BBC - Don't Starve It, Flog It

SATURDAY, JULY 17, 2010

BBC - Don't Starve It, Flog It

At last, a Tory government that's going to grip the BBC. Kultur KommandantJeremy Hunt says cutting the Telly Tax is under active consideration.

Hurrah. It has long been obvious that the BBC is a major roadblock to smaller government and serious public sector reform, and however much it squawks, it has to be tackled.

But cutting the licence fee on its own is not such a great idea. All that will do is starve the beast of funds and weaken it. Far better to keep it healthy and drive it to market soonest.

Consider a few sums.

The BBC's total annual revenues are currently running at £4.6bn (2008-09), of which the telly tax comprises £3.5bn, and further government funding (the World Service) comprises £0.3bn. So total tax funding is £3.8bn.

Let's assume the BBC is privatised and the tax funding ends. The question then is how much of that £3.8bn would the BBC be able to recoup from subscriptions and advertising revenue?

In truth, nobody has the faintest idea. But for many, the BBC is a compelling brand, and so we'll assume it can hold on to half the total. In which case, its total revenue would be about £2.7bn pa (ie its existing £0.8bn non-tax revenue plus half its existing tax revenue).

The next question is how much could we raise from flogging a big established media company with revenues of £2.7bn pa?

Assuming the BBC could match BSkyB (and if not why not?), it would deliver a net profit margin approaching 20%. Which in the BBC case would be around £500m pa. And applying the current BSkyB market multiple to those earnings - its 19x ratio of market price to earnings - we can get a rough valuation for the BBC.

And that valuation is getting on for £10bn.

Could the Exchequer use £10bn right now?

You know, I rather think it could.

Don't starve it, flog it!

PS We've contacted BOM's man on the Wharf with the gigantic company valuation spreadsheet to check the numbers. Doubtless he'll say we've misinterpreted the fine print of BSkyB's financials, at which point we'll amend our figures. But meanwhile £10bn it is.