Revitalised but not privatised

The Monday Interview: John Birt; The director-general tells Mathew Horsman why the BBC must remain public

It was only a matter of time before John Birt, the BBC's director- general, made an appearance in the business pages of the national press. What had once been a story for home news (about plot developments on Eastenders or the setting of the licence fee) has become a business story above all. Nothing less than the commercialisation of large parts of the public service broadcaster is resolutely on the cards, and Mr Birt knows it.

"We can't sit still," he says, perched in a corner of small, cramped office in BBC Scotland, just hours after his high-profile speech to the Edinburgh International Television Festival last weekend, in which he called for an increase in the compulsory licence fee. A few days later, the Independent reported that the BBC was considering hiving off its huge resources directorate as a wholly owned commercial subsidiary. The debate about Mr Birt's strategy, which has rumbled on for all of his three years in the job, suddenly sharpened.

"This debate is about what the BBC has become over the past 70 years," Mr Birt says. "This is the most powerful cultural institution on the globe, but we are coming into a difficult period."

The difficulty can be summed up in a few key words: multi-channel competition. In the days of just three, and then four, mainstream channels, the BBC had a privileged position and a reputation for quality and accuracy that easily exceeded that of its terrestrial competitors.

The explosion in the number of pay-television channels on satellite and cable, and the further fragmentation of the market through the introduction of perhaps 200 digital channels starting next year, means the BBC must reconstruct itself. No one at the BBC, least of all Mr Birt, likes to talk about reconstruction. But how else to describe radical plans to separate commissioning from production, hive off BBC Resources (studios, editing suites and the like) into a wholly owned commercial subsidiary), and cut budgets by another 15 per cent over three years, at the cost of perhaps 2,000 production jobs?

Mr Birt is messianic on the subject of the BBC's future. "We should be proud of what the BBC has become and the role it plays. British values need to stay at the very heart of our national debate." The BBC, he believes, is the chief arena for those values to be articulated.

But isn't it really all about money? The private sector broadcasters complain that the BBC is increasingly a commercial player, single-mindedly pursuing audiences with a mix of low and high culture that strikes many as more "ITV" than "BBC". Mr Birt himself concedes that, to compete in the multi-channel environment, the Corporation needs to be leaner and more flexible, and must demonstrate every day the value of its programming to the licence fee-payer.

He insists, however, that the future of the BBC is in the public sector: wholesale privatisation is not on the agenda, despite all the radical changes he plans to introduce. The licence fee must continue to be the prime source of revenues for the Corporation: indeed it must be raised, although Mr Birt is realistic enough to admit that the battle will be "a long haul".

Calls from some right-wing quarters to make the fee voluntary - akin to a subscription fee paid only by those who actually watch - are rejected with passion. "The BBC would collapse as an institution," he says. "There is no argument for changing the basic structure: it has worked triumphantly well. The BBC, the greatest institution of all, is not sustainable except through the licence fee."

But the licence fee alone - which has not be increased in real terms since 1985 - cannot wholly finance the BBC's future plans, which include offering digital channels for mainstream viewers and up to eight pay-television services, available on any platform - terrestrial, satellite, cable. "There is a funding gap," Mr Birt says bluntly.

"There's money to be made commercially, and we have highly developed plans," he says. "But our total annual revenues from commercial activities is just 5 per cent of our revenues. It just doesn't answer the need to fund the BBC, even if we tripled our [commercial] revenues."

The BBC receives about pounds 1.7bn a year from the licence fee, and another pounds 300m in revenues from its commercial activities, grouped under BBC Worldwide. It has generated savings of about pounds 300m since the launch of Mr Birt's controversial "stage one" reforms, characterised by the introduction of an "internal market" and the much-maligned "producer choice", which allowed individual producers to select outside or inside production teams to make their programmes.

Producer choice is nothing compared with the management shake-up announced in June, which will give us two giant new directorates, BBC Production and BBC Broadcast, and which could see further commercialisation of the production operations.

The endgame, although Mr Birt declines to say it, is to create an efficient "virtual" corporation, with the goal of making quality programmes supplied by outside agencies - even if these are wholly owned BBC subsidiaries.

The great advantage in commercialising parts of the BBC lies in the Corporation's ability to safeguard the mainstream, licence fee-supported services while at the same time investing in digital technology and building new markets.

On the model of BBC Worldwide, which has launched channels with private sector partners such as Pearson Television, BBC Resources could, for instance, work with private partners to develop new programme and facility markets. In the same way, whole new markets can be opened up to the BBC without putting the licence payers' money at commercial risk. A joint venture with Flextech, the cable and satellite programme packagers, for instance, could help the BBC finance its new channels without touching a penny of the licence fee.

Mr Birt insists the strategy does not amount to privatisation through the back door, as the Liberal Democrats suggested in response to the plans to hive off BBC Resources.

But the real problem ahead may be political, more than commercial. If the BBC can really turn itself into an efficient commissioning house, through "commercialisation" and restructuring, then calls will intensify for a reform of the licence fee and, perhaps, for the outright privatisation of parts of the BBC. Mr Birt, no doubt inadvertently, has himself unlocked the door. Will a future government swing it open?