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Can the slow-moving BBC survive in the brave new world? Mathew Horsman reports

The digital age has dawned, and there is no looking back. If the BBC gets its way, the public service broadcaster will be the undisputed market leader in the brave new world. Its blueprint for a digital future posits a world of mind-boggling choice, high quality and technological brilliance in which the Beeb will be Britain's digital diva, its best and its brightest.

Yesterday's announcement was calculated to prove what is far from certain: that the BBC, a public-service broadcaster financed by licence fee payers, has a role in a fragmented, highly competitive broadcasting environment.

The BBC has very little choice. As John Birt, director-general, conceded yesterday, the corporation is stuck between a rock and hard place. "We could of course ignore the new technologies, let our beards grow, and carry on regardless," he said. That option, he understands, is not sustainable. Conversely, the BBC could plunge wholeheartedly into the risky commercial TV sector. But that would put severe pressure on the licence fee: why should viewers pay a compulsory levy if the BBC is merely one commercial broadcaster among many?

The answer is that the BBC will remain a public service broadcaster, but it will selectively engage in the digital revolution. To survive, it must. By its own admission, 50 per cent of UK homes will be receiving multi-channel services within 10 years. The share of the traditional broadcasters - the Beeb and the commercial channels - could drop to 65 per cent of the TV audience. While the BBC's guaranteed income will stay more or less flat, the revenues of new-style broadcasters, led by the satellite and cable companies, are set to grow robustly.

This is not the distant future. Digital radio services have already been launched. Digital satellite TV has made its appearance in the US and in France.

By the turn of the decade, cable operators, too, will offer digital services. Even telecoms companies will soon offer entertainment programming over their networks. Broadcasters from the ITV companies to the new Channel 5 are planning to launch digital services. In such a fragmented environment, what can the BBC, often derided as a slow-moving, bloated enterprise, offer?

Yesterday, it promised to offer wide-screen broadcasts with CD-quality sound. BBC viewers would be offered "expanded" services, for free. For instance, an episode of EastEnders would run, as usual, in the early evening. But viewers would be able to use their remote controls to call up information about previous plot developments. Or viewers of Bookmark, the literary programme, might want to follow a documentary on Samuel Beckett with a performance of Waiting for Godot.

All this is made possible through the magic of digitisation, which reduces transmissions into a series of ones and noughts. The result is a far more efficient use of scarce spectrum capacity.

The BBC will also launch a 24-hour news service and a clutch of themed channels, offering specialist viewing of, say, arts programmes or favourites from the Beeb's archives. With the exception of the themed channels, all this would be "free-to-air" to any viewer with a "decoder", the black box that sits on top of the television set.

The services are part of what is called digital terrestrial television (or DTT), which the Government hopes to see launched by early 1998. The BBC will also seek to offer its digital services to digital satellite subscribers - those who take Murdoch's Sky. Ultimately, BBC pay services could be delivered in a range of ways, including cable and even the telephone network.

To pay for all this, the BBC hopes to expand its commercial income, from publishing, programme sales and overseas subscription services. In the most recent financial year, the BBC earned about pounds 300m from its commercial activities. That compares to pounds 1.8bn generated by the licence fee. Bob Phillis, the deputy director- general and the head of BBC Worldwide, the commercial arm, aims to increase commercial income threefold by the year 2005.

Additional money is expected to come from yet another round of cuts at the Beeb, increased borrowing and from the proceeds of an intended sale of the corporation's transmission services. Within three years, it hopes to take another 15 per cent out of costs. Productivity would have to rise because the new digital services would consume more output. Whatever the digital world holds for the consumer, it is going to mean harder work for those left at the BBC.