BBC's commercial arm gains huge benefits from use of corporation branding, argues research commissioned by Pact
BBC Worldwide, the corporation's commercial arm, should be forced to pay as much as £60m a year for the right to use the BBC brand, according to Pact, the independent producers' trade body.
Pact is also calling for BBC Worldwide to lose its preferential status in bidding for rights to the corporation's programming, in a report commissioned from research consultancy Oliver & Ohlbaum Associates.
The organisation said these reforms should be introduced whether or not part or all of BBC Worldwide is sold off.
BBC Worldwide gains huge commercial benefits by avoiding the usual business practice of paying an annual licence fee for use of the valuable BBC brand, according to the report.
The report examines the structure of the deals to licence the use of the Virgin Media and Virgin Radio brands. Each deal is structured on the basis of paying an annual fee relating to revenues earned.
According to the report BBC Worldwide, which made more than £1bn in revenues for the year to the end of March 2009, should be paying as much as £60m a year.
'Applying this levy to revenues (excluding the UKTV channel business, which do not use the BBC name), produces an annual licence fee growing to £60m per annum by 2014/15,' stated the report.
'Note that were BBC Worldwide pay a licence fee to the BBC for the use of the name this would not result in a loss of value to the BBC, it would merely transfer the value of the asset (and thus potential sale price) into an ongoing annual charge.'
The report points out that the effect of an annual licence payment would be to reduce BBC Worldwide's value to any buyer by around 39%.
Pact is also seeking to scrap BBC Worldwide's 'first look' and 'last look' arrangement with the public service arm of the corporation when bidding for programming rights. The commercial arm gets the chance to put in the first and last bids in this process.
'The current relationship between BBC Worldwide and the BBC is not appropriate for a stand-alone business, and has contributed to Worldwide being the biggest exporter of British TV in the market,' said John McVay, chief executive of Pact. 'By choosing not to open up the market for its programmes to competitive bidding also raises the question of whether the BBC is getting a true market value for its programmes, and ultimately, the full return on their investment funded by the licence fee payer. These are areas that need to be addressed before it can be privatized, but also if it is not.'
A review of BBC Worldwide's activities by the BBC Trust published in November concluded that the deal should stay in place but there should be a more 'transparent process' going forward.
However, a report last year by the House of Commons culture, media and sport slect committee that examined BBC Worldwide's activities concluded there was 'little evidence' to show that the BBC is 'currently obtaining the maximum value from its programming' through the 'first look' arrangement with BBC Worldwide.
'To foster effective competition in the UK market and allow UK distributors a fair chance to build their presence in the international market, some of the privileges that BBC Worldwide enjoys need to be curtailed,' said McVay.
Last month the government included BBC Worldwide in a portfolio of assets that could be sold off and urged the corporation to consider a full or partial sale. Selling off a stake was also backed by the Lords communications committee in a report published on Monday.
However, Mark Thompson, BBC director general, has ruled out full privatisation, saying in a MediaGuardian.co.uk comment piece in December that the BBC 'cannot envisage a Worldwide in which the BBC does not continue to play a central role'.
Thompson also said Worldwide would 'only be worth a fraction of its present value' if it was sold off and stripped of the BBC brand and that 'the right question to ask is neither how to chop it back ... but how to develop and exploit it'.
Worldwide is wholly owned by the BBC and, if a stake were to be sold, it is understood the money would return to the corporation, although it could be urged to use the windfall to subsidise other activities or to make up any reduction in the licence fee.
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