Birt begins the BBC break-up

The BBC has drawn up plans to spin off its largest directorate - which runs studios, outside broadcasting facilities and editing suites - into a separate, wholly owned company.

The move will be seen as a first step toward the break-up of the BBC and the privatisation of large chunks of the corporation. The facilities and studios generate sales of more than pounds 700m a year and employ around 9,000 people.

Plans for the spin-off, due to be discussed at a meeting of the BBC board of management next month, are sure to spark intense debate, particularly from unions and MPs, about the future status of the public service broadcaster.

Under the proposals - which, according to senior corporation sources, have the support of the director-general, John Birt - BBC Resources would become an operating subsidiary, supplying technical support not only to the BBC but to other broadcasters, on a commercial basis. The BBC's own programmes would continue to be serviced by Resources, which is already charging fees to other BBC departments under the controversial "internal market" introduced by Mr Birt.

Speculation is growing within the corporation that the Resources unit as a whole could eventually be privatised, and a management buy-out, led by Resources chief Rod Lynch, has been rumoured. Mr Lynch previously worked at British Airways, at Harry Goodman's International Leisure Group, and at Forte, the hotels company, where he was sales and marketing director.

Under the spin-off, the BBC would take a step closer to what Mr Birt has called, in private, "the virtual corporation" - a programme-making giant not weighed down by the infrastructure of broadcasting.

Mr Birt has argued that the BBC's real strengths as a public-service broadcaster lie in its programmes, not its hardware. That philosophy was behind the management shake-up announced in June, under which broadcasting and production operations are to be separated for the first time.

The director-general is also keen to cut costs by a further 15 per cent over three years, and to generate significant commercial revenue, both at home and overseas.

In addition, he is pressing for an above-inflation rise in the licence fee in order to finance the transition to digital.

Commercialising BBC Resources could bolster the case against the licence- fee increase, however, as critics may argue the BBC would need less money, not more, if it is no longer obliged to fund the huge costs of keeping the resources arm at the leading edge of technology.

BBC Resources, by far the corporation's largest directorate, was created three years ago to bring together the disparate technical operations that support both radio and television. From 12,000 employees in 1993, the directorate now employs about 9,000, following a radical cost-cutting exercise. It had revenues last year of pounds 724m, of which pounds 120m was accounted for by internal trading within the group. Of the rest, pounds 550m was generated by providing services to other parts of the BBC, while pounds 50m came from other broadcasters, including independent producers. The directorate had a surplus of pounds 1.8m last year.

According to a senior BBC executive: "The changes at BBC Resources in recent years have meant that the operation is now breaking even.

"The strategic question that must be asked is what kind of company BBC Resources should be in the future."

Spinning off the directorate would relieve the BBC of the need to invest hundreds of millions of pounds in new technology to prepare for the introduction of digital television. Broadcasting equipment is rendered obsolete far more quickly than in the past. "It isn't clear to us whether the BBC ought to be spending its budget on such capital expenditure," the executive said.

The BBC Resources proposal will be discussed at a board of management meeting next month, and a detailed business plan is being prepared. Senior BBC sources said last night that if the numbers did not add up, the option would be dropped altogether. But if all appears well, final plans would then be put to the Board of Governors, of which Sir Christopher Bland, the former London Weekend Television chief, is chairman. He is also believed to support the proposal.

However, the permission of the Department of National Heritage, which oversees the BBC Charter, would also be required, the sources indicated. "Any change that puts the BBC at commercial risk would have to be reviewed," a spokesman said.

The BBC declined to comment on the plans. It is understood that a memo will be sent to line managers within the next few weeks, outlining the proposals.

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