'The economics of broadcasting' - comment by Trust Vice Chairman Diane Coyle
The line-up consisted of leading scholars and practitioners from various fields of economics. This is a brief summary – the webcast of the afternoon’s discussions can be found here.
We first asked Helen Weeds, Joshua Gans and Dieter Helm to give us their views on the impact of digitisation on the business models likely to prevail in the future, including the current framework underpinning the BBC. We then invited Jonathan Levy, Mariana Mazzucato and Andrew Graham to reflect on the future role of Public Service Broadcasting in light of those changes.
Helen kicked off the debate by reminding us that by making it easier and cheaper to distribute content almost ubiquitously, digitalisation has called into question one traditional rationale for public service broadcasting, meaning that the public service broadcaster was able to serve the public with a range of programmes aimed to not only entertain but also educate and inform, in the context of limited choice.
That context has changed. However, Helen pointed out that as audience is split across more channels, investment in quality might fall. This dynamic might raise a trade-off between programme diversity (whereby rival broadcasters target niche audiences) and programme quality - given that programme budgets would shrink in response to smaller audiences. However, she also cautioned against drawing strong inferences given that different models can yield opposite results.
Most of all, though, she argued that the biggest challenge facing public service broadcasters will be to retain audience attention in a crowded digital media market. In this respect, Helen suggested that the PSB message be an integral part of popular programming; akin, perhaps, to product placement in advertising.
Joshua Gans introduced a new theory on how the traditional “water-cooler effect” of TV can be augmented by social networks. He observed that this new socially driven factor will keep audiences watching live TV, in particular, the kind of “non-storable” genres such as reality TV and premium sports events. This unexpected resilience in live TV watching will therefore support advertising-based commercial broadcasters.
He also explained that the ability to catch up online will allow long-running series to build up a growing loyal audience as the word-of-mouth – again empowered by social media – spreads and new viewers are no longer deterred from joining the (virtual) community just because they missed past episodes.
However, Joshua argued that these two trends might lead to a polarisation in the range of programmes produced by commercial broadcasters at the expense of those programmes genres that either lack a long narrative arc or do not, like live events, induce viewers to comment on social networks while watching. He mentioned sitcoms, documentaries and self-standing TV dramas as possible examples.
Dieter Helm forcefully pointed out that whilst digitisation is a disruptive technological improvement in how content is distributed, it hasn’t much changed the economics of content production, where costs are mainly incurred to produce the ‘first copy’. Accordingly, the case for public service broadcasting (PSB)intervention remains solid, given that the BBC is primarily about producing high quality content free at the point of use, even though new technologies make it possible to exclude those unwilling to pay for watching the content.
Dieter noted that universality of access inevitably entails the cross-subsidy of those programme genres that would be undersupplied by the market, as well as those viewers unwilling or unable to pay for content at the point of use. However, he justified this by noting that PSB content qualifies as a “public good”, like the provision of healthcare services by the NHS.
He cautioned against the risk of irremediably undermining UK citizens’ trust in these few public institutions, something that has taken decades to build and has proven extraordinarily resilient. This is particularly important given the tendency of media markets to concentrate in a few powerful hands, he said.
Nevertheless, Dieter welcomed the disruption brought by digitisation in content distribution and, in particular, the functional separation between content production and distribution. He suggested an analogy with the energy sector by depicting the future role of the BBC whose essential function is to select content for licence fee payers from a proliferation of channels and programmes. To this end, it will be essential that the BBC maintains sufficient scale in terms of overall audience.
Jonathan Levy, from the US Federal Communications Commission, explained how the type of intervention in broadcasting we have here in the UK would be unimaginable in the US. In the US system where the regulator is banned from directly setting minimum quality standard for broadcasting programmes, more weight is inevitably placed on viewers sifting through the proliferation of commercial content themselves. The requirement for consumers to make choices in the multichannel context makes the potential power of ‘gatekeepers’, concentrated media owners, a vital regulatory concern, he said.
He was doubtful about the future effectiveness of PSB content subsidy in light of the difficulty of grabbing viewers’ attention when plenty of commercial content is just a click away. This is particularly so, he claimed, for local content offerings, given that quality standards will be somewhat curtailed by the relatively small scale of local broadcasters.
Jonathan observed that the need to reach sufficient scale might give rise to a trade-off between plurality and financial viability, for example, with respect to a trend towards the concentration in content production and/or cooperation agreements among content producers. He finally warned that issues of exclusivity agreements between concentrated content providers and distribution platforms is likely to be the main anticompetitive concern for media and competition watchdogs in the future.
Mariana Mazzucato gave a refreshing presentation from someone who is an expert in innovation but not in the media and broadcasting sector. She argued for strategic state intervention as an engine for growth. By quoting prominent examples from the hi-tech and pharma industries, Mariana explained that state intervention is not only crucial in primary/basic research, but also at the following stages of applied research, which are closer to commercial exploitation.
Mariana also emphasised the tendency to use of pejorative terms when describing the public sector, either in terms of ‘bureaucracy’ or in terms of confining it to addressing ‘market failure’. She stressed that for a creative institution such as the BBC it will be important to free itself from the shackles of this “discursive” restriction in order to attract the talented and creative staff which are essential for its prosperity.
Finally, Andrew Graham pondered on the importance of civic institutions in modern economies, stressing that it is institutions that shape the way people operate in markets. The supposed contrast between the public sector and the market is therefore a false dichotomy. He urged that proper attention be paid to the importance of the BBC as a cultural and civic institution and warned that it would be enormously damaging to undermine this institutional role. The seminar ended with a lecture by Gavyn Davies, the former chairman of the BBC Governors. The link to Gavyn’s lecture, his first public statement on the BBC since then, can be found here.
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