The British Broadcasting Corporation has always turned up its nose at commercials. Unlike state-funded, public-service broadcasting networks in France, Germany and elsewhere, the BBC's domestic channels won't air ads, infomercials or the latest industry fad, "branded content" — ads dressed up to look like factual programming. So when the French automaker Renault this week rolls out a series of two-minute sponsored "documentaries" on British television to accompany the launch of its redesigned Scenic van, viewers of BBC One and BBC Two won't see them. But here's the surprise: the BBC made the spots for Renault.

The Renault series is just one of several promotions that the newly incorporated BBC creative services department has produced over the past 18 months for clients ranging from Lexus to HSBC to Vodafone. "We're not rushing out to shoot every TV commercial under the sun," says Andy Bryant, a 20-year advertising-industry veteran who took over the department last year. "We're just looking to show our strengths. But it's going to be a lucrative area for us."

For many Brits, the BBC remains the nation's high-minded Auntie, an affectionately respected part of the family who eschews commerce and aspires to the ideals of informing and educating the public, not just entertaining it. Outside the U.K., too, the BBC has attained iconic status through decades of plummy World Service radio broadcasts, and more recently through its international TV news and entertainment channels. But Auntie has a split personality: part of the Corporation is now out to make money, even if that means embracing the sort of rank commercialism it used to consider vulgar.

The 81-year-old organization is still primarily funded by a compulsory license fee every television owner in the U.K. pays and, as its annual report coyly points out, "the BBC does not have shareholders and does not aim to make a profit." But since 2000, under director general Greg Dyke, the Corporation has pursued an aggressive commercial expansion strategy designed to make it an international media powerhouse. The strategy has turned the Corporation into a muscular and increasingly contested competitor to media companies in the U.K. and worldwide, a firm that is gaining clout as a book and magazine publisher and online content provider, as well as a broadcaster. "We're fighting in the big boys' league," says Rupert Gavin, chief executive of BBC Worldwide, which runs the corporation's consumer businesses, including the increasingly successful BBC America channel.

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nginx/1.14.0 (Ubuntu) The results are striking. At a time when the world's major media companies have been struggling with sluggish economies and slumping advertising, the BBC's commercial operations have grown briskly. Last year, those businesses had revenues of over €1.6 billion — 35% higher than in 2000. Of that money, €211 million was funneled back to the BBC in savings and cash for its noncommercial programming. But for many in the media business who are increasingly bumping up against the BBC in the marketplace, the burning question is: Can a license-fee-funded media behemoth compete fairly? And even if it can, should it?

"This is a company with billions of pounds of taxpayers' money trying to grind me into the dirt," says Kelvin Mackenzie, the former editor of the U.K.'s Sun newspaper and an outspoken BBC basher who now runs a small radio company that includes a station dedicated to sports. He complains bitterly that the BBC uses public money to overpay for broadcast rights to sports, making such events as Wimbledon, the Grand National or the British Open unaffordable for a smaller company such as his. The BBC, he rages, is "a significant anticommercial force."

These are serious charges, and ones the BBC is growing accustomed to hearing. "It comes up all the time," says Roger Flynn, who runs BBC Ventures Group, the Beeb's other commercial arm, which sells BBC services — such as its studios and use of a brand-new broadcast center — to businesses. He and others say that the BBC has bent over backwards to ensure that its commercial operations compete fairly and don't touch any license-fee money. But the criticism is likely to figure high on the agenda of an upcoming review of the BBC's charter — a once-a-decade look at the Corporation's mandate — since at its core the debate is about what the BBC is and what it should become.

By tradition, the Beeb is supposed to produce programs in the "public interest," although exactly what that means has never been unequivocally defined. At the same time, it tries to be popular in order to justify the license fee. It's a difficult juggling act, and competitors — and many viewers too — complain that it is using public money to duplicate the same cooking, gardening and home makeover shows as other broadcasters. At a Royal Television Society gathering in Cambridge last month, an executive from Walt Disney asked pointed questions about why the BBC had felt it necessary to start two new digital channels for children, competing with Disney's own programming. In a widely noted speech in August, Tony Ball, the outgoing chief executive of Rupert Murdoch's BSkyB, wanted to know why the BBC is spending €144 million per year on imported programming, most of it from America, when commercial channels could do the same without wasting public cash."I really cannot see why public money is being diverted to those poor struggling Hollywood studios in this way," Ball said.

Generating hundreds of millions of dollars in cash flow every year requires far more than renting out wigs, studio space and dancing fruit costumes, although the BBC now does that, too. Its most obvious, and least contentious, sources of external revenue are sales of its TV programs abroad — everything from Top of the Pops and Teletubbies to Walking With Dinosaurs — as well as deals with cable and satellite operators to run its international TV channels, BBC World (a 24-hour international news channel), BBC Prime (an entertainment channel featuring the most popular TV shows) and BBC America (a hybrid news and entertainment channel aimed at U.S. audiences).

But that's just the start. The BBC is pushing hard to become a significant player in a variety of media markets, from publishing and Web design to franchising, brand marketing and outsourced broadcasting (see chart). But the stronger the BBC becomes as a commercial force, the more people question whether it's losing its real purpose. Phil Hemmings, for one, has severe doubts. "When dealing with the BBC, you are probably better off presuming the worst," he says.

Hemmings is director of corporate affairs for RM, a publicly listed company that sells educational software for teachers and kids. Last year the BBC announced that it wanted to spend €215 million to develop free online educational materials for schools. RM, along with an array of educational book publishers and software firms, viewed this proposed digital curriculum as a direct threat. The firms started an intensive lobbying campaign — complaining to the European Union's competition authorities in Brussels — that ultimately led the government to tone down the BBC's plans.

But it didn't kill them, and Hemmings worries that the BBC could still distort the €122 million educational software market in the U.K. — and severely hurt smaller players like his firm. His big concern is that the BBC will try to cash in through its commercial operations on what it is doing for free as a public service, just as it makes money off toys and books from its Teletubbies children's TV show, for example. "There are fantastic things the BBC could do in education, but it didn't have to come in and eat our lunch," he gripes.

Hemmings isn't alone. Independent TV producers who sell their programs to the Beeb lobbied unsuccessfully for years to get a larger cut of the revenues the BBC earns with them in secondary markets outside the U.K. Rival magazine publishers say they are unnerved by signs that the BBC, already the third-largest British magazine publisher, may be launching a slew of new titles over the next few months, several of which — including Dare, a magazine for preteen girls — have nothing to do with its TV programs.

The BBC insists it goes to great lengths to avoid conflicts. In the past two years, as it has pushed harder into commerce, the Beeb has consolidated all its for-profit activities into BBC Ventures and BBC Worldwide, which are kept at arm's length from its core publicly funded activities. The two firms are separate legal entities from the main corporation, and their staff are paid by the business units, not by the public-service arm of the Beeb. Every piece of business they do for the BBC is contractually drawn up at market prices, they say, and they are subject to quarterly internal audits as well as an annual external audit. Gavin at BBC Worldwide is even required to bid for the rights to BBC programs. Worldwide says it has never been beaten by an outside bidder on a hot program it thinks it can turn into an international commercial success, but other firms have picked up some shows, including Rockface, a BBC One drama about mountain rescue that is being distributed in the U.S. by Columbia.

"No doubt at some point we'll do something wrong and there'll be a big row," says John Smith, the BBC's finance director. "But the processes involved are so comprehensive, so thoroughly audited, so thoroughly reported on in the annual report that I think we're pretty solid in that area." Smith draws a distinction between the gripes of commercial competitors who feel the BBC has not adhered to fair-trading rules and those — like MacKenzie, BSkyB and Disney — who simply object to the presence of a publicly funded competitor in their markets. His answer to the latter camp is that the BBC's mandate is to provide the license-fee-paying public with great sports, kids' and other programs to show them they're getting value for money. "That's what the BBC is for," he says unapologetically. The very purpose of the license fee is to drop "a dollop of cash" on British-originated programming that's "homegrown, mixed genre and not animation."

But there's a fine line between the BBC as a noncommercial public service broadcaster and the BBC as a for-profit media conglomerate. The Blair government in 2000 commissioned an independent assessment of the BBC's internal rules from Richard Whish, a law professor at King's College, London, who concluded that they "are appropriate to ensure that the BBC does not distort competition in commercial markets." But he noted, it's one thing to have rules in place, and another to implement them. That's where some critics say the BBC is falling down.

Internet firms, for example, fume that the Corporation spent €144 million to build a hefty online presence — five times as much as it initially promised it would spend — and that its online content includes such lifestyle areas as gardening and travel, even though the BBC originally promised to stick to news and current affairs. Like many others, the Beeb has lost money on the Internet, but it's now a massive online presence, registering more than a billion page views per month. "We feel they've really been dishonest," says Angela Mills of the British Internet Publishers Alliance, who says rivals have been "crowded out." Following complaints by the alliance and others, the government in August ordered an independent review of BBC Online.

At least one company in another sector has found an abuse: RM, the software publisher. After the BBC finished studying the educational market, it submitted its digital curriculum plans in 2002 for government approval. At that point it should have waited for an answer before proceeding. But RM discovered that the BBC was continuing its work, even holding talks with a potential distribution partner, before it got the government's go-ahead. RM filed suit and after several days in court last October, the BBC backed down and officially apologized. In January, the head of its educational unit resigned, saying he had made "an error of judgment." RM's Hemmings says that, once the problem was identified, BBC management was "vigorous and rigorous" in dealing with it. But he adds: "You have to ask why they acted only after someone pointed out the issue."

As the BBC is Britain's most important cultural institution, its operations are subject to frequent scrutiny, including the charter review. In the 1980s, the government of then-Prime Minister Margaret Thatcher started a debate about the merits of commercializing the Corporation. The discussion spurred the BBC to become more businesslike. It took over the collection of the license fee from the Home Office, and it put in place a competitive bidding process: when a BBC department needed a service, it was no longer obliged to use the in-house option. By the time of the 1996 charter review, the idea that the BBC should generate its own cash had taken root. The first BBC facilities — including TV studios and costumes — were opened to external use in 1998 and told to function like real-world businesses.

Then, in 1999, came an official report into future funding. The government was eager for the BBC to take the lead in promoting digital television, and the BBC demanded a big hike in the license fee as its price. (It has since launched nine new channels.) The report, by an independent panel headed by economist Gavyn Davies, recommended instead that the BBC's prime source of new funding should come from "self-help" — efficiency savings and commercial revenues. Davies, who became chairman of the BBC board of governors in 2001, has presided with Dyke over the transformation of the BBC into a far more commercial-minded organization. Its government-set target: €1.6 billion in savings and income from commercial services by 2007.

That's a big goal, and to help meet it the BBC is exploiting the commercial opportunities of programs like The Blue Planet. Since it first aired in 2001, the breathtaking series about the world's oceans — a coproduction with the Discovery Channel — has become a franchise. "Two years before it was delivered, we saw the footage and said, 'We've got a cracker on our hands,'" recalls Alix Tidmarsh, the director of intellectual property management at BBC Worldwide. Some 500,000 copies of tie-ins have been sold to date, and 1 million videos and DVDs. A concert of Blue Planet music premiered at the Royal Festival Hall in 2001 and has since been performed at the Hollywood Bowl. And a 90-minute feature-film version, Deep Blue, with a score performed by the Berlin Philharmonic, had its premiere at the San Sebastián Film Festival in Spain last month. There's also been some merchandising, mainly of calendars, but the BBC decided against toys. "There are already lots of little stuffed dolphins on the market," Tidmarsh says. Retail sales to date from Blue Planet across all media: €43 million.

As the BBC became more a more confident global player, it was inevitable that it would try its luck in the biggest media arena of all. BBC America was launched five years ago and is growing rapidly. It's now available in 37 million homes, almost half of all homes with cable, up from 27 million a year ago. Though still a small player in America's vast TV market, BBC America has established a fervent audience. "There's something that makes you feel classy and high-end when you hear those plummy voices, which can be completely unfair to the low-grade, raunchy comedy that so much of British TV has been about," says Marty Kaplan, associate dean of the University of Southern California's Annenberg School for Communication. "When delivered in those accents, even broad sex farces seem Oxbridge." BBC News is also getting a boost in America. It is currently carried on 221 public broadcasting stations in the U.S., up dramatically from just a dozen five years ago.

A new BBC gadget called WiCam is another big business opportunity, one that could move the BBC into a world far removed from broadcasting — that of providing security at shopping malls. WiCam is a lightweight digital wireless camera that was developed by the BBC's R and D department, a 200-strong group that over the years has come up with such innovations as Nicam stereo sound for television. In the past, the BBC licensed its technology for others to exploit commercially. No longer. One of BBC Ventures' offshoots is a firm called BBC Vecta, whose role is to fish around for innovations it can market. BBC WiScape, the company behind WiCam, is its first business. The €57,160 WiCam was launched as a commercial product this year, and sales are starting to pick up, says WiScape's general manager Robin Shephard. Shephard reckons WiCam could become a €72 million business over the next three to five years.

There are some things the commercial services of the BBC won't do. Flynn of BBC Ventures says working with tobacco companies is forbidden because the Beeb is trying to protect its brand reputation. BBC Worldwide recently stopped a promotion with McDonald's in the U.K. that involved giving away Tweenies characters with Happy Meals, because of growing public concern about the health effects of fast-food diets. Over at BBC Broadcast's creative services division, Bryant says he's shying away from political assignments. Bryant recently turned down an opportunity to develop content around upcoming European elections. "We didn't feel it fitted," Bryant says.

Making advertiser-funded programming for Renault's new Scenic apparently does fit. The deal goes far beyond two-minute pseudo-documentaries. The spots, which feature several scenic British locations, start and end with a credit announcing Renault's sponsorship. They will air on UK Gold, UK Style and UK History — three of the stations BBC Worldwide operates in the U.K. as part of a fifty-fifty joint venture with Flextech Television, a subsidiary of Telewest Communications. The magazines division of BBC Worldwide has produced a 36-page color supplement that revisits some of the locations shown in the spots. It will be distributed this month as a Renault-branded insert in issues of Radio Times, BBC History Magazine and BBC Good Homes Magazine.

Jonathan Wignall, Renault's U.K. advertising manager, says he invited about 70 firms to pitch for the Scenic business. The BBC won hands down. "It was very much a case of them bringing the idea to us," says Wignall, who is British. How does it feel to do business with what is a cultural icon he grew up with, Britain's preeminent public service broadcaster? Not all that strange, he says. "We're now used to working with them as a commercial operation." This is definitely not your Auntie anymore.

• PETER GUMBEL | London
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