Sky's splurge on talent forces BBC to fork out for stars' loyalty

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BBC boss says he welcomes investment in British TV but the cost of key stars is going up

The BBC claims it is being forced to spend more on famous presenters because of competition from Sky – despite demands for it to cut back on pay for top "talent".

Mark Thompson, the BBC's outgoing Director-General, said that Sky's lavish spending on new programmes was contributing to the cost of key stars going up in "comedy and television entertainment". Sky has hired a number of comedians who previously had relationships with the BBC, including Steve Coogan, John Bishop, Ruth Jones and Meera Syal. Mr Thompson said the "resurgence" in the talent market was being driven "in comedy entertainment and arguably in drama [by] BSkyB's very welcome investment in original production".

He admitted he had goaded BSkyB over its lack of investment in original British programming during his MacTaggart Lecture to the International Television Festival in Edinburgh in 2010. "One, if you like, unintended consequence of that has been that in certain key areas, both on camera and behind the camera, the cost of programmes and the cost of key stars is going up."

Lord Patten, chairman of the BBC Trust, also pointed out that the satellite broadcaster had poached many of the BBC's senior managers. "Sky is being run to a considerable extent by former BBC employees who, I would guess, are doing the job for more money," he said.

In its annual report, the BBC complained that "the resurgent market for talent continues to increase the challenge of controlling costs, and has led to some high-profile departures to other broadcasters."

The report showed that, despite political pressure and a decreased licence fee settlement, BBC spending on presenters fell by only £9.5m (4.5 per cent) last year. There are 16 BBC stars – thought to include Graham Norton, Chris Evans and Jeremy Paxman – on between £500,000 and £5m a year, compared to 19 the year before.

BBC spending on executive pay has fallen by £21m since 2009, but cuts last year fell on junior managers, with 49 of the 70 lost posts being for jobs paid less than £100,000. By contrast, the number of executives paid £220,000 or more increased from 16 to 17.

Yesterday's annual report set out the legacy of Mr Thompson, who gives way to his successor George Entwistle on 17 September. Lord Patten exalted an "outstanding Director-General" as the two men sat down beneath a PowerPoint slide that showed public trust in the BBC has risen to 67 per cent this year from 56 per cent in 2004, when Mr Thompson took over in the wake of the damaging Hutton report into BBC journalism.

Using flowery language to introduce his final annual report, Mr Thompson waxed lyrical about the BBC's coverage of the Olympics, his grand finale. "The sun dips below the edge of the stadium," speculated the outgoing D-G. "For a few moments the crowd – tens of thousands here, but billions in front of TV screens, computers, phones, and tablets on every continent – fall silent. And then the show begins."

He said "every few years one captain leaves the bridge, another arrives and the liner sails on" and claimed his final year had been "momentous" for news. "Time and again, our journalists rose to the occasion," he said. There was no mention of the widely-criticised BBC coverage of the Queen's Diamond Jubilee Pageant.

Mr Thompson said he was proud of the "ambitious" drama he had encouraged on BBC1, although the report showed drama output on the flagship channel fell last year.

Foreign slump adds to fall in profits

There were 16 stars earning between £500,000 and £5m last year, compared to 19 the year before

Tumbling profits at the BBC's global news service have undermined the organisation's ability to supplement its reduced licence fee income by commercial activity.

BBC World News saw profits fall from £9.4m in 2010-2011 to £3.8m last year, a 60 per cent reduction. This was despite increasing the reach of the advertising-supported service to a further 40m homes around the world. The BBC blamed "a highly competitive marketplace" for the collapse at a service shown in 330m households, in 1.8m hotel rooms, on 151 cruise ships, 40 airlines and 23 mobile networks.

International sales of the BBC's consumer products fell by 15.8 per cent last year, partly due to a disastrous fire during the London riots that damaged stock. Profits were also hit by a delay to the release of "Frozen Planet" in the US, where DVD sales have shrunk due to video downloading.

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