This is taken from the FT:

BBC challenged on efficiency savings
By Emiko Terazonoand Aline van Duyn
Published: April 27 2006 03:00

The BBC has delivered only "marginal" cash-releasing organisational efficiency savings, and should get a less generous rise in the licence fee than it is seeking, according to a government-commissioned report.

PKF, an accountancy firm, was commissioned by the Department for Culture, Media and Sport to review the BBC's efficiency and value for money. The report will be used in its decision over how much the licence fee will rise from next year.

The corporation has put in a bid for an annual increase of 2.3 per cent above inflation over the 10-year period covered by the next BBC charter.

Mark Thompson, the BBC director-general, this week set out ambitious plans to adapt the corporation to a world in which the relationships between broadcaster and its audiences are likely to change dramatically due to digital technology.

He said moving into new areas could be funded through efficiency savings. But he added: "A strategy which concentrates uncompromisingly on content of the highest quality costs a great deal more than one which mixes outstanding output with repeats and content of low ambition."

However, Tessa Jowell, the culture secretary, has told the BBC it must expect to settle for less than it wants. The 188-page PKF report provided several arguments to support her position. The report pointed out the low level of cost savings in the BBC's programme-making divisions over the past five years, and recommended that it seek a higher rate of return for its commercial businesses.

It also questioned BBC claims of "super-inflation": the steep rise in its costs created by competition for staff and talent, and suggested the DCMS should "scrutinise in detail the investment plans proposed by the BBC".

PKF said the government and the BBC should agree on targets for efficiency gains before any licence fee settlement, and "ensure absolute clarity" in the interpretation of those targets.

Its conclusions were welcomed by ITV, Britain's largest commercial broadcaster.

It said: "The PKF work supports ITV's firm view that the BBC's licence fee pitch systematically overstates the corporation's funding needs over the coming years. The message is loud and clear that the BBC should be looking to work within its already significant financial means rather than expecting further licence fee increases."

The BBC's digital strategy unveiled this week, dubbed "Creative Future", caused concern among its competitors. Mr Thompson set out a wish-list of new services and changes to existing operations, including the relaunch of its website to feature more personalisation and user-generated content. The BBC is also planning to launch a video-on-demand service called BBC iPlayer.

It has joined other media companies that are trying to find ways of targeting the younger audience, which has changed its media consumption habits radically. Young people spend less time watching television and more on the internet and playing video games.

Many commercial media groups challenged the need for the BBC to venture into genres that were already being serviced by private sector companies.

Andy Duncan, head of Channel 4, told the Financial Times he was concerned that the BBC should not "move into everything". He said the BBC "should move into new media, but at the same time there is concern about the BBC's expansionism".

ITV said: "We would expect, in light of the government's recent white paper, proposals that any new BBC service, or any significant change to existing services, including online, mobile and broadband, will be subject to a full public value test, including a market impact assessment."