This article is taken from the December-January 2025 issue of The Critic. To get the full magazine why not subscribe? Right now we’re offering five issues for just £10.

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The BBC’s most recent Proms season — the last to be organised by David Pickard — brought widespread praise for many of its concerts and its overall ambition. Yet barely commented on was that only 26 out of the 73 Proms concerts reached our television screens (and only six on the night of the performance), let alone why.

It was during Pickard’s first season eight years ago that I met with him and the head of Radio 3, Alan Davey. I understood that TV channel controllers might be reluctant to schedule classical music, and that even using the iPlayer as an outlet for every Prom not being broadcast would cost the television service significant amounts of money.

However, my production company was willing to fund the cost of live streaming every Prom on the internet in exchange for the right to charge a subscription of, say, £40 to those who wanted access to the entire season, either live or on playback.

For millions of UK households living beyond easy reach of the Royal Albert Hall — and many millions more overseas, especially in the US — such a service would hugely expand access to the Proms. I said BBC TV would be welcome to broadcast as many Proms as it wished at no extra cost to the television service. Understandably, Pickard and Davey were enthusiastic. Every Prom was already broadcast live on Radio 3: this would be a big opportunity to enlarge the audience at no cost to the BBC.

I received no response, either that year or subsequently when the Proms duo invited me back for further discussion. No reason was ever given for refusing my offer. But it was obvious to anyone who understood the BBC’s deep aversion to the whole idea of subscription funding what underlay the silence. What the BBC feared was that my proposal might succeed.

If it worked, a precedent might be set that would lead to calls for wider use of subscription. That I offered to transfer the whole project to the BBC if the first year proved profitable was perhaps seen as some kind of trap (I was well-known as a supporter of the recommendation in the 1986 Peacock Report that subscription in due course replace the licence fee).

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The licence fee has been the bedrock of the BBC’s finances for more than a hundred years. Its supporters argue that a flat fee, payable by all, is the fairest way of funding the BBC, which in turn will provide content that is universally available for all tastes and audiences. Being free at the point of use — rather like the NHS — has become an article of faith.

Yet this depiction of the licence fee is profoundly misleading. For the first third of the BBC’s life, the licence fee was actually a subscription. If you paid the relevant fee — initially radio, then television — you could legitimately receive the service. That was the limit of “universality”.

This simple mechanism changed in 1955, when ITV was launched. Now the television licence fee became a payment for use of the relevant equipment, rather than payment for a service. The popularity of ITV led to a surge of TV set sales, which greatly enriched the BBC, in return for no effort on its own part.

This was the first of a sequence of fortuitous enhancements of licence fee revenues. The next was the arrival of colour television, which served as a kind of premium offering, commanding a premium licence fee (as if returning to the subscription principle). ITV soon adopted colour, at considerable cost, but all the revenue from the higher licence fee accrued to the BBC.

A third, unanticipated, surge factor was the remarkable growth of single-person TV households, each obliged to pay the licence fee if they wanted to watch television. More recently, the arrival of millions of migrants has had the unintended and serendipitous effect of boosting the number of UK households, and so BBC revenues.

An elaborate dogma has been constructed around the licence fee, intended to offset the unpleasant fact that tens of thousands of people, mostly poor, mostly female, are prosecuted each year for having a television but no TV licence. But this dogma — the need for “universality” — is largely bogus.

The notion of universality is a very recent one. All BBC services were rolled out piecemeal, in line with the process of building transmitters, first for radio, then for television. For most of the BBC’s existence, the majority of its services have not been universally available. This particularly applied during the introduction of digital channels, where the process of reconfiguring analogue terrestrial transmitters was complex. For many years, millions of households found themselves paying for the BBC’s new digital services through the licence fee even though they could not receive them.

Ironically, the BBC’s own plan to launch its new digital channels, just 25 years ago, had adopted the subscription model: a supplementary digital licence fee would be charged for access to the new services, payable only by those who wanted access to them and could actually receive them.

As prime minister, Tony Blair overruled this idea in response to complaints from Sky and ITV that their own digital investments might be constrained by a monthly £2 digital licence fee. The resulting unfairness of forcing all licence fee payers to fund the new channels, regardless of whether they could receive them, was partially offset by a wheeze from Gordon Brown to allow all those over age 75 to receive a free licence.

When the rapidly rising cost of this concession eventually made it unaffordable for the Treasury, the BBC was offered Morton’s Fork: fund the concession itself, or pursue millions of elderly people through the courts when their free licences expired. Eventually, it decided that only those in receipt of pension credit would be granted free TV licences: as if to confirm the BBC as part of the welfare state.

Those who preach the prime importance of “universality” seem not to have noticed that the BBC has for many years been commissioning entertainment programmes for the suite of pay-TV channels — UKTV — it owns and operates. Some of those productions (such as the dramas Annika and Traces) even end up on the free-to-air channels: but only after their initial exposure on subscriber-only channels. That is a useful precedent.

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By the time the BBC was forced into deciding what to do about the over-75s, the licence fee in real terms was running out of steam. The impact of the last of the four external dynamos — immigration — is now starting to fade: and most recent immigrants are more likely to watch content on an internet-linked digital device than a terrestrial TV set.

In parallel with this, both the coalition and the Conservative government piled spending obligations on the BBC — such as taking over the funding of the World Service — as well as imposing freezes in the level of the licence fee. Add in the impact of inflation, and the proceeds from the licence fee are now worth nearly 30 per cent less than at their peak a decade ago.

Meanwhile, the successful roll-out of fast broadband in the UK has allowed streaming services — led by the US giants, Netflix, Amazon Prime, Disney+ and Apple TV+ — to demonstrate the dynamic power of subscription as a funding mechanism. Within a few years from launch, these services had attracted voluntary subscriptions from nearly 70 per cent of UK households, even as the number of homes paying the licence fee started, unprecedentedly, to decline. The annual household exodus from the licence fee is now running at between 400,000 and 500,000.

Whether these defectors have actually given up live television, or just say they have, is impossible to tell: fewer than 10 per cent of supposed “evaders” are ever prosecuted. With the penalty for conviction little more than the cost of the licence fee — scarcely a forbidding prospect, especially as such an outcome does not result in a criminal record — the surprise is that evasion is not more common. Even so, with only 80 per cent of households now actually paying the licence fee (another 3.5 per cent receive free licences), the risks in the system multiply.

First, lower BBC income leads to a weaker provision of services, a perceived worsening of “value-for-money”, and increased incentive to head for the exit. Secondly, there is the prospect of a tipping point — perhaps 30 per cent? — at which the exodus gathers unstoppable pace. And thirdly, a technological barrier currently propping up the licence fee may disappear.

This barrier is the legacy of installed viewing systems which incorporate a TV tuner (unlike a laptop, tablet or smartphone, which have smaller screens). Between 5 million and 8 million of these are replaced each year, each typically capable of bypassing live TV by use of broadband, but nearly all still including a TV tuner. If a major manufacturer chose to market a large smart screen without a tuner, eliminating the need to buy a TV licence, there might be a rush for the doors.

The new Labour government has now revived the idea that licence fee evasion should no longer be pursued through the courts, because the process so disadvantages single mothers, who are the kind of householders who tend to be at home when the enforcers call. The BBC is understandably alarmed at the prospect of its revenues being further undermined if a blind eye is turned to evasion.

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The legal framework and the possibility of technological change are not under BBC control. Yet it manages to worsen its situation by pretending that it — as well as the licence fee system — is inherently efficient, publishing deeply misleading annual accounts that conceal the true position, whilst suppressing information deemed inconvenient.

The most obvious of the BBC’s fantasy claims is that expenditure on overheads only takes up 5 per cent of its licence fee income (currently around £3.7 billion each year). As anyone who has worked in broadcasting will know, there are two types of outgoings: the cost of programmes, whether commissioned externally or made in-house; and everything else — rent, rates, utilities, distribution, marketing, engineering, promotion and presentation, development, finance, HR, non-programme staff, telephony, travel and so on. Typically, these will constitute around 40 per cent of all expenditure.

Ofcom knows perfectly well that the BBC’s 5 per cent claim is highly misleading: eight years ago, it published its own study of broadcaster overheads and calculated that for the BBC the correct figure was 44 per cent. Despite now being a key regulator of the BBC, Ofcom chooses to keep silent about the claim. Similarly, the National Audit Office, in monitoring the BBC’s accounts, makes no comment on the fictitious 5 per cent.

Until four years ago, we could find most of the relevant figures in the BBC’s annual reports: so, in 2016, technology costs were £166m, property costs £160m, finance and operations £85m, divisional costs £85m, development costs £83m, and marketing costs £70m. Add in £137m for licence fee collection, £51m for research and £61m for restructuring, and we have a minimum of £900m, or nearly 25 per cent of licence fee revenue.

Yet the true figure for overhead costs is probably nearer double that level. These days, the previously declared costs headings, other than actual programming, have been subsumed into “general support” (£187m), “content and distribution support” (£469m), “distribution” (£197m), “other TV content spend” (£379m) and “other service spend” (£477m). In any normal broadcaster, this £1.7bn of expenditure would be described as overheads.

Until this year, there was one other set of data in the annual reports that gave a clue as to the balance between content creation and overheads. In the small print, there was a breakdown of the 15,885 staff employed across the four nations. 4,825 were classified as working on content and 11,060 (or 70 per cent) as support. In a previous report, out of 19,866 staff, 10,255 (52 per cent) were classified as support, administration, engineering, sales, marketing and communications. It was simply impossible for the 5 per cent figure to be correct.

In April, I passed these details to the DCMS team managing the BBC Funding Review Panel (of which I was a member, until the election halted our deliberations). A few weeks later, the BBC’s 2024 annual report and accounts were published. All the details about employment in the four nations had been expunged.

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What survives in the accounts is a different type of fantasy: the claim to be making hundreds of millions of pounds of savings every year as part of a determined efficiency drive. The cumulative total of savings is reported as over £2bn. Yet it is all a mirage. No cash turns up in the BBC’s coffers: whatever is “saved” is spent on something else.

So, savings “through production and operational efficiencies” simply mean budgets stretch a little further. “Re-mixing our programme slates” means replacing expensive programmes with cheaper ones. A “focus on high-impact content” means replacing less popular programmes with more popular ones. Savings from “third-party investments” means pre-selling programme rights. The latest “£500m savings plan” includes “growing commercial income” — by definition, not a “saving” at all.

The annual reports insist that the BBC is committed to being “lean and efficient”. In the last four years, the BBC has spent £177m on 2,698 redundancies. Yet the headcount has reduced by less than 1,000, and remains stubbornly over 17,000 (excluding the BBC’s commercial subsidiaries). The licence-funded payroll totals over £1.5bn a year. Of the top 105 highest-paid staff (all listed in the accounts), scarcely any work in programme-making.

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All this effort invested in persuading politicians that the BBC, and by implication, the licence fee is good value for money is misplaced. The only real test of whether the BBC is valued would be when consumers are allowed to choose to pay for its output. Meanwhile, the choices they are currently free to make show the strong direction of travel. The forces eroding the audience shares of all public service broadcasting (PSB) channels, but especially the BBC, have reduced viewing of all broadcast channels by 12 per cent in just two years — whilst live viewing of BBC TV fell by 12.3 per cent in just one year.

Most 16–24s do not watch any live broadcast television each week. Ten years ago, nearly 80 per cent did. In total, 16-34s spend 6 per cent of their viewing time with live BBC output, 4 per cent with the iPlayer, 11 per cent with TikTok, 25 per cent with YouTube and 29 per cent with streaming services. Across all age groups, broadcast channels now take up only 57 per cent of all in-home viewing.

Netflix has 16.7m subscribers in the UK, paying £1.7bn in fees. In turn, Netflix spends £1.2bn a year on UK content: more than the BBC. The PSB channels between them spend little more than £300m a year on drama — half, in real terms, what they spent 25 years ago. The streamers spend ten times as much as the PSBs on films and drama made in the UK. 60 per cent of their budget and inventory is invested in these key genres. Just 1 per cent of PSB output is drama.

To rub salt in the wound, three of the drama series that won categories in this year’s Emmy awards were commissioned by streamers (Netflix and Apple TV+) in the UK, with British subject matter, cast and crews: The Crown, Slow Horses and Baby Reindeer. The last of these was actually made by a production company owned by the BBC. Yet our own broadcasters missed out on them all — through lack of finance, lack of ambition or lack of imagination.

What the success of the streamers confirms, though, is that a long-term solution that allows the BBC not just to survive, but flourish, lies within reach — as it has done for decades. Ironically, the BBC was a pioneer of streaming, with its iPlayer service, which still grows in use, but, as a free-to-air offering, generates no revenue, only costs.

Adopting subscription funding for its entertainment output is the nettle that must be grasped.

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The key is to recognise the difference between the BBC’s public service output and its commercial-style programming. The former — news, current affairs, regional provision, children’s programmes, education, religion and ethics, arts and classical music and certain documentaries — needs guaranteed funding. This should be provided through central taxation, thereby allowing the licence fee to be abolished. This finance will support a suite of free-to-air BBC services, including a Parliament channel, a news channel and children’s channels.

The commercial-style content should be packaged up as premium services, paid for by subscription: entertainment, sport, high-end documentaries, drama, even arts — where the BBC could deploy its own rich archive and license content from the libraries of such as The South Bank Show, Allegro Films, Portobello, Seventh Art and Tony Palmer’s Isolde Films.

Palmer started his career in 1964 as a BBC general trainee, yet in the 60 subsequent years the BBC has commissioned just one film from this celebrated director who, uniquely, has won the prestigious Italia Prize three times.

With its revenues as a premium channel, BBC Arts could rediscover a treasure trove of content, revive arts programme production in the UK, and create an outlet for scores of music festivals and performances around the world.

BBC Arts might even show every single Prom live — and allow BBC free-to-air access to as many concerts as it wanted.

Indeed, central to the logic of such a strategy would be careful dovetailing of premium and free-to-air, with same-week repeats on the free-to-air offering of premium content — not just EastEnders, Strictly Come Dancing, Call The Midwife, Casualty, Silent Witness, Match Of The Day and Death in Paradise, but new dramas generated by the flow of subscription revenues.

In return, the free-to-air service would promote the premium channels: this being the only exception to the no-advertising rule that should still prevail for publicly-funded broadcasting. A free-to-air iPlayer would similarly act as a barker for the premium version.

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How likely is this to happen? Sadly, the BBC seems to prefer fantasy. In September, Director-General Tim Davie made a major speech claiming that the BBC each year made or provided 28,000 hours of arts, classical music and culture programmes, and that “no one else comes close”.

Challenged by the Daily Telegraph, the BBC retreated. The vast majority of the claimed hours are not new, but archive programmes dating back decades. Most of the current output is Radio 3’s disc-based content, little different in volume from Classic FM’s. It transpired that last year’s TV output of classical music and dance programmes amounted to just 140 hours, half of which were Proms performances.

Formerly a staple of BBC arts output, this year’s coverage of the Leeds International Piano Competition compressed eight days of performance into a single 2-hour highlights programme, broadcast more than five weeks after the event. Sky Arts commissions more TV arts content — and of higher quality. The four-hour series Backstage with the London Philharmonic was the arts programme of the year. Mr Davie should take a look.

The core problem with licence-fee funding is that it purports to assert that all BBC output is of equal public service value. So, Pointless Celebrities (or dozens of similar BBC offerings) is deemed to be not just a public service programme, but one vital to the UK’s creative industries, playing its part in the BBC’s mission to serve all audiences: sufficiently so as to oblige every household with a TV set to pay a large sum to the BBC or face the legal consequences.

It is just such an approach that will condemn the BBC to continued decline and decreasing relevance, even as the opportunity to invest in a dynamic future beckons so strongly. With only its public service output underwritten with guaranteed funds, the BBC as a commercial enterprise would at last be forced to embark on a real efficiency drive. The age of fantasy economics could, finally, be brought to an end.