B1535 – British Broadcasting Corporation Bill Bill 2019. Watch

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Andrew97
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B1535 - British Broadcasting Corporation Bill Bill 2019, TSR Conservative and Unionist Party



An Act to abolish the license in favour a sustainable funding model which allows long term growth for the BBC rather than continued restraint.

BE IT ENACTED by The Queen's most Excellent Majesty, by and with the advice and consent of the Commons in this present Parliament assembled, in accordance with the provisions of the Parliament Acts 1911 and 1949, and by the authority of the same, as follows:—
1. License Fee
(1)The License Fee is hereby abolished.

2. Equity
(1) An Auction will be held allowing nine corporate clients to purchase a Fixed term Equity Stake in the British Broadcasting Corporation
(i) The Duration of this Fixed term investment would be 3 years
(ii) The individual equity stake would be 5% of the value of the British Broadcasting Corporation as of the date of sale
(2) Each Equity Holder must also purchase a corporate bond to the equivalent value of the equity stake
(i) Nine Fixed Term Corporate Bonds will be created at an annual yield of 4%
(ii) The maturity length of these Corporate Bonds will be 3 years
(3) Equity Holders will be referred to as the British Broadcasting Partners

3. Advertisement Exclusivity
(1) The British Broadcasting Partners will have the right to advertising exclusivity for the duration of their investment
(2)Each British Broadcasting Partner will each hour hold the right to a 20 second advertisement slot
(i) Sale of that slot to another firm is permitted on an hourly basis

4. Commencement, Extent and Short Title
(1) This Act extends to the whole of the United Kingdom.
(2) The provisions of this Act come into force on 1st April 2021.
(3) This Act may be referred to as the BBC Act 2019.

Notes
Spoiler:
Show

The BBC (British Broadcasting Corporation) has existed as a state owned enterprise since 1922 providing at times vital public service broadcasting.

Over the past 10-20 years in particular however the BBC has come under intense competition from much larger firms with a global reach. In addition to that, the viewing habits of its audience have changed.

With the BBC subject to being at the mercy of the License Fee it has struggled to maintain its place relying on ever more repeats and being unable to hold onto popular shows such as The Voice or the Great British Bakeoff or Formula One (in the early 2000’s it even briefly lost
Match Of The Day).

This bill proposes to grant the BBC the freedom to compete with greater funding while preserving the minimal advertising. It also aims to allow the private sector to aid the BBC in innovating its structures and procedures to become a more efficient organisation.

Section 1 outlines the abolition of the License Fee as an antiquated method of funding a multi-billion pound organisation.

Section 2 outlines the creation of an equity vehicle designed to allow private firms to obtain a stake in the BBC so that they have a stake in how the firm is run and also outlines the creation of corporate bond designed to allow the BBC access to significant liquidity such that they are able to compete with rival broadcasters.

Section 3 outlines the rights that these business partners will hold with regards to minimal but exclusive advertisement giving them further incentive to invest.*

Section 4 is procedural outlining the relevant fiscal changes to begin on 1st April 2021.

Due to canon, no cost is attached is attached to this bill.

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barnetlad
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Nay.

I understand that no-one likes paying a licence fee, especially with more tv not being viewed on a tv or at the time of transmission. The impact of this has not been thought through on the range of programmes that the BBC would be able to provide, the possible conflict of there being only nine advertisers on the editorial independence of the BBC (even with sub-contracting). What about the impact of adverts on some programmes (disrupt a proms concert for example, or coverage of a national event such as the funeral of Her Majesty the Queen when she dies)? What about the impact on other broadcasters, given that the BBC spends more than other non-subscription broadcasters (BBC income £4.89bn, ITV £3.2bn) and inevitably some advertising would move?

Even if the BBC were to be reduced in scope and size to let's say a half (£2.5bn), who can put up just over £250m per year with an as yet unknown sub-contracting possibility, for what in reality is about 200 seconds of prime time advertising a day, and presumably only about a fifth on BBC 1 or BBC2. Who would pay £5m per week or c£700k per day for that?
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Aph
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20 second advertisement slot every hour on every channel or just on one channel?
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The Mogg
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Aye, nobody should have to pay the BBC in order to watch their competitors, especially now since their competition is so much better than it.
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Aph
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Also, two main problems.
1) the licence fee pays for emergency broadcast Infustucture. This bill doesn’t make provision for the replacement of funds to said Infustucture and thus means if the U.K. went to war tomorrow we would have no way of informing the public.
2) the BBC has a legal duty to broadcast political adverts around elections and referenda. This bill gets rid of that, I assume this is a mistake?
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Jammy Duel
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(Original post by The Mogg)
Aye, nobody should have to pay the BBC in order to watch their competitors, especially now since their competition is so much better than it.
You might want to check the BBC accounts because I'm guessing the author didn't.

The financing side of things is quite frankly laughable, the notes claim greater funding and yet a £3.69bn per annum revenue stream is being replaced by a net £311.6m per annum stream (or maybe half of that).

In fact upon further consideration there is no net income what so ever, just an expense £20m per annum
Last edited by Jammy Duel; 3 weeks ago
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Jammy Duel
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Let's start by simplifying what I think the bill is saying (which, given it's a Tory bill, is very different to what it is intended to do)

Licence fee abolished

In its place nine shares worth 5% of the value of the BBC each are sold.

Alongside the 5% for the shares a bond for the same amount is to be bought. The coupon rate is 4%.

These shares give the rights to 20 seconds of advertising each hour.

The shares and bonds are each for 3 years
---------------
Now there are a few problems with this, first of all we have a lack of clarity on value due to the method of valuation not being specified

"The individual equity stake would be 5% of the value of the British Broadcasting Corporation as of the date of sale"

Valuation according to?

Also this is a one off thing as it stands, one suspects that it is supposed to be every 3 years.

Who holds the auction and who receives any value above that 5%? Is the BBC the recipient of a fixed 5% regardless of the auction value? If there are no bids greater than the 5% who absorbs the cost, or is the stake not sold?

There is a lack of detail on the advertising side, is it 20 seconds per channel or is is 20 seconds across all channels? Only TV or radio too?

On top of this if we use the balance sheet to determine the value of the BBC, and the 5% goes to the BBC, the domestic funding has, quite literally, been decimated.

Using the 2019 Accounts we see that the licence fee revenues were £3,690m. In its place it looks like we have 18 chunks of income each worth 5% (9 from the Fixed Term Equity Stakes and 9 from the bonds), the balance sheet shows the BBC to be worth £1,172m so each of these 5% chunks is £58.6m or £1054.8m all told. Of this half is bonds with a 4% coupon rate which equates to £21m per annum. So what we have is £3.7bn per annum replaced with £1.055bn for 3 years, costing £63m to maintain. Of course this is not the end, after 3 years those bonds mature which means the initial £527.4m needs returning, the same goes for the Equity stakes, they need buying back (let us assume at the same 5%).


A simplified version can be found here, for simplicity 2019 other income is being fixed at the 2018/19 rate of £1199m, and I am assuming under the current model there is no surplus/deficit (in reality there is a small deficit in 2018/19) and other than the licence fee change all else is equal.

As you can see the proposed change creates a shortfall of £11,133m over the first 3 year period, and one doubt the premiums received on the auction would be anywhere near that amount.
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Jammy Duel
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(Original post by barnetlad)
Nay.

I understand that no-one likes paying a licence fee, especially with more tv not being viewed on a tv or at the time of transmission. The impact of this has not been thought through on the range of programmes that the BBC would be able to provide, the possible conflict of there being only nine advertisers on the editorial independence of the BBC (even with sub-contracting). What about the impact of adverts on some programmes (disrupt a proms concert for example, or coverage of a national event such as the funeral of Her Majesty the Queen when she dies)? What about the impact on other broadcasters, given that the BBC spends more than other non-subscription broadcasters (BBC income £4.89bn, ITV £3.2bn) and inevitably some advertising would move?

Even if the BBC were to be reduced in scope and size to let's say a half (£2.5bn), who can put up just over £250m per year with an as yet unknown sub-contracting possibility, for what in reality is about 200 seconds of prime time advertising a day, and presumably only about a fifth on BBC 1 or BBC2. Who would pay £5m per week or c£700k per day for that?
Your figures are off, if we assume the equity stakes are each sold at the 5% you're only looking at ~£100k per day capital investment even with the full fat BBC, it is also effectively free advertising, in fact the advertisers are each being paid £2.3m for the right. Given the terms involved the question is really one of who receives the premium in the auction, the BBC or the state, and how big would those premiums be?

A quick google of the advertising rates gets us some rought rates for 30 second slots. Let us assume that BBC 1 and BBC2 are worth roughly 50% more ITV and Channel 4 respectively per second, based on market shares shown on page 27, but this is offset by the shorter ads so we will use the midpoint of the ranges in the first link. From this we get:
BBC1 morning £3,500 per ad
BBC1 daytime £4,000
BBC1 peak £20,000

BBC2 peak £15,000
BBC2 daytime £1,500

We shall assume 4 hours of morning (0700-1100), 8 hours day time (1100-1900), and 3 hours of peak (1900-2200) with the remaining 9 hours being assumed to be worthless. From this we get a total daily value of adverts of £106k for BBC1 and £63k for BBC2, or £169k per day. This annualises to £61.685m.

We shall assume that this is what the advertisers value a year of BBC advertising at, we can trivially get the premium. The advertising is worth £61.685m per annum, the interest on the bonds is £2.344m per annum, so the premium to be paid is £64.029m per annum or £192.087m for the three years.

If we assume the premium goes to the BBC we then have an income per stake of £309.287m, or £2783.583m for all 9 (of which £1054.8m will be reimbursed alongside £63.288 of interest. The effective BBC budget would be £555.165m per annum from this bill, plus the ~£1.2bn from the commercial arm. The effective budget will have decreased from £4.889bn p/a to £1.754bn p/a, a reduction of 64%

----------------------------------------------

If we want to go a step further we can then say that actually the premium would be far lower, the assumptions above rely on all else being equal, but quite trivially it wouldn't be, a two thirds reduction in budget will almost certainly mean less programming and lower quality programming, this would in turn lead to reduced market shares thereby reducing the value of the advertising which then reduces the value of the shares which reduces the premium further reducing the budget.

If we assume this reduced BBC1 to Channel 4 rates and BBC2 to Channel 5 rates we would see the value of the premium halve, of course at this point the BBC budget is dominated by the commercial arm on the revenue front meaning we would only see a further decrease of £271.341m to £1.483bn (70% overall), however with limited high value original programming being produced these commercial arm revenues would likely start to slide too.

Additionally the significant reduction in revenues means production would have to wind down, resulting in the sale of assets reducing the balance sheet value and consequently reducing the value of the 5% stakes further reducing revenues (albeit the chunk that is effectively a loan)
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LiberOfLondon
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Aye.

(it may interest the House to know that I thought of this at the gym yesterday - have the Tories employed mind readers? )
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Jammy Duel
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(Original post by LiberOfLondon)
Aye.

(it may interest the House to know that I thought of this at the gym yesterday - have the Tories employed mind readers? )
You wish to cut the BBC budget by 64% (before accounting for the massive loss in value that would come from it further decreasing the budget)?
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Jammy Duel
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(Original post by Aph)
Also, two main problems.
1) the licence fee pays for emergency broadcast Infustucture. This bill doesn’t make provision for the replacement of funds to said Infustucture and thus means if the U.K. went to war tomorrow we would have no way of informing the public.
2) the BBC has a legal duty to broadcast political adverts around elections and referenda. This bill gets rid of that, I assume this is a mistake?
Does it get rid of the second though, is that explicitly tied to the licence fee?
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Aph
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(Original post by Jammy Duel)
Does it get rid of the second though, is that explicitly tied to the licence fee?
I'm looking at the right to exclusive advertising here. you know, because it contradicts the more recent statute holds.
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CatusStarbright
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(Original post by Aph)
20 second advertisement slot every hour on every channel or just on one channel?
As I understand it this would be nine 20-second adverts each hour.
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Jammy Duel
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(Original post by CatusStarbright)
As I understand it this would be nine 20-second adverts each hour.
He's asking whether they would just be on one channel, that needs choosing, or all. I.e. if you hold a stake do you get 20 seconds on BBC1, BBC2, Radio 1, Radio 2, etc each hour, or do you have to choose which channel you have it on.
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CatusStarbright
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Nay, I like that the BBC is advert-free and something important would be lost were we to introduce adverts into BBC programming. Furthermore - while my knowledge of financial/capital markets is still a work in progress - I am concerned that having investors could pose difficulties with the role of the BBC to be neutral in its reporting, etc.
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Aph
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(Original post by CatusStarbright)
As I understand it this would be nine 20-second adverts each hour.
but my question was more about if this was say just on BBC1, was 9 20 second adverts but the bearer could decide which channel or radio station it's on or if it was 9, 20 second adverts on each channel and radio station.
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barnetlad
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(Original post by Jammy Duel)
You wish to cut the BBC budget by 64% (before accounting for the massive loss in value that would come from it further decreasing the budget)?
I am not going to argue about figures, I think we both believe this to be a bad proposal and so can be united in opposing it.
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Jammy Duel
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(Original post by CatusStarbright)
Nay, I like that the BBC is advert-free and something important would be lost were we to introduce adverts into BBC programming. Furthermore - while my knowledge of financial/capital markets is still a work in progress - I am concerned that having investors could pose difficulties with the role of the BBC to be neutral in its reporting, etc.
The neutrality thing is independent of ownership structure, it applies to Sky as much as it applies to the BBC. In Fact it is a statutory requirement under the Communications Act 2003

http://www.legislation.gov.uk/ukpga/2003/21/section/320
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barnetlad
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Incidentally the Conservative party seem to have hated the BBC for years because a degree of neutrality as opposed to the Tory dominated press (or more right wing) is something they do not like. The most recent Tory vendetta against the licence fee seemed to begin after publicity over John Whittingdale's misfortune when he ended a relationship after discovering the woman had been a member of the oldest profession.
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CatusStarbright
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(Original post by Aph)
but my question was more about if this was say just on BBC1, was 9 20 second adverts but the bearer could decide which channel or radio station it's on or if it was 9, 20 second adverts on each channel and radio station.
I assume they mean each channel. I was pointing out that it's more than you thought.
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