Can the BBC Go Bankrupt?

Can the BBC go bankrupt? This is one of the first questions that Marmaduke Hussey should put to his senior managers after he takes over as chairman next week.

For the past month he has been making an intensive study of the institution he will lead and knows that it is in a state of crisis. The bungled defense of the Maggie’s Militant Tendency libel case has shaken confidence in the BBC’s editorial and legal competence. Sustained Conservative assault on alleged bias has brought its cherished political independence into question. And the government’s review of broadcasting policy after the Peacock report has renewed debate about the future of the license fee and the prospect that the BBC will lose its dominant position in British broadcasting.

With all this to digest, Hussey may not yet be aware of another time bomb ticking away at Broadcasting House: a claim for pounds 57 million damages by British Aerospace for the BBC’s alleged breach of a contract for the supply of a broadcasting satellite. If the BBC loses, the financial consequences could be catastrophic.

In 1985 the BBC’s total income was pounds 732 million and costs were pounds 775 million. The resulting pounds 43 million excess of expenditure over income brought its accumulated reserves down by almost two thirds, from pounds 66 million to just over pounds 23 million.

A judgment against the BBC for the amount which British Aerospace is seeking would more than consume every penny it has in the bank, and much more besides. Given that the BBC has no power to borrow, it could finance its payment of such a sum only by imposing a drastic reduction of spending or pleading with the government to bail it out (a plea likely to fall on deaf ears).

While he is assessing how to cope with this threat to the BBC’s solvency, Hussey would do well to question how it came about. The answers will tell him plenty about the quality of the BBC’s management and its fitness to steer the corporation through an era of political, economic and technological change.

In 1983, infatuated by the new broadcasting technology, the BBC rushed to sign an interim ‘heads of agreement’ with British Aerospace for the supply of a three-channel satellite able to transmit television programs directly to dish-shaped aerials on viewers’ roofs. Although the BBC had virtually no direct expertise in satellite broadcasting, and only the vaguest notion of how it would finance and program its three new channels, British Aerospace claims that the BBC encouraged it to move ahead rapidly with the project, with the fine details of the contract to be worked out later. The idea was to launch the satellite in 1986.

Only after signing the preliminary agreement did it begin to dawn on the BBC that it had not done its sums. Frantic negotiations with the government followed. These resulted in the BBC agreeing to share the satellite project with the Independent Broadcasting Authority.

The hard-headed accountants of the ITV companies began to look at the economics of the project and decided, after much wrangling, not to participate. Among their concerns was the fact that the satellite would cost 70 per cent more than a similar one bought from the Americans.

Eventually, the BBC told British Aerospace to stop work, but not before parts of the satellite had been made and extensive development work done. British Aerospace sent the BBC a bill followed, after refusal to pay, by a writ.

The satellite case has been the least publicized of the BBC’s many woes, but is potentially the most damaging. It confronts Hussey with two challenges. The first is to use his prestige as the new chairman to seek to settle the case, with minimal financial damage to the BBC. The second is to see that nothing like this is ever allowed to happen again. To ensure this, he must see to it that the day-to-day affairs of the BBC are put in the charge of someone who brings a relevant set of skills to the task.

Alasdair Milne, the director-general, has spent his entire professional life at the BBC, rising through the ranks of journalism and production to take charge of an organization with 30,000 employees and an annual budget approaching pounds 1 billion.

It will not surprise anybody if Milne leaves within a few months to, as it will most likely be put, explore new business opportunities. Neither will it be surprising if the BBC’s programming establishment seeks to replace him with one of their own.

Hussey’s greatest contribution to the BBC will be to resist this demand and to install an outsider with a proven track record as a manager of large and complex organizations. For the BBC, which has been run by programmers and producers since the days of Sir John Reith, this will be a revolution long overdue.