For BBC chief Mark Thompson, revenge is a dish best served cold

A year after James Murdoch's attack on the Corporation, its director-general hits back

The BBC's director-general Mark Thompson last night warned that BSkyB would soon be "dwarfing" the corporation and lambasted the satellite broadcaster for failing to "pull its weight" by investing in British programming.

In a passionate attack, he challenged BSkyB to prove its commitment to British television by paying a levy of £75m a year to ITV, Channel 4 and Channel Five for the right to broadcast those channels on its satellite platform.

"It's time that Sky pulled its weight by investing much, much more in British talent and British content," said Mr Thompson, delivering the annual MacTaggart Lecture at the Edinburgh International Television Festival.

A year ago James Murdoch, heir to his father Rupert's News Corporation empire, which is the largest shareholder in BSkyB, made a scathing criticism of the scale of the BBC, saying its ambition was having a "chilling" effect.

Mr Thompson responded last night by warning of the power of BSkyB, where James Murdoch was until recently the chief executive. "Analysts believe that Sky is going to get a lot bigger still and will end up dwarfing not just the BBC, but all the other commercial broadcasters put together," said Mr Thompson. "Sky is already a far more powerful commercial counterweight to the BBC than ITV ever was. It is well on the way to being the most dominant force in broadcast media."

He demanded that BSkyB pay £75m a year for "retransmission rights" for broadcasting British commercial public service channels, arguing that News Corporation supports such a principle in America where it charges distribution fees from cable companies for the rights to show Fox channels.

Thompson spoke of the shortfall in funding that had arisen in commercial broadcasting from the downturn in advertising and said "on its own Sky could close the entire investment gap". But he said that although BSkyB enjoyed 15 times greater revenues than Channel Five, it made only a similar investment in original British programmes.

Outlining the future of the British television sector in terms of a "battle", the director-general declared, "if you think the battle for quality and creativity is worth winning, now is the time to stand up and be counted". Underscoring his own commitment, he said: "I for one am up for the fight." Mr Thompson was speaking at a time when the BBC is under intense pressure from politicians and rival media organisations who wish to see it reduce its spending. The director-general has himself faced criticism, particularly over the size of his annual remuneration of £838,000, which he recently agreed to reduce by 20 per cent.

Mr Thompson also drew attention to News Corporation's press interests and complained of what he depicted as an unprecedented level of hostility in coverage of the BBC. "The scale and intensity of the current assaults does feel different," he said. "Some newspapers appear to print something hostile about the BBC every week, even though the reporters often freely admit to us that they know the story is ramped up, distorted or just plain nonsense."

Mr Thompson claimed that such criticism did not damage the BBC's public reputation and cited research which showed that readers of the Murdoch-owned titles The Times and The Sunday Times had far higher appreciation levels of the BBC than the national average. "Not only do these newspapers fail to reflect the view of the majority of the British public about the BBC. They don't even reflect the view of the majority of their own readers."

The director-general acknowledged concerns over the BBC's position in the industry but claimed that it had in recent years undergone "painful" and "gut-wrenching" change. "Over the past six years, many thousands of jobs have gone at the BBC and overheads have been squeezed to their lowest level ever."

In a response to criticisms over how much the BBC pays its presenters, Mr Thompson said: "Expect us to ... reduce top talent pay a good deal further as well. Sometimes we will lose established on-air stars as a result. When we do, we will replace them with new talent." He also promised "significant movement" in reducing the amount the BBC pays its senior executives, which is a source of great contention not least among BBC staff who are threatening strike action next month.

And in a warning to the Culture Secretary Jeremy Hunt, who is considering a cut in the BBC licence fee, Mr Thompson argued that any reduction would be damaging to the whole industry. "A pound out of the commissioning budget of the BBC is a pound out of the UK creative economy."

The War of Words

James Murdoch

Murdoch: The BBC is dominant. Other organisations might rise and fall but the BBC’s income is guaranteed and growing. In stark contrast, the other terrestrial networks are struggling....

Murdoch: There is a land-grab, pure and simple, going on – and in the interests of a free society it should be sternly resisted. The land-grab is spearheaded by the BBC. The scale and scope of its current activities and future ambitions is chilling.

Murdoch: Operating alongside the BBC, without access to its content or cross-promotional power, is not a task for the faint hearted. You need deep pockets, sheer bloody-mindedness and an army of lawyers just to make the BBC Trust sit up and pay attention.

Mark Thompson

Thompson: James Murdoch fretted aloud about the lamentable dominance of the BBC. He was able to do that only by leaving Sky out of the equation altogether.... It is well on its way to being the most dominant force in broadcast media in this country.

Thompson: All the analysts believe that Sky is going to get a lot bigger and will end up dwarfing not just the BBC, but all the other commercial broadcasters put together.

Thompson: It’s time that Sky pulled its weight by investing much, much more in British talent and British content. Sky doesn’t declare its annual investment in original UK non-news, non-sport content, but the latest estimate puts it at around £100m, not much more than Channel 5 – despite the fact that Sky’s total turnover is more than 15 times that of Channel 5.