The quality of commercial broadcasters’ news, current affairs and comedy output is declining, strengthening the case for renewing the BBC’s public funding in five years, its director-general argued on Tuesday.

Mark Thompson used a speech in Westminster to fire the first shots of a campaign to defend the BBC’s £3bn-a-year licence fee, just six months after it received a below-inflation settlement for the period until 2012.

“Market failure in the supply of quality news and current affairs is growing,” he said, highlighting British Sky Broadcasting’s recent removal of Sky News from Virgin Media’s cable network.

There were “yawning gaps” in non-public service broadcasters’ programming, Mr Thompson argued. “It is through those gaps that much of our talent and nearly all of our production base would fall,” he added, claiming that every UK independent comedy producer “would go bust” without the BBC and Channel 4.

Mr Thompson included the UK’s education system as a failing market, saying the BBC and other public service broadcasters could help the “millions of Britons” who become “disenfranchised and economically marginalised” as a result of schools’ shortcomings.

He identified a “crisis” in news-gathering as the world’s broadcasters and newspapers cut foreign staff and investigative journalism budgets. “Take away the BBC and you will take away much of the coverage – it’s as simple as that.”

Mr Thompson hinted at further job cuts in response to the BBC’s failure to secure the licence fee it had sought. The “revolution” in its practices would be “noisy”, he said, reflecting expectations that industrial action appears inevitable.

He rejected the idea that the BBC should close any existing services, but admitted that it “needs to become smaller”, concentrating on “fewer, better hours of TV and radio and fewer, better web pages”.

Mr Thompson joined the debate on Channel 4’s remit, saying it should be held to the same standard as the BBC, but committed the BBC to playing “an active and positive” role in Ofcom’s review of public service broadcasting.

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