The Economics of Broadcasting

John Kay’s columns are always worth reading;

“If it costs £50,000 to produce an hour of programming, you can recover that expenditure by raising a penny from 5m people or a pound from 50,000. The trouble is that even a penny per household is a lot to pay for an opportunity to describe the merits of your toothpaste. The peculiar economics of twentieth century television, dependent on toothpaste advertising or tax finance, could exploit only that first option. Commercial programme makers were obliged to make programmes that large numbers of people wanted to watch. State programme makers needed to compete for ratings to justify tax funding of their activities.

The outcome seemed to demonstrate that competition reduces quality and the output of private producers is worse than that of state producers. But experience of other markets is the opposite. Fords were better than Ladas, Fedex more reliable than US Mail and the complaint about private education or health is not that it is inferior but that it is elitist. The converse was true in broadcasting only because the economics of broadcasting was unique.

But the economics of broadcasting is no longer unique. You can receive data from satellites, along cables and telephone lines, on discs and USB keys. These advances mean you can charge for signals on screens as you can for any other product. Cyberspace is filled with multiple messages and we are no longer dependent on the munificence of either governments or toothpaste manufacturers...

But the future belongs to BSkyB chief executive James Murdoch, 30 in 2002, not incoming ITV executive chairman Michael Grade, 30 in 1973. In other markets, people pay for what they want and show great diversity in what they do want. The key insight is that £50,000 can be 5m pennies or 50,000 pounds. It now costs much the same to produce and disseminate a television series as to write, print and disseminate a book that takes the same time to read. Eventually, programme libraries will be as extensive and varied as book libraries.

However, old institutions and old ideas will continue to get in the way. In leaving the BBC for a commercial company, Michael Grade has dismounted the elephant in the room to climb on to the dead horse.”

Via Indonesia and economy