Background

Digital Media has improved profitability in the year as a result of the continued strong performance of BBC Motion Gallery, the disposal of a loss-making business and a major catalogue sale. At the same time, new digital content businesses have been established and key investments made in new services.

Strategy and Performance

Profits grew by £8.2m to £3.4m, from a loss of £4.8m in 2004/05.

Continuing businesses performed well with BBC Motion Gallery improving its profits by 18% to £1.3m and the music business completing the sale of the publishing catalogue. The strategy of tackling underperforming businesses was progressed in 2005/06 through the sale of Broadcasting Dataservices Limited and by completing the closure of the multimedia publishing business.

Together, this profit growth has enabled the business to make key investments in restructuring and developing new services.

This year also saw the emergence of a new market for on-demand digital video content from mobile operators, IPTV and online retailers. In Autumn, 2005 agreements were signed with key talent bodies to enable video content to be distributed to mobile phones. Following this, in February 2006, a deal was done with Orange to provide a range of comedy clips and catchphrases to mobile phones including The Office, Little Britain and I'm Alan Partridge. A similar deal with Hutchison has been concluded. Together these have laid the foundation for a substantial mobile content licensing business.

In addition, deals have been concluded for on-demand content in the UK with ntl, Telewest, Homechoice and BT Vision (these are reported under Global TV Sales). Outside the UK, on-demand content has been sold to Amazon, netflix and Akimbo.

This year has also seen activity on two key strategic projects for the business - commercial iPlayer and bbc.com.

• Commercial iPlayer: the BBC has trialled a service allowing licence fee payers to catch up on TV programmes on their personal computers. The business is exploring a commercial version of this service, which would provide UK consumers with the ability to subscribe, rent and/or own TV programmes from the BBC archive.
• bbc.com: the BBC's website bbc.co.uk receives around 40 million unique users per month from outside the UK. The business is determining ways of using geo-ip software to separate out international users, deliver them additional services and earn revenues from a combination of advertising, video on demand and subscription.

BBC Motion Gallery

TV clips sales business, BBC Motion Gallery, made progress on three strategic objectives: online presence, geographic reach and representing other broadcast archives. The business' searchable website, launched in 2004, has enabled it to reach new customers.

Further steps towards becoming a global destination for stock footage has been made by signing representation deals with NHK Japan and ABC Australia. Through the representation deal with NHK, BBC Motion Gallery's customers now have access to the world's largest collection of High Definition (HD) material.

Music and Radio

BBC Radio International distributes BBC music and radio programming in over 50 territories around the world. In 2005/06 revenues increased through growth in terrestrial, satellite and online operations. A deal was concluded with Sirius Satellite Radio for the broadcast of BBC Radio 1 across North America - the first ever international licence for a domestic BBC radio network. The business also expanded its presence in Japan with an online radio licensing deal with Wowow.

In June 2005 the existing music publishing catalogue was sold, enabling the team to focus on building a new catalogue of publishing rights to music composed for new series such as Planet Earth, Doctor Who and Strictly Dance Fever.

The business has a strategy of unlocking the value of the BBC's music archive (both radio and TV) in cooperation with record companies and artists. In June 2005, the business concluded a deal with Universal and is currently pursuing similar deals with other record companies.

The music business is a key supplier of material to the compilation album market and during the year had several successes including the number one album I Love Mum, Strictly Dance Fever and I Love The Sixties.

Multimedia

Having completed the closure of the multimedia publishing business, BBC Worldwide is now concentrating on placing its existing CD-ROM catalogue with partners in the UK and non-Englishspeaking territories, general licensing and concluding a partnership deal with 2 entertain to develop an interactive DVD portfolio.

Audiocall and BDS

These two businesses do not involve IP exploitation but instead provide services in the field of telephone voting (Audiocall) and TV listings information (BDS). The 2004 Commercial Review concluded that such operations did not fit within BBC Worldwide's revised remit. Consequently, during the year BDS was sold to BBC Broadcast - now known as Red Bee Media. The success of programming formats such as Strictly Come Dancing were the principle drivers of Audiocall's business and during the year delivered profit of £0.1m. We plan to exit this business in 2006/07.

Internet and Broadband

These businesses include the cost of investing in new services such as the commercial iPlayer and bbc.com.

Sales(£m)	06	05
BBC Motion Gallery	10.8	9.8
Music & radio*	16.0	11.3
Multimedia	0.2	1.5
Audiocall	3.8	4.6
BDS	1.1	4.4
Internet & Broadband	1.2	1.6
Total	33.1	33.2

Profits(£m)	06	05
BBC Motion Gallery	1.3	1.1
Music & radio*	4.9	1.1
Multimedia	(0.4)	(3.1)
Audiocall	0.1	0.6
BDS	(1.1)	(3.6)
Internet & Broadband	(1.4)	(0.9)
Total	3.4	(4.8)

* Disposal of the music catalogue is not treated as a trading sale

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