Media Guardian: Will Channel 4 bounce back again as it hits its 40th anniversary?

Story from Media Guardian:

When some of the biggest names in British media gather at the Victoria and Albert Museum in London to celebrate Channel 4’s 40th anniversary on Wednesday night, the hot topic of conversation will be whether it has once again triumphed in the latest battle to sell off the publicly owned broadcaster.

“The reading of the tea leaves on the status of the proposed media bill seems to be that it could be dead,” said one senior TV executive likely to attend the soiree. “If that’s the case then Channel 4 survives again.”

The broadcaster has been the subject of numerous drives for it to be part-privatised, sold entirely or merged with a rival since being set up by Margaret Thatcher’s government in 1982 to provide a culturally challenging option to the BBC and ITV.

There has been one common argument behind the sporadic attempts over the decades: Channel 4’s model with its almost total dependence on advertising income leaves it in a vulnerable position as a potentially subscale player when the ad market sours or bigger rivals emerge.

In its first decade, the fledgling channel relied upon a regulated annual subscription fee levied on a proportion of total advertising revenue made by the then ITV monopoly that sold its ad breaks, while building an audience with early hits such as Countdown, Brookside and Anneka Rice’s Treasure Hunt. 6-By the end of 1986, Edmund Dell, its first chair, felt confident enough to say the Channel 4 experiment had already worked and “there may well be no net cost to the independent television industry or the taxpayer”.

In 1993, it started selling its own commercial airtime in the face of aggressive tactics from former partner ITV, which began a campaign discouraging advertisers from committing spend to the new sales house.

“When I got to Channel 4 there was nothing – no computers, no people, no systems, no history, there was nothing,” says Andy Barnes, the former Channel 4 sales chief who worked there from 1991 to 2011. “When we were up and running we had to fight ITV – the more we took, the less they had; they saw it all as ‘their money’.”

Yet since then the broadcaster has proved a self-funding success story and last year made a record £1.2bn in revenues, the first time it has surpassed £1bn and up 18% on pre-pandemic levels.

Nevertheless, as the fortunes of TV advertising have waxed and waned, Channel 4 has at times entered talks with various potential partners including the commercial arm of the BBC; the US pay-tv company Discovery; multiple times with Channel 5, which it attempted to buy in 2010; and discussions on several occasions exploring a tie-up with Sky’s TV ad sales operation to create a rival to ITV.

“Throughout its history in a self-interested way people have said Channel 4 can’t survive,” says David Abraham, the broadcaster’s chief executive between 2010 and 2017, who saw off the last privatisation attempt at the end of his term.

"It has repeatedly been written off. There have been three mega shocks: the dotcom crash, then [the global ad recession] in 2008 and most recently Covid. And on each occasion the channel has bounced back.”

It averted privatisation in 2017 with a deal to move large parts of its operations out of London, positioning itself as the “levelling up broadcaster”.

But last summer the then culture secretary, Oliver Dowden, announced a consultation on another attempt to sell it off. Despite 96% of the responses opposing the idea, his successor, Nadine Dorries, pressed on with the plan. She repeatedly denied that the privatisation move was motivated by Channel 4’s perceived leftwing bias.

The government said the channel could not compete in the streaming era as a publicly owned company. The streamers are set to further encroach on traditional broadcaster territory, with Netflix launching an ad-supported subscription package for UK fans on Thursday and Disney+ likely to follow suit by the end of the year.

“The worry internally was always that Channel 4 wouldn’t be big enough against the huge conglomerates that would, and have, come to the fore,” Barnes says. “The worry about being big enough to retain the remit has always been there and is well founded.”

However, in September the culture secretary, Michelle Donelan, who replaced Dorries after the resignation of Boris Johnson, hinted at a U-turn saying she would “re-examine the business case” for privatisation.

If Channel 4 can see off the threat, then targets have been set to grasp the digital future amid a decline in traditional linear TV viewing of its hit shows, from The Great British Bake Off and Gogglebox to challenging dramas such as It’s A Sin.

By 2025, Channel 4 aims to double viewing on its streaming service All 4 and increase digital advertising to account for at least 30% of total revenues.

Nevertheless, the core of Channel 4’s business model still remains very much rooted in 1982. Three years from now the broadcaster admits advertising revenue will still account for 90% of its total income.

Further, Channel 4’s unique business model, which stops it from owning the shows it commissions, so that independent TV production companies can thrive by selling the rights after they are shown, hinders developing a significant new income stream.

The Channel 4 management is once again looking at how it can take control of its own destiny However, analysts estimate that as many as 60 British TV production companies could face going out of business if Channel 4 is privatised.

As the likelihood of privatisation appears to be receding, the Channel 4 management is once again looking at how it can take control of its own destiny by moving away from being a totally state-owned enterprise.

The former Channel 4 chairman Terry Burns previously floated the idea of a form of mutualisation, potentially based around the successful model employed by Welsh Water, to head off any future plans for a sale and enshrine the broadcaster’s remit in perpetuity.

Versions of this idea, which could involve a trust as the legal entity that would acquire Channel 4 through private financing, are understood to have been rekindled in recent discussions.

The model would also mean stakeholders such as independent producers, and potentially viewers, were represented.

It would reduce, or even potentially totally remove, government control either when the new model was set up or through “earnouts” over a number of years.

“Channel 4 is 40 and we believe life doesn’t just begin at 40; it begins again,” says the broadcaster’s chief executive, Alex Mahon. “Just like those different generations that have grown up with us over four decades, we need to adapt and change constantly”.

© 2022 Guardian News & Media Limited.