The first crisis facing the next director general of the BBC will be the same one that faced Tony Hall, who is stepping down: the future of the license fee. Prime minister Boris Johnson has hinted darkly at a shake-up. Should the BBC try move to Netflix-style subscriptions, as some pundits suggest? Anyone looking at Netflix’s cash flow would say no.
It is easy to get swept up in the glamour of the US streaming service. Netflix has won Oscars, bagged 150m subscribers and has an equity value of $148bn.
The UK public service broadcaster is an equally well-known brand name. But it has been hurt by scandals and has lost viewers to Netflix. In theory it could try to become the next advert-free global streaming service. In practice, this would be a disaster
The BBC, sometimes known as “Auntie” in the UK, funds TV shows, films, news and radio through a £154.50 annual license that is mandatory for UK households with a TV. Last year it made £3.7bn from this plus another £1.2bn from commercial and other activities.
Netflix charges subscriptions and issues debt. Last year, revenues hit $20bn. But Netflix’s strategy of outspending rivals is expensive. It expects to report negative cash flow of $2.5bn this year in spite of a fee hike. In addition to $10bn in long term debt, Netflix has $19bn in content obligations and up to $5bn in off-balance sheet debt.
The BBC does not have access to such financing. In the short term, it is more likely to lose revenue. Over 13m households in the UK are signed up to a streaming service according to Ofcom. Nearly 26m households pay for a television licence. If the BBC had 13m subscribing households it would lose £1.7bn in annual fees.
Raising fees to make up for the loss would be tricky when rivals are offering cut-price deals. To compete, the BBC would need to concentrate on overseas customers, cutting back on services like news, music, Radio 4 and BBC 2 in favour of flagship shows like Doctor Who.
There would be technical obstacles, too. A Netflix-like online log-in would not work because the majority of British households do not watch TV online.
Ending the license fee would free the BBC from the incessant criticism of commercial rivals and the hostility of politicians irked by its tough interviewers and objective reporting. But there is no merit in switching to a new funding model that is not even sustainable for its disruptive rival.
The Lex team is interested in hearing more from readers. Please tell us what you think of the challenges to the BBC in the comments section below.