Mr Grade (l) defended a need for "difficult" journalism

They will commission an independent study to see whether the BBC has the right balance of programmes in peak hours, the BBC's annual report reveals.

Chairman Michael Grade said the BBC had to listen to audiences to thrive, and stretch itself to deliver good value.

He hailed a "different" style of report, focused on holding the BBC to account rather than marketing itself.

ANNUAL REPORT BBC coverage of Iraq war had "some limitations", failing to treat military sources with sufficient scepticism Commercial channel BBC World lost �16.5m last year. Losses "could not be sustained", said Mr Grade BBC Radio must improve its appeal among young people aged 15-34. Audience complaints of "relentlessly single" image of Radio 1 Greg Dyke gets �488,416 payout after resigning, on top of �321,000 salary and benefits, making total of �809,416

Governors expressed concern about "a decline" in what audiences thought about the quality of BBC output over recent years.

They praised BBC One for investing in new comedy, but said it must have the confidence to stick with new shows, even if ratings are disappointing at first.

"Entertainment continues to be a challenge for BBC One," the governors said.

"Finding successful original formats for Saturday nights remains a particular challenge."

'No anxiety'

But at a press conference, Mr Grade and director general Mark Thompson sought to play down any suggestion of panic over BBC One content.

There was "no acute anxiety about BBC One", said Mr Thompson. "The governors believe it shows year on year BBC One is getting stronger in terms of delivery in many ways."

ANNUAL REPORT A dip in viewers to BBC Three but the channel recovering. it took time "for new channels to bed in", said Mr Thompson Too few regional programmes on national TV, said governors BBC failing to appeal enough to black and Asian audiences, with ethnic minority audiences for mainstream radio stations falling Overall, BBC recorded �249m loss in the last financial year

Mr Grade said the study into programming was a "work in progress, part of an ongoing review" by the governors.

And Mr Thompson praised the success of Strictly Come Dancing, and said he had similar hopes for Johnny and Denise - Passport to Paradise, with former Big Breakfast hosts Johnny Vaughan and Denise Van Outen.

"They are great artists," Mr Thompson said. It [the programme] could develop into a great show as well."

Mr Grade said: "You can never have enough comedies - there are some good comedies on the BBC, but what is important is that the BBC develops new talent. The BBC is a fantastic nursery for talent."

BBC Two was praised for reducing the number of lifestyle and makeover shows in the past year to make way for more arts, current affairs and documentary programmes.

I will defend the BBC's right to do difficult and courageous journalism Michael Grade BBC annual report 2004: At a glance

The report shows that the BBC made �135m from commercial activities - up �11m - and saved �29m in support costs. But governors said more needed doing to improve efficiency in production.

Mr Grade warned that the future of the BBC could not be guaranteed, and it had to "renew and refresh" its bonds with audiences.

He said: "We have to listen, learn and respond - and then go back and do it again.

"I don't think we should ever regard audiences as satisfied, we have to strive, and strive, and strive."

BBC News 24 came under scrutiny by MPs

The BBC chairman also talked about "drawing a line" under the Hutton Report, which criticised editorial practices and led to the resignations of former director general Greg Dyke and ex-chairman Gavyn Davies.

But commenting on Hutton, he said: "The BBC is not worth having if it is not editorially independent.

"I and the other governors will defend the BBC's right to do difficult and courageous journalism about powerful people and powerful institutions."

Governors said the BBC had to set itself "more stretching" efficiency targets if it was to deliver value for money.

"The key challenge lies in improving the efficiency of production processes, and progress here...has not been as rapid as we had expected," they said.

Mr Grade said he was always interested in ideas to save money - "now more than ever".