World: Media Analysis - Is divestment the solution to the BBC Worldwide problem?

The review of BBC Worldwide may recommend selling its assets, Stewart Clarke says.

With an ongoing internal review, a focus on public service broadcasting and a possible management buyout, observers could be forgiven for thinking BBC Worldwide, the BBC's commercial arm, would be keeping a low profile.

But it's business as usual, and that means pushing programme sales, channels and publishing businesses around the world.

"The team is entirely focused on getting on with the business and hitting targets," Mike Phillips, the managing director of international TV at BBC Worldwide, says. "The review will be over by Christmas. It's not going to change our performance."

The review in question is the examination of the BBC's commercial activities, being overseen by the chief operating officer, John Smith, who is also overseeing affairs at Worldwide in the wake of Rupert Gavin stepping down as its chief executive.

The pressure on the BBC to focus on its public service remit is considerable ahead of Charter renewal in 2006, and Worldwide is seen by many BBC critics as the unacceptably commercial face of the corporation.

"Only the naive argue the BBC's public service activities don't affect the commercial market, given the BBC's nearly £3 billion of public funding every year," Jeremy Mayhew, an ex-BBC Worldwide board director and now a partner at the media and telecoms consultancy Spectrum Strategy, says.

As if to underline the business-as-usual approach, Phillips says BBC Prime, the "best of the BBC" channel, will be pushing into Asian markets soon. It is looking for space on Asian platforms and expects a channel launch later this year or the start of next.

There are other Asian moves afoot. Viacom and News Corp have been performing somersaults to get into the Chinese market and, following the licensing of the Teletubbies to the state broadcaster CCTV, the BBC is also expanding its activities there.

It is looking to develop Teletubbies-themed learning centres and undertake a Chinese-BBC co-production. "There's a real desire to do a big wildlife programme on China in the lead-up to the (2008 Beijing) Olympics," Phillips says.

Worldwide has international partnerships with Discovery (the two operate the Animal Planet channel), the Canadian media outfit Alliance Atlantis, Foxtel and Fremantle Media in Australia and Flextech in the UK.

Other partners include Emap, Haymarket, BMG and RealNetworks. And Worldwide also distributes BBC and third-party programming internationally and boasts that its sales account for half of all UK programme exports.

Should the review recommend the sale of some or all of Worldwide's assets, some of the suitors are clear. But the companies in question are tight-lipped about whether they would move for the assets, should they be put up for sale. "Too hypothetical" is invariably the response.

However, given that Discovery is backed by the super-acquisitive US investor Liberty Media, Foxtel counts News Corp and Telstra among its shareholders, and Flextech's parent, Telewest, is freshly recapitalised after a lengthy refinancing operation, it is safe to assume they would be interested.

Some parties are calling for a sell-off. Earlier this year, the Broadcasting Policy Group, a group of media executives including the media consultant David Elstein, the UK History Channel boss, Geoff Metzger, and the consultant David Graham, came up with a radical solution: divest Worldwide and distribute the cash to licence-fee payers over a number of years.

"This would almost certainly lead to greater efficiency in that organisation and allow it to tap the capital markets in the normal way," the group noted in a report sponsored by the Conservative Party.

Given that many of the Worldwide assets in question are conduits for BBC material, the BBC would effectively be licensing its content to the third party for a given period if divestment is the chosen route.

Some businesses would also be easier than others to offload, depending upon how closely they are tied to the BBC's core activities.

"The further you are away from broadcasting and online and the nearer you are to conventional publishing, the easier it becomes to sell businesses and/or rights. Magazines and books are probably the most obvious candidates for divestment," Mayhew says.

It is also too early to be sure whether the assets would be sold piecemeal or as a whole. The BBC is sure to want to retain certain units, which in turn could present it with a dilemma. The best way of realising the full value of the assets may well be to sell the whole entity - but that may not be the best strategic option.

Gavin has said he is looking at a bid, should the assets become available.

However, "he's not really in a position to do anything about it until the end of the review, but what he can do is talk to people and line up funding," one insider says.

BBC WORLDWIDE

Cashflow to the BBC

2004: £141 million

2003: £123 million

Sales from continuing operations

2004: £657 million

2003: £640 million

CHANNELS PARTNER

Animal Planet Discovery

BBC America Discovery

BBC Canada Alliance Atlantis

BBC Food None

BBC Prime None

UKTV Flextech

UKTV Australia Foxtel, FremantleMedia

Magazines include: Radio Times, Eve, Top Gear, Top of the Pops, Good

Homes, Olive, Gardeners' World, Gardens Illustrated, BBC Parenting

Source: BBC Reports.

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