Leading article: The BBC must adapt to changed circumstances

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It has been a disappointing few months for the BBC. In November came the surprise defection of Michael Grade, the corporation's chairman, to ITV. And now, three years of negotiations with the Government have resulted in a licence fee settlement substantially smaller than the BBC originally requested. There is talk of a squeeze on programming budgets and a drop in the quality of the corporation's output. The broadcasting unions are threatening action if the settlement translates into redundancies. The Liberal Democrat culture spokesman has declared the BBC's very existence "at risk".

It does seem as if the Government has decided to impose a relatively stringent settlement on the BBC as a point of principle; as if to show that broadcasting will be treated like every other public service in the new atmosphere of austerity in the public sector. It is strange that ministers are willing to set aside several billion pounds for an unwarranted national ID card project, but when it comes to public service broadcasting, the purse strings are pulled tightly shut.

Nevertheless, for the BBC to have won the kind of settlement it was hoping for - a licence fee rise of 2.5 per cent above inflation - it would have had to demonstrate that it was as lean and efficient an organisation as it was feasible to be. Yet despite the reforms and savings the director general, Mark Thompson, has implemented in recent years, the BBC manifestly did not demonstrate this. The corporation still has a swollen, often unproductive bureaucracy. And some of its ideas for expansion were of distinctly questionable value. For instance, in the BBC's original proposals, a substantial sum of money was earmarked for additional investment in the British film industry. Scrapping grandiose projects such as this should be bearable for the corporation. The BBC should also get rid of its profit-making ventures in publishing and marketing, which sit uneasily with the remit of a public service broadcaster. In any case, such commercial ventures bring in only a modest profit.

The next few years will unquestionably be challenging for the corporation as it goes about furnishing the elderly and disabled with new digital televisions and relocates 1,500 of its staff from London to Salford. But this financial settlement is hardly the end of the world. Talk of an "emasculated" BBC is over the top. Well-run media organisations are able to adapt to changed circumstances, financial or otherwise.

We should remember that the corporation enjoys a degree of certainty over its future of which commercial broadcasters can only dream. The charter has been renewed. A further decade of the licence fee has been guaranteed. The BBC will receive £20bn over six years. This is still a substantial sum. The link between the licence fee and the retail price index has been broken, but the BBC will reap its 3 per cent increase even if inflation falls. And the growth in the number of UK households is likely to boost the licence fee income in any case. Commercial broadcasters, on the other hand, are faced with falling advertising revenues and a new era of intense competition from satellite and digital channels. The economic winds are far chillier in the private sector.

The timing of this settlement turns out to be rather poignant. The disgraceful scenes on Channel 4's Celebrity Big Brother are a warning of what can happen when a broadcaster - and one that started life with a public service remit - becomes obsessed with ratings and sets out to appeal to the lowest common denominator in our society. This is an eloquent testament as to why we need a strong, confident and adequately resourced BBC.