Sky Is The Limit

In a year or so, there will be a debate about the future level of the licence fee. For the BBC, this will be a moment for realism and a recognition of the scale of the challenge facing licence payers and the country as a whole.But do not believe anyone who claims that cutting the licence fee is a way of growing the creative economy or that the loss in programme investment which would follow a substantial reduction in the BBC's funding could be magically made up from somewhere else.

A staunch history of editorial independence from political and commercial influence has been as fiercely defended by the commercially funded public-sector broadcasters as by the BBC – think of Thames and Death on the Rock – and it is what makes possible the impartiality in and beyond the news which British audiences prize.

At the moment, and despite the anxieties expressed over the past year, this independence seems secure. The coalition government has been explicit in supporting the independence of the BBC and the charter which underpins it. Beyond that, the cross-party support which has sustained the independence of British broadcasting appears as strong as ever. But we should remain vigilant.

The same commercial and political forces which are undermining the independence of the public broadcasters in other European countries – Italy and France spring to mind – are at work here as well. In the UK, they know that a frontal assault will fail so they adopt different tactics – exaggerated claims about waste and inefficiency; nitpicking about the detailed mechanisms of governance and accountability.

In Italy, politicians are threatening to insist that the public broadcaster should disclose the amounts it pays to individual artists in the end credits of the programmes in which the artists appear. Everyone in Italy knows that this proposal has nothing to do with the public interest or real accountability and everything to do with an agenda of weakening and undermining the public broadcaster. In the UK, the tactics are usually subtler, the language loftier. Too often the underlying purpose is the same.

You can get an idea of the intellectual weight of some of the attacks from the freedom of information requests we get in. At the BBC, we believe in FoI. But it's still painful to spend public money that could be invested on programmes answering questions like these: How many toilets do you have in Television Centre and how many accidents take place in them each year? What's your policy on biscuits?

Sometimes this relentless negativity affects the political debate about broadcasting. But perhaps surprisingly there's no evidence that any of this is having any affect on public attitudes to the BBC. And that's true even of the readers of those papers which are most hostile to the BBC. Across the UK population, 71% of people say they're glad the BBC exists. Among readers of the Daily Mail, it's 74%. The Telegraph, 82%. The Times, 83%. The Sunday Times, 85%.

I believe that the reason they have so little traction on this subject is because their readers are able to compare what they read about the BBC with their own experience of its services.

Inside the BBC, there's been necessary and often gut-wrenching change. Achieving a smaller, more efficient, more distinctive BBC is a painful and contentious process. Over the coming months the rate of change and reform will go faster and deeper. As a proportion of spend, overheads are about half those in the 1990s. They will need to fall by at least another quarter.

We've committed to reduce senior manager numbers by a fifth by the end of next year. Expect further significant movement on executive pay. By the end of next year the total senior management pay bill will reduce by at least a quarter. And the review of senior pension arrangements means that in many cases total pay is likely to fall significantly in some cases, including my own, not by 5% or 10%, but by much more.

A year ago, in his MacTaggart lecture, James Murdoch fretted aloud about the lamentable dominance of the BBC. He was able to do that only by leaving Sky out of the equation altogether. Sky is already a far more powerful commercial counterweight to the BBC than ITV ever was. Moreover, if News Corp's proposal to acquire all of the remaining shares in Sky goes through, Sky will not just be Britain's biggest broadcaster, but a full part of a company which is also dominant in national newspapers as well as one of Britain's biggest publishers. According to Enders analysis, it will be a concentration of cross-media ownership which would not be allowed in the United States or Australia, News Corp's other two most important markets.

Sky has reached its preeminence as Britain's biggest broadcaster for the best of reasons. Technological innovation, a willingness to take big risks, strategic flexibility, an ability to get close to and understand customers. Sky is not the enemy of quality British television – it's an important provider of it.

But when it comes to investing in original British production, it's a different picture. When ITV was the dominant commercial player, it poured money into original programming and often in key genres like drama – in the 1980s and 1990s it did a better job than the BBC.

It's great that Sky is going to make the HBO archive available to British viewers over the next few years. It's great that they're announcing a few more drama commissions. But it's time Sky pulled its weight by investing much, much more in British talent and British content.

Sky talks of a programming budget in the year to June 2010 of around £1.9bn, of which sports, movies and carriage fees are about £1.7bn. Sky doesn't declare its annual investment in original UK non-news, non-sport content, but the latest estimate puts it at around £100m, not much more than Channel Five's UK origination budget this year – despite the fact that Sky's total turnover is more than 15 times that of Five's.

Sky's marketing budget is larger than the entire programme budget of ITV1. As a proportion of Sky's own turnover and its profits, its investment in original British content is just not enough.

People say to me: "Aren't you afraid that Sky is going to start spending more on original British programmes and will therefore be competing head-to-head with you?" But that's what should happen. It would be good for the BBC. It would be good for the public.

In Britain Sky pays nothing for re-transmitting the public sector broadcasting channels, despite the fact that, taken together, they are by far the most watched channels they offer. On the contrary, the PSBs pay a charge for the privilege of being on the platform.

Let me quote from someone who thinks that those who invest in content should get a better deal: "Asking cable companies and other distribution partners to pay a small portion of the profits they make by reselling broadcast channels, the most watched channels on their systems, will help ensure the health of the over-the-air industry in America."

The point is simple: it's the free-to-air US networks who invest the most in broadcast content, they're also the most popular networks in the US cable and satellite environments, so isn't it reasonable that the distributors should pay the networks a charge in return for the right to carry them? The man who made that case is Rupert Murdoch and in America he's winning the argument: Fox is now receiving distribution fees from the cable companies. So why not introduce re-transmission fees in this country as well? My modest proposal is that we accept those arguments and explore the adoption of retransmission fees.

Headlines in July about the possibility of a reduction in the licence fee and big cuts in BBC services provoked an extraordinary rash of Twitter feeds, email campaigns and letters to MPs. Some of those "I love the BBC" Twitter feeds trended in the top five in the world. They care about British television and, if necessary, they will be prepared to fight for it in their thousands and perhaps their millions. If you feel the same, if you think the battle for quality and creativity is worth winning, now is the time to stand up and be counted.

Mark Thompson is director general of the BBC. This is an extract from his MacTaggart lecture delivered at the MediaGuardian Edinburgh International Television Festival

An American in Edinburgh

Twenty years after his father lectured the British media on their failings, James Murdoch flew into Edinburgh at the weekend to do the same. One was Australian at the time, the other is American: both relish their outsider status. Both chafe at what they see as an over-regulated industry indefensibly dominated by a public-service broadcaster. To James Murdoch, the British media is like the Addams family – unhappy in every way.

The unrelenting Murdoch attack on the BBC has echoes of the recent attacks by the American right on the NHS. Both are institutions which, when push comes to shove, the British people use, treasure and trust. They may moan about them and complain about their shortcomings, but in the end they feel grateful to have them and regard them as pretty good value for money. This may seem inexplicable to some on the American right, who regard both organisations with barely concealed contempt, but that's the way it is.

In James Murdoch's analysis, creativity, investment and innovation are being choked off in the UK by the twin evils of the BBC and the media regulator, Ofcom. He would like British TV to be more like the press – opinionated, lightly regulated (if at all) and totally independent. In other words, he would like Britain to be more like America. The problem is that the American newspaper sector – untroubled by either the BBC or very much regulation – is on its knees. The free market can no longer support the work of keeping communities informed. The same is true in the UK, where the job of systematically reporting public authorities and courts is increasingly beyond the ability of desperately struggling local newspapers. Yes, the Times has a Baghdad reporter. But the paper is currently losing tens of millions of pounds a year and is able to do its fine journalism only by virtue of enlightened Murdoch cross-subsidy. Good for the Murdochs, who have, over the years, invested admirably in journalism, but don't pretend this is an example of the free market at work. And remember it was the Murdochs – now arguing for plurality and the customer paying a fair price for quality journalism – who cut the price of the Times to 10p in the predatory hope that weaker papers would go to the wall, an act that affected newspaper pricing in the UK for 15 years.

Sky has done extraordinarily well in Britain, thanks to the Murdochs' vision, tenacity and willingness to take risks – and, in part, to a regulatory regime that has not been unhelpful to their ambitions. It is not obvious that the company has been held back by the presence of the BBC. Any fair analysis of the woes of the media industry in America and Europe today would have questioned the growth and alarming dominance of Google. It is a shame that Mr Murdoch allowed these twin obsessions to distort a speech that made some good points. There are aspects of the BBC's size and purpose that should be scrutinised. Regulation should change with the times. He was right to highlight the way convergence is producing "an all-media market". He is right to talk about the need to trust consumers, even if the underlying purpose of his speech will be seen as one of self-interest.

All countries' media ecosystems are different. The American way is no more desirable in the UK than the Italian way – in which a very powerful media magnate has ended up with a dangerously large slice of the cake. What works rather well in the UK is a mixed economy of private and public. Newspapers are lightly regulated, fiercely opinionated and proudly independent. Public-service broadcasters are more heavily regulated in return for their subsidy. It's not a perfect mix, but its part of the texture of life in the country. The idea of decimating it in order to allow a sort of Fox News UK to flourish is a prospect that should truly chill our souls.