Examination of Witnesses (Questions 66-79)
MR DAVID
SCOTT, MR
TIM GARDAM
AND MR
ROB WOODWARD
TUESDAY 22 JANUARY 2002
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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