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Taxing Online Media Platforms for Provision of Full Public Service Broadcasting—Is It Even Possible?

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October 10, 2019
Scott Morrison
BRG

Recent comments by Ofcom’s outgoing chief, Sharon White, suggesting that online media platforms should contribute, financially or otherwise, to assist and support public service broadcasting (PSB) in the UK have come at an interesting time.

In its most recent market report, published in July, Ofcom acknowledged that PSB is at a crucial juncture, with broadcasters facing unprecedented competition from global on-demand services, including Netflix, Amazon Prime Video and YouTube. To evolve the existing PSB framework to meet the changing landscape, Ofcom has started to engage with public service broadcasters (PSBs) and wider industry to discuss the future of public service media. Ofcom is planning to publish a report, Small Screen: Big Debate, later this autumn. By the end of its financial year, Ofcom also plans to publish its assessment of the state of PSB and how it has performed over the past five years, bringing together not only the established PSB services but also online media.

This is a commendable initiative. A framework which would underpin online media platforms contributing towards funding PSB provision, however, would likely prove challenging to achieve and is therefore an unlikely outcome of the various consultations currently underway.

It is important to recognise that, by their very nature, on-demand and online media platforms such as Netflix fall outside the PSB scope. By definition, PSB services must be available on a free-to-air basis, and they also must be funded for, in some capacity, either directly or indirectly. Further, they must be widely available (i.e. accessible free of charge). The absence of these factors means that pay TV operators cannot be viewed as PSBs.

Further, the existing PSB system faces challenges stemming from its “self-funding” model, where commercial PSBs trade the costs of PSB against some indirect benefits, such as electronic programme guide (EPG) prominence and free spectrum. This model may not be suited in the future as the sector evolves, requiring either a lowering of costs, which can be achieved by producing less PSB content, or a raising of benefits.

A contribution to PSB provision from pay TV operators could come in the form of a tax. Requesting that providers such as Amazon or Netflix contribute to the PSB system in some capacity would mean increased costs for these providers, which they would have to offset—potentially via increased prices of their services. With these services reaching far less than the entire population of the UK, such course of action would inevitably mean that the few (i.e. users of paid online services) would pay for the many (i.e. users of PSB more broadly). Ofcom has already recognised this challenge and deferred decision making to the UK government.

Revisions to the current PSB model are inevitable to allow it to cater for the future environment, but Ofcom and the UK government may wish to consider other funding options before approaching pay TV operators. Available options may include:

  • Retransmission fees, which PSBs would negotiate with platforms such as Virgin Media and Sky to boost revenues and exploit further commercial opportunities. The government has indicated previously its intention to maintain the status quo of no net payments between PSBs and online platforms, which means that employing this approach would require additional regulatory intervention.
  • Greater degree of prominence for PSB TV on-demand services. With online content consumption rising at a staggering pace, Ofcom is already considering this issue and the ways to require that new legislation would ensure that PSB services remain prominent online to ensure a level playing field.
  • Changes to the advertising regime. Current requirements mean that PSBs are restricted to lower advertising volumes, which can be linked to lower profit margins, than their non-PSB competitors. Amendments to today’s requirements would be a complex undertaking, as increasing the supply of PSB advertising could decrease the price of the services, resulting in no tangible increase in the overall revenue for PSBs.
  • Extension of ‘must-carry’ provisions to new IP delivery platforms.
  • General taxation. This could be challenging to achieve, as it would require the UK government to fund, in particular, the news arms of PSBs, resulting in PSB funding being viewed as a political issue.

Overall, it is not evident that pay TV providers such as Amazon or Netflix are the best source of PSB funding. The existing PSB model already harms the commercial operators indirectly. Mandating that firms fund their competitors, which would be a direct consequence of asking paid online platforms to contribute to PSB provisioning, would likely be highly distorting.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates.

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