THE BBC’s share of viewing is sliding, despite above-inflation increases in the licence fee and an extra £100 million spent on programming last year.

The public broadcaster’s overall share of mainstream television-watching fell by 5 per cent as heavy investment in digital channels was not enough to offset declines at BBC One and BBC Two.

Spending on new digital channels contributed to an overall loss, which is understood to amount to £188 million, and an annual financial shortfall that will not end until 2007. The loss is only moderately better than the previous year’s £249 million.

The continuing deficit, a legacy of the spending plan introduced by Greg Dyke, the former Director-General, is one of the reasons that Mark Thompson, his replacement, is cutting 3,800 jobs and recently agreed to sell the BBC Broadcast technical services arm for £166 million.

The figures will be released as part of the BBC’s annual report, due to be published before Parliament next Tuesday. They will demonstrate that the BBC is spending more per viewer as it struggles to maintain its share of an audience fragmented by multi-channel, digital television.

Spending on all types of programming is understood to have increased from £2.37 billion to £2.47 million in 2004-05, with some of the extra money spent on Olympic Games and Euro 2004 football coverage. Yet the viewing share of the BBC’s four general entertainment channels fell from 36.5 per cent to 34.6 per cent during the year.

The spending is funded by income from the licence fee last year, which totalled £2.94 billion, up by £142 million. The BBC is allowed to increase the fee — £126.50 today — by inflation plus an extra 1.5 per cent under a mid-term settlement agreed in 2000.

The budget of BBC One, Britain’s most-watched channel, is believed to have increased to £873 million in 2004-05, from £812 million, but its share of viewing slipped from 25.2 per cent to 24.4 per cent, according to figures from BARB, the audience measurement body.

At BBC Two, the problem is more pronounced, partly because the channel was hit hard by Channel 4’s record-breaking purchase of The Simpsons. That decision, ironically, was taken by Mr Thompson in his previous job running the broadcaster behind Big Brother.

BBC Two’s share of viewing was down nearly 12 per cent to 9.6 per cent, although its budget was increased by £10 million to £375 million. On the BBC’s own preferred measure, reach — defined by the number of people who watch for at least 15 minutes a week — Two fell to 61.2 per cent from 66.9 per cent.

BBC Three, first home to Little Britain, was one of the few channels whose budget was cut, by £6 million to £93 million. However, its share of viewing is 0.48 per cent, which is tiny compared with the amount of money invested in it.

Although ITV’s flagship channel has lost more ground than BBC One, its newer digital stations are doing better than the BBC’s new output, on lower budgets. Youth-orientated ITV2 has a budget of £25 million, and a share of just over 1 per cent.

The BBC is due to negotiate a new licence-fee settlement with the Government this autumn. So far, the broadcaster has secured only a promise that it will be funded by the licence until 2017.

The BBC’s £2.47 billion programming budget dwarfs commercial rivals, although the range of the Corporation’s activity is wider. ITV plc spends about £1 billion a year, and Channel 4 around £541 million.

Six in ten households already have access to digital television, which offers anywhere from 30 to 300 channels.

By the time of the London Olympics in 2012, the traditional analogue signal should have been switched off, leaving the BBC competing on a similar footing with the likes of MTV, CNN and the Cartoon Network.

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