As many as 60 British TV production companies could face going out of business if Channel 4 is privatised, according to a report published as the government closes its public consultation into the potential sale of the broadcaster.
Channel 4’s unique status, established in 1982 as an editorially independent broadcaster to provide a culturally challenging alternative to BBC One, BBC Two and ITV, makes it vitally important to hundreds of independent television producers across the country.
It is publicly owned but commercially funded, mostly through TV ad revenue, and is not required to turn a profit or focus on dividends for shareholders.
For the government to generate a significant return on the sale it would have to relax Channel 4’s remit, such as allowing it to make its own shows, according to a report by Ampere Analysis that says the broadcaster’s £660m annual budget for commissioning TV productions is likely to be a key cost-saving target for any new owner.
“If the government looks to relax Channel 4’s remit to derive more money from privatisation, then that would have a substantial negative impact on the UK production sector,” said Richard Broughton, an analyst at Ampere. “Channel 4 works with more small production companies than any other broadcaster, we estimate 200 over the last two years, and a privatised Channel 4 would likely leave many financially challenged.”
An analysis of those 200 production companies found that almost 140 relied on Channel 4 for half or more of their TV production work.
“Regional production companies are more likely to be reliant on Channel 4 projects,” said Broughton. “A sale of Channel 4 alongside a relaxation of its remit would therefore undermine the UK government’s ‘levelling up’ agenda.”
Channel 4’s own research estimates that up to 1,300 jobs would be lost from businesses that the broadcaster deals with, such as production companies, if it moved out of public ownership.
Pre-Covid, Channel 4’s total programming budget stood at £660m, with almost £500m of that on original shows such as It’s a Sin and Gogglebox.
However, the report argues that a new owner would aim to cut 40% to 50% of Channel 4’s programming budget to boost its roughly 8% margin closer to the level of commercial peers across Europe, which operate at about 15% or higher.
“A reduction in spend on original productions could jeopardise 50 to 60 small production companies,” said Broughton. “And potentially more if a buyer is particularly risk averse and looks to commission more from larger producers.”
Broughton said Channel 4’s cost-cutting actions during the pandemic provide evidence to any potential buyer that slashing the content budget can provide immediate financial returns.
Last year, Channel 4 made £150m in cuts, almost all of it from the programming budget, as the pandemic stopped productions and TV advertising revenue declined steeply. The broadcaster went on to report a pretax “surplus” of £74m, the largest in its 38-year history, as the TV ad market bounced back.
Last month, former Channel 4 chairman Lord Burns and former chief executive David Abraham said key public service content at the broadcaster, such as the Paralympics and news and current affairs, would probably be slashed by a new owner as they do not make a profit.
“Under private ownership, Channel 4’s fiduciary duty would be to maximise returns to shareholders,” the broadcaster said in its full response to the government’s consultation which it published on Monday. “This dynamic can be seen in other commercially funded, but privately owned public service broadcasters like ITV. A private owner would have a natural and legitimate incentive to seek both to dilute the more commercially onerous parts of the channel’s remit.”
Ampere estimates that without any change to Channel 4’s current obligations the government can expect to raise only £400m to £500m from privatisation. The last government attempt to sell Channel 4 in 2016 saw a £1bn price tag attached to the business.
Potential suitors this time around reportedly include the US pay-TV giant Discovery – which was considered a favourite last time before the government scrapped its privatisation plans – and ITV.