BBC is facing 'moment of realism', warns Mark Thompson
Next year's licence fee negotiations will be a "moment of realism" for the BBC, director general Mark Thompson has warned.
But, he said, any loss of funding would permanently damage the UK's capacity to create television programmes.
In his MacTaggart speech delivered in Edinburgh, Mr Thompson also said that Sky should invest more in homegrown TV, which would be "good for the public".
Sky said the BBC should instead address its own "size, cost and governance".
Last year's speech saw Sky boss James Murdoch identify the BBC as a threat.
Mr Murdoch said the scale of the corporation's ambition was "chilling" and railed against the BBC's "guaranteed and growing" income.
Mr Thompson responded to these criticisms in his speech, saying Sky was on its way to becoming "the most dominant force in broadcast media in this country".
He suggested that the broadcaster was not doing enough to produce its own original content.
"It's time that Sky pulled its weight... its investment in original British content is just not enough," he told an audience at the Edinburgh International Television Festival.
And, acknowledging that the corporation faces a tough challenge over negotiations for the licence fee when talks begin in around a year's time, Mr Thompson said: "For the BBC I believe this will be a moment of realism and a recognition of the scale of the challenge facing licence fee payers and the country as a whole."
Arguing that "a pound out of the commissioning budget of the BBC is a pound out of UK creative economy," the corporation's director general said it was unlikely that cuts to the BBC's funding "could be magically made up from somewhere else".
Mr Thompson said going head-to-head with Sky in the creation of original content would be "good for the BBC and good for the industry," and make up a potential shortfall in the UK's programme-making capacity.
ITV and Channel 4, he said, would need to remain strong to contribute to making "great British television".
"The total pot of money available to invest in original TV production is shrinking, and unless something changes, may shrink further."
He emphasised that the UK's broadcasters would have to "break the habit of a lifetime and actually work together".
Following Mr Thompson's speech, a Sky spokesman said: "There are many legitimate questions over the size, cost and governance of the BBC.
"The corporation would be better advised to address the issues in its own backyard instead of advocating a misconceived intervention in the commercial marketplace."
Similarly, the broadcaster's director of policy, David Wheeldon, said: "Our view is that there are some very important questions that need to be asked about the BBC - about what it does, how much it costs and how it should be governed.
"Those are questions that simply are not being answered at the moment and I think that this was a big missed opportunity."
Steve Hewlett, broadcasting analyst and presenter of BBC Radio 4's Media Show, said the corporation had not helped its position in the next licence fee negotiations due to the "self inflicted damage" of recent years.
He highlighted problems over excessive pay for senior executives and presenters, the forthcoming move of certain departments from London to Manchester, and the BBC's pension deficit.
Mr Hewlett said high executive pay was the core issue, adding that "the damage is done... it is firmly in the public mind that something went wrong at the top of the BBC in that regard".
Turning his attention to the licence fee, Mr Hewlett said it was "perfectly possible for the licence fee to go down, or be frozen, without any significant impact on BBC programmes".
However, he added that the argument Mr Thompson was putting forward, was that if the BBC had its budget cut in line with other parts of the public sector, it could mean Sky being left to "rule the roost".
Caroline Thomson, the BBC's chief operating officer, said the BBC had moved swiftly to reduce executive pay and cut overall costs.
"The point about the salaries is that we listened, and we started acting on it last year," she said.
However, while admitting that the level of senior management pay had "caused some damage in some quarters to the BBC's reputation", she said the overall reputation of the organisation had not been affected.
She also said that the level of senior pay had to be seen in the context of needing to attract outside talent to the corporation.
The director general also said that making the licence fee work meant the BBC would "have to become leaner than it's ever been before".
The BBC remained committed to reducing the management bill, he continued, promising "simpler structures, fewer layers, fewer management boards".
He added that such reductions would enable the BBC to invest more in its core strength - making original programmes.
Mr Thompson said that "radical and rapid" change would be necessary at the corporation in the coming years.
A BBC should be "fit and ready for this new world" and "do all it can to help the whole industry thrive," he concluded.