Media Forum: Should C4 get public subsidy?

A recent report for Ofcom predicted a lean future for Channel 4.

It's always a risky business to hand too much responsibility for your future to regulators, civil servants and the machinations of the political process - but no riskier, arguably, than trusting to the vagaries of the marketplace.

Having worked both for a mercantilist superpower such as Unilever and for the state-owned BBC, it's perhaps no surprise that the Channel 4 chief executive, Andy Duncan, has chosen the former course over the latter.

Under one of his predecessors, Michael Jackson, the company tried to safeguard its future by diversifying as rapidly as its rivals. The notion was that 4Ventures - the vehicle it hoped would make it a real player in pay-TV - would help it bridge any funding gap that could open up in an increasingly competitive and fragmented TV ad market.

That strategy was already in tatters when Duncan arrived in July 2004 - and there were those who expected that Plan B would involve him tearing up 4Ventures and focusing on free-to-air opportunities. In particular, some thought he would make the flagship channel much more commercially aggressive when it came to building audiences and attracting ad revenues.

They were sort of right. Duncan tore up 4Ventures and the Channel 4 family of channels has been commercially aggressive, especially in competition with a listless ITV. But the cornerstone of his strategy has been to hold hard to the notion of Channel 4 as a public service broadcaster (a BBC but with ads), and he has pinned his hopes for future-proofing on some form of government subsidy - to meet a funding gap that's inevitable, he argues, if Channel 4 sticks to its remit to produce distinctive and innovative programming.

So, the conclusions of a recent report from the LEK consultancy, commissioned by Ofcom as part of its ongoing financial review of the channel, were bound to be welcomed enthusiastically by Duncan. Its central scenario envisages that Channel 4's broadcast activities will be loss-making by 2009 and that it will take another three years for it to use up its cash reserves. The Channel 4 Group will be running at an estimated loss of £100 million per annum by 2012.

Duncan argues that where subsidy is concerned, it's now a case of "when" rather than "if". He adds: "Yes, we're pleased about the report. It supports our view of some of the issues we face. Channel 4 is a public purpose organisation with a remit, and that is one of the reasons why we have such a strong brand. We tend to take more risks in programming terms - and that is more and more important in an increasingly homogenised world. We still get sizeable audiences and we're good at getting younger viewers and more upmarket audiences. We have also demonstrated a dynamic in evolving to meet the challenge of the digital world. It is in advertisers' interests to see a strong Channel 4 going forward."

Chris Locke, the group trading director at Starcom, has some sympathies with that point of view. He explains: "Channel 4 is an important part of the TV landscape from the point of view of viewers, as well as advertisers, and it will be for the foreseeable future. Whatever you say about some of its programming, you have to admit it still does challenging stuff. We need that. It's not as famous or important as the BBC, but it's not far off it."

But Mark Craze, the managing partner at Media Planning Group, isn't convinced by that argument. He states: "Yes, it's true that Channel 4 was given its remit 25 years ago and times have changed since then. But over those 25 years, it has managed not only to build the brand, but also generate significant revenues. It strikes me that it tends to want to have its cake and eat it. Often the biggest spur to innovation is when you have to focus on sweating a budget. Adversity encourages creativity."

Craze advocates tough love - and no immediate prospect for subsidies. But that's not a conclusion shared by Bob Wootton, the director of media and advertising at ISBA. He says you have to look at the bigger picture. He concludes: "It is becoming increasingly difficult for commercial broadcasters to square commercial pressures with the continuing funding of their public service obligations. You can't be an aggressive business while at the same time trying to act like a registered charity. What we are saying is that there is a discontinuity in the regulation of broadcasters for whom public service broadcasting is a component part. But we can't regard Channel 4 as a special case."

YES - Andy Duncan, chief executive, Channel 4

"We're on a tight cost base - we don't have a big bureaucracy like the BBC. So the report is helpful in confirming there is a serious issue. I'm sure our rivals would like to see us weakened. It's my job to see that doesn't happen."

YES - Chris Locke, group trading director, Starcom

"The costs of digital are huge where a broadcaster like Channel 4 is concerned - and if the Government is so keen to drive forward digital, then it has to protect Channel 4. Should it be subsidised? Yes, it absolutely should."

NO - Mark Craze, managing partner, Media Planning Group

"There should be a watching period, where Channel 4 is put under more commercial pressure, tasked with tightening its belt and being more innovative. I don't think these are mutually exclusive. It doesn't make sense to move straight to subsidy."

MAYBE - Bob Wootton, director, media and advertising, ISBA

"We've always been open to the possibility of subsidy, but it should be possible for all broadcasters to pitch for funds, based on specific programming proposals. So, I don't think Channel 4 can be given special favours."

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