Andy Duncan

October 2008

Channel 4 is a hybrid broadcaster, one that could only exist in the U.K.’s diverse television landscape. It is owned by the government, and as such its primary purpose is to fulfill its public-service remit, which requires that it provide viewers with a broad range of high-quality and varied programming. But unlike the BBC, Britain’s main public broadcaster, Channel 4 is not subsidized by a license fee; rather, it is financed through advertising. And in a television market where the audience continues to fragment, advertising revenues are on a downswing and the digital switchover looms on the horizon, Channel 4’s chief executive, Andy Duncan, faces his share of challenges, not the least of which is a projected shortfall in funding of some €100 million a year. To help fill this gap, Channel 4 announced a cost-reduction program last month, reducing its programming budget and slashing 150 positions. Duncan, however, looks confidently toward the future. Channel 4 has successfully built a bouquet of digital channels—the youth-skewing E4, the documentary and arts channel More4 and Film4—whose healthy advertising revenues help fund some of the public-service programming on Channel 4. Duncan talks to TV Europe about his vision of Channel 4 as a multi-media company securely ensconced in the digital world.

TV EUROPE: What are some of the financial difficulties that Channel 4 is facing in light of the upcoming digital switchover?

DUNCAN: As is happening in a number of countries, the traditional terrestrial broadcasters are seeing their share eroded as you get multichannel growth and the fragmentation of [the audience] and therefore of ad revenue. And while we’ve had a very successful portfolio strategy and we’ve built up a number of channels—notably E4, More4, Film4 and 4Music—in [terms of] ad revenues they are not as lucrative as the traditional core channel has been. Therefore, we are seeing erosion of revenues.

And secondly, as a public-service broadcaster—like the BBC, we are a public corporation—we are not here to maximize profit. We are here to maximize our public impact through the programming we make. But unlike the BBC, we earn our money commercially rather than via the license fee. But historically we have had a very important subsidy, which has been free spectrum. So the way in which we have earned our money historically has been because we haven’t paid for the spectrum that we use. But as we move to switchover that free spectrum is also coming to an end.

TV EUROPE: What cuts have you had to make because you face a significant shortfall in revenues?

DUNCAN: It’s a rather tricky balancing act, to tell the honest truth, so we’re trying to continue to do as much quality original programming as we can. So far we’ve managed to keep going pretty successfully, first through digital expansion with the multichannel portfolio I just mentioned, and with our on-demand service 4oD, which we launched a couple of years ago. We were the first broadcaster in the world to launch all our commissioned output on VOD. Obviously a lot of companies have done that subsequently in the U.K. and the States, but we were the first in the world to do so.

And secondly, we are trying to prioritize where we can continue to invest in high-quality categories. For example, we won more awards at this year’s BAFTAs than any other channel, including BBC One and BBC Two. Our films have won five Oscars in the last four years. We continue to have a huge amount of creative success, but there are areas of the schedule where we have had to stop investing. So, for example, at the moment we are not commissioning new programming after 11 p.m. We are using what we have and we’re not commissioning much of any new programming on Saturday nights, which historically we have done. And we have cut back quite substantially on returning drama series. So the pressure is starting to bite, but what we are more worried about is what could happen in the years ahead, because switchover hasn’t actually started yet. The formal process of switchover will only get started later this year in the Border region, which is a small test area, and then over the next four years it will roll out in the major regions in the U.K.

TV EUROPE: What could be some of the possible solutions?

DUNCAN: We’re in the middle of a big government regulatory process, which is being led by [media regulator] Ofcom. By October, Ofcom will have published the first stage of their report, which looks at models for the [type of] public-service broadcasting system we want in the U.K. And they also will have done work on possible funding options, but they won’t really get to any conclusions on final funding options till next spring.

Regarding possible models, my idea and the general consensus is that you want plurality in public-service broadcasting. You don’t just want the BBC. I think most people accept the BBC will be the cornerstone of any updated system, but nobody (including the public, most importantly) wants to only rely on the BBC, so plurality and having competition and different types of supply will be important.

Our view, and most people’s view, is that Channel 4 therefore has a very important role still to play as the other major supplier of that public-service plurality. That’s the first question. That then takes you to the second question: If you really want that, how do you best fund it? And at the moment several options are still on the table. And they range from the license fee to the BBC helping with other mechanisms, as in-kind or transfer of assets. There are other forms of government tax, of public funding, as well as other regulatory assets like spectrum. So there is quite a wide range of ideas still being debated, and my view is we’ve made very good progress on the one hand, because people at least now acknowledge there is a gap that needs to be solved, and, more importantly, people think it’s a gap that is worth solving. They have bought the argument and want a strong Channel 4 and plurality.

TV EUROPE: Certainly Channel 4 has a very special place in the broadcast landscape and a loyal viewership for many of its programs.

DUNCAN: It does. We are much loved by the British public. We are very much up there alongside the BBC and famous for providing high-quality original programming. In particular, the public appreciates us for innovative ideas, trying new things out, and risk-taking programming. We still have one hour of Channel 4 News in peak time, from 7 p.m. to 8 p.m. BBC and ITV don’t do that, which allows us to cover international issues in more depth and [offer more] analysis than our competitors can. Every Monday night we run Dispatches, a one-hour current-affairs program, in peak. That has become the cult current-affairs program. Interestingly enough, BBC’s Panorama is now only a half-hour magazine program. But we also continue to have a very strong commitment to documentaries, factual programming, film, comedy, et cetera.

TV EUROPE: And you commission all your programming from British producers.

DUNCAN: Yes, we don’t have a production department. Everything is sourced from the British independent sector or we have American acquired programming. Channel 4 remains the biggest customer of the British independent sector.

TV EUROPE: Do you see down the road having to renegotiate the terms of trade?

DUNCAN: We’re not looking to turn the clock back at all. We accept the terms of trade as they were agreed. There is an ongoing dialogue between ourselves, the independent sector and Pact [the trade body for independent producers in the U.K.] about how that needs further updating to take into account, for example, digital platforms. We’ve successfully agreed to the deals for video on demand. We need to update those deals, but I see this very much as a partnership: how do we and the independent sector, together, successfully take programs that have been commissioned for Channel 4 onto our other channels and other platforms? I wouldn’t call it a major overhaul of the terms of trade, but I would call it a sensible ongoing update and discussion about how rights on new platforms need to work [in a beneficial way] for us and for the independents.

TV EUROPE: E4 and Film4 started as subscription services years ago, but then you switched them to free to air. That strategy paid off quite well, didn’t it?

DUNCAN: It did. As pay channels they never made money, partly because Channel 4 came relatively late to pay channels and partly because there was a limited number of homes we could get to. So we switched E4 and Film4 to free to air and we also launched the factual channel More4 as free to air. And we launched 4Music just last month. The portfolio has been extremely successful for us. If you look at it in terms of viewing share, Film4 is the U.K.’s biggest film channel. 4Music has immediately become the U.K.’s biggest music channel, bigger than MTV, for example. And E4 is the biggest digital channel for 16- to 34-year-olds. From a financial point of view it’s also been very successful, so we’ve gone from a situation where the pay channels lost money, to [one] where as free-to-air channels they’re already very profitable for us and they are helping fund some of the public-service activity on the core channel.

TV EUROPE: What are some of the most important programs on Channel 4?

DUNCAN: Big Brother clearly continues to be important for us, perhaps less important than it was. When it’s on air it’s still our biggest show. It’s a very “noisy” show, it tends to get a lot of publicity and a lot of talk-about factor. On the other hand, it’s on only three months a year, and even when it’s on it’s only one hour a night, which is the same as our Channel 4 News, so people sometimes get it out of perspective. For example, it’s not as big a show for us as Hollyoaks, which is our teen soap drama that runs five nights a week, Monday through Friday. It runs on E4 and Channel 4, and typically gets 2.5 million to 3 million people per episode all year round, so that’s a more important show for us across the year. The Simpsons runs Monday through Friday at 6 p.m. We have some daytime programs (Deal or No Deal, for example) that run pretty much all year round. So some of the returning series are important and have a commercial role to play for us in terms of generating money.

But you then have got to balance that against the fact that we do more one offs—one-off docs, one-off dramas, one-off factual programs—than BBC One or Two and certainly a lot more than ITV or Five. And then we have Channel 4 News running every day of the week, one hour in peak. We have an interesting mix of strong returning series, some of which are commercial for us, like Big Brother, some of which are very much more public service, like the news or Dispatches, all the way through to this fantastic number of one-off documentary and factual programs. So it’s a good mix.

TV EUROPE: Do you enjoy what you do?

DUNCAN: Absolutely love it. Really, in a nutshell Channel 4 is in the middle of a big, big transition. We’re transitioning from being a single-channel company, which is what we were for the first 20 years or so, to being a purely multi-media organization, with more channels, across platforms. We’re launching a radio station next year under the E4 brand. We’re truly embracing the digital multimedia world, but the values that we stand for, of innovation, risk, brave journalism, backing talent, giving fresh perspectives and all the things that Channel 4 is famous for and much loved by the public for, those values are still confident. But the way we deliver those values and the way we connect with audiences has to reflect the digital age and the multimedia world those audiences are now living in, particularly the young generation. What’s interesting is we remain very, very strong with younger audiences, and that is quite a good sign of your health as an organization. If you remain in touch with young audiences, particularly in the media world, that’s quite a good sign that the future is bright.