BBC looks to post-license fee future with ads in the mix

The BBC is looking to seal more commercial arrangements with media and entertainment partners, even toying with ad funded content, as it looks to prop up hugely depleted revenue from its license fee – and prepare for a future with no license fee at all.

The UK public broadcaster is largely funded by the license fee (unlike private broadcaster ITV which is funded by commercial revenue or Sky, which collects commercial and subscription revenue). This is a mandatory annual payment required by any household with a TV set in the UK, which was first introduced in 1946 and is collected by the UK government on the BBC’s behalf. In 2023 revenue from the license fee reached over £3.7 billion (about $4.67 billion), accounting for about 65% of the BBC’s total income.

Money from the license fee pays for BBC shows and services, including TV, radio, the BBC website, podcasts, iPlayer and apps.

However, consumers do not need to pay a TV license if they only watch streaming services like Netflix and Disney+ or on-demand TV through services like All 4, ITVX and Amazon Prime Video.

In his regular keynote to the industry ahead of the broadcaster’s annual report, BBC Director General Tim Davie addressed the “future direction of the BBC and its role for the UK.”

He outlined how to use “limited resources” to best serve the audience, “to rapidly modernise” and “transform the value we provide for everyone.”

Davie said the broadcaster intends to move its content spend “towards streaming value and away from broadcast-only output” to target younger audiences.

“We will [do this] by focusing all our commissioning, marketing and social media activity on BBC iPlayer,” rather than through linear youth channel BBC Three.

Income from the license fee fell to £3.74 billion last year as fewer households pay the fee. Although the annual license fee will rise to £169.50 (around $213) from £159 next month, the BBC argues its budget has been effectively slashed by 30% over more than a decade due to license fee freezes.

The BBC will have to negotiate with the government over an entirely new funding model when the final license fee funding deal expires in 2027 – with potential options including a subscription service, part-privatization, or direct government funding.

Out of necessity, Davie acknowledged that the BBC would be open to exploring new models. The Corporation has to find new ways of raising revenue if it is to survive.

In an eye-catching move this includes experimenting for the first time with advertising by introducing ads around audio content distributed on non-BBC platforms such as Spotify and Apple podcasts.

“It is the thin-end of a thick wedge,” Phil Riley, co-founder, Boom Radio told the Today news program on BBC Radio 4 Tuesday, March 26.

The concern is not exclusive to the commercial radio sector. Riley’s criticism could be applied across the UK media landscape as the prospect of an increasingly ad-funded Corporation raises alarm bells.

“If wholly or partly funded by advertising that is a completely different BBC to the one we have today. It would upset the BBC and the whole of the commercial industry in the UK too,” Riley said. “It would fundamentally break the ecosystem in the UK. There is not an infinite pot of ad revenue. If the BBC steps into that market and takes revenue away from commercial operators it will suffocate innovation.”

Defending the BBC, former BBC Trustee and a Controller of Radio 4, Mark Damazer said, “The BBC is forever caught between two arguments. One is that it is lazy, not entrepreneurial or innovative enough and that it needs to wean itself off the license fee. The other is that the BBC is an elephant that tramples over everybody in the room squeezing out profitably from the commercial sector.”

Damazer acknowledged that if the BBC were to saturate its channels with ad-funded content that would be a concern. “No-one is saying we’re suddenly going to switch on ads on BBC One.  This is about exploring entrepreneurial opportunities to make more out of BBC IP by balancing public value and the interest of license payers versus the commercial industry.”

He continued, “I don’t think it follows that market size for advertising is finite and it could be that the market actually grows [for everyone] which is exactly what happened when the BBC launched iPlayer and grew the market for streamed content.”

The BBC argues that the corporation has fallen behind global streaming rivals. Davie cited the lack of powerful personalization and recommendation algorithms on iPlayer, which the BBC intends to rectify by using AI to deliver a more personalized service.

BBC Studios, its commercial content studio and media & streaming business, would invest in stronger DTC services globally, including relaunching (the widest-read English language news website) and the BBC app internationally, with appropriate commercialization” to help “build our position as the number one English online news brand online, globally”.

The aim is to double BBC Studios’ revenues to over £3.2 billion (about $4 billion) by 2027-28 through international expansion.

Earlier this month BBC Studios took full ownership of streamer BritBox International, acquiring ITV’s 50% share for £255 million (around $322 million).

We can also expect more co-production deals like the one struck in 2022 with Disney Branded Television for Doctor Who. Outside of the UK, the long running sci-fi drama is exclusive to Disney+, with new episodes dropping on iPlayer in the UK and Disney+, internationally, at the same time.

Davie’s speech comes on the heels of a new report from Ampere Analysis that revealed an 18% decline last year in the UK’s market for scripted TV commissions as major UK broadcasters cut spend and most global SVODs trimmed investment in international content.

The BBC has already cut 1,000 hours of original programming (including long-running medical soaps Holby City and Doctors, quiz show Question of Sport and comedy quiz Mock The Week) and trimmed spending on original content but still managed to up its share of UK produced scripted TV to 50% in 2023 primarily because leading commercial broadcaster ITV has struggled due to the economic downturn and also slashed commissioning.

In terms of content, Davie said that to counter the influence of global streamers where UK content was a minor part of the selection of offer, the BBC would double down on making “authentic British stories.”

He said that the BBC would have to create its own AI algorithms to enable it to continue to fulfill its mission to inform, educate and entertain in a way that brought UK society together.

“As we move to an internet-only world, we can shape this tipping point to act for the benefit of the British public,” he said. “We can choose not to rely solely on U.S and Chinese tech companies who may not have the interests of a shared British culture and our democratic, tolerant society at their heart. This will require us to create unique algorithms to serve our values, for good. Algorithms and AI that bring us closer, not drive us apart. Personalization, of course, but not driven by a narrow commercial return."