You have to hand it to Michael Grade. The chief executive of Channel 4 is not a man who gives up readily.
For more than two years he’s been running a noisy campaign designed to change the “safety net” arrangement under which Channel 4 claims it is effectively subsidising its bigger rival, ITV. A year ago, the then Heritage Secretary, Stephen Dorrell, slapped down Channel 4 pretty firmly, ruling out any change in the funding formula until 1997 at the earliest – when, in any case, the existing rules allow for the arrangement to be reviewed.
Lesser men than Grade might have slunk off at that point to lick their wounds, concluding that further lobbying and campaigning on the issue would be ineffective.
But Grade stuck with it. He has continued to hammer away at the issue, maintaining that it is simply unjust that Channel 4’s success in selling its own airtime should be penalised by having to hand over large sums (57.3m this year) to the fat cats in ITV – money which Channel 4 maintains would otherwise go into its programme budgets to produce about 400 hours of original British programming a year.
And the campaigning has worked, up to a point. The Independent Television Commission hasn’t gone so far as to back Channel 4’s call for the abolition of the funding formula. But it has suggested putting it in abeyance from 1997: Channel 4 would no longer make payments to ITV if its income exceeds 14 per cent of total terrestrial television advertising.
Under the commission’s proposal the formula could be reactivated if Channel 4’s revenue fell below 14 per cent at some future date, when ITV companies would have to bail it out – though that, as the commission’s spokesman concedes, would effectively mean requiring ITV companies to provide Channel 4 with a safety net without the current quid pro quo.
The ITV companies are seriously rattled, and are now convinced that Channel 4 will try to amend the forthcoming Broadcasting Bill to abolish the funding formula. So this week they published their riposte, marshalling all the arguments in favour of the status quo. Some look stronger than others.
One of the weakest is that the formula helps keep Channel 4 honest: it’s discouraged from following a “ratings first” policy by the knowledge that half the additional revenue it might win has to be handed straight over to ITV.
This would be a stronger argument if much of ITV’s other evidence didn’t suggest that Channel 4 is merrily following a “ratings first” policy as it is. It replaced the old Channel 4 Breakfast News with The Big Breakfast. It ran a mainstream game show, Don’t Forget Your Toothbrush. It has acquired a wide range of US sitcoms which it aggressively schedules against ITV (rather than in a way that is complementary). It schedules major Hollywood movies on Sunday nights. Between 1993 and 1994, ITV claims, Channel 4 increased its spending on US programmes by nearly two-thirds, while marginally cutting back on the amount it spent on UK programmes.
But ITV is on rather stronger ground when it alleges that the funding formula also helps to keep many ITV companies both honest and profitable. They have many more explicit “public service” obligations than Channel 4 (including regional programmes, arts programmes and religious programmes) as well as commissioning far more expensive drama. The implication is that these worthy programmes would be at risk if the flow of funds from Channel 4 were cut off.
That Channel 4 money made the difference between profit and loss for one or two ITV companies, notably Meridian, is not new. But what is new is the revelation in the document that the ITV companies seriously over-estimated how much advertising revenue they would earn when they applied for their licences.
ITV company business plans remain confidential, but Chris Hopson of Granada, who wrote this week’s ITV document, says he’s been given permission to aggregate the predictions made by the six largest companies of their revenue predictions for 1993 and 1994. Across the two years, ITV’s advertising revenue fell 258m short of their predictions. Channel 4 made 126m more. Lest the ITV companies be accused of being too bullish in their predictions, Hopson quotes Zenith’s forecasts, which were even higher for ITV than ITV’s own, and lower for Channel 4.
The revelation is an object lesson in the dangers of attempting to forecast advertising expenditure – and even more of the dangers of relying on those forecasts. Of course, the blow for ITV is cushioned somewhat by the fact that much of the extra money which has flowed to Channel 4 has flowed straight back to it.
But the ITV network’s argument that the delicate ecology of commercial television could be thrown seriously out of balance by the abolition of the Channel 4 funding formula clearly deserves greater attention than Grade, for one, is ever likely to give it.