Television: Why it's credit crunch time for Duncan's digital dream

It is but a few weeks until Channel 4 reveals its annual results and the organisation's chief executive, Andy Duncan, is receiving some worrying signals from the advertising department that, for the most part, provides the broadcaster's funding.

"We are beginning to see in May and June the first signs of real market decline. The worry is that some of the wider economic pressures are beginning to bite," he says. "We announce our results for 2007 in a few weeks and we will see a worsening picture from 2006 and I'd say with all the evidence so far 2008 is going to be even tougher than 2007. The trend is definitely a worsening one and getting tougher."

The television industry has become used to Duncan's hand-wringing over economics, with his repeated warnings that C4 will face a £150m annual funding shortfall following digital switchover in 2012, but this prognosis of an advertising slowdown has implications for all his commercial competitors. "Bluntly, with the state of the economy as it stands we are all a bit worried that [C4's financial situation] is going to get worse even quicker than we feared."

On Thursday, Ofcom, the broadcasting watchdog, is due to deliver its much-anticipated second public service broadcasting review, a document which is expected to set out the role and potential funding mechanism of the 26-year-old broadcasting organisation in the world of post-analogue British television.

In advance of this revelation of Ofcom's position, Duncan and his chairman Luke Johnson laid out their own vision for C4's future in "Next on 4", the most extensive review of the purpose of the channel in its history, one partly inspired by the traumatic events of 2007, which saw C4 mired in even more controversy than its remit allows, censured and fined by the watchdog over broadcasting misdemeanours on programmes such as Celebrity Big Brother, Deal or No Deal and Richard & Judy.

At the launch of "Next on 4" last month, C4 announced that it would be reducing its interest in acquiring American shows, which have traditionally been a key and highly valuable part of its schedules. The market for airing such programmes in Britain has been transformed in recent years, with intense competition sending prices spiralling. Duncan lays part of the blame for this at the door of his former employer, the BBC, for whom he was Director of Marketing, Communication and Audience.

"For most of our first 15 years Channel 4 had a pretty clear run at US acquisitions – they weren't big enough for the BBC or ITV. Channel 4 had a proud history of picking up the best American shows, like Friends, Frasier, The Sopranos, The West Wing and Sex and the City. They were actually very profitable. What we've seen happen in recent years is that there's much more competition for those shows. The costs have gone up dramatically and linked to that the potential profits you can make have gone down dramatically," he says.

"I think that it's definitely questionable why the BBC spends any money at all on American programming. I think pretty much any programme the BBC buys now would appear on British television bought by somebody else."

In fact, he goes so far as to suggest that a debate should take place as to whether acquired American programming should be ruled out of bounds to the BBC by the corporation's charter. "It's an interesting question that needs to start being asked next time round with the charter. I think at some level they are contributing to price inflation and costs staying high for other broadcasters. I think it is questionable, actually, given that they don't need to compete in the marketplace for advertising," he says.

"We've gone from a situation where acquisitions were a very important profitable area for us and a big source for subsidising loss-making public service programming and we're now in a situation where the amount of money we can make on US acquisitions is substantially reduced, which is part of the financial pressure we are under. I think a contributory factor to that – though not the only one – is that the BBC remains reasonably aggressive in this area."

Duncan's view is that the BBC should concentrate on its role of being the "cornerstone" of public service broadcasting and that C4 should also exist as a PSB provider to ensure plurality and that the corporation does not lower its standards. In his opinion, C4 is already leaving the BBC trailing in documentary programme-making.

"I think unquestionably Dispatches has now replaced Panorama as the premier current affairs programme on British television. First of all, it's an hour – Panorama is only half an hour – and, secondly, if you look at the consistency with which we deal with difficult tough issues, foreign affairs issues, Iraq, tough domestic issues, the seriousness of Dispatches is outstanding. I think it's the top current affairs programme on British television and I think most people would agree with that."

As part of the "Next on 4" commitment, the channel has pledged to broadcast at least one new documentary in peak each weekday. Alongside the promise to increase the amount of airtime available to new talent, this means C4 will be broadcasting an unrivalled number of new programmes, a risky strategy in a crowded market where audiences often take time to locate shows they like.

Though he's proud of the channel's record in making new shows, Duncan admits that "the flipside is that it does make life more difficult, you can't market every single programme". C4 promotes new factual shows by attaching them to big brands such as Dispatches or its other long-running documentary strand Cutting Edge (both of which are getting bigger audiences). Or it groups programmes together as part of a "season".

The Big Food Fight, centred on programmes with Jamie Oliver, Gordon Ramsay and Hugh Fearnley-Whittingstall, had enough critical mass to change the public's shopping habits in favour of free-range chicken. The season also lent itself to what Duncan describes as a "brilliant piece of marketing". In the pipeline are a season on Britain's gun and knife culture, fronted by Cherie Blair, and one on immigration, led by Rageh Omaar.

Diversity is a big issue for Duncan, who has invited Lenny Henry (the source of recent criticisms of the television industry's failure to represent Britain's ethnic mix) to address C4's senior executives. Duncan is also to recruit a new head of diversity and has pledged to increase the number of shows in peak time on issues around race, gender and sexuality.

"We are now into a new phase," he says. "It's not just about black and Asian faces, there are eastern Europeans, London is a cosmopolitan city but Britain as a whole is a melting pot of cultures and backgrounds."

Though Duncan is an internet evangelist, he nevertheless recognises that the web encourages people to form cliques. "One of the dangers for the UK going forward is that we become a more fragmented society. One of the dangers of the internet is that it makes it easy for likeminded communities only to spend time with people like them, who think the same as them."

Though C4's overall share is down by 12 per cent year-on-year, it still attracts people in their millions and, says Duncan, can "get people thinking about cultures and communities that are different to them."

He says C4 is "not a broadcaster any more, we are absolutely a multi-media organisation" and he hopes to use online to mine a new generation of creative talent, supported by the 4IP fund, which it is establishing with partners around the country and could be worth £50m. "I hope we can go on to have as powerful impact with the fledgling digital media sector as we had 26 years ago with the start-up of the independent production sector."

C4's ambitions in radio have run into problems and the launch of its multiplex has been delayed until autumn amid a crisis in confidence in the future of digital radio (DAB). Duncan, who won his marketing spurs working at Unilever on food brands, believes the DAB platform is in need of a rebrand. He says C4 is talking to other radio industry players and the Government over "how the whole DAB platform can be relaunched, and I think that means sorting out the technology side, sorting out the consumer proposition, potentially rebranding the platform..."

But before that he has the Ofcom review and an indication of whether his vision for C4 has any chance of becoming a reality. "What's at stake is very important," he says.

"We have a very high quality broadcasting system in this country and we're evolving into a much more multi-media world. If we can keep a strong BBC and strong Channel 4 that's great for future generations. To let that opportunity slip would be a massive mistake."