openDemocracyUK: Opinion

Channel 4: Is there value in privatisation?

An industry veteran explains why fears for the broadcaster may be misplaced

David Elstein
1 July 2021, 3.50pm
Channel 4 has won countless awards for its bold initiatives and committed output
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Sam Barnes / Alamy Stock Photo

Channel 4 has many passionate and vocal supporters. It is seen on the Left as the most radical of the terrestrial channels, spearheaded by Channel 4 News, which is decidedly less ‘establishment’ than its BBC and ITV equivalents. News presenter Jon Snow’s multi-coloured ties have for decades been emblematic of the channel’s outspokenness.

The channel is also praised for its embrace of innovative programming and minority interests. Over the years, it has won countless awards for its bold initiatives and committed output. Interestingly, it also retains some admirers in the ranks of the Conservative Party: partly because the launch of the channel in 1982 is widely regarded as a significant achievement on the part of the Thatcher government, and partly because of the highly successful independent production sector the channel helped generate.

Despite this, the Conservatives have several times floated the idea of privatising Channel 4. Twenty years ago, while in opposition, they pledged to commit the sale proceeds to a public service content fund, across broadcasting and the arts. At present, no such pledge accompanies the latest proposal, which involves a consultation period to consider options (including the status quo) ahead of the expiry of the channel’s current broadcasting licence in 2025.

Ministers argue that only outside investment can provide Channel 4 with the additional financial resources it would need if it were to try to compete with the best-funded broadcasters and streamers (such as Netflix) in securing the best talent, especially in expensive genres such as drama.

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Opponents of privatisation claim that new investors would actually cut programme budgets in order to fund dividends (as a publicly owned enterprise, Channel 4 currently pays no dividends and is not required to make a profit). They also warn that a new owner might seek to pare back the channel’s public service commitments so as to generate profits. The channel’s defenders argue that it has never required a penny of taxpayer funding, is solvent now and in the foreseeable future, and that there is no need to ‘fix what ain’t broke’.

However, some of the claims made on behalf of the channel do not stand up to close scrutiny. The kind of media companies that might bid for Channel 4 – Viacom, Liberty Global, News Corp – pay little or nothing by way of dividends. Liberty’s main shareholder, John Malone, is notorious for regarding dividends, and the tax they incur, as wasteful uses of capital. These companies typically invest in the businesses they buy so as to grow their asset value.

Viacom, when it bought Channel 5, enlarged its programme budget, and volunteered an expansion of its public service output. When I launched Channel 5, in 1997, my investors had no interest in dividends, and regarded their £300m of initial capital as wholly at risk: that the broadcaster tripled in value in four years was their reward (though under changed ownership, that valuation subsequently plunged: success in media investment is not guaranteed).

The kind of media companies that might bid for Channel 4 typically invest in the businesses they buy so as to grow their asset value

It is wrong to say that Channel 4 has never cost the taxpayer a penny. When it was launched, the cost of funding its programme budget was borne by the ITV companies collectively, in return for being allowed to sell the channel’s advertising breaks. That subscription was chargeable against the special levy to which ITV was subject in those days. In effect, the Treasury funded Channel 4 to the tune of hundreds of millions of pounds.

Moreover, the channel was granted free access to precious broadcast spectrum, again worth hundreds of millions of pounds. It continues to enjoy benefits such as privileged access to digital terrestrial spectrum, special prominence of electronic programme guides, and ‘must carry’ status on cable. Again, these advantages are worth tens of millions of pounds a year. Cumulatively, Channel 4 has enjoyed at least half a billion pounds’ worth of indirect government investment: possibly double that amount.

That Channel 4 is said to put all its money into programming, rather than profits, is also misleading. Overheads and non-programme costs are just as important as the absence of ‘profits’ in calculating Channel 4’s behaviour. Its more than 900 staff currently cost the channel an average of £100,000 a year each: the envy of all other media employees. Most of them work in a building (when they are not working from home) that is valued at nearly £100m; and last year the channel reported net cash assets of more than £200m. It is not surprising that ministers wonder whether the public is deriving optimised benefit from the channel.

By any standards, standalone broadcasters like Channel 4 are sub-optimal in business terms. Channel 4 effectively acknowledged this when it tried to buy Channel 5 (and, when that failed, the Living TV group of channels). When, 20 years ago, I proposed to Channel 4 that it merge back-office operations with Channel 5, leaving the two broadcasters entirely free to continue with their separate programming strategies, the joint savings were calculated as £140m a year. Today, that figure would be closer to £200m.

If Viacom were to buy Channel 4, the savings it could generate, while maintaining or even expanding Channel 4’s public service remit (whose extent is often exaggerated: it is far less onerous than it was 20 years ago), could justify a one-off payment to the Treasury of between £1bn and £2bn, with no loss of public benefit.

Channel 4’s supporters warn that new ownership might jeopardise the independent television production sector, which generates so much value for UK plc. It is certainly true that when Channel 4 launched, it kick-started a sector that had barely existed in 1982. However, once the sector was established, ministers required the BBC and ITV to commission new programmes from the ‘indies’; these days, Netflix and Amazon are bigger customers than Channel 4, which accounts for barely 10% of the sector’s turnover. And there is no reason why a new owner would stop commissioning programmes from the sector.

Of course, we should press ministers to explain what they want from Channel 4, and from potential purchasers. Are they trying to extract an annual cash dividend, or a lump sum? What do they propose to do with the proceeds? What, by the way, are they planning to do to resuscitate public service broadcasting in the UK, which is in such a parlous state? Perhaps, no buyers for Channel 4 will emerge. But that does not mean that ministers should accept the status quo, when so much additional public value is suppressed by doing so.

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