Could private bidders buy a chunk of the BBC and stop BBC Three from becoming an internet-only channel? Paul Herbert, head of media, technology and communications at Goodman Derrick LLP, considers the challenges the bidders are likely to face.
Background
In February 2014 the BBC announced planned cuts of £100m from its operating budget. Then in March 2014 it was revealed that these cuts would be achieved in part by converting BBC Three to an internet-only channel. BBC Three's annual operating budget is believed to be around £109m. Last week it was revealed that two independent production companies, Avalon and Hattrick had submitted a proposal to the BBC to buy BBC Three for a figure reported to be in the region of £100m.
How could the BBC dispose of one of its public service assets?
The BBC is regulated by the BBC Trust in the conduct of its commercial operations. Where specific commercial proposals are of a value of over £30m, or are potentially novel or contentious, specific Trust approval is required. For this reason, the existing proposal to migrate BBC Three online is already undergoing Trust scrutiny under its public value test. Were the BBC to accede to the proposal put forward by the bidders this would similarly have to be submitted for Trust approval.
The public value test involves:
- an assessment of the likely public value of the proposal
- a market impact assessment carried out by Ofcom,
- and a wide ranging public consultation
Only last week Ofcom announced the commencement of its market impact assessment of the proposed migration of BBC Three.
What challenges would this proposal face?
These are myriad.
What exactly would the bidders be buying?
BBC Three is not a legal entity, but a part of the BBC's business so this would be more akin to an asset sale than a share sale.
What comprises that business?
In simple terms, contracts with its employees, talent and programme suppliers and with its playout, distribution and transmission suppliers (and of course goodwill represented by its viewers). Unravelling the BBC Three specific elements from the BBC's contractual arrangements with those various parties and obtaining their co-operation and consents would be a significant challenge.
Could the channel still operate under the BBC brand?
The bidders have apparently indicated that they would not intend to retain the BBC Three name but would rebrand it, possibly as 'Three'. That is just as well because there is little likelihood of the BBC allowing the continued use of its name for a domestic channel it no longer controls. All the more so bearing in mind that it would no longer be a licence fee funded public service channel but one funded instead primarily by advertising revenue.
As the BBC's own branding guidelines make clear:
'As a public service broadcaster, the BBC is a content and service provider funded and owned by the British public, free from commercial and political interests. The BBC brand and other intellectual property assets represent and reflect the BBC's reputation for editorial integrity, impartiality, quality and creativity. Any use of our assets must be aligned to these values and follow the guidelines.'
Realistically, the only circumstances under which the BBC would allow the BBC name to be continued would be if it retained a stake in the new entity, a model it has used for instance with BBC America which is only 51% BBC-owned.
What other challenges would the bidders face?
Assuming they are able to secure the necessary talent and programme content (though query whether this would include two of its most notable shows Eastenders and Dr Who), they will need to find a platform for the new channel as they clearly have in mind a full broadcast service rather than an online-only offering. They would need to identify and secure broadcasting capacity on the main broadcast platforms, namely cable, satellite and the most popular (and expensive) Freeview (DTT). Then they would need to secure arrangements for the playout, distribution, uplinking and transmission of the channel and so on, all of which would involve significant cost.
Before launching the channel they would need to obtain a licence from Ofcom, the regulator for commercial TV, as this could no longer be a BBC service licensed by the BBC Trust. The bidders have apparently indicated that the privatised channel would stick to BBC Three's current remit–BBC Three's service licence requires its programmes to be aimed at 16-34-year-old viewers, and to 'stimulate, support and reflect the diversity of the UK'. If Ofcom could be persuaded to licence the channel as a public service then this would make it easier to secure capacity (and electronic programme guide prominence) on the various broadcast platforms.
Finally, they would need to have in place a viable business plan. It would take a very brave (or foolhardy) investor to back a new channel launch in the already saturated, and declining, TV ecosystem wholly dependent on advertising revenue. Nevertheless, the bidders boast of substantial interest from third party investors and calculate annual advertising revenues of up to £150m. A more realistic prospect of its survival would be the provision of some sort of grant or subsidy from the BBC which facilitated the recent launch of local TV. However, if, as we have been told, the BBC is adamantly opposed to the bidders' proposal, the likelihood of the BBC facilitating this seems rather remote.
That said, even the bidders have frankly acknowledged that their proposal is only the second best option for BBC Three. They would prefer business as usual.
Interviewed by Alex Heshmaty.
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