ultranomics

December 26th 2008

In this post-xmas Ultraletter:

• Licence Fees: The wrath of JQ befalls another national institution, one common to both the UK and Pakistan
• Rebounding markets: Meanwhile TK has jotted down a few concise cat-notes about current market sentiment.

First up……go on JQ…..Let ‘em have it….!

After spending a great deal of time in both Pakistan and the UK I often find interesting parallels in many facets of life between the two countries. In a previous Ultraletter I mentioned how the scourge of speeding cameras, which are rife in the UK, had also spread to Pakistan in recent years. In this article I shall be focusing on another unwelcome stealth tax which is common to both countries – the Television Licence Fee.

The national broadcasting corporations of both countries, the BBC & PTV, resort to demanding a television fee from almost everyone who has a television. Pakistan does it through adding a nominal supplement of Rs.25 to the electricty bill of each one of its 13.9 million electricity consumer base. Pakistan Television [PTV] started to earn a hefty amount of Rs 4.1 billion annually from 2004 onwards through this method. Prior to this arrangement people had to pay their television fee as a separate tax. This addition to the electricity bill was a hundred per cent jump from what the corporation was earning previously (Rs 2.1 billion from approximately seven million television licence holders in the country.) In the UK the annual licence fee is £139.50 which is paid by more than 25.3 million UK households equating to £3.4 billion of monopoly money for the BBC.

The latest audit report submitted to Dr Shahid Masood, PTV’s Chairman/Managing Director, found some serious irregularities and inefficiencies in the channel’s operations. One serious oversight and missed opportunity was that prime time advertising rates had not been raised since 1999! The comprehensive audit report also pointed out that PTV’s operating cost per employee is Rs 420,000 per annum while revenue per employee is Rs 418,000! Dr Shahid Masood is now being offered other BIG responsibilities elsewhere – perhaps some Pakistani bureaucrat or politician was displeased by his efforts to streamline PTV’s affairs?

As for the UK TV Licence Fee, a recent Ipsos Mori survey asked people whether the licence fee, which raises a total of £3.4 billion a year, was good value for money. A significant 47% thought it was not. Sir Antony Jay the co-creator of classic BBC sitcoms Yes Minister and Yes Prime Minister has asked “what was the point in the BBC spending £200m just to get Formula One away from ITV? How does that benefit the licence fee payer who could watch it on either channel?”.
Is it just me or can you also see the similarities between the BBC & PTV’s affairs, like governmental control, national broadcasters being used as a money making machine and a propaganda tool, heavy involvement of red tape/bureaucracy, inherent inefficiencies etc? The list goes on. Since we are based in the UK I am more dented by the BBC fee so it’s no wonder that the BBC takes most of my attention today.

I strongly believe that paying £6 million per annum for the talents of the likes of Jonathon Ross out of tax payers money just cannot be justified especially during the credit crunch. For those of us immune to his cheeky chappy charms and mundane film reviews £6m p.a. is too much to pay for Jonathan Ross. The fact that a chunk of that fee goes to pay Ross’ sidekicks to laugh at his terrible fortune cookie jokes explains the real reason for those laughs! How can the BBC justify extorting £140 each year from me and 25.3 million others to pay for it?

The BBC is a public service broadcaster funded by a compulsory ransom. In these troubled times why doesn’t the BBC take a 50% pay cut? In the case of Jonathan Ross let’s make a special exception of a 100% cut and release him from his contract to find out if he is as valuable as deemed by the BBC bosses and whether the market holds him in such high regard to be head hunted by another channel for the £6 million salary. The recent Jonathan Ross and Russell Brand affair has tarnished the already tainted BBC reputation by bringing into public focus the ridiculous sums paid to its so called star celebrities. On top of that they could sack a few people keeping in line with all the banks and major UK companies in these tough times and cut out a few obscure channels. Then they would surely be able to halve the license fee or better still get rid of it.

According to figures obtained under the freedom of information request by the Lib Dems last year £10.4m was spent by the BBC on flights, out of which £3.1m went on business or first class tickets. The BBC’s own guidelines say that flying business class should only happen in ‘exceptional circumstances’. Party transport spokesman Norman Baker said the costs were “staggering” and money should not be “splashed around”. Mr Baker also said “It is hard to believe that there can be £3m worth of exceptional circumstances in a single year”. The BBC spent just under £5m on train tickets last year, about £520,000 of which went on first class travel. This total for 2006/07 was £4.8m. So why is it so important sending a bunch of reporters to foreign countries for reporting the same news from multiple locations in the same country? Surely one person would be enough! It just seems like the BBC enjoys squandering our money.

This just in… surprise surprise! Yet another example of the constantly falling standards at the British Broadcasting Corporation. The below findings conclude Ofcom’s investigations of audience participation in the BBC programmes broadcast up to and including 2007:

[Thu, 18 Dec 2008 10:36] Ofcom has today fined the BBC a total of £95,000 for breaches of Ofcom’s Broadcasting Code (“the Code”) in respect of its services Radio 2 and BBC London 94.9FM. The fines have been imposed for the unfair conduct of competitions. Ofcom has found the BBC in breach of Rule 2.11 of the Code (“Competitions should be conducted fairly…”) for inviting listeners to enter competitions in pre-recorded programmes that were broadcast ‘as live’.

Ofcom considered that these breaches of the Code were serious. The investigation found that BBC had repeatedly taken pre-meditated and deliberate decisions to include audience competitions in pre-recorded programmes. The BBC invited listeners to enter these competitions at the time of the broadcasts, in the full knowledge that the audience stood no chance of either entering or winning.

The full adjudications are available on the Ofcom website here

Perhaps if you didn’t actually think it was okay to force an entire country to subsidise the viewing habits of a decreasing BBC fan club this would not be happening. Next is the issue of compulsion of payment. People are given no choice about whether or not to pay for the BBC. If they have a TV they must purchase a licence. That to me and all of the people who signed this petition at www.petitions.number10.gov.uk/FairpayTV/ is unacceptable. This petition which was submitted by David Cormack at the Number 10 Downing Street website asking the Prime Minister to “Abolish the UK TV licence and permit advertising and other means of finance generation to the BBC” had this response from the government:

“During the latest review of the BBC’s Royal Charter (completed in 2006), the Government considered whether the television licence was still the best way to fund the Corporation. We also sought the views of members of the public on this and other BBC issues as part of the Charter Review consultations. When compared with the alternatives, the television licence fee was widely considered to be the best way to pay for the BBC for the period of the new Charter that is to say until 2016. None of the alternative funding options would enable the BBC to continue to provide its full range of public services while safeguarding the Corporation’s independence. It was therefore agreed that no changes would be made. We intend to review the scope for alternative funding mechanisms once we have the conclusions of Ofcom’s review of public service broadcasting (due to be completed in 2009). This will take in account the final costs of switchover and the outcome of the wider review of Public Service Broadcasting (PSB) funding to which the Government committed in the Charter Review White Paper”.

John Lloyd writes in the Financial Times in his article The Shadow of Prison Bars on TV Screens :
This ad which was put out by consortium of companies contracted by the BBC TV Licensing is a disaster. You may have seen the posters of a huge memory chip which, vastly magnified, looks like a cityscape. Beneath it are written the words: ‘Every unlicensed address is in our database. Evasion is not an option’ (look on my database, ye viewers, and obey!). What are they thinking of those who collect our TV licence money? It reminds us that if we have a television we must support the corporation on pain of criminalisation (licence fee evasion accounts for more than half the criminal convictions among women.) It does so by giving substance to a “surveillance society” as mentioned in the George Orwell novel Nineteen Eighty Four where Big Brother spies on the population through telescreens.

Another commentator on the subject is Ross Clark, author of The Road to Southend Pier: One Man’s Struggle against the Surveillance Society. He writes in The Times
“Anyone who has lived without a television will know how hard it is to convince TV licensing staff that it’s possible to exist without constant video entertainment. It is one more freedom that is to be taken from us. Like the telescreens in George Orwell’s Nineteen Eighty Four that citizens could turn down but not off, the giant screens planned for 60 towns and cities will make watching television compulsory. They are less about entertaining us than about control another part of the Orwellian machinery of the modern British city”.

A spokesman for TV Licensing said: “If you only watch the iPlayer and watch or record no live programmes, you don’t need a television licence, although very few people are likely to do that.” What that spokesman forgot to mention is that more than 700,000 viewers are downloading BBC programmes every day through the iPlayer service. Launched at the beginning of this year it is expected to have one million daily users by Christmas and can be watched without a licence fee!

Mark Thompson, the Director-General of the BBC, spelt out the limits of the current system when he told MPs on the Culture Select Committee that “if you watch live television through a mains powered device, you have to pay a licence fee” and that “live content is the key point in the current definition”. Most content on the iPlayer has been transmitted previously so the service is not classified as live. Don Foster, the Liberal Democrats’ culture spokesman said: “It does look like the BBC have shot themselves in the foot a little by creating this licence fee loophole with the iPlayer.”

The BBC is funded by TV License fees paid by anyone in the UK who watches television. They don’t have to watch the BBC but have to pay this license fee in any case. Although it is called a “fee”, since you have to pay it regardless of whether you receive the service it is actually a tax and was recently officially acknowledged as a tax. So by calling it a “fee” are they not misrepresenting something that is a tax?

Looking at this TV tax deeply with the help of ultranomics spectacles you will find that it’s not just that it’s a nuisance for TV viewers of all denominations, whether BBC watchers or not, it also has far reaching implications like forcing poor families, especially women, into criminality as mentioned above. According to the Daily Express of 24th November 2008, last year the BBC prosecuted more than 150,000 people for licence evasion. It is claimed women are much more likely to be caught because they are more often at home during office hours when the TV inspectors usually call. In the The Howard Journal of Criminal Justice Christina Pantazis & David Gordon have stated that “The purpose of this paper is to identify and address important gaps in criminology regarding the extent and nature of female criminality. A neglected area of academic interest is investigated namely offences relating to television licence evasion”.

The BBC should find a way to place their usage taxes on the signal and not the device itself. Why can they not make it a pay as you go subscription service which is technically possible and practiced by Sky premium movie channels and many Asian channels like Geo TV, Sony ARY Digital etc. or better still abolish the fee altogether like Australia and many other countries did and make it free by resorting to advertising and by selling BBC “quality” programmes internationally. It’s just not fair to keep demanding ever increasing TV tax from people who feel the BBC does not suit their tastes and who have a lot of alternatives to watch instead. Maybe a zero tolerance approach to government bureaucracy might work as mentioned in this edition of The Daily Reckoning.

For PTV I would say it should now be privatised because gone are the days when we used to have quality comedy programmes like fifty fifty or dramas like waaris which had a cross border fan following and had the actual effect of bringing traffic to a standstill whilst live on-air. School children bought each episode in small pocket size story books [I was one of those kids]. With the advent of private channels and the Indian media invasion PTV now stands for Purana [old] Tele Vision rather than what it used to be i.e. Pakistan Television.

For the BBC I would like to quote an excerpt of an article written by Emily Bell of The Guardian newspaper “We are still no nearer to deciding what exactly the BBC is, given that it is now much more than a broadcaster”.

jq@ultranomics.com

False hope and bouncing cats?………..TK elaborates……..

Are you sick to death yet of the credit crunch/subprime crisis/global meltdown/worldwide recession ? Have we missed any of the Armageddon terminology being used these days? Probably – so please, email us with your suggestions and we will publish a full list in the next Ultraletter.

The thing is, the current situation unfolding across the world is the worst of its kind for a generation. This one is the big one – a recessionary storm of tsunami-scale proportions. Yet tell us, dear dedicated readers, does it feel that way to you? Deep within are you feeling the fear and the panic? Do you lie awake at night and feel sick through the day?

For those currently threatened with repossession or job loss, the answer to this question will undoubtedly be yes. Yet for the vast majority of us, we suspect that it still feels like just another scary news story, albeit one that has been going on for longer than most now. We know something bad has happened and we can see that prices of houses in our street have fallen a bit. But nausea and panic? …..Not really.

Take for example the stock market. After spending the first half of 2008 well above the 12000 mark, the Dow Jones Index fell to a low point of 7552 on Nov 20th. Yet since then there has been somewhat of a retracing and the Dow Jones ended the last week at just over 8400. Overall this was a positive week for the stock market, despite President Bush (fresh from dicing with the deadly dinner shoes) agreeing a multi-billion bailout for the obviously terminally-ill american car industry, and in spite of the desperate rate cutting by the Fed to a record low of 0.25% with the promise to print as much money as needed to bailout the nation, prosaically called ‘Quantitative Easing’.

So whats going on here? Is this the ‘dead-cat bounce’ everyone talks about in stock market crashes? Or has the whole crash thing been overblown meaning this is a great buying opportunity which the savvy buyers are taking full advantage of?

There is no doubt that if my pet cat was thrown from the top of the Empire State Building and then observed to spring back up off the pavement (sidewalk) – there would be a truly heartfelt impulse to believe that the pet had survived the fall. Yet one’s intellect would still be the best judge and we would realise, if we were sane people, that more than likely the moggy is indeed dead.

Unfortunately, the share traders and financial pundits out there are still listening to their hearts right now. They are hoping against the odds that tiddles the cat is still alive and has merely sprained a cat-ankle which is already on its way to getting better after a few shakes of the leg.

We on the other hand, remain with yellow pages in hand, looking for the number of the nearest pet cemetery.

You too should be very wary of this bounce. This is danger territory friends – a classic post bubble bounce. Much of it is down to technical traders trying for some short term gains. There are also short sellers in there, covering their trades. But also, average people still have hope left in them. They still remember the good times. Something in them thinks that the good days have just taken a breather and no doubt will be back again some moment soon. There are those who are counting on Obama doing a magic trick in early 2009 and lifting the economy with his bailout initiatives. The recent decline has not been internalised. People still view it all as some phenomenon that is in major part affecting those other than themselves. They look pitifully at their poorer neighbours who are obviously feeling the pinch. So the fall becomes a ‘buying opportunity’. The financial pundits are complicit – they tell us that stocks always go up in the long run. While this is no doubt true, it still doesn’t mean this is the time to pile in nor does it inform us as to how long the long term might be. The element of ‘risk’ is perhaps still being misunderstood at this juncture.

These ’sucker rallies’ happen in bear markets, we all know that. We are still too hopeful and curiously watching the show, chatting about it, considering whether or not to make a ‘play’ or sit it out some more. We see the daily doom, the companies in strife, the unemployment levels rising and the repossession levels growing. But still the worldwide indices are holding their nerve. We would humbly suggest that weighing things up in total, it is not worth taking upwards bets at this point, even though there may be some sorely tempting rallies in the next 6 months.

If you really believe in buying and holding, and do not mind the long term being more than a decade then we are sure that buying into high quality best-of-breed companies will work out well over that time frame. However if you are aiming for an investment span of 5 to 10 years, then be exceedingly careful with your selections.

Personally we are going to wait until there is blood on the streets. When ’stockmarket’ is a dirty word and you can not tolerate reading the financial headlines. When everyone has finally given up on discussing the credit crunch and the global recession. When internalisation has occurred and the regular guy has fully grasped that this situation is hanging like the sword of Damacles over him and his family. When there is true panic. That’s when we might start looking for our long-term stockmarket buys.

tk@ultranomics.com