Media Forum: Should C4 get public funding?

With no five merger, Channel 4 is seeking alternative funding.

Outwardly, Channel 4 does not look, feel or act like a troubled organisation. And, you might ask, why should it? It has had a relatively good year in ratings and revenue terms and although it lost its old boss to the BBC earlier this year, its new boss is energetic, charismatic and inspires confidence.

But Channel 4 is in an awkward spot and it can be thankful the woes of bigger broadcasting institutions such as the BBC are distracting our attention from that fact. Thus, for instance, it can make light of the embarrassment when Channel 4 chairmen make anguished public spectacles of themselves in attempting to draw attention to the channel's loss of direction.

But the truth is that Channel 4 is stuck at a crossroads and last week it rejected one potential strategic option when Andy Duncan, Channel 4's chief executive, announced exploratory merger talks with five were now at an end.

Which will, of course, please purists among Channel 4's fans. They will also take heart from the fact Duncan believes he now has a clearer notion of the strategic options he wants to pursue. Duncan displays characteristically robust optimism when he states: "The position is that Channel 4 is in good health - the challenge is how to make sure we survive and thrive."

How indeed? Surely the truth is that Channel 4 needs to forge some form of partnership arrangement if it is to secure its future. Consolidation in media ownership, combined with continued fragmentation of audiences, will make it increasingly difficult for Channel 4 to fight its own corner in the commercial marketplace. Channel 4's estimates are that, at current levels of expenditure, it will face an annual revenue shortfall of £100 million by 2012.

If it doesn't merge with a commercial broadcaster, it will have to seek public funding in some form. That could mean deriving funding on a programme-by-programme basis from a new "Arts Council of the Airwaves" body. Alternatively, it could apply for a modest licence fee of its own or pursue closer production ties with Duncan's former employer, the BBC.

When you look at it this way, it is surely regrettable the option of a merger with five has now been discounted. Rubbish, Andy Roberts, the executive buying director of Starcom Motive, says. He says Channel 4 should stick to its guns and rediscover its nerve.

He explains: "If it continues to find appropriate ways of interpreting its remit, it will continue to be rewarded for the distinct audiences it attracts. It has had a good year and it will perhaps start to feel more confident. It may well feel it doesn't need to seek a merger now. There would be dangers from our point of view, for instance, in Channel 4 getting too close to the BBC."

Equally dangerous, though, from an advertising point of view, would be for Channel 4 to seek direct public funding. If it becomes less reliant on audiences, audiences will inevitably fall. Airtime prices will rise.

Advertising demand will decline. Channel 4 will be even less reliant on audiences for funding.

It wouldn't ever happen that way though, Bernard Balderston, Procter & Gamble's associate media director, argues. He says: "I think it is inevitable that (as the digital TV environment evolves) Channel 4 will lose audience and it's also true that, increasingly, advertising revenue will follow audiences. Going with five would have made it a more commercial broadcaster. We believe that, strategically, it would be better for Channel 4 to pursue a route of trying to get more public funding. That would be more useful in helping it sustain its remit and it is this distinctive remit that makes Channel 4 attractive from an advertising point of view. But it is unlikely it would get huge amounts of money from the taxpayer - not enough for it to feel it didn't have to deliver the sorts of audiences we are interested in."

Mark Palmer, the executive strategy director of OMD, which works with Channel 4, agrees. He says Channel 4's decision not to go with five is in the long-term interests of the whole ad industry. But, he says, having created the cocktail of factors that make Channel 4's future so awkward, the Government is morally obliged to find a way to help: "The Government is responsible for allowing the BBC to dumb down, chase audiences aggressively and spend so much money launching new channels. The Government allowed ITV to merge. It now has to hold its hands up and admit its responsibility for the future of Channel 4."

YES - Andy Duncan, chief executive, Channel 4

"Our focus is now on driving Channel 4's multichannel strategy. We have no plans to look at merging with another broadcaster, although we are still looking at possible links with the BBC in the areas of education and technology."

MAYBE - Andy Roberts, executive buying director, Starcom Motive

"For Channel 4 to have joined forces with someone else would have meant a change in its structure and the remit would have gone. There is no need to kill such a unique phenomenon in British broadcasting."

YES - Bernard Balderston, associate media director, Procter & Gamble

"I always thought five was an unlikely match for Channel 4 - there are no obvious synergies in terms of programming objectives. We'd also be concerned if they tried to merge just their sales operations."

YES - Mark Palmer, executive strategy director, OMD

"We should value Channel 4 as a strong and challenging brand. The Government should now look at the potential shortfall that it has probably created at Channel 4 and look at ways of addressing it."

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