Graf to head government inquiry into BBC web services

The former chief executive of Trinity Mirror Philip Graf is to lead an official review of the BBC's internet activities, following complaints that the corporation's massive expenditure in this area is undermining commercial rivals, especially in the supply of news services.

Tessa Jowell, the Secretary of State for Culture, Media and Sport, announced the appointment over the weekend at the annual Edinburgh television festival. At the event, the BBC also released its submission to the Government on the issue as well as an independent report it commissioned from the consultants KPMG.

The KPMG report says that despite the BBC's £100m-plus budget for its internet and interactive television division, BBCi, it has not damaged the market. KPMG reported that BBCi "has had relatively little commercial impact to date".

Mr Graf's review will report in the spring. He left Trinity Mirror, publisher of The Mirror newspaper and the country's biggest stable of local newspapers, at the start of this year. The study follows a similar investigation undertaken for the Government into the BBC's News 24 channel last year by Richard Lambert, the former editor of The Financial Times.

The BBC was given wide-ranging consent from the Government in 1998 to spend licence payers' money on its online activities. Mr Graf will examine whether it is meeting the terms of that consent and what impact it is having on the commercial sector. Ms Jowell said the findings will feed directly into the Government's consideration of the BBC's charter, due to be renewed in 2006.

The BBC's online content is free to users, which, commercial rivals argue, means that no other operator can charge for similar services. It has not had to cut back its internet expenditure following the collapse in the internet investment market, as the corporation is publicly funded. Its websites are considered to be of high quality.

Ashley Highfield, director of new media and technology at the BBC, said the corporation was attracting large numbers of Britons to the web, to the benefit all internet operators. Last year BBCi had a budget of £113m, falling to £106m this year and next, of which £72m is spent on web interests. It has a staff of 1,100. For the provision of news, Mr Highfield said it spent less than £20m a year.

Mr Highfield told The Independent that news was a "commodity" on the web, where it was traditionally free. He said those organisations seeking to charge for news should "give up and move on". He said only niche content, such as specialist research, could work under a paymodel, and the BBC did not operate in these areas.

KPMG said the UK internet content market was worth £12m last year, compared with a total UK online market of £7.6bn. BBCi's market share in news, its most popular content genre, is 40 per cent. Some 35 per cent of the users of news on BBCi do not visit any other site for news.

KPMGsaid BBCi's success meant "there may be some impacts [on the commercial sector] at the margins, particularly in news. In BBCi's absence, some news sites may have experimented sooner with paid-for content or invested to increase consumers' willingness to pay". In other genres, especially sport, food and music, KPMG said growth "is coming from revenues streams on which BBCi does not impact".