Mathew Horsman

Many in the media have been racking their brains to decide what should be done with Michael Grade's money. You know, all that luscious cash that Channel 4 generates through its canny scheduling, excellent programme commissioning and astute buying of hit foreign series. The ITV companies think the present arrangements - whereby some of the excess money is gifted to them - are highly satisfactory. Well they would, wouldn't they? I think there are more deserving recipients, and I don't necessarily mean Channel 4 itself.

First, a little background. Last year the Channel 3 broadcasters got pounds 74m from Channel 4; this year the cheque will be for pounds 88m. The funding formula was established to ensure that Channel 4 could meet its public service requirements, particularly its remit to provide alternative, innovative programming, even if it meant lower commercial revenues. As a consequence, if Channel 4's share of "total terrestrial television qualifying revenue" (advertising and sponsorship to you and me) falls below 14 per cent, then Mr Grade is allowed to dip into the channel's reserve fund to make up the shortfall. If the gap remains unfunded, then ITV companies will have to cough up emergency money.

The formula cuts both ways. If, as has been the case in recent years, Channel 4's share rose above 14 per cent, then the excess revenues was divided as follows: 25 per cent to the reserve fund, 25 per cent to Channel 4's own budget, and 50 per cent to ITV. Last summer, the Government agreed that Channel 4 need not make a payment to the reserve fund, so the split became 50 per cent for ITV and 50 per cent for Channel 4.

Mr Grade hasn't got it in writing yet, but there have also been promises from the Government to reduce the ITV payment to zero by 1999. The Channel 3 companies, in the meantime, will be allowed to renegotiate their cash bids if they wish, thereby conceivably reducing their outgoings. In any event, they have more or less conceded that they will lose the Channel 4 levy.

But deciding that ITV shouldn't get the money isn't the same as saying that Channel 4 should. Does it really need the extra millions to meet its remit? Just how much money do you put on the screen to ensure you are catering for minority tastes not served by the other main commercial broadcasters, ITV and, soon, Channel 5?

Consider, for example, that Channel 4 is set to spend pounds 320m this year on programming, about the same as BBC2. That represents a whopping 17 per cent increase year on year. Channel 5, which is meant to cater to mainstream tastes, is spending just pounds 110m.

Let's think laterally. Channel 4 is a public service broadcaster, not a private company (yet, at any rate). It generates commercial revenues but is not meant to generate a profit. So why not try and give a little of the excess back to the public? And in so doing, why not help that other great public service broadcaster, the BBC?

The Beeb has lost its campaign for a higher licence fee, which was meant to help the corporation prepare for the digital age. The Government, in its wisdom, has declared that the fee will stay flat, after inflation, over five years.

But what if the ITV's half of the Channel 4 surplus went to the BBC, as a kind of a supplementary licence fee? On this year's pounds 88m, that would mean an addition of about 5 per cent to the pounds 1.8bn generated from licence payers, or an increase well above the rate of inflation.

There is some symmetry here. Channel 4 provides a public service, as does the BBC. The fourth channel gets the bulk of its revenues from advertisers, which the BBC is prohibited from doing. Provided Channel 4 keeps half of the excess cash it generates, thereby ploughing it into programmes for minority audiences, then wouldn't it serve the public interest to give the rest of it to our premier public service broadcaster? The BBC could in this way tap commercial advertising revenues without taking adverts. The licence fee, which is basically a regressive tax, would stay constant in real terms over five years, yet the BBC would go some way to closing its digital funding gap thanks to the Channel 4 money.

As far as I know, the idea has not been aired before. Channel 4 and the BBC have discussed ways they could work together as public service broadcasters - by jointly commissioning programmes, for example. But would Mr Grade like to go even further in his defence of public service broadcasting, and support a fresh use for his well-earned dosh?

All right, all right, the proposal is hardly serious. And, of course, it won't happen. But it does highlight the need to address the BBC's future basis of funding, and the question of Channel 4's role in the new era of multichannel broadcasting.

Channel 4 will doubtless be allowed to keep the money. Indeed, maybe, depending on what Mr Grade decides to do with the windfall, this could be no bad thing. Consider that the fragmentation of television audiences will lead to smaller and smaller budgets, with many broadcasters reduced to providing niche, quirky programming. In that scenario, Channel 4's remit might best be served through high-quality, expensive programming - the kind that might be increasingly unavailable elsewheren