:"It's great to have a chance to speak to you all. And I'd like you to break the habit of a lifetime by not leaking what I am about to say, because I want to speak with absolute frankness.
"First, a word about John Birt. Poor old John. I stayed at LWT and picked up his pounds 7m share option and he went to the BBC to become the most vilified man in television. Michael Grade, our old boss at LWT, accused John of enfeebling the BBC so that Maggie's cronies - Michael Green at Carlton and, of course, Rupert Murdoch - could get a foothold in the broadcasting market.
"I never thought that was fair. Nobody's perfect, but John did a good job. When he came in, Maggie Thatcher was all for privatising the BBC. And she was bonkers enough to do it. So John had to make all the right noises about embracing the free market, eat humble pie over the licence fee, and stand back while Sky and the cable companies got off the ground. But the fact is, the BBC survived the free-market revolution pretty much intact - which is both amazing and a great tribute to John Birt.
"But it's a different world now. Multi-channel pay TV is a reality, which has transformed the economics of the industry. When John went to the BBC at the start of the decade, the British public was paying about pounds 1bn to watch television. In round figures it now pays three times as much: pounds 2bn in the form of the licence fee; and another pounds 1bn in pay TV subscriptions - mostly going to Sky.
"Now here's the difference. I want the BBC to have all that money. It's not because I'm greedy. It's because we'll spend it more efficiently and in the public interest. We are now in a global market where we're up against the likes of Time-Warner, Disney and Sony. Time-Warner alone has revenues of pounds 20bn, with pounds 5bn from pay TV. The only way we can get into that league is to absolutely dominate our home market and squeeze every penny out of it.
"So here is what we are going to do. First we stop helping Sky. Sky only got Premier League football because it allied itself with the BBC against ITV. When the football rights come up again 2002 we are going to ally ourselves with ITV, if anybody, against Sky. By then there will be hundreds of digital channels punched into millions of homes. I see no reason why the BBC should not run a subscription and pay-per-view sports channel.
"Will the public pay extra subscription money to us, over and above the licence fee? Yes. Sky has taught the core TV audience that it has to pay to watch its favourite programmes. Millions of Sky subscribers are paying pounds 300 a year just to watch live football. They don't care if the money is going to Rupert Murdoch or the BBC. They just want to be able to watch the match.
"New subscription channels could easily double our existing revenues by 2006. But we'll need more, much more, if we are going to compete on the world stage. So we've got to get more out of the licence fee.
"I want a graduated licence fee - the more you earn, the more you pay. At the moment it's regressive, like the poll tax. The poorer people are, the more they watch ITV, so the licence fee is not such a good deal for them. In contrast, we serve the professional classes fantastically well. We give them Radio 4, Radio 3, orchestras, endless news and current affairs, dedicated education channels, the Open University and discussion forums and online news services galore.
"Middle England is getting used to the idea that basic public services should be funded through taxation (or, in our case, the licence fee) but that a `top-up' fee is fair if you want a premium service. It's the modern way. In the NHS you get the basic service `free', but you can pay extra for a more comfortable bed if you like.
"Can the BBC really go into the next century as the only public service that comes at a flat rate? I think we should aim for a top band of, say, pounds 200 for the existing range of services, with as much again for a subscription to a range of BBC-run premium channels, including BBC Sport. This is an (election winning) social justice issue. Free TV for OAPs. But more income, overall, for the BBC.
"With these reforms in place, we can build an impregnable base in the UK. And then we can start to expand into world markets. I was set a target of pounds 200m income from the activities of BBC WorldWide by 2006. I think that is way too much, too soon. Over the next decade we have to focus all our attention on securing our base in the UK. It's the Japanese model, if you like. Protect and dominate the home market, build a powerhouse, and then attack world markets from a position of strength.
"At Pearson TV we put a lot of effort into India and tried to get into China. Those markets are a nightmare - per capita incomes are incredibly low and are going to stay low for a while yet. It all has to be funded by advertising, which is a problem for the BBC, and the political downside is horrendous. On top of that, we don't have the right content. There's a good niche market among wealthy Americans for Monty Python and costume drama. (Inspector Morse, my own pride and joy at LWT, never played well outside the UK. People couldn't understand why the cops didn't have guns.)
"Everywhere in the world people want to be American, not British (except, maybe, the Falkland Islands). Our big chance will come in a few years' time. Let Rupert and his fellow swashbucklers create a pay TV market in China using Fox Studios, baseball and The Simpsons. Our international flagship BBC 24 has put down a marker. But it will be a while before we can afford the huge investment it needs to be done properly.
"We can follow up later with Discovery type nature and science documentaries packaged into channels and sold on by our commercial partners Flextech.
"I am determined that by the time I step down as DG, the BBC will have won back those areas of broadcasting it was forced to give up or that were badly shaken by lack of clear direction under John Birt. We've got to stop apologising for the licence fee and go on the attack. We will soon regain the self-confidence, wrongly described by a generation of Tory politicians as arrogance, to take on the world. And win."