Channel 4 to face uncertain financial future

The future of Channel 4 will become increasingly uncertain in the next five years as the broadcaster’s commercial performance begins to deteriorate, according to a new report by Ofcom.

The report, carried out by independent consultancy LEK, says that the channel will begin making a loss after 2010 and will increasingly face the difficulties of having to pursue an aggressively commercial strategy while performing public service responsibilities.

The report concludes that there is a "wide degree" of uncertainty about Channel 4’s forecasted financial performance and it has created high, central and low case scenarios for the future. Its central case scenario forecasts that Channel 4’s will be loss making by 2009 and that the broadcaster will have to live off its cash reserves. LEK says that this situation would "rapidly call into question" the longer-term health of its underlying business model and in pursuing this strategy it will face a dilemma between its commercial strategy and its duty to public service.

The worst case scenario anticipates Channel 4 losses will be in excess of £100m per annum by 2012. The report says: "While there is potential for more favourable outcomes, our commercial judgement is that there is greater weighting towards more negative outcomes."

Channel 4 chief executive Andy Duncan says the report validates concerns already raised by the broadcaster. He says: "In our view, this report makes clear that it is no longer a question of ‘if’ Channel 4 needs new forms of public support to replace our gifted analogue spectrum, which is rapidly declining in value, but ‘when’."

Ofcom will consider the implications of LEK’s report, Channel 4’s submission and its analysis of remit delivery over the coming weeks together with further evidence from stakeholders. It is expected to report back in early summer. The watchdog commissioned the report into the channel’s medium-term financial forecast last year as part of its financial review of Channel 4