The BBC's Next Special: Sell-Off?


By Kerry Capell Britain's publicly funded broadcaster, the British Broadcasting Corp. confirmed on Sept. 8 that it's talking to a wide range of media giants, including Germany's Bertlesmann and Time Warner (TWX) and Walt Disney (DIS) in the U.S., about the future of its commercial arm, BBC Worldwide. But the BBC was quick to downplay reports that it's ready to sell.

"We're talking to people, including these companies, but they're not the only companies. We're consulting -- that's not offering a business for sale," says a BBC spokesperson.

Not yet, anyway. But if the current valuations being bandied about are anything to go by, the BBC's management may be doing a lot more than "consulting." The unit's businesses, which include international distribution of programs such as The Office and Tweenies, TV channels such as cable channel BBC America, and magazines, books, and videos, could fetch as much as $3.6 billion.

SWEEPING REVIEW. Launched a decade ago, BBC Worldwide has since forged major partnership ventures with British cable company Telewest for a portfolio of pay-TV channels and with Discovery in the U.S. for co-productions and jointly owned international pay-TV channels. The broadcaster has hired investment banks Rothschild, Deutsche Bank, Morgan Stanley, and Canada's CIBC to examine the business.

The BBC says the review of its moneymaking unit is part of a broader investigation into the broadcaster's future under newly appointed Director General Mark Thompson and Chairman Michael Grade. The new top brass came on board in June after the BBC's previous high command resigned in the wake of Lord Hutton's report criticizing the broadcaster's journalism and management in the run-up to the Iraq war.

One of the new management's first decisions was to launch a sweeping review covering everything from the quality of its programming, how effectively it uses public money, and the best structure for its commercial operations. The BBC is expected to conclude its investigation sometime in the next two months.

PARTIAL SELL-OFFS. The Beeb, as it's known in Britain, is under pressure to justify its use of public funds because the charter that governs its independence and purpose comes up for renewal in 2006. Analysts say the broadcaster hopes to preempt a government report due out by yearend that will look at ways to reform the BBC.

The British broadcasting arm, which includes terrestrial and digital TV channels as well as the BBC World Service, is funded by an annual license fee of $216 paid by every TV-owning British household. In addition, the BBC receives a portion of the cash flow generated by BBC Worldwide each year to help offset costs. In the year ending in March, BBC Worldwide posted sales of $1.2 billion, with pretax profits of $66 million, providing the BBC with $252 million in cash flow.

The BBC is increasingly being pushed to sell its noncore assets in a bid to keep rising costs under control. It has already agreed to sell part of its other commercial unit, BBC Ventures Group, which includes BBC Resources, BBC Technology, BBC Broadcast, and Kingswood Warren Ventures, all suppliers of facilities and services to the broadcasting industry.

DEAL-HUNGRY PLAYERS. In July, the BBC announced plans to sell its $3.6 million technology arm to German tech company Siemens (SI), as part of a 10-year info-tech outsourcing contract. The sale of BBC Technology, which was set up six years ago to exploit the BBC's tech expertise, is expected to generate savings of $36 million a year.

No decisions on the future of BBC Worldwide are expected before yearend. But with several cash-rich and deal-hungry media players such as Bertlesmann waiting on the wings, the BBC might be tempted to sell. Capell is a correspondent in BusinessWeek's London bureau


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