Previous Section Back to Table of Contents Lords Hansard Home Page

Channel 4 (Application of Excess Revenues) Order 1997

7.55 p.m.

Lord McIntosh of Haringey rose to move, That the draft order laid before the House on 20th November be approved [14th Report from the Joint Committee].

The noble Lord said: My Lords, the order forms the first stage in the phasing out of the Channel 4 funding formula. My right honourable friend the Secretary of State announced in July his conclusion that the funding formula was no longer justified in the current broadcasting environment and his intention that the Government should therefore take action to bring it to an end.

The draft order is made under Section 27(7) of the Broadcasting Act 1990, as amended by Section 83(4) of the Broadcasting Act 1996. It will reduce from 50 per cent. to 33 1/3 per cent. the percentage of excess revenues Channel 4 must pay to the Independent Television Commission (ITC) for distribution to Channel 3 companies in 1998. The Government intend to bring forward a further order in 1999 to reduce the percentage to zero.

Under the terms of the 1990 Act, Channel 4 is guaranteed funding from the Channel 3 companies should its income from advertising fall below 14 per cent. of total national television advertising revenues. The liability of the Channel 3 companies is limited to 2 per cent. of total national advertising revenue in any one year.

Should, on the other hand, Channel 4's income from advertising rise above the 14 per cent. threshold, then the excess revenue above that threshold must be distributed according to arrangements also specified in

15 Dec 1997 : Column 464

the 1990 Act--50 per cent. of that excess goes to the ITC for onward distribution to the Channel 3 companies and 50 per cent. can be added to Channel 4's current expenditure plans.

The funding formula was introduced by the 1990 Act as part of the new arrangements whereby Channel 4 was to sell its own advertising rather than rely on financing from the Channel 3 companies. Prior to the 1990 Act, Channel 4 had been financed by a subscription from the ITV companies which sold Channel 4's advertising airtime. The funding formula was a safety net because it was feared that the new arrangements might not provide Channel 4 with sufficient income properly to fulfil its remit.

Such fears were unfounded. Since the funding formula provision came into force in January 1993, the flow of funds has always been from Channel 4 to the Channel 3 companies--to the tune of £256.6 million to date.

During the passage of the 1996 Broadcasting Act, there were calls to abolish the Channel 4 funding formula. Many, including Channel 4 itself, believed that, in the light of the success that Channel 4 has enjoyed since it began selling its own advertising, the financial safety net was no longer required and the payments being made by Channel 4 to the ITV companies should be ploughed back into the channel's programme production.

The previous administration were not wholly persuaded by these arguments. It was accordingly decided to retain the basic framework of the funding formula but to take steps to increase the level of income Channel 4 can retain. The Broadcasting Act 1996 therefore introduced the power to adjust by order the distribution of Channel 4's excess revenues above the statutory threshold of 14 per cent. of television advertising revenues. It is under these provisions that today's order is made. I commend the order to the House. I beg to move.

Moved, That the draft order on 20th November be approved [14th Report from the Joint Committee].--(Lord McIntosh of Haringey.)

Baroness Rawlings: My Lords, I thank the noble Lord for his clear and concise explanation of why this order has been brought before us. On these Benches, we welcome the order and are cheerful in supporting it.

The landscape of broadcasting has been changing constantly and the pace of that change has recently accelerated. The arrangements set in place in the 1990 Act, which were highly controversial at the time, have been to some extent superseded by the 1996 Act and in the same way the 1996 Act arrangements are creaking in a number of ways.

We have no difficulty in supporting the Government in their conclusion regarding the funding formula arrangements. The Secretary of State said:

    "There is no continuing need, or real justification, for the Channel 4 Funding Formula now that Channel 4 is a well established broadcaster with a steady income stream".

15 Dec 1997 : Column 465

The main change in the landscape of broadcasting has been the explosion of the number of channels, which is about to expand dramatically once again. There has also been an expansion in the means of delivery--analogue, satellite, digital-terrestrial, digital-satellite, digital-cable and soon the Internet. That points to the fact that viewers have much more choice than they ever dreamt of. In a few years, that choice will be unimaginably greater. In a world where the viewer has an extraordinary range of choice, it is to be hoped that the Government will be of the opinion that the type and level of regulation that applies should be changing in response.

The Secretary of State has linked that closely to the issue of the funding formula. Britain has led the world with its choice and diversity because of arrangements that have typically been increasingly liberal, often to the point of being highly contentious. Those arrangements have given broadcasters the opportunity to expand their production. That liberalism arises from a government attitude that it is right to give people choice and to trust them to exercise it.

The Opposition fully support the removal of the Channel 4 funding formula but wonder whether the logic of the progression has been followed through. Having decided that there was no justification or need for the funding formula to continue, why has the Secretary of State decided to keep it as a sword of Damocles to hold over Channel 4's trembling neck to ensure that it signs up to his diktats?

In the Secretary of State's letter to the chairman of the Independent Television Commission he wrote about his first legislative opportunity to change Channel 4's remit and to negotiate licence changes. Perhaps that is desirable but surely it is meddlesome. These are essentially Channel 4's management responsibilities.

Channel 4 is run by highly responsible and serious people who have to make and justify strategic choices. I wish to pay tribute briefly to the tremendous contribution made by Michael Grade during his chairmanship of Channel 4, apart from making it the success that prompts this order. He pressed tirelessly, too, for years for this change in the funding formula. I also wish to pay tribute to the present chairman, Sir Michael Bishop. I hope that the funding formula will not be a pretext for further interference and regulation. At a time of rapid expansion of choice, the route that the Government are following seems somewhat perverse. The rules and remit date from the days of the controlled duopoly, when Channel 4 was born as a late Siamese twin to Channel 3. There are now three independent channels, Channels 3, 4 and 5, which all compete for advertising revenue. There should surely be a looser framework rather than a tighter one that the Secretary of State is using the order to impose.

Why is it necessary to go into extraordinary, elaborate detail about exactly how Channel 3 and Channel 4 should invest in their digital terrestrial capacity? Should not grown-up independent organisations decide those matters for themselves? They want to make the best possible digital television; that is how they will make money. They will make money by providing it well.

15 Dec 1997 : Column 466

They do not need the Government to tell them how. It is a slippery slope, and a tempting one down which it is easy to slide, towards a government controlled television, like that which exists in some other countries.

Channel 4 is still state owned. The correct approach is to ensure that the right people are in charge. I assume the Government are ruling out unequivocally any change to the ownership structure of Channel 4. Will the noble Lord confirm what the Minister said in the other place; namely, that,

    "there are no plans to privatise Channel 4",

as I can imagine a glint in the Chancellor's eye as he scents a quick £1 billion or whatever? People want to know the Government's views. Regulation and funding are tied together. However, as I said, we support the order.

Lord McNally: My Lords, I am afraid that I cannot go quite as far as the noble Baroness, Lady Rawlings, in her desire for deregulation. I still think it is important that we safeguard the best of our public service broadcasting. Sometimes I wonder whether the slippery slope that we are on leads not towards state controlled television but to the kind of television available in North America where one finds, to one's joy, that one has 64 channels to choose from and the best programme available is "I Love Lucy".

It is worth remembering that Channel 4 is one of the bricks in the wall which defends public service broadcasting in this country. I declare a retrospective interest in that I was an adviser to the ITV association during the passage of the 1990 Act. I remember all the discussions about the Channel 4 formula. All those discussions concerned a formula that would act as a safety net for Channel 4. I do not think that at that point anyone in their wildest dreams saw it as a honeypot for the ITV companies. However, as the Minister indicated, that is what it has become. Channel 4 is to be congratulated on the successful lobby it has mounted to change the Government's mind on the formula. As the Minister said, we are today seeing an order that envisages the phasing out of payments.

ITV might ponder why it has lost friends, or found few friends, in this battle. That is partly because over the past few years the bean counters have taken over from the programme makers in setting a strategy for ITV. I hope that for Channel 3 we are coming to an end of a process of dumbing down in which finding the cultural dross of Australia or the United States and calling it popular programming is its strength. ITV's strength is still its regional strength.

That is why I am also pleased that Channel 4, in talking about the future, is talking about its own regional commitment. I believe that is a commitment for 30 per cent. of programming to be made in the British regions over the next four or five years. That is in the great tradition of Channel 4 in a distinguished career that is, I suspect, the thing that its creator, the noble Viscount, Lord Whitelaw, is most proud of. It is one of those curious British accidents often created by Conservative governments; that is, a state owned piece of broadcasting that fulfils a separate remit in our

15 Dec 1997 : Column 467

broadcasting structure. Thus far Channel 4 has done that remarkably well. I refer to "Film on Four", "Channel 4 News" and other programmes which have successfully fulfilled that remit. As I said, it has made a new commitment to regional programming.

The lesson I take from that--and which I hope the Minister will take--is that the title that the Conservative government chose for its White Paper at the beginning of this decade, Quality, Diversity and Choice, should still be the watchwords for those who look after our broadcasting policy today. I do not believe that quality, diversity and choice are defended by letting the market completely loose on broadcasting. I am worried when I hear David Elstein of Channel 5 calling for an end to the BBC licence. There are still powerful vested interests attacking some of the strongest parts of our public broadcasting system. I hope that what we are seeing here today from the Government is a long-term commitment and a vote of confidence in Channel 4.

We wish Michael Jackson well and we hope that he soon has a chairman of stature to lead Channel 4 into the next millennium. Like the noble Baroness, Lady Rawlings, we would like to hear the Minister give another undertaking as regards privatisation. This is a juicy plum for the Treasury. Ministers in the department of culture must defend it from Treasury designs. Again, I commend Channel 4 for its regional initiative. I urge it to continue to experiment and innovate because that is the way it will continue to be a strong and valuable asset to British broadcasting.

Next Section Back to Table of Contents Lords Hansard Home Page