An embarrassment of riches for the BBC

When the BBC's hugely expensive Walking with Dino-saurs series hits our screens later this year it will be backed by a Hollywood-style marketing extravaganza. The documentary, pro- duced by the BBC's respected natural history unit, and featuring computer-generated dinosaurs, will not be the only attraction. There will also be books, a video, a website and even cuddly toys.

Next up, in spring 2000, will be Gormenghast - an adaptation of Mervyn Peake's cult gothic trilogy and the most expensive BBC series ever made. It too will be backed by a lavish marketing spend.

The spin-offs have been orchestrated by BBC Worldwide, the corporation's commercial arm. Worldwide also provided much of the funding for the dinosaurs series, since the project was aimed at world markets, rather than just the licence fee-paying British audience. Worldwide was formerly known as BBC Enterprises, and staff spent years wandering slightly aimlessly in the internal wilderness. They were charged with creating lucrative spin-offs from BBC series, but most of the activity centred on the stable of BBC magazines.

They were even geographically isolated: the offices are further down the road from the rest of the BBC in London's White City, in an office block nestling under the A40 and improbably named "Woodlands".

But in recent months Worldwide has reinvented itself under the direction of Rupert Gavin, who joined the BBC last year from BT where he had been head of the company's consumer division and pioneered its internet business.

Employees say there is now a renewed sense of purpose and direction, though they are less keen on being told to carry round small cards displaying the Worldwide mission statement: a "world class media marketing organisation".

Despite (or possibly because of) these cheesy motivational methods, the commercial side of the BBC is almost embarrassingly successful. Worldwide is now ranked as the 14th largest media company in the UK (source: Zenith). Revenues are currently about pounds 1.25bn, comparable to Sky, although about half of Worldwide's activities are still in print publishing. It publishes 23 tie-in titles for the BBC, including Radio Times. It returns a profit on its activities of 15 to 20 per cent a year, comparable with sector averages.

Worldwide's latest moneymaking venture, launched last week, is a free internet service provider called freebeeb.net. The BBC has lagged behind other big players in getting its ISP off the ground, partly due to internal wrangling over the direction of beeb.com, its range of commercially driven websites. These were developed in conjunction with a pounds 40m investment from ICL, thought by many at the BBC to have been a "brilliant deal" as ICL took no equity stake in the project (ICL's involvement stops at the end of this year).

Early on in the project,BBC director-general John Birt raised a question over the future of beeb.com by removing news and sport and giving them to the public service sites at BBC Online. For a while the future of both online services hung in the balance, but the beeb.com strategy has now revived under Worldwide's direction.

Having a "sticky" brand name that is recognised and trusted throughout the world should leave the BBC well placed to cash in on the European internet boom. Estimates from analysts at Morgan Stanley Dean Witter suggest there will be 100 million users in Europe in four years' time - triple the current number.

The freebeeb.net package is designed to attract large numbers of web users who trust the BBC brand. It is squarely aimed at middle-aged, middle- class people who are new to the net. Following Dixons' success in giving away Freeserve disks in its high-street stores, the BBC will distribute freebeeb.net disks through 1,500 Post Offices and convenience stores, and free with BBC Music Magazine.

Freebeeb.net will deliver a captive audience of net novices who may well be happy to be steered towards the Beeb's own range of sites. These include areas devoted to Top Gear, Top of the Pops and Gardener's World. Most are linked to TV content and print titles. Beeb.com is unashamedly commercial and "purchase oriented". Users are directed to click and buy books, CDs and other tie-ins.

Advertising revenues are expected to leap as soon as freebeeb.net starts to deliver higher volumes of traffic through the linked sites.

Until the internet starts to make rather than lose serious money, Worldwide will continue to make most of its cash from publishing. Big "brands" include Wallace & Grommit, Delia Smith and Noddy - which is now huge in the US. Foreign programme sales bring in a modest pounds 135m, and pounds 30m of that comes from the Tellytubbies. Sources at Worldwide say they have succeeded in "educating" BBC producers to keep an eye on foreign sales potential, but there is a tension be-tween the BBC's need to spend the licence fee on resolutely British programming with limited appeal abroad (EastEnders, for example) and productions designed to appeal to foreign markets (Walking with Dinosaurs).

BBC Worldwide has set itself a target of a pounds 212m net contribution to BBC finances in the period to renewal of the charter in 2002. The corporation wants to keep the licence fee (albeit with rises kept in check by the profits from increased Worldwide income) and supplement it with a new digital licence fee to pay for investments in digital TV and radio.

But Worldwide may well perform much better than that and may even be part-floated, against Mr Gavin's wishes, to generate still more cash.(It's also conceivable that freebeeb.net could become a separate stock.)

All of which raises a paradoxical political problem: too much financial success could be embarrassing for the BBC. If Worldwide keeps turning out moneyspinning brands like the Tellytubbies, the BBC will almost certainly come under pressure to use profits from commercial activity to subsidise the existing licence fee.

Fending off that threat could be the biggest challenge yet for Worldwide's army of marketing experts.

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