The BBC is shaping up for a possible sale of its "commercial" arm, BBC Worldwide.

The Financial Times reports on developments, and welcomes them in a leader (below).

BBC asks media groups to discuss options for division
By Tim Burt, Media Editor
Published: September 9 2004 05:00

The BBC could pursue an outright sale or break-up of its Worldwide division, Britain's largest programme exporter and number three magazine publisher, executives have confirmed.

The publicly funded broadcaster has invited media groups - including Time Warner, Walt Disney and Bertelsmann of Germany - to discuss options for the business.

Such groups are potential bidders for assets ranging from the BBC's 50 per cent stake in UKTV, the commercial TV channel, the Radio Times magazine and book publishing.

While no decision has been taken on a disposal, a person involved in the process said: "We are consulting various parties and all options are possible, including the BBC retaining a residual stake or seeking joint ventures."

A review of BBC Worldwide, led by John Smith, BBC finance director and chief operating officer, is expected to be completed by the end of the year. If the corporation decides on a sale, an information memorandum will be circulated to potential bidders with a view to completing a deal by the end of next year.

Mark Thompson, the corporation's director-general, is reportedly cautious about asset sales. But BBC officials yesterday said soundings were being taken from interested parties including Telewest, the cable operator, and Discovery, the corporation's distribution and advertising partner in the US.

The director-general has admitted the BBC needs to build up a "war chest" to fund its ambitions in public service programming, the conversion of analogue transmissions to multi-channel digital services, and the development of regional broadcasting centres.

Reducing its commercial interests may also help the corporation to restate its public service values as it seeks a further 10-year royal charter, enshrining its broadcasting remit and funding formula.

In the next charter period, asset sales may help to offset a less generous funding settlement from the government. The last settlement, designed to pay for the BBC's digital expansion, involved annual licence fee increases of 1.5 per cent above inflation.

Critics of the BBC, however, argue that any disposal proceeds should be returned to licence fee payers.

David Elstein, the former Channel 5 chief executive and author of a recent report on the BBC commissioned by the Conservative party, said: "The best use of the money would be to give it straight back to the Treasury. You would not give it to the BBC to keep because it was funded in the first place by licence payers, and the BBC might use the proceeds for a massive assault on the competitive market."

Don Foster, culture spokesman for the Liberal Democrats, added: "The BBC's decision on the sale of its assets must be determined by the long-term value to licence fee payers. At least some of the revenue generated from any sale should be used by the BBC to help us press ahead with moves towards digital switchover."

But an outright sale, thought to be favoured by Rupert Gavin, BBC Worldwide's out-going chief executive, could be difficult to complete.

Companies such as Telewest or Discovery - Worldwide's partners in UKTV and the US respectively - enjoy pre-emption rights over those assets. Any bidder would also have to negotiate licensing arrangements with the BBC over its branded channels.

Financial Times editorial:
Sale of the century
Published: September 9 2004 05:00

For an organisation created to provide public service broadcasting, the BBC has acquired some unexpectedly commercial assets. Among the businesses owned by its Worldwide division are Britain's biggest exporter of television programmes, the country's number one international channel operator and its third largest consumer magazine publisher. The BBC is now considering whether it should strengthen its finances by selling off such operations in its own sale of the century.

The corporation will face tougher times after its charter is renewed next year. Its audience share has been dwindling as digital channels gain ground inexorably. It is accused of using public funding to undermine rivals in broadcasting and other sectors such as publishing and online services.

To win charter renewal, Auntie has promised to bolster its public service programming and improve the management of its resources. But it cannot expect the licence fee paid by all households with a TV to continue rising at the 1½ per cent a year over inflation awarded in the last settlement to fund digital expansion. The corporation will have to scale back its ambitions or make better use of its resources.

Disposing of the commercial operations would help slim down the BBC's bloated empire, reduce conflict with private sector competitors and allow it to focus on its public service remit. The disposal of the technology division to Siemens with a 10-year outsourcing deal has already shown what can be done - transferring 1,400 staff at a saving of more than £20m a year for a price expected to be up to £200m.

A review led by the BBC's finance director is exploring the options for BBC Worldwide, ranging from outright sale and piecemeal disposals to joint ventures and retaining the status quo. But it is clear that the status quo is unlikely to be the answer, and that joint ventures - while often valuable in programme-making - would fall short of what is needed in other spheres.

The review is to be applauded, but it needs to look beyond Worldwide for disposals. Parts of BBC Resources, the studio and post-production division, and BBC Broadcast, which manages channel transmissions, would be attractive to the private sector. Further pressure is also needed to raise the proportion of programmes made by outside producers.

At the same time, the government should make clear that the proceeds of such disposals cannot be diverted to what Mark Thompson, the new director general, calls a "war chest", to fund the BBC's imperial expansion.

Outsourcing will yield savings and more income could be brought in once commercial activities are contracted out to companies able to manage them better. But the value of the corporation's assets belongs to the licence-payers who have been forced to pay what is effectively a poll tax over the years. The first call on the proceeds should be public policy objectives for their benefit, such as the digital switchover