Media Media Planning and Buying Future of TV

With the licence fee threatened, what would happen if the BBC started running ads?

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By John McCarthy | Media editor

January 18, 2022 | 11 min read

The funding of UK state broadcaster the BBC is once again under scrutiny as the government questions whether the licence fee offers a dated business model in a world with a wealth of multimedia on tap. The Drum explores whether the Beeb could embrace advertising to keep on the lights, and whether that would cost us all more in the long run...

BBC

The BBC recorded a profit of £227m for 2020/2021 after increasing licence fee collection by almost exactly that margin

It happens with regularity. Once again the earning power of the world-renowned public service broadcaster is threatened. When marketing veteran Tim Davie took the top job from Tony Hall in 2020, it was clear he was to fight for the future of the organization, win over the public and perhaps restructure how it makes its money. He’ll be pushing against a government intent on defunding the broadcaster and privatizing Channel 4.

And most of the eggs are in the one basket. The BBC recorded a profit of £227m for 2020/2021 – after increasing licence fee collection by almost exactly that margin (£3.52bn to £3.75bn). ‘Other income’ – the sale of shows, merchandising, licensing, grants and advertising in all global markets outside the UK where it is currently restricted – was £1.314bn. This category dropped significantly in 2020/2021 after a combined hit to the ad market and the production freeze, both of which have since rebounded.

A threat to the licence fee is a threat to the BBC itself. As a result, it is in the organization’s best interests to swell that ‘other’ segment before the Royal Charter expires in 2027. The government may very well trim, if not abolish, the licence fee.

Can ads save the BBC?

In 2007, BBC.com launched ads on its international site. Even then, the idea of the BBC running ads felt wrong to many at the time but, pragmatically, the BBC knew it needed the income to fund its World Service.

‘Monetizing international traffic’ was an objective even when it had a mere 28 million international readers. It said: “We use the income to help fund BBC services and keep the licence fee (paid by UK households) lower than it otherwise would be.”

Now, 15 years later, it claims to reach half a billion people across World Service languages, World Service English, World News TV, BBC.com and BBC Media Action. Its footprint, reach and soft power is formidable. It’s clear that while the UK is home to the BBC, the broadcaster serves the world. So could monetizing the global audience save the BBC? Could a couple more pop-ups for readers in South Africa and some commercial interruptions on BBC News make up the deficit?

Not likely.

Across the business, the BBC looks to have generated £216m advertising income (buried in page 213 of this document) between 2020/2021. It said it aims to “build commercial income” to £1.5bn “in the five years from 2022/23.” £1.5bn is well shy of the £3.75bn the licence fee offers. At £159 a year per legible household, some argue it is costly. Some compare it to Netflix’s £9.99 a month, despite it offering a slither of what’s coming out of the BBC.

The BBC could do worse than rolling out this 1980s TV licence ad from comedy legend John Cleese.

Industry analysis

Richard Broughton, research analyst at Ampere Analysis, has been thinking hard about the BBC’s current conundrum. There’s no room for complacency, he argues. It would need to “introduce advertising via every plausible mechanism if there was to be any hope of maintaining funding at a scale anywhere even close to current levels.”

Linear broadcast represents the most attractive medium to advertisers, he suggests, followed by the logged-in users on the BBC iPlayer (roughly 10 million a week). “In the UK, the BBC reaches around 50-60 million individuals, and maintains an audience share of around 30%. It has the largest reach of any individual broadcaster in the UK, with BBC1 beating even ITV1.”

He points out that other broadcasters have done well to develop their VOD offerings. ITV boasted its highest ever ad revenues in 2021. Ad sales were up 30%, helping contribute to a £1.6bn revenue. ITV Studios made another £1.2bn. After a record year at the diversified broadcaster (that is still exploring new ways to embed ad products and sponsorships) it still raised less revenue than the BBC’s licence fee. Additionally, the BBC’s absence from the TV ad market also created an “artificial scarcity of inventory” that has arguably always inflated the price.

If the BBC embraced an ad-funded model in the UK (which does not happen overnight), it would own 30% of the inventory of an enlargened TV market. That’s valued at around £5 per household per month, Broughton says.

If there was to be a subscription tier (the license fee reimagined as premium, ad-free experience), it would have to sit at at least £6 a month. “At the end of this, the BBC would still be left with revenues at half the levels it currently generates through the licence fee.”

Furthermore, on reduced income, BBC content reduces in quality and scope. Perhaps it sees audience flight to rival channels or mediums. Maybe TV viewers were watching Pointless over The Chase because they lamented the ads. Maybe that becomes a more difficult viewing decision on an ad-funded BBC.

Broughton adds: “If we imagine a scenario where the BBC’s audience shrinks to half of current levels, in aggregate, commercial rivals might expect to gain 20%-25% audience share. But the available inventory levels have still increased by 40%-50% (some to the BBC, some to the commercial channels), which would have a negative impact on pricing. Difficult to say exactly the scale, but a drop of 20%-25% wouldn’t be unreasonable, given US levels – wiping out most/all the gains.”

Next, The Drum approached top UK TV ad buyers to feel out whether there’s a hunger for that untouched BBC inventory.

Mihir Haria-Shah, head of media at Anything is Possible, believes it would take a lot of trial and error for the BBC to get advertising right across TV, VOD, radio and online. “It needs to ensure it’s not turning off loyal listeners and viewers by bombarding them with ads.” He believes the public is savvier toward media funding, having endured ads on freemium tiers of YouTube and Spotify for years. And he points to the fact that rivals ITV Hub and All4 both launched paid-for services. The BBC itself has a stake in selling Britbox and UKTV Play subscriptions too, as of recent years.

As for the ads, Haria-Shah believes it should avoid interruptive mediums like the famous TVC. He believes a sponsorship/branded content focus on iPlayer “feels like the best way to ‘test’ advertising on the BBC in the UK. All research tells us that viewers generally see sponsorship as part of the program as opposed to the ad break.”

From advertisers, there’s a hunger for BBC content. The Great British Bake Off, for example, was heavily commercialized upon making the move to Channel 4. “Most advertisers would jump at the chance to advertise on the BBC. It goes without saying that TV is still the broadest of the broadcast mediums in terms of reach, and the BBC is the broadest of the stations within the TV ecosystem in the UK.”

Meanwhile, Nicola Teague, head of AV planning at The7stars, is excited by the wealth of viewer data available in the BBC iPlayer. She believes the BBC could remove the friction of a leap into advertising by going all-in on addressable media and serving relevant targeted ads in its streaming services, rather than relying on the mass broadcast of linear.

“This layered with a low ad count, focusing heavily on branded content and native content, would be my recommendation on iPlayer and its websites to begin with. Carbon-neutral ad breaks or some form of sustainable guarantee for viewers could be a nice addition too.”

She adds: “I can’t think of a single client who would say no to the opportunity of advertising around the likes of Vigil, Killing Eve or even Eastenders.”

Of course, Teague points out that an ad-free BBC is probably worth sustaining. “It’s a British institution, a huge part of our heritage, and people know and love it as an ad-free environment – it is the BBC’s USP. Being funded by the taxpayer comes with huge responsibilities around impartiality, education, representation and bringing the world to the UK. I can see why they would want to protect that.”

Either way, advertising alone cannot save the BBC. It made 17 times more with the licence fee than advertising in 2020/2021, but as part of a diversification effort with the government intent of weaning it off the licence fee, it could be invaluable.

Teague concludes: “There are revenue-generating opportunities around content, tech and data, but it seems a cut-back in services will be inevitable.”

Media technology consultant, professor Lucy Kueng doesn't believe that's an option. “It is in a very serious situation. Over the past decade, its income has been progressively winnowed away - leg after leg has been kicked away from the table that is supporting it.”

Vitally, she points out that it is “well past the point of having any fat to trim at all”. This indicates that any shortcomings on income in the near future will have a severe impact.

Kueng also addresses the elephant in the room. The discussion around the licence fee and this very article have been prompted by “challenges that are ideologically driven, and bring immediate tactical benefits to those mounting them.”

She urges the organisation to mobilise its loyal audiences in defence. And secondly to “scale up BBC Studios aggressively so that it can generate revenues to plough back into public service media, especially news. The only two segments of the media industry that are growing are streaming and games.”

She concludes: "Advertising [alone] could never be a realistic option."

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