BBC Commercial Operations - Culture, Media and Sport Committee Contents

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 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, 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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Prepared 7 April 2009