Turning up the heat on Rupert

GREG Dyke is distinctly cheerful. It might have something to do with the fact that the BBC director-general has just told satellite broadcaster BSkyB that he will not be renewing an £85m contract to show his channels on Sky's pay-television service.

Apparently, when Dyke phoned Tony Ball, his counterpart at BSkyB, to give him the news, the notoriously hard-nosed Ball was a model of restraint. Not so those around him. They could barely conceal their anger at Dyke's decision.

'I do have some sympathy for Sky,' says Dyke in his glasswalled office at Broadcasting House, central London. Then he corrects himself. 'No, sympathy is not the right word,' he says. 'Tony is running a business and it is his job to maximise profits. We take £112, soon to be £116, from every home in the country and we have an obligation to make sure that money is well spent. If you do not need to give £10m to £15m a year to Sky, why do it?'

Last week's showdown ended in a considerable victory for Dyke, who is smart enough to know he is likely to carry the broadcasting and, indeed, political establishment with him when he takes on Rupert Murdoch.

It means that from May, when the contract ends, the BBC will no longer pay Sky to encrypt its channels so they can be received only by viewers with a Sky access card. Now anyone who simply buys a satellite dish and set-top box in a High Street store will be able to see all the BBC's digital channels.

Dyke, 55, says: 'When Sky charged ITV £17m to go on satellite in 2001, alarm bells rang with me. That Sky could charge the cost of giving away set-top boxes to terrestrial broadcasters was a bit much. We already pay charges to send the signal up to the satellite. The only bit that is Sky is the access card - that's it.' The BBC can do all this because it is using a new satellite - the Astra 2D - that focuses its signal on the UK, rather than spreading it across much of Europe as before.

So Dyke believes the BBC no longer needs the encryption, which prevented football matches being seen on the Continent, for instance, when the corporation did not have the right to show matches there. But there is some dispute over how precise the new signal will be.

Dyke knows Ball might try to kick the BBC off its prized place on the electronic programme guide that leads viewers around the 200-plus channels available to Sky subscribers. At present, BBC1 and BBC2 are on the prime positions, 101 and 102. If the BBC lost those places, the chances are that its audience figures would fall. 'We believe the regulator can insist that we have those slots, but ''can'' is the key word. If we don't win on this, though, we will do it anyway,' says Dyke.

So is Dyke worried that Murdoch will take his revenge? 'Well, Murdoch made a speech attacking us not so long ago so, no, I'm not worried because he's always going to have a go whether we do this or not,' he says. 'But I hope we can maintain a friendly relationship.

'We work with them on Freeview and that's the way of the world now - you compete in some areas and co-operate on others.'

Freeview is a joint BBC/BSkyB venture that offers viewers non-subscription digital TV via an aerial. Dyke believes that Freeview's output of BBC channels and other 'worthier' channels also allows people who regard satellite TV as a sign of vulgarity to go digital in a socially acceptable way. 'People have always lied about their viewing habits, especially people from the South-East, and I should know because I'm from the South-East,' he says. 'Some people have to have an excuse to buy it, they always say they want digital for the history channels, for instance.

'Freeview is full of good things that people are happy to admit to watching.'

Dyke says last week's coup is a way of further justifying the Corporation's high spending on digital channels, such as BBC3 and BBC4. It means they will now be available to those who do not wish to use Sky or subscribe to cable or who cannot, for technical reasons, receive Freeview.

Dyke believes his move will help the Government meet its target for 'analogue switch-off' by 2010. By then, the whole country should be able to get digital TV. Even now, he clearly has doubts about the timetable and offers a thinly veiled criticism of the Government's performance on the issue. 'I think it can still be done within the timetable,' he says. 'But at some stage someone from Government has to work out the plan. My Mum will not change to digital and there are plenty of people like her.

'Someone has to work out how to persuade everyone to switch over because at some stage the market alone will not deliver it.'