House of Commons Culture, Media and Sport Committee Channel 4 Annual Report First Report of Session 2010–11 Report, together with formal minutes, oral and written evidence Ordered by the House of Commons to be printed 7 December 2010 HC 423 Published on 14 December 2010 by authority of the House of Commons London: The Stationery Office Limited £13.50 The Culture, Media and Sport Committee The Culture, Media and Sport Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department for Culture, Media and Sport and its associated public bodies. Current membership Mr John Whittingdale MP (Conservative, Maldon) (Chair) Ms Louise Bagshawe MP (Conservative, Corby) David Cairns MP (Labour, Inverclyde) Dr Thérèse Coffey MP (Conservative, Suffolk Coastal) Damian Collins MP (Conservative, Folkestone and Hythe) Philip Davies MP (Conservative, Shipley) Paul Farrelly MP (Labour, Newcastle-under-Lyme) Alan Keen MP (Labour, Feltham and Heston) Mr Adrian Sanders MP (Liberal Democrat, Torbay) Jim Sheridan MP (Labour, Paisley and Renfrewshire North) Mr Tom Watson MP (Labour, West Bromwich East) Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the internet via www.parliament.uk. Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at www.parliament.uk/parliament.uk/cmscom. A list of Reports of the Committee in the present Parliament is at the back of this volume. The Reports of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in a printed volume. Additional written evidence may be published on the internet only. Committee staff The current staff of the Committee are Tracey Jessup (Clerk), Andrew Griffiths (Second Clerk), Elizabeth Bradshaw (Inquiry Manager), Ian Hook (Senior Committee Assistant), Keely Bishop/Alison Pratt (Committee Assistants) Gabrielle Henderson, (Committee Support Assistant) and Laura Humble (Media Officer). Contacts All correspondence should be addressed to the Clerk of the Culture, Media and Sport Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 6188; the Committee’s email address is [email protected] Channel 4 Annual Report 1 Contents Report Page 1 Introduction 2 2 New team, new vision 4 A funding gap? 4 Going it alone 6 The scale of the independent-funding challenge 7 3 New remit 11 Digital Economy Act 11 Public Bodies Bill 13 4 Public service delivery 14 Core Channel 14 Network of services 15 Risks and challenges 16 Nations and regions 20 Film 21 Big Brother 22 5 Remuneration 23 6 Transparency and accountability 26 Transparency 26 Accountability under the Digital Economy Act 28 Conclusions and recommendations 30 Formal Minutes 33 Witnesses 34 List of printed written evidence 34 2 Channel 4 Annual Report 1 Introduction 1. For the past three years, the Culture, Media and Sport Committee has conducted an annual evidence session with the Chairman and Chief Executive of the Channel Four Television Corporation (“Channel 4”) because, as a statutory corporation, without shareholders, established and regulated under successive Broadcasting and Communications Acts, Channel 4 is ultimately accountable to Parliament for the delivery of its statutory remit. As Lord Burns, Channel 4’s Chairman, explained to us at the start of this year’s oral evidence session “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.”1 2. Our purpose is to assess, on behalf of Parliament and viewers, the extent to which Channel 4 is fulfilling its remit. Ofcom, the independent regulator, also has a scrutiny role. Channel 4 is obliged to provide specific elements of public service broadcasting on its core channel,2 receiving in return free analogue and digital spectrum, “must carry” status3 and due prominence on electronic programme guides. It is right, therefore, that Channel 4 receives more scrutiny than its commercial rivals who do not have the same level of privileges or obligations. The Digital Economy Act4 also gives the Channel a statutory role for its other services such as its digital channels and online services that has a very similar public service dimension, providing an additional element to our scrutiny. We welcome, therefore, the acknowledgement by Lord Burns that “we do regard these annual sessions as a very important part of our accountability, so we are not reluctant attenders at all.”5 3. We held this year’s oral evidence session with Channel 4 on its Annual Report and Financial Statements (“Annual Report”) on 28 July 2010. This was the first time the Committee had taken evidence from Channel 4 this Parliament. We took the opportunity to welcome a new top team—Lord Burns having replaced Luke Johnson as Chairman in January 2010 and David Abraham having replaced Andy Duncan as Chief Executive in May 2010—and to explore with them their vision for Channel 4 and the extent to which it differs from their predecessors. 4. We were aware that this year would be remembered as a significant moment in Channel 4’s history. The enactment of the Digital Economy Act (“the Act”) at the end of the last Parliament, amongst a number of other things, amended the Communications Act 2003 to give Channel 4 a new and expanded remit and duties. As the Act was passed in the ‘wash-up’6 before the General Election, and because other clauses were rather more 1 Q 1 2 The original and main Channel 4 television channel 3 i.e. satellite and cable companies must provide Channel 4 4 Digital Economy Act 2010 5 Q 1 6 Wash-up is the short period at the end of a Parliament - after the election has been announced but before dissolution. All the unfinished business - mainly Bills which have not completed their passage - must be dealt with swiftly. The Government, in co-operation with the Opposition, agree to pass certain Bills. Some might be lost completely, others might be fast-tracked, but in a much-shortened form. Channel 4 Annual Report 3 controversial than the Channel 4 elements, the House of Commons gave only limited scrutiny to them. We also took the opportunity, therefore, to consider—in more detail than was possible during the Act’s passage—some of its implications for Channel 4 and for viewers. We also inquired into Channel 4’s remuneration policy, and asked whether the £731,000 that the previous Chief Executive had received after his resignation, in lieu of notice, had been justified. Finally, we considered, in the light of the preceding analysis, whether Channel 4 was sufficiently transparent and accountable as an organisation, particularly given its new responsibilities. 5. Our Report details the outcomes arising from our main lines of inquiry both during the oral evidence session and in subsequent correspondence, all of which are published as part of the Report. We would like to extend our thanks to our specialist adviser to this inquiry, Mr Ray Gallagher, for his invaluable contribution.7 7 Ray Gallagher declared that he is a Member of the British Screen Advisory Council and a Fellow of the Royal Television Society and that he had joined the Sky pension plan during his employment and ceased contributing to it when he left the company in February 2006. 4 Channel 4 Annual Report 2 New team, new vision A funding gap? 6. Channel 4 is in a unique position as a publicly owned, not-for-profit broadcaster funded solely from commercial revenues but with public service broadcasting (PSB) obligations. Although it also undertakes other commercial activities, its primary means of raising revenue is through selling advertising minutage on its channels. PSB content, on its own, would not bring in sufficient advertising revenue to sustain the Channel. It operates, therefore, a cross-subsidy model, whereby it is allowed to broadcast cheaper and more advertiser-friendly non-PSB content as well as PSB content in order to generate sufficient advertising revenues to finance its primary remit. The previous Channel 4 management team argued before our predecessor Committee, and elsewhere, that this model was becoming untenable as advertising revenues declined and that, in the future, Channel 4 would require some form of additional financial support if it was to continue to deliver the same level of PSB. 8 7. The case for additional financial support was articulated in Channel 4’s 2008 strategy document Next on 4, which warned that “as the 10% decline in viewing experienced by the core channel between 2006 and 2007 suggests (from 9.8% to 8.7%), historic levels of Channel 4’s advertising revenues are unlikely to continue in the face of increased competition brought about by digital switchover.”9 Next on 4 prayed in aid consultants LEK, whom Ofcom had tasked in late 2006 to review Channel 4’s finances, and whose final report “confirmed the arguments that Channel 4 had previously made that it will face a significant funding gap by the time the digital switchover process is completed by 2012.”10 Next on 4 drew the conclusion that “[...]with no change to the current model, it will increasingly face the choice between moving into losses or having to cut back on public delivery.”11 8. There was a second strand to Next on 4’s case for additional funding; namely that: Channel 4 has always had some kind of public support to enable it to deliver its remit.