News that the BBC is in discussions with the world’s largest media groups including Bertelsmann, Disney and Time Warner, about possible plans to sell off its commercial consumer arm – BBC Worldwide – hardly took anybody by surprise.
Since the BBC announced a review of its commercial activities in July, there has been frenzied speculation about a complete or partial sell-off of the business. This was further fuelled when BBC Worldwide chief executive Rupert Gavin stepped down from his role earlier this year and was immediately linked with the prospect of making a bid for the business through a private equity house.
The BBC Worldwide business includes programming distribution, television channels, a books and videos business, exhibitions, licensing and more than 40 magazines. Between 2003 and 2004 it reported annual sales of &£657m and profits before tax of &£37m.
And as the media industry reflects on the possible outcomes of the internal review, led by BBC chief operating officer John Smith, rival publishing houses are getting ready to bid for the corporation’s magazines business. Experts say that if there is one business that the BBC is likely to find easier to offload than any other, it is its magazine publishing arm, because it is not so closely tied to the BBC’s core activity of broadcasting.
Insiders add that it will not be difficult to find a home for its top-selling titles, such as Radio Times and BBC Good Food, within the portfolios of the likes of EMAP, Time Warner-owned IPC Media and the National Magazine Company. BBC Worldwide’s magazines division (BBC Magazines) is now the third-largest publishing house in the UK in terms of advertising revenue – EMAP and IPC are ahead of it – and is said to be worth &£2bn. The sell-off would be a crucial step for the BBC as it approaches its Royal Charter renewal. Not only would money made from the sale contribute to the future funding of the BBC, offloading the publishing business would also help dilute criticism that the organisation is too commercial and operates outside its public service broadcasting remit.
Michael Potter, founder of Redwood Publishing and chairman of Seven Publishing, publisher of food magazine Delicious, believes that despite a list of potential bidders, the BBC faces complex issues over the ownership of its magazine brands. “The main concern for the BBC and the bidders will be how to continue linking the programmes with the magazine titles, such as BBC Gardening. If the programmes were to be separated from the magazine, then the brand value of the title would be eroded. The BBC will want to protect its brand, but no bidder will want any editorial interference.”
It has hardly gone unnoticed that a significant part of the brand value of the BBC’s magazines such as Top of the Pops (TOTP) or Top Gear lies in their direct association with BBC television programmes, which is further boosted through valuable on-air endorsement. In the past, rivals such as EMAP and IPC have complained about the BBC using public money to build up TV programmes and then exploiting the programme’s brand commercially by launching magazines that rival existing titles by other publishers.
Starcom MediaVest press buyer Ian Tournes says that intellectual property licences will be sufficient to help maintain the link between a programme and its magazine spin-off. “A licence deal could even provide the BBC with an ongoing revenue stream,” he adds.
But there is the question of whether the magazines, if they are sold to a third party, will continue to have the same on-air support they currently enjoy. One publisher says that if on-air support is not guaranteed, it will have an effect on the price that bidders are prepared to pay for the magazines.
Another problem facing the BBC is the diversity of its portfolio. Condé Nast managing director Nicholas Coleridge says: “The jewel in the BBC’s crown by miles is the Radio Times, which is not only a huge title but also very profitable. Otherwise, it is only a cluster of boring titles. For instance, a magazine like Eve will not excite most bidders.”
He hopes that a management buy-out is successful, so securing a “kind of passion that magazine publishing actually deserves”. But both Potter and Tournes believe that an MBO of the magazine division is unlikely.
The BBC will not be short of bidders for BBC Magazines, with many rival publishers already preparing to out-bid one another and for that matter any MBO team. But it is not yet clear whether there are plans to sell off BBC Worldwide in its entirety or whether each of its elements will be hived off separately.
John Brown Citrus Publishing chairman John Brown believes that more bidders will be attracted if BBC Worldwide is broken up because few media companies would be interested in taking on the disparate business as a whole.
BBC Magazines may be the easiest to sell off, but BBC Worldwide’s share in UKTV – a joint broadcast venture with Flextech – could also attract numerous bidders. Possible interested parties include BSkyB and Channel 4. But it is not clear whether the BBC has decided to divest itself of its interest in UKTV.
BBC director-general Mark Thompson has also said he would be interested in talking to broadcasters about working together in areas such as international programme sales, which also falls under BBC Worldwide’s remit. It is expected that Channel 4 will have exploratory talks with the BBC about this, and ITV chief executive Charles Allen has already indicated an interest.
It is not the first time that the sale of BBC Worldwide has come up on the BBC’s agenda. Three years ago, the then BBC chairman Gavin Davies and director-general Greg Dyke commissioned a similar strategic review.
Proposals were made to sell off 49 per cent of the business, but at the time BBC Worldwide expressed concern about the potential loss of control over valuable BBC brands and argued that the division’s profits effectively subsidised TV licence-fee payers to the tune of &£6 a person. It was decided that retaining ownership of Worldwide was in the best interests of licence-payers.
But now in the run-up to its charter renewal, the BBC is under considerable pressure to prove to the Government that it can deliver outstanding programmes and be more cost-effective.
If the John Smith report – to be unveiled this autumn – concludes that BBC Worldwide should be put up for sale, there is no doubt that there will at least be a queue of bidders for parts of the business.
The evolution of bbc MAGAZINES
Radio Times, launched in 1923, was the BBC’s first commercial venture. Since then, BBC Worldwide has launched a raft of consumer titles and now produces about 40, under the BBC Magazines.
BBC Magazines’ top ten titles include Radio Times, BBC Good Food, BBC Gardener’s World, BBC Top Gear, Top of the Pops, BBC Wildlife, BBC Homes & Antiques, It’s Hot, Eve and BBC Music Magazine.
Total circulation for BBC Worldwide magazines rose by eight per cent year on year for the first half of 2004, according to the Audit Bureau of Circulations, and eight per cent period on period.
In March this year BBC Worldwide went on the acquisition trail and bought Bristol-based publisher Origin, which publishes 12 specialist titles including Living History, a rival to BBC History, science magazine Focus and customer title HMV Choice.
It also signed a deal with Indian newspaper and magazine publisher Times of India to publish magazines in India, and is launching Top Gear magazine in China and Russia.
BBC Magazines has diversified into contract publishing, producing titles for other organisations, such as the Royal Opera House.
Recent launches include food title Olive; teen title Dare, which has since been axed; BBC Top Gear Turbo for young boys; and Easy Gardening in a joint venture with the Telegraph Group.