Channel 4 entering reality phase with trepidation.

The role of Channel 4 in the increasingly fragmented British TV industry has become a subject of constant speculation among the country's broadcast experts. It is about to undergo radical changes which will affect not only its programs but also Channel 4 International, its overseas sales arm.

Its aim, since its 1982 launch, has been to provide distinctive and innovative programming, to complement both ITV/ Channel 3's popular drama and entertainment and the BBC's public broadcast services. But, unlike the other channels, it does not produce any programs. It is a "publisher-contractor" which commissions programs from independent producers, Channel 3 broadcasters and through co-productions.

Channel 4 has survived with its unusual obligation in tact, thanks to the law's protection. The network is funded by the nation's commercial TV regulatory body, the Independent Television Commission. In 1991, it received pound255.5 million. That income is derived from taxes collected by the ITC from the regional ITV/Channel 3 broadcasters who sell Channel 4's airtime and keep the proceeds. This, however, is going to change. From January next year, Channel 4 is obliged by law to sell its own advertising time. Now, analysts are wondering if its experimental type of programming will appeal to advertisers and whether a network financed by commercials would not be tempted to offer cheap popular entertainment just to boost its ratings.

With no end in sight to the recent TV advertising slump, this service is being asked to hustle for advertisers' cash. Competitors will be the long-established commercially funded Channel 3 (which currently supports Channel 4), the soon to be established Channel 5, BSkyB (Rupert Murdoch's very aggressive satellite networks), plus a whole range of satellite-to-cable operations such as MTV Europe.

Advertisers will also be paying attention to the severe criticisms against its program scheduling from Bruce Yng Gyngell, chairman of the nations breakfast service, TV-am. He has attacked Channel 4's output for being unimaginative without logic and "truly appalling."

As long as the ITC funds are guaranteed, the channel's program commissioners are cushioned from financial uncertainty. It commissioned nearly 700 independent producers in 1991. But, from January next year, that security blanket will he snatched away. In fact, the channel has already felt the impact of things to come. Poor advertising sales led to an eight per cent decrease in program funds for the current year.

In Channel 4's favor is the knowledge that it can offer advertisers niche audiences. According to research figures, viewers tune in by choice. Last year, it took a 9.8 per cent share of TV viewing (including cable and satellite) and 18.7 per cent of terrestrial commercial TV audiences. But critics argue that those niche viewers are not necessarily unique and can also be found watching other channels.

There is another protective element in Channel 4's new status. If its advertising revenue falls between 12 and 14 per cent of the total ad revenue for all the terrestrial channels, ITV will subsidize the two per cent difference.

If the revenue reaches more than 14 per cent of the total terrestrial income, Channels 3 and 4 will share the surplus.

Michael Grade, the company's chief executive, is approaching his company's new circumstances with the optimism usually found during an economic upturn. Reportedly, after failing to get a requested pound2 million salary to become ITV program commissioner, the aggressive and increasingly controversial Grade accepted a pound500,000 pay deal to stay on as Channel 4's chief executive for another five years--the same year he announced the eight per cent cuts in the programs budget. The company has also secured a pound75 million syndicated bank loan to buy new land and premises customized to meet the needs of the newly created advertising sales division.

The loss of pound5 million in the' recent Bank of Credit and Commerce International (BCCI) corruption scandal and the pound75,000 fine for violating the Prevention of Terrorism Act, because it refused to reveal the sources for a hard-hitting documentary about Northern Ireland, do not help.

These developments within the network will undoubtedly put some pressure on the TV program and film sales division, including Film 4 International which invests in projects for potential theatrical release. Since Channel 4 fully funds programs from independents, it retains distribution rights. However, the Channel 4 catalog of programs is mostly contracted out to distribution specialists such as VATV, Jane Balfour Films and NBD, enabling the Channel 4 sales department to keep its staff to the bare minimum.

Last year, worldwide program sales brought in pound11.4 million compared with pound11.8 million for the previous nine months of 1990. "We want to keep as streamlined as possible as the market is becoming more and more difficult," admitted Frances Berwick, Channel 4's program sales manager."It is a question of keeping a watch on our overheads."

Her division will be investing more resources in co-productions, which attracted pound27.5 million worth of investment the last financial year. "We are concentrating more in that area as it has been increasingly very effective," she concluded.