Business

The sale of Channel 4 leaves potential buyers in a bind

Channel 4’s unique structure, created by Margaret Thatcher almost 40 years ago, has presented supporters of its privatization with an unusual challenge: the private sector is largely happy that the British broadcaster remains in public hands.

Major advertisers, independent production companies and even some potential buyers have either strongly opposed moves to privatize the publicly owned, commercially funded channel or warned of the risks of a failed sale.

The decision announced by Culture Secretary Nadine Dorries to move forward with legislation this year is unsettling the UK’s legacy television ecosystem, just as traditional broadcasters are trying to reinvent themselves to cope with US streaming services like Netflix and Disney .

“No one really wants to buy Channel 4,” said a media company executive who is considering making an offer. “But no one wants it to belong to any of their rivals.”

Lack of support for the idea, particularly from Channel 4’s board of directors, leaves Dorries facing an uphill battle to pass the necessary legislation to make the sale possible, with strong opposition expected in the House of Lords and sections of the Conservative Party is already visible.

Nadine Dorries

The decision, announced by Nadine Dorries, was called “very unconservative” by Damian Green, the former Deputy Prime Minister who began his career as a journalist at Channel 4 © AFP via Getty Images

The shape of the legislation would have a direct impact on the sums raised, which government insiders hope will top £1billion. While Dorries said a private Channel 4 would remain a public service broadcaster, changes could expand those obligations to the point where its commercial value is hampered.

Monday’s announcement sparked a backlash from senior Conservative MPs. Damian Green, the former Deputy Prime Minister who began his career as a journalist at Channel 4, described the decision as “very unconservative”. “By selling Channel 4, politicians and civil servants think they know more about running a business than the people who run it,” he said.

Julian Knight, chairman of the House of Commons Select Committee for Digital, Culture, Media and Sport, speculated whether the government’s decision in “revenge‘ for the channel’s perceived ‘biased reporting’ on issues such as Brexit. Other senior MPs who expressed reservations included former Cabinet Secretary Jeremy Hunt and Tom Tugendhat, chairman of the Special Committee on Foreign Affairs.

The privatization process will be lengthy, with a white paper followed by primary law. The biggest hurdle is likely to be the Lords, who have firmly opposed previous privatization efforts. With plans to privatize Channel 4 not included in the Tories’ election manifesto, it could be more difficult for the Commons to trump any opposition from the Lords.

Channel 4 advertising revenue

At stake is the hybrid role of Channel 4, which has combined an ad-funded business model with a public service remit that supports independent producers while serving a younger, more diverse audience with alternative perspectives.

John McVay, chief executive of Pact, the trade association for production companies, described the Channel 4 deal as Thatcher’s gift to his industry: “She was the mother of Britain’s independent production sector.”

Producers fear his role, which has helped nurture talent such as Michaela Coel, Graham Norton and director Steve McQueen, may never be replicated in the private sector. Faye Ward, founder of Fable Pictures, creator of Bafta-nominated rockcalled privatization plans “diabolical” and said no global streaming platform would commission a relatively risky British film like this rock.

Channel 4 generated £934m in revenue last year It’s a sin, black mirror or glasses box.

That approach has meant that Channel 4 has never built its own production arm or amassed a library of rights to shows and films — the sort of assets prized in the streaming age.

Still from the TV series It's a Sin

Channel 4 operates through a ‘publisher broadcaster’ model where it does not retain the underlying rights to shows such as ‘It’s a Sin’ © Ben Blackall 2019

One banker said he had left it up to the government to sell Channel 4’s brand, its Richard Rogers-designed headquarters and the redesigned obligations and benefits of the channel’s public service remit. “What matters is the legislation,” he said.

Advertisers fear that a private Channel 4 will no longer be motivated to cater to hard-to-reach younger audiences and could take an unhealthy share of the TV advertising market if tied to domestic rivals like Sky or ITV, the other two big sold would be ad sales houses in the UK.

ITV and Channel 4 would together account for more than 70 per cent of sales – a combined market share which ISBA’s Phil Smith, the trade association for British advertisers, warned would give it ‘undue dominance’.

A former minister said that ITV’s involvement in particular could create “major competition problems” for the government. “You would almost certainly have to override the Competition Commission, which is difficult,” they said. “It’s not impossible and it’s not doable – but it will raise concerns that wouldn’t exist for other bidders.”

Dorries sees Channel 4’s public ownership as “hindering” its ability to compete with global streaming services like Amazon Prime and Disney. Not only does privatization remove the risk of Channel 4 turning to the government for financial support, it may also give it the opportunity to become a globally relevant producer, backed by new investment and a more liberal mandate.

Enders Analysis, the media research group, has indicated that international media groups already active in the UK market, such as Discovery or Paramount, which owns Channel 5, can achieve cost savings and exploitation synergies by merging operations with Channel 4 could use their existing content libraries.

Several buyers have told the government that given the rapidly changing media business, it is difficult to predict what the calculations will be if bids are to be made for Channel 4. That should be 2023 at the earliest, then Great Britain could have a new government.

Dorries has promised that the proceeds will be invested in “abandoned areas”. But that has done little to allay concerns from producers outside London, who rely on rules requiring the BBC and Channel 4 to place orders nationwide.

Daniela Neumann, chief executive of independent producer Spun Gold, which has a regional office in Bristol, said Channel 4 has not only played an important role in encouraging creativity, but has also supported small producers outside the capital.

“If these little production studios can’t survive, in terms of leveling up, isn’t that the opposite of leveling up?” she asked.

Additional reporting from Emma Jacobs in London

https://www.ft.com/content/ae419cbe-510e-4dca-b934-965e1005207e The sale of Channel 4 leaves potential buyers in a bind

Adam Bradshaw

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