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A report commissioned by Ofcom has identified that Channel 4's funding strategy, in place for 25 years, cannot sustain the channel in the future.
Ofcom commissioned consultancy LEK to carry out the analysis of the channel’s medium term financial forecast.
LEK’s central case scenario envisaged that Channel 4’s broadcast activities will be loss making by 2009 and that the channel will be living off its cash reserves from that point. A 'low case' scenario was in line with Channel 4’s own forecast, which anticipates group losses in excess of £100 million per annum by 2012.
The report adds: “While there is potential for more favourable outcomes, our commercial judgement is that there is greater weighting towards more negative outcomes”.
Supporting this view, in 2007 Channel 4‘s revenues have already fallen below LEK’s central case scenario, which forecasts 0.5% growth in total TV advertising this year.
Responding to the report’s findings, Channel 4 chief executive, Andy Duncan, said: “The report identifies the ‘difficult trade-offs’ Channel 4 faces between using cash reserves to cover future losses, investing to create new profit streams or cutting our programme budgets to reduce projected deficits but also our public service contribution."
“In our view, this report makes clear that it’s no longer a question of ‘if’ Channel 4 needs new forms of public support to replace our gifted analogue spectrum, which is rapidly declining in value, but ‘when’. We believe Ofcom should now progress to identifying appropriate new forms of support that will give Channel 4 a secure financial base from which to plan our future strategy and public service contribution," he added.
Channel 4 believes that the retention of its limited cash reserves to cover future losses, as assumed in LEK’s modelling, does not represent a viable long term strategy, considering such cash is better invested in building new businesses.
Anne Bulford, Channel 4’s group finance director, added: “We’ll continue to look at all sensible self-help measures to generate new revenue streams and reduce costs while striving to maximise our investment in public service content.”
Channel 4 has also welcomed Ofcom’s publication of a supplementary analysis of Channel 4’s remit delivery, which finds that the channel “is delivering the quantifiable elements of its remit” and “consistently meets its licence requirements and in some cases significantly over-delivers on its obligations”.
