Channel 4, the publicly owned commercial broadcaster in the United Kingdom, could be up for sale as it approaches its fortieth anniversary. The government is expected to consult on the process but is proceeding on the basis that its ownership will change. The minister responsible says that broadcasters cannot compete in a digital world while operating under analogue rules. So, what are the options?
Oliver Dowden, the Secretary of State for Digital, Culture, Media and Sport, notes that the broadcasting landscape has changed beyond all recognition since the fourth channel launched almost 40 years ago.
“I want to make sure Channel 4 thrives for another 40 years, and so I believe it’s time to seriously consider changes to its current public ownership model,” he said in a statement. “That model severely restricts Channel 4’s ability to access capital and compete with commercial broadcasters by investing in technology and programming.”
He said he will be “proceeding on the basis that an alternative ownership model (but one where it keeps its public service remit) may be better for the broadcaster, and better for the country”.
The conservative government believes that private investment would support Channel 4 in competing in the market. It could also encourage it to become more commercial and potentially less progressive.
“Traditional viewing habits are dead,” the minister suggests. He argues that public service broadcasters cannot compete in a digital world under analogue rules. He suggests that traditional broadcasters to compete with one hand tied behind their backs.
The government plans to consult on whether to mandate basic content and audience protection requirements for online services like Netflix, Amazon and Disney.
It is not clear how far that is a real issue, compared to regulation of other online video sources, from YouTube to Pornhub.
It is also not clear how privatising Channel 4 will necessarily improve its position. It is currently entirely self-financing through commercial operations and operates the largest online library of any broadcaster in Britain.
One possibility is a combination with another broadcaster, giving them increased scale to compete. Although they participate in various joint venture platforms, the public service broadcasters have been unwilling or unable to combine their online offerings effectively to compete better with new entrants.
ITV is an obvious candidate, although it would have to find the investment from somewhere. It would strategically consolidate its position as the leading national broadcaster, give it access to a younger audience and boost its online offering.
The BBC is a possibility, through its commercial arm, BBC Studios, which owns a suite of UKTV commercial channels, for which Channel 4 sells advertising. That could represent a good strategic fit. It has been considered in the past but came to nothing. Boosting commercial income could reduce the argument for licence fee revenue.
Channel 5 is owned by ViacomCBS, after Viacom acquired it for £450 million in 2014. It is little more than a footnote in the accounts of ViacomCBS, which had revenues of $7.4 billion in the first quarter of 2021. It is pushing its global online video services, Paramount+ and Pluto TV.
Sky is another possibility. Sky previously made a strategic investment in ITV to prevent a potential takeover by Virgin Media but was ordered to sell down its stake on competition grounds and sold out at a loss, subsequently divesting its remaining interest to Liberty Global. Sky is now owned by Comcast, which may have bigger fish to fry than Channel 4.
Discovery could usefully invest in Channel 4. However, it may be pre-occupied with its announced combination with WarnerMedia, spun out of AT&T, to create the clumsily named Warner Bros. Discovery, at least until the merger is expected to complete in mid 2022.
A management buyout, supported by private equity, could also be an option. However, the model under which Channel 4 currently broadcasts means that it is required to commission or acquire all its programming, which might limit the appeal to investors.
Channel 4 is currently owned and operated by Channel Four Television Corporation, a public corporation of the Department for Digital, Culture, Media and Sport. It has a remit, under the Communications Act of 2003, to provide a broad range of high quality and diverse programming, which demonstrates innovation, experiment and creativity in the form and content of programmes, appeals to the tastes and interests of a culturally diverse society, includes programmes of education nature and value, and exhibits a distinctive character.
At its inception, funding came from the ITV companies in return for their right to sell advertisements in their region on the fourth channel. It struggled initially but gained a reputation for distinctive programming. It became self-funding from 1990. It faced a funding crisis in 2007 but in recent years has become more commercially focussed. Its highest audience in 2020 was for The Great British Bake Off, watched by 10.66 million.
In 2020, Channel 4 received revenues of £934 million, down 5% on the previous year, following a decline in advertising at the start of the coronavirus pandemic. Digital advertising revenues rose by 11% and now contribute 17% of revenues. Having cut its spending on programming from £660 million the previous year to £522 million, the corporation ended 2020 with a £74 million pre-tax surplus.