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The company said that advertising and sponsorship revenue, which contributes 85% of the company's revenues, fell £32m or 5% to £619m from £652m last time, but the station still spent £426m on programming.

The broadcaster directly blamed the drop in advertising for its fall in profits and boasted that its ad revenues were ahead of the UK TV market, down 9.8%, while rival ITV saw ad revenues plunge 13.4% year-on-year.

Channel 4 said its share of the TV ad market increased to 23.5% from 22% last time, while audience share -- across terrestrial and multichannel homes -- declined to 10% from 10.5% in 2000.

It attributed the audience decline to "the continued growth of multichannel households", which rose to 41.0% from 36.2% last time.

Mark Thompson, Channel 4 chief executive, said: "Channel 4 performed better than its main rivals in 2001 in the most difficult market conditions for a decade, but we could not escape the effects of reduced spending on TV advertising, which pushed us into the red."

Group turnover rose 2% to £731m, up from £716m last time, the highest the channel has seen in its 20-year history. This rise in turnover was largely due to a 54% increase in revenues from its commercial division 4 Ventures, home to digital channels E4 and FilmFour.

However, Channel 4's investment in 4 Ventures lost £65m, against a loss of £35.4m in 2000 after the launch of E4, which cost the broadcaster £37.3m.

Thompson said: "4 Ventures is a necessary investment to ensure Channel 4 remains a powerful presence in the digital era. These businesses are young and will take time and investment to develop, but 4 Ventures is ahead of business plan and will take a major step towards profitability this year."

Thompson, the recently installed chief executive, was upbeat about the future, forecasting that the company would return to profit in 2002 if the current upturn in advertising continued.

April ad revenue has increased 4% year-on-year, while May and June combined revenues look set to increase by 8% year on year.

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