Channel 4 (Application of Excess Revenues) Order 1998

HL Deb 18 November 1998 vol 594 cc1303-6

4.55 p.m.

Lord McIntosh of Haringey rose to move, That the draft order laid before the House on 19th October be approved [45th Report from the Joint Committee].

The noble Lord said: My Lords, the order forms the second and final stage in the phasing out of the Channel 4 funding formula. The first stage was completed last year with the Channel 4 (Application of Excess Revenues) Order 1997. In July 1997, my right honourable friend the Secretary of State announced that the funding formula was no longer justified in the current broadcasting environment and that the Government would, therefore, take action to bring it to an end.

Under the terms of the Broadcasting Act 1990, Channel 4 is guaranteed funding from the Channel 3 companies if its income from advertising falls below 14 per cent. of total national advertising revenues. The liability of the Channel 3 companies is limited to 2 per cent. of total national advertising revenue in any one year.

On the other hand, if Channel 4's income from advertising rises above the 14 per cent. threshold, the excess revenue above that threshold must be distributed according to arrangements also specified in the 1990 Act: 50 per cent. of that excess goes to the ITC for onward distribution to the Channel 3 companies and 50 per cent. can be added to Channel 4's current expenditure plans. As I said, the first stage in the phasing out of the funding formula was completed last year with the 1997 order which reduced from 50 per cent. to 33⅓ per cent. the percentage of the excess revenues that Channel 4 must pay to the ITC.

The present order is made under Section 27(7) of the Broadcasting Act 1990, as amended by Section 83(4) of the Broadcasting Act 1996. It will reduce from 33⅓ per cent. to zero the percentage of excess revenues that Channel 4 must pay to the Independent Television Commission (ITC) for distribution to Channel 3 companies from 1999 onwards. This will, in effect, end the Channel 4 funding formula.

The funding formula was introduced as a safety net as part of the new arrangements under which Channel 4 was to sell its own advertising rather than rely on financing from the Channel 3 companies. Before the 1990 Act, Channel 4 had been financed by a subscription from the ITV companies which sold Channel 4's air time. The safety net was provided in case the new arrangements did not provide Channel 4 with enough income to fulfil its remit. In fact, since the funding formula provision came into force in January 1993, the flow of funds has always been from Channel 4 to the Channel 3 companies—to the tune of £346.5 million to date.

During the passage of the 1996 Broadcasting Act, there were calls to abolish the Channel 4 funding formula. Many, including Channel 4 itself, believed that, in the light of the success that Channel 4 has enjoyed since it began selling its own advertising, the financial safety net was no longer required and the payments being made by Channel 4 to the ITV companies should be ploughed back into the channel's programme production.

The previous government were not persuaded by those arguments. It was accordingly decided to retain the basic framework of the funding formula, but to take steps to increase the level of income Channel 4 can retain. So the Broadcasting Act 1996 introduced the power to adjust by order the distribution of Channel 4's excess revenues above the statutory threshold of 14 per cent. of television advertising revenues. It is under those provisions that today's order is made.

Phasing out the funding formula will, of course, strengthen Channel 4's financial position. That is why the Secretary of State, in announcing his conclusions on the funding formula in July 1997, asked the ITC to review Channel 4's licence to ensure that its income is used to further its distinctive public service identity. Following public consultation, the revised licence was published by the ITC on 23rd February 1998. It includes an increased commitment to and targets for original productions, first run programmes and productions commissioned from outside the London transmission region. It includes a specific commitment to assist the British film industry and new requirements for multi-cultural and disability programmes.

The Government welcome the terms of the revised licence which both meet our original objectives in phasing out the funding formula and reflect the response to the public consultation exercise. The new Channel 4 licence better reflects the corporation's core public service ends. It is excellent news for both UK viewers and UK creative industries.

The Channel 4 funding formula is outdated and unwarranted. The Government have announced their intention to bring it to an end and have already effected the first stage of that process. The order before the House today completes the process. I beg to move.

Moved, That the draft order laid before the House on 19th October be approved [45th Report from the Joint Committee].—(Lord McIntosh of Haringey.)

Lord Thomson of Monifieth

My Lords, I thank the noble Lord for such a clear and fair account of a rather curious episode in the history of British broadcasting. He has announced a satisfactory conclusion to a long and unsatisfactory broadcasting saga. Channel 4, warts and all, remains a remarkable and unique achievement in British broadcasting and is widely admired around the world.

The original plan as set out in the Broadcasting Act 1990 was well-intentioned in its way. It was intended as a safety net, to provide a protection for Channel 4 once it went independently into the advertising market-place in case its remit for special programming—dealing with minorities and innovative, creative programming—were to suffer. It was never remotely intended to be a subsidy to the populist programme makers of ITV. It was extraordinary that as a result of the 1990 Act, which had many other major flaws attached to it, the ITV companies should enjoy a subsidy of £365 million over the period. It is a very good thing that that should be brought to an end. I assume that in due course, when there is an opportunity for fresh primary legislation in the broadcasting field, the provisions under which this order is made will disappear totally from the statute book.

I was also glad that the noble Lord, Lord McIntosh, mentioned the conditions that have been attached to Channel 4's licence at the initiative of government. Channel 4 has a distinguished record. It has been of great importance to Britain as a whole in the field of independent film-making. I wish to underline the importance of the new condition in the licence; namely, that Channel 4 should devote its increased resources to increased original programme making outside the London area. Television programme making is a terrific magnet for the London area. It is easy to slip into an over-concentration. I emphasise the great importance of that condition being fulfilled.

In previous debates on the future of Channel 4 under earlier broadcasting legislation there was a vigorous campaign to save Channel 4 from the privatisation that was being urged from many quarters—including many high quarters within the government of the day. The noble Lord, Lord Donoughue, has gone on to much higher things in the agricultural sector of our economy. But the noble Lord and together with noble Lords on all sides of the House, fought a vigorous campaign at least to prevent the privatisation of Channel 4. It would be an extraordinary irony if, after that successful campaign, in which the Labour Party in opposition played such a leading part, a Labour government, in search of funding, were again to be tempted to go down the road of privatisation. I could not of course then hope to have the noble Lord, Lord Donoughue, as a fellow campaigner. But many of us on all sides of this House would want vigorously to resist any attempt on the part of the Government to go down that road.

The Earl of Courtown

My Lords, I thank the Minister for his explanation. I agree with many of the comments made by the noble Lord, Lord Thomson of Monifieth. They are based on his great experience in this industry, which I do not have.

On a point made by the noble Lord, Lord Thomson, and by my honourable friend Mr. Spring, are there any plans to remove the provision from the statute book now that there does not seem to be so much need for it?

Lord McIntosh of Haringey

My Lords, I am grateful to both noble Lords for the reception that they have given to the order, and particularly to the noble Lord, Lord Thomson, because of his distinguished service in the television industry. He is right in saying that Channel 4 has been a unique achievement. It is the Government's prime purpose to ensure that it continues to be successful not only financially but in fulfilling and enhancing its public service remit.

The noble Lord is also right in saying that the safety net was originally devised with good intentions. Some feared that Channel 4 by itself could not sell its advertising. Indeed, I remember a number of advertising companies, and the ITV companies themselves at the time, believing that they were uniquely qualified to sell Channel 4 advertising. In fact, they were uniquely unqualified. They tended to sell Channel 4 advertising as a sort of "come on", a loss leader as part of a much larger contract for Channel 3 advertising. The result was that before the change Channel 4 advertising was not particularly appropriate to the programmes around which it was being shown and did not take advantage of the availability via Channel 4 of nationwide minority audiences. That is what Channel 4 has proved by the way that it has been selling advertising since the change. The result has been that the safety net has worked only one way and has provided money entirely towards Channel 3 and away from Channel 4.

Both noble Lords asked why we could not get rid of the order altogether rather than reduce it to zero, presumably having to keep it at zero. The answer is simply that it would require primary legislation and we do not have a slot for primary legislation. As soon as we do, this will form a small and uncontroversial part.

I am grateful to the noble Lord, Lord Thomson, for his remarks about the increased requirement for original programming. The requirement will be that 40 per cent. of programming most of the day is the upper limit for repeats, and in peak periods 20 per cent. That will mean a considerable improvement in the quality and originality of Channel 4 programming.

I am also grateful for the noble Lord's remarks about privatisation. I confirm that we expect Channel 4 to continue to be part of the public broadcasting sector, playing a vital role in providing high-quality distinctive and innovative programming and experimental programming, which was added to the remit. The Government have no intention of privatising Channel 4. I commend the order to the House.

On Question, Motion agreed to.