Channel 4 funding squabble escalates

The chairman of the BBC last night warned the government not to treat the licence fee as a "back pocket" that could be raided for cash and criticised Channel 4's campaign for public money, saying it risked turning it into "BBC5". Sir Michael Lyons, who has maintained a low profile of late, used a speech at the Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA) in London to wade into the debate over the future of public service broadcasting. He said the viewer risked being left behind as it was captured by "those wanting quick fixes for short-term problems or seeking tactical advantages for particular interests" and warned it was too important to be left to "civil servants, industry bigwigs or regulators".

The former Birmingham city council chief executive also hit out at the media regulator for coining the phrase "excess licence fee" to describe the extra £150m a year the BBC had been handed to facilitate the digital switchover until 2012. Ofcom's chief executive, Ed Richards, has suggested the money could be used in future to fund public service programming from other sources without harming the BBC. But Lyons said the excess licence fee was a "myth" that "doesn't exist". By the time the fund had been spent, the licence fee would be up for review again, he said.

He rejected many of the ideas put forward in the wake of the recent publication of phase one of Ofcom's public service broadcasting review, speaking out against the idea of handing a proportion of the BBC licence fee to rivals to help maintain plurality. "The licence fee is not a back pocket for government or regulators or anyone else for that matter. It is not a spare pot of cash, a contingency fund, to be raided every time there is a cause, however worthy, with a hole in its balance sheet and a media flag attached," he said.

Lyons repeated the often made point that breaking the BBC's link with licence fee payers would damage their support for public service broadcasting. But he also argued that handing public money to Channel 4 "could actually weaken rather than cure the patient". The broadcaster, which recently delivered a well-received redrawn public service remit in its "Next on 4" vision, has been arguing it will need up to £150m in public funding in order to provide competition to the BBC following digital switchover in 2012.

In a carefully worded attack on the idea, Lyons warned that the additional regulatory scrutiny that would come with public money could fatally undermine Channel 4's unique role and purpose. The public would want assurances that "new monies won't simply leak into higher salaries for onscreen talent - and, indeed, for offscreen executives - with knock-on effects across the industry," he said. "Put bluntly, the question is this: Who gains if the effect of well-meaning regulatory intervention is to turn Channel 4 into BBC5?"

The chairman of the BBC Trust, who after taking over from Michael Grade last year immediately had to deal with the fallout from a series of trust scandals that rocked the corporation and a divisive round of cuts, said the debate should be far broader than simply considering how to prop up Channel 4. Lyons also slapped down the notion that the BBC Trust, designed to oversee management and act as the voice of licence fee payers, should act as the body through which a proportion of the licence fee could be redistributed. "To those who offer the trust the prospect of translating itself into Of-PSB, we say: thanks, but no thanks."

Meanwhile, the Channel 4 chief executive, Andy Duncan, has said he is fed up with rival broadcasters "squabbling" over the issue of his organisation's future funding. Duncan said he wanted to concentrate instead on the urgent need for Channel 4 to find a solution to its funding shortfall through the Ofcom public service broadcasting review. His comments, made today at the Westminster Media Forum seminar on Ofcom's PSB review, will be seen as a thinly veiled swipe at BBC Trust chairman Michael Lyons, who criticised Channel 4's campaign to secure new sources of public funding and the idea of top-slicing the licence fee in a speech last night.

Lyons warned that the additional regulatory scrutiny that would come with public money could fatally undermine Channel 4's unique role and purpose. Duncan said: "I am fed up with petty competitors squabbling and [the] closed body language from some organisations." He added that Channel 4 had already reached financial breaking point. "We are cutting programme budgets as we speak," Duncan said.

He avoided commenting directly on Lyons' speech or which potential funding option Channel 4 favoured, focusing instead on hammering home the urgent need to find a workable solution. "We can have debate and discussion but we need action," he said. Duncan added that a solution needed to be put in place for the estimated funding shortfall of up to £150m a year that Channel 4 will soon face, before events overtake the broadcaster and the UK public lose the high quality programming and public service content it offers.

"We need to make sure a British stamp remains culturally on what we do. This generation need to solve this or we are in danger of losing it," he said. "Through Ofcom, let's have a debate and work it out quickly… the pros, the cons… and find a joined-up solution." Channel 4 has been arguing that it will need up to £150m in public funding in order to provide competition to the BBC following digital switchover in 2012. Channel 4 has maintained that it receives a form of public funding via the spectrum it is allocated and that some form of monetary funding to replace this loss is needed.

Duncan also told the Westminster Media Forum seminar today that although the deal Channel 4 had struck with independent producers' trade body Pact in 2006 over digital media rights had been "ultimately very constructive", it would need revising. "We need ongoing negotiations with Pact [but] we don't want to turn the clock back. We need to evolve the current terms as content goes online," he said.

Alex Graham, chief executive of independent producer Wall to Wall, which makes Who Do You Think You Are?, responded at today's event by saying that when Channel 4 controlled digital distribution it "made very little money indeed" from exploitation. Graham added that Channel 4 had done quite well out of the 2006 deal and it was a "total myth" to think that going back to previous terms of trade would solve the broadcaster's funding problems.