Home > Media and Analysts > News Release Archive > 2007 > Apr > Channel 4

04|04|07

Channel 4 financial review

Ofcom’s 2004 Public Service Broadcasting Review demonstrated the public’s continued appetite for high quality, UK-originated programming. It concluded that a not-for-profit, commercially-funded Channel 4 should remain an integral part of UK public service broadcasting (PSB).

The Review also revealed that the transition to digital television would create a number of challenges for commercially-funded public service broadcasters. Channel 4 has since argued that such commercial pressures could make it more difficult for it to deliver certain types of PSB programmes. Channel 4’ s view remains that it will require some kind of public support in order to deliver its public service remit in the future.

Ofcom has today published a comprehensive independent financial review of Channel 4. A series of documents, taken together, set out the main challenges facing Channel 4 in an increasingly competitive digital marketplace and raise a number of important questions regarding Channel 4’s ability to remain at the heart of a vibrant PSB market in the UK. The work carried out to date addresses the financial issues for Channel 4 - if required, a subsequent phase of work will consider possible policy responses.

Financial Review

In the Autumn of 2006 Ofcom commissioned LEK Consulting to carry out an independent assessment of Channel 4’ s financial and operating performance. The report, published today, assesses the resilience of Channel 4’ s business model in the face of a dynamic marketplace and considers the scale and timing of any funding challenges that the Group may face in fulfilling its public service remit.

LEK’s report concludes that:

• There is a wide degree of uncertainty about Channel 4’ s forecast performance, particularly in the period beyond 2009;
• While Channel 4’ s recent commercial performance has been strong Channel 4’ s commercial performance is likely to deteriorate in the near- and medium-term;
• The Group is likely to be loss making beyond 2010, even after taking advantage of cost saving measures and the contribution from its other commercial ventures
• Current cash reserves could be sufficient to cover losses until at least 2012;
• Channel 4 will increasingly be forced to decide between different types of investments that, on the one hand, support the Group’ s long-term commercial health and, on the other, ensure the continued delivery of public service content.

Remit delivery

Ofcom has also published an analysis of Channel 4’ s delivery of its PSB remit. This is accompanied by Channel 4’s own assessment of its remit delivery, included as part of its submission to the financial review and published as an appendix to Ofcom’s analysis.

Ofcom’s assessment of Channel 4’s remit delivery shows that Channel 4:

• delivers the quantifiable elements of its remit;
• consistently meets and in some cases significantly exceeds its licence obligations; and
• delivers many core PSB genres (e.g. News and Current Affairs) that are highly valued by viewers.

Ofcom’s analysis also identifies that Channel 4 has adapted the way it delivers some elements of its remit in response to the challenges posed by an increasingly competitive landscape:

• Hours of first run original programmes have declined while spend on acquired programmes has increased;
• There has been an increase in the output of some traditional PSB genres - for example, peak time Current Affairs - though this has not always been accompanied by an increase in expenditure on PSB programming.
• The level of Serious Factual programming in the schedule has dropped, giving way to a more accessible and commercial form of educational output.

Ofcom and Channel 4’s assessments demonstrate that a range of different kinds of measures will be required to assess Channel 4’s public service contribution fully in the future. To that end, Ofcom welcomes Channel 4’s undertaking to develop a framework that articulates the public value delivered by the different components of its remit delivery.

Next steps

It is clear that Channel 4 will have to address several significant strategic issues during the transition to digital. It will also be important for Ofcom and Government to consider these issues in their ongoing work to secure the future of public service broadcasting. Ofcom has published a Foreword alongside the LEK report and the remit assessments which sets out these issues.

In light of the evidence presented in this independent report, Ofcom has described four options as possible responses to LEK’s analysis:

• Rule out any further public support for Channel 4;
• Monitor Channel 4’s financial performance and remit delivery with a view to considering the case for future intervention at a later date;
• Consider ‘safety net’ measures to mitigate risks to Channel 4 in the short and medium term and review potential options for more significant intervention at a later date; and
• Move immediately to assess the possibility of major intervention.

Ofcom welcomes further evidence from interested parties that might help determine the most appropriate response to the question of potential regulatory intervention.

The deadline for submissions of evidence is 4 May 2007. The documents can be found via the related items link.

Ends.

Back to top