But for the first time, the "warts-and-all" review published on Wednesday acknowledged there was room for improvement.

The governors urged the BBC to pursue "an unashamedly public service schedule", not just ratings, and BBC1 television should "hold its nerve" and dare to be different in the face of pressure from commercial rivals.

Loss of Test coverage "major disappointment"

It should also make more effort to woo disaffected young and less well-off viewers and listeners.

Wednedsay's annual general meeting also revealed there would be a review of BBC1's distinctiveness and public service remit by the Director of Television Alan Yentob.

Dircetor-General Sir John Birt said: "All the BBC's services need to hold their nerve as they face growing competition, and offer programmes of range and distinction, in peaktime and off-peak, which set them apart from the market.

"This is nowhere more true than for BBC1."

Sir John and Chairman Sir Christopher Bland gave an upbeat assessment of a year that has seen the launch of digital television and a raft of awards for BBC programmes.

But the report also included criticisms from BBC governors, such as sports coverage losses and editorial lapses.

The governors described the loss of both Test cricket and the winter tour to commercial rivals as a "major disappointment".

"BBC Sport needs to take warning from the loss of Test Cricket and develop fresh and compelling coverage, reflecting better the needs and wishes of audiences and the sports authorities," said the governors.

'Poor taste and scheduling'

The report attacked certain editorial lapses such as the transmission of the situation comedy Men Behaving Badly on Christmas Day - described as "an example of poor taste and poor scheduling".

The scandal over mistaken selection of fake guests for the Vanessa Show also got a mention.

Governors admitted it was a mistake to squeeze some TV arts and current affairs programmes, such as Omnibus and Question Time, into late night slots, and said the BBC1 daytime schedule has not been "distinctive" enough.

And though they praise the Victoria Wood comedy Dinnerladies, they said more work was needed on BBC1 sitcoms.

"The scripts have to come first. The BBC makes a mistake if it simply apes a formula from the competition. The BBC can and should create more of its own successes," they said.

Online successes

Although there have been complaints that the BBC is spending too much money on digital services, the report praised the launch of new digital services BBC News 24, BBC Choice and the Internet service BBC Online.

BBC News 24: "News when people want it"

It said overall usage of BBC Online has trebled in the past year, undoubtedly establishing it as the third broadcast medium.

"BBC News 24 provides news when people want it. It now reaches 6.3 million people per week compared to 4.8 million by Sky News.

"The development of a 24-hour news service is a strategic decision based on a long term view of the audiences for news."

Defence of digital strategy

Last year, new services such as BBC Knowledge and BBC Online cost the BBC about £150m, or 7% of its income, yet these cannot be accessed by all licence-payers.

However, in a "question and answer" session with the 150 members of the public and industry figures at Broadcasting House, Sir Christopher defended the corporation's digital strategy.

He said that all new television services "tend at the beginning to play to small audiences".

Sir Christopher Bland defends BBC strategy

He compared the advent of digital television to the dawn of colour television, watched initially by only the small proportion of the population with colour sets, and added that digital audiences are rising by about 30% a year.

He said that the BBC's Internet strategy, much criticised two years ago, had already been proved "absolutely right".

Sir John Birt agreed, saying that Internet use "grew dramatically" in 1998-99, with BBC Online by far the most visited content site in Europe.

Programme-related sites such as EastEnders and Teletubby sites had proved extremely popular, he said, and the BBC's use of audio and video streaming was "probably world-beating".

BBC News Online had been an "extraordinary success", he said, with usage growing by more than 70% in the first three months of this year alone.

"We offer the widest range of stories of any news site in the world, with around 300 original news stories each day," he said.