1. Quiz 1: Case study Evidence A 1 of 3 1. How might we understand the concept of a ‘Public Service’ broadcaster in traditional economic terms? As the provider of a merit good. The ‘public service’ points towards a broad benefit for society as a whole, not just the immediate viewers. 2. Why might it be difficult to say how great or small these benefits are? Educational programming and the political and social benefits of impartial news channels provide benefits over the long-term. These will be extremely difficult to measure as so many other factors will come into play in determining viewers’ outlook on life.

2. Evidence A 2 of 3 3. Why is the ‘compulsory annual licence fee’ a regressive tax? Because every household with a television pays the same size of licence fee, poor households pay a higher proportion of their income than rich ones. This is the definition of a regressive tax. 4. What features of the Licence Fee makes it less regressive than a simple tax per person? Households where one occupant is over 75 do not have to pay it. And the elderly are more likely to be poor Large families are also more likely to be poor, yet only need the one licence while deriving more benefit from it

3. Evidence A 3 of 3 5. What other examples are there of Sky’s and Virgin’s business model, whereby income is generated by both direct purchases of the product and also advertising? Newspapers: most rely on both a cover price and advertising revenue Online stores, which will often take advertisements as well as direct payment for goods Public transport, which sells tickets and also sells advertising space

4. Evidence B 1 of 3 6. How does Evidence B illustrate the chain of distribution? Some of its partners such as National Geographic and Discovery Channel are pure content providers. YouTube acts like a shop: it is the means by which the product is delivered to the final customer. 7. Why then don’t we have to pay to watch these channels on YouTube? They are funded by advertising, and also act as a ‘shop window’ to lead interested viewers to Pay-TV websites where they will have to pay.

5. Evidence B 2 of 3 8. Why might advertisers prefer ‘pre-roll’ advertisements to the traditional ‘alongside’ advertisement? They are much harder to ignore. 9. What is the danger of too many lengthy pre-roll advertisements for YouTube? They will damage the willingness of viewers to use the site.

6. Evidence B 3 of 3 10. Why challenge does YouTube present to conventional TV networks, such as those mentioned in Evidence A? YouTube provides the same basic product, namely video content. Enormous quantities are available ‘on demand’ Its online presence is of immense importance as average hours spent in front of a PC continue to grow It may reach a ‘critical mass’, where it contains so much of the video people want to watch that it becomes the ‘default’ platform in most people’s minds

7. Evidence C 1 of 3 11. What is the (brief) history of the licence fee? It is almost a century old. It was the original way to pay for radio broadcasts back in the 1920s, and was extended to television in the 1940s – before the first competitor arrived in the shape of ITV in the 1950s. 12. What is the fundamental justification for the licence fee? The fact that it is used to fund ‘Public Service’ broadcasting. This concept includes the impartial dissemination of news, educational content and a commitment to cover minority-interest subjects.

8. Evidence C 2 of 3 13. What is the fundamental objection to the licence fee? The fact that it is illegal to watch TV without a licence, even if you never watch any of the content you are paying for. 14. What change in market structure presents a challenge to the Licence Fee? The rapid expansion in the number of channels from just four in the 1980s (two of which were the BBC’s) to over 400 now.

9. Evidence C 3 of 3 15. What sort of tax is the Licence Fee? It is a tax which is raised for just one purpose, in this case to fund the BBC’s Public Service broadcasting. Such a tax is known as an ‘hypothecated tax’. The BBC contracts out the collection of this tax to a variety of private firms, and the money goes first to the Government. The Government then hands it over together with roughly 16% extra to cover the cost of free licences for households where someone is over 75.

10. Evidence D 1 of 3 16. The ‘Switchover Help Scheme’ is a scheme to help the registered disabled and over-75s switch from analogue to digital television. Given that the take-up for this scheme was less than anticipated, why could the BBC not simply spend the money on its other Public Service obligations? The whole concept of the Licence Fee is in question, as the number of channels proliferate. The decision reflects declining public support for the Licence Fee. 17. Why did the BBC argue for the surplus to be given back to the public? Because it is desperate to maintain the convention that the BBC receives the entire Licence Fee.

11. Evidence D 2 of 3 18. Why did Ofcom suggest it the surplus be given to ITV and Channel 4? Because they also have Public Service obligations. As TV audiences have fragmented, so it has become harder for ITV and C4 to fund these obligations out of their only source of income, namely advertising revenue.

12. Evidence D 3 of 3 19. How would Ofcom’s suggestion have radically changed the nature of the Licence Fee? It would have changed it from a tax used to support the BBC to a tax used to support Public Service broadcasting – whoever provided it. 20. What is the fundamental argument in favour of Ofcom’s proposal? It would have brought real competition into the provision of Public Service broadcasting and into the use to which the Licence fee is put. Currently, the BBC has a monopoly on its use.

13. Evidence E 1 of 3 21. How does the decline in the BBC’s market share compare with that of the main channels funded by advertising? They declined at very similar rates over 1997-2008. The BBC declined from 42.4% to 29.6% - a decline of 30%. ITV, C4 & C5 combined declined from 45.8% to 31.6% - a decline of 31%. 22. What is the fundamental explanation for this decline? The increase in the number of channels from 5 in 1990 to over 400 in 2008 [Note: the market share attributed to Sky and Virgin is actually the market share of all other channels combined].

14. Evidence E 2 of 3 23. What is the name for the many niche providers, who collectively take away market share from the market leaders? The ‘long tail.’ 24. To what can we attribute the growth of this long tail? The main reason is the advances in technology which have increased the number of possible channels from five analogue, terrestrial channels to many hundreds. Satellite transmission, and digital transmission are the main drivers behind this multiplication of possible channels.

15. Evidence E 3 of 3 25. What further technological advances are currently multiplying the number of channels yet further? Broadband access is breaking down the distinction between TV and the Internet – video content may now be watched on any one of literally millions of websites Then Internet Protocol TV (IPTV) is making it possible to view that content through household television sets And mobile TV is bringing video to hand-held devices