Has the BBC lost its way?

The BBC is becoming a commercial success. But will this harm its reputation as an impartial public service? Tim Bennett reports.

Why does the BBC exist?

According to its first director-general, John Reith, the British Broadcasting Corporation was established (in 1922) to "inform, educate and entertain". Over subsequent decades it built a reputation for high-quality, impartial television, leading Philip Stephens in the FT to comment that, as a global broadcasting standards setter, "at it's best, the BBC is peerless". The breadth and depth of its output is largely possible thanks to the way it is funded every UK colour TV attracts a compulsory license fee, currently £135.50, which contributes to a total income of around £3.6bn a year. As The Economist notes, "only Germany's government spends more than Britain's on broadcasting as a share of GDP".

Is this situation changing?

Yes. Firstly, the BBC's cherished reputation for accuracy, objectivity and quality has been dealt a series of blows on the back of some spectacular errors, including the misrepresentation of the Queen and the rigging of a Blue Peter phone-in competition. These gaffes follow the high-profile criticism of the Corporation's news role in the Hutton report. Then there is the ongoing debate about whether a publicly funded service should be lavishing huge sums on entertainment programmes (£18m was recently committed to a three-year contract with Jonathan Ross). Funding is changing too. Under the latest six-year plan, the money-making remit of BBC Worldwide is to be massively expanded, prompting MP John Whittingdale to ask, "where do its commercial activities stop"?

What's prompted all this?

The BBC's director-general, Mark Thompson, is trying fundamentally to shift the way the BBC operates as the FT puts it, he would like the Corporation to do "everything, everywhere". Last year, BBC1 and BBC2 accounted for just 33% of all TV viewing, down from 47% 20 years ago, and the average viewer was what one executive described as a "white, middle-class 55-year-old". To attract and retain younger, internet-savvy fans and compete with the likes of Sky head on, the BBC's ambitious plans include offering more digital output (they already run ten channels), expanding downloadable "on-demand" programmes, and building up the website from its current six million pages.The challenge is paying for all this in the context of the latest Treasury funding deal, which, far from being the increase the BBC had hoped for, actually creates what the FT describe as "a £2bn hole in the budget for the next six years". This is where the highly-publicised job cuts and property sales come in, but also the largely unnoticed, but dramatic, expansion of the commercial activities of BBC Worldwide.

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What does BBC Worldwide do?

Lots. First there are the in-house magazines, such as Top Gear and the Radio Times, to which the organisation recently added the Lonely Planet title, following a £100m deal with its founders. Then there are the international sales of BBC programmes both on retail DVDs and to various pay-TV channels, a number of which are part-owned by the BBC. To co-ordinate the push into the US market, the BBC set up BBC World, which runs BBC America and BBC Prime, channels 55% funded by advertising revenue. All in all, the activities of BBC Worldwide pull £111m in profits on sales of £810m. Now the BBC Trust has authorised a £350m loan facility available for more Lonely Planet-style acquisitions and signed off other expansion plans. These include more sales of programmes to, and joint ventures with, commercial media firms, plus greater use of advertising on the organisation's website, BBC.com. Ultimately, it also predicts that 10% of the BBC's revenue will be generated from digital content.

Sounds innovative so what's the problem?

There are several problems. First, competitors complain that the BBC is using its huge resources to stifle them ITV and Sky, for example, are directly threatened by BBC "on demand" services as they attempt to expand their own video-on-demand products. Meanwhile, what The Economist describes as a "lavishly funded website" makes life hard for newspapers online and the planned expansion only raises the threat that smaller internet firms are "squished like ants", as Conservative leader David Cameron put it. Next, there's the plan to sell BBC.com web space to advertisers, which, the British Internet Publishers Group note, could risk damaging the BBC's "worldwide reputation for integrity and impartiality". Finally, there is the suspicion that making up a short fall in public money by boosting the BBC's commercial arm amounts to part-privatisation. Should the strategy prove too successful, there is a risk the BBC could be left to fend for itself the next time its charter comes up for renewal in 2016.

Is there a realistic alternative for the BBC?

Many feel that the BBC's attempt to be all things to all people is doomed to fail and that its reputation for careful analysis, objective news and top-quality programming is being gradually shredded along the way. The obvious alternative is for the organisation to focus on making less content, yet ensuring that what it makes remains high quality. This would mean it could still deliver its services over a broader range of media, but also avoid the slippery slope of commercialisation. As the FT concludes, "The opportunity to realign the BBC's mission and resources has been missed."

Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.