Channel 4: Privatisation (Communications Committee Report)

Lord Best Excerpts

Tuesday 17th October 2017 Lords Chamber

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[Lord Best]

That this House takes note of the Report from the Communications Committee, A privatised future for Channel 4? (1st Report, Session 2016–17, HL Paper 17).

[Lord Best (CB)]

My Lords, I rise to introduce this debate as the chairman of your Lordships’ Select Committee on Communications at the time when it produced the report entitled A Privatised Future for Channel 4?. Note the question mark. We completed our work over a year ago and there have been some dramatic developments since then. I will be sharing some thoughts on the current position, as will no doubt a number of your Lordships during this debate. I hope the Minister will bring us right up to date.

First, let me summarise our unambiguous and unanimous recommendation to government: “Don’t privatise Channel 4”. Our view was that Channel 4 played several significant roles within the so-called ecosystem of broadcasting: in providing a different perspective; in promoting greater diversity, with the Rio Paralympics as a brilliant example; in delivering a high-quality news service with Jon Snow at peak times; in supporting film-making through Film4; and in commissioning regional production of important television programmes. We feared that these special roles would be threatened by privatisation, and harsh commercial imperatives would make it hard for Channel 4 to fulfil its special remit as a distinctive and innovative broadcaster.

The Channel 4 corporation—which includes More4, E4, All 4, 4Music and Film4—is currently 100% publicly owned, although it is 100% commercially funded. Its annual revenue is around £l billion. If offered for sale, we saw a strong likelihood of acquisition by a foreign—probably American—buyer. We saw it as inevitable that this would mean a dilution of the ethos of public service broadcasting and we were doubtful that any fine assurances given at the time of purchase would survive. We noted that the broadcasters’ regulator, Ofcom, does not have the power to revoke Channel 4’s licence and we were alarmed at the prospect of new owners simply walking away from their public service broadcasting obligations.

It is true that the committee was not entirely uncritical of Channel 4’s performance. In particular, we were unhappy with Channel 4’s delivery of its special requirement to make programmes specifically for older children, 10 to14 year-olds, and young adults, 14 to 19 year-olds. We recognised that such programmes do not attract lucrative advertising. But, as also noted by Ofcom’s chief executive, Sharon White, when she appeared before the committee, we felt Channel 4’s commitment to this part of its public service compact was inadequate.

Overall, the committee noted that Channel 4 was doing very well. The audience share for its portfolio of channels is the third highest, after the BBC and ITV, although in terms of revenues it is placed fourth after Sky. Its percentage of younger adult audiences—the 16 to 35 age group—is much higher than for its competitors: 15% for its news programmes, for example, compared with 7% for the BBC. Its financial results were very healthy and its spending on content—particularly new, original productions—was growing impressively.

So, why would anyone want to take drastic action to change the basis on which Channel 4 has been operating with such success? First, I think I detected a political or philosophical antipathy from some commentators toward a publicly owned body—even one that deploys no public money and is profitable—based on a belief that public ownership inevitably brings governmental interference, bureaucracy and inefficiency.

Secondly, we noted the very obvious motivation from HM Treasury: privatisation would raise funds from a market sale that could reduce the nation’s debts. We heard different views on how much might be achieved, with a range from about £800 million to something over £2 billion. However, off-setting such one-off gains are, of course, the potential losses, not least of jobs in production companies and exports. A short-term windfall would only be sensible if the sale meant greater long-term gains.

The third argument was that privatisation would bring opportunities for greater financial sustainability, with new investment and increased efficiency. A key question for us, therefore, was: is Channel 4 in a financially vulnerable position from which privatisation could save it? The then Secretary of State for Culture, Media and Sport, John Whittingdale, told us that C4’s future was very uncertain. Given its dependence on advertising revenue, he was worried that—unlike Sky with its subscription revenues and ITV with its own production business—C4C depended on advertising for 90% of its income, putting it in a precarious position in the event of an economic downturn. He felt that a privatised Channel 4 could make savings which could go to programme-making. Another witness, David Elstein, thought privatisation could lead to the cutting of well over half the 800 jobs at C4C, and the savings could go to enhancing the channel’s public service remit.

Your Lordships’ Communications Committee, on reviewing the evidence, did not accept that Channel 4 was in a precarious position. Its revenues were buoyant and it had healthy reserves to see it through any dips in advertising revenue. We also noted it was ahead of the game in shifting its emphasis to advertising online, a strategy which is of particular relevance given its high concentration of younger viewers.

That was then. I now turn to the position facing Channel 4 today, some 18 months after publication of our report. In the intervening period, DCMS continued to look at the options for Channel 4 and Karen Bradley, the new Secretary of State, wrote to me in the spring with the big announcement that the Government will not be pursuing the privatisation route. This decision was very welcome to the committee and I like to think that our report had some modest influence on it. Karen Bradley’s letter added that the Government were keen to see Channel 4 making a greater economic contribution to the nations and regions beyond London and the south-east, where two-thirds of programme producers are currently based. She announced a consultative exercise to look at whether Channel 4 itself should be based outside London and whether more of its programmes—which are all commissioned from independent producers, not made in-house—should be made away from London.

Coming to today, therefore, there seem to be two key questions for the future of Channel 4. First, with the current uncertainties in the UK economy, is the outlook for the channel still as rosy as it was when the “no privatisation” announcement was made? Secondly, could and should Channel 4 move itself and/or more of its spending away from London and the south-east? In considering these two questions, the committee was helped by a special, informal session last month with Channel 4’s chair, Charles Gurassa, and its chief marketing and communications officer, Dan Brooke. On Channel 4’s financial strength, Ofcom noted that a combination of the rise of online video services such as Netflix and Amazon, and post-Brexit weakness in the wider economy, could threaten C4C’s viewing figures and advertising revenues. However, Ofcom added that the TV advertising market is likely to recover. Channel 4, with its quality programmes and investment in the popular All 4 online platform, to which—incredibly—half the population of 16 to 34 year-olds have signed up, and with the cushion of healthy reserves, would appear to be well able to weather all but the most devastating storm. Ofcom’s analysis concluded that,

“within the bounds of the most likely trajectories for TV advertising spend and TV viewing, C4C can remain financially sustainable in its current form throughout its current licence period”—

that is, until 2024.

The second issue is Channel 4’s impact in the nations and regions. Clearly, government is keen to see this publicly owned enterprise playing its part in stimulating the local economies away from the south-east, and the results of Karen Bradley’s consultation suggest that this view is widely held. Certainly, a similar success story to that of the BBC’s move to Salford’s MediaCity would be more than helpful. However, the BBC is close to 25 times the size of Channel 4; and since C4 commissions all its programmes externally and has relatively few staff in London, relocating its HQ would be unlikely to bring together a new hub for creative industries elsewhere. Indeed, a number of the London posts would still need to remain there to handle the advertising sales which require close proximity to that industry in Soho.

Enders Analysis, which consistently furnishes the committee with well-researched reports, also points to the risks of a considerable loss of talent and extra staff costs from redundancy and relocation packages. Enders suggests that the additional spending to achieve a modest regional economic impact could be poor value for money.

To prevent an enforced relocation to Birmingham or elsewhere, Channel 4 needs to succeed in making the case that its commissioning investment in Scotland, Wales, Northern Ireland and the regions furthest from the south-east can and will grow, probably by C4 accepting a formal increase in its current requirement for 35% of its production budget to be spent away from London. If government is not convinced and Channel 4’s HQ must move away from Westminster, to recoup the costs involved, compensation for Channel 4 may need to be found in an extension of its licence beyond 2024.

In conclusion, I stand squarely by your Lordships’ Communications Committee’s core recommendation that Channel 4 should not be privatised. This broadcaster continues to do innovative work, creating much-needed plurality in the broadcasting world, championing diversity in many forms—nearly half the UK population watched the Rio Paralympics—and it seems well able to sustain its strong financial position into the future. I am sure that the Minister will confirm this. I hope that he will update us on the Government’s current thinking on the possible move for the C4 HQ. I know the committee will want to join me in wishing Channel 4’s new chief executive, Alex Mahon, every success.

I thank my successor, the noble Lord, Lord Henley, for arranging the very helpful updating session with Channel 4 last month. I thank the committee’s then clerk and policy analyst respectively, the incredibly diligent Anna Murphy and Helena Peacock; the committee assistant, Rita Logan; our special adviser, Professor Richard Tait; and, of course, my fellow committee members, who all engaged so fully in our inquiry and produced what I hold to be both an insightful and influential report. I beg to move.

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[Lord Best]

My Lords, my deepest thanks to all Members of the House who contributed to the debate, particularly to all those—most of whom serve on my committee—who made very kind remarks, for which I am very grateful.

The unanimous view, I think, from everyone who spoke was that Channel 4 has been doing great things, has fulfilled its remit and should definitely not be privatised. I am grateful to the Minister for reaffirming that decision tonight: privatisation is not going to happen. The Minister also made it clear that the Government are very keen on the idea not just of Channel 4 commissioning more programmes from outside London—although that will be very important to the new settlement that they come to with Channel 4—but that a good part of its headquarters should move away from London; I think I could read between the lines there. Alex Mahon, the new chief executive, may need to make proposals that take that into account. I would only say that the decision needs to be based on the evidence, which needs to be looked at carefully. That will take a little time—nothing too rash, as the noble Lord, Lord Griffiths, urged.

My final comment is that if I were Alex Mahon, going into the job as chief executive officer of Channel 4, I would probably get the speech of the noble Lord, Lord Holmes of Richmond, placed on the walls of my new office, whether they are in London or anywhere else.

Motion agreed.