The Beeb Cashes In

By Peter Gumbel and Daren Fonda

The big icons of the small screen aren't so much on network television these days as they are on cable, where characters like Larry David, Tony Soprano and David Brent exist. Wait, who's Brent? If you have to ask, you haven't seen The Office, the British comedy airing on the cable channel BBC America. An absurdist mockumentary, The Office is a critical and popular smash in Britain. And with its second season premiering in the U.S. this month, it has claimed a cult following and turned Brent, played by British actor Ricky Gervais, into a hit with the media cognoscenti. A couple of weeks ago, in New York City, Gervais was interviewed on TV by a flattering David Letterman and afterward headed downtown to a screening of the show and a Q. and A. with the audience, which included a die-hard fan, the singer-songwriter Moby.

The Office is one of several shows that should help BBC America become profitable within the next 18 months. The British Broadcasting Corp. (BBC) launched BBCA five years ago to liven up the Beeb's image in the U.S., export more British culture and, since it runs ads, turn a profit. BBCA is the Beeb's low-rent cousin.

In Britain, Auntie, as the network is known, is the nation's high-minded public broadcaster, 81 years old and going strong with award-winning news, documentaries, dramas and comedies. It has long snubbed crass commerce and does not run ads on its two flagship channels. Its revenue model: every household with a telly must pay the British government a "license fee" of nearly $200 a year to fund the BBC, which adds up to a $4.5 billion annual subsidy. Americans would probably dump their sets in the Boston harbor if Washington forced them to spend that kind of money for PBS. But by and large, Brits love their Beeb; 93% tune in at least once a week. Audience satisfaction, which started at 6.4 (out of 10) when it was first measured in 2000, peaked at 7.1 this year.

Old Auntie, however, is not being treated with deference in its homeland. It's partly political--the company is feuding with the government over a BBC news broadcast that suggested Prime Minister Tony Blair exaggerated Iraq's military threat to justify going to war. It's partly corporate--the BBC, through its commercial side, is turning into a powerful media conglomerate. Some critics say the BBC is dumbing down its entertainment shows to get ratings and sexing up some of its news broadcasts to get buzz. With new digital-TV and radio channels, a highly successful website, a major international expansion--to say nothing of the fight with the government that provides much of its money and is about to rework its charter--"the BBC is having to justify itself in too many directions at once," says Anthony Smith, president of Magdalen College, Oxford, and a former BBC producer. Commercial media rivals like News Corp, which controls the satellite-TV network Sky, vent that the BBC's subsidy gives it an unfair advantage with which to expand into their territory. "The BBC is probably under more hostile attack than it ever has been in its history," says Steven Barnett, a professor of communications at the University of Westminster.

Part of the hostility may come down to sour grapes. Last year the Beeb's for-profit operations, which are separate legal entities, brought in revenues of $1.9 billion--35% higher than in 2000--and returned $249 million to the BBC's not-for-profit side. That's remarkable, considering that during the same period, many of the world's major media firms struggled with slumping ad revenues, large debt loads and expensive mergers that blew up. But the Beeb more than muddled through, and one of its biggest success stories is right here in America.

If you want to see the future of the Beeb as media giant, click on BBC America, which runs on digital cable and the satellite service EchoStar. BBCA is now available in 37 million homes, up from 28 million only last year. The channel airs BBC hits from Britain, such as Changing Rooms and The Office; it imports popular programs that other British broadcasters run, like the talk show So Graham Norton; and it's creating American spin-offs. An import called Ground Force, on which professional gardeners fix up a bloke's backyard, also airs as an American version with a team of gardeners digging up backyards in places like New Orleans, Miami and Bordentown, N.J. It's one of the channel's biggest hits, with a prime-time audience of about 350,000 viewers, says Paul Lee, CEO of BBCA. That may seem tiny, but it's substantial, considering that BBCA is available in about one-third of American households and resides in the hinterlands on many cable systems' lineups.

"We're a buzz network," says Lee, 42, a former BBC director and producer. "When we were in under 30 million homes, there weren't a lot of advertisers who noticed. But we're really getting noticed now." Lee says the BBC's prime-time ratings have grown 50% year over year since 2001. "When we launched, only 3 in 10 Americans heard of the BBC. That figure is now 6 in 10." He says BBCA is ahead of its target to turn a profit.

BBCA owes its rapid U.S. expansion in good measure to Discovery Communications, the company, based in Silver Spring, Md., that owns the Discovery Channel, the Learning Channel and other cable networks. As a joint-venture partner with the BBC, Discovery provided start-up funds for BBCA, agreed to cross-promote its shows on Discovery channels, sell ads for BBCA and work out distribution deals with cable and satellite providers.

BBCA's prime-time audience averages 76,000 viewers, a sliver compared with those of cable networks like FX or HBO, which have lured around 4 million viewers for hot shows like The Shield and The Sopranos. But BBCA's numbers are high enough to earn a Nielsen rating, which puts it beyond the fringe cable channels. In the chase for ad dollars, that places it in league with National Geographic, Oxygen and the Women's Entertainment network. "We deliver the most upscale targeted trendsetting audience in cable," says Lee, referring to a recently completed viewership study for the channel.

Perhaps the best example of the Beeb's growing influence in the U.S. is NBC's version of the BBC hit Coupling, which premiered this fall. NBC hoped its knock-off would be the next Friends, lavished it with publicity and ran it on a premium Thursday-night time slot. Viewers merely shrugged, while critics savaged it. Comparing it to the British version, which airs on BBCA, the New York Times wrote, "Coupling is the Milli Vanilli of network television: the sitcom equivalent of lip-synching someone else's song." Yet BBC America is capitalizing. Thanks to the notoriety of Coupling, and hits like The Office, Lee says, BBCA "more than doubled" its revenues from last year in the latest up-front market for ad sales for the season. It's also getting higher-quality advertisers than the direct-to-consumer firms that have typically hawked their wares during its shows.

In Britain, the success of BBCA and the BBC's other commercial ventures is viewed with a wary eye. As its annual report coyly points out, "The BBC does not have shareholders and does not aim to make a profit." But since 2000, under director general Greg Dyke, another side of the corporation has pursued an aggressive commercial-expansion strategy designed to make it an international media powerhouse. The firm is gaining clout as a global broadcaster, content producer, book and magazine publisher, ad-services vendor and Internet firm. "We're fighting in the big boys' league," says Rupert Gavin, chief executive of BBC Worldwide, which runs the corporation's consumer businesses, including BBC America.

With a rich and varied library of shows, the BBC makes big money selling its programs abroad--everything from Teletubbies to Changing Spaces. The Beeb has deals with non-British cable and satellite operators for BBC World (a 24-hour news channel) and BBC Prime (featuring popular-entertainment shows) as well as BBC America. Already Britain's largest magazine publisher, it's launching a slew of new titles. It's also touting business for a new state-of-the-art broadcast center in London, and has started producing "branded content" for advertisers. British viewers recently saw two-minute "documentaries" that the BBC produced for the French automaker Renault to coincide with the launch of a new van, and the BBC has produced promos for clients ranging from Lexus to Vodafone. "We're not rushing out to shoot every commercial under the sun," says Andy Bryant, who heads the commercial-services division. "But it's going to be a lucrative area for us."

For the media companies that are increasingly bumping up against the BBC in the marketplace, the question is, Can a publicly funded media behemoth compete fairly? And even if it can, should it? By tradition, the Beeb is supposed to produce programs in the "public interest," although exactly what that means has never been unequivocally defined. At the same time, it tries to be popular in order to justify the license fee. It's a difficult juggling act, and competitors complain that it is using public money to duplicate the cooking, gardening and home-makeover shows that other broadcasters air.

At a Royal Television Society gathering in Cambridge last month, an executive from Walt Disney Co. asked pointed questions about why the BBC felt it necessary to start two new digital channels for children that competed with Disney's programming. In a widely noted speech in August, Tony Ball, outgoing chief executive of News Corp's BSkyB, wanted to know why the BBC is spending $170 million a year on imported programming, most of it from America, when commercial channels could do the same without wasting public cash. "I really cannot see why public money is being diverted to those poor struggling Hollywood studios in this way," Ball said.

The BBC insists it goes to great lengths to avoid conflicts. In the past two years, as it has pushed harder into commerce, the Beeb has consolidated its for-profit activities into BBC Ventures and BBC Worldwide, which are kept at arm's length from its core publicly funded activities. The two firms are legal entities separate from the main corporation, and their staffs are paid by the business units, not by the public-service arm of the Beeb. Gavin, at BBC Worldwide, is required to bid competitively for the rights to BBC programs. Worldwide says it has never lost to an outside bidder on a hot program it thinks it can turn into an international commercial success, but other firms have picked up some shows, including Rockface, a BBC One drama about mountain rescue that is being distributed in the U.S. by Columbia.

John Smith, the BBC's finance director, draws a distinction between the gripes of commercial competitors that feel the BBC has not adhered to fair-trading rules and those--like BSkyB and Disney--that simply object to the presence of a publicly funded competitor in their markets. His answer to the latter camp is that the BBC's mandate is to provide the license-fee-paying public with great sports, kids' and other programs to show them they're getting value for money. "That's what the BBC is for," he says unapologetically.

But there's a fine line between the BBC as a public-service broadcaster and the BBC as a profit-minded media conglomerate. Tony Blair's government in 2000 commissioned an independent assessment of the BBC's internal rules, and it concluded that they "are appropriate to ensure that the BBC does not distort competition in commercial markets." But, the report noted, it's one thing to have rules in place and another to implement them. That's where some critics say the BBC is falling down. And they aren't just griping about the church-and-state separation that's supposed to exist between its commercial and not-for-profit activities.

Many in Britain fear that the government might weaken the BBC's independence by attacking its governance standards. When Blair's communications director, Alastair Campbell, furiously complained about BBC reporter Andrew Gilligan's report that Blair's government had "sexed up" the dossier Blair used to justify war in Iraq, the BBC's board focused on protecting the corporation and spent far less time probing management about how solid Gilligan's story was. It turns out that Gavyn Davies, chairman of the BBC's board of governors, and Dyke, the BBC's director general, had not read the transcript of Gilligan's controversial broadcast for weeks. And an e-mail from his editor saying Gilligan's story was "marred by flawed reporting" was not put before the governors until after they had endorsed the essential truth of this claim. "The BBC sees itself as something of a priesthood," says David Puttnam, a member of the House of Lords and film producer. "A fundamental weakness is that it regards even constructive criticism as enmity."

Puttnam thinks it would help crack the BBC's insularity to put it under Ofcom, a government regulator that's about to supervise the rest of Britain's telecom industries and has a mandate to promote competition and deregulation. Others think that doing so would destroy the Beeb's public-service ethos, open it up to more intense commercial and government lobbying, and turn it into something far weaker, like PBS. To gird against an upcoming government review of the BBC's charter, communications professor Barnett suggests the governors make their actions more transparent so that people can see they are exercising real control rather than rubber stamping.

What may ultimately save the Beeb is that most Brits consider it a bargain. Compared with the cost of pay TV--$760 a year and rising--the Beeb's nearly $200 license fee looks like good value for the money. Even the BBC's critics acknowledge its merits. Puttnam, recalling his days on the board of an independent TV company, says, "We would have liked to get away with cheaper dramas, but we couldn't. The BBC sets a quality benchmark everyone else has to meet." The Beeb is also careful to promote products with broad appeal, like a set-top box that allows anyone to receive digital channels without paying a monthly subscription. It's the fastest-growing consumer product in Britain. Not a bad business for an octogenarian Auntie to start up. --With reporting by Lisa Takeuchi Cullen/New York

With reporting by Lisa Takeuchi Cullen/New York