Source : The Guardian

We should make as much as we can and as much as our competitors, says the corporation's number three.

Anyone who thinks the BBC is about to give up its commercial ambitions should talk to John Smith, the corporation's third most powerful man, who has taken charge of the BBC's money-making activities following last year's wide-ranging review.

The business will be "very aggressive", Smith says, with plans to cut costs and expand internationally.

"In the sectors we are in, we should make as much as we can and as much as our competitors," he says, in his first interview since the BBC announced the results of its commercial review last December.

In the drive to expand in its three core areas of TV channels, sales and magazines, Smith is talking to joint venture partners overseas. He will also fly to New York next month to jumpstart the flagging children's division. Finding a US partner to distribute programmes such as the Fimbles is an "urgent" task, he says.

His comments will put paid to any hopes among commercial rivals that the Beeb will jettison its commercial ambitions in the run-up to next year's charter review. They also draw a line in the sand for government advisers preparing a green paper in the coming weeks.

Smith, a plain-speaking financier, is absolutely clear about the role of commerce within the BBC. "We want commercial activities that exploit and expand the BBC's brand and are profitable," he says.

Out go Broadcast and Resources, two low-margin businesses that are struggling to compete. Out go particularly controversial general interest magazines such as women's monthly Eve, as well as some niche ones - Card and Paper-Making anyone?

But very much in favour with the new top team at BBC Worldwide are the 18 channels it either owns outright, such as BBC America, or partly owns, such as its joint venture with Flextech, UKTV. The sales business, which sells and distributes programmes and formats, and top-selling magazines such as the Radio Times, are also in.

Smith, who is chief operating officer of the BBC as well as chief executive of BBC Worldwide, says: "We want to be very aggressive in Worldwide. . . We will get out of all the small, sub-scale activities by partnering them and focus everything on TV channels, sales and magazines."

In doing so, he aims to improve returns that have been lamentably low. Before the commercial review, the BBC's six commercial operations generated a return on assets of less than 3%. "With yields that low, we would have been better off selling all the companies and putting the money in a bank account," he says.

Smith's plan is to preside over one business, Worldwide, with a yield of over 6% on revenues of between £500m and £600m next year. With a target of doubling profits to £74m over the next two years, staff numbers are to be cut (or transferred) from over 2000 to about 1200.

Smith's decision to stay on as head of Worldwide has provoked complaints from rivals of a conflict of interest. Partly to deflect the criticism, external headhunters are looking for a new independent non-executive chairman for Worldwide as well as two new non-executive directors.

The move is to make the business "more like a plc", according to a BBC spokeswoman, who also says that the management issue would be looked at again in 15-18 months' time. Neither comment will deter rivals who still hope that the entire business could be sold off following the charter review.

"The commercial business could still be an area where the government says it has to have its pound of flesh," says one rival with some relish.

One conspiracy theory has it that BBC bosses realised that to sell off Worldwide ahead of the charter review would deny it a negotiating tool. While Michael Grade, the chairman, is unlikely to budge on overall governance or the licence fee, he could sacrifice commercial revenues. According to this theory, Worldwide's contribution of about £3 per licence-fee payer will be a useful bargaining chip.

Smith's own explanation of why the commercial review came to its conclusions is, perhaps fittingly, both political and economic. He often cites the views of others but is also categorical that the BBC must manage and grow its own brand.

"The trouble with having commercial businesses like this in the BBC is that it brings an enormous amount of opprobrium," he says. But he strongly denies the criticism most often thrown at the corporation that it uses taxpayers' money to subsidise commercial operations. "It's just not true."

Smith, who joined the BBC as an accountant in 1990, often speaks of the "right" thing for the corporation to do. So the huge number of complaints, mostly from rivals, about the BBC promoting its magazines on air, for example, have led to a ban on such trailers since Christmas.

Sarcastic asides about last year's purchase of Origin, which publishes several small-circulation magazines, have also been taken on board. "The answer to why should we own The World of Cross Stitching is, basically, 'it's a fair cop'," he says.

Media executives outside the BBC complain that the review has simply restarted a margin improvement exercise begun by the former director-general Greg Dyke. BBC Vector, a sort of venture capital business set up in the boom years, had already been closed before the review was over and BBC Technology was sold in October.

The children's department, which had expanded massively following the success of the Teletubbies, had already seen its costs come down and is expected to return to profitability this year.

Smith describes his predecessor's tenure by saying: "Under Greg we probably got a bit carried away in terms of commercial ambitions."

Yet he remains ambitious for Worldwide. He wants the sales division to be the "rights agent of choice" for the industry as a whole, not just the BBC. The corporation is making deals such as last week's with Hat Trick, the independent producer, as well as rivals such as ITV, to sell programmes and rights overseas.

Rivals such as IPC and Emap were disappointed that the BBC did not decide to sell more of its top-selling magazines. Smith is adamant that the Radio Times, the Beeb's first commercial venture back in 1923, is not for sale. The division, the third largest magazine publisher in Britain, is very profitable and, he says, the "scope for international expansion of magazines is great". Worldwide has already agreed a joint venture with the Times of India to publish several titles in the sub-continent.

Several years ago, Will Wyatt, a former managing director of BBC Television, described Smith as "quick-thinking and fast-moving". As the corporation approaches its charter review, he obviously aims to live up to the description.

Anatomy of a shake-up

On the block. . .

BBC Broadcast: Sale is "imminent", with an advert in the trade press next month and approval by the governors expected by the summer. Bidders expected to include trade buyers, such as John Malone's Ascent Media, and management-led team. Broadcast employs about 1,000 people in three divisions, including playout, which essentially puts the channels on air, access, which includes subtitling, and creative, which produces the so-called idents between programmes - such as the children bouncing up and down on Christmas puddings. The BBC, with which it has a seven-year contract, makes up 80% of Broadcast's business. Valued at about £100m with profits of about £6m on £110m sales.

BBC Resources: Will be prepared for a sale this year. Divisions include studios, costumes and outside broadcast (for sports etc). The management is keen to put long-term contracts in place with the BBC before any sale. Profits of about £5m on £130m turnover. Needs investment but low margin.

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© The Guardian