The state of Channel 4

It should be much easier for Channel 4, unburdened by the in-house inertia of other broadcasters, to address the “nations and regions deficit” that disfigures the broadcasting sector. Is it time to relocate?

David Elstein
31 August 2017

Still from Kosminsky's 'The State' on Channel 4. Photograph: Channel 4.Channel 4’s Chief Executive, David Abraham, and Chief Creative Officer, Jay Hunt, are leaving on a high note. The channel’s four-part drama series, 'The State', written and directed by Peter Kosminsky, was bold and provocative, a clear-eyed depiction of the fate of four British volunteers who travel to Syria to join ISIS.

Kosminsky has many outstanding drama credits to his name, including “The Promise”, another four-part Channel 4 series on the founding of the state of Israel; but his tightly-managed and unflinching depiction of disastrously misdirected idealism and utter disillusionment is his most accomplished to date. This was drama at the same level as HBO’s remarkable 'The Night Of...': and it is hard to see any British broadcaster other than Channel 4 devoting four successive nights of its peak-time schedule to such a risky project.

Yet the state of Channel 4 itself remains unresolved. It successfully fought off the proposal from the majority Conservative government to privatise the channel: a concept always unlikely to attract support from non-Tory MPs, yet with the potential to alienate some Conservatives who felt that their most praiseworthy creation in the media arena should not be so radically changed. However, the “back-up” proposal – that Channel 4 re-locate so as to re-balance the skewed geographic distribution of our TV production sector – remains on the table, with a DCMS consultation complete, but no conclusions published.  

The proposal that Channel 4 re-locate so as to re-balance the skewed geographic distribution of our TV production sector remains on the table...

In the meantime, Channel 4 has published its 2016 annual report, replete with many positive achievements: record revenues, record programme spend, solid creative outcomes, comfortably meeting the few remaining Ofcom licence requirements and the usual array of industry awards. What’s not to like?

Part of the problem is the formulaic presentation of data, especially where previous years are tabulated for comparison. So, Channel 4’s flagging commitment to education delivered just nine hours of programmes at a cost of £2 million, down even on 2015’s paltry sixteen hours and £5 millions.

Yet, despite the evident absurdity of the claim, Channel 4 continues to boast (admittedly on page 168 of a 176-page report) of showing 2,795 hours of programming that was “educative in nature”, over and above the 917 hours of news, current affairs, documentaries and 374 hours of “other factual” content. That represents 7.65 hours a day of such “educative” content, at an annual reported cost of £102 million. Channel 4 makes no attempt to list any of this supposed content, no doubt to avoid ridicule.  

Also on the presentational front, a casual reader of the report might be impressed by the stated expenditure of £92 million on “film”, thinking it might relate to Channel 4’s well-publicised investments in feature films. In fact, in the course of 2016, just three films commissioned by Channel 4 were broadcast, representing just seven hours of transmission. Most of the “film” budget was spent on acquired movies.

Another potentially misleading claim is that “network originations accounted for 70% of total viewing of the main channel, E4 and More 4”. To arrive at this figure, Channel 4 is clearly treating all the repeats of commissioned programmes on the main channel (30% of the total schedule) as “origination”, whilst playing down the fact that 35% of the main channel’s transmission hours – and over 90% of E4’s – are acquisitions.  

These are presentation issues. More important are trend lines. We can see a continuing decline in the number of independent producers commissioned by Channel 4, down from 207 to 160 in one year for the main channel. In 2015, £264 million was spent with “real” independents (as opposed to those owned by large media corporations, many of them American). In 2016, the figure was £232 million, with commissions for “non-independent independents” up from £144 million to £214 million.

Channel 4 continues to muddy the picture by referring to “independent suppliers”: a definition that includes organisations making online material, and “film companies” with which the channel works. Notably, the average level of commissions for “real” independents was less than £1.5 million a year; for the large production companies owned by media conglomerates, the figure was £7 million. The process of consolidation in the independent sector is by no means over, with the likes of ITV, Liberty Global (owners of Virgin Media) and Sky actively pursuing new acquisitions. Channel 4 has a small fund which allows it to buy small stakes in small producers; but the days when Channel 4 was the backbone of a genuinely independent production sector are long gone.

The days when Channel 4 was the backbone of a genuinely independent production sector are long gone.

The commitment to innovation is also under challenge. BBC2 broadcast far more new and one-off programmes (244) than Channel 4 (175) in 2016 – the Channel 4 figure is down from 210 in 2015. Channel 4 argues that this outcome is a result of the rise in the number of returning series, which reflects the success of its commissioning strategy. It is hard not to see this as a bit like an each-way bet – if series are renewed, Channel 4 is good at commissioning, but if failed series have to be replaced, Channel 4 is good at innovation.

What about the re-location issue? Channel 4 produced a detailed paper on this earlier in the summer, arguing that a move outside London would inflict substantial risk on its business, in the shape of disruption and the potential loss of key staff, whereas the supposed benefit – more commissioning from the nations and regions – was more readily achieved by a steadily rising Ofcom quota than by moving staff around the country. The annual report therefore barely touches on the subject. However, it does contain a good deal of information that seems to undermine management’s resistance to re-location.

One way of looking at the issue is to imagine that Channel 4 had been originally set up in, say, Birmingham or Manchester, and that its management was now campaigning for a move to London, on the basis that most of its suppliers, customers and potential employees were located in the capital (and its senior management preferred to live there).

One need look no further than page 28 of the February 2015 report on the future of the BBC from the House of Commons CMS Committee to see how Parliament might react to such a proposal. It contains a table compiled by the Campaign for Regional Broadcasting Midlands, demonstrating that the BBC spent 2.7% of its 2013 television production budget in the Midlands, where 25.73% of the UK’s population lives.

Channel 4, of course, produces no programmes itself: it is a “commissioner broadcaster”, and can decide for itself which production companies to spend its budget with. Yet its roots in the 1980s, when the nascent independent sector was just emerging, and when Channel 4 decided to base itself in London, have decisively tilted its spending in the direction of London and the South East.

Even in 2016, after decades of committing itself to amending its southern bias, it commissioned programmes from just 37 independent companies outside London area, compared with 123 in the M25 catchment area. Just three were in the Midlands and East of England – an even lower figure than the dismal four in Northern Ireland. 60% of all spending on first-run original programming was with London-based companies. Just 6% of hours commissioned were produced in the Midlands – and that was an upward blip accounted for by the fact that the production base for the excellent Rio Paralympics coverage was, for some reason, in Birmingham: the previous year’s level was 1%.

There is no doubt that some of Channel 4’s commissioning pattern is quixotic.

There is no doubt that some of Channel 4’s commissioning pattern is quixotic: for instance, “Inside Birmingham Children’s Hospital” was produced by a Welsh company, helping boost Channel 4’s reported spend in the nations (a disappointing 8% of its budget, where Scotland, Wales and Northern Ireland constitute 18% of the UK’s population). Even that 8% would be lower but for the artificial re-location of the quiz show “Fifteen To One” to Glasgow.

Of course, if the Conservative government that created Channel 4 in 1980, to such bold and widely acclaimed effect, had foreseen how its next Broadcasting Act, in 1990, would devastate the regional ITV production centres, it might have had the foresight to insist on a non-London base for Channel 4 in the 1980 legislation.

In the 1970s and 1980s, when ITV was at its creative peak, nearly 50% of its programming each year originated from Birmingham, Manchester, Leeds, Southampton, Norwich, Cardiff and Glasgow. Central TV, Granada TV and Yorkshire TV alone contributed 35%, across the range of drama, documentary, current affairs, comedy, children’s, schools, sport and entertainment. Each maintained a substantial in-house production capacity, and built relationships with independent producers close to their respective bases. London provided little more than 25% of the ITV network schedule.

How long that balanced creative economy might have survived without the devastating impact of the 1990 Act is impossible to judge: the many pressures of expanding competition might anyway have denuded the regions and nations of their strong position within ITV. All we do know is that the 1991 licence auction, combined with the government-led process of consolidation, wiped out a commissioning system designed to ensure that a wide range of high quality content in the ITV schedule was distinctively derived from the nations and regions, not just in its sourcing but in its flavour. “Inspector Morse” was as unmistakeably a Central TV production as “Taggart” was an STV one.

The hugely laborious – and initially costly – transfers of BBC TV production away from London have achieved useful reductions in the “nations and regions deficit” that disfigures the broadcasting sector. Yet it should be much easier for Channel 4, unburdened by in-house inertia, to address that deficit. Its modest progress in doing so – a rise in hours commissioned in Northern Ireland from a shameful seven to a merely embarrassing thirteen is acclaimed by one analyst as a “near doubling” – has simply been too little and far too late. Something much more dramatic is required: something symbolic as well as practical, something that makes a decisive statement about a change of direction.

Something much more dramatic is required: something symbolic as well as practical, something that makes a decisive statement about a change of direction.

In the absence of a better alternative, re-location seems the right answer. It is also obvious that the largely ineffective regulator, Ofcom, cannot achieve this outcome: only direct Parliamentary intervention can deliver the needed result. But before Parliament can act, the “fear factors” propagated by the opponents of re-location need to be seen for what they are.

The first – and most cogent – objection raised is commercial: the great majority of airtime selling in the television industry is conducted in London, where all the major advertising agencies (and many of their clients) are based. Indeed, as the Channel 4 sales force serves not just its own channels but those of external clients like UKTV and BT, it should not be disadvantaged by artificial re-location (though it is worth noting that Channel 4 is rather pleased with the results from its Manchester airtime sales outpost).

The obvious answer is to leave the main sales team in London. There is no particular reason for programming and airtime sales teams to be co-located. I spent six years as Director of Programmes for ITV’s largest franchise, Thames TV. The sales director and his staff occupied a separate building, which I never visited, and we almost never discussed content. Sky has as large an airtime sales business as Channel 4: it is based in Victoria, the best part of an hour’s travel away from the Sky creative teams in Osterley.

A sales department can occasionally advise a programming department as to whether a particular film package is worth the asking price: sales teams are experienced at estimating the commercial value of a known product – the Channel 4 sales executives would certainly have been asked whether, and at what level, to bid for “The Great British Bake Off”; but that does not require proximity.

As far as new commissions are concerned, it would anyway very rarely make sense for programming to consult advertising: the judgements involved are primarily creative, including how a putative commission will fit in the schedule, and deliver on Channel 4’s public purposes, rather than how much money it might make.

Any consultation that might be needed can easily be conducted by phone, email or Skype. There might even be an advantage for the sales team to be physically separate from the Channel 4 creative team, in terms of its representing third party broadcasters.

The second risk that is usually mentioned is the potential loss of key creative people, for whom a 100-mile (or 200-mile) shift of workplace might cause personal or family inconvenience. That Channel 4 is about to lose its two most important executives (Chief Executive and Chief Creative Officer) in a matter of months, without any red flags being raised by the board in the annual report, suggests this factor has been over-stated.

Indeed, according to the annual report, in 2016 Channel 4 lost nearly 25% of its staff, and recruited 189 replacements, with no indication that the business was being put at risk as a result. In 2014, the figure for new hires was 168, or 20% of the workforce. No figures were published for 2015, but the number of new employees was 152, so at least 60% of Channel 4’s staff has been replaced in the last three years. Such a massive turnover does not seem to merit a mention in the annual accounts, other than that “Channel 4 has a culture which encourages our people to fulfil their potential”. It would seem that, for the majority of its employees, such potential lies outside Channel 4.

Arguably, renewal of the creative team is actually desirable at regular intervals: Jeremy Isaacs, when he launched Channel 4, recommended that no commissioning editor stay more than five years. When I ran Channel 5, three of my top seven executives left – two of them recruited by Channel 4 – but their replacements were at least as good, if not better.

Any Chief Creative Officer at Channel 4 (assuming Jay Hunt is directly replaced) will constantly be on the look-out for potential commissioning staff, not least because of the continuous movement of people within the industry, keen to find new creative challenges (or earn more money). Like a Premier League manager, the CCO is always contemplating ways of re-shaping his or her team, to keep it fresh and motivated. The assumption that such people can only be found in London – and are only willing to work in London – is a crude piece of reductionism.

The assumption that creative people can only be found in London – and are only willing to work in London – is a crude piece of reductionism.

If we look at the practicality of a re-location, there is bound to be some level of drop-out amongst the current staff of Channel 4, but given the planning time involved – probably two years or more – there need be no anxiety on this front. This is partly because at least a third of employees would remain in London: there are 230 in the commercial team, and a proportion of the 282 in operations, as well as the 35 working on rights exploitation, could be housed at the London base without affecting the Channel’s creative output. It is the core of the 250 in the creative team who can be expected to make the biggest difference in a new location.

This is not at heart an economic argument about a direct GDP effect. Moving a few hundred people – and their spending power – to a regional base will have minimal impact on the local economy. However, like an anchor tenant in a shopping mall, a highly prestigious new resident in a city even the size of Birmingham or Leeds can have a dynamic effect.

More importantly, the magnetic draw that the presence of the Channel 4 team would generate can be expected to revive and expand the latent creative talents in the region, instead of condemning them to travel to (or move to) London to pursue their careers.

Channel 4 launched with a modest commitment to finding a “significant” contribution from independent producers. Almost no-one expected the transformative effect of that ambition. There were few independents in the UK, of which even fewer were successful, and those looking to set up new businesses were widely dismissed as simply making “lifestyle” choices. Yet within a decade, the independent sector was booming, and the entire production sector was transformed. In its early days, Channel 4 was commissioning programmes from hundreds of independent producers.

Now, with Channel 4 able to find just 160 programme suppliers in 2016 who met the legal definition of independent, it would seem that this particular wave of innovation has passed its peak. It cannot be a core objective for Channel 4 to operate a commissioning process that primarily enriches Warner, News Corp, Sony, Discovery, Liberty Global and the other conglomerates. We need another creative renewal, and Channel 4 – designed to make a difference – is the only commissioning organisation capable of leading that renewal.

One analyst has claimed that the cost of moving Channel 4’s base from London could be as high as £35 million. It is hard to see how this could possibly be the case, especially if between one-third and two-thirds of the current workforce were not required to re-locate. Of those who were so required, a significant proportion could be expected to leave of their own accord within the expected two-year timescale of the actual shift.

Many more could simply be given notice under their contracts (no Channel 4 employee has a notice period longer than a year, “to avoid rewarding poor performance”, as the annual report puts it), and allowed to work out their notice. The cost of recruiting replacements is a normal business cost: over 10,000 people applied to Channel 4 for jobs last year (50 for every vacancy), so there should be no difficulty, or special expenditure, in finding new staff.

In its early days, Channel 4 was commissioning programmes from hundreds of independent producers.

Indeed, if the new base were Birmingham, providing season tickets from Euston to New Street would cost about £6,000 a year (and probably a package deal at a lower unit price could be negotiated with Virgin Trains). So the maximum cost would be about £1m a year – what Channel 4 spent on “restructuring” in 2016, a quarter of what it spent on the annual wage increase, and much less than it is having to spend every year on eliminating the pension fund deficit that an over-generous pension scheme – now closed – has inflicted on the channel’s economics.

Nor should we forget that Channel is sitting on a property worth £97 million, cash and near-cash of £215 million and a balance sheet showing net assets of £335 million (after providing for £52 million to cover the pension fund deficit).

It is not surprising that the annual report’s financial section, in listing six risks to the business, places possible re-location last of the six (the others are: continuing to find compelling content, remaining relevant in technology terms, the loss of a major advertising agency’s business, security threats and engaging talent). The notion floated by one analyst that Channel 4 might require “compensation” for being “forced” to move – in the shape of a major extension of its licence period – seems somewhat fanciful.

Obviously, there will be some one-off transition costs, as new premises are fitted out, both for the new base, and for the re-located airtime sales team and other staff that stay in London. Such costs might exceed £1m, but certainly not £2m. Meanwhile – although this is not what should drive the re-location decision – somewhere between £100m and £200m of publicly owned assets could be re-deployed more usefully than in keeping Channel 4 in physical and financial comfort, with the new impact of renting accommodation being absorbed within the overhead budget (Channel 4’s employment costs have inflated by 21% in just four years, a period of flat wages in the real economy).

It is hard to see why re-location might lead Channel 4 to modify its delivery of its remit (which is anyway very undemanding, being largely self-defined and self-monitored). If we simply look at Channel 4’s spending on news, current affairs, documentaries, arts, music, children’s, education and religion (the core public service genres), we are talking about £90m out of a channel budget of £553 million, or 16% (in 2000, £139m was spent on these genres out of a channel budget of £423m, or 33%).

There is a view that re-location could significantly distract Channel 4’s management and thereby disrupt its operations. My own experience of searching for new locations for hundreds of staff is that a small project team is created to run the process, reporting back to senior management and the board at regular intervals.

In launching Channel 5, not only was there the issue of finding offices for 225 people, and arranging (from scratch) transmission on terrestrial, satellite and cable platforms, but a massive (though actually wholly unnecessary) programme of retuning millions of video recorders, at a cost of £140 million, had to be completed before the channel could launch.

One of my executives was assigned the search for offices, whilst another was given the retuning project. Meanwhile, the creative, commercial and marketing teams got on with the job of building a schedule, publicising it and raising enough revenue to fund it, from a standing start. By comparison, re-locating some of Channel 4 seems a relatively straightforward task.

Of course, the question remains: is the game worth the candle? Is there enough potential benefit from a move to justify even the modest level of risk involved? In the end, that is a political decision. Channel 4 is reluctant to shift out of its comfort zone, even if that entails leaving the creative deficit so glaringly exhibited in the Commons report, and Channel 4’s own annual reports, only nibbled at, rather than strategically addressed.

Is there enough potential benefit from a move to justify even the modest level of risk involved? In the end, that is a political decision.

That is where Parliament and government come in: injecting a key creative resource such as Channel 4 into the regions would be a major statement of intent, comparable to the speculative commitment to independent production in the 1980 legislation. It represents a very limited gamble with potentially a massive reward.

Unlike privatisation, re-location would have appeal across the party divide, and arouse very little opposition on the government benches. The Channel 4 board could calculate that a Parliament pre-occupied with Brexit would be reluctant to assign time to a re-location bill. But if it does take resistance to that level, it might alienate many of its natural supporters: that game, surely, is not worth the candle. Replacing the Channel 4 board might then come to be seen as a necessary, if regrettable, detail in any re-location legislation.

The Welsh government recently attracted some criticism (ironically, from Conservative Assembly Members) for loaning £4 million to an independent start-up, Bad Wolf Productions, headed by BBC veterans Jane Tranter and Julie Gardner, which made a loss in excess of £1 million in its first year, not least as a result of the large salaries being paid to the principals. But one of the first fruits of Bad Wolf’s close relationship with HBO was “The Night Of...”, a transfer to New York of an original BBC show called “Criminal Justice”: the new version was easily the best drama shown on British television in 2016. More will come, greatly to the benefit of the Welsh creative – and broader – economy.

There is no “no-risk” option for decisively intervening in the re-balancing of our London-centric TV production sector. To rely on incremental steps would leave us with the painfully slow progress made by Channel 4, so visibly exposed in its annual reports. Perhaps inadvertently, the latest annual report helps make the case for re-location. It is time for the Channel 4 board to embrace the concept, and show as much courage in planning for the challenge of re-location as its departing executives have shown in commissioning and scheduling “The State”.

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