The Government plans to phase-out the Channel 4 funding formula that
forced it to subsidise ITV. Can Channel 4 convert this windfall into
bigger audiences? How will that affect broadcasting’s balance of power?
Will ITV be weakened just as it prepares to meet the challenge from
Channel 5? Alasdair Reid reports
If Marcus Plantin has nightmares, one of them surely involves a red-
braced, cigar-smoking rival, who looks strangely like Michael Grade,
getting bucketloads more money to spend on programming. Plantin, ITV’s
network programming boss, already has enough problems trying to out-
guess Grade, the chief executive of Channel 4, and one of the sharpest
scheduling brains in the broadcasting business. Grade is hard to take
on, even when he has one arm tied behind his back.
And that, of course, has effectively been the case for the past few
years. The ‘safety net’ funding formula, which was set up to protect
Channel 4 against lean times in the advertising market, has turned out
to be just the opposite - a tax on success. Since the system was
introduced in 1993, Channel 4 has paid pounds 170 million to ITV,
including pounds 75 million last year alone.
Channel 4, and Grade in particular, have mounted an increasingly
vociferous campaign against this system. Why should the channel’s cash,
which would have gone into new programme production, go instead to line
the pockets of ITV shareholders? Last week, the Government admitted that
Grade had a case. The formula will probably be phased out by 1999.
This seems only fair, but what will its impact be on ITV? Does ITV need
the cash more than it realises? Can Channel 4 turn the money into
Marcus Plantin may have some thoughts on the matter. If he does, he
certainly doesn’t feel like leaving the ITV bunker to share them with
the advertising industry. He asked a spokesperson to convey the
following message to Campaign: ‘We have already made our position clear.
This will have no impact.’
We shall see. But the timing hasn’t been good for Plantin. Two weeks
ago, he began telling the network that there would have to be a squeeze
on programme budgets - they weren’t being cut, but they would have to be
made to stretch just that little bit further. Meanwhile, Channel 4 has
been predicting that it will be able to spend an extra pounds 100
million a year on programming.
Stewart Butterfield, the sales and marketing director of Channel 4, says
that he can’t go too far at this stage, but compared with Plantin, he is
‘The Broadcasting Bill hasn’t been passed yet - this isn’t cut and
dried. But I think it’s fair to say that if we had more programming
money, we would hope to attract bigger audiences. And any extra funds
that we get will go directly on to the screen - that’s what we have said
But is there really much potential to use this extra money to increase
the Channel 4 audience? Hasn’t it reached its natural ceiling?
Butterfield thinks not: ‘If we ran Brookside six nights a week we would
obviously get higher ratings. We’re not saying we want to do that, but
we could certainly invest in big British dramas that would extend the
audience. We would also reduce our dependence on repeats and that would
be of enormous benefit to us.’
Simon Rees, the deputy managing director of TMD Carat, believes the loss
of Channel 4 revenue will be a challenge to ITV’s commitment to
investment in programming. ‘It is important that it doesn’t take its
foot off the accelerator. It does matter to many advertisers - they
prefer to be in the big peak-time programmes that ITV delivers. High-
visibility, high-impact programming is ITV’s traditional strength. It
has to keep delivering and I don’t think anyone would like to see ITV
using the funding formula as an excuse.’
However, Rees needs convincing that Channel 4 can convert the cash into
audience: ‘The potential is certainly there. When Channel 4 puts on
mainstream programming, it gets watched. But it will be interesting to
see whether it continues to buy in so much material or whether it
develops more of its own. In the past, its own programming has perhaps
been too niche. Advertisers would certainly approve if Channel 4 could
expand the delivery of upmarket and young audiences.’
David Cuff, the broadcast director of Initiative Media, believes that
ITV may now have to face some stark realities. ‘Since 1993, ITV has lost
share of both audience and total TV revenue but the fact that it has
been getting the safety-net revenue has rather tended to smooth over
that - loss of audience hasn’t meant a corresponding loss of revenue.
ITV has essentially taken its eye off the ball,’ he states.
Cuff believes that Channel 4 is now ideally placed. ‘Its fixed-price
sales policies mean that it can grow revenue in proportion to increased
audiences. There is certainly scope for growth - it is still building
the brand. That audience growth is probably going to come from ITV,
which will have its work cut out defending itself against Channel 5.
Channel 4 is now the least vulnerable channel.
‘As for ITV, if it really wants to safeguard its programme budget it has
to change its sales approach and try to induce a virtuous circle like
Channel 4 has. Selling on station average price undervalues much of its
airtime and negotiating on share of ITV rather than share of all
broadcast isn’t wise. It is still spending too much time competing
Tony Kenyon, the managing director of IDK Media, agrees that things look
good for Channel 4. ‘A bigger programme budget has to be good news -
although no-one has ever proved the link between increased spend and
increased audiences,’ he points out. ‘You can spend millions on a
quality product and it might still get a smaller audience than a game
show produced on a shoestring budget. The most obvious benefit is that
it will protect Channel 4 from the potential impact of Channel 5.
‘It wouldn’t surprise me if ITV has to make cost savings and while any
loss of ITV audience is not ideal, we have to get used to the fact that
viewing is being spread slightly more evenly across a number of
channels. But the change will be small and, in the short term at least,
I don’t think that advertisers will really notice all that much