March 28, 2008

LONDON -- Civil servant Mark Thompson wants to turn the British
Broadcasting Corp. into an empire on which the sun never sets.

To do that, the BBC's 50-year-old chief executive is determined to get
the world to watch more British drama, comedy and news online. His
push has required radical job cuts and new business strategies -- and
has put him in conflict with private media companies and BBC workers.
On Friday, the BBC's union is expected to announce that members have
approved job cuts and salary concessions that will free up funds for
Mr. Thompson's vision.
[Mark Thompson]

Mr. Thompson's push raises a counterintuitive possibility: The world's
oldest and largest public broadcaster may emerge as a pioneer of new
ways of delivering TV news and entertainment. The taxpayer-financed
BBC doesn't have to worry about advertisers or delivering results to
Wall Street. It owns most of its own shows, so it can control how they
appear online. As such, the 85-year-old global behemoth can focus on
the industry's most pressing problem: keeping viewers in the Internet
age.

"It's not about TV," Mr. Thompson says in an interview. "It's about
content and ways of getting content to people."

The BBC's digital push is being watched by rivals with fascination.
NBC Universal's Chief Executive Jeff Zucker says Mr. Thompson is
changing the BBC in a way "that some people who are beholden to the
old way of doing things don't necessarily like." Some of Mr.
Thompson's initiatives are generating protest, particularly from rival
media companies, who argue that the BBC's government funding gives it
an unfair advantage.

British newspapers complain the BBC's expanded Web site is stealing
traffic away from their sites. The broadcaster plans to set up dozens
of Web sites to provide local news for towns and cities across
Britain, for example, potentially harming already-struggling regional
newspapers.

"We've learnt in this digital landscape the BBC's impact on other
media players is much broader than when it was just a broadcaster --
it's now newspapers, magazines and Web sites," says Simon Waldman,
group director of digital strategy and development of the Guardian
Media Group PLC, which owns the Guardian and several regional
newspapers. Other media companies complain about BBC initiatives
designed to generate more revenue, steps needed to fund the BBC's
technology push.
WSJ's Aaron Patrick discusses the BBC's plans to become a global media
empire.

One of the BBC's competitors is News Corp., which owns a 39.1% stake
in U.K. satellite broadcaster British Sky Broadcasting Group PLC. News
Corp. also owns The Wall Street Journal.

A BBC spokesman says all projects that could harm commercial
competitors have to be approved by the BBC Trust, an independent body
set up to oversee the broadcaster.

Unlike U.S. networks, which have only made tentative steps on the
Internet for fear of losing advertising revenue, the BBC has thrown
almost its entire schedule online. To do that, the broadcaster has bet
big on iPlayer, a free computer program offered via the BBC's Web site
and Apple Inc.'s iPhone, which allows anyone in the U.K. to download
and watch BBC shows that have appeared in the past week.

Launched on Christmas Day, the iPlayer is already emerging as a
cultural phenomenon, particularly among young viewers. About 17
million BBC shows were downloaded in the seven weeks after iPlayer's
launch, compared with one million videos sold in the first three weeks
after TV shows were put on Apple's iTunes store.

"It's pretty cool," says Ella Bloom, an 18-year-old University of
Stirling student, who recently used iPlayer to watch a fashion-model
show on her computer. "My friends told me about it." BBC executives
say they believe the iPlayer will become the industry standard in
Britain and will be launched in the U.S. this year.

The BBC was established in 1922 by a government charter to inform the
British people of the news. Today it is one of Britain's most powerful
cultural institutions, commanding a weekly global audience of 233
million for its news programs alone. The BBC has an annual budget of
£4 billion ($8.03 billion) -- dwarfing the U.S. Public Broadcasting
Service's $522 million. The BBC is funded mostly by a £131.50 annual
tax levied on each television owner in the U.K.

Mr. Thompson is part of a long tradition of graduates of top British
universities joining the BBC. Educated at old-line boarding school
Stonyhurst College and Oxford University, Mr. Thompson won highest
honors in English, edited a literary journal and won a prize for
literary criticism. Immediately after graduation in 1979, he joined
the BBC as a research trainee. With his first-class degree and a
reputation for disciplined work habits, he was quickly tagged a future
director-general, the BBC's top post, colleagues say.

He is also preternaturally confident. He declines to discuss the
influence of religion in his life, but friends say Mr. Thompson,
fueled by his Catholic faith, is driven by a strong sense of destiny.
"Self doubt, that's not a big issue for me," Mr. Thompson says.

The predictions proved true, and Mr. Thompson became director-general
of the BBC in 2004. He lives with his wife, Jane Blumberg, a
biographer, and three children in Oxford, and rides his bicycle to the
train station to commute to London.

Soon after becoming director general, Mr. Thompson hired Tim Davie, a
marketer from PepsiCo Inc. Mr. Davie studied about 5,000 people in
panels, the largest research of BBC viewers ever.

What he learned was discouraging. One-quarter of 15-to-24-year-olds
didn't watch, read or listen to the BBC at all in an average week.
Many preferred to play computer games or socialize online. If the BBC
stayed as it was, by 2015 only 60% of people in Britain would get some
form of BBC news each week, the study found, down from 81% today. If
that happened, the British government could argue it doesn't need to
give the BBC as much money.

Mr. Thompson, who envisioned the BBC becoming a global media force,
quickly concluded the broadcaster needed to try to make everything it
created available online in some form, so viewers, particularly
younger ones, could watch BBC shows whenever they wanted. "Everything
should be digital," he says. "That was maybe the only really big idea
I was going to bring into the place."

The idea quickly ran into the inertia of a state-run company. At the
time, different departments in the sprawling BBC empire had separate
Internet budgets. As a result, Ashley Highfield, director of future
media and technology, says he couldn't move on even simple projects
like a new children's Web site because many departments refused to
contribute money.

So in November 2006, Mr. Thompson gave Mr. Highfield control of all
Internet spending, increasing his budget to £400 million from £100
million, Mr. Highfield says.

One project that had moved slowly for years in development at Mr.
Highfield's division was the iPlayer. The iPlayer "points to a world
where you choose whatever you want" to watch on computers or even
cellphones, says Mr. Thompson. He says he encouraged Mr. Highfield to
move fast.

But finding money for the project wasn't easy. Already, the U.K.
government had tightened the purse strings on Mr. Thompson in his most
recent budget review, giving him about £20 billion in funding over the
next six years through the TV tax, £2 billion less than he sought.

The government's decision forced Mr. Thompson to make some difficult
choices. There wasn't enough money to carry out his expensive digital
plans and maintain the level of TV and news output.

Budget debates inside the BBC are "sometimes vicious," with
departments publicly lobbying for themselves, says Jenny Abramsky, the
head of BBC radio and a member of the executive committee. To avoid a
nasty fight, Mr. Thompson gathered his 15-strong executive committee
at a hotel near London for a two-day budget conference after the
government's budget decision in January 2007.

Mr. Thompson chose not to dominate the meeting, keeping his
preferences quiet so the group could reach a consensus. After hours of
debate, everyone agreed to put £131 million into the iPlayer over five
years. Other technology projects got the green light, too, including
MyBBCRadio, which will allow people to create a kind of personalized
radio station of their favorite music, and a revamp of the BBC Web
site.
[photo]
Big name guests, like President Bush, appear on the BBC World News
America program, despite its miniscule audience in the U.S.

To pay for these projects, the group had to find steep cuts. They
agreed to eliminate some 2,500 of BBC's 23,000 staff. About half the
cuts would come from the news and television divisions. The group also
agreed to cut £100 million from the £1.2 billion TV budget. At the
same time, they decided to hire an additional 700 people for digital
projects.

The budget bombed with unions representing BBC staff. They threatened
to stage a series of strikes, angry that the BBC was firing
journalists to "close in on Google," says Paul McLaughlin, an
organizer for the National Union of Journalists. "You have got to
realize that 99% of the audience is more focused on the normal
channels."

After negotiating through the night on Jan. 22 of this year, a day
before the final strike vote, the unions and BBC reached a deal. The
BBC made some salary concessions, and the unions called off the
strike. BBC staff had until Thursday to accept the deal in a postal
vote.

Mr. Thompson also saw another source of additional funds: BBC
Worldwide Ltd., a separate for-profit unit that sells BBC shows,
magazines and merchandise around the world. Mr. Thompson believed the
BBC unit could do more overseas.

Over the next year, BBC Worldwide will be launching more than a dozen
kids', entertainment and documentary channels, with new magazines and
Web sites. The goal: increasing profit to £200 million by 2012, from
about £100 million in the year ended March 31, 2007.

In the U.S., the BBC is spending heavily in hopes of building out BBC
America, a cable channel that has struggled for years to attract
viewers. To run the channel, early last year the BBC hired American TV-
network veteran Garth Ancier, a former president of NBC Entertainment
who had also held senior jobs at Fox, Turner Broadcasting and WB
Television Network.

Mr. Ancier and other BBC executives are shaking up the BBC's
distribution of its programs. Instead of selling them to other
networks, Mr. Ancier has been keeping them for his own channel. The
additional viewers -- and advertising -- should compensate for lost
sales, he says. (The BBC is prohibited from showing ads in the U.K.
but is free to do elsewhere.) As a result, since he took over a year
ago, some of the BBC's most popular shows among foreign broadcasters,
including "Torchwood" and "Robin Hood," are now on BBC America.

Mr. Ancier also cut back on costume dramas and miniseries, the BBC's
bread-and-butter in Britain, because he thinks viewers come for such
one-time events but don't return. BBC America also added a one-hour
daily newscast this fall called BBC World News America.

Ratings for BBC World News America so far are minuscule -- Nielsen
says the newscast has averaged 79,000 viewers this year. But it has
featured some big-name interviews, including one with President George
W. Bush, who appeared on the show last month to speak about his recent
trip to Africa. A BBC spokeswoman says the channel is expected to
become profitable, though she declined to say when.

Some traditional customers of BBC fare -- including TV networks in
Canada and the U.S. -- don't like BBC America's more aggressive
approach. For example, Mr. Ancier says he plans to renegotiate a deal
with PBS to force its affiliates broadcast BBC news bulletins less
frequently. The bulletins may be reducing interest in BBC World News
America, he explains.

If the BBC limits access, PBS would likely lose funding from its
corporate sponsors because of lost viewership and have to drop BBC
news broadcasts entirely, says Terrel Cass, president and general
manager of WLIW in Long Island, New York, which distributes BBC news
to 220 PBS affiliates. Mr. Cass says he hopes to persuade the BBC to
change its mind. "We reach 816,000 homes a day," he says. "Garth's
numbers are infinitesimal compared with that."

A BBC spokeswoman said it is confident PBS stations won't have to drop
BBC news.

Mr. Thompson has a simple reply: He says he would rather people watch
BBC shows on BBC channels.

"The barriers to entry around the world are coming down," he says.
"There is enormous potential to get BBC content to consumers around
the world."