Media Perspective: Dwindling revenues and creative output spell trouble for C4

Times are hard down at Channel 4. After a sparkling 2005, it announced this week that its 2006 main channel ad revenues fell broadly in line with a TV market down by around 7 per cent.

It also lost its status as the darling of the TV market after having the temerity to hike its prices by 5 per cent in a bid to offset a trading deficit. All this has had an impact on the bottom line, with Channel 4 announcing a decline in profits of almost two-thirds. In addition, rumours are circulating that its sales director, Andy Barnes, is in talks with Michael Grade about defecting to ITV.

Channel 4 has achieved some early success with Ugly Betty (though the second episode lost one million viewers on the first), but then the distasteful Celebrity Big Brother has generated more notoriety and anger than goodwill.

So you'd have to be a natural optimist to argue that last year's downturn was part of a cyclical picture and that Channel 4's audience and revenue performance will recover. However, Channel 4 itself doesn't think so. It said this week that it is caught in a structural shift, with viewers migrating to the internet.

And its chief executive, Andy Duncan, has already warned that its £600 million programming budget will be frozen this year - leaving precious little room for manoeuvre in making new shows and improving the output on the digital channels More4 and E4.

Critics say that, returning critical hits such as Shameless aside, the cracks are starting to show. They have already noticed, they say, increasing amounts of films in the Channel 4 schedule, a much cheaper way to fill airtime than commissioned drama or documentaries.

More fundamentally, the whole future of the broadcaster is under review, as Ofcom prepares a report on its future funding that is due to be unveiled in March. Conspiracy theorists might suggest that a downturn in the broadcaster's fortunes is being played to the max by Duncan, as he goes on the stump for extra government support. But just as likely is the Government eventually privatising Channel 4, a scenario which wouldn't necessarily improve its service to advertisers. It would certainly have the effect of making it more profit- and shareholder-focused, but its odd status as a commercial yet publicly owned company hasn't hampered its ability to spot and create some of the best TV of recent years.

The danger for Channel 4 is that it's losing the support of advertisers on one side and facing increased overheads on the other, such as those relating to the digital switchover. Hopefully a solution can be reached involving short-term financial backing for Channel 4 as it adapts to the changing landscape. This would be a drop in the ocean compared with the lavish support enjoyed by the BBC.

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