Its profits collapsed to £1.6 million and it was embroiled in race and phone-in rows, but Andy Duncan, the chief executive of Channel 4, still managed to double his salary to £1.2 million.

Mr Duncan, who believes that the state-owned broadcaster is facing a financial crisis, saw his pay rise from £622,000 as a long-term bonus of £450,000 was paid. Executive pay overall increased by nearly £1 million to £3.4 million.

Luke Johnson, the chairman, said that Mr Duncan, who joined Channel 4 in 2004, had “done a good job in delaying the inevitable, in terms of delaying the decline in audience share”.

He added that salaries at Channel 4 were lower than at ITV or BSkyB, the satellite broadcaster 39.1 per cent owned by News Corporation, parent company of The Times.

Audience share for the core channel, previously steady at about 9.8 per cent, slipped to 8.7 per cent. The broadcaster was forced to drop Celebrity Big Brother after an intense controversy over alleged racist bullying of the contestant Shilpa Shetty.

It also forfeited £9 million in expected profit after it abandoned phone-ins following a scandal involving the You Say, We Pay competition on Richard & Judy.

Profits at Channel 4 have collapsed from £66.8 million in 2005 and £21.3 million in 2006 and Mr Duncan said that Channel 4 was “running out of road” because it would be unable to fund its programming commitments as its share of viewing dropped as more and more homes converted to multichannel digital.

He has asked the Department for Culture, Media and Sport for about £150 million in public subsidy, possibly taken from the BBC licence fee, to safeguard the broadcaster's future.

However, Mr Duncan conceded that executives had decided to run the company at break-even so that it could continue to invest in programming ranging from Ugly Betty to Dispatches.

Although group revenues increased 0.8 per cent to £944.9 million, spending on programmes was up 2.7 per cent to £624.2 million.

Rival broadcasters said that most of Channel 4's increased spending stemmed from its decision to retain the hit American series Desperate Housewives. Spending on programming made in the UK was flat at £380 million, but budgets for American and other foreign shows were up £21 million at £148 million.

Channel 4 has promised to spend less on American shows as it tries to emphasise its “public service” programming, but Mr Duncan said that it was critical to retain Desperate Housewives to maintain credibility with advertisers. “Sky came in with a big bid and we took the view we couldn't afford to lose Desperate Housewives,” Mr Duncan said.

This year, though, Mr Duncan said that Channel 4 had already made cost adjustments - in terms of cutting its programme budget - because television advertising was weak. “The market is down 1 per cent in the first four or five months of the year, but the bigger question is what will happen in the second half of this year, and in 2009.” He predicted that Channel 4 would hold its share of all television advertising at 24 per cent.

Channel 4 believes that it will be hit particularly hard when households change the second set, typically in children's bedrooms, to digital.

Mr Johnson said: “Channel 4's share in second sets is 25 per cent, on a par with BBC One and ITV1. Ninety per cent of homes have yet to convert their second sets and that's about a third of all televison viewing.”

About 88 per cent of homes have changed at least one set to digital.

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