Â鶹Éç

The review, which was announced when the Trust published an overall strategy for the Â鶹Éç last month, follows a new settlement which sees the licence fee frozen at its current level until 2016/17.

The full text of the letter can be found here.

Mark Thompson

Director-General

Room 5126

White City

12 January 2011

Dear Mark

Implementing Putting Quality First and the new licence fee settlement

Following the agreement in October last year of a new licence fee settlement for the Â鶹Éç, the Â鶹Éç will have at least 16 per cent less income in 2016 than it does in 2011. We recognise that the actual costs may be greater than that, depending in part of the impact of inflation and re-structuring, and we will want your further advice on the level of savings needed. We agree that the scale of this challenge requires the Â鶹Éç to undertake a fundamental review of its cost base and shape of services and activities. This note sets out an outline of the Trust’s expectations for this process, reflecting the final conclusions of the Strategy Review which we published before Christmas.

1. Roles of the Trust and Executive and timetable

While final decisions will be for the Trust, we support your wish to consult widely among Â鶹Éç staff to develop ideas before your bringing conclusions to us to consider. We expect you to present your proposals to us in the summer, although as with much of our business this should be an iterative process, and we would expect you to be able to share your initial thinking at an earlier stage.

Once the Trust has had an opportunity to consider your proposals we will lead a programme of external consultation with licence fee payers and wider industry to test our understanding of their likely impact. We will aim to finalise our conclusions by the end of the year.

2. Applying the principles of Putting Quality First

The Trust expects your proposals to draw on, and develop, the strategic direction we set for the Â鶹Éç in Putting Quality First, the final version of which reflected an extensive dialogue with the public and industry led by the Trust, and concluded that the Â鶹Éç needs to address four priority areas:

• Increasing the distinctiveness and quality of its programmes and services
• Improving the value for money it provides to licence fee payers
• Setting new standards of openness and transparency
• Doing more to serve all audiences.

These four priority areas should underpin your thinking on implementing the new licence fee settlement, and we shall use them as a yardstick against which to assess your proposals.

3. The nature of the savings

We see the savings that need to be identified as broadly falling into two different types: (a) those that do not affect the Â鶹Éç’s output but reduce its cost base – these might be changes in working practices or back office savings; and (b) those that do impact directly on output - for instance which affect the shape of existing services, audience perceptions of quality, or the volume of originated content.

Clearly there are strong arguments for maximising savings which fall into the former category. While the Â鶹Éç has made very good progress in recent years in finding and delivering such savings, we believe more can be done in this area. It would be desirable to prioritise your thinking for this type of saving and bring forward proposals earlier than the summer if possible. Because the Trust has ultimate responsibility for value for money of the licence fee, it is our intention to appoint an independent adviser to test proposals in this area and ensure their robustness.

But we do not expect that such efficiencies will fully meet the funding gap alone and some hard choices about content and services may need to be made as part of this process. Because such proposals will impact directly on output, we would ask you to provide them in the form of a range of options as well as recommendations which provide the Trust the scope for a meaningful consultation with the public later this year.

In this area the strategy we have set for the Â鶹Éç, particularly the need to prioritise quality and distinctiveness of output and the application of doing ‘fewer things better’, should guide your thinking, as it is doing with the new strategy you are developing for Â鶹Éç Online. In line with this, we are clear that the licence fee payer will not be best served by equivalent reductions in each area of Â鶹Éç activity, rather that savings should be targeted in those areas where the Â鶹Éç’s public value is lower.

We also want to emphasise the importance of not compromising your pursuit of greater distinctiveness on the Â鶹Éç’s main television channels, Â鶹Éç One and Â鶹Éç Two, and those radio services that operate in markets where there is the broadest range of commercial provision, particularly Radio 1 and Radio 2. We have also previously signalled that this process is a good opportunity to assess how the shape of the Â鶹Éç’s television portfolio as a whole might develop after digital switchover is complete in 2012.

We are under no doubt that implementing the new licence fee settlement will not be a straightforward process, and that tough choices will have to be made. But the work the Trust and Executive have undertaken in developing a strategy for the Â鶹Éç puts us in a strong position to take the right decisions in the interests of licence payers, and we look forward to taking receipt of your proposals later this year.

In line with our commitment to transparency, we will publish this note on our website.

Sir Michael Lyons

Chairman, Â鶹Éç Trust