldbeshownonmorethanonechannelinpublicserviceprovision(IpsosMORI2008).
ResearchundertakenbyIpsosMORIhighlightedthestrengthofUKopinioninthisarea.Morethanfourinfiverespondents(86percent)statedthatitwasimportantthatnewsshouldbeshownonmorethanoneofthemaintelevisionchannels.Respondentsfeltthatnewswasthegenreinwhichmaintainingpluralitywasmostimportant.
Ahighproportion(76percent)alsobelieveditwasimportanttomaintainpluralityintheprovisionofregionalandnationalnews.WhenaskediftheBBCandITVshouldcontinuetoeachprovideregionalandnationalnews,83percentrepliedthattheyshould.Inthedevolvednations,thisviewwasevenstronger,beingheldbynineoutoftenrespondents.
Thosesurveyedalsobelieveditwasimportanttomaintainpluralityinsomeothergenres,includingfactualandcurrentaffairsprogramming.Almostfourinfive(77percent)thought
itimportantthatsuchprogrammingshouldbeshownonmorethanonechannel.Thiswaslargelybecausetheybelievedthatfactualandcurrentaffairsprogrammescontainedopinionsaswellasfacts,andthatitwasthereforecrucialthattheyconveyedavarietyofoutlooks.
Acrossseveralgenres,thekeyjustificationsforpluralitywerethatitwasnecessarytoensureaccountability,impartialityandquality.Respondentsfeltthatalackofpluralitywouldresultnotonlyinthepublicbeinglessinformedbut,becauseofalackofcompetition,adropinstandards.
Previousresearchhasshownthatdifferentproviderscaterfordifferentaudiences.Forexample,newsbulletinsfromITVattractaudiencesfromdifferentsocio-economicbackgroundstosimilarprogrammesonChannel4andBBC1(Ofcom2004b).Similarly,Channel4tendstoserveayoungeraudience,andinitsfuturevisionhasarguedforan
expansiontoitsremittofurtherenhanceprovisionforolderchildrenandyoungadults(Channel42008).Thisindicatesafurtherpurposeforplurality:thatofprovidingimprovedaccess,offeringthepublicanopportunitytofindinterestingandcomplementarycontentatdifferenttimesofdayondifferentnetworks(Foster2008).
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Toprovideplurality,thereisaneedforcontinuedproductionofcontentoriginatedintheUK,whetherinternational,nationalorregionalnews,currentaffairsandfactualprogramming,drama,childrenstelevisionorcomedy.ThemixedecologyofPSBintheUK(whichismadeupofabalanceofdifferentfunding,organisationalandoperationalmodels)
hassupportedhigh-qualityprogramming,andcontinuestounderpinthestrengthoftheUKsbroadcastingsector(Foster2008).InresearchbyOfcom,83percentofrespondentsbelieveditisimportantthatprogrammesmadeintheUKareshownonthemaintelevisionchannels(Ofcom2008).
TheeconomicvalueofpublicservicebroadcastingintheUK
CalculatingthevalueofPSBintheUKisextremelydifficult.Itcanberepresentedasameasureofthelevelofsubsidyitreceives,intermsoflicencefeeandregulatoryassets,asanestimateoftheopportunitycosts.However,thekeystrengthsandmeritsofPSBareoftennon-commercialinnature,andcapturingthevalueoftheseaspectscanbeacomplexexercise.
Variousstudieshaveinvestigatedtheextenttowhichcitizensarewillingtopayforpublicserviceprogrammingoncommercialchannels,inordertoputahypotheticalpriceonsomethingthatiscurrentlyreceivedforfree.ArecentstudyconductedaspartofOfcomsreviewofPSBfoundsignificantreadinessamongthosesurveyedtopayforPSBbeyondtheBBC.Approximatelythree-quartersofrespondentswerepreparedtopayforpublicserviceprogrammingonITV1,Channel4andFive,uptoanaveragevalueof3.50amonth,inadditiontothecurrentlicencefee.Thiswouldequateto42perhouseholdperannumover800millionperannumnationally.Clearly,thevaluethattheserespondentsputonPSBissignificantlyhigherthanthecostofactuallydeliveringsuchservices(Ofcom2008e).
IthasbeenclaimedthatPSBcancontributetothewidersocial,democraticandculturalhealthoftheUKthroughtherangeandqualityofitsbroadcasting(Banerjeeetal2006).In
thepast,theBBChasundertakensignificantworkinordertotranslateitsvaluebyutilisingtheconceptofpublicvalue.OneofitsaimshasbeentounderstandhowPSBcontributesvaluetopeopleasindividualsandcitizens,andtosocietyasawholeforexamplebycontributingtothewell-beingofsociety.
PSBalsohasanimpactontheperformanceofthewidereconomicmarket.RecentanalysisoftheeconomicimpactoftheBBConthecreativeeconomy(PwC2008)estimatesthatBBCspendingoncreativeactivitiesdefinedascontentanddistributionandexcludingoverheadsandinfrastructureprovidesagrossvalueaddedtotheUKeconomyofapproximately5billion.IncludingtheBBCsexpenditureonoverheadsandinfrastructure,thetotalgrossvalueaddedoftheBBCincreasestoaround6.5billion.Thisvalueisaccruedinanumberofwaysforexample,throughthevalueofexternalitiessuchaseducationandtrainingactivitiesthattheBBCundertakes,aswellasitsimpactonregeneration,networkingbuildingandclustering.
OtherstudiesassessingthevalueofPSBhaveincludedtheCardiffBusinessSchoolstudyontheeconomicimpactofS4C(DTZetal2007),whichfoundthattheWelshPSBproviderhadconsiderableindirectimpactonsuppliereffectsandincome-inducedeffects.Forexample,whenemployeesspendtheirwagesandtheirsalariesintheirlocalityongoodsandservices,thisinturngeneratesfurtherdemand.ThestudyfoundthatS4Cactivitywasfoundtosupportindirectly2,100full-timeequivalentjobsoverafive-yearperiod.ItconcludedthatthepresenceofS4Cwithinthecreativeindustriesaddedstabilityandcertainty,generatedanestimated87millionofvalueaddedfortheWelsheconomyin2006,andhenceencouraged
investment,skillsdevelopmentandcreativeexcellence.Inanotherstudy,theprofessionalservicesfirmPricewaterhouseCoopers(PwC)analysedtheimpactofChannel4ontheUKindependentsector,onthecreativeindustriesmore
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generally,andontheeconomyasawhole(PwC2007).ThestudyfoundthatChannel4supportsapluralityofindependentproducersandultimatelyensuresthatawiderangeofideasandvoicesreachthetelevisionscreen.ItarguedthatbycontributingtothedevelopmentofregionalclustersintheUKeconomy,thechannelbuckstheotherwise
London-centrictrendofthemediaandcreativeindustries,identifyingandnurturingtalentinanewanduniqueway.
TounderstandtheimpactofChannel4asapublicservicebroadcaster,PwCanalysedtheimpactsofchangingtheinstitutionalmodelofthechannelfromapubliclyowned,not-for-profitcorporationtoonethatoperatedinsteadonapurelycommercialbasis.Theypredictedthattheeffectwouldbe:
Increasedconsolidationandfewindependentproducers
AreductioninsizeandpluralityofChannel4sources
ArenewedfocusonLondon(reductionofactivityinthenationsandregions)
IncreasedbarriersfortalentReducedrisk-takingandlowerqualitylinkedtoreducedcertaintyoffunding.
Otherresearchhasestimatedthepossibleimpactofreducingthescaleandscopeofpublicfunding.In2006,mediaadvisersOliverandOhlbaumAssociatesarguedthatthecommercialrevenuegrowthresultingfromreducedpublicfundingtotheBBCwouldberelativelylow,andthattherewouldbeasubstantiallossofrecyclingeffectsthatis,theimpactoftheBBCstendencytospendlargeproportionsofitsrevenuewithintheUKcreativeeconomy.TheyestimatedthatforeveryonepoundofincometakenawayfromtheBBC,UKprogrammespendislikelytofallbyabout60pence(OliverandOhlbaumAssociates2006).
Meanwhile,OfcomhasstatedthatBBCsinvestmentinFreeviewhasbeencentraltothesuccessofDigitalTerrestrialTelevision(DTT),whichinturnislikelytoincreaseinter-platformcompetition.Thismayincreasecommercialrevenues,ascommercialadvertisingrevenueshaverisenfordigital-onlychannelsandmorehouseholdshavebeendrawnintothepayTVmarket.
Wecansee,therefore,thatinadditiontobeingvaluedbyUKcitizens,evidenceshowsthatPSBprovidersaddconsiderablevaluetothewidermediamarketthroughnetworkeffects,bytakingrisksthatarenotopentocommercialplayersandalsobypromotingandsustainingnewtechnicalstandardsandplatforms.
TheinternationalvalueofUKpublicservicebroadcasting
TheUKsystematicallyperformsbetterthanothercomparativenationswherebroadcastingisconcerned.TheBBCisaninternationallyrespectedmediabrand,withitsWorldServicereachingmillionsofpeopleworldwide.Similarly,manyprogrammesdevelopedbyChannel4,BBCandITVhavepopularityworldwide,andUKPSBcontentisfrequentlyhonouredontheinternationalawardscircuit.
InthecontextoftheUKscreativeindustries,broadcastingisapowerfulplayerininternationalmarkets.EstimatedtotalrevenuefromthesaleofUKTVprogrammesinternationallyin2005was632millionanincreaseof21percenton2004.In2007thisfigureroseto663million,accordingtotheUKTelevisionExportsSurvey(PACT2008)Thissurvey,carriedoutindependentlyonbehalfofUKTradeandInvestment(UKTI)andProducersAllianceforCinemaandTelevision(PACT,thetradebodyfortheindependent
television,film,animationandinteractiveindustries),concludedthatUKtelevisionprogrammescontinuetogrowinpopularityoverseas,withsalesofformatideasup53percent,to82million(PACT2008).
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PSBplaysanimmenselyimportantroleinasuccessfultelevisionindustrythatgeneratedrevenueof10.4billionin2007,morethanFrance(7billion),Germany(9.3billion),Italy(6.3billion)andCanada(4.4billion)(Ofcom2008b).
Meanwhile,comparedtoothercreativeindustrysectors,radioandtelevisionshowedabove-
averagegrowthof8percentperannum,comparedto4percentforthecreativeindustriesgenerallyand3percentfortheeconomyasawhole(DCMS2009).
Inotherrespects,too,theUKsPSBsectorperformswellincomparisontoitsinternationalcounterparts.In2007,first-runoriginatedoutputaccountedfor49percentofallhoursbroadcastbytheEuropeanPSBproviders,comparedto53percentintheUK.UKPSBprovidersalsobroadcastthelowestpercentageofacquiredcontent(5percent,comparedtotheEUaverageof15percent)(Ofcom2008b).
Conclusion
Publicservicebroadcastingcontinuestoberelevantandvaluedbycitizens,asillustratedbyviewinghabits,opinionpolls,andresearchintowillingnesstopay.ItalsoformsanimportantpartofasuccessfulUKbroadcastingindustry,andcontributestothegrowthandexpansionoftheUKcreativeindustriesmorewidely.ThisisanimportantfactorthatweshouldbecarefulnottooverlookparticularlygiventheGovernmentscommitmenttotransformtheUKintoaleadingknowledgeeconomyandthecontinuedemphasisonthefutureofourcreativeindustries.
ThevaluethatPSBdeliversbothintermsofeconomicbenefitsandimprovedwell-beingindicatethatPSBisnotjustaboutmarketfailure:italsoplaysacrucialroleinUKpubliclife.
OverthecomingsectionsweconsiderthestructuralchangesthreateningthecurrentbalanceoftheUKsbroadcastindustrychangesthatareimmediateandarelikelytobesevere.
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TheUKsmedialandscapehasseenrapidchangeoverthepastdecade.Innovationsintechnologyhaverevolutionisedthewaysinwhichpeopleaccess,consumeandindeedcreate
media.Themovefromanaloguetodigitalhasmeantthatcontentcanbedistributedmorequickly,easilyandcheaplythananaloguematerial,andcanbestoredforafractionofthecostwhiletakingupafractionofthespace.
ForPSBproviders,thedigitalplatformoffersbothanopportunityandathreat.Thebiggestchallengeistheendoftheanaloguecompact,inwhichbroadcastershavebeenoffereddiscountedorfreeairwavespectruminexchangeforbroadcastingpublicservicecontent.Theswitchtodigital,duetotakeplaceby2012,meansthatimplicitsubsidiesderivedfromspectrumallocationwillfalldramaticallyinvalue,andwillultimatelychallengetheeconomicbasisonwhichtheUKsPSBecosystemrelies.
Thissectionprovidesabriefoverviewofhowdevelopmentsintechnologyhaveimpactedonthemediasystem,fromtheperspectiveofthemediaconsumer,anddescribestheenvironmentinwhichPSBprovidersmustnowoperateandsurvive.
WelookattheeconomicconsequencesofthesechangesinmoredetailinSection3,butbriefly,themainchangesrelatetonewopportunitiesforaudiencestochangebehaviourinconsumption,contentcreationandcommunication.ForthetraditionalPSBmodel,themostimportantoftheseisconsumptiontrends.
Changesinconsumptiontrends
Todaysmedialandscapeisoneofvastchoice.Justover25yearsago,wesawthearrivaloftheUKsfourthterrestrialtelevisionchannel,Channel4.Today,theadventofdigitalhasseenthenumberofTVchannelsrockettomorethan400(Ofcom2008c).Take-upofmulti-
channeltelevisionhasincreasedrapidly:fiveyearsago,justoverhalf(54percent)ofUKhouseholdshadaccesstomulti-channeltelevision,butby2008thisproportionhadgrowntonearlynineoutoftenhouseholds(88percent)(ibid).Radiostationshavealsoproliferatedhugely,withdigitalradioprovidingaccesstoagreaternumberofnichestations,whileinternetradiooffersinstantaccesstostationsanywhereintheworld.
Meanwhile,internettake-uphasincreasedrapidlyoverthepastdecade.NearlytwothirdsofUKhouseholdshaveaccesstobroadbandinternet,andthisnumberissteadilygrowing.Theinternetitselfprovidesavastrangeofcontentfromthatprovidedbyexisting,traditionalmediaoutletstoblogsandotherformsofcontentgeneratedbyusersthemselves.Thescaleofcontentandinformationishuge.TheblogsearchengineTechnoratiestimatesthattherearenowwellinexcessof100millionblogs,whilethevideo-sharingwebsiteYouTubereceives
around65,000videouploadsonadailybasis.
Whatimpacthasthislevelofchoicehadonpeoplesconsumptionhabits?Thegrowingrangeofcompetingmediadoesnotseemtohaveimpactedontheamountoftimethatpeoplespendwatchingtelevision.DespitetherangeofDVDs,videogamesandinternetoptionsonoffer,televisionviewingperdayhasincreased.In2008,theaverageBritishviewerwatched26hours,18minutesoftelevisionperweekanincreaseof48minutesfrom2007(Thinkbox2009).
However,theproliferationofchannelshasmeantthatviewingpatternsarenowmorewidelydispersed,andwhilethemainfiveterrestrialchannelscontinuetomakeupthebulkoftelevisionviewing,theirshareofaudiencesisindecline(Ofcom2008c).In2002,these
channelsaccountedfor77.7percentofviewing,comparedto61percentin2007(Ofcom2008c).
2.Technologicalchallenges
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Theincreasedlevelofchoicehashadasignificantimpactonconsumptionofnewsandcurrentaffairsprogramming.Whereasviewersinanaloguehomeswatchedatotalof135hoursofnationalnewsonthefiveterrestrialchannelsin2006,multi-channelviewerswatchedonly77hours(Ofcom2007).Thelowestlevelsofconsumptionwereamongthe
1624agegroup,membersofwhomwatchedonly33hoursin2006.
Theinternetandonlinepublicservicecontent
Theinternetasasourceofnewsandinformationisgrowinginsignificance.However,terrestrialtelevisionremainsthemainsourceofnewsformostofthepopulation(65percent)(Ofcom2007).AnalysisbyOfcomsuggeststhattheinternetisseenasasourceofsupplementaryinformationratherthanaprimarysourceinitself(ibid).
Perhapsthebiggestindicatorofchangetocomeisthebehaviourofyoungeragegroups.Utilisingincreasesinbandwidthandthepotentialofsuperfastbroadband,1624yearoldsarebeginningtospendmoretimeonlinethanwatchingtelevision(EuropeanInteractiveAdvertisingAssociation[EIAA]2007).Asubstantialamountoftheiruseisdedicatedtotime
onsocialnetworkingsites.However,theinternetisincreasinglyseennotonlyasacommunicationtoolorarichsourceofinformation,butasapointofaccessforaudio-visualcontent,includingtelevisionprogrammes.Reactingtothistrend,PSBprovidershavemadeconsiderableinvestmentinordertoprovidepublicservicecontent(PSC)online.
Publicservicecontentonlinecurrentprovision
Wenowcometoconsiderpublicservicecontentanditsimportanceintheonlineworld,lookingatthescaleavailableasameasureoffinancialinvestment,andtheextenttowhichBritishaudiencesaccessandconsumePSC.
AspartofitssecondreviewofPSB,Ofcomcommissionedtworeportsassessingfirst,theavailabilityofPSConline(MTM2008a)andsecond,thelevelofeconomicinvestmentinPSC
online(MTM2008b).ThesetworeportscoveredalltypesofPSC,includingcontentthatmetpublicservice-typeprinciplesbutmayhavebeenprovidedbycommercialoperators,individualcitizensornon-governmentalorganisations,artorganisationsandcharities,andgovernmentorotherprovidersinadditiontothatprovidedbythepublicservicebroadcastersthemselves.
Theonlineavailabilityreport(MTM2008a)foundthatthereweresignificantlevelsofinformationandcontentaccessibleunderthebroadPSBcategories,including:
information,search,andreference
newsandcomment
businessandcommerceentertainmentandlifestyle
health
scienceandtechnology
politicsandgovernment.However,farlesscontentandinformationwasavailableinotherareas,suchas:
arts,cultureandheritage
children
teenscommunityandsocialaction
learningandeducation.
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Ultimately,becausetherearenodirectoriesofonlinecontent,andbecausethescaleofcontentissovastandchangingsorapidly,itisverydifficulttodetermineonceandforallhowmuchpublicservicecontentisoutthere.Itiseasiertodeterminethescaleofcontentprovidedbytraditionalpublicserviceprovidersandtheextenttowhichthisremainsacentral
componentofBritishinternetusersconsumption.Meanwhile,Ofcomsfinancialanalysisreport(MTM2008b)showedthatanumberofdifferentbodiesweremakingsignificantinvestmentinPSConline.Itidentifiedthefollowinglevelsofinvestmentduringthe2006/7period:
CentralgovernmentspendingonPSCintheregionof7090million ThelargestproportionofthiswasonthegovernmentonlineinformationserviceDirectGov,butthisfigurealsoincludesinvestmentbygovernmentdepartmentssuchastheformerDepartmentforEducationandSkillsontheteacher.netwebsite.
OnlinenewssectorannualspendingonPSCintheregionof200million Thisincludednewspapersandothermajoronlinenewsproviders,suchasSky.
PublicservicebroadcasterannualspendingonPSCestimatedat170million Thiswasthesecond-largestsegment.In2006/07theBBCspent116milliononbbc.co.ukandafurther37.7milliononBBCJam.
Thirdsectorinvestmentof6080milliononPSConlineThisincorporatedregisteredandunregisteredcharities,andvoluntaryandcommunityorganisations.
Localanddevolvedgovernmentinvestedintheregionof4555million ThisestimatewasbasedonananalysisofICTandeGovernmentspendingonPSConline.
Theeducationcategoryspentonly67million ThisincorporatedexpenditureonlearningresourcesnotcapturedinothercategoriessuchasgovernmentandPSBproviders.
Fromscheduledtoon-demandviewing
Oneofthemostsignificantimpactsoftheinternetonconsumptionofaudio-visualmediahasbeentheshiftfromlinear,scheduledviewingtoon-demandaccess.Theinternetisapulltechnology,wheremediaconsumersrequestcontentbyaccessingcertainwebsitesordownloadingcertaincontent.Thisisinstarkcontrasttobroadcast,whichisapushtechnology:itdeliverscontenttotheviewerwithouttheviewerhavingtospecificallyrequestit.
Thestorageanddistributionpotentialofdigitalcontenthasledtoinnovationsthatallowviewerstomoreeasilytime-shiftcontentthatis,towatchitwhentheywant,ratherthanwhenthescheduledictates.NewservicessuchasBTsInternetProtocolTelevision(IPTV)
serviceBTVisionandVirginMediason-demandserviceenabletelevisionviewerstorequestcontentanddownloadittotheirtelevision,inordertoviewitatatimeoftheirchoosing.
Personalvideorecorders(PVRs)haveenabledviewerstocreatetheirowntelevisionschedules,time-shiftingprogrammestostartanythingfromafewminutestoseveraldaysaftertheoriginalbroadcasttime.ViewerscanalsoautomaticallystoreentireseriesonPVRharddisks,inordertoviewthewholeseriesfromstarttofinishinonesitting,overaweekendorwhenevertheychoose,ratherthanwaitingforthetypicalweeklyinstalment.Theycanalsoskiporfast-forwardadvertisementsoncommercialchannelssomethingthathasbeenofsignificantconcernintermsoftheeconomicsofcommercialtelevision.
Withinthewiderculturalcontext,themainchallengeofon-demandhasbeencouchedin
termsofadecliningpowerofthetraditionalbroadcasterandthetraditionalbroadcastbrand.Previously,PSBprovidersinparticularbroughtpeopletogether,toviewthesameprogrammeatthesametime.Thissolidifiedtheirpositionbothintermsofindividualhouseholdsand
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families,andintermsofnationalimportance.ThelatterhasbeenparticularlytruewherechannelssuchastheBBChavebroughtpeopletogetherovereventsofnationalimportance,suchastheQueensCoronation,majorsportingevents,thefirstlandingonthemoon,andChristmastelevision.
Inrecognitionofitscentralimportanceindomesticlife,televisionhastypicallybeenscheduledaroundthefamily.Forexample,thewatershed,setat9pm,servestodrawanexplicitdistinctionbetweenthefamilyviewingcontent(whichusuallytakesplacebetween5.30pmand9pm)andtheadulttelevisionworldthatfollows.Inthisway,ithasbeenargued,televisionschedulingunderpinnedsocietysexpectationsofbehaviour(forexample,expectingchildrentobeinbedby9pm),andhelpedtoprovideasenseoforderandcontinuityinindividualslives(Silverstone1994).
Todaystechnologicaladvancesarethreateningtheimportanceofschedule,andalongsidethis,itisoftenspeculated,thepoweroftelevisionbrands.However,inreality,theimpactmaynotbeassevereassomehavepredicted.Forexample,researchintouseofPVRs(Barwise2005)hasshownthatconsumerstendtousethemtoshiftprogrammesbyaslittle
astenminutes,andprimarilyinordertofast-forwardadvertisementsratherthantodiscardthescheduleentirely.(Ofcourse,thisstillcreatessignificantproblemswheretheeconomicsoftelevisionbroadcastingisconcernedanissuethatweaddressinSection3.)
Moreover,PSBprovidershavebeguntoadapttothisculturalshift.ThemostsuccessfulexamplesofPSConlineprovidedbyPSBprovidershavebeenthosethatenableviewerstoaccesscontenton-demand,suchastheBBCsiPlayerand4oDfromChannel4.Useoftheseservicesisgrowingrapidly:inDecember2008,viewersaccessedBBCprogrammesviaiPlayerarecord41milliontimes.Meanwhile,Channel4son-demandserviceisparticularlypopularamongyoungeragegroups.OneinsixviewersofthetelevisionshowSkinswatchedtheprogrammeonline.
Conclusion
Thespeedandscaleofthetechnologicalchangesinthemediaoverthepastfewdecadeshasbeendramatic.Thesechangeshavecausedrapidchangewithinthewidertechnologicalandculturalcontexts,suchasallowingviewerstodefinetheirowntelevisionscheduleandaccesscontentonthemoveonmobiledevices,resultinginimmensechallengesforPSBproviders.
Nevertheless,inthemain,PSBprovidershavereactedproactivelytothesechanges,andhavesoughttoremainrelevantinanincreasinglyonline,on-demandworld.TraditionalPSBprovidershavemadesignificantinvestmentinPSConlineand,despitethehugescaleofcompetition,televisioncontentproducedbyPSBproviderscontinuestobeaccessedand
consumedinonlineenvironmentsthroughinnovationssuchasiPlayerand4oD.Continuedinvestment,innovationandavailabilityislikelytoremainimportant.PSConlineoriginatingfromawidevarietyofinternationalsourceshasbeenshowntomeetOfcomsprinciples1and2ofpublicservicedescribedinSection1(inotherwords,informingandstimulatinginterest).However,significantlylesscontentappearstomeetprinciples3and4(strengtheningculturalidentityandraisingawarenessofdifferentculturesandviewpoints).Thisisimportant,andechoesalong-heldconcernthatthehighlevelsofpersonalisationandchoiceaffordedbytheInternetwillleadusintodiscursiveghettos.
Aswesawintheprevioussection,UKviewersplaceconsiderableimportanceoncontinuedsharedexperiences,andonreversingtrendsoffragmentationwithinsociety.Eveninournewtechnologicalenvironment,traditionalPSB-typecontenthasavalueandrationale,andisessentialtoUKcitizens.
Inthenextsection,welookatthefinancialchallengesthatarecurrentlymountingandcouldactasabarriertomaintaininglevelsofpublicserviceinbothonandofflineenvironments.
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Intheprevioussection,wediscussedtheimpactoftechnologicalchangesonculturalfactors,suchasthewayweaccess,consumeandsharemediaandthewaysinwhichwecommunicate
witheachother.Weconcludedthat,despitethesechanges,PSBcontinuestoberelevantandimportanttoUKcitizens.ButshiftingconsumerbehaviourisnottheonlychallengefacedbyPSBproviders.Technologicaladvanceshaveresultedinmassivechangestotheeconomicbasisandbusinessmodelsoftelevision,presentingnewdifficultiesinfindingfunding.
ThissectionbrieflyoutlinesthefundingchallengescurrentlyfacedbyPSBprovidersintheUK.Itsetstheseoutwithinthewidereconomiccontext,consideringtheimpactandfurtherpressurescreatedbythecurrentrecession.Itthengoesontoconsiderwhichelementsofthemediaindustryareseeinggrowth(orthepotentialforgrowth),lookingatinfrastructureandsubscriptionservices,andcontentservices.Finally,itconsiderswhattheshiftsinrevenuemeanforpublicservicecontentparticularlycontentoriginatedintheUK.
FundingsourcesPSB,andthemassivefinancialinterventioninthemarketthatthisrepresents,haslongbeenjustifiedonthegroundsofmarketfailure.Inotherwords,withoutspecialdirectionandfundingtodoso,itisnotthoughtthatcommercialcompanieswouldinvestinPSBcontent.Thisisparticularlythecasesincethistypeofcontent(forexample,home-produceddrama,childrenstelevision,in-depthbroadcastnationalandregionalnewsandcurrentaffairsprogramming)isoftenexpensivetoproduce.
Table3.1showsthelevelofpublicinterventionstosubsidisePSBcontentstartingin2003/04andlookingforwardto2012/13.Providingaccuratefiguresforthelevelsofinterventionisnotoriouslydifficult.Thisisbecauseoftheimplicitnatureofsomeofthefunding,thelackofclearalternativescenariosagainstwhichtotestitsvalue,andlimitstotheavailabledata.
Themainsourcesoffundingarethelicencefeeandgiftedspectrum,thatisairwavespectrumprovidedfreetobroadcastersinexchangeforthemmeetingcertainpublicserviceobjectives(thelatterbeingmeasuredintermsofopportunitycosts).Opportunitycostsareparticularlydifficulttoestimate.Theyarebasedonlostadvertisingrevenuethatcouldhavebeengainedhadthebroadcastershownaprogrammethatwasmorecommerciallyattractive(intermsofaudienceandadvertising)instead.Forsomegenres,theopportunitycostisparticularlyacute,andgrowing.Forexample,asaudiencelevelsfornewsandcurrentaffairsprogrammesdecline,theopportunitycostsoftheseprogrammesshownduringprimetimegrowconsiderably.
3.Financialchallenges
Table3.1:Levelsofpublicinterventionstosubsidisepublicservicebroadcasting
Institution 2003/04 2007/08 2012/13
BBC(televisionandonline) 2,700 2,865 3,010
S4C/GMS 105 110 110
ITVplc 280 140 45
Channel4 175 175 80
Five 40 50 50
Otherlicensees 25 25 10
Total 3,325 3,365 3,305
CommercialPSBproviders 520 390 185
Source:Ofcomestimates,BBCannualreports,financialdatafrombroadcastersNote:Allfiguresinreal2007million.BBCdataforfinancialyears2003/4,2007/8,2012/13;othersfor2003,2008and2013respectively
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ThemostimportantstatisticshowninTable3.1isthedeclineinvalueofimplicitsubsidiesforthecommercialPSBprovidersfrom520in2003/4to185in2012/13.Thisrepresentsadeclineinthevalueofpublicsubsidiesof335millionsincetheintroductionoftheCommunicationsActin2003.Ifnothingchangesinthisscenario,theBBCwillreceive90per
centofallpublicsubsidies,upfrom80percentin2003(Ofcom2008).ThissituationwilldolittletopreservethepluralitythattheUKpublicsohighlyvalues.
Ofcomestimatesthatinorderforthesamelevelofpublicservicecontentavailabletodaytobeprovidedby2012,publicfundingofbetween330and420millionwillbenecessary.Existingregulatoryassetsarepredictedtocontribute185million,asoutlinedabove.Thisleavesafundinggapofbetween145millionand235million(Ofcom2008).
Thisestimateisbasedonanassessmentofthreefactors(Ofcom2008):
ThelevelofinvestmentcommercialPSBproviderswouldbelikelytomakeinarangeofdifferenttypesofprogramminginthefuture,basedontheirrelativeprofitability
Theamountofcontentthataudiencesarelikelytowantinthefuture,assumingthatcurrentdemanddoesnotchange
Whetherthewidermarketislikelytomakeagreaterorlessercontributiontoeachtypeofcontentinthefuture.
Ascompetitionforadvertisingrevenueincrease,dramaticdeclinesinprofitabilityareexpectedformanygenres.Inthefirstquarterof2009,advertisingrevenuesoncommercialtelevisionarepredictedtoexperiencea17percentfall(Sweney2009).Forexample,in2007,GooglesurpassedITV1sadvertisingrevenueforthefirsttime,andwiththegrowingrecession,theoutlookforITVisnotgood.Theadvertisingslowdownhasalreadyhadasignificantimpactonjobsandprogrammingatthebroadcaster,withseveralbroadcastsdelayedandfurtherjobcutspredictedoverthenextfewmonths.ThemanagingdirectorofITVbrandandcommercialhasannouncedthatthebroadcasterisscrappingforitslife(citedinHolmwood2009).
Thewidereconomiccontext
TheUKsmediaindustrycouldnotbeexpectedtobeimmunetothewidereconomicclimateinwhichitexists.TheUKeconomyispredictedtoshrinkbyupto4percentoverthecomingyear.Advertisingrevenueshavealreadyfallenintodecline,andarepredictedtoshrinkfurtherovertheperiodoftheeconomicdownturn.AdvertisingrevenueisstronglycorrelatedtoGDPgrowth,andastheUKmovesintoarecession,thisisbadnewsnotjustforPSBproviders,butalsoformanycommercialmediaproviders(Deloitte2009).
Forexample,newspapershavealreadybeguntomakesignificantcutbacks,including
sheddingstaffasthecombinationofdecliningadvertisingrevenueandtechnologicalchange(withmanynowaccessingnewsonline)hithome.Atarecenteventtodiscussthefutureofnewspapers,EmilyBell,contentdirectorofGuardianDigital,stated:
WecouldbeonthebrinkoftwoyearsofcarnageforWesternmedia.Inthe
UK,fivenationalscouldgooutofbusiness,andwecouldbeleftwithnoUK-
ownedbroadcasteroutsideoftheBBC.Wearefacingcompletemarketfailure
inlocalpapersandregionalradio.Thisisasystematiccollapsenotjusta
cyclicaldownturn.Eventhesurvivingbrandswillgothroughaperiodof
unprofitability.(citedinBeckett2008)
EvenmediamogulRupertMurdochhasinstructedNewsCorporationandthenewspapersin
theNewsInternationalstabletoprepareforaleanyearin2009(citedinSweney2008b).
ThisisnotasituationpeculiartotheUK.TheUShasexperiencedsimilarcasualties,withnewspapergiantTribune(owneroftheLosAngelesTimes,ChicagoTribune andBaltimore
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Sun,amongothers)filingforbankruptcyinDecember2008,theMinneapolisStarTribunefollowingsuitinJanuary2009,andsignificantjoblossesformediafirmBloomberginFebruary2009.Meanwhile,inFrance,PresidentSarkozyhasannouncedfinancialstateaidforthenewspaperindustry,includingtaxbreaksfordeliveryanddoublingthevalueof
governmentadvertisinginordertohelptheindustrythroughtherecession.WhilethedifficultiesfacedbyotherpartsofthemediaindustrydonothaveadirectimpactonPSB,theynonethelessmassivelychangethecontextinwhichthediscussionregardingfuturefundingtakesplace.Theformerassumptionthatmarketfailureislikelytoreducewiththeadvanceofdigitaltechnologiesisincreasinglydiscounted.Inanycase,therehavelongbeenconcernsaboutinvestmentinareassuchasnews.Whilemanyhavepreviouslyheraldedthepotentialoftheinternettoprovidenewscontent,researchhasshownthatprimarysourcesofnewsandnewsgatheringremainlimitedtoafewlargeplayers:itisopinion,ratherthanfacts,thathavemultipliedinthedigitalage(Davies2008).
Asothersourcesofpublicservicecontentcomeunderincreasingpressure,andcertaingenresbecomemorecostlyandcommerciallyattractive,PSBandinparticular,pluralityin
PSBprovisionislikelytobecomemoreimportanttocitizens,notlessso.
Mediarevenues
Alongsidetheeconomicdifficultiescurrentlybeingexperiencedacrossthemedia,therecontinuestobemoneyinthemediasystem.However,withchangingconsumerhabitsandbusinessmodels,incomeisshiftingfromtraditionalmediacompaniestonewentrants,duetoanumberoftrends:
Advertisingincomeisshiftingfromtraditionalterrestrialbroadcasttelevisiontodigitalandonlineservices.
Theeconomicsofonlineadvertisingarevastlydifferenttotelevisionadvertising
particularlyinthatonlineadvertisingissubstantiallycheaper.
Emergingbusinessmodelshaveresultedinpeopleincreasinglypayingforsubscriptionservices,suchaspayTV,voiceanddataservicesonmobilephones,andinternetservicesespeciallybroadband.
Wenowlookatthesetrendsinmoredetail.
Shiftsfromterrestrialtodigitalandonlineservices
Ofcomsanalysissuggeststhatstructuralchangesaredrivingadvertisingtowardsdigitalmedia.Itestimatesthatoverall,thecompoundannualgrowthrateforalladvertisingbetween2008and2020willbe0.6percent,withtelevisionadvertisingdecliningby0.8percentandresponseadvertising(advertisingtargetedaccordingtousersselections)growingby1.2percent(Ofcom2009).
Theriseininternetadvertisingspendisawell-documentedphenomenon,withmostattentionfocusedonthecompetingincomesofsearchgiantGoogleandITVasaindicationoftherapidlychangingtimes.In2002,Googleearned77millioninUKadvertising,whileGranadaandCarltonearnedacombined1.5billion.In2007,GooglesUKadvertisingrevenues(of1.3billion)outstrippedITVplcsnetadvertisingrevenuefromitsITV1licences(1.2billion)(Ofcom2008).Inthecontextofthecurrentrecession,Googlesprofitsareslowingbutnonethelesssignificant,withprofitsof275millionrecordedforthefinalquarterof2008.
Asaresultoftheanticipatedpotentialofonlineadvertising,someexistingcompanies,eagertomaintainastakeasrevenuesshifted,purchasedsomeemergingpopularinternetservicesforveryhighfigures.NewsInternationalspentUS$580milliononMySpacein2005,while
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GooglepurchasedYouTubeforUS$1.65billionin2006.Microsoftpaidout117millionfora1.6percentstakeinFacebookjustoverayearlater.
Sincepeopledonotpaytousetheseservices,theirvalueislargelydeterminedbytheirpopularityandthewiderpotentialtoconvertinvestmentintoadvertisingrevenue.However,
speculationbyplayerssuchasNewsInternationalonthepopularityofthesesiteshasnotbeenprovedwrong.MySpacehasinexcessof150millionusers,andisparticularlypopularamongyoungeragegroupsandformusicservices.In2007,YouTubewasthethirdmostpopularsitegloballyintermsofminutesspentonthesite.IntheUS,12.6billionvideoswerewatchedduringSeptember2008,whileintheUK55percentofinternetuserswatchedavideocliponline.Facebookisthefifthmostpopularsiteintermsofglobalminutes,andhasover120millionactiveusers(Meeker2008).Thereismuchspeculationastothelong-termpotentialforadvertisingrevenueofsomeinternetservicesinparticularsocialnetworkingsites.
Cheaperonlineadvertising
Onlineadvertisingiscomparativelycheaperthanotherformsofadvertising,suchasprintorbroadcast.Becauseoftheexpansivenatureoftheinternet,thesupplyofadvertisingspacecaneasilyexceedthedemandforadvertising.Thecostbothofbanneradsandrich-mediaadvertshavefallenasthenumberofimpressionsincreases(Meeker2008).
Thedifferenteconomicsatplayhaveprovedproblematicbothforbroadcastersseekingtomakecontentavailableandcommerciallyviableonline,andfornewspapers,whichareseeingsignificantgrowthinonlineusageatthesametimethatprintsalesfallintosharpdecline.
Fornewspapers,printcirculationhasanestimated10percentofthepotentialreachofonline,whileonlineadvertisingrevenuecontributesabout10percentoftotaladvertisingrevenue(Karp2007).
Meanwhile,thesuccessofsomeon-demandserviceshasbeenmutedforcommercialPSBprovidersbecausetheamountofadvertisingrevenuethatcanbegainedissignificantlyless.Channel4,forexample,showedjustthreeminutesofadvertisingduringanonlineversionoftheprogrammeSkins;ondigitaltelevision,thechannelshowsnineminutesofadvertisinginthesameperiod(onehour)(Sabbagh2009).Itisgenerallyconsideredthatonlineviewersarelesstolerantofadvertisingthantelevisionviewers.
Thisaside,thereisspeculationthatultimately,advertisingwillfolloweyeballs,andgraduallyonlineadvertisingrevenuewillincreaserapidly,attheexpenseofprintandtelevision.Thismay,however,dependoncompaniesdevelopingmoretargetedadvertisingtechniques,collectinggreaterdataabouttheirusers,andpushingmessagestothemonthisbasis.SocialnetworkingsitesandservicessuchasGooglesGmailemailservicewillhaveadefinite
advantageinthisregard.
Infrastructureandsubscriptions
Anothertrendinmediarevenueisthatincomeisincreasinglygeneratedthroughsubscriptionservices.IntheUK,thetwomajorpayTVoperatorsareBSkyBandVirginMedia.Despitetheeconomicdownturn,BSkyBcontinuestoseecustomergrowth.TheseresultsarepartiallyattributedtothesuccessandpopularityoftheSky+digitalrecorder.Atthetimeofwriting,thecostofabasicSkypackage(includingbroadbandandvoicetelephonyservices)is16.50permonth.Themostexpensivepackageis55.75permonth.Addedtothis,SkyearnsfurtherrevenuethroughtheSkyBoxOfficeservice,whichenablesviewerstopaytowatchpremiummoviesondemand.
Meanwhile,VirginMediaoffersarangeofpackagesincludingtelephony,broadband(includingfibreopticbroadband)andtelevision,rangingfrom5to38permonthforabundlethatincludesfreeUKcalls,fibre-opticbroadbandupto20Mbandaccessto165digitalchannels.
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Thepopularityofmobilebroadbandisalsogrowingrapidly.In2006,5millionmobileinternetmodemsweresold.Thevalueofmobilebroadbandisexpectedtorisetoinexcessof68millionby2012.WiththeintroductionoftheAppleiPhone,GooglesG1phone,theBlackberryStormandNokiaN97overthepastyear,mobilebroadbandtake-uphas
escalatedrapidlyintheUK.Thisispredictedtobeanareaofsignificantgrowthintheyearstocome.InJapan,mobilebroadbandusenearlymatchesthatofPCinternetuse.
Itistheseservicesthatarepredictedtobebestplacedtoseeouttherecession,sincetheirrevenuecomesfromsubscriptionsratherthanadvertising(ErnstandYoung2009).Notwithstandingthecurrenteconomicclimate,analystshaveidentifiedmobilebroadbandandsuperfastbroadbandasareaslikelytoexperiencesignificantgrowthinusersandincomeoverthenextfewyears(Meeker2008).
So,amidsuchrapidtechnologicalchangeandevolution,somecommercialentitiesarecontinuingtogainprofitfromthemediasector.Thesecompaniesare,ofcourse,providingservicesthatcustomersvalueanddesiretheywouldnotbesuccessfuliftheydidnot.Buttheirsuccessalsodependsonfactorsotherthansimplycommercialinvestmentand
exploitationofthemarket.Inordertosurvive,contentserviceswhichiswhat,ataverybasiclevel,thesecompaniesaresellingneedcontent.Thereisacomplexinterplaybetweeninvestmentinpublicservicecontentandthoseservicesoperatingoutsidethepublicservicesystem.Itistothisinterplaythatwenowturn.
InvestmentinUK-originatedproductions
IntheUK,publicservicechannelsaccountformorethan90percentofallspendingonoriginalUKtelevisionprogramming.AsidefromSky(throughSkyNewsandtheArtsChannel),theDiscoveryNetworkandthesocialnetworkingsiteBebo(whichhasmadeasmallinvestmentinoriginalcontent),themajorityofcommercialmediaplayersintheUKinvestlittleifanythinginoriginalUKcontent.
However,overfourfifthsofrespondentstotheOfcomsurveyagreedthatitisimportantforthemaintelevisionchannelstoprovideprogrammesthataremadeintheUKandreflectlifeintheUK(Ofcom2009).Inaddition,thesuccessstoriesofthedigitalmediaworldundoubtedlygainvaluefrompublicservicecontent.
Forinstance,bothYouTubeandGoogleVideoprovideaccesstopublicservicecontent,createdandinvestedinbypublicserviceproviders.AquicksearchofYouTubeUKrevealsthatoriginalprogrammessuchasMidsomerMurders(ITV),TrialandRetribution(ITV),LarkRisetoCandleford(BBC1),Wallander(BBC1),Skins(Channel4)andtheITCrowd(Channel4)canbeseeninfullonYouTubeortheGooglevideoservice.
Equally,ahugesellingpointofsuperfastormobilebroadbandistheanytime,anywhere
accesstoonesfavouritemusic,filmsandtelevisionprogrammes.Inthiscontext,theriseofcopyrightinfringementhasbeenthesubjectofhugedebateoverthepastfewyears,andislikelytocontinueintothefuture.Leavingthisthornyissuetooneside,itremainsafactthatcontentproducedasaresultofinvestmentbyPSBproviders(alongsideotheraudio-visualcontent,ofcourse)isastrongandattractivereasonforpeopletopayforbroadbandsubscriptionservices,whethermobileorfixed.
Forexample,whileVirginTVscablecustomerswatchedmorethan500millionitemsofbroadbandcontentlastyear,theBBCsiPlayeraccountedforalmost20percentofprogrammeswatched(Sweney2009c).
Elsewhere,theBBCiPlayer,availableonseveralsmartphonesincludingtheiPhoneandthe
NokiaN97,hasbeenattributedwithboostingthesuccessofmobiletelevisionanddrivinguptake.BBCwebsitesarethemostvisitedafterGooglebyBritains5.7millionsmartphoneusers(Khan2009).
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Despitethepromiseofuser-generatedcontent,mostmediaconsumerscontinuetovaluequality,andthereforeexpensive,productions(Deloitte2009).User-generatedcontentclearlyhasaroletoplayinadigitalmediaageitcanempowerpeople,givecitizensspacetohavetheirsay,andencourageandstimulatecreativitybutitisneverlikelytoreplacea
demandforqualitydrama,comedy,newsandcurrentaffairs.
Conclusion
TheeconomicchallengesfacingtheUKmediaindustryshouldnotunderplayed.Theyresultinpartfromthecurrenteconomicclimate,butarealsoduetoanumberofsector-specificfactors,includingtechnologicalandbehaviouralchange.Themultipliereffectofallthesefactorscombinedmeansthatmanyplayerswithinthemediaindustryfaceextremelychallengingtimesintheyearstocome.
Certainelementsofthemediaindustrycontinuetogainrevenue,buttheincreaseinspendingonsubscriptionservicesisunlikelytohelpfree-to-airpublicservicecontent.
ThechallengesfacingPSBareacute,andshouldnotbeconsideredinisolationfromthetrendsaffectingtherestoftheindustry.AdeclineincontentinvestmentacrosstheboardislikelytomeanthatPSBinparticular,apluralityofPSBprovisionwillbecomemore,notless,important.
Clearly,difficultdecisionsneedtobemadetoensurethatlevelsofpublicservicearemaintainedandtheUKsmediacontinuestomeettheneedsanddesiresofUKcitizens.Inthefollowingsection,weoutlinethepolicycontextwithinwhichoptionsarebeingproposed,andwithinwhichdecisionswillultimatelybetaken.Wethengoontohighlightthepotentialofoneparticularsolutionindustryleviesasamechanismfortransferringincomefromsomericherpartsofthemediaintofundingpublicservicecontentthatbenefitseveryonecommercialplayers,PSBproviders,citizensandsocietyasawhole.
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PSBhasbeenthefocusofsignificantattentionoverthepastyearwithpolicyreviewstakingplaceinGovernment(BERR2009)andOfcom(2009).Thissectionbrieflysummarisesthese
andprovidesarecenthistoricalcontexttosetoutthepolicycontextwithinwhichdecisionsaboutthefutureofPSBarebeingmootedandwillbetaken.
Itfocusesonfourkeydocuments:
TheCommunicationsAct2003
Ofcomsfirstreviewofpublicservicebroadcasting(Ofcom2004)
Ofcomssecondreviewofpublicservicebroadcasting(Ofcom2009)
TheDigitalBritainreview(BERR2009)
Eachoftheseisdescribedbelow.
TheCommunicationsAct2003
In2003,theCommunicationsActestablishedaconvergedregulatorforaconvergingmediamarket,intheformoftheOfficeofCommunications(Ofcom).Thisbodybroughttogetherthefivepre-existingregulatorsOftel,theRadiocommunicationsAgency,theRadioAuthority,theIndependentTelevisionCommission(ITC),andtheBroadcastingStandardsCommission(BSC).
TheCommunicationsActsetoutaframeworkforcontinuedpublicinterventioninordertopreservePSBinachangingtechnologicalenvironment,anddefinedwhattypesofprogrammesshouldcontinuetobeproduced.Itmadesomemovestostrengthencommercialbroadcasters,byderegulatingownershiprestrictionsandreducingcontentregulation.However,itstatedthatallterrestrialbroadcasterscontinuedtobetiedtostructuralsupportfortheUKproductionsectorintermsofquotasforUKoriginalproduction,regionalproductionandindependentproduction.
TheActalsosetoutOfcomsdutiesinrelationtoPSB,providingtheregulatorwithtwostatutoryobjectives:
ToreviewhowwelltheexistingpublicservicebroadcastersaremeetingthepurposesofPSB
TomakerecommendationstomaintainandstrengthenthequalityofpublicservicebroadcastingintheUK.
OfcomsreviewsofpublicservicebroadcastingInordertomeetthestatutoryobjectivessetoutabove,OfcomhasundertakentworeviewsofPSBsincetheCommunicationsActcameintoforce,asdescribedbelow.
Thefirstreview
Thefirstreviewtookplacein2004,andlaunchedaseriesofconsultationsseekingtodefinetheprinciplesofPSB,fromwhichthefourprinciplesmentionedinSection1emerged.Thisfirstreviewmademanyargumentsthatarestillconsideredpertinenttoday:
ThatterrestrialPSBwasunlikelytosurvivedigitalswitchover,asthevalueoflicencesforITVandFivedeclineandthefundingmodelforChannel4becameincreasingly
threatenedThatwithoutaction,theBBCwaslikelytobecomethesoleproviderofPSB
ThatinnovationinthePSBsectorwaslackingparticularlywhenlookingathowterrestrialchannelshadrespondedtotechnologicalchanges.
4.Thecurrentpolicycontext
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Oneofitskeyproposalswastheideaofapublicservicepublisher:afundthatcouldbedistributedtocreatorsofpublicservicecontentonlinetoprovidecompetitiontotheBBCandspurinnovationinonlineenvironments(Ofcom2007b).
Thesecondreview
Ofcomisobligedtoundertakearevieweveryfiveyears,butitbroughtforwardthetimingofitssecondreviewbyayear,inresponsetotherapidnatureofchangewithinthemedialandscape.Assuch,thissecondreviewtookplaceagainstabackdropofgrowingurgency.Duringthereviewprocess,ITVthreatenedtosurrenderitsterrestriallicenceearly,inacampaigntohaveitspublicserviceobligationsreduced,whileChannel4madeincreasinglyalarmingpredictionsregardingitsfuture.
Inphase1ofthesecondreview,Ofcomoutlinedfourdifferentmodelsofapublicservicelandscape,asfollows:
Model1 Maintainingthestatusquo(withdecliningpublicserviceresponsibilitiesforcommercialPSBprovidersoradditionalfundingtosupportthosewhichremain
highpublicpriorities)
Model2 RelyingsolelyontheBBC
Model3 TheBBCandChannel4actingasthemainprovidersofPSB,withlimitedfundingavailableforotherservicesdeliveredbyalternativeproviders
Model4 AreducedBBC,withcontestablefundingforallotherpublicserviceprovision.
Thefirstofthesefourmodels,elsewherelabelledevolution,gainedmostsupportfromresponsestotheconsultation.However,thisoptionwouldrequirebridgingasignificantfundinggaptomaintaincurrentlevelsofPSBprovision.Ofcomsreviewoutlinedthefollowingfouroptionsforfunding:
Directpublicfunding,includingdirecttaxation
Openinguplicence-feefundingorBBCassetstootherproviders(oftenreferredtoastop-slicing)
Regulatoryassets,includingprivilegedaccesstospectrumandincreasedadvertisingminutage
Industrylevies.
Duringthereviewprocess,theBBCputforwarditsownproposals,whichincludedsharing
technologysuchasiPlayerandpremisesfortheproductionofregionalnews,andwaivingthefeesitcurrentlychargesforpublishingtelevisionlistingsproposalsthatitestimatedcouldbeworthupto120million(BBC2008).TheseproposalswerebackedbyITV,whichwas,atthetimeofwriting,intheprocessofdrawingupaprovisionalagreementwiththeBBCdesignedtomakeregionalnewsmuchmorecost-efficient(McNally2009).TheproposalswerealsocautiouslywelcomebyChannel4.However,itisunlikelythattheyalonewouldbesufficienttobridgethefundinggapandprovidethefundsrequiredforcontinuedprovisionofPSBatcurrentlevels.
OfcomconcludeditssecondreviewwiththepublicationofPhase3:Puttingtheviewerfirst(Ofcom2009).Themainrecommendationsandfindingstoemergefromthiscanbesummarisedasfollows:
TheBBCshouldremainthecornerstoneofpublicservicebroadcastingintheUK,andshouldtakeonaroleofpioneeringthedevelopmentandtake-upofcontentacrossnewplatforms.
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Theideaoftop-slicingtheBBCsfundingforprogrammesandservicesshouldnotbepursued.However,thelicencefeeswitchoversurplus,allocatedtotheBBCtodriveforwardtheprocessofdigitaltake-upandswitchover,continuestobeacredibleoptionforbridgingthefundinggap.
Toensureplurality,asecondorganisationshouldbeestablishedalongsidetheBBC.Thisorganisationshouldhaveasustainableeconomicmodelandwithastrongpublicserviceroleembeddedatitscore,andshouldbebasedonpartnerships,jointventuresorevenmergersbetweenChannel4andotherorganisationssuchasBBCWorldwideorFive.
ThereshouldbeanimmediatereductioninpublicserviceobligationsforITVbut,goingforward,commerciallyownednetworksshouldretainamodestbutimportantpublicservicecommitment.
Thereviewprocessisnowcomplete,butOfcomstillhassubstantialfurtherworktotakeforward,including:
FurtheranalysisoftheproposalsputforwardbytheBBCtoshareinfrastructureandexpertiseinordertobridgethefundinggap(so-calledpartnershipproposals)
ImmediateconsiderationsregardingexactlywhereandbywhatextentITVslicenceobligationswillbereduced
FurtherexplorationofthesuggestedpartnershipmodelsinvolvingChannel4.
Ofcomsreviewprocesswascomplicatedbythefactthatagovernmentreview,DigitalBritain,ransimultaneouslytoitsfinalstages,anditsinterimreportalsomaderecommendationsforthefutureofPSB,describedbelow.
TheDigitalBritainreviewTheDigitalBritainreviewwassetupbytheUKGovernmentinlate2008andsponsoredbytheDepartmentforCulture,MediaandSport(DCMS)andtheDepartmentforBusiness,EnterpriseandRegulatoryReform(BERR).ItisheadedbyformerchairofOfcom,LordCarter.
Itsoriginalremitincludedevaluatingtheimpactofdigitalisationandthenewtechnologiesonpublicservicebroadcastingassetsandpublicservicelicences,bothintheUKasawhole,andinthenationsandregions.Thiswouldbecarriedoutalongsideavastrangeofotheractivities,includingexaminingoptionsformaximisingparticipationandlevelsofbroadbandserviceacrosstheUK,internetsafetyandmedialiteracy,andintellectualpropertyandtheproblemofpiracyonline.
AninterimreportwaspublishedinlateJanuary2009,shortlyafterthepublicationofOfcomsstatementonthefutureofPSB(BERR2009).Thekeyinterimrecommendationsareasfollows:
Beforethepublicationofthefinalreport,thecaseshouldbeconsideredforpublicincentivestoenablefurthernext-generationbroadbanddeployment.Onesuggestioninvolvesusingthelicencefeeswitchoversurplusforthispurpose.
Beforethepublicationofthefinalreport,toestablishwhetheralong-termsustainablesecondpublicserviceorganisationcanbedefinedanddesigned.SuchanorganisationwoulddrawinpartonChannel4sassetsbuthaveare-castremit.Thereviewshouldbeginbylookingatpossiblepartnershipswithpublicsectorbodies
forexample,betweenChannel4andBBCWorldwidebutshouldnotruleoutotheroptionsorsolutions,includingpartnershipswithprivateorganisationssuchasFive.
Thefinalreportisdueinspring2009.
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Conclusion
Whilediscussionsanddebatehavetakensignificantstepsforwardinsofarasdefiniteoptionsforthefuturearenowproposedandbeingdebated,therestillremainsmuchtodecidewhenitcomestothefutureofPSB.WiththepublicationofOfcomssecondreviewandthe
interimreportfromtheDigitalBritainreview,governmentandParliamenthaveanumberofrecommendationsonwhichtobuild.Butultimatelyitislikelythatnewlegislationwillberequired,andtheprospectofanewCommunicationsActremains.
TheneedforadditionalfundstosupportthePSBsystemisclear,andtheoptionoftop-slicingtheBBClicencefeeislargelydiscounted:Ofcom,theGovernmentandtheConservativePartyhavealldeclaredthattheyareagainstthisoption.Alternativesolutionshavebeenproposed(mostnotably,partnershipsbetweenChannel4andFiveandChannel4andBBCWorldwiderespectively),buttheexactmannerinwhichthesewouldbridgethefundinggapremainsunresolved.Boththesepartnershipproposalsinvolveinherentrisks,anditisnotyetclearhowfareithercouldgotoprovidealong-termsolutiontothestructuralchangesthatpresentthegreatestchallengestoPSBintheUK.
However,thereisonesolutionthattosomeseemsobviousbutthathasattractedlittleattentionwithinthedebatesofar:industrylevies.Inthenextsectionwesetoutsomebriefmodelstoillustratehowsuchasolutioncouldwork.
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ThesizeofthefundinggapestimatedbyOfcomthatwillbepresentifwearetomaintaincurrentlevelsofPSBissignificant.WehaveseenthatthefinancialchallengesforPSBare
largeandlikelytoremainsoastechnologicalchangecontinuestooccurandcompetitioncontinuestogrow.Ifwearetomaintaincurrentlevelsofpublicservicebroadcasting,newfundsneedtobereleasedtobridgethisfundinggapfrom2012,butdebatecontinuesaboutwheretosourcethesefunds.Onepossiblesolutioncouldbetosetindustrylevies.
PublicopinionresearchconductedforthePSBreview(Ofcom2008)foundthatregulatoryassetsandleviesweregenerallyconsideredplausiblesolutions,withtheotheroptiondirecttaxationtheleastpopularoption.Leviesarenotnew:levyschemesexisteffectivelyinsomeformorotheracrossEuropeandinothercountriessuchasCanada.
Inthissectionweconsiderarangeoftypesoflevy,someofwhichareinuseinothercountries,alongsideothersthatwouldrepresentanewstyleofpublicservicefunding.Thesectionincorporatescasestudiesofothercountriesthatuselevysystemstofundpublicservicemediatoillustratehowsuchschemesworkinpractice.Italsopresentsaseriesoffigures,whichareintendedtodemonstratehowlevysystemscould,anddo,work.ThereareseveraldifferentpermutationsthatcouldbeputintopracticetoclosepartorallofthefundinggapidentifiedbyOfcom.
Theleviesconsideredherearethoseseton:
Recordingequipmentorblankmedia
Retransmission
Directmedia
Newmedia.
Eachoftheseisdescribedbelow.
Recordingequipmentorblankmedialevies
Inordertocompensatecopyrightholdersforcopiesmadewithinfair-useorfair-dealingguidelines(inotherwords,nottocompensateforillegalfile-sharingorcopying),manycountriesinEuropehaveintroducedsmallsalestaxesorleviesplacedonrecordingequipmentorblankmedia.
Thenewestpieceofequipmenttowhichsuchalevycouldbeaddedisapersonalvideorecorder(PVR),whichallowsconsumerstorecordprogrammesfromtelevisiontoadigital
harddrivetowatchatalaterdate(commonlycalledtime-shifting).
TheUKisoneofthefewcountriesinEuropenottohavesuchatax.
Estimatedyieldfromrecordingequipmentorblankmedialevies
WeuseddatafromtheUKExpenditureandFoodSurvey(EFSseeAppendix1foradetaileddescriptionoftheEFSdata)toestimatetotalannualexpenditureonthefollowingcategoriesofgoodsthatwouldbesuitablecandidatesfortheimpositionofalevy:recordingequipment,blankmediaandcomputerequipment.Thesearedetailedbelow.
Recordingequipment
ThecategoriesofrecordingequipmentonwhichinformationisavailableintheEFScomprise:
Videocassetterecorders(VCRs)DVDplayers/recorders
5.Thepotentialofindustrylevies
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DigitalTVdecoders
Audioequipment(forexample,CDplayersandrecordersandhard-diskaudiorecorders).
WiththeexceptionofVCRs,noneofthesecategoriesofgoodsis100percentmadeupofrecordingequipment,assomeDVDplayers,digitalTVdecodersandaudioequipmentitemshavenorecordingfunction.HowevertheEFSdoesnotcollectseparatedatafor(forexample)DVDplayersasopposedtoDVDrecorders,sothesearethemostdisaggregatedcategoriesthatwecanusewiththedataavailable.
Figure5.1,below,showsaggregatetotalexpenditurefortheyears200206inclusiveforeachoftheseitems,asestimatedusingtheEFSdata.(TheresultsfromtheEFSarereweightedandgrosseduptonationalaggregatelevelstomakethemcompatiblewiththeotherstatisticspresentedinthisreport.)
ExpenditureonVCRshasbeenonadownwardtrendsincethefirstdatapointusedhere,in2002/03.By2005theobsolescenceoftheVCRmeantthatexpenditureonnewVCRswasnegligible.ExpenditureondigitalTVdecodersisrelativelystable,atalowlevelofaround100millionperyear.ExpenditureonDVDplayersandrecordersroserapidlybetween2003(thefirstyeartheywererecordedasaseparateitemofexpenditureintheEFS)and2005,butthendroppedtoaround200millionin2006.Expenditureonaudioequipmenthasbeenontheincrease,particularlybetween2005and2006.
Theestimatedyieldfromalevyonrecordingequipmentdependsverymuchonwhatitemsareincludedinthelevy.Totalexpenditureonaudioandvideorecordingandplaybackhardwarehasbeenroughlystable,atbetween1.5billionand1.6billionperyear(inrealterms)since2004.Ifalevywereintroducedonthiswiderangeofhardware,a1percentlevyontheretailpricewouldraiseamaximumofaround16million.However,itwouldprobablybedifficulttosecurepoliticalacceptabilityforalevythiswidelydefined,becausemuchaudiohardware(andsomevideohardware,albeitadecreasingproportion)isplayback-
onlyinotherwords,ithasnorecordingfunctionality.Ifahardwarelevywereconfinedtovideoproducts(ratherthanaudioproducts)only,thepotentialyieldwouldbemuchlower.In2006,totalexpenditureonDVDrecordersand
0
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2002 2003 2004 2005 2006
Year
Estimatedtota
lexpenditure,
m(
April2008prices)
audio equipment VCR
digital TV decoders DVD player/recorder
total recording equipment
Figure5.1:
Estimated
aggregate
expenditureon
recording(and
playback)
equipment,UK,
200206
Source:ExpenditureandFoodSurvey
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players,digitalTVdecodersandVCRswasonlyaround285million.Hencea1percentlevyonvideohardwarealonewouldraiselessthan3millionifexpenditurecontinuedatthislevel.However,spendingonvideohardwarein2006wasaround40percentlowerthanin2004.Thiswasprobablyduetoseveralfactors,includingdecreasinghardwarecosts,
increaseduseofPCstorecordvideo(apointwereturntobelow),andincreaseduseofdigitalvideodownloads.Ifthesetrendscontinue,thefuturerevenuestreamfromalevyonvideorecordinghardwarelooksverylimited.
Blankmedia
InformationisavailableintheEFSonthefollowingtypesofblankmedia:
Audiomedia(forexample,CDs,minidisks,cassettesandvinyl)
DVDs(blankandpre-recorded)
Videocassettes(blankandpre-recorded).
Figure5.2,below,showscalculationsofaggregatespendingoneachtypeofblankmedia,derivedinthesamewayasforFigure5.1.
Figure5.2showsthatexpenditureonvideocassettesfellfrom2003,andby2005hadreachednegligiblelevels.ExpenditureonaudiomediaandonDVDmediahasfallenmoreslowly(dataforDVDmediaareavailablefromtheEFSonlyafter2004).Totallingexpenditureacrossallthreemediatypesfor2005and2006suggeststhatoverallexpenditurereducedfromaround3.2billionin2005to2.6billionin2006.Becauseoftheexpansioninthemarketforaudioandvideostorage,andrecordingdevicesthatusesolid-statemedia(suchasiPodsandsimilarMP3devices,hard-diskvideorecorders,andsystemsbasedaroundcomputers),itislikelythatthemarketforblankmediaofthetypesshowninFigure5.2willshrinkfurtherinfutureyears.
A1percentlevyonsalesofallmediacoveredintheEFS(bothblankandpre-recorded)wouldhaveraisedaround26millionin2006(inApril2008prices).However,thisisanoverestimateofthepotentialrevenuefromalevyonblankmedia,astheEFSfiguresincludebothblankandpre-recordedmedia.Moreover,itislikelythatsalesofblankmediawillfallinfutureyears,reducingtheyieldfromalevystillfurther.
0
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1000
1500
2000
2500
3000
3500
2002 2003 2004 2005 2006
Year
Estimatedtotalexpenditure
,m(
April2008prices)
audio media video cassettes
DVDs total media
Figure5.2:
Estimated
aggregate
expenditureon
recording(and
playback)
equipment,UK,
200206
Source:
ExpenditureandFoodSurvey
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Computerequipment
Giventhatpersonalcomputers(whetherlaptopordesktop)arebeingusedmoreandmorefordownloadingandviewingbroadcastmediacontentnowadays,wenowlookatfiguresfromtheEFSforexpenditureoncomputersandcomputercomponentsoverthelastfew
years.ThisdataisshowninFigure5.3,below.
Figure5.3showsthatin2005and2006,expenditureoncomputersandcomputercomponentsandperipheralsintheUKwasaround2.3billionincurrentprices.A1percentlevyoncomputerproductswouldraisearound23million.Oneadvantageofalevyoncomputersisthat,withtheincreasingimportanceofdigitaldownloadsasavehicleforthedeliveryofbroadcastmediacontent,spendingonPCsandothercomputersislikelytostayhighinrealtermsintheyearsforwardto2013,comparedwithsomeothercategoriesofexpenditureexaminedhere,whicharemorelikelytofall.However,noteverybodywhoownsacomputerwilluseitforviewingbroadcastvideoorlisteningtobroadcastaudio,sointhissenseitcouldbearguedthatacomputerlevywouldtargetthewrongconsumerstoalargeextent.
Whileblankmediataxeshaveprovedsuccessful,revenuesareindeclinealongwithsalesofrelevantequipment.Also,suchlevieshavetypicallybeenreservedforcompensatingrightsholders,anditisunlikelythatasystemwouldbeintroducedwithoutservingthissame
particularpurpose.ThisisespeciallythecasegiventhelevelofconcernregardingtheimpactofpiracyontheUKswidercreativeindustries(particularlythemusicindustry).
Nonetheless,consideringthecaseofthecopyrightindustries,therearesignsthattheGovernmentissomewhatsympathetictotheideaofcontributionstothecostofdealingwithpiracyfromthoseindustriesthatmanyhavearguedindirectlyenableorbenefitfromit(namely,internetserviceproviderssellingbroadbandsubscriptionsthatenabledownloadsofillegalcontent).TheinterimreportoftheDigitalBritainreviewhascommittedtoexploringthepossibilityfordistributorsandrightsholderstofundanewapproachtocivilenforcementofcopyrighttofacilitateandco-ordinateanindustryresponsetothischallenge(BERR2009).Thustheideaofindustry-wide(andindustry-funded)solutionstoproblemsthatthreatenthecontinuedwell-beingoftheUKscreativeindustries,whether
music,filmorPSB,shouldnotbeoutofthequestion.
Whileablankmedialevyisunlikelytodelivercontinuedfundingintothefuture,andifintroducedwouldmostlikelytobehypothecatedforcompensatingrightsholders,itprovides
0
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1000
1500
2000
2500
3000
3500
4000
4500
5000
2002 2003 2004 2005 2006
Year
Estimatedtotal
expenditure,
m(
April2008prices)
Figure5.3:
Estimated
aggregate
expenditureon
computer
equipment,UK,
200206
Source:ExpenditureandFoodSurvey
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anillustrationofaschemethathasexistedforsometimeinmanyothercountries.Italsointroducestheprincipleofindustrycontributingcollectivelytoaddressamarketfailure.
Retransmissionlevies
TheretransmissionofaudiovisualworksisgovernedbytheBernConvention,theEuropeanDirective93/83/EECandnationalcopyrightlaw.Anyentitythatretransmitsaprotectedworkinthecontextofitseconomicactivitymustobtaintherightsholdersauthorisationtodoso.TheEUDirectiveandnationallawsaddthatarightsholdermustcalluponacollectingsocietysservicesinsteadofexercisinghisorherrightsindividuallythroughretransmissionoperators(althoughintheUK,suchlawsdonotapply).AcrossEurope,thesystemisorganisedbyAGICOA,whichcollected99.3millioninretransmissionleviesin2007.
Retransmissionleviesareusedin30Europeancountries,andapplytocableandsatelliteplatformsthatbroadcastcopyrightmaterialforwhichnodirectfeeispaidtotheoriginalcontentprovider.AUKequivalentwouldbeSkyorVirginMedia,whichbroadcastmaterialcreatedbytheBBC,Channel4orITVbutdonotpayforthecontent.Accordingtothelatest
availabledata,Skyhas9.07millionsubscribers(Sky2008)andVirgin3.57million(VirginMedia2008).Basedonthesefigures,anannual5flat-ratelevypersubscriberwouldraisearound45millionfromSkyandaround18millionfromVirginatotalof63million.
Itisworthnotinginthiscontextthatsubscriptionincomehasexceededtelevisionadvertisingincomeforthepastfiveyears,andthatthegapbetweenthetworevenuescontinuestogrow.In2007,subscriptionrevenuegrewby6.4percent,to4.3billion.Meanwhile,TVadvertiserrevenuerose2.2percentto3.5billionover2007followinganequivalentdeclinein2006(Ofcom2008b).WhilesubscriptionservicesandpayTVmayseemtobenefitfromthedigitalswitchover,commercialfree-to-airPSBprovidersaresuffering.
Directmedialevies
Directmedialeviesarechargedonrevenuefromorganisationssuchasbroadcasters,cinemasorvideolabels.ThismodelisinplaceinFrance,whereCNC(CentreNationaldela
Cinmatographie,broadlyequivalenttoourUKFilmCouncil)isfinancedthroughleviesofthiskind.ThesystemprovidesCNCwitharound500millionayeartofundtheproductionofFrench-languagefilm.
Table5.1:Incomesecuredfromretransmissionleviesworldwide,inEuros
TheNetherlands 25,480,546 Slovenia 437,005
Germany 15,887,794 Slovakia 217,933
Belgium 14,122,751 Iceland 102,211
Ireland 6,191,116 Serbia 99,062
Poland 5,361,796 Bulgaria 95,687
Denmark 3,756,875 Lithuania 94,946Spain 3,000,000 Estonia 83,369
Switzerland 2,690,460 Latvia 60,104
Sweden 1,927,641 Bosnia 50,894
Romania 1,618,287 Macedonia 35,916
Portugal 1,138,012 Albania 15,750
Specialauthorsshare 961,091 SouthAfrica 15,000
Austria 716,370 Canada 11,500
Hungary 682,662 Ukraine 7,981
Luxembourg 533,079
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AlevysystemsuchasthisintheUKwouldworkonthesamejustificationoftheretransmissionlevysystem,butwouldbeataxonrevenueratherthansubscribers.Thetaxcouldapplytopay-TVrevenues,forexample.
Table5.2demonstratesthebroadcasterrevenuefroma1percentlevyonpayTVintheUK,
basedonassessmentsfromtheUKstwomajorpayTVbroadcasters.
Table5.2:Estimatedyieldfromleviesonbroadcasterrevenue
Broadcaster 2007revenue(m) Estimatedyieldfrom1%levy(m)
Satellite/cable:
BSkyB 4,551 45
VirginMedia 2,486 25(consumercabledivision)
Total 7,037 70
Countrycasestudy1:PublicservicebroadcastinginCanada
Canadaprovidesoneexampleofacountrythatusesindustryleviestofundpublicservicebroadcasting.
TheCanadianBroadcastingCorporation(CBC)/RadioCanadaisCanadasnationalpublicservicebroadcaster.Itoffers29servicesonradio,televisionandtheinternet.CBChasaspecificremitsetoutunderthe1991BroadcastingAct,andaparticularemphasisonbroadcastingservicescontainingcontentthatisdistinctivelyCanadian.CBCisfundedthroughacombinationofdirectgovernmentfunding,licencefeeandadvertising.
PublicservicebroadcastingisalsoprovidedbytheAboriginalPeoplesTelevisionNetwork(APTN)andtheCable
PublicAffairsChannel(CPAC),alongsideeducationalcontentbroadcastbyCanadianprovincialbroadcasterssuchasTVOntario.Fundingfortheseadditionalbroadcasterscomesfromavarietyofmechanisms,includingindustrylevies.CPACisfundedbywhatisineffectavoluntaryindustrylevy:coverageoftheCanadianparliamentiscarriedbycableoperatorsinCanada,butreceivesnogovernmentfunding.
In1996,CanadaestablishedtheCanadianTelevisionFund(CTF).Thisisapublicprivatepartnershipbetweensatelliteservices,cablecompaniesandtheGovernmentofCanadafocusedtowardscreatinghighquality,distinctiveprogrammingfortelevision.Inessence,theCTFservestoensurethateachelementoftheCanadianbroadcastingsystemcontribute[s]inanappropriatemannertothecreationandpresentationofCanadianprogramming(CanadianBroadcastingAct1991).
TheCTFreceivesitsfundingfromtwoprimarysources:theDepartmentofCanadianHeritage,andbroadcasting
distributionundertakings.Inaddition,theCTFreceivesrevenuefromrecoupmentonproductioninvestmentsmadethroughitsEquityInvestmentProgram.UnderlicenceagreementswiththeCanadianRadio-televisionandTelecommunicationsCommission,broadcastingdistributionundertakingsarerequiredtocontributeupto5percentoftheirgrossbroadcastingrevenuetoCanadianprogramming,with1.55percenttobecontributedtoproductionfunds,ofwhichatleast80percentmustbedirectedtotheCTF.
In2007/08,CTFproductionfundingcontributionstotalledCA$242million.Contributionsweremadeto466televisionproductionsamountingtomorethan2,200hoursoforiginalcontent(CTF2008).Overits12-yearhistory,theCTFhascontributed$2.7billiontosupportover5,400productions.Thishasresultedinthecreationofmorethan27,000hoursofhigh-qualitytelevisionforCanadians,andhastriggeredmorethan$9billioninproductionvolumeacrossthecountry.
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Newmedialevies
AsimilarsystemtodirectmedialeviescouldbeappliedtoUKnewmediaforexample,byapplyingataxtointernetserviceprovidersandmobilephoneoperators,sothatanadditionallevyispaidalongsidemonthlysubscriptionorasapercentageofrevenue.Suchleviesare
notinwideoperationacrosstheworld,largelyduetotherelativelynewnatureofsuchtechnologiesandthepolicyacrossnationsofencouragingtake-up,particularlyofbroadband.
However,asdigitalmediamovesintomaturity,thisoptionmaybereviewedmoreclosely.Forexample,inFrance,PresidentSarkozyhasannouncedtheremovalofadvertisingfrompublictelevisionchannels.Therevenuepreviouslyraisedthroughadvertisingrevenueistobereplacedbytaxescollectedfrominternet,mobilephoneandcommercialbroadcastingcompanies.SarkozysproposalsarethatthelevyontherevenuesoftelephoneandInternetoperatorswouldbe0.9percent,and3percentforprivatechannels.Thelevyisexpectedtomakeuptheshortfallof800milliononceadvertisingisphasedout.
Newmedialeviescouldeithertaketheformofper-subscriberlevies,thatis,asurchargepaidperpayinguseroftheservice,orofapercentagetaxonannualrevenue.Wesetoutincomegeneratedbasedonthreedifferentexamples:per-subscriberleviesonbroadbandinternetprovision,per-subscriberleviesonsubscriptionstomobilephoneswithinternetcapabilities,andleviesonannualrevenueofmobilephoneproviders.
Per-subscriberleviesonbroadbandinternetprovision
FiguresfromtheOfficeforNationalStatistics(ONS)forAugust2008suggestthataround14.2millionhouseholdsnowhavebroadbandaccessintheirhomes(ONS2008a).Basedonthesefigures,anannualflat-ratelevyof5persubscriberwouldraise71million.
Countrycasestudy2:PublicservicebroadcastinginFinland
Finlandsstate-ownedbroadcasterYleisradioOy(YLE)hasabroadpublicserviceremit,withastrongemphasisonnews,educationalandculturaloutput.Inform,YLElooselyresemblestheBBC,operatingfivemainnationaltelevisionchannels.Twoarebothanalogueanddigitalfree-to-air,whiletheotherthreearedigital-onlyfree-to-air.Italsooperatessevenmainanaloguestationsthatbroadcastawiderangeofpublicservicecontent.
Additionalpublicservicecontentisbroadcastbynineothercommercialradiobroadcasters.Thesehavespecificremitstocaterforclassicalmusic,jazzmusic,youthmusic,Finnishpopularmusic,religiousprogramming,Russianlanguageprogramming,andLaplandtourism.
Fundingforpublicservicebroadcastingisdrawnfromtwomainsources:adirectlicencefeepaidforbycitizens,
whichcontributesthelargestshare,andanindustrylevypaidbycommercialbroadcastersinFinland.Underthelatter,broadcastersareobligedtopayaprogressiveproportionoftheirrevenuefrombroadcastingoperations(advertisingandsponsorship).
Followinglegislationin2002,theindustrylevyisduetobephasedoutby2010,withanexpectationthatcommercialoperatorspayfortheintroductionofdigitalinfrastructure.However,itprovidesaninterestingexampleofaprogressiveindustrylevy,withthescaleoffeesasfollows:
Broadcasterturnover(in1,000) Licencefeeatlowerlimit(in1,000) Licencefeeoverlimit%levy
3,4005,000 0 5
5,0006,700 84 7.5
6,70010,100 210 10
10,100+ 547 12.25
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Per-subscriberleviesonmobilephoneinternetusage
The2008reportMobileLife,producedbyCarphoneWarehouseandresearchedbytheLondonSchoolofEconomics,suggestedthataround15percentofmobilephoneusershadusedtheirphonetowatchTVordownloadmusicorvideoclipsfromtheinternet.Giventhat
around95percentofpeopleintheUK(includingchildren)ownamobilephone,andthatthecurrentpopulationoftheUKisaround61million(ONS2008b),anannuallevyof5onmobilephonesthatareusedtoaccessmusic,videoortelevisionwouldraisearound43millionperyear.However,asuseofmobi