Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 66-79)



  Chairman: Gentlemen, welcome here today. We are very pleased indeed to see you and I will call Michael Fabricant to ask the first question.

  Michael Fabricant: One of your predecessors was Michael Grade, my personal hero and a huge loss to the broadcasting industry, and he described the BBC some years ago to this Committee (or maybe its forerunner) as being a "national treasure", and it looks as if Channel 4 is going that way, too. I notice in your submission that you quote Commissioner Monti that Channel 4 occupies a unique niche in the European broadcasting landscape, and one of the ways you have done that is by transforming yourself from being a loss-making organisation subsidised by ITV into a profit-making organisation.

  Chairman: Who, if it were not for us, would be subsidising —?

Michael Fabricant

  66. Quite right. I have to say it therefore follows that if you are such a success why should you not be a privatised organisation?
  (Mr Scott) I think that, first of all, the economics of the world at the moment are very different to previous years. Advertising revenues are putting great pressure on our costs and on our profits. Indeed, for the last year we will not have made a profit for the first time in many years. But the broader answer to your question is the ability we have without shareholders to maximise our programme spend in a broad range and quality of programmes so that programmes of smaller audience and higher cost can be included within the schedules. The whole nature of Channel 4, if it were privatised, would be changed.

  67. You quite rightly point out that the revenue for advertising in television in general has fallen, and ITV has suffered a loss of about 12 per cent this year. You will know that there is an argument being proposed (which I personally support) to see a rationalisation within ITV and to see an amalgamated Granada and Carlton (and they are keen to do that) and you would end up with a single ITV Company Limited. How would you feel about that? Would it affect Channel 4?
  (Mr Scott) I think at some point in the future we might see that. I suspect it will be many years away.

  68. Why are you so confident about that?
  (Mr Scott) To maintain a competitive advertising sales market with ITV with its present dominance of 55 per cent, and to bring together the two London companies, would completely over-balance the competitive nature of that advertising market. I imagine that in due course this might happen but it will presumably require approval by the Competition Commission first and I do expect that it is some years away. ITV are having a bad time but the ITV licensees Carlton and Granada last year did make a profit of £300 million and that was after they had paid probably the same amount of money to the Treasury. ITV is a very substantial and profitable system. The issues which they have relate to investments and activities outside of the main channel—the costs of ITV Sport and the digital platform—but the fundamental economics of ITV remain robust and sound.

  69. Channel 4 has a long and very successful track record in the production of film and I know you were present during the questioning of the BBC when they were talking about their investments of around £10 million a year in film. What is your view about the BBC's ability to compete in an open and fair market with Channel 4? Do you think that the BBC cross-subsidise by promoting their own films or are you happy with what they do, and do you see the introduction—this is turning into a larger question than I had anticipated—of a new OFCOM affecting your own ability to compete not only with the BBC but also to produce films in a world market?
  (Mr Scott) First of all, Channel 4's activity in film-making is part of our licence conditions. It came with the help of this Committee when the funding formula was swept away. So we invest about £35 million each year—

  70. How much, I am sorry?
  (Mr Scott) £35 million in film production through our subsidiary FilmFour Limited. The BBC are active and I think they have had some success and it was good to see that Iris looks as though it is going to be a success and Billy Elliott before that. I think I heard them express it as "luck" and I think much of the activity in film investment is luck, but I welcome their film activity.

  71. I wonder if Rob Woodward would like to say a few words about his activities with 4Ventures and the degree to which film activities and ventures in general are able to plough back the profits from those ventures into Channel 4's programme production.
  (Mr Woodward) Your point is a good point. It is a key objective of 4Ventures that we essentially do two things. One is to create long-term value for the Channel 4 Corporation as a whole and, secondly, to return cash, in time, to Channel 4 Television. You will be aware that at the moment we are continuing to invest in digital channels and that they are currently loss-making, and our interactive business is also a loss-making business. In a short space of time we look to turn that round. The other businesses within 4Ventures are all break-even or making a positive contribution. We have said publicly that by the year 2005 our digital channels will be making a positive contribution and we will start to return cash to the core business as soon as possible.
  (Mr Scott) The digital channels do make contributions to Channel 4 in other ways. They help us secure audience share, and since the launch of E4 last year we were glad to see that we managed to grow the audience share in digital homes for Channel 4 itself, and they assist us in the programme supply market, and one can see perhaps an easy example with Big Brother, which I expect was much bigger on Channel 4 last year than it would have been if it had not had the oomph behind it of E4 as well.

Mr Doran

  72. Can I congratulate Channel 4 on its programming strategy and the public service it provides, but just one criticism—life in my house has not been the same since you dropped the American football a few years ago, so that creates a problem for me! Can I ask about regional production. I know the channel has a very heavy commitment in that respect and I know from my own constituency that some of our local television programme makers in Aberdeen do produce programmes for you. How can you fit that into your overall strategy?
  (Mr Gardam) Under our licence obligations we are bound in this coming year to hit a target of 30 per cent of qualifying spend outside London, and I think it is increasingly incumbent on us, working alongside the other broadcasters, to try and build a more robust outside London sector, both in the English regions and in the nations. We have done this in the past through one or two hot spots and the interesting thing is that where regional independent production is strongest tends to be also where ITV production is strongest. There is no doubt that one feeds off the other. So the North of England is very strong not just because of the production of Brookside and Hollyoaks but because in recent years the building of a number of small companies in Leeds has led that to being quite an exciting place to be. Scotland has in the past been more problematic because there has been less investment in ITV from Scottish companies. We have been instrumental, I think, in establishing two major Scottish production houses—Ideal World and Wark Clements—and I think you referred to Caledonian, Stern & Wilde in Aberdeen. The new "Creative Cities" concept, which Stuart Cosgrove is pioneering, is trying to get what we might describe as "joined-up" development between the different small and medium-sized businesses that constitute production in one particular area, and working with regional development agencies is beginning to build longer term development deals with such companies. I think the problem for many independent companies, particularly outside London, is essentially one of cash flow and sustainable development. I think Channel 4 must move in the future from a "letting 1,000 flowers bloom" attitude to identifying talent and ensuring that talent has a chance to grow and develop. The lessons of the last 20 years have been that you get a flowering of particular companies which is not sustained, and I think Channel 4 has to think more strategically in the future about how it brings that talent together so you can see both individuals and groups or teams being able to move from one production to the next, otherwise you are left with a cottage industry which will be increasingly difficult to sustain into the digital world.

  73. I agree with that last point, it is very important that there is some stability in the industry, but how do you go about identifying those companies that you want to sustain in the future?
  (Mr Gardam) We have already this year and last year instituted longer-term development deals so that we can pay for development, with producers not moving from project to project but having one or two years guaranteed in their programme development budget. We also are looking at means whereby we can build training in these companies. We have doubled our regional development programme whereby with regional development money and with money put in through other broadcasters, we have taken the lead, and we now have 18 young trainees a year going into regional companies, designed both to boost those companies but also to widen the diversity of people working in television, and of those 18 posts, six of them are designated for multi-cultural production.

  74. Do you see this regional programme-making leading to at any time a situation where the channel might be able to broadcast regionally?
  (Mr Gardam) It has never been part of our remit in as much as the strength of ITV is to maintain its regional identity and, indeed, the responsibility of a single ITV is such that they should be held to account to do that, and also the BBC's regional production is vital to its own identity. Channel 4's prime responsibility is diversity and difference. The difference and diversity of voices must come from reflecting different voices across the United Kingdom. At a time when the consolidation of broadcasting acts as a ratchet around London, it is our job to go in the other direction and it is in that way, by bringing voices from across the United Kingdom to network television, that we will make our best contribution.

Mr Bryant

  75. The BBC were in here earlier, as I am sure you heard, talking about the £99 set-top box. I presume that Channel 4 would be available as one of the free-to-air channels on there. Are you involved at all in the discussions?
  (Mr Scott) Yes, we have had discussions with the BBC, ITV Digital and the ITV companies. I think the introduction of this box is very welcome and Channel 4's service certainly will be carried on it free to air.

  76. One of the great problems I foresee—and I come with a special interest in talking to Channel 4 because I made an Election commitment in the Rhondda that I would make sure that Channel 4 as well as S4C was available to everybody in the constituency, I am not quite sure how I was intending to achieve this but nonetheless I pass this on to you —
  (Mr Scott)—Digital switch-over will achieve that.

  77. One of the points the BBC did not answer this morning concerned the plans to roll out digital terrestrial in Wales, which are at the moment very, very minimal. They are only going to go to areas where a transmitter covers 10,000 homes and they are not going to affect more than a quarter of my constituency in the next five years. I wonder what role you play in rolling out digital terrestrial?
  (Mr Scott) It is a complicated network. We share a multiplex with ITV and Digital 3 and 4 and we discuss with them engineering aspects of the roll out and the way that multiplex is run, but then all the multiplexes come together with the digital network, and beyond that there is a lot of work which goes on spectrum planning, which is done independently of us. I think one of the tasks to get digital to move forward is to get clarity in the technical arrangements which will be put in place at the point of analogue switch-off. Before major and significant investment is made in the ultimate digital network, we need to know which spectrum is going to be used, how it is going to be allocated, and then the engineering planning can be made.

  78. Would it be fair to say that there is a bit of a morass here and it is quite difficult to see how anyone advances the roll-out of digital terrestrial television? It is one of the issues that has not yet been addressed in the White Paper, the Digital Action Plan, or any of these areas?
  (Mr Scott) I think one has got to take it a step at a time and one has got to do the basic planning and set out a timetable and then one can devise the plan that we are going to use. There are some early steps which need to be taken.

  79. Just on the definition of public service broadcasting, I presume that you would prefer the BBC to have a more tightly-drawn definition of its public service broadcasting, but I note that you say of your own public service broadcasting remit that "it is the simple over-arching requirement to be innovative and distinctive and to address issues of diversity" which has really made you the unique organisation that you are. So perhaps you would not want a more tightly-drawn definition of public service broadcasting for yourself?
  (Mr Gardam) I think the important thing about public service broadcasting, which I think will remain for some time to come, is that it is essentially a competitive system of values and that it only works because there is a rivalry of ambition, in addition to that of pure ratings, which leads to one broadcaster bouncing ambition off the other. We think it needs a joined-up landscape in the future in order to achieve that. Personally, having worked with the BBC, Channel 5 and Channel 4, I find the advantages of working to an independent regulator much greater because there is much greater clarity, and I think the system of self-regulation, with a statement of promises and a review of that statement of promises by the regulator a year later, is beginning to work rather well because what it does is that it sets the broadcaster the responsibility of setting some ambitions which whatever the ratchet, the ratchet of shareholder value in the case of the ITV companies, or the ratchet of the maintenance of ratings in the case of all broadcasters, means you have got those ambitions set out in advance and you then have to live up to them. Although they will change over time as the circumstances change, it gives you an external measure which keeps you honest. We believe that to bring the BBC within that overall framework would benefit all the other public service terrestrial broadcasters because the BBC is the direct point of comparison and is a very, very strong rival; their programmes are superb. At the moment the separation leads to, I think, a sense that there is a brand which is BBC public service broadcasting and then there are other companies which subscribe to public service because it is almost a cost of entry to the market. It seems to me that the public service concept has worked in this country because it has been a system of incentives and responsibilities which has led to investment in original programming which might not otherwise have been made and as we go into a digital world, I think the real division is going to be between the majority of channels, which essentially are trading programmes as product, as ready-made things, and those few channels investing in originated content. The basis of any public service system is to allow (through financial incentive) it to continue to invest in the ways it has done in the past.

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