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Lord Birkett: I too support the amendment to which my name is attached. Between them, the noble Earl and the noble Lord, Lord Thomson, have made such a comprehensive survey of the history and finance of the matter that I do not need to add to it. It adds up to an unanswerable case. However, I should like to emphasise one small element which they did not. It relates to the programmes which would be made.

At Second Reading I told your Lordships exactly what Channel 4 thought--and I agreed--would be possible had it not had to pay the sum to ITV. But today the position is very much more dramatic. At Second Reading I talked about what Channel 4 would have done with £56 million or £57 million, which is what it paid last year. This week it is paying £74 million. I have added up all the programmes which it has carefully budgeted at £74 million. No fewer than 88 new programmes would result; some of them single programmes, some of them complete series, and some of them major films. That would be very good news for the viewers of this country, because Channel 4 makes programmes and films very well.

The film and television industries are much more closely interlinked than ever they were before. Anyone can tell the difference between a cinema and a television screen. But it is often quite difficult to know on which of those screens a new film will appear, so interlocked are the media. Not only would the 88 new programmes be wonderfully good news for the viewers of this country, but they would be wonderfully good news for the talented programme and film makers of this country. A shot in the arm is what they have needed for years and there are very few places to look for that shot. This would be something so valuable to the industry and so valuable to the viewers that it simply cannot be neglected.

Baroness Birk: It certainly does not seem as though six years have passed since I was embroiled in the details of the last Broadcasting Act. However, technology has moved on since then. The Bill now before us recognises that technological change has created a range of new opportunities in the media. Channel 4 remains committed to its full public service programme remit but admits much tougher competition than there was at that time. However, the funding formula imposed on it in the Broadcasting Act 1990 is draining the corporation of funds badly needed to invest in British programmes.

It was never the intention of Parliament that the funding formula should be anything but a safety net provision for an innovative channel specifically targeted

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at minority audiences which were not catered for under the system at that time. How anxious most of us were at that time to ensure its success during its transition to financial independence. Instead, the funding mechanism has become an expensive millstone round Channel 4's neck, depriving viewers of new British programmes and films and in the process creating a regular, risk-free windfall for many ITV companies.

It is the viewers who suffer from a lack of new programmes. It is employment which is penalised, since the money paid out can provide around 1,500 new jobs. As has already been said three times, but I think it is worth pressing it yet again, this week Channel 4 will pay £74 million to ITV. Last year it handed over £57 million. In 1997 it will have paid £300 million. It really is a victim of its own success. That is all wrong. The funding formula's sole purpose was to sustain Channel 4, not to subsidise ITV. Given ITV's profitability and its mergers and takeovers, its shareholders should not suffer from the abolition of the funding formula.

In 1990 we agreed to the formula for the best of intentions, but the formula has not worked out because Channel 4 has been much more successful than we estimated in 1990. In this Bill we now have an opportunity, as was pointed out by my noble friend Lord Thomson of Monifieth, to review the situation. The Government have argued that the future for Channel 4 is uncertain, which is why I think there should still be a fall-back position, but have failed to provide evidence to back that up. The ITC also wants it to have a fall-back position just in case it needs help. But again it failed to provide evidence to sustain that. Channel 5 is coming two years later than expected and its programmes will be competing primarily against ITV and not against Channel 4, as was once thought. For the safety net to operate after 1997, Channel 4 would first have to lose, as has been pointed out, £150 million, which is 30 per cent. of its annual advertising revenue, and a further £150 million to consume its reserve fund.

The National Heritage Select Committee has unanimously recommended the abolition of the funding formula since it hinders investment in the British film industry. As a past governor of the British Film Institute, I would much prefer to see the revenue earned by Channel 4 being ploughed back into British film and programme production. If the channel did not have to subsidise ITV, it would be able to invest in 12 new "Film on Four" projects for this year alone.

We have a duty to promote the British film industry and to ensure that the viewing public has the chance to see more films like "Four Weddings and a Funeral" and "The Madness of King George III". The Government's proposals, as set out in the Bill, provide only further delay in solving the failure of the formula. It will ensure continuing dispute between ITV and Channel 4 at a time when they will be expected to work more closely together with digital television. That is not good for either organisation or, I suspect, the Ministers concerned who will be the recipients of further informative lobbying material.

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We can play our part in rewarding that success and enable viewers to have more of what they so clearly appreciate. I hope that the Government will think again and secure the future of independent film and programme production companies up and down the country by allowing Channel 4 to use all its earned revenue for much needed investment in this important British industry. I urge the Government to accept these very sensible amendments, if only to save the rain forests which have been ravaged in the lobbying efforts of those concerned.

10.30 p.m.

Viscount Astor: The noble Lord, Lord Thomson, said that my noble friend moved the amendment and made an elegant and devastating case. I agree that my noble friend certainly made an elegant case, but I put to the Committee that it was neither devastating nor convincing. I shall take a moment to explain why.

Much has been said about the funding formula, but two things are clear. In 1990, Channel 4 welcomed the protection that the formula provided. Also the ITV companies based their bids for the 10-year licence on the formula and the terms of the Act. Channel 4 has done much better than many expected--indeed, better than it expected itself--and it has gained an estimated 21 per cent. of the advertising revenue share. As a result, it has had to pay sums over because it is over the 14 per cent. One could say that it agreed a very expensive insurance policy. It was an insurance policy because if it had gone wrong the ITV companies would have had to pay money to Channel 4.

My noble friend the Minister has taken the view that the formula under the 1990 Act should be reviewed at the end of 1997, but that it should stay in place. The ITC has also said that the formula should stay in place, but that the payments should be set at zero. Michael Grade has now said that he believes that the formula should remain until the end of 1997, which is a change from his previous position, but that it should then be abolished.

There are many arguments which have been made to promote that cause. The first is that it would enable Channel 4 to plough back more money into domestic production. That sounds reasonable and the noble Lord, Lord Birkett, made a case. We have to look at what the consequences will be for other small, regional ITV franchisees. Let us look carefully at the claim that abolition would increase domestic production.

Channel 4 does not owe its success to homemade programming. One of the reasons that it is successful is that it has cleverly imported ready-made programmes from America. The audiences love them. That is the reason for their success. I know from my own experience at home, wrestling and battling to get hold of the remote control, that programmes such as "Cheers", "Frazier", "NYPD Blue", "Roseanne" and many others are popular.

It is interesting that in fact, although Channel 4's income rose from £251 million in 1992 to £394 million last year, over the same period the number of US programmes broadcast on Channel 4 actually increased

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from 992 to 1,443. Channel 4's income has grown in recent years, but so has the level of imports. So I am rather sceptical of the simplistic argument that giving more money to Channel 4 will automatically increase domestic production. A simple analysis of the ITC annual report demonstrates that once the special payments from Channel 4 to ITV, and from ITV to the Treasury are taken out of the equation, there is no difference. Comparing the ITV and Channel 4 franchisees, both spend the same percentage, some 50 per cent. of net revenues, on original UK production.

The Earl of Stockton: Does my noble friend have a comparable figure for investment in British film industry production, particularly in terms of bringing on a script to the point of production?

Viscount Astor: The funding formula has nothing to do with the film industry. This is about Channel 4. It is a separate matter.

Channel 4 has been able under the existing rules to increase its programming budget by 44 per cent. over the past three years: not a bad record when you consider that it has also been able to spend £62 million on a new building. What we must also remember is that although Channel 4 pays some £60 million to the ITV companies, it does not pay any levy to the Treasury. The ITV franchisees actually pay over £370 million to the Treasury, plus corporation tax and dividends to shareholders.

Channel 5 arrives next year, paying about £22 million in licence fee to the Treasury, and is forecast to gain a 4 per cent. share of total television advertising in its first year, rising to 9 per cent. in 2002. It is very important to retain the flexibility and not haphazardly change the rules. With Channel 5 taking a large chunk of revenue, and many more satellite and cable channels about to be launched, who knows what will happen?

The Government must have the flexibility. Much has been said about the smaller ITV companies. We all agree about the importance of regional programming, which we discussed earlier, but without the possibility of support post-1997 those companies could be in great danger. The amendment removes the possibility of support post-1997. We all agree that the larger ITV companies will not need the money after 1997--they might not get any of it--but this amendment removes the formula and the flexibility. If we tinker with the arrangements in this way, we put some of those companies in grave danger. Therefore, I hope that my noble friend the Minister will firmly resist the amendment.

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