What the BBC spends on television content - a response to today's Ofcom report

Ofcom published its 2012 PSB report today and I'm pleased that, once again, it shows audiences continue to rate the BBC very highly for quality - with BBC One and BBC Two by far the highest-rated, and BBC Three and Four comparable with ITV1 and Channel 4.

I'm disappointed though that Ofcom has chosen to lay such emphasis on an apparent downturn in BBC content spend - when the true situation is quite different to the one Ofcom sets out and indeed perfectly explicable. And I apologise in advance should this posting sound like an edition of the number crunching programme More or Less - but I think it's important to lay out the facts. Ofcom's report suggests that BBC spend on new network TV programming fell by 11% in real terms between 2010 and 2011, from £1.4bn to £1.25bn. However, this figure excludes all of the BBC's programming for audiences in Scotland, Wales, Northern Ireland and the English regions. Even on Ofcom's definition, there are a number of structural reasons for the apparent fall. Unlike 2010, 2011 was a year without major biennial sports events so spend on sport was down - by around £85m. Much of that money has been held over to 2012 to cover the Diamond Jubilee, Euro 2012, the Cultural Olympiad and the Olympics. I therefore expect the increase in 2012 to make up the fall in 2011. Another reason for the apparent fall is that Ofcom's figures are adjusted by the level of inflation in 2011. This was a year when inflation was at an exceptional level of over 5% (and when the BBC received no inflationary increase in the licence fee). The effect of this is to make spend in previous years effectively higher and the fall from 2010 to 2011 the greater; a difference of around £70m. Ofcom's report also says that the BBC spends 56% of its 'TV income' on 'first-run originated content'. However, Ofcom's figure leaves out a number of costs which are essential to the making and broadcasting of programmes and channels, including copyright payments to musicians (e.g. for using background music); programme development costs (such as developing new formats or commissioning pilots and scripts); programme commissioning; channel scheduling; repeat fees; and various other items. It also excludes other new TV content such as programmes from overseas and content made for the Red Button service. To make a crude analogy, it is as if one looked at the cost of a music festival only in terms of the amount paid to the musicians. The total 'TV income' baseline that Ofcom's figure is measured against also contains some costs that the BBC cannot realistically spend on television in any case, such as the BBC orchestras; the costs of generating third-party income; and the cost of collecting the licence fee. It also includes one-offs like restructuring costs which are not recurring spend and as such vary a lot from year to year. When you recalculate taking these factors into account you get a far fairer reflection of the underlying situation, with the percentage of BBC television income spent on television content standing at around 75%. There is undoubtedly strong pressure on the BBC to spend on non-content items. And so it should. An example of this is the Government's 2007 'digital objective' or 'sixth purpose' for the BBC to promote digital communications. In practice this has meant building out the digital terrestrial TV network to the whole country in one of the largest broadcast engineering projects ever undertaken in the UK; investing in digital radio; as well as building digital production centres in Salford, Glasgow, Cardiff and London. To give just one example of the investment needed to make the digital transition: the costs of transmitting the BBC's services have risen from £142m in 2002/3 to £208m today, a rise of nearly 50%. This rise is not unexpected, given the many new ways we have to make our programmes and services available to audiences nowadays. But it inevitably reduces the amount that the BBC can spend directly on content as a percentage of total income. These transition costs will, however, subside, and a greater percentage of our budget flow back into direct content creation on TV, radio and online. This is not some idle promise - it is the very basis of the BBC's strategy: Delivering Quality First.

John Tate is Group Director, Strategic Operations