Memorandum submitted by Channel 4
INTRODUCTION
Channel 4 is a publicly owned, not-for-profit
broadcaster operating in the UK. It was established in 1982 as
a publisher-broadcaster required to commission originated content
from the independent production sector. Its core public service
channel, Channel 4, is a free-to-air service funded predominantly
by advertising and sponsorship. It also operates a number of other
services, including the free-to-air digital television channels
E4, Film4 and More4; a video-on-demand service, 4oD, which is
available via PCs and on cable; and an expanding range of new
media services at channel4.com, including the broadband documentary
service FourDocs.
Channel 4 is also a majority (51%) shareholder
in Oneword Radio, a speech radio service providing serialisations
of best-selling books, drama, comedy, interviews and film reviews.
Oneword is available nationally on the Digital One DAB digital
radio multiplex, and on Sky, Freeview, ntl cable and on the internet.
Channel 4 has announced its intention to bid for the second national
digital radio multiplex licence. In June 2006, Channel 4 Radio
was launched and is available for download and to listen online
at www.channel4radio.com.
Unlike the other commercially-funded public
service broadcasters—ITV1 and Five—Channel 4 is not
shareholder owned. Commercial revenue is only a means to delivering
our public purpose end. Any surplus revenues are reinvested in
the delivery of the public service remit and not paid out as shareholder
dividends. By contrast, ITV1 and Five's overriding objective is
to deliver shareholder value, and for them public service requirements
have historically been the cost of gaining access to the analogue
spectrum.
Channel 4's public service remit is set out
in the Communications Act 2003, and requires: "The provision
of a broad range of high quality and diverse programmes which,
in particular:
— Demonstrate innovation, experiment
and creativity in the form and content of programmes.
— Appeals to the tastes and interests
of a culturally diverse society.
— Makes a significant contribution
to meeting the need for the licensed public service channels to
include programmes of an educational nature and other programmes
of an educative value.
— Exhibits a distinctive character".
The commitment to innovation and risk-taking
set out in the remit are at the core of the commissioning decisions
taken by each department in the organisation. Channel 4 is also
committed to delivering certain amounts of programming in key
PSB genres as set out in its licence: in 2006, it provided 14
hours of Education programmes each week, six hours of news, four
hours of current affairs and one hour of religious programming
(meeting and in some instances exceeding the minimum licence obligations).
The Channel's unique approach to creativity,
and its focus on developing new talent, mean that we work with
over 300 production companies each year, far more than any other
broadcaster, including the BBC across its entire output. And the
quality of our output is clearly recognised by audiences and critics
alike. The quarterly image tracking study that we conduct shows
that Channel 4 consistently and clearly outperforms the other
PSB channels when audiences are asked to rate them according to
audience-friendly descriptions of innovation and diversity, such
as "Always trying something new", "Takes a different
approach to subjects" and "Covers ground other channels
wouldn't". In terms of critical acclaim, Channel 4 punches
above its weight in award ceremonies, for example winning Terrestrial
Channel of the Year at the 2006 Edinburgh TV Festival, picking
up more RTS awards than any other broadcaster in 2006, and often
triumphing at international award ceremonies such as the International
Emmys (Ramsay's Kitchen Nightmares and Sugar Rush won in 2006,
and Channel 4 News has won twice in recent years) and the Golden
Globes (at the 2007 awards, Elizabeth I picked up three awards;
and, the Film4-produced The Last King Of Scotland won Best Actor
in a Motion Picture Drama for Forest Whitaker).
Channel 4 also brings significant economic benefits
to the UK economy. A recent study commissioned by Channel 4 from
PricewaterhouseCoopers estimated that the overall economic impact
of Channel 4 could be worth up to £2 billion in UK Gross
Value Added, and 22,000 jobs spread across the UK. The economic
benefits provided by Channel 4 are a function not only of the
scale of its operations but also the proactive way in which it
intervenes in the programme market—it acts as a form of
"angel investor" for the UK creative economy, identifying
and nurturing talent, helping develop regional clusters in the
creative economy, and bolstering funds available to the independent
production sector through matched funding from regional agencies.
Through a wide range of targeted initiatives, it provides a "training
escalator" for new talent, helping them develop their creative
ideas, win commissions and develop the skills and expertise necessary
to build sustainable businesses.
EXECUTIVE SUMMARY
Prospects for maintaining plurality in public
service broadcasting in the digital age
(i) Channel 4 believes there is strong public
and political support for the maintenance of PSB plurality in
the digital age, based on research conducted by Ofcom, DCMS and
the BBC. Channel 4, as the UK's other publicly owned public service
broadcaster, has a critical role to play in delivering this plurality.
(ii) With the BBC guaranteed a new Charter
and licence fee funding for the next decade, we believe it is
vital that competition to the BBC in PSB provision is maintained
and viewers are offered a diversity of high quality content. This
is particularly important in areas such as news and current affairs,
as well as genres such as comedy, drama and documentary.
(iii) however, the old funding model that
has supported commercially-funded PSB is breaking down. This old
model relied on the implicit subsidy afforded by access to scarce
analogue spectrum. We agree with Ofcom that with analogue set
to be switched off, new sources of support will need to be found
if PSB plurality is to be maintained.
The practicality of continuing to impose PSB obligations
on commercial broadcasters
(iv) Post digital switchover it will be insufficient
and unrealistic simply to impose obligations on commercial broadcasters.
In the case of Channel 4 we have no desire to reduce our public
service commitments. As a publicly owned broadcaster our overriding
purpose is the delivery of our public remit. Commercial performance
is simply the means to the delivery of this end. But with the
implicit subsidy of analogue spectrum about to disappear it will
not be enough simply to will the "ends" of public service
content without putting in place new "means" to support
its delivery.
(v) Post switchover, ITV1 and Five will have
the option of handing in their licences and continuing to deliver
universal access to their services to viewers via other routes.
This makes it impossible to simply attach onerous obligations
to the delivery of the Channel 3 or Five licences. New forms of
incentive will probably have to be found if these broadcasters—and
potentially others—are to be encouraged to contribute fully
to PSB plurality.
The case for public funding of broadcasters in
addition to the BBC
(vi) We believe that there is probably a
case for filling at least some of the funding gap that will be
created as a result of digital switchover through new forms of
public funding. However, we are also particularly keen to identify
whether there are alternative means of indirect support (such
as access to additional DTT spectrum) that might be used to maintain
Channel 4's contribution to PSB plurality.
(vii) In the case of Channel 4, we do not
at this stage in the Ofcom Financial Review[1]
rule out the possibility of having to access some new form of
public funding. However, our strong preference is to identify
new forms of indirect support for the Channel, if possible, as
we believe that a plurality of funding streams has benefited the
UK industry and Channel 4's reliance on commercial income has
helped create an independence and entrepreneurial vitality at
the Channel that has been central to its success
The future of key areas of public service media
content such as news provision and children's programming
(viii) Core public service genres such
as News will be most under threat as the old cross-subsidy model
of public service broadcasting erodes. Whilst Channel 4 News is
a flagship public service programme on the Channel, it is expensive
to make and has limited potential for revenue raising. As such,
it would be unlikely to survive in its present form—a one
hour, peak time programme containing 40% international news—in
a purely commercial environment.
(ix) We believe that maintaining a plurality
of independent and impartial news suppliers must be the overriding
priority for the UK's system of public service broadcasting and
welcome, therefore, Ofcom's separate review into the future of
news. Clearly the issue of direct funding for news suppliers is
particularly difficult, given the importance of news being seen
to be impartial and editorially independent from Government.
(x) Ofcom's proposed restrictions on food
advertising to children coupled with indications that ITV1 wishes
to reduce its commitment to children's programming have also prompted
a separate Ofcom review into the future of this genre. Given the
limited audience—and advertising opportunities—for
children's programming we believe this genre is likely to need
further public support. However, we believe in the short-term
that ITV1, which has already benefited from significant regulatory
relief, should be held to its public service commitments on kids'
programming. This would give the regulator sufficient time to
respond to the challenges posed by switchover and ensure new mechanisms
are put in place to sustain investment in children's programming
beyond the BBC.
The value of Ofcom's Public Service Publisher
(PSP) concept
(xi) Ofcom identified a funding gap of around
£400 million which will disappear from the PSB system by
the point of digital switchover. Channel 4 fully supports the
proposal to seek new forms of public support to replace the value
of the analogue spectrum that has provided the historic form of
implicit subsidy for PSB.
(xii) Ofcom has argued that there is a role
for public intervention—potentially in the form of a PSP—to
encourage the development of entirely new forms of public service
content. Channel 4 supports the notion that there might be a case
for giving public support to bespoke new media PSB content and
services. Channel 4 has already launched some services in this
vein, such as FourDocs and IDEASFACTORY but these could
be further developed if public support were available.
(xiii) But a PSP which focuses on new media
content would not address the reduction in plurality in the supply
of traditional PSB programming that will result as we approach
digital switchover. Whether or not a new media-focused PSP is
established, there will still be a need to find a new way to support
high cost, high quality PSB content to compete with the BBC in
the linear TV environment.
(xiv) Ofcom states that it is open-minded
on the issue of whether the PSP should be an entirely new entity.
We believe that there are some strong arguments for an existing
player such as Channel 4 to play a leading role in the operation
of the PSP. We therefore welcome this open approach from Ofcom,
and look forward to engaging further on its proposal.
The case for provision of public service material
on new media
(xv) As set out in response to the question
on the PSP, Channel 4 believes there is an important public debate
to be had about whether or not public support should be provided
for investment in public service content in new media. This should
not, however, be confused with the debate about how the funding
gap in the provision of traditional high cost TV content might
be addressed.
1. The prospects for maintaining plurality
in public service broadcasting (PSB) in the digital age
1.1 It is worth prefacing our discussion
of PSB plurality by emphasising the value of public service broadcasting
itself. Notwithstanding the merits of providing public service
content via new media platforms (discussed in subsequent questions
below), we believe there will remain powerful and enduring reasons
to continue to support traditional PSB delivered via linear, mass-market
scheduled television channels. First, in democratic terms, the
PSB channels are free at the point of use and universally available
to all UK citizens; by contrast, the dominant funding model for
the hundreds of multichannel channels provided by Sky Digital
and cable companies is subscription, restricting access to a small
proportion of the population. Second, notwithstanding the gradual
fragmentation of audiences, the PSB channels continue to be unique
in their ability to reach mass markets. And third, as a corollary
of these first two points, the PSB channels can generate "water-cooler
moments", stir feelings and provoke debates in ways that
neither digital TV services nor the growing range of new media
services are able to do.
1.2 We believe that the prospects for maintaining
a plurality of providers of public service broadcasting in the
digital age are mixed.
1.3 On the one hand, there remains overwhelming
support from the public and policymakers alike to maintain plurality
of PSB. Recent reports from Ofcom, the DCMS and others (such as
the House of Lords Select Committee on the BBC Charter Review)
demonstrate strong support for other public service providers
to compete with the BBC to maintain the provision of a wide range
of content, serving the broadest possible range of audiences,
and offering a diversity of different perspectives.
1.4 As Channel 4 illustrated in its response
to Ofcom's review of public service television broadcasting, competition
between different broadcasters encourages everyone—including
the BBC—to raise their game, increasing levels of quality
in all types of programming. And the notion of "competition
for quality" formed the core of Ofcom's final report in its
PSB review in February 2005. As Ofcom noted (p 3):
"PSB overall is likely to be most successfully
provided if there is a range of different suppliers, with access
to different sources of funding, and with different institutional
models."
1.5 Picking up from Ofcom's report, the
DCMS, in its Green Paper on the BBC Charter (A Strong BBC,
Independent of Government, March 2005), also supported the
need to sustain plurality:
"Plurality—the existence of a range
of different broadcasters—has proved valuable to the existing
PSB system. Different broadcasters tend to offer different styles
of programming to different types of audiences. They compete to
be the best in particular fields of PSB. The result is a better
service for audiences".
1.6 The fact that Channel 4 exists as a
publicly owned, public service broadcaster dedicated to the delivery
of its remit is also an important factor underpinning the positive
prospects for maintaining at least some degree of plurality of
provision. Whilst we are commercially-funded, unlike the licence
fee-funded BBC, our primary purpose remains the delivery of our
public service remit and we have no desire to abandon that purpose.
1.7 On the other hand, and in the face of
strong support for maintaining PSB plurality, the prospects in
economic terms for achieving plurality are far less certain. A
new Charter and Agreement have recently been put in place to secure
the future of the BBC. But the reports referred to above highlight
the broad consensus that having a sole PSB supplier would not
be sufficient.
1.8 The key challenge to maintaining plurality
is that the UK's historic system of PSB plurality in which ITV,
Channel 4 and latterly Five, have provided PSB content and competed
with the BBC and each other faces fundamental pressures. Unlike
the BBC, these alternative PSB providers have not been supported
with direct public funding. Instead they have relied on privileged
access to extremely scarce analogue terrestrial spectrum. The
ability—via this spectrum—to provide universal, free-to-air
access to their content and deliver large audiences has enabled
ITV and Channel 4 in particular to charge advertisers significant
premiums.
1.9 The significant revenues delivered by
these premiums have underpinned the cross-subsidy model of PSB,
in which profitable, commercially-focused programmes (eg Deal
or No Deal or Ugly Betty) subsidise loss-making public
service content such as news and current affairs. This is not
to say that all PSB programming is loss-making or that all commercially-focused
programming is devoid of public value. At Channel 4, for instance,
we strive to deliver maximum impact and audiences with crossover
PSB content such as Jamie's School Dinners. But the fact
remains that a substantial amount of PSB content is loss-making.
1.10 As a result of the Government's policy
of digital switchover, this historic model is coming under major
pressure. The old indirect support of analogue spectrum is declining
in value and at digital switchover will disappear altogether.
Once analogue switch off occurs all TV sets in the UK, including
second and third sets, will be able to receive a minimum of 30
or so channels. For the first time in the history of commercial
PSB, other commercial channels will be able to reach all audiences
across the UK as the Freeview platform becomes universally available.
These channels will not carry the economic burden of PSB obligations
and will be free to broadcast commercially optimal content at
all times of the day.
1.11 The impact of this on the commercially-funded
public service broadcasters will be profound. For example, Channel
4's audience share in analogue homes was 15% in 2006, but the
channel's share dropped to 10.6% in Freeview homes. And in cable
and Sky Digital homes, where there are several hundred competing
channels, Channel 4's share was just 7.1%. As analogue homes make
the transition to Freeview or Sky as part of the switchover process,
the inevitable consequence for the public service channels is
for their overall audience share to decline. And this has a disproportionate
impact on commercial revenues, as the advertising premium that
has historically attached to ITV and Channel 4 will also tend
to fall, exacerbating further the decline in advertising revenues.
1.12 Whilst a supporter of the policy and
a key stakeholder in its achievement, it is important to recognise,
therefore, that the economic impact of digital switchover on Channel
4 is largely negative. In a purely analogue world, we were gifted
spectrum at no cost with limited alternative means of distribution
for competitors. However, since 1998 we have had the additional
cost of rolling out the digital terrestrial television ("DTT")
network and broadcasting on satellite and cable in digital, whilst
also continuing to run our analogue network. We are about to make
an even greater investment in digital through rolling out this
DTT network further as a result of Government policy to replicate
analogue coverage.
1.13 Furthermore, whilst our competitors
enjoy the benefits of major reductions in their licence payments
for analogue spectrum (from over £300 million in 1998 for
ITV down to nothing by switch-off) Channel 4 has been granted
no equivalent support. Moreover, whilst we have been allocated
a limited amount of digital terrestrial spectrum at no cost currently,
Ofcom have proposed that we should begin paying for this from
2014. By this point the implicit subsidy of extremely valuable
and scarce gifted analogue spectrum that has historically enabled
Channel 4 to fund its public service obligations within the market
will have entirely disappeared.
1.14 In light of the dramatic changes taking
place in the broadcasting market, which are overall to be welcomed
as they bring increased choice for consumers and innovation in
services, it is, in our view, impossible to imagine that new policy
tools/mechanisms will not need to be put in place to sustain plurality
of PSB and investment in a wide range of content in the digital
age. The market alone is unlikely to deliver. The massive explosion
in the number of channels available to viewers has not been matched
by a proportionate increase in investment in original UK content,
with most new channels relying on repeats or acquisitions.
1.15 In its 2004 Review of Public Service
Television Broadcasting, Ofcom estimated that, in opportunity
cost terms, the value of PSB programming provided in return for
access to scarce analogue spectrum was around £400 million
per annum. We agree with Ofcom's analysis that without further
intervention, we will see this level of investment in PSB content
disappear in the digital age (we discuss this further below in
Q6). Channel 4 is seeking new forms of support (see below) that
would replace the declining value of the analogue spectrum that
has historically been allocated to the channel.
2. The practicality of continuing to impose
public service obligations on commercial broadcasters
2.1 In response to this question it is important
to clarify the significant institutional difference between Channel
4 and the UK's two other commercially-funded PSB channels, ITV1
and Five. Channel 4 is a publicly-owned public service broadcaster.
The primary purpose of its existence is to ensure the delivery
of its public service remit, as articulated in the Communications
Act 2003, the Channel's licence and its annual Statement of Programme
Policy. Whilst our funding model is essentially the same (we are
entirely reliant on advertising revenue), our commercial success
is simply a means to deliver our public purpose ends. Any surplus
revenues made at the end of any year are not paid out to shareholders
but reinvested in the Channel.
2.2 In the case of ITV1 and Five, PSB requirements
have always been viewed as a straightforward cost of doing business.
As shareholder-owned companies their primary duty is to deliver
profits to shareholders. Providing commercially sub-optimal PSB
content (eg regional programming, current affairs and religion)
has been the price ITV companies have paid to gain access to lucrative
analogue spectrum.
2.3 Beyond digital switchover, simply imposing
obligations on the commercially-funded PSBs will no longer be
a realistic option. In the case of the publicly-owned Channel
4, whilst the delivery of our PSB purpose will remain our primary
objective, if the economic model underpinning that delivery erodes
then willing the "ends" will not be enough if new "means"
are not provided. And for the shareholder-funded PSBs, it will
not be possible to impose PSB obligations in the same way as in
the past. Such PSB obligations have historically been attached
to access to valuable analogue spectrum, but as the value of such
spectrum falls away this system will break down. ITV and Five
will be competing with other shareholder-owned channels with the
same universal distribution but without any of the PSB obligations.
Ultimately ITV and Five will have the freedom to hand back their
current licences and operate their services on alternative Freeview
channels that do not carry any PSB requirements. If PSB plurality
on channels such as these is to be maintained then new incentives
will have to be found to encourage ITV and Five to continue as
PSB providers.
2.4 Similarly for Channel 4, whilst we do
not need incentivising to deliver PSB purposes, a means of support
needs to be put in place for Channel 4 to allow the ongoing provision
of loss-making PSB content.
3. The viability of existing funding models
for ITV, Channel Four and Five
3.1 This is dealt with in answer to Questions
1 and 2.
4. The case for public funding of broadcasters
in addition to the BBC
4.1 As set out in reply to Question 1, we
agree with the analysis undertaken by Ofcom, which suggests that
a significant amount of investment will come out of PSB content
post digital switchover if nothing is done to replace the historic
indirect subsidy afforded to the commercial PSBs in the form of
analogue spectrum. Whether filling this gap will require direct
public support—in the form of public money—or whether
alternative indirect solutions (similar to the old analogue spectrum
model) can be found will be central to the debate that will follow
completion of Phase One of Ofcom's Financial Review of Channel
4 (assuming that this concurs with Channel 4's view that it will
face a funding problem in the digital age if it is to go on delivering
its PSB remit).
4.2 From a Channel 4 perspective, our current
preference is to identify alternative, new forms of indirect subsidy,
for example an additional allocation of DTT spectrum. We believe
that the UK has benefited not only from having a plurality of
providers but also from having a plurality of funding mechanisms.
In the case of Channel 4, the absence of direct public funding
has enabled the evolution of a vital commercial and entrepreneurial
spirit, which sits alongside the drive to deliver our public purpose
and has been critical to our success. It has also given Channel
4 an additional level of institutional freedom that has been of
particular importance in light of our historic role to provide
a platform for alternative and diverse voices, experimentation
and innovation. These are activities that have often courted public
controversy and have been facilitated by our economic independence.
This is also vital to ensuring Channel 4 provides an independent
source of competition to the BBC.
4.3 Whilst we are clear that not receiving
direct public funding has been central to Channel 4's success
to date, we are not at this point in the Ofcom Financial Review
process ruling anything out. Whilst preferring indirect forms
of support it is not yet clear that such forms of support will
be available (eg released analogue spectrum may not be reserved
for broadcasters) or be sufficient on their own (in terms of their
economic value) to support PSB investment on Channel 4 in the
long-term. It is also the case that there may be discrete areas
of operation and infrastructure that could be supported without
undermining the editorial or commercial integrity of the current
system.
4.4 Insofar as the shareholder-owned PSBs
are concerned, in particular ITV1, it seems likely that they will
expect to receive direct payment in some form or other post switchover
if they are to provide any significant level of PSB investment.
ITV has indicated already that it does not wish to continue to
invest at the same levels in originated children's programming
or regional news on ITV1. As Charles Allen put it in his MacTaggart
Lecture in August 2006:
"The truth is that Ofcom started the—long
overdue—process of modernising ITV's obligations because
it recognised that the analogue PSB model was bust. And far from
going too far, I believe that we have not gone far enough. [...]
If kids watch programmes on dedicated channels, like CITV, rather
than ITV1, good for them. If we move from regional bulletins on
TV to a 24-hour on-demand broadband service, great news. [...]
That means more big changes—not worrying about whether we
could have squeezed another year or two out of the current model."
5. The future of key areas of public service
media content such as news provision and children's programming
5.1 Insofar as news is concerned, major
challenges lie ahead, which is why Ofcom has announced a separate
inquiry into the future of news provision, which is running in
parallel with the Channel 4 Financial Review. As set out in answer
to the earlier questions, the economic model that has sustained
commercially-funded PSB is changing. Under this model, profitable
programming could be used to cross subsidise loss-making programming.
As the model comes under pressure, it is the loss-making programming
that is most at risk. Whilst Channel 4 News is a flagship PSB
programme for the Channel, it is not a commercially successful
programme. It is a high quality programme with major public service
ambition, consisting of an hour of peak time and 40% international
content; the cost of the current contract with ITN for the supply
of Channel 4 News is over £20m per annum. Sustaining the
level and quality of news on Channel 4 we have traditionally delivered
will require further policy intervention (as identified elsewhere).
5.2 Whilst we believe that even a completely
commercially-focused ITV would be likely to stick with at least
a national news bulletin, it is unlikely that it would be resourced
to the same levels as historically. Insofar as regional news is
concerned, ITV has hinted that it wants to exit from this (see,
for example, Charles Allen's comments in the MacTaggart
Lecture, quoted above). This poses significant issues not simply
in terms of the loss of plurality in local news provision that
would arise from such a move but also in terms of Channel 4's
ability to maintain the quality of its national news programme.
Channel 4 and ITV have historically shared the same news supplier—ITN.
In so doing we have been able to rely on some shared costs and
Channel 4 currently relies on ITV's regional news infrastructure
to support our national news operation.
5.3 The maintenance of a plurality of providers
of high quality, independent and impartial TV news is probably
the most critical element of the current PSB ecology that needs
to be maintained—especially in light of the size and scale
of the BBC news operation. However, it is also the area of programming
where the introduction of direct funding—if that were deemed
necessary—would need to be handled most carefully, given
the absolutely critical requirement for any news provider to maintain
independence from the Government and the wider political ecology.
5.4 Turning to children's programming, the
more difficult and risk-taking areas of this category of programming
(eg investment in original drama or factual programming for children)
may also face funding difficulties. We support, therefore, Ofcom's
recent announcement, in light of the new food and drink advertising
restrictions, to review the future of children's programming.
Indications from ITV that it wishes to reduce its investment in
children's programming have also precipitated this review.
5.5 We believe that ITV should be held to
its commitments to broadcast and produce original children's programming
on ITV1, at least until the digital switchover. This was a commitment
made by ITV as part of its recently renegotiated licence fee settlement.
Under this new deal ITV has benefited in numerous ways from regulatory
relief. [2]Ensuring
ITV does not pull out of children's programming in the short term
will give the industry and regulator time to identify alternative
forms of support. A premature exit from kids by ITV might see
the independent children's programming sector dealt a blow from
which it will never fully recover.
5.6 In our view, it would make much more
sense for Ofcom to hold ITV, which has a strong brand and reputation
in kids' TV, to its current requirements with regards to children's
programming and encourage it to apply for public support in due
course, if it is forthcoming as a result of the recently announced
Ofcom review. It is somewhat surprising that ITV should be looking
to move out of children's programming when it only launched its
dedicated children's channel, CiTV, in spring of 2006.
6. The value of the Public Service Provider
concept as advanced by Ofcom
6.1 The notion of a "Public Service
Publisher" was originally raised by Ofcom following its PSB
review in 2005. After conducting further work, Ofcom has now launched
a consultation on the PSP—a fund for projects whose "centre
of gravity" is in new media with a proposed budget of £50-100
million—with the publication of its discussion paper on
24 January. While we have not yet had the opportunity to digest
the new paper in detail, we can make some initial comments here.
6.2 First, in its PSB Review Ofcom identified
a funding gap of around £400 million which will disappear
from the PSB system by the point of digital switchover. This gap
represents the value to commercially-funded broadcasters (ITV,
Channel 4 and Five) of access to scarce spectrum in the analogue
world that enabled them to fund PSB programming. As we reach the
end of the switchover process, it will no longer be viable for
public service broadcasters to continue to provide the range and
diversity of programming—in genres such as drama, regional
news or current affairs—that viewers have become accustomed
to and which they continue to value (as Ofcom's own research indicates).
Ofcom's £400 million estimate represents the opportunity
cost of providing these types of programmes.
6.3 In its Phase 2 report in the PSB Review
(Meeting the digital challenge), Ofcom argued that "there
is a sound rationale, supported by the public, for replacing part
of the current £400m implicit subsidy with explicit funding
to maintain plurality and competition in PSB supply in the digital
age".
6.4 Channel 4 fully supports the proposal
to seek new forms of public support to replace the implicit subsidy
of gifted analogue spectrum for PSB. Given that the proposed PSP
is focused on new media, there remains a need for Ofcom and the
Government to identify new funding sources to support the continued
provision of the range of PSB programming that the commercially-funded
broadcasters will no longer be able to provide.
6.5 Second, Ofcom has argued that there
is a role for public intervention to encourage the development
of entirely new forms of public service content (ie not simply
traditional PSB programmes delivered over new media platforms),
and we welcome Ofcom's new proposals for the PSP, look forward
to analysing the new discussions paper and responding to Ofcom's
consultation. Channel 4 supports the notion that there might be
a case for public funding for some kinds of new media content,
and indeed we have already launched new media public services
such as FourDocs and IDEASFACTORY (4Talent), both of which
are resources to help aspiring creatives develop their talents.
We would add that, given the huge range of services available
online and the low barriers to entry, it will be necessary to
identify where market failures arise in the new media space, and
only to intervene in those circumstances (also taking into account
the market impact on other actual or potential commercial providers
of such services).
6.6 There may be particular instances for
which it might be preferable to replace the traditional linear
delivery of PSB programming with entirely new types of public
services that may be intrinsically better suited to delivering
PSB content via new media platforms. But for most types of traditional
PSB content (eg drama), the emergence of new media platforms does
not materially alter the rationale for continuing to fund high-quality
linear PSB programming.
6.7 Third, a crucial rationale for the PSP
is the need to maintain plurality which ensures public service
competition. As we discussed in Question 1, Channel 4 fully supports
the need for a plurality of supply of PSB content. However, as
the PSP focuses on new media content, it would not address the
reduction in plurality in the supply of traditional PSB programming
that will result as we approach digital switchover. And in the
new media space, the absence of spectrum constraints and low barriers
to entry mean that there are bound to be fewer concerns about
maintaining plurality of supply than in the broadcasting world,
where it will remain very expensive to fund PSB content with the
highest production values.
6.8 Fourth, we welcome the fact that Ofcom
is open-minded about whether or not the PSP should be an entirely
new entity. We recognise the arguments for a new entity on the
grounds that it would provide a fresh, disruptive impetus to public
service content delivery (just as the creation of Channel 4 did
in 1982, although the circumstances are fundamentally different).
However, we also believe there are some strong arguments for an
existing player, such as Channel 4, to play a leading role in
the operation of the PSP. The fact that Channel 4 is by now a
well-established organisation with highly-developed commissioning
structures and a renowned distinction in marketing means that
we can use our brand values and reputation to attract large audiences
to entirely new or challenging perspectives—in old and new
media alike—in a way that an entirely new and unproven entity
would not be able to do. That is not to say that there are no
merits in establishing an entirely new body. But it will be important
for policymakers to weigh up the benefits of this against those
of aligning a potential new body with existing broadcasters such
as Channel 4 with the scale, reach and proven ability to compete
with the BBC. We look forward to engaging further with Ofcom on
this issue.
7. The case for provision of public service
material on new media
7.1 In terms of the provision of public
service content on new media, we believe it is worth defining
more clearly what we are talking about. We believe that there
is an undeniable and straightforward case for ensuring that traditional
TV content (or at least elements or variations of it) should be
made available and supported on new media platforms. We are now
entering a world in which consumers and viewers expect to be able
to receive content where and when they like on the device they
choose. If the public service broadcasters are to remain relevant
then ensuring their content is available on every appropriate
platform is going to be critical. This is the thinking that has
underpinned Channel 4's recent launch of its own video-on-demand
services (4oD).
7.2 We believe that there is a need for
a separate debate as to whether specific forms of content creation
that originate in the new media landscape should be given public
support, and if so in which areas. Channel 4 has begun to experiment
in a limited way with services such as these. Our broadband documentary
channel, FourDocs, is a good example of this: it offers aspiring
documentary filmmakers a branded site that hosts their short films
and provides access to expertise and advice, from the cream of
British documentary film-making talent including Channel 4 commissioning
editors, on getting into the documentary filmmaking business.
All of the content is user-generated and, unlike in traditional
TV, there is no direction as to the material or subjects that
must be covered. Given the low barriers to entry in new media
(in terms of costs of production and distribution) many of these
films might be made in a free broadband market, without any intervention
from Channel 4. However, it is abundantly clear that Channel 4's
status in the documentary world adds great value and is a huge
incentive to people from outside the rather narrow world of TV
to participate. What is more, we have been keen to explore through
FourDocs ways in which we might add public value in this space,
through providing:
(i) a "best practice" site for
such producers where they can share knowledge, experience and
information,
(ii) a new, more democratic gateway to traditional
TV commissioning (some FourDocs films have already been screened
on our linear TV channels) and
(iii) access to legal and other expertise
that can help develop new talent.
7.3 This is just one example of how a broadcaster
with established strengths can help to add value to a model based
entirely around the principles of new media. Channel 4 has already
rolled out the FourDocs template to a different genre, with the
launch of 4Laughs, which encourages new comedy talent.
And there are a wealth of other examples: Breaking The News
is a ground-breaking (and award-winning) Channel 4 and ITN media
literacy initiative focused on TV News, offering a unique hands-on
experience of the complex and time-critical process of producing
and editing a news programme through a ground-breaking internet
video editing application; and ORIGINATION Insite, a Culture
Online project made in partnership with a range of regional museums,
enables people from incoming cultures to build their own websites,
with the help of easy-to-use software (underpinned by a range
of online and on-the-ground support), to record the contribution
of their culture to British history and contemporary British society.
7.4 We welcome the fact that, with the publication
of its new issues paper on the PSP, Ofcom has moved on the important
public debate as to (a) whether there is a need for public investment
in content creation in the new media space (i.e. is there any
market failure?) and (b) if so, what kind of content/services
it should be investing in and through what structure. This is
an important, forward looking debate and Ofcom's PSP proposal
provides a valuable springboard. We believe that there probably
is a case for giving public support to certain new media content
initiatives, and we also believe that there is more that Channel
4 can contribute in the new media arena if public resources were
available, for which the PSP might well provide a good funding
mechanism.
7.5 Having reviewed Ofcom's new PSP proposals,
it is clear that there remains the need for a separate debate
on the future of linear PSB on TV, and in particular the future
ability of Channel 4 to deliver its public service role. With
the BBC settlement now agreed, the priority must be in the area
of greatest threat, that is to address how the provision of public
service material on `traditional' media can be maintained.
February 2007
1 Ofcom is currently reviewing Channel 4's contention
that it will face a funding gap in delivering its PSB remit in
the run up to switchover. This is due to report in March. Should
Ofcom agree with Channel 4's view, the next stage of its review
will look to identify funding solutions. Back
2
ITV's licence fee payments (of £373 million pa in 1998)
have been reduced in line with digital growth from 1998 onwards
(the "digital dividend"). In addition, Ofcom agreed
a one-off reduction of £90 million to ITV's licence payments
in 2005. This was specifically introduced to assist ITV in preparing
for the pressures of digital switchover. Stephen Carter at the
time said that "Digital television transfers control from
broadcaster to viewer. This process puts pressure on commercially-funded
public service broadcasting. We have now done all we can to give
broadcasters regulatory certainty. It is now up to the broadcasters
to deliver... " By 2013, we estimate ITV will have received
£1.4 billion of cumulative licence fee reductions as a consequence
of switchover. ITV has also received significant reductions in
its PSB obligations worth up to £50 million per annum by
2010. Regulatory reductions have included the moving of ITV1's
late evening news bulletin out of peak time to 10.30 pm, the halving
of its religious output and reductions in the volume of regional
non-news programming that the Channel is required to broadcast. Back
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