Channel 4 response to the BBC strategy review

Introduction

1. Channel 4 welcomes the opportunity to respond to the BBC Trust’s consultation on the BBC’s future strategy.

2. Channel 4 is a publicly-owned, commercially-funded public service broadcaster. Its core public service channel, Channel 4, is a free-to-air service funded predominantly by advertising. Unlike the other commercially-funded public service broadcasters, Channel 4 is not shareholder owned—commercial revenue is a means to delivering Channel 4’s public purpose end, and any surplus revenues are reinvested in the delivery of Channel 4’s public service remit.1

3. In recent years, Channel 4 has broadened its portfolio to offer a range of digital services, including the free-to-air, commercially-funded digital television channels Channel 4+1, E4, E4+1, Film4, More4 and 4Music, as well as HD services on a number of platforms. Channel 4 also offers a video on-demand service—4oD—and is expanding its range of digital media services at channel4.com, including games, programme material and additional content. These innovations have enabled Channel 4 to stay in touch with audiences— especially younger viewers—who are rapidly migrating to digital media.

4. Channel 4 therefore plays a key role alongside the BBC as the main source of UK-wide competition in the provision of public service content. Channel 4 provides a distinctive offering to the BBC by covering different subjects, airing alternative perspectives, and innovating and taking risks across a range of genres, including current affairs, drama, documentaries and the arts. As a result, Channel 4 has a direct interest in how the BBC prioritises its resources, in terms of the BBC’s relationship with the wider public service system as a whole and its impact on commercial providers.

5. The BBC Trust has asked the BBC Executive searching questions about the future of the BBC. In Channel 4‘s view, the BBC Executive has responded with an incremental strategy for the next licence fee period with a sound focus on UK-produced content, increased distinctiveness and greater quality under the theme of “doing fewer things better”. Channel 4 welcomes this, but believes that the BBC, like all broadcasters, has the opportunity to think more radically about its future role and scope following the completion of digital switchover.

6. In this context, Channel 4 would like to offer its views on the BBC Executive’s proposals for the next licence fee period. Channel 4’s comments focus on the following broad areas:

• investment in UK-produced content; • the importance of distinctiveness; and • opportunities to benefit the wider creative industries.

1 Set out in the Communications Act 2003 and recently updated in the Digital Economy Act 2010

- 1 - UK-produced content is key to delivering public service objectives

7. Channel 4 believes that investment in UK-produced content is crucial to the delivery of public service broadcasting (PSB). UK-produced content is highly valued by audiences and drives significant cultural and economic benefits in its own right. High-quality UK-produced content consistently wins awards on the international stage, and provides a showcase and launch pad for writing, directing and acting talent, as well as supporting the UK’s independent production sector. In addition, the provision of compelling content for digital platforms is a key enabler of growth in broadband take-up and next generation access.

8. Channel 4 is committed to commissioning and funding the best content ideas from producers across the UK. Channel 4 is a major investor in the creative economy, spending hundreds of millions of pounds each year on UK-produced content across the Channel 4 network, including digital channels and online. Channel 4 continues to invest in innovative content in partnership with other bodies and has the ambition to grow its investment in content in future, and will seek to generate additional commercial revenues to meet this objective.

The BBC’s commitment to content

9. Given the importance of UK-produced content, Channel 4 welcomes the BBC Executive’s objective of focusing on “delivering better quality content to the British public”. The BBC has identified five content priorities: journalism; knowledge, music and culture; UK drama and comedy; children’s programming; and events that bring communities and the nation together. In Channel 4’s view, these priorities are broadly the right areas for the BBC’s content delivery in future.

10. In particular, Channel 4 welcomes the BBC’s prioritisation of UK-produced content in its future plans. The BBC has set out an objective of spending, from 2013, at least 80% of its “net public service expenditure” on content creation, defined as “investment which directly enables the creation of content and audience-facing propositions or which enhances the quality of content/audience experience”. This represents a small increase on the BBC’s current 79% level of investment in content, which Channel 4 believes is a step in the right direction— albeit only 1% point. However, following the completion of digital switchover Channel 4 wonders whether there is an opportunity for the BBC to re-assess its future cost base in order to make its content targets more stretching.

11. The BBC has also demonstrated its increased focus on UK-produced content by committing to reduce expenditure on acquisitions from £100 million currently to £80 million in 2013, and capping it at 2.5p in every licence fee pound thereafter. Channel 4 welcomes this direction of travel, and comments further on acquisition expenditure later in this response.

The importance of distinctiveness

12. The BBC Trust asked, as part of its challenge to the BBC Executive, how the BBC can best maintain quality and distinctiveness. In particular, the BBC Trust asked: what should be provided by a publicly-funded service and what should not, and whether more should be done to define what the BBC means by “distinctiveness” and how that can be applied as a lens to judge the output of BBC services.

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13. Channel 4 recognises the importance of public service providers playing distinctive, complementary roles in catering for audiences. Different broadcasters have different strengths and appeal to different audiences. Channel 4 therefore agrees that the BBC should focus on providing distinctive content and services. In particular, Channel 4 agrees that the BBC should seek to increase its distinctiveness, both in relation to others in the public space—such as Channel 4—and those in the commercial marketplace.

14. While the BBC and Channel 4 both sit at the heart of the UK’s public service system, the two institutions have distinctive roles and strengths in how they deliver their respective remits. In addition, the other commercially-funded public service broadcasters—ITV and Five—each play a distinctive role, as do operators in the wider market.

15. Looking at the BBC and Channel 4, the provision of distinctive services has ensured that UK audiences have access to a wide range of high-quality content. In key public service areas—such as news, current affairs, international and factual programming—the BBC and Channel 4 each play an important, distinct role. For example in news, compared to the BBC’s service the award-winning Channel 4 News—the UK’s only hour long peak-time news programme—appeals to harder to reach audiences such as ethnic minorities and younger viewers.

16. Channel 4 agrees that the BBC should apply a test of distinctiveness to all of its output, and in particular not seek to replicate other organisations’ distinctive tone and approach. Instead, the BBC should work to its own strengths and heritage in defining the type of role it plays for audiences in future including by, as proposed, “doing fewer things better”. In this context, Channel 4 would like to offer the following comments on some of the priorities for younger audiences, acquired content and digital media set out in the BBC Executive’s proposals.

Younger audiences

17. Channel 4 has previously set out its views in this area as part of the BBC Trust’s 2008 review of BBC services for younger audiences. As part of that review, Channel 4 outlined the importance of different organisations maintaining distinctive services, and the need for the BBC to ensure its activities do not have a negative impact on commercial competitors or inhibit innovation.

18. Channel 4 notes the BBC Executive’s view that the BBC “should accept that its role in addressing the gap in public service television for [younger teenage audiences] will be secondary to that of Channel 4 and other broadcasters” and that the BBC Executive has recommended BBC Switch and Blast! for closure. Channel 4 welcomes the BBC’s acknowledgement of Channel 4’s success and relative strength in reaching younger audiences. Channel 4 will continue to innovate in this area and provide exciting cross-platform content for older children and younger teenagers, in line with Channel 4’s new remit to serve this audience.

19. However, Channel 4 does not believe that public service provision for younger teenage audiences should simply be left to Channel 4 and others. The BBC still has a role to play in providing high-quality content for teenagers, and this is evident in the BBC Executive’s decision to continue to target teenage audiences

- 3 - through services such as BBC3. However, Channel 4 believes that the BBC should strive to serve this audience with distinctive public service content rather than content that is already being delivered by other players. In this way, younger audiences can have access to a range of complementary content tailored to their needs.

Acquisitions

20. As part of its ambition to set new boundaries around its activities, the BBC has committed to reduce expenditure on acquisitions from £100 million currently to £80 million in 2013, and to cap it at 2.5p in every licence fee pound thereafter. Given the importance of UK-produced content, Channel 4 welcomes the BBC’s commitment to reduce expenditure on imported programming.

21. For commercially-funded public service broadcasters, acquisitions play a key role in generating revenue for investment in UK-produced content. Channel 4 has a long history of bringing the best of US television to a UK audience, and these commercially-profitable programmes have enabled Channel 4 to invest in the delivery of its remit. However, for the publicly-funded BBC, the case for continued investment in acquisitions is less clear cut. Channel 4 notes the BBC Executive’s view that acquisitions make a contribution to the BBC’s public purpose to “bring the UK to the world and the world to the UK”, but this objective can also be achieved through greater BBC investment in high-quality UK-produced programming about international issues and culture.

22. In addition, the BBC often competes with other broadcasters for acquisitions. Channel 4 believes this is a questionable use of licence fee income given that, without the BBC’s involvement, the overseas programmes would generally otherwise be made available to UK audiences by other broadcasters. Even when the BBC does not win the rights to the acquired programming, the BBC’s participation in the bidding process can inflate the price paid by the eventual winner. Given these factors, Channel 4 welcomes the BBC’s moves to reduce acquisition expenditure but queries whether the proposed 2.5% cap on income from the licence fee to be spent on acquisitions could be lower.

Digital media

23. In recent years, Channel 4 has developed a wide range of digital media services that are now crucial to its commercial and creative performance. In public service terms, Channel 4’s role in digital media was recently formalised in the Digital Economy Act, and Channel 4 will continue to innovate and provide cross-platform content to remain engaged with audiences. In addition, with technological developments such as project Canvas converging the internet with television sets, digital media will become even more important for broadcasters in future.

24. Given the increasingly vital role played by digital media, Channel 4 agrees with the BBC’s view that the internet “is not an optional extra: it is the future of the BBC, just as it is for so many other organisations”. Channel 4 therefore supports the BBC’s investment in online services and cross-platform content as a key way of continuing to reach audiences.

25. However, in the rapidly developing online market, it is right that the BBC considers whether its services are sufficiently distinctive, and looks at where its

- 4 - activities might have a negative impact on commercial competitors. As a starting point, greater clarity about the BBC’s ambitions online would be helpful for commercially-funded players in setting their own objectives and developing their business models.

26. The BBC’s proposals—to spend 25% less on BBC Online by 2013, and to halve the number of top level directories on its website by 2012—seek to recognise commercial concerns about the BBC’s online presence. While high-level targets do signal a recognition that the BBC needs to take competitors into account, in Channel 4’s view they do not address the BBC’s objective of providing more distinctive services and are unlikely to adequately address the underlying concerns about the BBC’s activities. In particular, blunt targets don’t help to explain why the BBC competes in areas where a range of commercially-funded websites already exist—such as food and music reviews.

27. In addition, Channel 4 is not convinced that the BBC’s plans to halve the number of sections on its website will have the desired affect of freeing up space for competitors. Channel 4 understands that the vast majority of traffic to the BBC’s website is driven by its top five top-level directories. In this context, plans to close a large number of low-traffic websites seem more like a housekeeping exercise that any online provider would undertake, rather than a meaningful strategy to address market impact. Given these concerns, Channel 4 believes that the BBC could potentially go further in setting boundaries around its online activities to provide greater certainty to competitors and to minimise negative market impact.

Opportunities to benefit the wider creative industries

28. The BBC Trust challenged the BBC Executive to think about where the BBC can create most value from its scale. More specifically, the BBC Trust asked “where are the partnerships across the industry that can create increased value both for the BBC and for others?”. In response, the BBC Executive has said that it wants to become a better partner with other broadcasters and media players, and to make partnership the “default setting” for most new activities.

29. Channel 4 firmly believes that partnerships can generate greater value for the media industry as a whole. Partnership lies at the heart of the Channel 4 model—in creative terms Channel 4 relies on partnerships with independent producers to create high-quality content against a clear public service specification, and in cultural terms Channel 4 partners with a range of public institutions such as the Tate and regional screen agencies, such as Screen West Midlands and Scottish Screen. These relationships demonstrate that public institutions with strong brands can use their equity to benefit the wider creative economy.

30. Channel 4 notes the BBC’s re-stated commitment to partnership. In recent years the BBC has outlined a range of proposals and discussed partnership opportunities with a number of parties. For example, the BBC published its Public service partnerships document in January 2009, which set out proposals in the areas of production (eg. regional news), distribution (eg. project Canvas and DAB) and content exploitation (eg. BBC Worldwide). While some of these have been successful, particularly in relation to distribution, in other areas

- 5 - partnerships have stalled or have not unlocked the expected benefits. As the BBC Executive acknowledges, “the BBC is still some way from being the ideal partner”.

31. That said, Channel 4 is hopeful that the BBC, building on the lessons learnt in trying to implement its Public service partnerships proposals, can meet its objective of being a better partner in future. In this context, Channel 4 looks forward to seeing the BBC’s further plans for how it will help to deliver value for the wider creative industries. Channel 4 has identified a range of areas where it believes the BBC could usefully make a greater contribution, and these points are discussed below.

Technology

32. The BBC has a track record of shaping the development of platforms and technology to ensure they meet public service objectives such as universal availability, free at the point of use. The BBC’s contribution to already successful platforms such as Freeview and , alongside its key role in developing internet-connected television through project Canvas, demonstrates the wider value the BBC can create using its considerable resources and technical expertise. Channel 4 agrees that the BBC should continue to be involved in the development of new technology and platforms, as this can benefit the wider media industry and further public service objectives.

33. Channel 4 is keen to explore with the BBC, and other public service broadcasters, opportunities for further technological development beyond Canvas. For example, this could include initiatives to better manage interactions with audiences, capture and measure industry data, and potentially share R&D around developing customer relationship management capabilities.

Nations and regions

34. Beyond partnering in particular technology projects, the BBC can create benefits for other broadcasters by simply changing the way it distributes its currently planned expenditure. Looking at out of London production, for example, the BBC has committed, by 2016, to make 50% of network television programmes outside London, with 17% made in the devolved nations. Channel 4 welcomes the BBC’s proposals as greater scale and investment, if targeted in the right way, can have a beneficial and strengthening impact on regional creative economies, which could help other broadcasters achieve their own objectives in the nations and regions.

35. As a publisher-broadcaster with no in-house production base, Channel 4 relies on the existence of sustainable independent production companies in the nations and regions to meet its out of London objectives. Channel 4 is a major investor in regional production communities and has outlined a number of initiatives in recent years aimed at building scale in the independent sector. These include a dedicated development fund, training and talent programmes and broader partnership and sponsorship initiatives. However, Channel 4 does not have the scale to grow and sustain significant creative clusters across the UK by itself.

36. Given this, it would greatly benefit Channel 4 and other broadcasters if the BBC directed its expenditure towards content from smaller independent producers— in addition to its own in-house facilities—as part of its out of London

- 6 - commitments. It would be a missed opportunity if the BBC sought to meet its nations and regions objectives by simply moving its in-house production base around the UK, and Channel 4 believes the BBC has the opportunity to deliver meaningful benefits to the regional creative economy by commissioning more content from the independent production sector in the nations and regions.

Training and skills

37. Likewise, in the area of training and skill development the BBC’s expenditure can help the industry as a whole. Channel 4 also plays a leading role in supporting the development of new talent—both on- and off-screen—and this has recently been formalised by the Digital Economy Act, which places the nurturing of new talent at the heart of Channel 4’s remit. Channel 4 invested around £10 million in talent initiatives in 2009, including internal work-related learning programmes and support for external training and skills bodies such as Skillset.

38. These initiatives ensure that people develop the skills needed within Channel 4, but more broadly they help the broadcasting industry as a whole, particularly the independent production sector. The BBC’s work in this area can also have a beneficial impact on the sector, and Channel 4 therefore welcomes the BBC’s commitment to maintain its expenditure on training at £45 million per annum and to share the benefits of that investment with the wider industry.

Measuring public impact

39. Finally, Channel 4 believes there may be scope for the BBC to work in partnership with Channel 4 to evolve the way we think about how broadcasters measure the value and distinctiveness they bring to UK viewers. The BBC Executive’s moves to set caps and floors for different types of expenditure—or inputs—are welcome, but don’t move to the next step of measuring the impact—or output— of the investment. Channel 4 has developed its thinking in this area in recent years, and notes the BBC has also innovated in this area in the past, developing the reach, quality, impact and value (RQIV) framework to help assess the BBC’s public service performance.

40. Given this shared interest in measuring the public impact of our output, Channel 4 would be open to discussions about how we can develop a more consistent framework to achieve this objective. There may be more both broadcasters can do in partnership to better measure public impact.

Concluding comments

41. The media environment is changing rapidly, and all broadcasters are having to re-assess how they operate in future. In this period of change, the BBC’s strategy review is a welcome contribution to the wider media debate. Due to its scale and the broad scope of its activities, the BBC’s actions inevitably have a sizeable impact on both public service and commercial competitors and in this context, further clarity about the BBC’s future role will help other providers to develop their own strategies with greater certainty.

42. In approaching the review, the BBC Trust has asked the BBC Executive valid, fundamental questions about the future of the BBC. In Channel 4‘s view, the BBC Executive has responded with an incremental strategy for the next licence fee

- 7 - period with a sound focus on UK-produced content, increased distinctiveness and greater quality under the theme of “doing fewer things better”. Channel 4 welcomes this direction of travel, but believes that the BBC, like all broadcasters, has the opportunity to think more radically about its future role and scope following the completion of digital switchover.

43. Finally, the BBC has recognised the key role it can play in delivering value for the creative industries as a whole. The BBC’s moves in this area must be genuine and workable if they are to generate meaningful benefits for its partners, and Channel 4 looks forward to engaging with the BBC Trust and the BBC Executive as plans develop in this area, with the objective of ensuring a strong, sustainable public service system with the BBC and Channel 4 at its heart.

25 May 2010

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