C4 sharpens axe to beat birthday blip

After falling £28m into the red and letting its key youth audience slip, C4 is being forced to take a hard look at its operations. Amanda Wilkinson reports

The long-standing darling of the TV world, Channel 4, is not used to the rough ride that it has been getting recently. But the signs of discord were apparent last year.

In May last year, former Channel 5 chief executive David Elstein berated the station for being a “runaway train”, ploughing cash into digital TV channels such as E4 and FilmFour, the Internet and paying large salaries to a staff that has grown from 650 to more than 1,100 in five years.

At the time he was dismissed by Channel 4 as a lone voice of dissent. Channel 4 was then still under the stewardship of former chief executive Michael Jackson, who left in October last year (MW July 26, 2001).

But the channel soon moved into the red, recording a &£28.2m loss for 2001 on a turnover of &£731m.

In the past few weeks the channel has announced there will be 200 job losses, among them David Brook, the channel’s director of strategy and marketing, to add to the 48 made last autumn and the 50 redundancies that resulted from the closure of Channel 4’s film subsidiary in July. To help reduce overheads, there will be budget cuts next year of 20 per cent in departments such as marketing .

Of course Channel 4, with more than 85 per cent of revenue derived from TV advertising and sponsorship, has, like the rest of the TV industry, been affected by the advertising recession. It recorded a decline of &£32m in advertising and sponsorship revenue for 2001. But it has not been as badly affected as, for example, ITV, and managed to outperform the market as a whole.

According to figures from Media Planning Group, Channel 4 took about &£604m in advertising revenue during 2001, down 3.5 per cent on 2000. This compares with &£3bn revenue for the market as a whole, which was down nine per cent on the previous year.

The media agency estimates that for 2002, Channel 4 will attract &£630m in advertising revenue, an increase of 4.3 per cent on last year, compared with the forecast for the whole market of &£3.1bn, up 3.7 per cent.

Last year, Channel 4’s bottom line was badly hit by extensive investment in 4Ventures, which is responsible for the E4 and FilmFour channels. The division lost &£64m, almost double the previous year’s loss of &£35.4m.

Mark Thompson, who joined as chief executive in March, claims that the latest wave of restructuring and job cuts will reduce overheads by &£36m and help to fund a 7.5 per cent increase in the channel’s 2003 programming budget to &£430m.

Thompson says: “Without access to public funding and without private shareholders to fall back on, Channel 4 can only generate additional investments by increasing its revenues, and this involves reducing its costs.”

The Government earlier in the year, despite a plea from Thompson, ruled out giving public money to the troubled station.

David Peters, broadcast planning director at Carat, says: “It’s a difficult time for Channel 4. It is in the unique position of trying to balance the books, but without the flexibility that Carlton and Granada have of being able to borrow money to see it through the hard times.”

It is not yet clear how many jobs will be lost in the marketing department, although the newly centralised department will be led by Polly Cochrane, whose title has changed from managing director marketing to director of marketing. The airtime sales department of 110, headed by Andy Barnes, whose title changes from commercial director to sales director, is not likely to be reduced by more than ten.

The channel has not only had money worries this year. Its programming has also come under fire for failing to deliver its usual high share of hip, young 16to 34-year-olds at the beginning of the year and during September.

TV buyers claim the channel was adversely affected by the introduction of the new BARB panel and that it has now clawed back its share of this key audience, so valued by advertisers, with the help of Big Brother. For 2001, the channel recorded a 20.6 per cent share of 16to 34-year-olds, according to figures from Universal McCann, which estimates that the channel’s share of the same audience for 2002 will fall to just below 20 per cent.

Richard Oliver, head of TV at Universal, says: “I think the 16to 34-year-old age group is the area that it has struggled with most in the first half of the year. Big Brother clearly made an impact in delivering its target audience, but the channel is struggling to replace programmes such as Trigger Happy and Father Ted, which appealed to those viewers.”

MPG broadcast director Andrew Canter agrees that Channel 4 has become “very reliant” on Big Brother to deliver key audiences. He also suggests the channel has become diluted in the minds of viewers by showing programmes such as The Sopranos on E4 first.

Nick Theakstone, head of investment at MindShare, accepts there may be some truth in that, but points out that the strategy has also helped to create a large audience for E4.

While the launches of FilmFour and E4 have, arguably, helped to bolster Channel 4 for the age of multi-channel TV, Thompson says the station has become side-tracked by the digital channels, taking its eye off the main Channel 4 service, though this will now be “the priority for fresh creative and financial investment”.

He has already made changes to the schedule by effectively axing Brookside, which is being cut back to a weekly Saturday omnibus edition. Channel 4 has also come in for criticism for the performance of breakfast programme RI:SE and its Richard and Judy show, and there is speculation that they will also be culled. But it is not all bad news for Channel 4 – it is enjoying its highest peak-time ratings since it launched in 1982.

However, Chris Hayward, head of TV buying at Zenith Media, believes that Channel 4 has also relied for too long on American shows, such as ER and Friends, and is in need of fresh programming, preferably home-based, that will distinguish it from other channels.

“I will be searching for a balance between that complete focus on edginess and innovation that Thompson has talked of and the drive to deliver a good quality young audience,” says Hayward.

Only time will tell whether Channel 4 will be able to write off present events as a blip in its 20-year existence.

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