There’s an old joke about a couple lost in the country trying to find the hotel they are booked into. They stop a local farmer and ask directions. The farmer scratches his head and says ‘I know where the hotel is, but you don’t want to start from here’. It’s not a great joke, but it is a good analogy for a common issue that many incumbent organisations face – how to change strategic direction when market conditions are disrupted.
For example, take the BBC. If it were being created today it wouldn’t be funded by imposing a tax on TV set ownership – the multiplicity of screen based devices would render such a solution unworkable. So how to evolve a strategy from such a difficult starting place?.
There are many creative thinking techniques I like to use in these situations. One technique is combining two totally different ideas together to create a new, better,solution. For example, combining the phenomena of magnetic repulsion with the simple train to create high speed mass transit systems like the Maglev.
Or, closer to home, the conversion of TV programmes into data files to create the basis of OTT TV.
This technique is inspiring and fun because you can find yourself thinking about the most ridiculous combinations until one pops out that just might work. Here’s one I’ve been thinking about regarding the BBC: a combination of e-commerce affiliate marketing and the existing license fee system. Bear with me on this.
Here’s the problem:
- The BBC needs to find a credible alternative to funding via the licence fee
- The existing licence fee system was introduced at a time when the TV set was the only way to receive TV signals. Now we have a multiplicity of screens and delivery methods, this system is anachronistic
- BBC independence is sacrosanct and so commercial/corporate/political interference into editorial decisions is viewed (rightly) as unacceptable
And the solution:
- Tap into the UK’s £20bn affiliate marketing e-commerce market (which is growing at 15% pa)
- Offer BBC license fee payers the choice of paying cash, as they do now, or via affiliate commissions that automatically accrue from their ecommerce spending
- Aim to replace a decent chunk of the £5bn licence fee income over a 10 year period.
Affiliate marketing is extremely simple but not widely understood. Essentially, when a website (affiliate publisher) directs traffic to an ecommerce site, the publisher takes a commission from any ensuing transactions. For example, when a punter buys an insurance policy from Go Compare, the punter believes they are getting the best deal, and Go Compare earns a commission, typically around 10% of the transaction value. It’s a win-win-win: for the customer, for the publisher, and for the ecommerce merchant. What’s more, the commission paid to the publisher is included in the price people pay for goods and services and so is a ‘hidden’ charge that no-one notices.
The UK has the most advanced affiliate marketing business in the world and is seen as a pioneer in the space. Consumers in the UK spent £16.5 billion in 2014 due to affiliate marketing according to the third annual Online Performance Marketing study conducted for the Internet Advertising Bureau UK (IAB) by PwC. Assuming a 15% per annum growth rate and the 2016 UK market will be around £22bn. At an average rate of 8%, this results in total commissions approaching £2bn this year with strong (12-15% pa) growth projected for many years to come.
So how do you combine the BBC funding requirement with affiliate commissions? Simply tap into both the massive reach the BBC has (pretty much every household in the UK) and the great affinity with which the brand is held – it is consistently among the top brands in the UK.
Offer people the option of paying the £145.50 licence fee, as they do now, or accessing their favourite online shopping brands through a BBC affiliate link and earning the equivalent amount in commissions. Just as schools encourage parents to buy their books through affiliate links to Amazon in order to receive a 5-10% commission, this model can just as easily apply to the BBC. Just on a much bigger scale.
It could work as follows:
- The BBC sets up an affiliate publishing site where licence fee payers are invited to go to find ecommerce links to pre-approved merchants (most household names)
- The BBC publishing site houses ecommerce offers for BBC viewers enabling them to buy as normal, but in return for licence fee credits.
- The site could be segmented by channel, by genre, by programme so offers can be made more relevant if desired
- Ecommerce merchants could make relevant and segmented offers to increase reach and take up. For example, Halfords may offer seasonal discounts to Top Gear viewers or Sainsburys make special offers available to Bake Off fans.
- BBC licence payers then simply transact through the BBC affiliate programme and commissions are automatically collected and credited to their licence fee account.
- Such a system would be simple to create and administer – the technology exists already and sites like Quidco already consist of similar infrastructures.
- Each year, every licence fee payer then pays the balance of their licence fee (if any) in cash, or they may have built up a surplus commission balance (see below for what can happen with credit balances).
- The overall result will be a growing proportion of the BBC licence fee, and in time perhaps all of it, covered by affiliate commissions.
Such funding should not be confused with sponsorship or advertising. Collecting affiliate commissions will result in no involvement or visibility of any commercial brand in the editorial content of any BBC output, and maintaining this separation will not be difficult. For years schools have signed up as Amazon affiliates with no suggestion that such indirect funding has led to any undue interference on a school’s operations or policy. The same will need to be true if the BBC adopts this system of funding, albeit at a much larger scale, in order to maintain the crucial principle of editorial independence from commercial pressures.
The beauty of this system of funding is that it is accessing new money for the TV ecosystem, unlike advertising or subscription models which would inevitably cannibalise existing TV revenues and so adversely impact the commercial TV players.
Some back of envelope numbers I’ve run show the potential impact as a % of total licence fee income to be low at first, maybe 5% after 1 full year, but over a 10 year period the entire licence fee could be funded from affiliate commissions. It just needs political and managerial will – the technology is there, and the licence fee payer will find it an attractive proposition.
Once adopted, this method contains some interesting potential upsides. Some licence fee payers adopting the model will build credit balances by generating commissions in excess of the licence fee – the average online shopper in the UK spends around £3,000 online so could yield as much as £300 in commissions.
There are lots of imaginative ways to optimise this, including:
- Divert some of the excess credit to a fund available to subsidise others less fortunate
- Give some of the excess commission back to the high spending licence fee payer through a cashback scheme
- Divert some of the excess to fund new programmes otherwise unaffordable
- Convert credit balances into BBC related goods such as downloads, merchandise and ticketing.
By giving each individual licence fee payer the choice of what to do with their credits, some of the BBC’s decision making is handed over to the public for the first time thereby introducing crowdsourcing and people power into the mix!
The beauty of this solution is that it can be introduced quickly on a trial basis and then built up over time according to what works best – a truly agile approach that wouldn’t require the total upheaval of the status quo that a switch to a subscription model would entail.
So, with a bit of creative thinking a mashup of two of the UK’s great innovations – affiliate marketing and public service broadcasting – can result in the secure future of the BBC without political or commercial interference in its editorial output. And even though the start point seems impossible to escape, it turns to be the right one after all.
® Dan Allen