Channel 4 Annual Report - Culture, Media and Sport Committee Contents

Examination of Witnesses (Questions 1-99)

LORD BURNS GCB, MR DAVID ABRAHAM AND MS ANNE BULFORD

28 JULY 2010

  Chair: Good morning. Welcome to the first session of the new Culture, Media and Sport Select Committee. We are very pleased to have as our first witnesses Channel 4. Can I therefore welcome the Chairman, Lord Burns, the Chief Executive, David Abraham and the Chief Operating Officer, Anne Bulford. This is our annual session where we consider Channel 4's Annual Report. May I invite Philip Davies to start?

Q1 Philip Davies: Lord Burns and Mr Abraham, I suppose this is directed particularly at you two rather than Anne because you are a relatively new top team at the head of Channel 4. Given that, would you like to set out to the Committee exactly what your vision is and perhaps how we might in future look back on your time and what you think is the measure of success that you would like us to judge you by?

  Lord Burns: May I say first of all that we are very pleased to be here. Indeed, we are particularly pleased that we should be at your first meeting of this new Committee. We do regard these annual sessions as a very important part of our accountability, so we are not reluctant attenders at all. I will just say a short amount and then David will say more about the vision question. I regard my key task here as trying to ensure that we implement Parliament's wishes with regard to Channel 4 as effectively as possible and to make a success of that. Of course, we have had some new legislation on top of the original legislation. This is a very important part of the public service broadcasting landscape. Channel 4 has a number of unique characteristics. It has an important remit with regard to public service broadcasting and it finances itself almost entirely through its own resources, money which it has to earn in the marketplace. We have therefore to strike the right balance between programming that enables us to fund the channel and also programming that meets the remit. I hope that by the time we get through four or five years we are able to demonstrate that in this rapidly changing world, where there is a huge amount going on, we have been able to meet that challenge; that we have delivered the remit, that we have done it within the resources that we are able to earn; that the viewers will enjoy the viewing experience; and that the independent production sector will continue to regard us as a very important part of the cultural landscape of the UK. If we can do that we will be very pleased. We are a very important competitor, to the BBC, in terms of public service broadcasting. The whole way that the digital world is moving, I suspect, is going to mean that more of television becomes devoted to straightforward commercial television and that the battle will remain to keep a vibrant and successful public service broadcasting environment. We think we have a very important part to play in being different from the BBC—to a significant extent competing in the same area as far as programming is concerned—but having an income generation mechanism which is very different. David will say a little bit more about the programming and how it is that we want to take the creative part forward.

  Mr Abraham: Good morning; it is good to be here at my first Committee meeting. I have been in the job for three months now. My opening remarks centre on what I think is going to be occurring in our industry over the next five to seven years. Over the last 10 years we have seen the emergence of multi-channel television that initially was analogue based and became digitally distributed. We are now very close to digital switchover so the fragmentation of linear channels is almost complete. What is now about to occur is the much heralded idea of convergence and we are seeing the emergence of a number of players who are preparing for the convergence of linear channels with the power of the Internet and the on-demand capability that technology can now provide. In fact, as I was just skipping through the cuttings this morning there was a very good piece in today's Daily Mail that projects the development into the living room of what is described as intelligent television sets, television sets with probably more chips inside them than the average laptop had 10 years ago. This is giving rise to a variety of players led by Google and Microsoft and others who are preparing to develop their platforms in this converged environment. I would say that this presents Channel 4 with both a tremendously exciting but also a challenging set of objectives over the next three to five years for me to deliver to the remit, and the Digital Economy Act specifically states that we should deliver quality and diversity and creativity across electronic communication networks that are now emerging. It is my belief and my view and my ambition that we can continue to have the same level of cultural and creative impact as we have had historically but do so by very different means through convergence and the environment that is now emerging, so as we go through the questions I shall talk to you a little bit about some of the initial changes that I have introduced that I believe will help to prepare us for those changes.

  Q2  Philip Davies: How does your approach and your vision differ from your predecessors', or does it not?

  Mr Abraham: We are very much building on a period in which many of the services, such as 4oD and 4iP, were in a sense working at the periphery of the organisation. They have begun now to achieve sufficient scale but what I am seeking to do is bring them into the centre, for example, to have the commissioning teams working much more hand in glove with the online teams to deliver editorials to the viewer which are completely joined up, and I think this will be very much a theme of how we need to move forward. The other distinction that we will be touching on today is that we are very much a team that has been given a remit and intends to work within the realities of the marketplace. We are not looking for external solutions. We are looking to do the best we possibly can from a commercial point of view and for that reason we are looking at tactical partnerships, such as the recent advertising arrangements that we secured with UKTV, to operate very much within our means.

  Q3  Philip Davies: What is going to be different between you and Luke Johnson, Lord Burns?

  Lord Burns: That is very difficult to tell because I overlapped with Luke for a relatively short period. I think we have to recognise that there was a two-year period when there was quite a lot of debate as to whether or not Channel 4 was sustainable in the new environment. Of course, it was a period when there was a very sharp reduction in advertising revenue generally, and even though Channel 4 maintained its share of that revenue quite effectively there were doubts as to where that was leading because of the disappearance effectively of some of the implicit subsidy that was involved in terrestrial television which had helped to support Channel 4. My personal view is that seeking to find solutions, certainly through Government in these circumstances, is not the way forward. I think that one has to face the position that one is given. The commercial realities are that we have to make a success of it within the framework that is set out by Parliament, and that is what we propose to do. The company has been enormously successful—and I think this is a great tribute to the previous leadership—in getting through the period of recession and the very sharp decline in advertising by breaking even. They did it by a combination of a reduction in internal costs and a reduction in programming costs and managed to break even against one of the most severe downturns in advertising, if not the most severe. Certainly when I started looking at this, when I was approached as to whether or not I would be interested in this job, I have to say I was very surprised to discover the way in which the company had managed to navigate its way through the recession. What we have seen this year is some pick-up in advertising, a welcome pick-up. I think we are quite well positioned and my preference and ambition is to make a success of what we have rather than trying to seek solutions externally to get additional implicit subsidy into the company. I think it is possible and the three of us are working together to try to find a way forward that will enable us to do that.

  Q4  Philip Davies: That is a big difference from your predecessors who were looking for some kind of either direct or indirect subsidy from the Government. We have recommended in past select committee reports that we believe in a top-slicing of the licence fee to open it up to other broadcasters. When you say, "I like the discipline of Channel 4 having to earn its living in the market place rather than being dependent on Government funding", are you saying that if the Government offered to top-slice the licence fee and distribute it more widely or allow it to be contested you would not be interested in that because you like the fact that you are not dependent on the Government, or did you say what you said simply because you did not think it was going to happen so you tried to make a virtue out of something that you did not think was going to happen?

  Lord Burns: Good question. First of all, of course, I am on record during the period that I was helping the Secretary of State with the BBC Charter Review back in 2004/2005 as proposing a different solution as far as the Government and the BBC were concerned and opening up the possibility of—I did not like to call it top-slicing, having a fund which might be competed for in order to commission particular types of public service broadcasting. If that were to happen then clearly we would want to look at that and we might well find that we would wish to bid for funds. What I do not want to do is to be out there arguing that we need government money in order to survive. I spent too long in the Treasury to know that this is in any case a pointless activity. There is no better way of making people doubt the worthiness of what it is you are doing than asking for public funding. There is no doubt that Channel 4 for the foreseeable future, in any outcome, will have to earn the vast majority of its income through the marketplace. I think it is better to set your mind to that, to plan on that basis and not, in a sense, to have an ongoing hope that something else is suddenly going to come to your rescue. I took on this job on the basis of knowing what it was that Parliament had said it wanted from Channel 4, what the funding arrangements were, et cetera, and I propose to do it, in that way to the best of my ability. I do not propose to spend my time saying that I want some other source of revenue.

  Mr Abraham: If I could add to that, my understanding of the history of the inception of Channel 4 is that it has helped to generate a very effective and competitive marketplace in the independent production sector and those producers have in Channel 4 a platform to express their ideas that is independent of all strings, so in looking at this from a creative point of view there is great virtue in the independent funding model of Channel 4 in that part of our remit is to look at things in different ways from the BBC, to give a platform to these independent voices, these independent creative entrepreneurs, and to do so through our revenue model, and, obviously, evolving it and developing it with technological change it underpins the strength of the creative effort of Channel 4, so operating from an independent point of view has merit from the point of view of an independent revenue model.

  Q5  Philip Davies: So can we take it that the partnership deal with BBC Worldwide is now dead and buried?

  Mr Abraham: What we have done and will continue to do is look at rational commercial partnerships where they make sense for both parties. I think the UKTV ad sales arrangement, for example, which had always formed a part of that grander vision, as I understand it, is something that we believe makes sense, but it is, as it were, between two commercial operators and it is a commercial partnership that works for both parties.

  Lord Burns: And there are no discussions taking place with BBC Worldwide.

  Q6  Ms Bagshawe: Mr Abraham, you have talked about delivering your unique vision for Channel 4 and expanding that over the platforms—digital, TV channels and others. Ms Bulford has said, "Record profits from our digital TV channels were the most important factor in helping the group break even". As we have heard, you did break even, partly due to these new methods of delivering content. Would you say then that the "£100 million funding gap" identified by your predecessors was perhaps a little bit of scaremongering? I recognise that there were losses in the core channel but you do seem to have made that up through profits incurred from the new platforms through which you are delivering content. Can we now put the £100 million funding gap to bed?

  Mr Abraham: There are a number of different factors at play there. The report upon which that analysis was based goes back several years and is pegged back to a historic high in the advertising market and, given the remit of Channel 4 to plough all of its revenues back into on-screen investments, it was understandable that when we had some cyclical change in the market place there was a reduction in programming spend. It was right to say there are reductions, and indeed we are programming our network at considerably lower levels than we did at the peak of the marketplace. Having said that, things have changed on a number of levels in terms of how we procure the content at more efficient levels, how we balance the schedule between the different genres. Some of the things that we could do before in expensive genres like drama have been scaled back, so this is all under the banner of cutting our cloth. There has been probably some misunderstanding about what was meant originally about a gap. A gap is defined by the point at which you measure it and it is the case that we are spending considerably less on content now than we were three or four years ago. Do we think we can still deliver to our remit on that budget? Absolutely yes.

  Lord Burns: I do not want to appear critical of predecessors about this issue because there is a clear sense that historically there was a much larger implicit subsidy that Channel 4 was receiving through the terrestrial broadcasting system when there were only the main terrestrial channels. I think it was right for them to point out that much, indeed virtually all, of that implicit subsidy was going to disappear in the digital world, and therefore if Channel 4 was to continue in the same balance relative to others there was a gap that was appearing. I am not challenging that logic. What we are saying is that it seems to us clear now, looking at the new Act which covers our activities, that we really have to settle for what is set down there and that our main task is to get on and deliver that and to live within our means and do our best to generate the commercial earnings that are necessary to be able to provide outstanding television.

  Q7  Paul Farrelly: Lord Burns, your description of the way you intend to proceed in the future is completely at odds with all the commentary surrounding your appointment. People were saying that you were the consummate insider. You were there as the man able to know where the money was in Government and able to pull the strings to get it. In fact, you were no Michael Grade. I do not think you have got an Uncle Lew but I am sure if you have he did not commission the same Thunderbirds and The Prisoner. You are not a TV man. What would you say to those commentators now?

  Lord Burns: I think I have already explained that I took on the job not on the basis that I was going to spend my time going round with a begging bowl to my former colleagues in government departments to seek to obtain more revenue for Channel 4. I took it on on the basis that I have explained. I regard my role as chairing the board, making sure that we have an effective board which holds the management to account, which, along with the management, helps to develop a strategy for Channel 4 which enables us to fulfil the wishes of Parliament with regard to Channel 4. Anyone who thought that I was taking on this job in order to raid the Treasury through the back door was sadly mistaken.

  Q8  Paul Farrelly: Assuming there is some money still left there.

  Lord Burns: When I think of all that has happened since it demonstrates that that other strategy might have been a pretty forlorn one.

  Q9  Paul Farrelly: But not quite. The £100 million, the debate and the reports around the funding gap were quite important in the wider debate about top-slicing the BBC. You have now got a Government that wants the BBC cut down to size. You have got some sympathy there in other parties for top-slicing to help, other broadcasters. If that is on offer will you not take it?

  Lord Burns: I have already said that if it was on offer clearly we would look at it, but we would want to be quite careful that it was being done in an open and transparent and competitive way and not in a way that was producing a situation where we were dependent upon government funding, either directly or indirectly, in order to meet our remit. I felt when I was involved with the BBC Charter Review that it was very important to maintain competition with the BBC in terms of public service broadcasting, and the panel of people that I chaired then came to the view that the likely consequence of digital switchover was that the amount of competition to the BBC might well begin to be reduced, particularly from ITV and Channel 5. Therefore there were important mechanisms that had to be thought of as to how to sustain that competition. I regard that as a public policy issue and one that I was engaged in with a different hat on. I think it is important when you take on a job of this type, and with a public corporation that you take it on with your eyes open and that you accept the situation as set out in the legislation. If the situation were to change, if there were to be different arrangements that were introduced with regard to top-slicing and the licence fee, then, obviously, we would look at it.

  Q10  Paul Farrelly: Can I explore very briefly one area where your experience of Government might also prove useful to Channel 4, the issue of privatisation, the speculation? All this comes up particularly when other parts of the family silver are being flogged off. Since your arrival since the election can you just tell us what inquiries you and Channel 4 have made of the coalition Government's likely thinking on this? It would be a bit strange if you had not made inquiries.

  Lord Burns: I have not been going around saying to people, "Do you plan to privatise Channel 4?". What I do is look very carefully at the various statements that are made and when I have conversations with people I listen very carefully to what it is they are saying, what their body language is, what the nuances are, and there has been no indication up till now of any intention that has been signalled to me of wanting to privatise Channel 4.

  Mr Abraham: Jon Snow did ask the question on the Channel 4 News of the Secretary of State and the answer was that it is not on the agenda.

  Q11  Paul Farrelly: You see how topical the question is.

  Lord Burns: When you have a public expenditure review on the scale that is taking place at the moment, again, I know from my own experience that all sorts of things get looked at, but we are keeping a low profile on this issue. We are watching and we are listening and noting what it is that is being said.

  Q12  Chair: There may not have been an attempt to privatise Channel 4 but there was an attempt by you to nationalise Channel 5. Would you like to tell us your thinking behind that and also how Channel 4 would have financed a possible acquisition of Channel 5?

  Lord Burns: As you know, the owners of Channel 5 made clear that it was up for sale and they asked us to join in some discussions with them as to whether there was any way in which we might take over Channel 5. We did quite a lot of work on this and I will ask David in a moment to set out some of the thoughts that we had on it. We then looked at the whole question of the pro forma earnings of Channel 5 and what we thought it was worth, including what the synergies might be in terms of combining it with Channel 4 to see if it was possible to make a case whereby within our own resources we could bring about this combination and provide a better outcome for the viewer and a better outcome for the independent production sector, and we had some conversations with people about this. We did not in the end engage in any detail about this, we had no detailed negotiations with the owners of Channel 5 about this but we did signal to them how it was that we thought we would be able to combine them if that outcome appealed to them, and we also signalled the scale of financial arrangements that we thought could make it work. As it happened, throughout this conversation they were really quite far advanced in discussions with another party and then that came to a conclusion last week. We did some exploration of it, we tried to see whether there was a way in which bringing the two together could be in the interests of the viewers and in the interests of the independent production sector.

  Q13  Chair: You do not see any problem with an outcome whereby three out of the four terrestrial broadcasters would all then have been in state ownership?

  Lord Burns: I was conscious and we were conscious of this issue. At a time when privatisation of many things is on the agenda I asked myself the very question, Chairman, that you are asking: would this make sense? That is why we went to the extent of trying to put together a proposal which was not simply taking the two channels and saying, "Channel 4 will now become the owner of Channel 5 and Channel 5 will continue as before". We put together a proposal that was really very different and would have made quite a significant change in the offer. We regarded ourselves throughout this process as a default position rather than one where we were aggressively bidding for it.

  Mr Abraham: As a new team, obviously, we were approached pretty much on day one by the RTL management because of the extensive conversations that had occurred in previous years on the concept of a merger, so it took us some time to digest what had happened historically and we were given to understand that those previous concepts had involved the potential loss of editorial control at Channel 4 of its own schedules in terms of a new management structure, so we were obviously minded not to pursue that particular route. Also, we need to remember that we are creating revenues in a competitive marketplace and we would not be doing our jobs properly if we were not assessing the competitive implications of an asset moving in and consolidating within the marketplace, and it was not until the very latter stages of the process that it became clear where the asset would actually go. We were doing our due diligence but, as our Chairman has said, it was never likely that as a publicly owned institution we would get involved in a bidding war. We were simply doing our due diligence to understand what our position would be as a default and we are encouraged to learn that the asset is now in the hands of an owner who remains committed to the public service expectations and provisions of that licence, which we think is beneficial from a public service broadcasting perspective.

  Q14  Paul Farrelly: Lord Burns, just to finish off on privatisation, you were, if I am not mistaken, at the Treasury when that lovely juicy plum that no-one really owned, the Trustee Savings Bank, was sold off to Lloyds, thereby reducing the pluralism of ownership in the financial sector, so you know how tempting these plums are to the Treasury. In four or five words what would your attitude be to the Government if privatisation came up as a possible option? Would it be, "Channel 4 is not for sale", or, "Hands off Channel 4"? What four or five words would you use to convey a message to the Government?

  Lord Burns: I think it would be very difficult to carry out the remit that is given to Channel 4 by Parliament if it was in the hands of private ownership. It might be done by surrounding it with a great deal of regulation but I think you would quite quickly find that that regulation was really quite intense and that there would be an ongoing and quite difficult tension about trying to do what is asked of it in the Act against the background of a for-profit company. I think the most important thing about Channel 4 is not so much that it is owned by the Government but its not-for-profit status, which means that instead of seeking to make a profit subject to doing the minimum requirements that are put upon it by the regulator it operates the other way round, which is that its ambition is to fulfil the remit with the minimum requirement of breaking even.

  Q15  Paul Farrelly: That is not very pithy though, is it? What would be your four or five words?

  Lord Burns: We will deal with that when—

  Q16  Paul Farrelly: It is not going to look well on a tee-shirt, is it—"We will deal with it when it happens"?

  Lord Burns: You are trying to tempt us into developing a position about public policy which seems to me at this point to be unnecessary.

  Q17  Paul Farrelly: Okay. On BBC Worldwide, of course, the Government has said most recently in This Week that it is looking at possibly selling off BBC Worldwide in part or in whole. If the negotiations that you had with BBC Worldwide were not just pointless flirtation what bits of BBC Worldwide might be of interest to Channel 4?

  Lord Burns: I have had no discussion of this issue at all, the board has had no discussion of it and I think it would not be right to speculate like that.

  Q18  Paul Farrelly: David was going to say something.

  Mr Abraham: I was just going to say that I come with the perspective of having spent three years running UKTV, which was a significant joint venture between BBC Worldwide and Virgin Media. Obviously, there are many things that would need to be understood about what was meant by the privatisation of BBC Worldwide before being able to come to a view, most critically what the flow of rights would be between the public service centre of the BBC and its commercial exploitation in perpetuity, and I think any private investor would have that at the heart of its decision making, so that is why I think our Chairman is correct in saying that it would be premature to judge the decision around that before that being understood.

  Q19  Damian Collins: You referred earlier on to the historic high in the advertising TV market. How long do you think it would take in cash terms for advertising revenue to get back to those levels?

  Mr Abraham: This is a very central question. I take the view that if we are to fund the excellent public service, high quality content that we provide to our viewers we are going to go through a fundamental change now in terms of how we provide value to advertisers. The relationship between advertising overall and GDP is still strong but the choices available to advertisers as to how they divide up their budgets between different media options has clearly got more complex and more sophisticated. I am very much a glass half full person with regard to the power of television, particularly the creative power of television produced in this country based on powerful ideas, and I think Channel 4 has a very central role to play in its commissioning process in creating these powerful ideas, but I would say that the way in which we trade our medium, the way in which it is packaged and provided to advertisers, is inevitably going to evolve in the next three to five years given what is happening technologically. I believe it should be possible for television as a medium to become more responsive to the power of the Internet and for us to have a message to advertisers in which we are competing more effectively with many of the alleged benefits of Internet advertising. Let us remember that much of the growth of internet advertising has been at the expense of classified advertising and local advertising rather than brand building television advertising, so we do have here a difficult thing to untangle—the structural changes that are occurring which need innovation and a response, and the cyclical changes which have occurred over the last two years. As the Chairman has said, it is encouraging that we have, at least for now, hit the bottom of the cycle of the traditional television advertising cycle. What I am focusing on now is building innovation back into our proposition.

  Q20  Damian Collins: From what you have said so far it sounds like the answer to my question might be "Never".

  Mr Abraham: I would agree that without innovation television is likely to stay at the plateau that it is currently on. I think most commentators would agree with that. But Channel 4 has always innovated. It innovated when it first ceded from ITV and had a new way of serving audiences, younger, up-market audiences, packaging it very effectively to ad agencies in creating a good price position in the marketplace. I believe our task now is to innovate another time in this area and that is where a lot of my focus is.

  Q21  Damian Collins: This month the IPA's bellwether report suggested that there had been a 5% decline in marketing spend by companies in the three months up to this month. Has that decline been reflected in your advertising sales?

  Mr Abraham: What we are looking at is sectoral differences. Retail has come back quite strongly. Other areas are working on different inventory cycles, but certainly we are encouraged by the very latest economic stats that were issued this week. The marketplace is looking on a month-by-month basis at news, which is relatively positive, but we must be reminded that it is only recovering many of the huge losses that we experienced in the previous 18 months, and right now visibility on 2011 is poor.

  Q22  Damian Collins: I asked about the previous quarter. The IPA bellwether report is that marketing spend declined by 5% in the previous quarter and is that reflected in your revenue from advertising in the last quarter?

  Mr Abraham: For the last quarter, no. We obviously are delivering a quality audience and we are delivering a product to advertisers that they value and we are competing effectively.

  Q23  Damian Collins: Looking at your schedule today, with the exception of the racing there is a good deal of repeats, reality TV and American imports. Is that cheap TV?

  Mr Abraham: Every broadcaster around the world, and I have run a television network in America, has to find the right balance of content that can fund the areas of the schedule which deliver brand value and public service value in our case. I am immensely proud of the fact that in the same week when those hardworking shows ran we also had a show last night, The Fairy Jobmother, about helping unemployed people back to work. We have a new strand straight after the news, 4Thought.TV, which is produced regionally and gives voice to opinions about religion and politics and spirituality, which is a really innovative show. At the end of the day it is a mix and remember that we have the Channel 4 News there permanently at seven o'clock. That is not a commercial proposition but it is a very important backbone of the schedule for Channel 4 and it is made possible by the way in which we manage our schedule overall, which ultimately is no different from any broadcaster in how we create an overall proposition for our viewers.

  Q24  Damian Collins: I want to ask one final question about programming. Obviously, this is your final Big Brother series. I appreciate that probably the weight of reality TV may reflect that we are in the middle of Big Brother at the moment and that is something you have got cross-platform as well and that is obviously a major chunk of your scheduling. How are you seeking to replace that?

  Mr Abraham: For some time before my arrival there was a process of creative renewal under way. I have arrived and am impressed by the progress that we have been making, but obviously I want us to see it go a lot further in planning for next summer, which will be the first part where the schedule withstands those year-on-year comparisons. The way I see it is that Big Brother was the kind of show that happens in the television industry once in a decade and we should not be looking for the next Big Brother. What we should be looking for is a series of ideas that perhaps would make our schedule more balanced and more diverse out of which we could find a number of quite big hits. We are in the fourth quarter and the first quarter of next year intensively piloting and testing new ideas. Whilst this task in broadcasting terms is a very big one, it is also a very exciting one and the producers that I speak to are very excited to have an opportunity to come forward with new ideas and that is very much at the heart of our remit.

  Jim Sheridan: I just want to say that I am delighted that Big Brother is coming to an end. How anybody can watch people sleeping is beyond me.

  Chair: That is a comment.

  Q25  Jim Sheridan: Lord Burns, can I just step back and probe you just a wee bit very briefly about your relaxed attitude towards public spending? Obviously, that is based on your experience in the Treasury in the sense of do not ask a question when you know what the answer is going to be. Did the extent of public scrutiny that comes with public funding also concentrate your mind in the sense of trying to achieve public funding because you are very relaxed in the sense of "should we get public funding or not"? Is it worth the hassle?

  Lord Burns: Public funding clearly comes with a great deal of public scrutiny, and quite rightly, but Channel 4 is a publicly owned corporation and that brings with it a great deal of public scrutiny, which is also correct. I have no fear of public scrutiny, none at all. It seems to me that if you are in this type of world that is part and parcel of it. What is important though, as David was implying earlier, is the independence that is necessary if one is going to produce high quality television which is challenging, which is different, which is innovative. Wherever your funding comes from what is important is that it should have mechanisms which both give accountability as far as your stewardship is concerned and provide you with independence as far as programme making is concerned.

  Q26  Mr Watson: Mr Abraham, what are your priorities for public service content creation and what are you going to do differently as a result of the Digital Economy Act?

  Mr Abraham: The Act, as I have read it, very much articulates in more detail the areas where we are aiming to achieve delivery, such as developing new talent, creating well-informed debate about issues around the world, providing alternative views and fresh perspectives. In our Annual Report we have been developing for a number of years now ways to calibrate our delivery to those criteria which I find very useful. We also now as an executive will be presenting a review of our public service delivery to the board on an annual basis as well as a budget process, and then we will together take that to Ofcom for scrutiny as well, so there are greater levels of structure around the delivery overall. Obviously, three months in I am looking carefully at some of the fundamentals. How do we take our overall budget and allocate it between the genres? Which genres are delivering more directly and more indirectly? There are so many variables in this in terms of working with the nations and regions, working with younger and new talent, the balance between current affairs and entertainment. All of these things need to be weighed up and it is difficult without sitting down with us, probably for several days, and watching how we work to give a potted answer to this. I would say that the way we deliver, particularly within the creative community, our appetite to work with new companies, with smaller companies, with regional companies, is an expression of how our version, our flavour, of public service differs from the BBC.

  Q27  Mr Watson: Can I just test you a bit more by playing devil's advocate? You have sort of leapt into a geek future. You have talked about harnessing technological innovation quite a few times but you have not really talked about harnessing the participative culture of the Internet. Are you basically just going to do all TV on new distribution channels?

  Mr Abraham: I think it is more than that. I have been incredibly impressed by, for example, the work that has been done in the health area by Channel 4. There is a very popular programme called Embarrassing Bodies which is on one level—

  Q28  Mr Watson: But you have sort of been dining out on that for a while. You are on the sixth series of that now, are you not?

  Mr Abraham: These things have a lot of enduring impact in terms of the way that the viewer interacts with them, and in fact the production company, Maverick, who have made this show have been commissioned by the National Health Service in Birmingham to run a pilot to encourage people to use this web application as an alternative to going to their GP, so these things are of great interest and I think these are the kinds of things that we will be building on. To go to your point, for me convergence is exciting because right now we are building applications in different silos. We are building web applications, we are doing on-demand services and we have got linear services, so what I understand to be digital in the future is a very powerful moment where these things are available in a connected way. The social networking side that backs up behind our shows as well as using the power of the linear channel to drive interest around certain areas will create new potential and new creative opportunity.

  Q29  Mr Watson: What I find curious is that over the last two or three years Channel 4 has won a staggering number of awards for brilliant video games in the education spec. Do you think you might be winning BAFTAs in years to come for the work you are doing in the video game sector and contribute to that growing market?

  Mr Abraham: I think we would have to focus that effort specifically around delivery of our remit. I would not see us necessarily just going into that as a commercially driven decision.

  Q30  Mr Watson: So in your Annual Report where you talk about the responsibility to produce new digital content you would not specifically think that video games are part of that definition?

  Mr Abraham: It is an area that we are looking at. We have a project which has not yet been developed at all since my arrival which is looking at this area, but, for example, the decision to look at education and say "was the way that we were scheduling our linear education proposition on air, on the main channel, as effective as taking that budget and spending it on line?" I think was a good decision. We have been learning a lot about interacting with younger audiences in new ways, and insofar as expressing those educative purposes through gaming is concerned, if that is a good vehicle then I am all for it, but I think we have to make that decision based on the remit.

  Q31  Mr Watson: If Channel 4 has got any distinctive characteristics now it is because you have captured a generation of adolescents who do things differently. They do not just want to watch TV. They watch it with their laptops sitting next to them.

  Mr Abraham: I think we are in a transitional period in which they are spending time on their laptops and their phones whilst watching TV and I think that is a very important development in behaviour, but we are also keeping our eye on what happens when all those technologies come together in the same viewing experience, which is what convergence offers, but that is going to take some years to come. You are absolutely right: these forms of behaviour that young people are expressing are going to remain very important in the medium term.

  Q32  Mr Watson: It is not just the viewing experience, is it? It is the participative experience which is where you distinguish yourselves.

  Ms Bulford: What might be helpful is the example of the Paralympics which we were very pleased to win the contract for 2012 coverage of just at the turn of the year. A very important part of our description of what we were going to do was not just live streaming of events, which is a big bit of it, but also the way in which we would want to use social media to join people up and to really make it a participative digitally inclusive event, not just focused on younger people but, of course, you are absolutely right: it is that generation that so resonates with our brand, our activity, our education activity that we can bring through in everything we do. The reorganisation which David announced a few weeks ago in terms of bringing the digital commissioning into the heart of all of our commissioning activity is really, I think, a big signal of exactly that sort of culture shift that you are describing, that it is not just linear tele plus; it is how can you think about it across the board—gaming, social media. All those sorts of things are fundamental to it.

  Q33  Mr Watson: So does that mean you are not going to ditch 4iP?

  Mr Abraham: We are going to build on it. We have just had an organisational review in which managing 4iP as a separate silo in the organisation is potentially duplicative going forward, so we are in the process of bringing it into the heart of the organisation. Many of the things that 4iP have done and are doing are very innovative and interesting, but I would like to see us combine forces in a more integrated way. This is also with the grain of the cutting the cloth approach inasmuch as I have had to look at where I felt as the new Chief Executive that there was organisational duplication and address it whilst making sure that the new forms of behaviour were at the very centre of our thinking.

  Q34  Mr Watson: 4iP was never going to make money. Essentially is that where you are making your efficiency gains because the whole idea behind it was that you let a thousand blossoms bloom? You are not going to find any tech ad model for some of the things that 4iP have done, are you?

  Mr Abraham: I am looking at it primarily from the point of view of what is the grain of our editorial priorities and where 4iP ideas can fit within that, which, of course, many of them can, and in terms of the current affairs applications, the health applications, these are all things that are very complementary to what we are doing. Obviously, we have important partnerships regionally on these projects and so there is a lot of really useful learning, but I think it is too early to say precisely where all of those things will land.

  Q35  Jim Sheridan: Could I come to the question of remuneration, particularly in Channel 4 and indeed the whole media industry? We have here a list of some of the salaries for people in Channel 4 and it is quite breathtaking when you see some of the salaries that people are being paid. Even if you compare the job they do to that of the Prime Minister, the general populace have some difficulty understanding why people in the media get paid the kind of money they are getting paid, and you seem to have sidestepped or avoided the current financial difficulties that everybody else is going through. I will take a guess that you will use the standard argument that you need to pay these people the appropriate rewards in order to get the best talents, because that is usually the argument that people have when they get large salaries. The previous Chief Executive was paid £731,000 in lieu of notice and he also received £225,000 for long-term incentives. Incentives in other industries usually mean that if you do not do your job you get the sack. Why do you need to pay somebody £225,000?

  Lord Burns: Remuneration is always, as you rightly say, an extraordinarily difficult issue. Some of the numbers you are looking at and some of the figures that you are quoting do go back and relate to a period when the whole culture sector was in a much healthier economic situation than it is today, but I think Channel 4 on its own is not going to be able to change this. We have to live in the world as we find it. We are publicly owned but we are commercially funded. We have to be able to hire the people that we need to be able to generate the revenue from advertising and also to be able to commission the programmes that we need which that revenue depends upon. We have no ambition to pay more than is necessary to get people to come and work for us rather than for someone else. I think some of the salaries that you quote reflect a period when there was enormous competition and people were being bid from one channel or one company to another. I think it is worth noting that we are now in the process of reducing some of those senior salaries in response to the economic situation. David is being employed on a lower salary than his predecessor. That very much reflects the change in the economic environment and I would expect that the days of those very high salaries are gone for the time being, but I cannot see any circumstance in which we are not going to be recruiting people into the senior positions at salaries rather greater than that which the Prime Minister receives. That is just the commercial reality of life. You pay people not what is necessary to get them out of bed but what is necessary to get them out of bed and come and work for you rather than go and work for somebody else. There is a very delicate balance between earning our commercial living and commissioning programmes which will justify those earnings, having talented people who are able to spot the programmes and develop them as well as, of course, what we have to spend on the programmes themselves. I think we are going through a de-escalation of top media salaries and we are seeing that in Channel 4 as well. I would expect that the job that we are about to fill in terms of Chief Creative Officer will be filled at a considerably lower salary than that of the person who has left.

  Mr Abraham: Obviously the two factors are the actual numbers and then the number of people earning those larger amounts. One of the things I have done since my arrival is to look quite carefully at the number of people in senior management at Channel 4 and recently announced my intention to reduce that by around 25% by the end of the year. Where I can merge departments and reduce the number of people who directly report to me by quite a marked degree I am doing that. I think we do understand the climate in which we are operating and have already made in the last 10 weeks some quite painful decisions involving senior people in our organisation and we do not take those decisions lightly.

  Q36  Jim Sheridan: The 25% figure is similar to what the BBC are hoping to achieve in terms of reducing their senior management's salaries. How do you measure somebody's worth? Do you just measure it against the BBC or "What the BBC pay, we'll pay"?

  Mr Abraham: We go through a variety of different techniques to market test.

  Q37  Jim Sheridan: I am just trying to establish why is somebody worth £785,000, a director of television, or a sales director £513,000. That is grotesque.

  Mr Abraham: These were salaries quoted from the previous—

  Lord Burns: They are salaries quoted from some time ago. Bear in mind the person who is our sales director, his job is to raise £800 million worth of advertising sales. We are in very, very strong competition with ITV and other commercial channels. We need somebody who is doing that job who is at the top of their game and that means that we have to pay in a competitive marketplace. If that is the going rate for people with those sorts of talents, are we going to pay £100,000 less and lose a large part of our revenue?

  Q38  Jim Sheridan: Where are they going to go?

  Lord Burns: These are the decisions that have to be taken. We do not pay anybody any more than is necessary. We seek not to pay anybody any more than is necessary to get them to do the job, to get the person who we think is best suited to do that job.

  Q39  Jim Sheridan: So if you do not pay these high salaries where are these people going to go?

  Mr Abraham: In the commercial space they would go to Sky, they would go to ITV, they would go to the American broadcasters. When we are in the business of raising our own revenue we are competing in a slightly different pool from the BBC. I have often lost talent that I have been seeking to employ because I have to acknowledge that it is not possible to meet the competitive salaries that other players are prepared to pay, and that happens regularly. I think it is important to distinguish on these points. Scheduling a commercial channel that is delivering commercial impacts in a commercially competitive environment is different from the BBC. Our self-help model requires us to be effective and accountable at that in order to deliver the remit. This is what makes working at Channel 4 challenging but very rewarding because we have to go out there and earn our keep. Hopefully we are doing that in a very keen and competitive way.

  Q40  Jim Sheridan: The last time you appeared before the Committee you suggested that less than 10% of your employees were earning in excess of £100,000. What is that figure now?

  Mr Abraham: We have been working to reduce that. I think when the last figures were quoted at the beginning of last year they were around 90 people and now that has been reduced down to around 70 people, so the direction of travel is significantly lower. We will continue to work at that. We are not complacent on this point at all.

  Q41  Chair: Can I look specifically at Andy Duncan? Andy came before this Committee in May last year and told us that he had no intention of leaving and six months later he had resigned. Why does somebody who resigns acquire £731,000 in lieu of notice?

  Lord Burns: I was not at Channel 4 at the time that those decisions were taken so I am not in a position to be able to explain it. What I do know is that he received his contractual entitlements and no more.

  Q42  Chair: I do not see how he could have had a contractual entitlement to £731,000 in lieu of notice when he resigns.

  Lord Burns: I do not know the details of how it was that he came to leave Channel 4 but I have been assured that the circumstances in which he left meant that he was entitled to pay in lieu of notice.

  Q43  Chair: Anne, you were there at the time. Was this a contractual obligation that you had to pay?

  Ms Bulford: Andy Duncan did not work through his notice period, he left partway through that term and was paid in lieu of notice in accordance with his contractual entitlement.

  Q44  Chair: You were legally obliged to pay him £731,000?

  Ms Bulford: Under the terms of his contract.

  Q45  Paul Farrelly: Did he choose to go halfway through or was he forced to go?

  Ms Bulford: He left partway through his notice period and his contractual entitlement was paid out. I was not party to the discussions about the timing when he left. That was how it worked through and then there was an interim period where I acted before David came along.

  Q46  Jim Sheridan: Under your stewardship, Lord Burns, do you envisage that happening again?

  Lord Burns: I believe that you have to pay people their contractual entitlement. The circumstances under which people leave, as you know, are often very complicated.

  Q47  Jim Sheridan: Some of us leave with very few packages.

  Lord Burns: If you take a situation where someone leaves in order to go to do another job then clearly you pay them up to the point at which they are allowed to move but you do not pay them any more than that. The process by which you decide and come to an agreement that it is in the interests of everybody concerned that somebody should leave very often puts you in a position whereby you have a contractual entitlement to pay them their notice period. There are plenty of legal precedents for this and cases go through the courts on a regular basis. I can say quite clearly that nobody has any incentive to pay people more than we have to. In the various worlds in which I work these are conversations which go on fairly regularly. How they are then described afterwards is very often itself a part of that—

  Q48  Chair: Is not the explanation essentially that Andy Duncan's departure was not entirely voluntary?

  Lord Burns: It was clearly felt by those involved that the nature of his departure warranted paying out his notice period and that was his entitlement. That is all I can say. I was not there, Chairman. I was not party to those discussions. I have no way of knowing that other than I have sought assurance that this was considered to be something to which he was contractually entitled and the answer was yes.

  Q49  Dr Coffey: I would like to follow on that line just to ask if current and future contracts are going to be kept to the 12-month limit as is common in plcs. What I really want to ask is what percentile do you aim to pay and what do you actually pay? How does that vary between executive level and lower down the organisation?

  Lord Burns: As far as at the top is concerned, I have only had one case so far which was when I recruited David as Chief Executive.

  Mr Abraham: I was recruited without a long-term incentive package (LTIP), which of course has boosted some of these numbers. There has been a correction in salary and there has been the removal of LTIP so there has been quite a significant correction in the benchmarks that have been used so far. I will continue to cascade that down as I hire senior people. I can guarantee that we will not be hiring the senior programming executive at the same level as the individual who has occupied that role until recently.

  Lord Burns: There are a relatively small number of players. We are paying David more than he was earning in his previous role, but if you compare it with the chief executive of ITV and the chief executives of the other commercial broadcasters I think you will see that it is significantly lower. You cannot say percentiles because we are dealing here with really quite small numbers of people when you are talking about the very senior roles.

  Q50  Dr Coffey: So lower down the organisation?

  Lord Burns: Yes.

  Ms Bulford: In terms of the staff we participate in a number of benchmarking arrangements across not only broadcasters but also major independent production companies and relevant companies in comparable sectors. We aim to pay at or around median across the board taking into account ancillary benefits where that is important. For example, in some of our major commercial competitors share options and things like that would be available whereas clearly that is not appropriate for a state-owned broadcaster. That is our broad approach. Then we undertake an exercise pretty much annually to look at outliers from some of these medians and understand why that is. For example, at different points we have had a richer mix of IT staff working for us on some of our software projects and we have sought to understand that. Our structure as a publisher/broadcaster means that in contrast to either ITV or the BBC we do not have large numbers of people engaged at the less experienced levels of either production or facilities management, so we have a more concentrated group of people who are engaged in that commissioning activity. We employ a higher proportion relative to our overall staff base of senior people working on, for example, legal contracting.

  Mr Abraham: We also do all of our on-air creative work ourselves in-house which economically is very effective, but again we are competing with the creative talent from the advertising industry and other industries there. We seek to offer a working environment, a creative environment, which is incentivising to creative people which mitigates the fact that we cannot offer the top salaries. Again, we look at that in the round and overall it is very effective for us to have that in-house rather than to outsource it and add the expense line elsewhere.

  Q51  Dr Coffey: You were explaining earlier how the sales director is bringing in £800 million. Of particularly the executive board how much of the remuneration is guaranteed and how much is bonus, percentage wise?

  Lord Burns: Of the executive board it is generally 30% and in David's case it is 50%. It is variable. There is a potential of up to that. I realise the whole issue of bonuses generates quite a lot of concern in some parts but I do not tend to think of them as bonuses.

  Q52  Dr Coffey: It is variable pay, is it?

  Lord Burns: It is variable.

  Q53  Dr Coffey: The higher up the organisation you would expect to have a lot higher variable element?

  Lord Burns: Yes. For the executive directors it is a 30% potential and in the case of the chief executive under the new arrangements it is a 50% potential.

  Mr Abraham: We compete in the open market for sales executives and it is the case, when I can, that the potential for bonus in our sales team is kept lower than the limits that I understand exist elsewhere. We tend to attract individuals who are committed to the principles of what Channel 4 can offer and want to be part of it. As the Chairman has said, we are seeking to create the right trade-off between that attraction and being reasonably competitive but never paying top dollar.

  Q54  Mr Sanders: Our predecessors concluded that there was a lack of transparency on the finances of your individual digital channels and we asked for figures because it was difficult to get figures further down in the different channels. Will you now commit to greater transparency in future annual reports?

  Lord Burns: I will make a general comment on this and Anne will say some more. I was surprised to see the challenge in the report about transparency as it certainly does not feel like that to me. It feels that we are very transparent in all of our dealings. When it comes to the particular issue of the breakdown by individual channels I would hazard a guess that the only people who are interested in this information, apart from this Committee, are our competitors who would like to find out more about our advertising performance with regard to different channels, and our programme budgets with regard to different channels, and who wish to put themselves into a competitive advantage with regard to ourselves. The one area that we have to be extremely careful about is putting us into a position where we are disadvantaged relative to other people in areas where we are competing very strongly. There are large sums that are at stake in doing that. I think it would be entirely wrong—I would put it as strong as that—to start giving more information about our income generation by channel than any other broadcaster who is reliant upon commercial income does. I also think that you have got to take into account the very special circumstances whereby we outsource all of our programming. Our programming is all commissioned. We have to have negotiations every day in life with people who are making programmes for us. If we are to get the best value that we can for viewers we have to do some of that in a position where we are not giving everybody all of the information that they need in order to get their best deal. The only reason why we have any hesitation about this, and why we believe very strongly that this would be a very damaging route to go down, is because we want to protect the financial position of the channel with regard to our competitors and the people that we are working with. Apart from that I have no issues about transparency. There is nothing to hide other than from those people that we are competing with. When you buy the package that says we are a commercial funded organisation and that we are commissioning outside all of our programmes, it seems to me that one has got to accept some of the commercial confidentialities that then go with that model.

  Mr Abraham: Indeed there are certain contracts that have non-disclosure elements to them where we would have to redact information anyway. There are some very specific reasons why we need to protect agreements towards confidentiality across our business.

  Q55  Mr Sanders: I do not see that it is commercially sensitive if you are able to break down how the costs are allocated between the core channel and the digital channels. You publish the actual breakdown of profit.

  Ms Bulford: In notes one and two to the financial statement there is segment reporting in equivalent format to the format that we published last year. That is divided into five separate segments: Channel 4, the digital channels, 4Rights, our DVD and consumer products business and our online future media business. Those five segments do exactly what you suggest in separating allocation of costs between the core channel and the digital channels. What they do not do is then go down to a further level and separate the channels into those individual ones, E4, Film4 and More4, which is wholly consistent with the approach adopted by our commercial competitors and in particular ITV. Indeed, in operating with five segments, even though we are a much smaller business, we disclose two more segments than our competitors at ITV.

  Q56  Mr Sanders: On the one hand you look at the BBC and use the BBC as a benchmark for a lot of things that you do, where all costs are broken down, but how can anybody hold you to account for that decision unless we are able to break those costs down within Channel 4?

  Ms Bulford: The public information that is published in the financial statement splits between the core channel and digital channels. In terms of the specific issue around cost allocation, the allocation of cost between the core channel and our commercial activities is governed by Schedule 9, which is set out in the Broadcasting Act. We are required under the Act to work out how we are going to do it, and to disclose, the process to our regulator, Ofcom, and then the process by which our costs are allocated is dealt with under those arrangements, is audited annually by in this case Deloitte, who are independently appointed, and they produce an independent report which is printed in the document in front of you and also have a discussion with Ofcom about it. In terms of the allocation of costs between channels there is very considerable regulation around that and we are held wholly accountable through the process which is set out in Schedule 9. I do not think it is the case that we are not subject to due process and regulation over that.

  Q57  David Cairns: I just draw attention to my registered interest having just spent a placement with Channel 4 through the Industry and Parliament Trust, and thank you for hosting me. I want to talk about what your Annual Report refers to as supporting creativity across the UK, by which is meant the amount of programmes which are commissioned outside the M25. According to your Report, from a budget of about £341 million for originated UK programming you commission about £117 million outside the M25, which by my arithmetic is just over 30% which is the minimum requirement as set out in your licence obligation. Given what you said, Lord Burns, in reply to a question from Paul Farrelly earlier, and I think you said, "we have ambitions far above the minimum required of us by the regulator", in this area your ambitions are not that far above the minimum required by the regulator and historically have been almost entirely at the minimum required by the regulator. Do you have plans to change this?

  Mr Abraham: There are two aspects to this question. The stats suggest that we increased our delivery, in terms of spend, against regional quotas from 32% to 37% in 2009. The stats suggest that we are working above the minimum and continuing to work at that. I have taken a number of steps since my arrival at understanding this issue. We held our very first Board Meeting in Wales where we met with all of the local production companies there and I shall be up in Scotland during the Edinburgh Festival season talking to producers there as well. Under Stuart Cosgrove's leadership we take very seriously our role in facilitating an escalator of talent development in the regions and in the nations. We obviously have one of our biggest shows on air, Hollyoaks, produced in Liverpool and we are very proud of the fact that we work with a greater number of regional smaller independent producers than most of our competitors, if not all of them until perhaps very recently given the cuts that we have made that we are now being able to readdress. For us it is as much to do with creating talent bases and working with new producers and other commissioners to create the local ecosystems that develop these new companies and I think if you go back through the history of Channel 4 there is a good record of that. Again, we are also working with an industry that is consolidating where some of the qualifications of producers that were completely independent are changing and becoming part of bigger consolidated groups. There are a number of different issues here we are trying to manage. For example, in the five o'clock aspects of our schedule we have been struggling in the last year. We have been trying to find new shows that work. There was a very big show called Iron Chef that we tried, and unfortunately it was not successful, but we made an overt decision to take that production to Scotland. Had the show worked, and this is creative experimentation, that would have put in base a very long running franchise there just as we have in Bristol with Skins and as we have done with Hollyoaks with Lime in Liverpool. We are not complacent on the point and we will continue to work hard to improve this. The whole issue of diversity and regionality is one that is at the very centre of delivering to our remit.

  Ms Bulford: We take it very seriously. It has been a well-known difficult structural issue because so much of other broadcasters' programming from outside of London has been from their in-house base and we work very hard to bring on new companies and new talent. Through the course of 2009 we worked with something like 100 different companies outside of London across not only television but also some of the emerging digital agencies and some of the games companies that Mr Watson was speaking about earlier. We consistently put money and resource into not only developing ideas but helping new companies to establish. I think what is encouraging is in 2009 we had the new quotas, as you know, moving up from 35% and our regional production spend increased to 37% and our hours were higher, up to 45%, which is good, and we are on track at the moment to exceed those quotas in 2010. Also, the specific new quotas that we had for the nations we met in 2009 and we are on track to meet or exceed those in 2010.

  Q58  David Cairns: Could you remind us what they are?

  Ms Bulford: The quota is 3% of network spend on originated programming coming from the nations, which we expect to reach.

  Q59  David Cairns: That is 3% out of a population share of 15%.

  Ms Bulford: I understand that. We would like to do more and we continue to invest in new companies and to work with producers there. The other sorts of things that we have been doing are ring-fencing parts of some of our returning strands for production companies based outside London and in the regions.

  Mr Abraham: I draw attention to the fact that one of Film4's next productions is The Eagle of the Ninth, which is Kevin Macdonald's next movie based on a popular children's book and there is obviously strong regional representation there, and Neds, which is a Peter Mullan movie. Film4 also is working hard in Wales and Scotland to get behind regional voices, regional writers, and co-produce with regional funds as well.

  Q60  David Cairns: I know Stuart Cosgrove very well, I spent time with him in Glasgow and in Bristol and I spent time with 4iP in the West Midlands, so I am aware of what is going on. If you have a target of 35% for a population of in excess of 80% and a nations' target of 3% for a population of 15% there is a gap between your aspirations and something that is more broadly reflective of where people live, albeit an aspect of the population of where independent production companies are would not exactly mirror that, nonetheless there are big independent production sectors in Salford, Glasgow, Cardiff, the West Midlands and Bristol. Would you consider doing what the BBC are doing, which is to move commissioners out of Horseferry Road to be based in some of these places on the understanding that the talent follows the money and wherever these people are based they might actually stimulate more business?

  Mr Abraham: I am not aware of whether that has been looked at from a cost or feasibility point of view, but it is certainly something that I will look. This is a complex area because so much talent is very mobile, particularly in the production sector. One of Stuart's great skills is to match make creative people from the regions in the appropriate way and quite often someone who is very new in order to realise their idea may be well advised to be housed within a more established company that may have different status in terms of being part of a bigger group and then automatically not qualifying. We have always got to balance off the effectiveness of delivering to the idea and the remit with the issue of nations and regions. It is a difficult trade-off.

  Q61  David Cairns: I accept that. I am delighted that you have said that you will examine the possibility of relocating commissioners. I think that is very important.

  Mr Abraham: What I said is I have not been aware of any assessment of that and I will ask whether that has ever taken place. Obviously I do not have a view on it at this point without that information.

  Q62  David Cairns: I would be interested to hear your assessment of it. If the answer is not moving commissioners, is the answer more challenging targets? The 3% target is low. The 35% target, whilst better than 30%, is still low. Would you consider increasing your targets for production outside the M25?

  Mr Abraham: Again, I think it is something that three months in I probably need a little bit of time to give you a more informed response, to be honest. I have spent some time in the regions, not as much as I would have liked to yet, but I can give you my commitment that when I sit here in a year's time I will give you a fuller assessment of this. I have been hugely impressed by the traditions of Channel 4 to push big creative decisions into the regions which create microclimates of talent and which has real momentum. In addition to which, the way in which onscreen talent is hunted out and the many good examples of actors, like James McAvoy who appeared in Shameless, who became Hollywood stars and the history of Channel 4 in providing this talent escalator in the film area and drama and entertainment area is second to none. We continue to look at this in a very committed way. If you would allow me to spend a bit more time to review it I look forward to following up with you.

  Q63  Mr Sanders: On Ofcom's obligations you exceed the compliance for audio description by a little, which you should be congratulated for, but what is to stop you exceeding it by a great deal? Is there anything that Government could do to help?

  Ms Bulford: As you will be aware, partway through this year one of the things we looked at was how we could move to increase access services across the piece and to bring our overall shares of subtitling and audio description up. It is something that has made a big difference by putting more investment into that. There are issues with audio description particularly in relation to live events in terms of keeping up with it and making that work well. It is something we are grappling with in the planning for the Paralympics as to how best to set about that. We regard it as something that is tremendously important. Access services across the piece are very, very valued by many sectors of our audience and we would welcome any further discussion about other things that could be done to advance that. I am not aware of any particular barrier around what we do at the moment, it is more about where we best prioritise the funds that we have in that area. We have moved it on quite a lot bringing up the proportions of subtitling that we are putting through to have everything we are putting out subtitled.

  Q64  Mr Sanders: Audio description is something that you could work with others on. For example, if you are showing a film with somebody audio describing that film, that film could be shown on the television.

  Ms Bulford: It is one of the things that we are very open to, particularly with things like films, how best to, if you like, inherit across from the studios some of the investment that has already been put in. It is something we are looking at all the time and would welcome other ideas.

  Q65  Mr Sanders: What about in your commissioning of foreign produced material, do you have any discussions there?

  Ms Bulford: We would if we were a co-production partner. If it is a Film4 production and we have some money in at the front then we are in a better position to have those sorts of discussions. If we are buying from US studios we are quite a long way down the chain of influence.

  Q66  Mr Sanders: If broadcasters were prepared to pay more for products that came with audio description would that not have an impact on the market?

  Ms Bulford: There is a balance to be struck in terms of where it is most efficient and most cost-effective to do it. On the whole we are looking to put those access services across as much of our programming as possible. You are absolutely right, it is something that we are very open to working with others on and finding practical ways through so the sum of everyone's investment is as accessible as possible to our audiences. We are very committed to it and regard it as something very important.

  Q67  Mr Watson: Could I quickly ask you how you intend to fulfil the new role for older children and young adults and what your plans are? I realise you are only three months in.

  Mr Abraham: We talked a bit earlier about the direction of funding into education online and I think that is a very important aspect. Obviously there is something in the remit now that is more explicitly in the area of this specific demographic. I look at this in two ways. One, to what degree does our main schedule speak to this group. I think at the higher end of 10-15 shows like Hollyoaks that regularly have public service initiatives built into them are very, very important. The sex education series that we had a couple of weeks ago was very successful again at the higher end of the demographic. I note that in the Committee there has been debate around specific commitments to the group and there are currently pilots ongoing and I am still very much in the catching up phase on the half a million pounds that has been allocated in addition to the 4.5 million pounds that has been committed into the education sector. Clearly there is more to be done here, but it also has to be acknowledged that certainly until very recently Channel 4 was coping with some very severe cuts in investment onscreen, so I think some of the ambition that had been there with the previous executive and this group in this area have taken longer to develop and we need to acknowledge that.

  Q68  Mr Watson: That would be using the pilot you did in 2008. I think you set up an innovation fund.

  Mr Abraham: Some of that money was then frozen and was a victim of the cuts that we made. In looking at putting money back in now we are reviewing the degree to which that can flow back having also addressed the issues on the main part of the schedule.

  Mr Watson: Excellent. So when you move your commissioners to the West Midlands, as David has got you to concede—

  David Cairns: Or Scotland!

  Mr Watson: Thank you very much.

  Q69  Alan Keen: We have talked a lot about staffing costs. Is there very much left in operational costs to make savings? What is the percentage?

  Mr Abraham: There was a very significant headcount reduction at Channel 4 that occurred before I arrived in 2009, you will remember. I think the staffing went down from just below a thousand to around 700 where it now sits.

  Ms Bulford: Yes, that is right.

  Mr Abraham: My view upon my arrival was that in terms of the troops that things had been cut down very significantly and the area I needed to look at, as we touched on earlier, was the scale of management and the volume of management at the top end of the organisation. I have looked at that and set some objectives there and we are beginning to implement those. It really is then about looking at the adjacencies between departments: can we work more efficiently. At the end of the day, to speak to the earlier point of innovation, I would predict if I went back to the board in a few months' time with my strategic plan and it required significant amounts of new and extra investment it is going to be a challenging time to ask for that, so I need to go back with the leanest possible organisation that can deliver more capacity for innovation. Where there are adjacencies, where there is duplication between departments, that has been my main are of focus. At the end of the day we believe convergence is about joining up these different platforms and getting the creative teams to work in a completely joined-up and holistic way, so any departmentalism, any silos, is really where our focus has been to date. Beyond that, I would have to say that if we were to cut any deeper I think it would really impinge upon our ability to deliver the schedules and the high quality content that you would expect from us.

  Q70  Alan Keen: Obviously revenue is crucial to the whole issue. You would not have any problems if the revenue was going to increase. You have already explained that the advertising industry is very complex, so an increase in the economic activity nationally is not necessarily going to bring the same percentage increase to you. As we have got Lord Burns here, given his other hat, it would be a shame to have you here without asking for your comment on the current and future economic situation. Were you surprised by the higher increase in activity announced last week? Do you think that the economy is going to suffer from the speed at which the cuts that are being made? These questions are all in relation to Channel 4's prospects.

  Lord Burns: First of all, as far as the advertising market is concerned it has been stronger throughout this year than was expected when I arrived back in December/January. Indeed, as I have been debating with myself about what the economic outlook this is one of those straws in the wind that was actually quite positive about how things were developing. We had a huge drop in output that took place at the height of the crisis. The economy has now been picking up for two or three quarters. It has gone in a slightly uneven fashion. At some stage there will probably be some small setbacks and it is possible that it will be a relatively slow pick-up compared to other cycles. The real pressure is coming not so much from cuts in public expenditure or increases in taxation, but remain financial pressures within the banking system and the demands that are now being made in terms of increased liquidity, increased capital, et cetera, with the aim of trying to ensure this does not happen again. That is all going to put some restraint on the economy and that is why we remain very cautious about what is happening to our advertising revenue despite the fact that we have had a much better time in the first half of the year than we expected. In terms of our planning, I think the central scenario is to think that we will get recovery but that it will not be exciting and will remain reasonably modest. I would hope that we will keep the gains that we have had in the last few months but we are not counting on the extent of those gains continuing. It has been welcome. It has meant that we have been able to put some more money back into programming. There is no doubt that during the recession, as well as cutting the staff in Channel 4 there were also quite substantial cutbacks in the programming budget in order to create breakeven and we can see some of the effects of that in the schedules and in our audiences. Going back to the previous question that David was talking about, our priority now is to try and get some money back into programming so that we can refresh some parts of the schedules that suffered.

  Mr Abraham: For example, on Sunday night we had a very good show about an orchestra working in a community and then we had an interesting programme about an Amish family coming to a community in the south east of London. Those were primetime premier shows on a Sunday night that we have probably not seen the like of for some time. We are being able to reinvest back in at the weekends and at the 11 o'clock slot as well, which has been very much a slot of repeats, we are starting to reinvest. We are pleased to be able to offer to advertisers at a critical time a strong schedule for the fourth quarter and going into first quarter. Of course, with the known demise of Big Brother they are expecting to see that happening. We are working very hard in the engine room at Channel 4 to make sure that those new ideas take root and advertisers will come with us and commit to the Channel for 2011.

  Lord Burns: We continue to take a cautious approach to our income, although what we have seen so far has been very welcome. It is consistent with having seen some significant pickup in economic activity during this period, but we do need to remain cautious.

  Q71  Alan Keen: You have also talked a lot this morning about competition for talent. It would be helpful, as we have got you here, if you could tell us how you see the television industry as a whole developing and how that is going to affect the competition? There are many changes we can see taking place. Can you give us a quick overview of how you see it?

  Lord Burns: My first remark would be that the popularity of television remains enormously strong. When one looks at newspapers and books, et cetera, that have come under threat from other kinds of media, the extent to which television continues to maintain its audiences is striking. Part of it is because the product that we get is outstanding. I think part of it is because of the constant technical improvements in television: big screens, high definition, better sound, flat screens. I remain quite optimistic about that. We are going to go through the next stage, which David described earlier, about the interaction of that with Internet and the whole catch-up TV and being able to watch a much greater spread of programmes on demand. Within that, it does remain hugely competitive. The commercial sector has had a very difficult time during the recession and it has been competing with the BBC which has not seen its income suffer in the same way that the commercial sector has. I think you can see that reflected in some of the audience figures. We are both competing for audiences and in particular we are competing with commercial channels in terms of the share of the commercial income. I am reassured by the strength of the underlying health of television, and the demand for good quality television, and that whole world that we describe as public service broadcasting remains something where there is also great support both by you and opinion formers. We are not in a bad space as far as television is concerned and with our adaptability and fleetness of foot in terms of working with the new technology, trying to make sure that we do keep a prominent role.

  Mr Abraham: On the point of talent, obviously in our remit is the development of new talent, so in our autumn schedules we are bringing on to the screen new comedians, new formats, new ways of presenting things, some of them in the area of blending entertainment and current affairs, satire. Some of you may have seen that we had a very successful night on the election night, an alternative election night, absolutely bang-on for Channel 4 offering alternatives.

  Lord Burns: This committee may not have been the target audience for that programme!

  Mr Abraham: It was a very successful show. We beat ITV in the ratings that night. For me, the thing about talent is if there is an escalation in the cost of talent, as occurred in the previous cycle, that can absolutely be addressed by our recommitment to finding new talent and developing it. Channel 4 often does that at the expense of its own situation because the talent moves on to bigger broadcasters in the future, but that is part of the cycle. We would like to be judged by our ability to keep doing that.

  Q72  Alan Keen: I have a great nostalgia for sitting at home, falling asleep and waking up as the results come in. Obviously I am not going to have the pleasure of doing that for a while.

  Mr Abraham: You would not have done that if you had watched our show!

  Q73  Damian Collins: Going back to the BBC, do you think that the purchasing power of the BBC for talent both onscreen and off-screen has a distorting effect on the UK TV market?

  Lord Burns: Severe recessions have always created problems in this respect because inevitably, given the way the BBC is financed, it means that its income is not subject to the same cyclical effects as the commercial channels. In those periods when you get a severe advertising downturn it does become pretty tough. The whole issue of how the BBC should be funded and the long-term issues about the licence fee, I do not think are an issue for me in my present role. I have been involved in that in the past and spent quite a lot of time on it. I am a huge admirer of the BBC and so much of what it does. Now that I find myself in competition with them I can also feel the sharpness of the elbows and the weight of that competition. As I say, it particularly bites during the kind of economic environment that we have had over the past two or three years.

  Q74  Damian Collins: I suppose the second point I was driving at, without wishing to tempt you into commenting on the licence fee, was what do you have to factor in in terms of what you are going to have to pay for on and off-screen talent is what people might be paid by the BBC and is that one of the biggest factors in considering the level you have to pay?

  Lord Burns: It is an important factor but there are other channels too that we have to take into account. We welcome, of course, some of the things that are now being discussed by the Trust in terms of trying to rebalance some of the activities in the BBC so that in some areas they do not compete with the commercial channels in quite the head-on way in which they sometimes appear to do.

  Mr Abraham: Their ability to invest in technological solutions is of benefit of the whole industry. We are partnering with the BBC on the Canvas Initiative and with the ISPs and many other broadcasters as well. That, combined with our UK TV partnership, probably heralds a slightly new era in terms of how we, as public service broadcasters, understand our distinguishing features but partner where it makes commercial and practical sense for us.

  Q75  Dr Coffey: In terms of the operational costs element, I am sure you want to try and achieve a higher percentage of profits to revenue than you are currently doing and you have committed you will not go into deficit. I am not quite sure what your first six months are like for revenue increase, but if it is not going in the way you want it to it does suggest how you are going to be looking at your costs for the rest of this financial year. One of the things that I have particularly noticed is that property costs, onerous leases, impairment of Horseferry, are biting into your profitability. Could you tell me a little bit more about how much of your costs are tied up in property, what utilisation you are getting of buildings and how often are you revaluing your property? I recognise there are accounting rules to follow, but if you are doing it every year and then in and out of the accounts that is not very helpful either.

  Lord Burns: Before Anne answers that, which she will do very fully, I am sure, the first point you were implying was that things had not turned out quite as we had hoped.

  Q76  Dr Coffey: That is what I am trying to understand.

  Lord Burns: In the first half of this year our revenue has been stronger than we anticipated and we have been putting some money back into—

  Q77  Dr Coffey: Roughly how much have you grown year-on-year thus far?

  Mr Abraham: We announced in the last few days that we have been able to put £50 million back into the schedules just this year. That is versus budget. The budget obviously was down on 2009. Effectively our programming spending in 2010 is now flat with 2009.

  Q78  Dr Coffey: So you cannot share what revenue growth you have had year-on-year thus far?

  Mr Abraham: Not the revenue growth. We can share the expenditure that is visible on the schedules. Remember, this is against a budget where we assumed at the beginning of the year that the market would be down potentially a couple of points. On a previous year it was down 12 points. We are now up, the whole market is up, and we are able to start reinvesting back.

  Q79  Dr Coffey: So you are up?

  Ms Bulford: There is a range of industry estimates as to how far up the end of the year will come and the fourth quarter will make a huge difference. There is a sort of consensus at the moment somewhere 6% and 10% in terms of overall revenue up year-on-year. How that will finally work its way through remains to be seen. In terms of our share of that revenue we are very much on target to broadly hold where we are.

  Q80  Dr Coffey: The property cost is really the major cost.

  Ms Bulford: There are two groups of property cost which are biting on these accounts. On Horseferry Road, which is a freehold building, because we fall under the whole of government accounts process we are required to revalue that each year. The property values in the Westminster area, as everyone around the table will know, are very volatile. Insofar as the value of the property is below historic depreciated cost, which was where it was last year at this very low point in the cycle, we are required under the accounting rules to take that write off the profit and loss account, and we are doing that annually.

  Q81  Dr Coffey: So you have to do that annually?

  Ms Bulford: We have to do that. In terms of the utilisation of Horseferry Road, it is full to the gunnels. In the last number of weeks we have completed the outsource of our transmission facilities to Red Bee Media at White City which releases some space on the lower ground floor and we now move into a project to take that space, and turn it into offices which will enable us to complete the release of the second building we have in that area under a lease, which is a building called Francis House, where we had three floors in that building and have made provision for subletting those. When we took the headcount down we could consolidate into one building, which was our plan, and we are on track to do that. Since the year-end I am pleased to report that we have managed to sublet those two floors, so we are in pretty good shape on it. The onerous leasing provisions on that, again, are as required under the accounting rules and take account of rental holiday periods and all the rest of it.

  Q82  Dr Coffey: So you are not leasing anywhere really outside of Horseferry Road now?

  Ms Bulford: We have some small offices in Manchester and in Glasgow. We have a sales activity in Manchester and we have offices in Scotland on leases. Then we have some very old leases dating back many years around the Charlotte Street area before Channel 4 relocated to Horseferry Road which is sublet and full provision against that has been in the accounts for some years.

  Q83  David Cairns: There is lots of space in the Glasgow office, Chairman!

  Ms Bulford: That is not unique to Channel 4 either.

  Q84  Paul Farrelly: I just wanted to pick up a thread on costs very briefly. There is a world of difference between setting an example if it is felt needed on top executive pay and joining the competitive race in the way the Department has to put people out on the streets. They are two entirely different issues. David, I was very comforted to hear that you talked about the potential impact of deep cost cutting on fulfilling your remit and in particular public service broadcasting in that respect. Dispatches for you is not just a programme that is bought in, you employ a former colleague of mine, Anthony Barnett, for presumably very good internal editorial reasons, so it involves a staff member. Presumably there will be other areas where you cannot fulfil your remit as effectively as possible without actually employing people as well as buying in programmes. I will finish that statement with a question. In this environment of cost cutting, what are your plans for current affairs television, news and the like of Dispatches for the future? Do you intend to invest more in that strand?

  Mr Abraham: As I think I mentioned earlier, we regard the Channel 4 News and current affairs strands as at the absolute epicentre of the delivery of our public service remit. Within the organisation and to the team at ITN I have expressed my personal commitment and passion for what it is that they do. It provides an important element of plurality in news provision in the UK for the UK viewer. I think that the nature, makeup, quality and distinctiveness of their journalism is really important for this country. It is really the bedrock for the DNA of Channel 4. You are right, it has had to bear some of the pressure in the cost cutting period. More4 News had to be foregone. What we have been focusing on with Dispatches is a debate, which I think is a useful one, about volume versus impact. One of the things that is happening right now is investigative pieces with real impact. We saw the very strong piece about the witch children earlier in the week. Those pieces take longer to prepare, they have a lot of impact and they create a lot of discussion. Insofar as we can do more that has that kind of scale then I know our Head of News and Current Affairs, Dorothy Byrne, is very committed to that. We have not yet got to the point of being able to allocate any of the increased budget specifically into genres, but rest assured that the current affairs team and what they do are very front and centre of our thinking.

  Q85  Jim Sheridan: In relation to the headcount reduction that you referred to a lot of very talented people probably left the company. Were they offered any incentives to go, long-term or otherwise?

  Ms Bulford: People who left the company were paid redundancy on terms which have become established over time at Channel 4 which consist of—

  Q86  Jim Sheridan: Enhanced redundancy?

  Ms Bulford: Enhanced redundancy, yes. They were also offered a range of assistance in terms of finding new employment. Absolutely enhanced redundancy, yes.

  Q87  Mr Watson: A quick question on current affairs. If you return to surplus and it is steady is one of the things you are considering bringing back the lunchtime bulletin because you cut that in the cutbacks as well, I think?

  Mr Abraham: Again, it is one of those things that I am still reviewing insofar as what is the return on the investment given the reach of that particular slot. One of the things I would commend Dorothy and her team for in the last few months is that they have really developed the online proposition around the Channel 4 News and the social networking aspect of it and linking into some of the 4iP innovations as well. Insofar as there are incremental investments I am very interested to see what the potential of news provision is in an era of greater convergence. Again, in a year's time we will all be sitting here and probably seeing the launch of the Canvas platform and that is an opportunity for the Freeview platform upon which we rely for our distribution in the free-to-air space to be enhanced technologically. With that comes immensely exciting opportunities with regard to how certain genres are served to our audiences, and I think news and current affairs is going to be very much at the forefront of those opportunities.

  Q88  David Cairns: £50 million extra for the programming budget is obviously great news, but any more dosh for Film4? They do a terrific job. Their budget was cut along with all the other cuts and I know some more money been put back into it. Now it is in the remit can we look forward to seeing the budget growing?

  Mr Abraham: It was fantastic news that almost in my first week, if not on my first day, I had the opportunity of attending a Film4 event before Cannes and breaking the news that we were able to put the two million pounds back into the budget to take it back to 10 where it has been historically. We remain very committed to protecting those funds. Film4 works, as you know, in a very unique way. It is at the very upstream end of idea development of unique British writers and filmmakers. Effectively it is a form of IP funding because we do require match funding for almost all of those movies, particularly those that are above the absolute smallest of budgets, and very often partnered with the US major studios. Again, under review in terms of how we get the maximum creative return on investment. It is wonderful that in Tessa Ross and her team we have a team of people who are hugely respected in their ability to develop relationships with up and coming talent and back the right kinds of projects and, equally importantly, nurture their ideas and help to bring them to fruition. When the Film4 stamp goes on a project other funding partners around the world pay attention. That is certainly something that I would be very passionate about protecting and building on.

  Q89  Philip Davies: 55% of your employees are women and 12% are from ethnic minorities, which compares with 8% of the public at large. Do you have a target for how many women and ethnic minorities you think should be working for Channel 4?

  Ms Bulford: We do not have a target in relation to women because the gender balance across the channel is in balance and that works well. In terms of ethnicity, because we are based in Central London we would expect to see our ethnicity at a higher level than the general population at large. In particular at higher, more senior levels of staff across the channel we want to see the proportion of people from BME (Black Minority Ethnic) background in particular increase and have been working hard on that.

  Q90  Philip Davies: Increase to what?

  Ms Bulford: I would have to look for that. I have that.

  Mr Abraham: This is a process. We have recently established a monitoring system for recruitment. Representation of ethnic minorities amongst the permanent staff is currently 12% and in 2008 it was 11%, so it has gone up very slightly. The skill set figure for the audio visual sector as a whole is 6.7% on the 2009 census. Representation of those with disabilities amongst permanent staff is currently around 1%, so that is obviously low, and we will be addressing that both on and off the screen with our major initiative around the Paralympics. In the last three years we have trained over 120 people from BME or disabled backgrounds.

  Q91  Philip Davies: I have read all that in the report. What I am getting at is that you are a national broadcaster, you are not a London broadcaster. Your proportion of staff from ethnic minorities is 12% against the national figure of around 8%, so nobody could criticise Channel 4, it seems to me, for being under-represented amongst ethnic minorities, yet in your report you talk about Channel 4 offering bursaries to African, Caribbean, Bangladeshi and Pakistani students on a City University diploma. Was that open only to people who were African, Caribbean, Bangladeshi and Pakistani? Are those bursaries available to nobody else?

  Mr Abraham: I would need to check the detail on that and come back to you.

  Q92  Philip Davies: If you could let me know. Do you think it is appropriate for a national broadcaster with the figures that I have just quoted? If they were open only to those people do you think that would be appropriate? Do you not think that these things should be open to everybody based on merit and ability and inclination?

  Mr Abraham: I am quite certain that those criteria were used. We would certainly want to see society represented in its diversity across our screens and in our content. Indeed, that is written into our remit. The details of this particular programme we will indeed come back to you on.

  Q93  Philip Davies: 65% of participants on Channel 4's work-related learning programme were from a diverse ethnic background. 65% against a population of 8%. Does that strike you as being a broadly representative level?

  Mr Abraham: We are part of an industry initiative at a leadership level in seeking to address the general level of under-representation that exists in terms of minority interests across the whole industry and in certain instances one obviously needs to make focused efforts and focused initiatives in these areas. It is part of an overall effort to make sure that we are accountable to the make-up of society overall.

  Q94  Philip Davies: There are mentoring opportunities for six individuals partnering with Operation Black Vote, presumably they were available for ethnic minority people only. It seems to me that if you look at your figures the people who are under-represented in Channel 4 are white people, not people from ethnic minorities. It seems a bit bizarre that an organisation that is over-represented amongst ethnic minorities is trying to do more of these things. What about white people? Are you not interested in employing white people at Channel 4?

  Ms Bulford: There are two separate tasks. There are the people we employ in Horseferry Road and there is also the representation of society at large in terms of the overall industry and the production base that we draw from. There is widespread under-representation of those groups in terms of the production community and part of our job in terms of bringing on those bursaries and those training programmes is to help with access to those people who might otherwise not have that opportunity.

  Q95  Philip Davies: On the same page as all of this stuff, it says here: "Channel 4 is an equal opportunities employer and does not discriminate on grounds of sex, sexual orientation, marital status, race, colour, ethnic origin, disability, age or political or religious belief". We can all sign up to that, that is what I am sure we all wholeheartedly agree with, but on the same page as that you have got all these schemes which it seems to me do discriminate on the grounds of race and ethnicity. How do you marry those two things up?

  Lord Burns: I understand the point you are making, but in almost every activity that I have been involved in when it comes to more creative work, senior work, those issues which are more highly skilled and those things which are more senior, it is actually a problem of under-representation that one gets. By and large programmes are put in place—generally industry-wide to try to nudge things along not in terms of discrimination but to try to give more people a better opportunity. I think the same goes in terms of some other characteristics as well. This is not a heavy activity. I have only been there a relatively short time but this is not something which dominates our life. We do feel, along with other industries, we have got to try to unblock, in a sense, what are some of those invisible blocks that do exist in terms of some people getting entry to this type of world. I think the media world is one where there is great opportunity for people from a whole variety of backgrounds to engage. I do not think it is surprising that we are sharing that attempt with the rest of the industry. You are giving the impression by your line of questioning that somehow or other we are obsessed with this issue and dominated by this.

  Q96  Philip Davies: I was quoting what is in your Annual Report.

  Lord Burns: It is not the case.

  Q97  Philip Davies: Do you not think there is something slightly unnerving or not right about the fact that one way or another you seem to be potentially depriving white males or whoever it is who are not entitled to go on these programmes of an opportunity that they may be particularly well suited to in order to flex your diversity muscles and enhance your credentials? I have not noticed you or the chief executive offering to resign your positions to allow somebody from an ethnic minority to take your places. You are quite happy to deny white people the opportunity to get on the first rung on the ladder but it appears you are also quite happy for you to keep your positions and not hand them over to somebody from an ethnic minority. If you are so committed to this why do you not commit to having the Chairman of the company from an ethnic minority?

  Lord Burns: Come on, that is not the process that is happening at all. It is not a question of displacing some people for others. This process, and most of the things you have mentioned, is where one is trying to develop avenues and tracks to enable people to have access who are coming from a background situation where historically access has been very difficult.

  Q98  Philip Davies: I can only repeat that you are over-represented amongst ethnic minorities as a national broadcaster. Can I just ask you to stick to your employment policy, which I quoted, which is very good?

  Lord Burns: We do.

  Q99  Philip Davies: I do not see how anyone could argue with your employment policy, but could I just ask that you keep to that employment policy in all of these programmes so that you are colour blind when you are looking at these things and people get jobs and opportunities based on their merit and inclinations rather than simply on the colour of their skin?

  Mr Abraham: The variance that you are talking about is relatively marginal, let us admit it. The other factor here is that Channel 4 exists to provide plurality in public service broadcasting and there is a relationship between the make-up of our team and our quota team in our group and our ability to appeal specifically to those groups in society who feel that perhaps mainstream television is not appealing to them. I would completely acknowledge that there is a balance to be struck here but I would absolutely defend the rich mix of talent and background that we would wish to see in our organisation. As a member of the board of Skillset, if that means there are programmes that encourage people who otherwise would not be considering a career in broadcasting then those should be viewed very, very positively and I am proud to be associated with them.

  Chair: If we do not have any more questions, can I thank you very much for coming this morning.

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Prepared 14 December 2010