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									     BBC Response

Channel 4 Licence Renewal

        July 2002

Since it was brought into existence, Channel 4 has played a very significant role in
helping to deliver public service broadcasting’s distinctive contribution to audiences
in the UK. The decade of the next Channel 4 licence will see multichannel television
become the norm, increasing numbers of niche providers entering the market, and
segmenting it, and considerable change in the tools that consumers use to view
broadcast content, as well as the ways they consume channels.

Channel 4’s core responsibilities within the broadcasting ecology - to be one of the
broadcasters at the forefront of innovation and experimentation, to serve minority
groups within the UK, to reflect a culturally diverse society, and consistently to strive
to be distinctive from other services – give it as critical a role in the future as it has
played in the past. We are delighted to see that this remit is articulated in the draft
Communications Bill, and trust that the new licence will reinforce it in two key areas.

Firstly, we see a clear role for the licence in providing sufficient guidance to Channel
4 on its remit to ensure effective self-regulation.

Secondly, we believe that the licence must play a greater role in directing any new
commercial ventures which Channel 4 undertakes.

Channel 4’s Remit

We welcome the public commitment made by Channel 4’s new chief executive to
refocus the Corporation on its core channel and its core mission, “to be the channel
most about creativity, originality, individuality, diversity”. Over recent years we have
had the sense that the competitive pressures on Channel 4 were leading it to edge
away from the qualitative features of this remit. Analysis of output makes clear that
over the twenty years of its existence, Channel 4’s peak schedule has become more
mainstream, primarily at the expense of programming in current affairs, arts, music
and religion. This is in keeping with the trends noted by the ITC in its annual report
across public service broadcasting as a whole, but is particularly disappointing given
Channel 4’s remit to offer distinctive programming.

We have noticed a similar erosion of Channel 4’s commitment to original UK
production. The substantial increases in revenues which followed from the ending of
the funding formula in 1998 have not delivered the benefits to the domestic
production sector which Channel 4 had promised. We have instead seen increasing
investment by Channel 4 in non-programme areas, in commercial ventures, and in
acquisitions; the latter culminating in the Corporation spending £1million per episode
for The Simpsons, at the expense of originations. Channel 4’s investment decisions
in relation to its new digital services do not appear to have played a significant part
in countering this disappointing trend.

The Statement of Programme Policy attached to Channel 4’s licence clearly has a
key role to play in amplifying the general remit set out in legislation, and ensuring
that the Corporation works consistently to fulfil its distinctive remit to the very best of
its ability. We would hope that going forward, the regulator will work with Channel

4’s leadership to ensure that the Corporation maintains focus on the fulfilment of its
purposes as set out there, and achieves both the qualitative and measurable targets
to which it aspires. In particular, as Channel 4’s new chief executive has
recognised, there may be a case for greater clarity on the “distinctiveness” expected
of the Corporation, and we would hope that going forward the practical interpretation
of the licence might see Channel 4 consistently seeking out and serving
underrepresented voices and perspectives, to make them accessible to mainstream

Particularly given the move away from quantitative monitoring of remit compliance to
more qualitative self-regulation of individual public service remits, set out in the tier 3
proposals in the Draft Bill, the BBC believes that Channel 4’s licence will have a
critical role to play in providing a solid guiding framework for the service. While this
should be flexible enough to allow the Channel to evolve as necessary over the
licence period, it should ensure that Channel 4 continues to play its valuable role in
serving particular audiences and contributing to the best of its ability to the delivery
of the broader UK public service broadcasting remit.

Channel 4’s New Ventures

Our observation of the way that Channel 4 Corporation has developed over recent
years has persuaded us that greater guidance is needed through the Corporation’s
licence on the interpretation of what might constitute “incidental or conducive”
services which the Channel might set up.

If Channel 4 is to continue to play its intended role in the development and delivery
of public service broadcasting in the UK going forward, while it must be free to
develop new revenue streams, and to develop new services to reach the public in
new ways, we believe these must consistently support its core purposes. Like many
others who have genuine concern for the future of Channel 4, we are alarmed at the
extent to which new commercial ventures to date appear to have drained money
away from investment in the main channel, and from investment in original UK
production. If this were likely to lead to commercial success and a significant
additional return to Channel 4 it would be understandable. However, the figures
available to us do not suggest this will be the case.

The intended purpose of the additional revenues made available to Channel 4
through the ending of the funding formula was reflected in the variation made to the
Channel’s licence at that time: “The Channel is committed to allocating the funds to
UK film and programme production and training as well as in meeting its new digital
commitments… The channel will maximise the extent whereby its commercially
earned revenue is directed towards original and distinctive programmes for British
viewers”. It is worth highlighting that while these revenues are obtained from
commercial sources, they are generated by Channel 4 at significant cost to the
public purse as a result of the spectrum which is – in our view, quite rightly – gifted
to the Corporation.

We are therefore concerned to note a widening gap since 1998 between growth in
Channel 4’s revenues and growth in programming funds spent on the main service,

and on original UK content in particular. Even in the worst advertising downturn the
Channel has had to face, and with increasing multi-channel competition, Channel 4’s
main service made a profit last year. Group losses were purely a result of
commercial investments which have consumed more than £350m since 1998,
curtailing budgets on the main public service channel.

In place of the intended additional investment in original UK content, Channel 4 has
spent an increasing proportion of the additional revenues flowing to it since 1998 on
additional staffing, on increasingly expensive rights to US content which is
commercially attractive, and on new digital subscription channels which are some
way off breaking even, let alone returning the investment made in them to the core

In as far as C4’s commercial activities are founded upon investments from a public
service base, it is appropriate that the regulator should subject them to greater
scrutiny than has hitherto been the case to ensure – on behalf of the public – that
they constitute an appropriate use of funds. We therefore welcome the increased
scrutiny proposed in the new licence, and the provision for the development of a
formal fair-trading framework within Channel 4 for dealings between public service
and commercial areas.

We hope that in bringing the clauses outlined into operation, the ITC will ensure that
future commercial ventures by Channel 4 do not adversely affect the core service.
In particular it would seem appropriate for the nature of any “other benefits”
delivered by the proposed services, beyond financial returns, to be clearly set out by
Channel 4 and criteria agreed for their measurement and evaluation.


The commitments made by Channel 4’s new chief executive in refocusing the
Corporation on the main channel, and on consistent delivery of innovative and
distinctive original programming are very encouraging in addressing concerns about
the direction which Channel 4 has appeared to be taking. We believe that the
greater scrutiny of new ventures proposed through these licence revisions and the
Communications Bill should ensure that there is greater guidance for the
Corporation going forward in interpreting what might be “incidental or conducive” to
its main purposes.

We hope the changes will also allow Channel 4 the flexibility to continue its
evolution, while providing sufficient direction to ensure it contributes to the best of its
ability to the delivery of both its own and the broader public service broadcasting


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