Ofcom warns of crisis at Channel 4

Broadcaster faces deficit by 2012

LONDON — Channel 4’s case for a public subsidy has been strengthened by a forecast from U.K. regulator Ofcom warning that the web faces an annual deficit of £100 million ($178 million) by 2012.

In a speech to the Royal Television Society, Ofcom CEO Ed Richards said that Channel 4’s financial prospects were worsening due to “the external situation” in the market, which had deteriorated considerably since an Ofcom review 18 months ago.

“To break even, Channel 4 would need to cut its investment in public service content year on year to 2012,” Richards said.

“We have subjected these projections to close scrutiny and, while we are not as pessimistic as Channel 4 itself, we do believe this annual deficit could amount to between £60 million ($107 million) and £100 million ($179 million) by 2012, excluding the costs of the Next on 4 vision.”

Channel 4, a pubcaster owned by the British state, has estimated that its Next on 4 plan — which includes beefing up children’s content, investing in HD and more online activities — will cost around $90 million a year.

Richards also argued that Channel 4 needs “a new funding mechanism” to enable it to provide public service competition to the BBC.

It remains to be seen if this “new funding mechanism” means giving Channel 4 a small share of the BBC license fee, so-called “top-slicing,” which generates £3.4 billion ($6.05 billion) a year.

Channel 4 CEO Andy Duncan said: “We’re very encouraged that Ofcom now broadly accepts our forecasts on the size and urgency of our funding gap and agrees that identifying a new funding mechanism for Channel 4 is a ‘pressing priority’.

“We also warmly welcome Ofcom’s endorsement of our Next on 4 creative vision and its recognition that Channel 4 is critical to ensuring ongoing competition to the BBC in the provision of high-quality public service programs.”