Keynote address to the CBI Annual Conference, Birmingham
Monday 8 November 2004
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Ladies and Gentlemen, it's a great pleasure to be asked to address the CBI.
The BBC owes a great debt to British business. For the BBC was founded not by government or by some public body, but actually by a group of hard-headed British businessmen who got together in the 1920s.
They came from the leading-edge hi-tech sector of their day – manufacturing wireless sets. And they'd had a brainwave. They'd realised they were much more likely to persuade people to buy their products if they had something worth listening to.
So they set up the BBC, hired an energetic young man called John Reith to run it and, 82 years ago, almost to the day, the first BBC programmes went out.
But what started essentially as a marketing device rapidly mutated into something else.
Radio spectrum was a scarce commodity, and the new company was granted a monopoly.
This was seen as the best way of making sure this scarce commodity was used to serve the widest public interest. Thus was born the concept of public service broadcasting.
Monopoly became duopoly. Duopoly became multi-channel.
Multi-channel became the digital highway. And, 80 years on, the BBC faces a very different set of circumstances from those that gave it birth.
The BBC was built on spectrum scarcity. But today spectrum is plentiful.
The public policy question therefore is: How can the BBC's exceptionally privileged position continue to be justified in this new, highly populated landscape?
I have no doubt that it can – that's why I took the job. But I also have no doubt that as the landscape changes, so the BBC itself must change.
Let me start with the case for the BBC in an age of spectrum plenty.
Fundamentally, that case is the same it's always been – that the BBC significantly adds to the quality of life in the UK.
And it does it in ways that the market, left to itself, would do less well or leave undone.
Let there be no misunderstanding. I am not here to question broadcasting delivered by the market. My family were among the founders of commercial television where I spent most of my broadcasting career.
I'm proud of what I achieved in ITV, in America and at Channel 4.
But there is no doubt that, as the commercial broadcasting market fragments and competition intensifies, the freedom of manoeuvre that I and my generation enjoyed is fast disappearing.
Those were the days of the ITV advertising sales monopoly, when your sales director never came in on a Wednesday because it mucked up both weekends.
Commercial television still does wonderful things, but the surest route to success these days is to avoid risk: to find predictable, commodity programming, to clone the last successful format – and minimise investment in news and current affairs.
The BBC is free from those pressures. Its secure funding enables it to break new ground, to take risks, to push the boundaries.
That ability – indeed that duty – to take risks is under threat everywhere else in public service broadcasting.
We're now seeing even Channel 4 starting to forecast a moment when its advertising revenues will no longer be strong enough to support its risk-taking public service content without public subsidy.
But our secure funding, like all privilege, brings responsibilities too.
The first is to make sure we run the Corporation as efficiently and as effectively as any good business. More on that in a moment.
The second is to return a dividend to the public whose licence fees support the BBC. A dividend not in cash.
But a dividend nevertheless of real and measurable value to the public, both as individuals and as citizens.
That's why the BBC sets out to build public value in five distinct ways:
By supporting informed democracy with trusted and impartial news;
Enriching the cultural and creative life of the United Kingdom by bringing talent and audiences together to break new ground;
By building a society strong in knowledge and skills;
By enabling communities of place and interest to take root and flourish;
And by showcasing British culture abroad, and providing the world's most trusted international news and information service.
I've sat on many boards, mostly in the listed sector. I'm very comfortable with the idea of creating shareholder value.
The board I now chair at the BBC has just as clear an idea of the value it expects the BBC to create as the board of any FTSE company.
With no 'bottom line' the BBC must have a measure for success or failure.
Public value is our measure - the sum of all those values I've just outlined:
Democratic value;
Cultural and creative value;
Educational value;
Community value;
Global value.
To ensure the BBC is delivering public value - as in any business - you have to start by being clear about what it is you want your people to achieve.
To be polite, this has been a bit of a grey area inside the BBC of old.
But in June I announced a series of far reaching governance reforms to ensure the Governors make their judgements on independent evidence, not just on that provided for them by management.
In the past, Governors have tended to rubber-stamp management proposals, with little thought given to the BBC's impact on a complex and competitive media market.
Not any more.
In a major departure from the past, the Governors are now implementing a system of service licences for every BBC channel and service.
These licences will set out, for the first time in the BBC's history, remits, conditions and budgets.
They will provide clear objectives against which the Governors can judge performance and hold BBC management to account.
Any proposed new service, or significant change to existing services, will also have to pass a public value test.
This will include an independent review of its potential impact on the market – and here's a novelty – before any decision is made.
I do not believe in the simplistic notion that public value resides only in the traditional high ground – news, religion, the arts and so on, important as they are.
The BBC does not exist as a mechanism for dealing with market failure.
It exists to deliver public value across the widest range of genres – because that's what our 24 million licence payers expect.
All the recent research, including Ofcom's, shows that licence payers have a very broad definition of public service broadcasting.
It includes British comedy, sport, drama, natural history, and soaps.
The difference with the BBC is that we must earn our audiences, not buy them.
For the BBC, no programme should ever be a commodity.
The natural instincts of the BBC, honed over many years of political threats and Charter Review processes, is to adopt a policy of what I call 'confess and avoid' – in its day, an effective way of maintaining the status quo – once thought to be the sole purpose of the Corporation!
I want to take this opportunity to place on record that from here on in: what we say we'll do, we will do. Confess and act.
For example, the Governors have put in place a new strategy for our pioneering online services at bbc.co.uk.
The BBC has played a key role in driving adoption of the web and in the evolution of the vibrant online market that we have stimulated. We are very proud of that.
But this market has now reached relative maturity. A different approach is needed.
Today we are publishing our response to the Graf Review of BBC online services commissioned by the Secretary of State.
That review suggested that some of the remits for our services were too widely drawn. We accept that.
And today we're publishing new, much more tightly drawn, objectives.
They focus on how bbc.co.uk can be made more distinctive, and deliver more public value, in this developing and growing market.
Where the BBC is creating content that does not clearly contribute to our core public purposes then we have redirected resources.
The BBC's new Director-General Mark Thompson spoke in Edinburgh recently about "moving the weight of spend and airtime towards the genres and the content that build public value in a clear and demonstrable way".
In the case of new media, we've reviewed our portfolio of websites and closed some sites down because they would not meet our new test of public value.
There are further closures and spending reallocations within online to come as we specify what we won't do as well as what we will.
By the end of the year, ten per cent of the online budget will have been freed up.
This will be reinvested in sites that, in the Governors' view, generate demonstrable public value.
We also want to make the BBC a friendlier, less arrogant partner for other players in this market.
So we are committing bbc.co.uk to work more closely with the independent sector and, for the first time, the Governors are setting an external production quota.
I hope that the Graf Review marks both a beginning and an end.
The beginning of a new willingness by the BBC to respond constructively to valid external criticism.
But also the end of the necessity for Government to call in outside reviewers.
We are in the process of implementing far-reaching reforms of the BBC's own system of governance.
One of the acid tests for those reforms is that our own review processes are shown to be rigorous enough and transparent enough that no Secretary of State ever again feels it necessary to launch another external review of the BBC.
Last week, the Culture Secretary, Tessa Jowell, was making headlines about the BBC Governors. She said the status quo was "unsustainable".
I agree. I think the old system was unsustainable too.
On the day I became Chairman six months ago I made it clear that the BBC's system of governance needed radical reform.
I found that plans for change were already being formulated by the Governors. We're now putting those proposals – plus a few more – into effect.
We are not awaiting the outcome of the Charter Review debate, the need for reform is just too pressing.
Our aim is not to demolish the BBC's constitution which has served the independence of the BBC so robustly.
Rather it is to make the Board more clearly independent of management and ensure we have the objective evidence we need to make our judgements in the wider public interest.
For the first time, the Board is now supported by a dedicated Governance Unit which provides advice to the Board, independent of management.
To underline the point, the Governors are responsible for managing the staff of the Governance Unit, including their pay, conditions and performance reviews.
Its first director is now in post – recruited from outside the BBC.
And for the first time, the BBC Governors will be located apart from BBC management.
We're about to start packing our bags in preparation for a move to separate premises, located between Broadcasting House and White City.
Our independence from management will be underlined by the powerful symbolism of physical separation.
It's sometimes said that there's a fundamental design problem with a system that asks BBC Governors to be both cheerleaders and regulators.
Of course there is a potential contradiction. But it's not significant – as long as the Governors don't confuse championing the BBC with championing the management of the BBC.
But some, of course, argue that the BBC Governance system is beyond reform. They want it scrapped.
One suggested replacement is the Channel 4 model, with a board made up of senior executives and independent non-executives, answering to an outside regulator. Perhaps to Ofcom. Or perhaps to a brand new regulator, focused solely on the BBC – OfBeeb.
Well, as a former chief executive of Channel 4 myself, I don't see how that model applies to the BBC.
The reason is simple - and fundamental. Channel 4 receives no public money.
The supervisory structure appropriate to a commercial broadcaster – albeit one with some public service obligations - is not right for the BBC which receives nearly three billion pounds in public money.
The scale and character of the licence fee investment demands a supervisory structure that is both detached and engaged: detached enough to take an objective and informed view of strategy and spending and wider public value considerations; but engaged enough and experienced enough to be able to offer ongoing support and advice to management as they spend that public money.
The BBC has unique funding arrangements and has to fulfil unique expectations. It demands a unique governance system.
The Governance debate still has some way to run. Where should the balance be struck between engagement and detachment?
It may well be that in the past the governance system of the BBC did lead to too much engagement. But it seems to me that the Ofbeeb proposal may lead to too much detachment.
There are serious practical issues too. Say an Ofbeeb was set up.
The BBC would still need a board. Presumably this would consist of senior management plus non-execs. People with wide experience in public and corporate life. People not unlike the present Governors.
Meanwhile, down the road the new Ofbeeb is open for business. Its board, presumably, consists of senior management plus independent non-execs. People with wide experience in public and corporate life. People not unlike the present GovernorsÂ…
Only, of course, the Ofbeeb board has no control whatsoever of the budgets and appointments that are now in the hands of the BBC "inside" board.
Ofbeeb, lacking the authority of the present Governors, who have full strategic control over budgets and appointments, is left to hunt for new levers with which to exert control post facto.
It feels like a recipe for conflict, for muddle, for duplication of effort, and for significant additional cost – to be borne, presumably, by you and me, the licence fee payers.
Worst of all, in the event of a disaster, where would the proverbial buck stop? Right now, the final destination of ALL bucks is unmistakably my desk. But with TWO boards?
All my experience at board level in the public and private sector has led me to this understanding: governance is not the same as regulation.
Regulation is about post facto policing of rules – quotas, guidelines, codes and so on.
Governance is not about regulation - although ensuring regulatory compliance is part of the job.
Governance at the BBC is about stewardship. Stewardship of the public interest. And stewardship of the money.
External regulators carry many heavy responsibilities. But they carry no responsibility at all for anybody's money.
The Governors, by contrast, have the stewardship of those three billion pounds. That gives us real muscle.
If, guided by the public interest, we choose to change the output, or the personnel, or the budgets, we can do so – immediately.
External regulators can act – but only ever after the event.
The BBC Governors, guided by the public interest, can act in advance.
We can prevent where regulators can only punish.
We can improve where regulators can only watch and hope.
The Governors are just completing one independent review of the BBC's system of financial controls to ensure they are fit for purpose.
There'll be more such reviews, independent of management, in the future.
Another strength of the current system is that the Governors never have to perform the delicate balancing act that external regulators sometimes have to manage, weighing the public interest against the commercial and political interests that compete for their attention.
Only the public interest ever counts with us, it is not shared or balanced with any competing interest, be it advertisers, shareholders or the need to compete for revenues.
It's the BBC's governance system, in other words, that guarantees the BBC's independence from commercial and political pressure.
And it's the BBC's independence that underpins the public value of the BBC.
The governance system of the BBC may not be the perfect theoretical construct.
But, with the changes we're now making, it's appropriate and it works in practice.
Of course there are areas where the BBC Governors need to do much more.
We urgently need to develop new ways to get much closer to our licence payers so that we develop a fingertip feel for their concerns.
Tessa Jowell said the other day the BBC needs to have what she called a "continuing conversation" with the people who pay for it. Absolutely right!
I think the internet and the new digital technologies should contribute to a solution.
In the New Year, we will announce our programme of action to connect with the licence fee payers who are our customers and our owners.
They deserve better than a passive role.
I spoke earlier about our stewardship of the money.
I'd like to close by briefly telling you about the action we are taking to ensure that the BBC is run as efficiently and effectively as possible.
The new DG has publicly committed himself to a BBC, as he puts it, "as small as its mission allows".
Mark Thompson is now coming to the end of a series of searching reviews of the way the BBC conducts its business. They will start to report in a few weeks' time.
They're looking at how the BBC makes its programmes, and where it makes them.
The BBC spends £140 a head in London and £3 a head in Manchester. That's not right.
The BBC is paid for by licence payers across the UK. The geographical spread of our operations should better reflect the nations and regions we serve.
And it will.
Mark has also launched a commercial review looking at how to generate the most revenue from BBC assets; and, most importantly, perhaps, there's a value for money review.
I don't propose to pre-empt the reports –they are still work in progress.
But let me give you some insight into the value for money review.
There are a number of objectives.
First and foremost, the BBC always has to justify the colossal privilege of secure public funding by demonstrating that it is as lean and agile as it possibly can be.
That's just a given.
Second, the BBC is facing some very big calls on its bank balance over the coming period. For example, the switch from analogue to digital distribution carries a serious price-tag.
Before the BBC starts looking for help with that cost, it knows it must be able to demonstrate that it has taken a very hard look at its own costs.
Mark Thompson is committed to self-help - to finding big savings from existing spending to recycle into new investment.
The results of the value for money review are likely to require the BBC to do some difficult things. This will not be comfortable. But it will be done.
Ladies and Gentlemen, as you know, the BBC is now launched on the process of Charter renewal.
Next year there will be a Green Paper from the government.
And some time after that – we hope – a new Charter taking the BBC forward for another ten years.
We are encouraged by some of the early signs.
In particular by the recognition from Ofcom, that – in Ofcom's own words: "an effective, strong, and independent BBC is essential to the health of public service broadcasting in the UK. It should continue to be properly funded by a TV licence fee model. [and] the next Royal Charter should run for ten years."
Well, I'll buy that.
But we also know that the debate is not over.
Every aspect of the BBC is being picked over – and rightly so.
In a world of change the BBC cannot stand still.
I've set out some of the areas where large-scale change is already under way in the BBC.
We ask to be judged not on fine words but by our actions.
But among all this change, certain BBC values remain timeless.
They are:
Universality: the BBC is for everyone;
Fairness and Equity: the BBC reflects the needs and interests of all its users;
And Accountability: the public that owns the BBC has the right to hold it to account.
Add to these the core principle of editorial independence – a BBC free from all commercial or political influence – and you have an institution that has served Britain well for more than three quarters of a century.
An institution that has brought credit to Britain and contributed significantly to the quality of life in the UK.
If we want that contribution to continue into the 21st Century then it's clear the BBC has to change and change radically.
The leadership of the BBC is committed to making those changes happen, so that a strengthened BBC can continue to meet public expectations and public aspirations.
Those expectations and aspirations are embodied in our programmes – programmes that inform and educate and entertain.
The great TV playwright Dennis Potter crystallised my own feelings about what the BBC must offer.
He was talking about television, but his message applies just as much to radio:
"I first saw television when I was in my late teens. It made my heart pound. Here was a medium of great power, of potentially wondrous delights that could slice through all the tedious hierarchies of the printed word, and help to emancipate us from many of the stifling tyrannies of class and status and gutter-press ignorance.
"We are privileged if we can work in this, the most entrancing of all the many palaces of variety. Switch on, tune in, and grow."
Ladies and Gentlemen, thank you for giving me this opportunity to explain why I believe the BBC matters.
