Luke Johnson: The chaos at the BBC over the Savile affair is bad for Britain

As the media dinosaur suffers, the chairman of Risk Capital Partners asks whether anything remotely as good can take the BBC's place.

by Luke Johnson
Last Updated: 27 Feb 2013

The chaos at the BBC over the Savile affair and the departure of the director-general are bad for the traditional media industry - and probably for British citizens.

It may have been the internet that disclosed the name of a senior Tory who was wrongly accused of paedophilia but it was a regulated broadcaster that paid the price. As the newspapers and TV companies tear each other apart - first phone hacking, now this - the digital revolution continues apace. Advertising spend drains steadily from the legacy outlets - the press, television and radio - and the BBC's reputation fades because it must live up to impossible standards that the online world ignores. But as the media dinosaurs suffer, will anything remotely as good take their place?

But it was ITV that transmitted the documentary that actually broke the latest scandal - an ITV that almost never commissions investigative documentaries any more because it cannot justify them economically. This was the network that used to show World in Action, one of the great documentary series and one that held many in politics and business to account.

Now Newsnight is threatened because it overreached. Despite this mistake, it remains one of the few serious and well-funded programmes to concentrate on high-level discussion of current affairs. At Channel 4 while I was chairman, we increased the number of editions of Dispatches because we believed it was public service broadcasting at its finest.

And nothing produced by any pure internet player - from YouTube to Twitter to the Huffington Post - even comes close to the sort of scoops and exposures the old media still delivers. The extraordinary revelations in the New York Times about the vast wealth of Chinese Premier Wen Jaibao's family were a quite superb piece of journalism. It is inconceivable that it would have appeared anywhere but in a traditional media outlet. Even though Google, for example, has ample resources to fund such fine work, it chooses instead a lucrative free ride on the back of other content providers.

I am of course biased in this matter because I write for MT and the Financial Times, both established print publications. But if societies like ours want to remain informed and democratic, there may come a time when the digital parasites are obliged to support real journalism, and the regulation of the old media is loosened rather than tightened, so that it can compete.

The Financial Times carried a frontpage article recently which stated that for the first time in perhaps 50 years, British pension funds own more bonds than equities. This shift away from shares towards fixed-interest instruments is a tremendous buying signal for the stock market. Such occasional turning points in mass investor psychology can act as contrarian indicators. I recall that institutional investors reduced their exposure to UK commercial property to record lows in the period leading up to 1999. Lo and behold, for the next seven years or so it was easily the best performing asset class, beating almost everything else, including bonds, equities, hedge funds and commodities.

Similarly, shares in London are reasonable value now. At 3.7%, the yield on the FTSE 100 is almost twice that of 10-year gilts, and equities offer genuine capital growth prospects, unlike bonds. In the long run, even if a company doesn't increase its profits, it should deliver more than any bond, since a business has a claim on its retained earnings. Indeed, relative to interest rates, the price/earnings ratio of the market is modest - especially since many companies quoted here have significant overseas operations.

Most UK pension funds are maturing and they have greater need for income, so fund managers will argue that they need to match their liabilities and assets. This is why fixed interest stocks make up 43.2% of their portfolios and equities only 38.5%. But to me, equities represent the possibility of a rising dividend, a chance of capital growth and a belief in progress - a vote for the future. They are also a bet on rising inflation, and a bet against over-indebted governments. In my mind there is no contest: I prefer equities, even if I live to be 100.

I have served on the boards of a number of non-profit organisations over the years - a university, a public corporation, a social enterprise and several charities, both big and small.

All do good work and enjoy the support of decent non-executives, and benefit from loyal, conscientious management teams.

But there is a fundamental difference between such institutions and commercial companies. The way success is measured in the for-profit world is straightforward - while in the charitable universe it is anything but.

There are literally dozens of key performance indicators for conventional businesses - net profit, Ebitda, return on investment, share price, capital gain, dividend payout, P/E ratio, market share, economic value added and so on. These are the tools with which managements run their firms and that tell them if they are doing well or poorly. Without them, the whole exercise is almost complete guesswork.

And, unfortunately, that is what non-profits suffer from - a lack of reliable measures that show whether or not the institution is performing effectively. How do philanthropists really know if the charity to which they give is efficiently run and delivers value to those generous enough to donate? How can trustees judge if the management team are doing a competent job as custodians of a charity's resources? I don't have an answer. But I know it makes stewarding a charity a real challenge.

- Luke Johnson is chairman of Risk Capital Partners. This column appeared in the December issue of MT.

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