BBC fears for funding in digital future

The traditional link between the BBC and the licence fee could be broken as a result of wide-ranging reforms being considered by the media regulator, Ofcom, the Guardian has learned. One option under review could lead to the licence fee being sliced up so that money could be channelled to other organisations to spend on "public service" web and television ventures.

Though the BBC would retain the lion's share of the levy, any reduction would have profound implications for the corporation.

Ofcom believes it has to consider a range of options to avert a crisis in public service broadcasting at a time of radical change. Insiders believe a new means of allocating public money via a newly created body could foster innovation, but would prefer to leave the government to decide how to finance it.

The regulator, while committed to maintaining a strong BBC, is also keen to find new ways of delivering public service content to a generation growing up with mobile phones, broadband internet and a vast array of media choices.

The idea is among several being considered by Ofcom as part of a review, which will feed into a government review of the sector and new legislation. Any possible diminution of the licence fee would cause ructions between ministers and the BBC at a time the corporation says it is struggling to meet its stated aims after a below-inflation licence fee deal this year.

Reigniting the debate over the BBC's future will also put director general Mark Thompson under further pressure as he attempts to draw a line under a turbulent year dominated by a series of crises.

However, there is a growing consensus at Ofcom and in Whitehall that the public service broadcasting system that has served Britain well for 80 years is close to collapse due to the explosion in digital choice and changing media consumption habits, particularly among the young. After the country switches to digital TV between 2008 and 2012, Ofcom will have little oversight of ITV, while Channel 4 is also coming under financial pressure and facing questions over its future.

An earlier proposal for a "public service publisher" was derided by critics but its supporters, including chief executive Ed Richards, felt it served a useful purpose in broadening the debate about the future. They believe a revised version of the idea, funded by public cash, should be considered as a key plank of its proposals.

A spokesman for the regulator said the review was in its early stages and it had not yet reached any firm conclusions: "In its review of public service broadcasting, Ofcom remains entirely flexible concerning any future funding arrangements for this important component of British broadcasting."

A new body could consider requests for both one-off projects and ongoing funding from existing media groups, as well as other public bodies such as museums and art galleries, plus new entrants such as community TV channels.

But Whitehall sources said it was unlikely the Treasury would countenance funding it from general taxation, making "top slicing" the licence fee the most likely option once the BBC's current deal runs out in 2013.

Thompson recently told the House of Lords communications select committee he was opposed to the idea: "It is my job to defend the BBC's interests. I believe there are very, very strong arguments against top slicing the licence fee because you break the clarity of the link with the public."