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TheFundingofPublicServiceMedia-AMatterofValueandValues.pdf
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The Funding of Public Service Media: A Matter of Value and Values Gregory F. Lowe a & Christian E. Berg b a University of Tampere , Finland b Copenhagen Business School , Denmark Published online: 28 May 2013.
To cite this article: Gregory F. Lowe & Christian E. Berg (2013) The Funding of Public Service Media: A Matter of Value and Values, International Journal on Media Management, 15:2, 77-97, DOI: 10.1080/14241277.2012.748663
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The International Journal on Media Management, 15:77–97, 2013 Copyright © Institute for Media and Communications Management ISSN: 1424-1277 print/1424-1250 online DOI: 10.1080/14241277.2012.748663
RESEARCH ARTICLES
The Funding of Public Service Media: A Matter of Value and Values
GREGORY F. LOWE University of Tampere, Finland
CHRISTIAN E. BERG Copenhagen Business School, Denmark
This article provides an overview of the financial situation for pub- lic service broadcasting in European Union member countries, situating concerns about the sector’s economic value-for-money in a broader discourse about contention over socio-political values. The authors argue that debate about funding public broadcasting is not only about funding; it is about wider issues only partly rooted in the current economic malaise. An underlying dynamic is keyed to the digitalization of the media system at large, co-related with growing complexity in media competition, fuelling debate over the complexion of media systems in the 21st century as a consequence of greater instability and higher uncertainty. A model describes 4 modes of funding for media and assesses operational implica- tions for each. This work elaborates on earlier research questioning the premise that big, rich countries are suitable models for small countries with far less wealth and much smaller populations, argu- ing that, by and large, these are not suitable models (Lowe & Nissen, 2011). The data and argumentation are relevant to the discussion about the future of the European dual broadcasting system and, more broadly, for consideration of implications in how media are understood and organized and the purposes for which media are mandated.
Address correspondence to Gregory F. Lowe, School of Communication, Media, & Theater, University of Tampere, Kalevantie 4, FI -33014, Finland. E-mail: [email protected]
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DEBATE OVER VALUE AND VALUES IN PUBLIC SERVICE MEDIA
Today, public service broadcasters (PSBs) are involved in much more than radio and television. In the European Union (EU), by mandate or out of competitive interest, these organizations have taken a pioneering role in developing nonlinear services that are widely used (European Broadcasting Union [EBU], 2007). In recent years, it has become increasingly common to refer to the sector as public service media (PSM). The transition from traditional broadcasters to contemporary multimedia firms is complex, with many dimensions that all require change (Lowe & Bardoel, 2007).
For the past 20 years, European PSBs have engaged in direct competi- tion with commercial broadcasters and has generally coped with challenges they have posed in political markets, usually driven by lobbies, such as the Association for Commercial Television1, and focused in complaints filed with the European Commission (EC; see Kleist & Scheuer, 2006). What is new is the growing conflict with newspaper companies that are becoming direct rivals as they pursue success in online markets. This is a prickly problem because newspaper publishers have domestic muscle and own a platform with influence on political discourse and popular perception.
Much of the dispute over PSM is framed by economic and financial considerations, with the first keyed to defining systemic conditions and the later to stipulating more precise operational parameters. Although we do not discount the vital importance of financial concerns, indeed this article emphasizes how important that is today; the underlying issues are as much about matters of principle and, therefore, possess a normative character. This underscores the importance of making an economic case to legitimate PSM, although with the caveat that this alone is insufficient.
In this article, we assess four modes of financing for media firms and assess empirical data about the condition of PSM financing in the EU. We take a closer look at the controversy in Finland over the failed effort to approve the Yle2 Media fee as an example of why and how debate about funding is not only about economic value, but also socio-political values. We conclude with a discussion about the implications of various approaches in funding with regard to content priorities.
WHY THE MODE OF FUNDING MATTERS
Debate about the proper role and functions of PSM is one dimension of a wider debate in Europe and in the United States about determining the values that should steer political governance for the public sector generally (i.e., in education, health care, etc.). This is a normative debate because it is about what should be done and how things ought to be handled.
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In media policy, such debate focuses on a long-standing contention about whether to entrust system dynamics to the “free market” with its competitive orientation or to adopt a “social responsibility” approach that is interventionist, but balanced with an “arm’s length” principle. Since 2008, this debate has become quite heated in the context of economic recession and its impact on the newspaper industry, especially. Debate is aggravated by the worsening state of public finances nearly everywhere.
The pressure on PSM operators, and eroding support for the scale of operations and strength of market position, has weakened acceptance of the ideal that one sector3 of any media system should primarily serve the inter- ests of civil society (Christians, Glasser, McQuail, Nordenstreng, & White, 2009), rather than markets or governments. To ensure that happens in prac- tice, the sector must be guarded against undue influence from commercial imperatives and political manipulation (McQuail, 2010). In experience the length of the arm has always been a matter of degrees.
Since the European introduction of commercial broadcasting in the 1980s and 1990s, with the competition it has cultivated, there have been con- vincing claims that PSM has sacrificed too much of the distinctiveness that is essential to its legitimacy (Nissen, 2006). Competition has become more com- plicated: for audience attention, political support, financial resources, talent, and content rights (Picard, 2011; Vogel, 2007). Moreover, much of the rub over PSM causing market distortion is rooted in complaints from the private sector about commercial financing for organizations that are also funded by public money, to varying degrees.
State control is a complicated issue, as well. Indirect political control of PSBs has been characteristic through administrative boards nominated by national parliaments with oversight responsibility. These boards are forbid- den to interfere with content, but have a key role in nominating executive managers. This has implications not only in countries such as Italy where the corrosive influence of the former Berlusconi government has been sig- nificant (Pavli, 2010), but less direct if still significant impact in countries with a tradition of media independence. For example, reading between the lines in a book published by the former Director General of DR Demark, Mr. Christian Nissen (2007), it is apparent that he was sacked for mainly political reasons in 2004, although the public explanation was based on economic issues. Similarly, there is little doubt that in 2010, the hallitus (board) for Yle in Finland declined to renew Mr. Mikael Junger’s tenure as Director General for reasons that were at least partly political (Ala-Fossi & Hujanen, 2010). Political interference in public sector media has long been problematic in central Europe given Soviet legacies (Jakubowicz & Paletz, 2006), and in parts of southern Europe as a consequence of earlier military dictatorships.
The potential consequences of changes in media policy and perfor- mance are important because PSM is the primary domestic supplier of audiovisual content in many countries. These institutions are often the only
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wholly owned and operated domestic broadcasters (Lowe & Nissen, 2011). The private commercial sector is increasingly transnational as a consequence of deregulation, consolidation, convergence, and foreign investment. The sta- bility of PSM matters because the consequences are not only economic, but also socio-cultural. This is not to say that economic interests and commercial development are unimportant. However, it means that decisions about fund- ing PSM are not only about funding, which is unfortunately how the issue is rhetorically framed (see Donders & Moe, 2011).
The situation was succinctly formulated in a report from the European Parliament’s (2010) Committee on Culture and Education in a motion titled On Public Service Broadcasting in the Digital Era: The Future of the Dual System. The motion reminds member states of agreed commitments to “pro- vide appropriate and stable funding” for PSBs so these organizations can fulfil “their remits, [and] to guarantee their political and economic indepen- dence” (clause 18). It calls on Members States to “adequately address the issue of underfunding” (clause 24). The Explanatory Statement concluded:
Public broadcasting in some Member States are confronted with funda- mental and life-threatening problems, both financially and politically . . .
[such that] public media, and by consequence the dual system in some Member States, are at the brink of existence. EU audiovisual policy can- not be restricted to intervening in cases of overcompensation. If we are serious about our commitment to the dual system, we have to consider both the lack of financing and of editorial and managerial independence of PSBs.” (para. 3)
The implication is that funding and independence go hand in hand, that changes in how PSB companies are funded, and the degrees to which they are funded must impact priorities.
FOUR MODES OF MEDIA FINANCE
For analytical purposes, we categorize four modes of receipt for funding media (see Figure 1): license fees, direct subsidy, subscription or pay-per- view, and advertising. These are organized in four dimensions: (a) the transparency of the receipt (unambiguous or ambiguous), (b) the character of payment (voluntary or involuntary), (c) the orientation of address (citizen or consumer), and (d) the purview of collection (collective or individual).
Only license fee payments and subscription or pay-per services are transparent modes of funding. In countries with advertising-supported media or direct subsidy4—defined here as allocation from general tax revenue as in the Netherlands and Spain—people cannot easily know how much their media system costs. Everyone pays for commercial media because some
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Four modes of funding with implications
Involuntary
LICENSE FEE DIRECT SUBSIDY
Collective
ADVERTISING
SUBSCRIPTION
& PAY-PER
Ambiguous Unambiguous
Individual
RECEIPT
Voluntary
Citizen-
Society
ORIENTATION
Consumer-
Market
FIGURE 1 Four modes of funding with implications.
proportion of product pricing is the cost for marketing. The proportion varies, of course. In a discussion with Karl Erik Gustafsson5, the Swedish media economist, he observed that for luxury goods, a very high percentage of the price is for marketing, whereas for groceries, the proportion may only be 2% to 3%, but that adds up given the volume of groceries purchased in the course of one year. In comparison, a licence fee payer knows exactly how much PSM costs. The same holds for subscribers to commercial ser- vices that are not free-to-air. A subscriber knows the cost for Canal Digital, for example. The receipt is unambiguous.
The chart also illustrates that of these four modes, only subscription and pay-per-view are voluntary.6 Most forms are involuntary. The government sets the amount of license fees or direct subsidy, and companies fold the cost for advertising into the price of their products. Not paying constitutes theft in the first instance and tax fraud in the second. In the United Kingdom, non- payment of the annual BBC licence fee is taken seriously (Revoir & Doyle, 2012).
Third, the model illustrates that only subscription fees and per-per-view are individually levied. Most modes rely on collective financing, reflecting the mass media heritage that is essential for understanding both the pecu- liarities and potentiality of broadcast media. Thus, three of these modes are involuntary and collectively financed.
Finally, Figure 1 illustrates an ideal orientation of address associated with these modes because each implies an audience identity. Funding by public money disposes the organization to privilege citizenship, whereas the other two privilege a consumer orientation. The payment of taxes implies rights: Every citizen paying the tax has a right to expect the same quantity and qual- ity of service as anyone else paying that tax. A commercially financed system has a different premise. The company is obliged to produce a margin, and this requires an orientation that is profit-centered and governed by demand
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in differentiated segments of varying economic value to the firm.7 The mode of receipt has implications for (a) how the public understands media, (b) how media understand the public, and (c) how evident is the cost of media for individuals as well as societies.
IS PSM FAIR VALUE FOR THE MONEY?
To answer this essential question, we investigate two aspects of economic cost for PSM. We first look at the total revenue spent on these companies in respective EU member countries over a 10-year period (1997–2010) and then at the per capita costs in the same timeframe.
As we see in Table 1, the total revenue for PSBs depends on popula- tion of and gross domestic product (GDP). To keep Table 1 from growing unwieldy, we only present data for the even-numbered years. The expendi- ture on PSM in big countries with rich markets is much greater than is typical. The majority bear no resemblance to the situation in Germany and the United
TABLE 1 Total Annual Revenue for Public Service TV in the European Union in Millions of Euros
Country 1998 2000 2002 2004 2006 2008 2010
Austria 351 370 389 445 463 504 581 Belgium 140 198 390 410 449 499 520 Cyprus 22 23 25 21 27 24 39 Czech Republic 83 83 95 68 145 209 312 Denmark 377 418 447 411 421 452 466 Estonia 5 7 9 13 16 19 24 Finland 260 297 299 322 346 361 398 France 1,160 1,424 1,654 1,826 2,039 2,164 3,523 Germany 5,515 5,613 6,371 6,472 6,889 6,950 7,618 Greece 190 196 203 239 287 340 352 Hungary 41 63 83 134 87 95 144 Ireland 80 84 114 166 183 192 196 Italy 1,179 1,311 1,383 1,474 1,509 1,619 1,772 Latvia 6 7 7 7 9 8 16 Lithuania 10 11 13 12 12 13 10 Netherlands 388 366 459 455 404 593 818 Norway 313 360 426 413 445 495 581 Poland 115 118 141 118 139 151 106 Portugal 0 0 91 149 162 228 231 Slovakia 33 28 29 36 39 42 91 Slovenia 62 67 70 76 80 86 95 Spain 74 74 73 78 575 550 1, 849 Sweden 363 383 382 411 402 401 732 Switzerland 621 681 714 711 709 744 775 United Kingdom 3,270 3,987 4,307 4,406 4,836 4,471 4,584
Note. Council of Europe Screen Digest (2009), for the years 1998–2008; European Audiovisual Observatory (2011), for the year 2010.
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Kingdom. France and Italy are also bigger and richer than most, but Germany is a class unto itself, and Britain is also an outlier. German PSB operators (ARD, ZDF, and regional stations together) had about C7.6 billion in total revenue in 2010. In the United Kingdom, the BBC had about C4.5 billion. For that reason, neither country is a useful model for most other countries.
This infeasibility becomes apparent in a comparison with the situation in Latvia, at the relative bottom, where PSM received about C16 million in 2010. In Finland, a comparatively rich country in Western Europe, Yle had revenue of about C398 million in 2010 (i.e., much less than 10% of the BBC’s resources). Although not pictured here, it is worthwhile to briefly consider the United States because that is another routinely alluded to example for modelling. Public broadcasting in the United States, the richest country in the world with a GDP of about $15 trillion in 2010, is no realistic model for any country in Europe or, indeed, for the EU as a whole. The combined GDP for the five wealthiest countries in Europe (France, Germany, Italy, Spain, and the United Kingdom) amounts only to about one-half of the U.S.’s wealth. Of concern today is the alarming degree to which three of the five are in worrisome economic straits. Despite American wealth, PSM only received about $400 million in federal public funding in 2008—less than Yle received in Finland with a population of < 6 million and a GDP of roughly $246 bil- lion that year (Trading Economics, n.d.). Most of the funding for public broadcasting in the United States comes from a combination of individual donations and corporate sponsorship (called underwriting). This supports our contention that debate and policy decisions about PSB funding are not only or even mainly about money; they are about socio-political values.
A look at per capita spending on PSB deepens this understanding (see Table 2). In 2010, Germany was still near the top at roughly C93, although Norway was highest at about C118 and Switzerland a close second at roughly C99. Of course, neither Norway nor Switzerland is a EU member state. Poland had the lowest figure at C2.80. This is still much higher than in the United States, where the per capita spent on PSB in 2008 was roughly $0.07.
Per capita cost makes it clear that wealthier countries facilitate higher amounts of funding per individual, although obviously, this must be taken as a percentage of overall income. As an overview, consider the following range8 converted to 2011 amounts from data originally published in U.S. dollars in the CIA Fact Book (2010):
● Luxembourg C61,316 ● Norway C40,531 ● Switzerland C31,623 ● Germany C26,500 ● United Kingdom C25,836
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TABLE 2 Per Capita Cost of Public Funding for Public Service Media in the European Union in Millions of Euros
Country 1998 2000 2002 2004 2006 2008 2010
Austria 44.0 46.2 48.2 54.6 56.0 60.3 69.2 Belgium 13.8 19.3 37.9 39.4 42.7 46.8 48.2 Cyprus 28.6 29.2 30.9 24.9 32.4 27.3 35.4 Denmark 71.2 78.4 83.2 76.0 77.5 82.5 84.7 Finland 50.4 57.5 57.5 61.6 65.7 68.0 73.8 France 19.9 24.2 27.7 30.2 33.3 34.8 56.1 Germany 67.2 68.3 77.3 78.4 83.6 84.5 93.2 Greece 17.6 18.0 18.5 21.7 25.8 30.3 31.2 Ireland 21.8 22.3 29.2 41.3 43.4 43.7 43.6 Italy 20.7 23.0 24.3 25.5 25.7 27.2 29.3 Netherlands 24.8 23.1 28.5 28 24.8 36.2 49.3 Norway 70.9 80.4 94.2 90.3 95.9 104.5 118.6 Portugal 0.0 0.0 8.8 14.2 15.3 21.4 21.8 Spain 1.9 1.8 1.8 1.8 13.1 12.2 40.2 Sweden 41.1 43.2 42.9 45.7 44.4 43.8 78.7 Switzerland 87.5 95.0 98.4 96.5 95.1 98.8 99.4 United Kingdom 56.0 67.8 72.7 73.8 80.1 73.1 73.9 Czech Republic 8.1 8.1 9.3 6.7 14.1 20.1 29.7 Estonia 3.7 5.0 6.7 9.3 11.8 14.4 18.8 Hungary 4.0 6.1 8.2 13.2 8.6 9.5 14.4 Latvia 2.5 2.8 3.1 3.1 4.1 3.5 7.5 Lithuania 2.8 3.1 3.8 3.3 3.7 3.8 3.1 Poland 3.0 3.1 3.7 3.1 3.6 4.0 2.8 Slovakia 6.1 5.2 5.4 6.6 7.2 7.8 16.8 Slovenia 31.2 33.4 35.1 37.8 40.1 42.5 47.6
Note. Council of Europe Screen Digest (2009), for the years 1998–2008; European Audiovisual Observatory (2011). For the year 2010 per capita figures from Spain include funding for the Spanish regional broadcasters.
● EU average C24,272 ● Latvia C10,914 ● Romania C8,613
In this light, the difference in per capita cost in Norway, compared with Germany, is insignificant, and the amount that can be generated for PSM is understandably much less in Latvia or Romania.
Judging from this, PSM is good value for the money. The Finnish exam- ple is illuminating. The cost per household in 2011 was C245 for the TV fee that funded Yle. The per capita cost was, therefore, about C117 (based on an average of 2.08 residents per household). By comparison, a subscription to the leading daily newspaper (Helsingin Sanomat) was .55 pennies per day for home delivery, or roughly C100 for the year per individual. For less than a 20% additional cost on one newspaper subscription9, Yle provided four free-to-air digital terrestrial television channels, three national Finnish- language radio channels, a network of more than 20 regional radio channels,
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two Swedish-language radio channels for that minority, extensive Web ser- vices including an online archive of historic clips (Elevä arkisto), a streaming service for missed programs that can be viewed on-demand (Arena), a sym- phony orchestra, investments in the development of mobile media services, the most domestic content production of any electronic media company in Finland, significant financial support for the independent production sector, and ample services for language minorities. By any standard, that is a lot of value for the money.
Although every PSM provider does not offer as much or for the same price, the example indicates that the reason these organizations are in trouble has little to do with claims of inefficiency or lack of popularity. They are mainly in trouble due to socio-political complications rooted in competition effects.
REVENUE STREAMS FOR FINANCING PSM
There is considerable variation the ways that public funding is garnered and in the proportion of the total for PSM that is derived from public sources. In Portugal, for example, public funding for RTP is a surcharge on the monthly electricity bill per household, whereas in Finland, the TV fee is paid to the Finnish Communications Regulatory Authority (FICORA), which manages the collection and distribution of funding via the State Television and Radio Fund. In Britain, the BBC has been the Licensing Authority since 1991, although the corporation subcontracts collection. The percentage of value-added tax (VAT) levied on a licence fee also widely varies in EU mem- ber states. The VAT in Denmark was 25%, whereas there was no VAT on fees in the United Kingdom (see Table 3).
“Public” includes funding from licence fees, direct subsidy, or other pub- lic sources. “Advert” includes only funding derived from advertising. “Other” is a broad category that includes program exports, sponsorship, subscrip- tion, pay services, and merchandising, as well as grants from foundations, fees received for the use of terrestrial transmission networks, gain from the sale or renting of a fixed asset, and so forth. Drilling down is complicated because companies have varied accounting systems. The general category is sufficient for our interests here.
Most PSM corporations receive at least 60% of total annual funding from public sources. The five EU member countries where PSM companies receive less are Austria, Hungary, Ireland, Italy, Poland, and Portugal. PSM corpo- rations in northern Europe receive the largest proportion of funding from licence fees (90%+, except for RÚV Iceland at about 65%), although since January 1, 2009, this comes from a media tax. Due to the small popula- tion, Iceland must supplement public money with advertising revenue. It is clear that license fee revenue is a significant proportion in most of the EU,
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TABLE 3 Public Service Broadcasting Income by Percentage of Funding Streams 2010
Country Channel Public Adverts Other
Austria ORF 60% 22% 18% Belgium RTBF (2009) 68% 18% 14%
VRT 68% 8% 24% Britain BBC Group 73% — 27%
Channel 4 Group — 68% 32% Cyprus CyBC (2009) 82% 14% 4% Czech Republic CT 80% 5% 14% Denmark DR 91% — 10%
TV2 — 61% 39% Estonia ERR 86% — 14% Finland Yle 95% — 5% France France Télévisions 76% 15% 9% Germany ARD 86% 4% 10%
ZDF 85% 6% 9% Greece ERT 91% 5% 4% Hungary Magyar Televizio 83% 11% 6% Ireland RTE 53% 36% 12% Italy RAI 58% 31% 11% Latvia LTV 64% 19% 17% Lithuania LNRT (2009) 65% 22% 14% Netherlands NPO 90% — 10% Norway NRK 94% — 6% Poland TVP 14% 62% 25% Portugal RTP 75% 16% 9% Slovakia STV (2009) 89% 7% 4% Slovenia RTVSLO 77% 16% 6% Spain RTVE 98% — 2% Sweden SVT 93% — 7%
SR 98% — 2% Switzerland SSR SRG 63% 29% 8%
Note. Source: European Audiovisual Observatory (2011) (ZDF corrected based on ZDF jahrbuch 2011).
although this is likely to change because the licence fee is a contentious issue nearly everywhere. Five EBU members currently depend entirely on direct subsidy: Spain, the Netherlands, Belgium, Estonia, and Latvia. That is likely to trend.
Claims of “over-compensation” that PSM operators receive more than is strictly necessary to fulfil their mandates is questionable because the majority of PSM operators receive less than C30 million in total from annual licence fee income, either because they are located in countries with small popula- tions or in countries with comparatively less wealth. Compare this to financial reporting about major commercial firms published online by FreePress (n.d.) using 2009 figures. The media holdings for General Electric in the United States, owner of NBC Universal, generated a gross income of $157 billion. The total revenue for NewsCorp was about $30 billion, and the figure for Bertelsmann was $20.5. Viacom earned $13.6 billion dollars. Of course, the margin varies, but is certainly more than C30 million.
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Mixed-stream funding is typical, although most receive the lion’s share from public sources. Exceptions include ORF Austria, which generated about 27% of revenue from advertising, and RTE Ireland, which generated about 55% from advertising. RTVE Spain features a similar profile. Three cases stand out: the two commercially funded companies with public service mandates, TV2 in Denmark10, and C4 in Britain. TVP Poland had the lowest proportion of public funding in 2008 (about 25%).
According to an EBU (2009) analysis, on average, PSM in Europe receives 20% of funding from advertising and roughly 1% from sponsor- ship. The rest, about 13%, is accounted for by program sales abroad. That is quite a chunk, but it is unevenly distributed. The United Kingdom has an enormous advantage due to the English language, and Spain benefits from sales in western Europe and Latin America. The BBC advantage is indicated by summary figures reported in 2012 for BBC Worldwide, the commercial subsidiary (see Table 4) Regarding Spain, TV program exports have grown by 47% since 2003, and were up 9.2% in 2010 alone, despite the problems in the global economy (De Pablos, 2011).
Direct subsidy is increasingly popular, and accounts for 100% of PSM funding in many countries. According to the EBU (2009), this approach is, so far, characteristic in eastern and southern Europe, where 65% to 70% of total funding is derived from direct subsidy. Most EBU members that depend on advertising derive income of < C200 million from that, which is quite a lot; but, in fact, the great majority derive as little as C20 million (EBU, 2009). Five EBU member companies had advertising earn- ings in 2008 in excess of C500 million; however, these include ITV and Channel 4 in Britain, which are commercial. The other three are in southern Europe: RAI Italy, RTVE Spain, and France Télévisions. It is also clear in this aspect that big countries with big markets generate significantly higher revenues, which provides greater leeway to finance PSM from domestic advertising.
Although everyone has an understandably strong interest in the impact of economic recession on media industries, one should not overestimate that. The “Great Recession” has hurt every company that depends on advertising, especially newspapers. However, what has been happening in response is an acceleration and intensification of trends that were evident much earlier. Research conducted by ZenithOptimedia that compared worldwide advertis- ing expenditure in 2000 with 2010 found that in 2000, the advertising pie strongly benefited print media. At that time, the newspaper industry claimed 46% of all advertising, and another 24% was spent on magazines (all data reported by Leurdijk, 2010). In 2000, electronic media claimed significantly smaller slides, with TV advertising at 19% and the Internet at 1%. Ten years later, the situation was remarkably different. In 2010, the newspaper indus- try’s slice had shrunk to 38%, and magazines had another 18%. TV advertising
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TABLE 4 BBC worldwide five global business driving sales and profits in 2011/2012
Business Description Sales (mn. £) Profits/Loss
(mn. £)
Channels British television showcase with 32 international television channels under the BBC brand. Additionally, 10 television UK television channels in joint venture with Scripps Networks Interactive. The business also manages the affiliated sales for BBC World News.
£344.6 +£42.3
Sales & distribution
Distribution of TV programmes, the largest outside the US studios. Sales teams present in 11 global offices serving 200 territories. BBC Worldwide content is distributed to more than 700 international broadcasters and digital platform operators.
£292.7 +£72.3
Consumer products
Producer and distributor of packaged broadcast goods offered globally. Includes video (DVD, Blu-ray and DTO), licensed merchandise, music, book sand audio publishing partnerships.
£211.4 +£49.1
Global brands Maximises the long-term value of BBC Worldwide’s major brands, creates closer consumer engagement, and identifies and cultivates emerging businesses.
£146,6 −£17.3
Memo reporting for all BBC Worldwide key brands. Memo reporting includes brands such as Top Gear.
£321,1
Content & production
Development and acquisition of content for BBC Worldwide businesses. Includes format licenses and managing a global network of production studios. Provides expertise to producers, brings together investors to enable project realisation
£135.5 +£10.5
Source: BBC Worldwide Annual report and Financial Statements 2011/2012, p.2.
had grown to claim 25% of the pie. The big winner was the Internet, which had climbed to 7%.
Thus, the decline in advertising revenue for print media has been under- way for a long time, and the greatest beneficiary is online media. This is one obvious explanation for why newspaper publishers have been pushing hard in online development, in turn accounting for the more aggressive tone many have taken in complaints about PSM (which typically provide a full range of news services of high quality and credibility at no additional cost to the user beyond the funding paid for their operations in general).
Dynamics characterising debate about PSM funding are usefully illus- trated in the debate over a proposed switch from the TV fee to a broader media fee to fund Yle Finland. The case is especially interesting given the historic strength of the licence fee approach there.
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DISAGREEMENT OVER THE YLE MEDIA FEE
Various observers suggest that challenges to the licence fee in the Nordic region, where it has been characteristic, is indicative of a strategic campaign to expand business opportunity in the online environment for the private commercial sector (e.g., see Nord, 2012; see also Kainulainen, 2009). The Finnish case offers an example of debate in a country where PSB has been comparatively stable and the licence fee regime was unproblematic for decades.
Based on a 2004 proposal from a committee nominated by Parliament and chaired by Mr. Seppo Niemelä (Ministry of Transport and Communication [MINTC], 2004), the Finnish government decided to end a surtax that had been levied on commercial broadcasting since 1993. This “operational license fee,” as it was called, was originally agreed on as a requirement for Mainos Televisio (MTV; Commercial Television) to secure independence from Yle, on which it relied for transmission time on their channels. This change was consequent to the 1992 act on Yle. In practice, Yle lost about 25% of its annual income, although not the entirety immediately. Yle still garnered about 13% from this source until 2001, and then roughly 6% until 2007. It ended when the transition to digital TV was completed that year. In the last years, this fee was also levied on Nelonen, the fourth national channel that is owned by the Sanoma Group.
Explaining this proposal in 2004, the committee emphasized that is was from “private operators who considered Yle increasingly as their competitor and felt it was unfair that they were forced to subsidize their activities” (Ala- Fossi & Hujanen, 2010, p. 8). The decline and eventual loss of so much revenue was further compounded by a co-related increase in the amount of airtime Yle had to fill (previously leased by MTV). Those costs were further aggravated by rising costs for the rights to programming as a consequence of increasing competition. Chronic deficits ensued, requiring cumulative and deepening cost savings beginning in 2005. That is not to say Yle should not have been asked to make cuts. That there was inefficiency is evident in the organization’s capacity to add new channels, despite the cuts (Yle Teema and Yle FST) and to make new investments in developing online services. However, by 2008 it was clear that Yle’s economic situation must be stabilized for the institution to remain viable.
Increasing costs were nothing new, and for decades had been absorbed by incremental increases in the annual fee co-related with each significant upgrade in broadcasting technology (Ala-Fossi, 2012). That ended after the diffusion of color television, and the consequences became increasingly pro- nounced as digitalization gained speed and range. Each advance requires more investment (first in digital TV, now in high definition TV, and perhaps next in 3D TV, not to mention digital audio broadcasting, which was a write- off in Finland and for Yle). At the same time, more Finns are using computers
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with broadband connections to access programs originally broadcast on TV and radio, as well as content that is unique to the online platform (via yle.fi). The number of TV licence fees peaked in 2003 at 2.2 million households. In 2011, the figure had declined to about 1.8 million. According to FICORA, approximately 250,000 Finnish households are using Yle channels, but not paying the fee (“A Quarter of a Million,” 2011).
The need to stabilize Yle’s finances prompted calls for updating the TV fee approach to account for the Internet and offset mounting costs. In 2009, another committee, chaired by Mr. Mika Lintilä (MINTC, 2009), proposed switching from the TV fee to a media fee that would have been charged to every household, whether they owned a TV or not, and also accountable to every business with an annual turnover exceeding C400,000. As a result, the cost per household was envisioned to drop by 22%, a better deal for the public, but with increasing costs for every business of much size. Where applicable, the cost per business would have been C525 that year. The net result of these changes would have accrued an anticipated C450 million, an increase of roughly C35 million on the 2009 budget for Yle.
In retrospect, this proposal was bound to stir opposition from Finnish industry; and given the financial turmoil beginning in 2008, it had little chance of gaining traction. The proposal collapsed, perhaps on its own weight, but with a concerted push from the Finnish newspaper industry that campaigned against it. The Minister of Communications at that time, Ms. Suvi Lindén, tabled the proposal in the run-up to the May 2011 elections.
The newly elected government took up the issue, and the result is now decided. The TV fee will end at the beginning of 2013, but will not be replaced by a media fee. Instead, individuals will pay a dedicated tax (rather than by household). The tax will be mildly progressive. Individuals earning > C21.875 annually will pay the full tax of C140, whereas those earning < C7.813 will pay nothing. For those with annual incomes between these anchors, the cost will be C50 per year. Businesses with a turnover of C400.000 or more will be required to pay C317, whereas those with a turnover of more than C1 million will pay C634 (MINTC, 2011). As reported by the Finnish Journalist’s Union, based on survey research, seven of the eight biggest parties supported this change (“State Broadcaster,” 2011). Many businesses are not pleased, but for now, at least, this is “a done deal.”
THE MODE OF FUNDING HAS IMPLICATIONS
We conclude with a discussion about service implications related to how the mode of funding impacts what a media company prioritizes. There is plenty of evidence that companies funded by advertising are influenced by advertisers, their essential customers. In a story reported by Advertising Age,
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the trade magazine of record for the American advertising industry, the oil company BP issued a directive in 2005 that advertisements must be pulled from any issue of any publication where the content was potentially objec- tionable (Hollar, Jackson, & Goldstein, 2006). Objectionable was defined as anything contrary to the company’s marketing and brand interests. As the report noted, such demands are common.
Today, companies sponsor special sections in newspapers where content with newsworthy aspects is featured, but written and positioned to ensure a desirable context for advertisements (Jackson, 2011). The tactic is recommended by consultants in the advertorial industry, a term describing the “collusion” between advertising and editorial content (see Todd, 2009). One should also note that most advertisers are not interested in every consumer but, rather, in target markets. For a media firm that depends on advertising revenue, there is no economic benefit to producing content that appeals to people of limited interest to their advertiser base. Thus, the funding mode has impact on content in various ways, mainly indirect but, nonetheless, real.
Direct subsidy also has service implications. In many cases, this approach facilitates political involvement in deciding the kinds of content that are made or the angle taken. That has been especially evident in cen- tral Europe where some governments fund “public media” and take a direct role in affecting the content or administration, as evident, for example, in the government of Mr. Orbán in Hungary (“Hungary’s Media Law,” 2010). However, influence need not be direct to cause problems.
The licence fee was abolished in the Netherlands on January 1, 2000. Since that time, revenue comes from direct subsidy. This change was described at the time merely as “a technical matter” (EBU, 2009, p. 14), but the practical result was a cut of 19% between 2005 and 2006. Although some of that was restored in 2007, the situation looks grim today as a consequence of austerity measures (Dutch House of Representatives, 2011). There is lower stability for PSM in the Netherlands and growing concern about institutional vulnerability. This is not to say the Dutch government has any intentions or interest to intervene in content. It is to suggest that the impact of budgetary decisions has indirect effects on content, even when unintentional.
Subscription funding also affects services. This approach can be orga- nized according to a donation model, as in the United States. That could be a realistic alternative to the licence fee if an essential goal is to maintain arm’s length from both the state and the market, but this option is not sta- ble. The downturn in the general economy has impacted donations, both in number of donors and the amount of each donation (Corporation for Public Broadcasting, 2012). Moreover, a lot of time, expense and effort are necessary to keep donations coming. It is also clear that the kinds of con- tent produced and distributed depend not on the general public, but on the preferences of those who donate—a strategy termed “super-serving the
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core” (Stavitsky & Avery, 2003, p. 142). The same complications are evident for the subscription mode in magazines and pay-per-view TV, where niche markets are increasingly the focus of profiling strategies. Another dimension of complication arising here is that the availability of services depends on one’s ability to pay. The subscription approach is typically based on tiered services, not universal services.
Most would agree that, in principle, it is best for a society when every broadcaster has public service obligations, even commercial operators (although not a full-scale public service remit). The rub is how commer- cial operators can justify content provision that only brings costs, or is not as profitable as other kinds. Regulations can oblige independent operators to provide public services, of course, but the American experience demon- strated two problems. Broadcasters resisted the requirements until ultimately shelved during the Reagan era, and even in compliance, such services were mainly scheduled in marginal times when audiences were small and there was no advertising anyway.
The 2009 Broadcast Communication on state aid to PSB, published by the EC, encapsulates the contradictions. On the one hand, the communica- tion said, “Public service broadcasting, although having a clear economic relevance, is not comparable to a public service in any other economic sector” (p. 5). On the other hand, it said:
At the same time and notwithstanding the above, it must be noted that commercial broadcasters, of whom a number are subject to public service requirements, also play a significant role in achieving the objectives of the Amsterdam Protocol to the extent that they contribute to pluralism, enrich cultural and political debate and widen the choice of programs. Moreover, newspaper publishers and other print media are also important guarantors of an objectively informed public and of democracy. (p. 7)
This formulation reflects a long-standing and essential tension in European media policy between the public interest and private interests, between the role of mass media in the cultivation of social and cultural capital, and its role in the vitality of markets and growing economic capital.
SUMMARY AND CONCLUSION
We have argued that debate about the value-for-money that PSM provides is about determining social values that should define what media are supposed to do and be today. This is a normative debate about should be and supposed to be. The recession is harnessed to legitimate calls for making comparatively drastic changes both in the scope of public sector activity and the scale of public sector structure. These calls suggest the premise is not normative, but
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objective and material. An underlying dynamic is keyed to the development of the digital media environment, which is not only a technological matter, but, as the PSM case demonstrates, very much a political matter, economic matter, and a socio-cultural matter.
Related to that, we have suggested that the digitized media environ- ment is increasingly complex and characterized by instability and uncertainty. Traditional approaches that have not been seriously questioned for decades, such as the licence fee in Finland, are now heavily criticized and hotly con- tested. As competition has grown in every component of industry value chains, companies that were not direct competitors earlier are now rivals.
Conditions are not only more complex, but also more complicated. This is evident in discourse about what the PSM remit should and should not include, how these institutions should be financed, and how much resource of which kinds would be fair before causing market distortion, or at least disturbance. This is especially pertinent given the second line of argumen- tation in this article, which focuses on variable conditions for PSM. The assumption that how things are organized and done in big, rich countries is inherently a suitable model for smaller or poorer countries is not viable. The economic data illustrate the point, marking Germany and the United Kingdom as outliners. The volume of available resources and the costs per capita vary considerably, with implications for what is and is not possible in operational practice.
At the same time, without shying away from familiar problems keyed to political manipulation and competitive imperatives alike, PSM in much of the EU provides reasonable value for the money. At least within the context of mature dual systems where there are older, larger operators, these orga- nizations have been doing more and more with comparatively less for one decade, at least, and much of what they are providing today is popular and competitive.
Finally, we considered four modes of financing for media, and discussed the implications of each mode with regard to the potential impact on the character of contents and services, especially keyed to strategic prioritization. The article concludes with three suggestions for what will be needed to legitimate PSM going forward.
First, it is clear that PSM must make the case for its continuation and further development beyond the political market. We concur with Robert G. Picard (2012), who argued that a convincing case for PSM must be made to the popular market and for the open market. Achieving that will require a critical rethink of what public service in media means now, why it matters, to whom, at what cost, and with what objectives. Intellectual workers are important for this task. Even more important is establishing a genuine dia- logue with civil society at large, developing an earnest and robust capacity to listen, analyze, and respond.
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Second, this project requires making an economic case for PSM. It is not enough to highlight the normative intentions and socio-cultural mission. That matters, as discussed later. However, the tenor of public concern and focus of political discourse is about economic conditions and PSM must address this concern. Fortunately, PSM can make a case that demonstrates gains in efficiency and productivity, investment in the development of new markets for all media operators (as a driver of development and taker of higher risk), and being a vital client for the freelance and independent sector. It is crucial that PSM make that case and demonstrate value for money.
We do not suggest, however, that economic argumentation is sufficient, and neither do we believe that economic rationale is inherently “objective” or value neutral. This project is a political task—and always has been. There is serious and continuing need to make the case for PSM on a normative, ethical, and socio-cultural service basis. It is important to satisfy the head, but just as vital to speak to the heart. It is not enough to prove its worth; it is vital to prove its value.
Third, it is important to accommodate the fact that PSM deserves criti- cism because it is a public sector institution and must be held accountable for its actions and the impact it has on other actors, stakeholders, and social insti- tutions, including competitors. Accountability is essential whenever strategic designs and operational practices sacrifice the social responsibility ethos on which the legitimacy of this enterprise rests. Of course, competitive suc- cess matters, but it is not the end-all justification for PSM. Without evidence of genuine strategic development that is clearly focused on renewing and revitalizing the core values that legitimate the public service mission in the first place, PSM cannot make a convincing case to validate continu- ing economic, political, or popular support in today’s more complex and complicated environments.
NOTES
1. The Association for Commercial Television Web site offers relevant position papers: http://www.acte.be/EPUB/easnet.dll/execreq/page?eas:dat_im=025B1D&eas:template_im=025AE9
2. The proper name in Finnish is Yleisradio, which can be translated as “general radio.” Although frequently abbreviated YLE, the capital L and E imply words that do not exist. The proper abbreviation is Yle.
3. We acknowledge that the ideals of “public service” in media have also been characteristic in systems and media with a commercial imperative, although that has unravelled as a consequence of deregulation.
4. In earlier work, we made a distinction between licence fees and state aid because the former is directly paid and specifically earmarked for a particular service, whereas the latter is not necessarily. We have made the new distinction to better align this work with the state of play in current European Union law. In 2004, Denmark argued that licence fee revenue is not state aid, whereas the European Commission argued that it is. In 2008, the European Court of Justice decided that licence fee funding trans- ferred to TV2/Denmark is state aid. For the ruling, visit http://eur-lex.europa.eu/LexUriServ/LexUriServ. do?uri=CELEX:62004TJ0309:EN:HTML
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5. This was a personal communication with Gregory F. Lowe at the annual conference of the European Media Management Association, Moscow, Russia, June 10 and 11, 2011.
6. Of course, subscription media services often require a contractual period during which a subscriber cannot cancel payment without penalty.
7. We are not implying that a subscriber does not have the right to expect delivery of the product for which he or she has paid, and at uniform standards, but, rather, that the act of payment as a customer implies a different status and identity in relation to the provider.
8. The CIA Fact Book’s (2010) figures are in U.S. dollars. The currency conversion was calculated on December 2, 2011 (C1 = $0.74).
9. The Sanoma Group provides a lot more in the Finnish market than the flagship newspaper, and the newspaper division has long provided a range of valued online services—historically, without additional charge, although that will change as the new paywall is developed. In early November 2012, the newspaper announced that its international online edition is being discontinued, for example. If it continues, it will only be available behind the paywall. One must wonder why and how a foreign readership would think it worthwhile to subscribe to a largely Finnish-language paper.
10. The commercial PSB provider in Denmark, TV 2, became a subscription pay-TV channel on January 1, 2012. At the time of this writing, it was too soon to say what this would mean or how it will work out. It is a case that merits observation and may produce interesting results for future assessment.
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