Channel 4: the joker in the pack

The privatisation of Channel 4, providing there were the right safeguards, might just be a means of re-invigorating public service broadcasting.

David Elstein
6 October 2015

Flickr / Loz Pycock

Channel 4 – the right-on, publicly-owned, Jon Snow-fronted broadcaster, improbably created by the first Thatcher government – seems to be in play. Last week, a civil servant was seen bearing documents referring to options for change.

If the renewal of the BBC Charter is an open – and fiercely contested – process, the prospect of privatisation for Channel 4 has been kept well under wraps, with ministers trotting out those familiar phrases – such as “no change is presently planned” – that so often prove a foretaste of precisely the opposite.

The chair of the BBC Trust, in responding to the July Green Paper on the BBC’s future, conceded that “the status quo is not an option”. Yet for Channel 4, “no change” must at the very least be one of the options: it is performing reasonably well in commercial and programming terms, it fulfils its public service obligations, as agreed with the media regulator Ofcom, and has steered clear of the kind of criticism so often experienced by our other publicly-owned broadcaster, apart from an occasional gasp of disbelief at the level of management salaries – at over £800,000 a year, chief executive David Abraham is the UK’s second highest paid public employee, earning nearly twice what his counterpart at the vastly larger BBC is paid.

Supporters of the current structure are quick to point out that private ownership of Channel 4 would create pressure to deliver dividends, potentially at the expense of programme budgets: the case put forward by David Abraham when asked last month about the possibility of privatisation. Reducing investment in Channel 4’s output in order to reward shareholders would, he said, reduce Channel 4 to Channel 5 (in his lofty view, a retrograde step).

That was essentially the defence advanced in 1996 by Sir Michael Bishop, then chairman of Channel 4, when John Major’s government was flirting with privatisation. As a Conservative donor (and later peer), Bishop felt he was well placed to disparage the role of private investors in media businesses.

Yet the argument is easily exposed as hollow. If all that were contemplated were replacing the current non-executives with private shareholders, the least that one could expect would be a reduction in non-programme costs to fund the dividends needed to justify a purchase price. After all, Channel 4 has turnover of nearly £1 billion a year: even a 2% saving on that delivers £20 million a year of value. Without shareholder pressure to hold down costs, Channel 4’s staff have attained salary levels that are the envy of the industry. At one point, the top three managers earned twice as much across two years as the Channel Four Corporation made in profits: £4.8 million.

And, of course, the great likelihood is that any sale of Channel 4 would be to an existing media organisation, allowing savings from joint operations of many tens of millions of pounds a year to be generated. 15 years ago, when I was running Channel 5, I proposed a merger of back office operations to Channel 4 which would have saved us jointly some £100 million a year, whilst leaving Channel 4 entirely at liberty to pursue its broadcasting agenda.

Channel 4 ignored my offer, but then spent much of the following decade, trying to follow the same logic by a different path: diversification and acquisition. Sadly, nearly all those endeavours failed, under Bishop’s leadership and that of his successor as chairman, City lawyer Vanni Treves. Nearly £300 million was squandered, on pay-TV channels, film production and distribution companies, a horseracing channel, music channels, radio investments, websites and a range of joint ventures.

The simple truth is that Channel 4 is too vulnerable as a stand-alone business, as the Channel’s own attempts to broaden its base demonstrate. With diversification efforts so regularly unsuccessful, Channel 4 belatedly tried to buy Channel 5 (but was outbid by Richard Desmond) and then tried to buy the Living TV portfolio of channels from Virgin Media (but was outbid by Sky).

The fact is that a larger business has far greater scope for cost savings. If another TV organisation bought Channel 4, it should be able to pump more money into the channel budget, meet all the current public service obligations imposed by the regulator, and still make enough profit to justify paying the Treasury between £500 million and £1 billion to take control.

So the false choice of budget versus dividends need not detain George Osborne and John Whittingdale as they ponder their options. However, one possibility that looks unlikely to be pursued is transferring ownership to a non-profit mutual structure – an idea that has been investigated by Channel 4’s current chairman, Lord Burns. The government’s decision to reject Ofcom’s proposal to extend his chairmanship for another year (it is due to expire within six months) strongly suggests that ministers were not prepared to have an “in-house” solution being pushed by Channel 4’s own board.

Of course, enforcing licence terms on a private owner – especially after internal rationalisation has made it hard to unpick any deal – will be a challenge for Ofcom, which certainly finds publicly-owned (and non-profit seeking) Channel 4 easier to hold to its promises than, say, ITV.

So Ofcom would need to ring-fence the programme budget (as was the case when Channel 4 launched, with ITV providing the finance in return for the right to sell the station’s advertising slots); and it would need the power to impose large fines for failure to meet defined targets (such as proportions of the programme budget spent outside London, outside England and on key public service genres). A backstop right to withdraw the broadcast licence and re-auction it would also concentrate the new owner’s mind.

Even if all this were to be achieved, there would still be strong opposition to privatisation, from Labour and the LibDems, from powerful lobbying groups and from those who worry that Jon Snow’s colourful ties might disappear from the screen. Is the prize of half a billion or even a billion pounds worth the political cost, especially when the downside risk of a worse programme outcome remains?

For some backbench Tories, privatisation of Channel 4 might represent an acceptable consolation prize if BBC Charter renewal results in far less change to that organisation than they had urged. But a way of avoiding much of the political opposition would be to borrow an idea from when William Hague was leading the Conservatives, in opposition, and proposed using the proceeds from any sale of Channel 4 to create a public service content fund.

Such a fund was then advocated by – yes – Lord Burns when he was advising Tessa Jowell on BBC Charter renewal in 2005, and was endorsed by Whittingdale’s own Commons Committee on Culture, Media and Sport just before he was appointed Secretary of State.

In July, Ofcom’s latest triennial report on the state of public service broadcasting noted yet further decline in the amount spent on original first-run programming by the BBC, ITV, Channel 4 and Five. That decline has been steady and steep for more than a decade. A privatisation of Channel 4 presented as a means of re-invigorating public service broadcasting with a really large, contestable programming fund could be the joker in the pack.

If you want to keep OurBeeb debating the BBC, please chip in what you can afford.

Had enough of ‘alternative facts’? openDemocracy is different Join the conversation: get our weekly email


We encourage anyone to comment, please consult the oD commenting guidelines if you have any questions.
Audio available Bookmark Check Language Close Comments Download Facebook Link Email Newsletter Newsletter Play Print Share Twitter Youtube Search Instagram WhatsApp yourData