Channel 4: Countdown conundrum

Digital services are the key to C4's future success. Chief executive Andy Duncan outlines how it will happen to Raymond Snoddy

The new Channel 4 chief executive Andy Duncan, with a nice eye to tradition, has named his strategic review of the future of the channel Project Countdown Just as in the famous quiz programme that launched Channel 4 on its first night in 1982, Duncan believed he was under time pressure, and that at the end there was a serious conundrum - how to protect the channel's public-service remit in a digital age. "We see the first priority as future-proofing Channel 4. I am convinced there is a problem," says Duncan, the former Unilever marketeer and marketing director of the BBC, who was the surprising choice to succeed Mark Thompson as chief executive of Channel 4.

The new Channel 4 chief executive Andy Duncan, with a nice eye to tradition, has named his strategic review of the future of the channel Project Countdown Just as in the famous quiz programme that launched Channel 4 on its first night in 1982, Duncan believed he was under time pressure, and that at the end there was a serious conundrum - how to protect the channel's public-service remit in a digital age. "We see the first priority as future-proofing Channel 4. I am convinced there is a problem," says Duncan, the former Unilever marketeer and marketing director of the BBC, who was the surprising choice to succeed Mark Thompson as chief executive of Channel 4.

Duncan is putting the final touches to one of the most important pitches of his career. Tomorrow he will be trying to persuade Ofcom, the communications regulator, that despite being profitable at the moment, Channel 4 will need help in the medium term if it is going to survive in its present form. The first round of the strategic review is already over, and most neutral observers would judge that Duncan achieved high marks by deciding to call a halt to the year-long flirtation that could have led to a merger between Channel 4 and Channel Five.

"On Five, it is fair to say I was open-minded to the idea. There were potentially some interesting cost-savings. If you were to run [the two channels] as a joint organisation, there would be an opportunity to cross-schedule and cross-promote, so that the whole would be greater than the sum of its parts," he concedes. What was clear from the internal study in both broadcasters is that a merger deal could have been legally structured without the need for primary legislation. Separate bodies could have held the Channel 4 and the Channel Five licences. They would then simply have had joint operations. But Duncan, a life-long commercial animal, had more and more doubts, the further he looked into the detail.

"I couldn't see how this was going to protect the DNA of what Channel 4 is all abut, and there was inherent tension between the not-for-profit public corporation and the Channel 4 remit, and a shareholder looking to maximise profit," says Duncan. Although coordinated, carefully worded statements were issued by both boards, it is clear that Five was rather more disappointed about the decision than Channel 4.

However, Gerhard Zeiler, the chief executive of RTL, the controlling shareholder of Five, is not distraught. He believes that because of the current pressures facing the satellite broadcaster BSkyB, he has more time than he previously thought to come up with a multi-channel digital strategy for Five. The issue of a Channel 4/Five merger is now formally dead, with the only remaining irony the fact that it was interred by Duncan the marketer, and it was his predecessor, the public-service Thompson, who is now the director-general of the BBC, who should have been so keen on it.

When it comes to describing his pleasure in his new job, Duncan, whose slightly battered appearance suggests he could have beena boxer in another life, can scarcely contain his delight. "I think it is a brilliant place to work, packed with fantastic, creative, passionate people, and I am really looking forward to helping to map out how Channel 4 can play an even stronger role over time," says the man who has been responsible for many other brands,from Olivio margarine and Batchelors Supernoodles to mushy peas and PG Tips.

There is one slight disadvantage in working for Channel 4. His Batman T-shirts - which made a powerful statement around the BBC board-of- management table - look entirely normal in his new job. To be unusual at Channel 4 he would have to wear a conventional suit. In fact, Duncan denies trying to make sartorial statements of any kind. "I'm just naturally quite scruffy. I always hated wearing a tie. I wear a black tie when I have to. I used to wear a T-shirt at Unilever as well. I just feel more comfortable and more myself. It's important to be yourself," he insists.

Being himself meant forsaking substantial Unilever bonuses and taking a pay cut to go to the BBC. He made the move because he relished the challenge and valued its public purpose. Apart from concentrating the BBC's marketing firepower on a relatively few, big programmes, so that they would get noticed in the multi-channel maze, Duncan killed off the hot-air balloon that, between programmes, used to drift peacefully over beautiful landscapes all over the UK. There were complaints, but Duncan believed that broadcasting was about viewers, not balloons, and that the onscreen identity of the BBC should show people doing a range of interesting things.

At Channel 4, he believes, the challenge is rather different. In a year when Channel 4 could make around £70m profit, Duncan has somehow to persuade both Ofcom and the Government that the future of Channel 4 could be bleak if nothing is done. By 2008 he believes that Channel 4 could have a deficit of £60m to £70m and by 2010, or a little later in the run up to the end of existing analogue broadcasting in favour of digital, the deficit could rise to £100m. The latter figure is, he says, "a reasonable middle estimate. There is a problem, although it could come a little later, depending on assumptions." The outcome depends on the future overall strength of the advertising market and "the dynamics of audience share changes as multi-channel grows". Then there are unknown factors, such as the growth of personal video recorders ( PVRs), which enable viewers to fast-forward through the ads, or ignore them entirely, with ease. And every time a home moves over to multi-channel, some of the viewing share of the five terrestrial channels is nibbled away.

Duncan has at least given himself a fighting chance. At the BBC he was a leading proponent of Freeview, the free-to-air digital service. Freeview has turned out to be a buffer against pay-TV - there should be five million Freeview homes by the end of this year, and the service should start to rival Sky in terms of numbers by next year. "Freeview will have added more this year than last year, so it is not dying. Obviously as prices [of the equipment] continue to come down, it becomes more the norm. Next year you would certainly expect it to be between seven and eight million," says Duncan.

The growth is important, because in Freeview homes around 85 per cent of viewing is accounted for by the output of the five terrestrial channels. Freeview also provides launch opportunities for the Channel 4 organisation. When More 4 is launched next year, "it will be free-to-air from day one".

But Duncan is still gloomy about the price of doing business in the competitive digital age. Everything costs more, from talent, marketing and distribution to more favourable terms for independent producers (an extra £15m a year from Channel 4's coffers) and the need to be in new media, despite few signs of getting a return.

This week, in his submission to Ofcom's public-service broadcasting review, Duncan will make what he feels is a helpful suggestion. Ofcom believes that in the next decade there could be a shortage of funds for public-service broadcasting. It has proposed the creation of a public-service publisher, with perhaps £300m a year of public money to make programmes. Anyone could bid to be the PSP - except the BBC. Duncan will argue that Channel 4 is the ideal body to run such a fund.

"We see the PSP mechanism as a mechanism that could future-proof Channel 4," he says. He adds that if Ofcom sees another way to do it, that, too, would satisfy him. "But it does seem to us that you want as much money as possible to go on content. Building on an existing infrastructure and an existing brand is the most efficient way to connect this content with the audience," says Duncan. He believes that he may just have solved the Countdown conundrum. "I am quietly optimistic that we can find the right path to future-proof Channel 4." And he could yet become the first director-general of the BBC who wears nothing but T-shirts.