Applying Procurement Thinking to BBC Stars’ Fees

The BBC released details of payment to their best-rewarded “stars” last week – or at least those who are paid directly rather than through production companies or other mechanisms. This caused a predictable furore, with the news that Chris Evans gets £2.2 million for his Radio 2 breakfast show, Gary Linker £1.8 million for presenting Match of the Day (MOTD) and so on.

Will this prove to be inflationary or provide a check to increasing fees? It could go either way. There will be pressure on the BBC to cut costs, but equally we are already seeing talent saying “if he gets that much, then I want another 30% now”! The apparent male / female disparities don’t help that either.  On balance, we suspect this is not necessarily good news for the taxpayer.

However, we do know that the very good BBC procurement team – headed by our friend Jim Hemmington – is beginning to get more involved in the commissioning of programmes as well as the regular third-party spend categories. This might help their cause as they look to get more involved in that side of the business. And if we look on these payments in a similar light to how we consider usual procurement (third-party) spend, we may be able to apply a somewhat more analytical approach to the issues.

We would argue that there are a number of points to consider in terms of what is a reasonable “price” for talent. Clearly, there is no perfect market, no equivalent of the oil or cocoa market price or even the sort of goods or services for which you can look up pricing online from a few suppliers and make comparisons.

But there is some sort of “market” and we have already heard several of the highly paid people saying “we’re just paid the market price” or “we would earn more at ITV or Sky”.  That’s fair enough – but of course it is not the whole answer. The market price of a mid-level McKinsey consultant is probably £2500-3000 a day. That does not mean we should always accept that we should pay that every time we need a consulting project carried out, and Lineker’s market price might be £4 million but the BBC should not necessarily pay that. More on that later.

However, it does mean that if the BBC does not want to pay this amount, then the market will step in and the talent may well go elsewhere. So the BBC needs to considered two more factors: value and substitutability.

In terms of value, the licence fee mechanism makes it hard to assess the true value of these people. Sky might be able to look pretty directly at how much more subscription and advertising revenue they get with Gary Lineker presenting football compared to someone else. That might easily justify a huge fee. But the BBC needs to have some sort of “formula” we would suggest to establish the value of Lineker, or John Humphreys or whoever.

But that is not just the number of viewers /listeners. Think of it as if each programme had a fee to view or listen to it. A programme such as Newsnight might have far fewer views than East Enders, but maybe Newsnight fans would pay more to subscribe to it? That’s before we even consider the public service aspect of the BBC’s charter.

The final, and we would argue most vital factor is substitutability. So viewers might really like Lineker and maybe a million people would be prepared to pay £20 a year to watch MOTD. But how would that change if Lineker left and a new, cheaper presenter came in?

That’s where we would argue the BBC needs to think a bit harder. Much as we like Lineker, we don’t think his departure would do much to the viewing figures of MOTD. We love Claudia Winkelman, but Strictly Come Dancing has survived plenty of personnel changes already; how much would it matter if she, or Tess Daly, or a couple of the judges went?

On the other hand, the Graham Norton Show might lose most of its viewers if he went and another presenter came in (we saw ITV’s disastrous attempt at a similar format crash recently). And Chris Evans  brought more than a million new listeners to his Radio 2 show, despite taking over from the legendary Terry Wogan. Yet the same approach would highlight that Nick Grimshaw has lost listeners to the Radio 1 breakfast show, so you have to wonder why he gets paid so much more than arguably better Radio 1 performers?

Anyway, this question of substitutability must be key. It comes back to the BBC’s BATNA really. If the corporation can say “we don’t really mind that much if you go” it is obviously in a much stronger negotiation position than if the individual appears to really matter in terms of the value they bring. So in part 2 we will look at BATNAs, procurement strategies and what the BBC might do to drive better value from its performer budgets.

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Voices (5)

  1. Dan:

    Surely the ‘market rate’ for talent will also depend on what the competition are paying? Whether a TV personality is value for money is very subjective with no comparison, so it would help to know how much Sky, ITV etc are paying their equivalents

  2. Ian R:

    Performance related pay or incentives might work in some cases, so if Chris Evans increased the audience from Terry Wogan by a million he is given a bonus or uplift based on Terrys previous ratings. Similarly Nick Grimshaw would then be earning less that Chris Moyles if listeners switched off……

    Also in play is the competitive market for a single solution, I bet Chris Evans and Graham Norton have both been able to go into BBC offices with a cracking deal from Sky or ITV in their hands just as negotiations on a contract start. The BBC should use more of the leverage they have that they are the BBC?

  3. Andy Spriggs:

    I agree that the most vital point is ‘substitutability’. For example, Michael Owen would seem to be an obvious like-for-like replacement for Lineker in terms of their backgrounds. But have you seen/heard Owen on BT Sport?!

    I look forward to part 2. I am fascinated to hear your thoughts on how to measure or assess substitutability objectively in a sourcing setting. I’m not sure there are many people who could help you. I can’t tell you why I like Lineker and why I would switch on. But I do know that Owen would have me reaching for the off switch before a game kicked off!

    1. Peter Smith:

      But that just suggests to me that the BBC has not looked hard enough – not done its search for “innovative and exciting new suppliers” that we would do in procurement to find a replacement who isn’t Owen. It doesn’t have to be a ex England star either – we would grow to love an Isthmian league reject if he / she was insightful, fluent, funny … and by the way, my memory of Linker is he was fairly c**p to begin with!

  4. Angel of the South:

    For me it largely depends on the vision and aims of the BBC. Similarly with ITV, Channel 4 and even some parts Channel 5 from a TV perspective aim to be a Jack of all Trades in relation to entertainment. The BBC will require their talent and presenters to be able to transfer some of their skills and hands to presenting other entertainment formats. For example Sue Barker who initially presents Wimbledon, presented Question of Sport and has been able to adapt her skills to other formats. I know Lineker dabbled briefly presenting the Open, but has rarely strayed from Football presenting duties. There seems to be a culture within that organisation to use “tried and tested presenters” however, they have, like Sky grown their own, however it leaves little for emerging presenters to be able to dislodge more established presenters.

    Looking at the BBC over the years, they lost the Test Cricket, The Bake Off, The Open and in recent times (much to my dismay) rid of BBC Three as a channel on mainstream TV and rid of the old 606 forum. Now that’s not for a lack of trying, but more because the competition is able to offer more financially for those services. However, I don’t quite think the BBC knows the market or even the specific market it is trying to target.

    Could they potentially revert to the old 80’s and 90’s model when they imported shows? E.g Neighbours, Eldorado, Dallas? Not sure how the show fees these days compare with shows they produce themselves? Would certainly save on fixed labour costs like presenters.

    There are several factors and challenges they face which doesn’t so much give them the edge over the competition:

    – Inability to generate further income via advertisements or PPV events
    – Inability to set the pricing for subscription/membership fess. E.g TV Licence
    – Technology changes. Online streamlining making entertainment more accessible to consumers
    – Undefined portfolio’s e.g no designated sport channel or film channel

    The BBC are a unique organisation. For the most part, you can argue they have held their own against very strong competition.

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