MEDIA FORUM: Are Channel 4's losses a blip or a worrying trend? - Channel 4 is unused to question marks over its performance, so are its first losses in more than a decade cause for alarm? Alasdair Reid asks

Blame the BBC. For as long as anyone can remember, the number four has had an almost mystical power in the television market, as cultivated - and monopolised, of course - by those at Channel 4. That power has seemed at its most potent over the past couple of years, when it has been spawning little fours - Film Four and E4, housed within the commercial and development wing of the organisation, 4Ventures. Four has been the media industry's favourite number.

Can it be a coincidence that things have gone slightly pear-shaped at Channel 4 since the launch of BBC4? Clearly the Beeb's new channel has stolen a little of the Four magic. More than a little, apparently. Channel 4's recently published annual report revealed that the group lost £20.6 million across 2001. It's the first time in more than a decade that the organisation has lost money.

The advertising recession obviously played a large part in this setback but a slowdown in ad revenues at the main terrestrial channel wasn't the central factor here. The losses can be attributed almost wholly to 4Ventures, which sank £28.2 million into the red.

All of which is a headache for Channel 4's incoming chief executive, Mark Thompson, who joined from the BBC back in March. And it didn't help that a couple of weeks ago, the Independent Television Commission's annual report took Channel 4 to task for peddling tired programme formats. It was a mild rebuke, but a rebuke none the less, and it will be felt keenly by those at Channel 4 who take pride in the channel's heritage of innovation.

Should advertisers be slightly worried? Thompson is not yet ready to talk in detail about the organisation's future direction - he's keeping his powder dry until he delivers the McTaggart lecture at the Edinburgh Television Festival in August. But he is quite clear that the underlying performance of the organisation remains good.

He states: "Channel 4 (the individual channel) remains profitable and the real issue is 4Ventures - it is my view that the fundamentals were, and are, right. The idea is that the Channel 4 brand and its ability to generate innovative content for attractive audiences absolutely will benefit from broadening into new areas.

"E4 absolutely makes sense. 2001 was always planned to be the year of maximum investment in this area. It is investment that needs to produce a cash return to Channel 4. But it was bad luck that the period of maximum investment by Channel 4 corresponded with a time when the bottom fell out of the advertising market."

Thompson says that it is critically important to focus on traditional strength. "We will focus on building real long-term success in key genres.

If you look at Teachers, which is an edgy new British drama at 10pm - that's the sort of thing we should be doing much more of. Plus continuing to access the very best of US television. This year, advertising has been running ahead of expectations and we are already taking some of that and putting it straight on screen and we can do that because we don't have shareholders. We are very clear about the fact that we have to put every penny we can on screen."

That will be music to the ears of advertisers, surely. Particularly because when times are tough for commercial broadcasters, programming can be the first casualty. James Kydd, the brand director of Virgin Mobile, agrees that the underlying picture remains good. He states: "The losses are a bit of a worry. The impression in the past has always been that Channel 4 is brilliantly run and when you get a dramatic change in profitability, it tends to make you wonder. But I don't think there should be a knee-jerk reaction to this and I don't agree with what the ITC has been saying. Channel 4 has built up an awful lot of kudos and what it has achieved over a number of years with a long-term commitment to its goals has to be respected."

As with many youth-orientated advertisers, Channel 4 is an essential part of Virgin Mobile's TV schedule. "We use ITV regionally but focus on Channel 4 as well as Channel 5 and selected satellite. It would be worrying if Channel 4 lost its ability to deliver the youth audience.

Film Four was a bit of a punt in the dark and if there's a short-term impact on its ability to fund programming then that might be problematic. Films such as Four Weddings and a Funeral were a success but the danger is that you can get too confident. It's all about minimising the risk,

Kydd says.

And Channel 4 continues to receive solid support from the media specialist community, too. Andy Roberts, the executive buying director of Starcom Motive, says that people tend to trust and believe in the Channel 4 brand. "The top line evidence is that people shouldn't worry yet but be vigilant. It's right to trust in brand performance historically. There has been a turnover in talent but the remit is the same and it's an exciting challenge. Channel 4 has to remember what it has always stood for - being exciting, challenging, dangerous. The response will be interesting. This might wake it up a bit."

But with another summer of Big Brother-dominated programming looming, how tired is the schedule? Not very, Roberts responds.

"The Book Club is good new comedy drama. Big Brother isn't that old and now there are things like Jackass coming through. There's adventure there. They won't be alone in questioning their investments in the digital arena - every single media owner will be doing that - but by any measure E4 has been a success. (In multichannel homes) E4 is the second largest impact provider behind Sky One."

Mick Perry, the chairman of Magna, agrees: "I tend to have confidence in it. The thing is, it's had such a long and unblemished run, which has been good news for both advertisers and viewers, and it has shown such good judgment that it was almost inevitable that eventually it would hit a period that wasn't quite so rosy. I don't think it has actually made mistakes so much as suffered from the way that the market has been in the past year or so."

But is Channel 4 in danger of becoming complacent? Perry says: "Maybe, to a certain extent, they've tended to think anything they do will automatically be a success, but I have faith in them as an organisation and they have kept a measure of continuity, despite having different characters at the helm. From a short-term view, Channel 4's audience performance could have been better this year and it will have to show some improvement over the next few months or its negotiating position with advertisers will weaken."