The BBC Governors today released a consultation paper on Service Licences and a “public value test”.

The Government’s Green Paper on the BBC Charter stated that “Every BBC service would be held to a detailed service licence against which performance could be measured”. The Governors envisage that the Service Licences would set out the budget, remit and performance targets for each service. The consultation paper explains the Governors’ current thinking on how the Service Licences would work in practice.

Service Licences are about providing more information on the purpose and scope of BBC services. The public value test is about determining what services the BBC provides.

The first thing to recognise about the public value test is that it is not a test in any real sense of that word. This is a good: a pretence that decisions on what the BBC does can be reduced to an objective assessment would be counter-productive.

And it will not come as a surprise to find out that the Governors favour an “evidence-based” assessment of significant investment proposals. But they have rejected possible approaches that would draw primarily on quantitative methods to determine what should be done, such as attempts to carry out NPV calculations. They recognise the need for judgement and describe the public value test as a “structured, evidence-based, decision-making tool” to aid the Governors (or to aid the BBC Trust, if the proposals in the Green Paper to change the BBC governance arrangements are taken forward).

The consultation paper says that the public value test would comprise two parts: a public value assessment and a market impact assessment. The paper provides information on the contents of the public value assessment. This would include: an identification of how the service fits with the BBC purposes; whether it offers sufficient quality and distinctiveness; what its consumer impact would be; what its citizen impact would be; what the reach of the service would be; and whether it represents good value for money. An example of how this assessment might be carried out is provided an appendix to the consultation paper, a “robustness assessment” by Spectrum Strategy Consultants, which contains an illustrative example for the case of CBBC.

The consultation paper says little about market impact assessment. The paper states that the main indicators of the assessment would be “the wider economic value which would be created by the service” and “any potential crowding-out of other players in the market”. But this does not seem to represent much progress from the suggestions in the BBC’s Building Public Value paper from June 2004 which implied that the question of market impact can be addressed by a “net calculation” of the positive and negative impacts a BBC service might have on the revenues of certain other market participants. As far as I can tell, it would be wrong to reduce the market impact side of the public value test to �million numbers.

In any event, the Governors state that the methodology for market impact analysis will be developed in agreement with Ofcom. Ofcom will almost certainly want to find a way to take account of possible adverse impacts on competition. Work started on this in Ofcom’s report on the market impact of the BBC digital-only and radio and TV channels, as part of the Government’s independent reviews of those services.

The consultation paper discusses some procedural aspects of the market impact assessment. The Governors want market impact assessment to be undertaken by a third party. This would be commissioned jointly by the BBC Trust and Ofcom in the case of new service proposals, and by the BBC Trust alone for assessment of existing services. This position differs from the proposals in the Green Paper, in which the Government envisaged Ofcom carrying out the market impact assessment in the case of new services. It also differs from Ofcom’s response to the Green Paper, in which Ofcom sought to undertake market impact assessment both for new services and where it felt it necessary to examine changes to existing services.

But this debate about who does what and when seems rather a distraction when there is still uncertainty about what exactly is the purpose of the market impact assessment.