Tuesday 6 December 2016

Time for a major overhaul of the TV licence scheme

If it wasn't for a strong performance from RTE's network division, the 2015 deficit reported during the week would have been a lot higher

John McGee

Published 24/07/2016 | 02:30

(Stock picture)
(Stock picture)

The announcement this week that RTE posted a €2.8m after-tax deficit in 2015 wasn't surprising, as it had been hinted at in certain quarters during the year. Even though we are only half way through 2016, another deficit this year is already being flagged way in advance. And one can say with a degree of certainty that 2017 is unlikely to be much better.

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RTE's dependence on the licence fee is hugely significant in all of this. As the 2015 annual report shows, it received €178.9m from the licence fee last year. By comparison, it brought in €155.4m in commercial revenues, €108.9m of which was in the form of advertising and sponsorship.

Given the highly competitive nature of the Irish media market, this was a commendable 4pc increase on the figure achieved for 2014, with revenues for TV up by 2pc and radio up by 9pc, while digital notched up an impressive 17pc increase.

However, buried deep in the notes that accompany the accounts in its annual report, a more revealing picture that goes beyond the headline figures is painted. And it's one that will test the mettle of Dee Forbes, RTE's new director general, as she plans its future strategy and direction.

To provide a greater degree of transparency and accountability, RTE operates six key integrated business divisions (IBDs), the largest of which are TV, radio, news and current affairs, network, and digital. The notes to the accounts show how each of these IBDs performed during the year and how much of the licence fee each of them received, as well as any surpluses or deficits that arose.

For example, TV received €76.7m from the licence fee while clocking up €99.2m in commercial revenue. After all its programming costs are taken into account, however, it reported a deficit of €7.5m for the year.

Radio, meanwhile, turned in a deficit of €2.8m after bringing in commercial revenues of €24.0m and receiving €30.5m from the licence fee.

For its part, RTE's digital division brought in €11.1m in commercial revenue - €7.5m of which was in advertising and sponsorship - while it received €3.2m from the licence fee. Despite this, a deficit of €2.7m was reported.

So between these three key divisions a hefty deficit of €12.54m was clocked up, despite them receiving €110.5m from the licence fee and commercial revenues of €134.4m.

What financial sorcery is this, I hear you ask? Stick with me.

Of the remaining IBDs, just two reported a surplus for the year - network and "other" (the catch-all for things like the RTE Guide, events and other commercial activities).

With revenues of €28.9m for the year, its network division - which is responsible for DTT multiplexing and other transmission services to other broadcasters - turned in a healthy surplus of €9.3m. Other commercial activities, meanwhile, turned in a surplus of €390,000 for the year on total revenues of €14.3m.

In other words, the significant contribution by RTE's network division was ultimately responsible for ensuring that the final group deficit was not a lot more than the €2.8m that was widely reported during the week.

But of course RTE is a not-for-profit organisation providing a valuable public service that costs a lot of money, and ultimately it's the final surplus (or loss) at the end of any given year that sets the agenda for much of the debate and coverage. But these divisional breakdowns lay bare for all to see the enormous financial challenges it faced in 2015 and will continue to face in the future.

The reality is that any future commercial gains the broadcaster makes in areas like advertising and sponsorship may not be enough as it faces stiffer competition in the marketplace, uncertainty in a post-Brexit environment, and increased operating costs across the board - particularly in terms of its wage bill and its commitment to restore wage cuts made in 2009 by the end of 2017.

Once again, all roads lead back to the licence fee and how much more (or less) it should be allowed access to. As the former director general Noel Curran pointed out in the annual report, "the lack of licence fee reform now represents the most significant risk to RTE's - and the indigenous independent production sector's - long-term sustainability and growth potential".

The €178m RTE received from the licence fee last year is €22m less than it received in 2008. Even if it was restored to 2008 levels and commercial revenues grew by 3-4pc year-on-year for the next few years, it is entirely conceivable that RTE would still remain financially challenged. And this is a big problem.

A root-and-branch overhaul of the licence fee and how it is collected and divvied up seems like a sensible start. But given the existing rates of licence fee evasion, coupled with previous failed attempts to come up with an alternative (remember the household media charge?), the new director general would be best advised not to hold her breath for too long.

Sunday Indo Business

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