11 APR 2022

Channel 4 privatization: potential disaster for UK's independent sector?

As the UK government plans to push ahead with the privatization of Channel 4, Ampere Analysis decided to investigate what implications this decision would have on UK’s TV sector.

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The UK government plans to push ahead with the privatization of Channel 4. As a publicly-owned broadcaster funded primarily by advertising, the channel, in the government’s view, is being held back by public ownership and must adapt to survive in the streaming era. The decision was made surprisingly swiftly after more than 60.000 submissions were made to the government’s consultation into the ownership of the broadcaster.

Now the decision has been made, critics from within the UK industry have described the move as “ill-informed,” “ideological rather than logical" (fuelled by the current government’s dislike of Channel 4’s robustly independent news coverage), and as “a solution in search of a problem.”  In this context, Ampere Analysis decided to investigate what implications this decision would have on UK’s TV sector.

In a 2021 report, Ampere looked at options surrounding the privatization of Channel 4 and concluded that attracting credible buyers willing to pay more than £500 million, without adapting or dropping the current remit, would be a challenge. For the UK to generate more from a sale, such as the £1 billion hoped for by the government, the channel’s remit would need to be relaxed. “Channel 4’s unique publisher-broadcaster model would need to be dropped or amended to enable a buyer to take advantage of in-house production or exploitation of existing content and to improve margins,”  said Neil Anderson, Analyst at Ampere Analysis and the author of the report.

Margin growth to levels in line with other commercial broadcasters would largely come at the cost of content spend —and in particular, original content spend with independent producers. Channel 4 plays a crucial role in stimulating the UK independent production sector and supporting smaller UK producers. Ampere Commissioning data indicates that Channel 4 has an outsized impact on smaller UK producers, and represented 17% of UK commissions with small independent producers between 2019 and 2021. By contrast, it is responsible for just 8% of UK TV companies’ overall spend on content.

Analysis of 200 production companies working with Channel 4 over the last two years showed that C4 was their principal partner in half of cases. Consequently, as many as 50-60 independent production companies would be at risk of closure if a new buyer sought to improve margins by cutting original content investment. Content cuts would have a greater impact on smaller, regional productions and in remit-related programming. This would also conflict with the UK government’s “levelling up” regional growth agenda.

In terms of Channel 4’s contribution to the UK production sector, in a 2022 report Ampere estimated that C4 commissions contributed over £300 million in revenue to UK independent producers in 2020. Independent suppliers working with the channel benefit from continued investment in risk-taking and innovative projects, and the ability to own their own intellectual property, selling content domestically and internationally.

Increased global competition and changing audience habits pose increasing challenges to traditional TV broadcasters, however, Channel 4, under its current model, continues to maintain its revenue and content investment, managing the transition to hybrid distribution strategies at the same time as delivering its public-service remit. And it costs the UK tax payer nothing. “Selling off Channel 4 with its unique remit and model left intact achieves little for the public purse. Boosting the sale value by removing its obligations would ultimately result in irreparable damage to the UK’s hitherto thriving independent production sector,”  Anderson concluded.