7 Channel 4 and BBC Worldwide
98. Since the Committee held its oral evidence sessions
in November and December 2008, the prospect of a partnership between
BBC Worldwide and Channel 4 has emerged. Channel 4 is currently
experiencing severe financial pressures, in part due to the structural
changes caused by digital switchover and the growth of online
distribution. The indirect subsidy Channel 4 currently receives
thanks to its free analogue spectrum will diminish as the UK approaches
digital switchover. This problem, which Channel 4 has long recognised,
is being exacerbated by a decline in advertising revenue associated
with the recession. As a result, Channel 4 estimates that it will
have a funding gap of around £150 million per annum by 2012.[201]
99. We recognised the pressures facing Channel 4
in our report into Public Service Content in November 2007. In
the same report we also outlined the importance of maintaining
plurality in the provision of content, and the need for Channel
4 to produce highquality, challenging UKproduced drama
and documentaries. As a result we concluded that, should a funding
gap arise, "Channel 4 should be able to apply, on a contestable
basis, for public funding—which could potentially include
television licence fee income—to make specific public service
programmes that meet its remit".[202]
100. Our recognition of the importance of plurality
in the provision of UK-produced public service content is a view
also shared by the Government and Ofcom. The Secretary of State
for Culture, Media and Sport recently stated that the Government
would "explore how we can establish a sustainable public
service organisation that offers scale and reach alongside the
BBC, building on the strength of Channel 4".[203]
In January 2009 Ofcom outlined a host of proposals to strengthen
and sustain PSB programming over the next decade. In its Second
Public Service Broadcasting Review, it states that one of its
top priorities is to ensure "a financially robust alternative
provider of public service content alongside the BBC, with Channel
4 at its heart".[204]
101. One option identified by the review is to establish
a relationship between Channel 4 and BBC Worldwide. Ofcom states
that "BBC Worldwide and Channel 4 have already established
that there is potential value from collaboration between the two
organisations. It is possible that this could be extended to a
deeper and more integrated partnership with opportunities for
future growth". While neither the BBC nor Channel 4 has ruled
anything out from a potential partnership, it is expected that
any deal would be likely to be based around their UK assets. We
understand that discussions have centred around the possible combination
of businesses in the following areas:
- Digital channels: Channel 4
has a portfolio of digital channels (E4, Film4, More4, 4Music,
Channel 4+1, E4+1, Film4+1, More4+1, and a 50% stake in Box television),
while BBC Worldwide has a 50% stake in UKTV (which comprises:
Alibi, Blighty, Dave, Eden, G.O.L.D., UKTV Food, UKTV Gardens,
UKTV Style, Watch, and Yesterday, with "+1" channels
for each of these excluding Blighty and UKTV Gardens[205]).
- DVD distribution: possible combination of BBC
Worldwide's stake in 2entertain with Channel 4's 4DVD business.
- Online and on demand: Channel 4 has its channel4.com
website and on demand service 4oD, while Worldwide has several
commercial websites (as discussed in Chapter 6).
102. Channel 4 believes that a partnership with Worldwide
would present opportunities for substantial synergies in both
costs (such as removing duplication in common business areas)
and revenues (for example, combining assets to drive commercial
benefits). In mid-January, the BBC estimated that these partnerships
could release additional benefits of around £45 million per
annum for Channel 4.[206]
Discussions between BBC Worldwide and Channel 4 on the details
of any possible partnership are ongoing and a decision is expected
within the next few months.
103. We recognise the financial pressure Channel
4 is experiencing and we restate our view that it is essential
to retain plurality in the provision of UK-produced public service
content. We appreciate that a partnership between Channel 4 and
BBC Worldwide could deliver financial benefits that may go some
way towards closing Channel 4's funding gap. However, we are sceptical
as to whether a wide-ranging partnership or even merger with BBC
Worldwide would be the best solution for Channel 4, for the licence
fee payer, or for the media industry as a whole. While we do see
some value in the direct transfer of assets—particularly
Worldwide's UKTV channels—to Channel 4, we believe that
a broader and more complex arrangement would have a number of
drawbacks. The extra businesses in which Worldwide would have
a stake in would be likely to make Worldwide an even more aggressively
commercial organisation. Furthermore, we see no obvious synergy
between Channel 4, which produces no content of its own, and Worldwide,
which is primarily a content distributor. It is also apparent
that any partnership, however great the scope, would still only
account for a proportion of Channel 4's £150 million annual
funding gap.
104. While a partnership between Channel 4 and
BBC Worldwide would be likely to increase funding for Channel
4, at the same time it would also reduce the revenue returned
to the BBC by Worldwide, thereby putting more pressure on the
licence fee. We believe it would be far cleaner and simpler to
effect this funding change directly. We therefore reiterate our
previous recommendation that, instead of the proposed partnership,
a proportion of the licence fee should be made available to Channel
4, in order for it to sustain its public service programming.
105. We believe that the issues we have identified
in relation to Worldwide's activities and governance will still
need to be addressed even if a partnership with Channel 4 is established.
Whatever the decision on any proposed partnership, we believe
that the rest of our recommendations in this report continue to
stand.
201 Oral evidence taken before the Culture, Media and
Sport Committee on 21 October 2008, HC (2008-09) 189, Q 76 [Helen
Southworth] Back
202
Culture, Media and Sport Committee, First Report of Session 2007-08,
Public Service Content, HC 36-I, para 161 Back
203
HC Deb, 29 January 2009, col 462 Back
204
Ofcom, Second Public Service Broadcasting Review: Putting Viewers
First, January 2009, pp 1, 66 Back
205
UKTV: TV listings, www.uktv.co.uk Back
206
Oral evidence taken before the House of Lords Communications Committee
on 14 January 2009, Q 11 [Lord Fowler] Back
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