Thursday 18 January 2007
Check against delivery
Later today as you know we're expecting Tessa Jowell to make a statement in the Commons about the licence-fee. It's certainly not for me to try to pre-empt that statement or to predict what she might say or the detail of the announcement.
Nonetheless, the series of authoritative briefings we've seen since before Christmas means that everyone has a pretty good idea of the proposed outline of the settlement. And although I can't and won't have anything to say this morning on some of the complex but important issues around, for example, the Government's targeted help scheme, and the BBC's borrowing requirments, I think it is reasonable to reflect on what the expected settlement as a whole means for the BBC and to relate that to the bigger theme of this summit.
The BBC is part – an important part, but only a part – of the wider creative industries. Our investment, through the licence-fee, in creative content is part of a wider pattern of investment. And I want this morning to place the BBC within that bigger story.
We all face challenges in finding enough money to create the fantastic content that our customers and audiences want. Many of you because digital disruption is challenging business models that have stood you in good stead for years – or simply because, as in the case of film, funding has always been difficult. The BBC because, after seven years of funding that has grown in real terms, we now face not just a tight settlement but daunting investment challenges in distribution, infrastructure and technology that risk diverting money away from content creation.
I'll suggest that these challenges call for some new thinking about how we produce content and how we create value. That, although of course a concentration on cost-control and productivity must be part of the story, we should also look hard at how multi-platform, 360 content creation and distribution can exploit the underlying value in content both more widely across platforms and more systematically over time – and at how it can drive new revenue streams. I'll suggest that technology is pulling down the barriers to entry for British content, British ideas and British formats in markets around the world. That in fact the disruption of traditional media offers us as many opportunities as dangers.
The irony is that, despite constraints and uncertainties in funding, this is a great time for British creative content. Strong in music, strong – very strong indeed over the past year – in British film. Both music and film are critically important to the BBC, by the way. Our commitment to, and our partnering of, the British music industry is pretty obvious. But we are also committed to investing in and providing a great showcase for British film and, despite the tightness of the proposed licence-fee settlement, we still expect to increase our annual investment in making and showing British movies.
I hope by the way that colleagues from the film and music industries will forgive me if I focus mainly on broadcasting this morning, though some at least of the themes may strike a chord with you as well.
I believe that the underlying creative health of British TV, radio and web content is also strong. At BBC Television we had a strong Christmas at the end of a successful year – drama and landmark documentary were as good as they have ever been. BBC Radio, our web and interactive services and BBC Worldwide, our commercial arm, have all been breaking records. International interest in our content, our formats and our approach to the web and on-demand is more intense than at any time in our history. And we have a compelling plan – Creative Future – for how to take the BBC from where it is today into that very different digital future.
The licence fee
Our challenge is how to deliver that plan – not half a plan, not a gesture – but an exciting, transformational plan in a funding environment which is much more constrained than we would have liked.
Let's begin with the licence-fee. And there are several points to make clear at the outset.
First, the licence-fee gives the BBC certainty of funding which no commercial rival enjoys. We also need to remember that while it represents good value in terms of the services it pays for, and enjoys widespread support, it is a burden for many households in this country. At any level, it is a privilege for the BBC to receive, a privilege which brings with it many responsibilities – above all, the responsibility to deliver the best possible services to our licence fee payers.
Secondly, it is of course for the Government to decide on the level of the licence-fee. We know, of course, what we could do with additional funding, the creative benefits it could bring not just to the BBC but to the creative industries as a whole, and to the listening and viewing public. But it's for the Government to put that in a wider context: the context of inflation, broader public sector funding, and so on.
Third, it is important and to be welcomed that the Government looks like opting for a six-year settlement. During the course of the autumn, there was talk of a settlement as short as four years. That would have made the planning, not just of the BBC's existing and new services but of digital switchover difficult and fraught with risk. It would also have sat oddly with the clear ten-year mission set out in the White Paper, Charter and Agreement. It would have made investments like Salford difficult or impossible to enter into. The new BBC Trust will of course make its own response once the Secretary of State has announced the settlement. But I can say on behalf of the management of the BBC that, if it is six years, the duration of the settlement makes good sense.
Having said all of that, the quantum of the settlement remains a real disappointment.
Given our vision of the future, a vision broadly endorsed by the Government in its White Paper; given the Government's own requirements and ambitions, especially those around switchover; and not wanting our existing services to the public to be squeezed or diminished as we invested in the future; we‘d argued for a licence-fee that would grow modestly in real terms. Independent research commissioned by DCMS suggested that the British public were willing to pay for such a settlement.
Instead the Government has opted for a settlement which means – depending on the outturn of inflation over the next six years – the price of a licence-fee will sit somewhere below retail price inflation, perhaps half a per cent.
It's true that we and the Government expect the number of households to grow, by plus or minus a per cent per year over the period, so the actual licence-fee take the BBC receives will be slightly higher in real terms. But we expect this extra revenue to be more than used up paying for industry switchover costs as well as for the Government's targeted help scheme: so the amount available for content and services for audiences will, we expect, fall each year in real terms.
So what does all this mean? A BBC which still receives substantial, guaranteed income – more than £20billion over the next six years. Financial security which is denied to any other media player. But a big gap – a gap of around two billion pounds over the six years – between what we believed we need to deliver the vision and the funding that will actually be available.
That's not a gap that any organisation can swallow comfortably. So how can it be reduced? Well, there are three basic ways, and none of them is easy.
First, we can simply cross out many of the proposed new investments – not do them at all, or do them later or more modestly than we originally planned.
Second, we can increase our own so-called "self-help" targets. Try to reduce licence-fee evasion further. Boost commercial revenues. Increase productivity targets. Drive even further efficiencies.
Third, we can look at the current mix and spread of resources around the BBC and consider moving money from what we do now to some of the new ideas.
Over the coming weeks and across the BBC, we'll be looking at all three ways of closing the gap. Some of the initial work – and choices – will be for me and the Executive Board but some of it will be for individual parts of the organisation. In News, say, or Vision the teams have great ideas for the future but also a responsibility to maintain the best possible services for existing audiences: what balance do they believe we should strike? There may be, there probably will be, different balances, different judgements in different parts of the BBC. We need to listen to the perspectives and priorities of each team.
The process will then move to the new BBC Trust. Its our job to weigh the options and to make recommendations, but it's for the Trust to decide on the BBC's strategy and ultimate priorities. And their test will be: what delivers the maximum public value?
That's why – although I know I'll be asked the question a hundred times after the announcement – this isn't the right moment to say: this is the list of what we'll do, this is the list of what we won't. That judgement-call is for the Trust – once they have all the facts and analysis in front of them.
There are a few observations I can make though. First that there are some new commitments we will definitely have to meet. The BBC's own digital switchover costs, for instance.
Salford too should go ahead. Given the deal we have struck and what we now know about the costs of the "do-nothing" option in London, the case for Salford is economically as well as creatively compelling. The BBC Governors always believed in the vision. In December they approved the business case and decided that it represented good value for money, subject to affordability and successful commercial negotiations. The BBC Trust has taken careful note of this view and I expect them to make their position clear after the Secretary of State's announcement later today.
My second observation is that our room for manoeuvre on productivity-driven efficiency savings is narrow. As people inside the BBC know, as well as those who study it closely, we've taken a pretty aggressive approach to productivity and value for money over the past two-and-a-half years and we believe we compare favourably with a broad range of public and private sector benchmarks. There have been significant reductions in programme budgets, big waves of redundancies, substantial outsourcing of infrastructure and support services. Although we are already committed to significant further efficiencies beyond the current three-year programme, there is a real limit to how much further we can go beyond them without damaging the quality of our output and placing an intolerable burden on everyone who makes it and supports it.
So we shouldn't try to close the gap by imagining that we can set universal heroic productivity targets for every service. We need to make clear-cut choices – both among the potential new investments and among our existing commitments. And we need to do it pretty quickly.
My final observation is a reminder that, although it is bursting with new ideas, Creative Future was never fundamentally reliant on spending new money. The idea that the new media is something you build in a little shed alongside the enormous factory of present media – well that was the way we used to think about the web and interactive TV in the Nineties. Creative Future is about flexing, adapting, liberating all content but above all the content we already make. It's about unlocking the full value of our existing investment. Of course, the more money you have the more you can do, but a tight licence-fee settlement doesn't make the thinking behind Creative Future impossible. It makes it vital.
The economics of content
But let's step back now from the BBC and look at the creative industries as a whole and examine what the constraints and uncertainties about revenue that nearly all of us face might mean for future content creation in this country.
The first point is one that pretty much everyone signs up to in theory, though not always in practice. It is that long-term success for all of us depends on adequate investment in development, talent and production.
Whether in the commercial environment, the subsidised theatre or the BBC, what successive generations of creative leaders and managers have always feared most is a downward spiral of falling creative investment, falling audience engagement, falling institutional confidence, falling revenue – and therefore further cuts in creative investment.
This is why I'm sure Michael Grade is right to emphasise that, despite ITV's recent difficulties in the advertising market, a strong programme budget is an essential prerequisite to a creative revival at the network. We can all agree about that.
But we also all have to accept that the dynamics of the content market are changing rapidly – and in ways which by no means always favour the broadcaster.
Throughout the Seventies, Eighties and Nineties, for instance, acquired US programming was a cash cow in particular for Channel 4. It was typically very cheap to acquire, the market was limited and – at least until the Nineties – not particularly competitive and yet it drove very valuable young and upmarket commercial impacts. Hit shows – ER, Friends, The X-Files – were expensive to renew but very seldom to the point where they were anything less than highly profitable.
But take the recent renewal of Lost and Desperate Housewives. The quality is still there, the potential to build a brand. But the margin?
You can see the same effect today in competition for key talent, especially in entertainment, and even in strong formats. In recent months, some broadcasters have been so desperate for more-or-less instant hits that, rather than the relatively economical but time-consuming business of developing projects from scratch, they've been out in the market trying to acquire programmes which are on the eve of production.
People who are not close to the industry might well assume that the BBC is immune from these effects. After all, we're not competing for the most valuable commercial impacts, for instance – every viewer or listener is worth exactly the same to us economically as every other one.
As a result, the BBC can sometimes largely sit out the inflationary dance. There was a critical moment in early 2002 when BBC Television decided to let The Simpsons go – in the event to Channel 4. A rather bitter-sweet moment for me, well mainly rather sweet actually, since I made the move from BBC Television to Channel 4 myself more or less simultaneously with Homer.
The prosaic truth is that, whereas a high price for The Simpsons made good business sense for Channel 4, the price had got beyond what BBC Two could justify. Since then we've continued to compete for some titles and for some feature films, particularly for series or movies which we believe will bring something fresh or interesting to bear on one of our networks, but we're seldom if ever in the company of the acquisition high-rollers nowadays.
The overwhelming majority of licence-fee investment should go into new British content. And of course what's interesting about today's content market is that an original production like Torchwood is a fair bit cheaper to bring to the screen than Lost and delivers a real return to the UK's creative industries.
But there are plenty of genres where the BBC is as prey to inflationary pressures as any other broadcaster. When you seek to renew an entertainment star's contract, or a set of sports rights – not to poach a new star or a new set of rights but simply to retain someone or something that your audience already expect of you – you inevitably run up against your rivals' sales departments' estimates. The benchmark is not what you paid historically but the level at which other broadcasters believe they could monetise the talent or the rights through ad sales or subscription. And these are genres where we know that licence-payers are very clear that they continue to want the BBC to maintain a large position.
We can't be against these developments in principle of course: this is the market opening up and working. But we and the outside world do have to recognise that in many genres, we are as caught up in the spiral as everyone else.
But there's another important point to make. Quite apart from inflationary pressures, the more crowded the media market becomes the more broadcasters will need to find pieces that really stand out through their scale of ambition and their production value. The Planet Earths, the Jane Eyres. The big pieces need to get bigger. And in drama and comedy especially, but in all genres, they need to get more original. One of the reasons that Lost and Desperate Housewives were break-out hits after an indifferent few years at the LA screenings was because they both struck new notes. The same is true of Extras, Dragons' Den, Life On Mars.
Broadcasters who fail to back big ideas and take big chances risk anonymity which is a dangerous quality in this environment. Nor can they rely as much as they did in the 1990s on assiduous copy-catting. Public taste is moving very quickly now and – with a few, not particularly, honourable exceptions – most knock-offs fail to punch through.
A greater focus on value
Both inflation and the need for scale and impact call for a different, more extreme curve between the lowest budgets and the highest. Across the broadcasting sector, I see not a pattern of disinvestment but a much greater focus on value and a much closer match between the budget of a given project and the likely actual value and impact of a given piece. The same underlying themes will probably be played out in music and film as well.
The BBC's role and responsibility in many of the less or non-profitable genres will also grow – because cross subsidy will be harder or impossible for the other PSBs - though here too there will have to be a greater concentration on value if the BBC itself is to have the funds it needs to invest in enough of the really big projects. That's one of the difficult balancing-acts the BBC has to pull off: it has a responsibility to diversity and range of genres, but it is also the most important of a very small number of UK broadcasters who have the means and rationale to invest in very large scale pieces – the pieces which, apart from anything else, bring this country's talent and creative industries to the attention of the rest of the world.
Part of the story about value is about cost and productivity, though we need to approach that agenda with more subtlety than in the Eighties and Nineties. Then the model tended to be an equal slice off everything. From what I've said, it should be clear that I believe that the budgets and production value of some content will have to grow over the period. Elsewhere, rather than salami-slicing evenly and arbitrarily, without any real sense about how the savings are to be made, we need to reconceive both what we're trying to make and how we're trying to make it. Technology helps, though sometimes it can be expensive to start with. And volume can also play a role – in other words, scale and dependability in commissioning whether of indie or in-house so that budgets can be planned and spread, talent retained, development supported.
Wherever you work in the UK content sector, this agenda isn't going to go away. Exceptional pieces may attract exceptional budgets and, because of that, it will still be possible to make a few pieces in the same old way. But not most: and for many, the choice will be between figuring out new ways of making them or not making them at all.
Making Creative Future a reality
But it's incredibly important that we don't define "value" solely around productivity or cost-cutting. One of the fundamental lessons we learned from Creative Future was the value you can grow, the audiences you can build, when you think about projects not just in terms of single linear broadcast windows but across different platforms and media.
It will be much harder to justify very high budgets for content that only gets a single outing on a linear channel. But that's no longer the right way to think about content commissioning. In future major projects should extend not just across TV, the web, radio, and mobile but through multiple windows across time and across different business models.
So: Russell T Davies, Julie Gardner and BBC Wales build a brilliant sci-fi production factory to deliver Doctor Who. And when I say "factory" I don't just mean physical production, I mean ideas, development, brilliant scripts, design as well. A complete creative operation.
The factory of course makes even better creative and economic sense when you add Torchwood and The Sarah Jane Adventures. Doctor Who plays out across BBC and UKTV channels. The Torchwood website is not just commissioned on day one but is out there before the TV premiere. There's a coherent plan in place for the whole audience relationship with the content almost from the start.
Now clearly this kind of 360 degree exploitation could be creatively limiting or tawdry. Commercial priorities could distort the original commissioning intention. But it really hasn't been in this case and that's because we've had totally committed creative leaders at the centre of decision-making at every stage of the process. You'd have to talk to them directly to hear how they've found it, but my sense is that the sheer scale of the possibilities, the potential to link different titles and different platforms has been creatively inspiring and liberating.
So the Creative Future vision we have of multi-platform commissioning and distribution of media, the potential of on-demand applications like the BBC's proposed iPlayer to create new windows and new opportunities for audiences to find and enjoy content: this is a way of unlocking new value, and in commercial windows, new revenue streams from content.