Chapter 5: Impact of privatisation on creative landscape
200.The UK’s television industry is widely felt to be a success due to the special ecology of the sector, with a range of different organisations with different goals, business models and sizes. These different models mean that there is strong competition between a mix of public service and commercial operators, but with different objectives and incentives. John McVay told the Committee:
“What we have … is a Rubik’s cube of intervention, regulation and market dynamics, which is generating one of the world’s most successful TV economies. We are the second largest exporter. We are in every single major market around the planet. We have soft power in China and Latin America. Everywhere you go you will see British programming. The global TV industry is the biggest entertainment market at $400 billion and the world wants great quality product. By accident, design or intervention we have magicked up a system that produces that. We would be mad to mess around with it too much”.222
201.C4C plays a key role in an ecosystem which it was broadly felt worked well. Sky told the Committee that it “considers that the market is well placed to deliver programming that viewers want and value, including content that fulfils particular public policy objectives. But this position does not translate into consequential support for a removal of C4C’s PSB remit as part of a privatisation process.”223 Viacom said:
“This combination of broadcasters—competing against each other for audiences while playing complementary roles—generates a rich mix of high quality predominately British programmes, delivered free of charge to all television viewers in the UK. The PSB system also serves the wider creative industries through its investment in UK content and commissioning of independent producers. VIMN would be opposed to proposals to upset this successful arrangement, including any plans to privatise Channel 4.”224
Role as innovator
202.The Digital Economy Act 2010 stipulates that C4C must “support the development of people with creative talent, in particular—people at the beginning of their careers in relevant media content or films, and people involved in the making of innovative content and films”.225 Creative England argued that this was “vital” as the film and television industry “needs ‘nursery slopes’—a reasonably well-funded space in which talent can develop, take risks and innovate”.226 Channel 4, Film4, and the broadcaster’s other portfolio of platforms have traditionally provided this space. Skillset told the Committee that this was particularly important as it is “different from the requirements of its PSB counterparts (particularly the BBC and ITV) and on that basis, our response addresses why Channel 4’s responsibilities for nurturing and developing talent should be protected.”227
203.C4C was a founding partner of and provides core funding to Creative Skillset; in 2015 this was £252,000 as well as an investment in the TV Skills Fund of £110,000. Skillset argued that this is “particularly important in light of the government’s shift away from public subsidy of skills”. This role was believed to be threatened by privatisation as suggested by Creative Skillset: “In our observations of working across the Creative Industries, the more commercial a channel becomes, the less emphasis there is on training that supports the broader needs of the screen and creative industries.”228
204.Creative England cited research carried out by Oliver & Ohlbaum which demonstrated that C4C “tries more new ideas out than other main broadcasters; has a stronger record of trying out new ideas on the main channel and encouraging and nurturing risks”.229 It argued that “There should be little doubt that Channel 4’s unique remit is at the heart of this risk taking behaviour.”230
Independent Production
205.C4C has a key role in the independent production sector as John McVay explained to the Committee: “Channel 4 was set up with the purpose of stimulating the independent production sector to create more competition, more diversity and more innovation. It is a very important buyer from independent producers across the UK.”231 In 2015, Channel 4 worked with 295 suppliers232 and spent £455 million on original UK content.
206.C4C’s role as an incubator of new independent production talent is a particularly significant one. The International Broadcasting Trust feared a private owner of C4C would be less likely to commission from the smaller, newer companies which C4C had a remit to support with its £20m Indie Growth Fund.233 It said “new, less experienced companies, which by their nature poise a greater risk to C4C, are likely to lose out on commissions and production companies with a track record would be favoured.”234 Creative Industries England pointed out that Channel 4’s main channel alone commissions from over 230 different companies—90 more than any other PSB channel. It stressed the importance of the Indie Growth fund in helping production businesses build critical mass and providing a counter to the increasing consolidation of the sector.235
Terms of trade
207.The terms of trade are a form of regulatory protection for independent production companies and have been key to the success of independent production in the UK. They were introduced in the 2003 Communications Act to address the balance of buyer power in the market. Previously, the four PSBs [BBC, ITV, C4 and Channel 5] accounted for 90 per cent of all programming spend, and were able to leverage all intellectual property rights from their suppliers. Section 285 requires that the PSBs must have a code of practice that regulates the dealings between them and their suppliers, the independent producers. If a company is bought by a foreign broadcaster or foreign media company with broadcasting interests in the UK, it no longer “qualifies” as an independent producer and therefore does not get the benefits of the regulatory protection.
208.The independent television production sector in the UK has been going through significant changes, with consolidation leading to the creation of some very large production companies, some owned by large US groups, others by broadcasters (UK and international) with vertical integration strategies. However, the independent sector remains a dynamic one—with on average 100 new companies setting themselves up every year and half of those start-ups still operating after two years.236 C4C continues to have a crucial role in maintaining plurality in the sector and in supporting the emergence of new companies. It continues to work with fewer of the largest producers than the BBC, ITV or Channel 5. Since 2009, it has consistently sourced half its content from medium sized companies (turnover £25–70 million) and its proportion of commissions for smaller companies with a turnover of £5m–£10m has been between 12–20 per cent since 2012.237
209.There has been recent debate regarding the balance of power between production companies and broadcasters. The regulatory protection was originally designed to protect small companies and promote growth in the industry. However, in the last 10 years there has been rapid consolidation in the market of the top seven UK producers, accounting for around £1bn of UK revenue, and six are now owned by large foreign media companies.
210.This debate notwithstanding, C4C plays a crucial role with middle to small sized companies, as Pact told us: “C4 continues to work with fewer of the largest indies than the BBC, ITV or Channel 5. Since 2009, it has consistently sourced approximately half of its content from indies with a turnover of between £25m–£70m. The proportion of indies with a turnover of between £5m–£10m which Channel 4 commissions has also remained fairly stable, at around 12–20 per cent (with the exception of 2011, when it dramatically reduced).”238
211.The publisher broadcaster model with multiple suppliers is a core part C4C’s ability to deliver distinctive programming. The Committee recognises the need to protect this crucial role for C4C in supporting and commissioning smaller companies and recommends that, in the event of privatisation, this be made clear as part of their remit.
212.A commercial owner could look to operate outside the terms of trade in order to maximise profit. It could do this by increasing commissioning from non-qualifying producers (in as much as possible if a quota still applied) and vertical integration of the broadcaster.
213.TAC had concerns that Channel 4 should remain in public ownership, “due to its unique and highly productive relationship with the indie TV production sector, including in the UK nations”. It felt that C4C’s current business model “is sustainable and therefore preferable to one where the Terms of Trade for independent producers were altered, potentially disrupting the rapid growth of the UK’s TV production sector.”239
Vertical integration
214.As the industry has grown, content is now available through more distribution methods, such as Video on Demand, international and secondary broadcast. This has led to a growth in the amount of categories of rights that a broadcaster and indie can exploit. As a result, owning the Intellectual Property of content has become more lucrative and therefore important. C4C can only currently own a limited amount of this as befits its status as a publisher/broadcaster.
215.Under section 295 of the Communications Act 2003, C4C is required not to be involved in the making of programmes for Channel 4 except to such an extent as Ofcom may allow:
“The regulatory regime for Channel 4 includes a condition requiring C4C not to be involved, except to such extent as OFCOM may allow, in the making of programmes to be broadcast on Channel 4.”240
Ofcom has not allowed C4C to be involved in the making of programmes for Channel 4 and Channel 4 has, to date, not requested that it be allowed to do so.
216.A private owner of C4C could look to change this status by starting the process of negotiation with the regulator with the aim of moving production in-house and therefore retaining all rights to programmes. As Professor Sylvia Harvey told the Committee “It is a generally accepted truth that … it is cheaper to show bought in programmes than to make your own and the original C4C production quota would limit the scope for buying in programmes.”241
217.The Secretary of State told the Committee:
“Arguably, that is the direction in which a lot of media companies are going. For instance, ITV is investing heavily in production capacity now, because it, too, recognises that it becomes more vulnerable if it is dependent solely on advertising revenue … Channel 4 has in small part, but is prevented from doing so. If it were part of a company that was not just reliant on advertising, that might strengthen it. The production quotas would remain, or we would look at what the appropriate production quotas were.”242
218.John McVay told the Committee that the publisher broadcaster model is efficient “until you get to the point where you want to wholly own and control intellectual property rights. That is when you get tempted to set up in-house production.”243 ITV have adopted a strategy of acquiring production companies and, as Creative England told the Committee, this has seen “the value of external commissions drop by £95 million between 2008–2013 and internal commissions rise.”244 TAC also acknowledged ITV “lobby to drastically reduce its commitments to out-of-London production over the years, and focused spend more on a smaller number of producers, including its own in-house operation.”245
219.VLV identified a risk that if C4C were privatised a “private owner could seek to reduce that investment by making its own programmes, in line with global trends in the broadcasting industry. This would lead to higher profit margins and more predictable income from owning the rights to its programmes.”246 The danger inherent in this is that C4C would work with fewer external suppliers and therefore provide less business and revenue to the independent production industry.
220.John McVay said that a broadcaster would “normally be driven by its desire to retain and own and control intellectual property rights … we would be fundamentally opposed to that on Channel 4. When that has been mooted by previous governments we have made it very clear that would be damaging to the interests of the diversity of the SMEs that we represent.”247 ITN were also of the opinion that this could damage the industry: “Any change in its status could adversely impact upon the media ecosystem in the UK if a proportion of Channel 4 commissioning was removed from the independent production market.”248
221.Professor Harvey sounded a note of caution that the remit could be protected in this case. She said, “since the wording of Section 278 does not specify original British or European material, it might be possible to produce ‘original’ material in the UK that was primarily intended to be attractive to American or other international markets”. She felt that a “point of principal here is that market wisdoms and shareholder interests might both be jeopardised by a strong remit”.249 A new owner with a substantial back-catalogue of content may opt to show this (subject to first-run quotas) instead of commissioning new UK content.
222.The Committee think a C4C that makes a substantial part of its content in-house would have an adverse effect on the independent production sector. We are alarmed at the prospect of privatisation leading to a reduction in spending on independent production.
Instability
223.The review of C4C began in September 2015. Charles Gurassa, the Chair of C4C, when launching the Annual Report 2015, said:
“This review was first publicly discussed in the autumn, we are now in mid-May, and prolonged uncertainty is not good for any organisation … It’s not good for our staff, it’s not good for our business partners, it’s not good for our advertisers, because they are all asking … what is going to happen and what will the implications be?”250
224.The terms of trade were subject to a review by Ofcom in December 2015 at the request of the Secretary of State. This, along with the uncertainty around Channel 4 and BBC Charter Renewal, has led to a “chilling” impact on the industry as John McVay told the Committee:
“The fact that we do not know whether the regulation underpinning our businesses is going to be retained or not. I have spoken to a number of venture capital and equity companies and they will not be investing in the sector any time soon because we are all driven by IP and if we lost the IP which underpins our businesses, they will not invest.”251
This report was presented to the Government in December 2015.
225.The Secretary of State said on 27 May that he had “considered carefully Ofcom’s report on the television production sector and decided that the regulations continue to be effective and play a key role in supporting a diverse and vibrant production sector. We have therefore decided to make no change.”252
226.We note the continuous process of reviewing aspects of the broadcasting industry is unsettling for the management of C4C. As we noted in our report on BBC Charter Renewal, Reith not Revolution, we consider that major changes should be considered principally at an appropriate interval such as a licence renewal, not on a constant basis between renewals.
How much might C4C be worth?
227.There have been conflicting reports as to the value of C4C in the event of privatisation. Much of this conflict can be attributed to a confusion as to exactly what would be included in the deal. The Secretary of State said: “I have not had a figure quoted to me. Genuinely, I cannot tell you what value specifically it could raise if it were sold either whole or in part. There are an awful lot of variables.”253
228.Claire Enders told the Committee “with a licence that ends in 2024 and no certainty of renewal, and broadly speaking with some flexibility in the remit—requiring primary legislation … and privatising the business at the end of 2017, with only seven years to go on a sinking licence, you would be very pressed to get more than £1.5 billion.”254 However she added that with “vertical integration and IP ownership, the flexibility of the model, the flexibility to make profits, and the flexibility to trade outside small companies … particularly an extension of the licence to 2030, would make this business of £2.5 billion or £3 billion significantly attractive.”255
229.An academic report, commissioned by C4C and led by Professor Barwise and Gillian Brooks, said the value under the current remit would be no more than £500m. This includes “up to £175m of cash in the bank” and is based on “potential earnings before interest, taxes, depreciation, and amortisation of between £28m and £36m, and a valuation multiple of 11 time Ebitda.”256Professor Barwise’s rationale for this was “Given the risks and the need for the buyer to make a profit on the deal, a realistic maximum price for C4 … would be £400–500m—around the same as Channel 4’s £443m book value. Anything above this could only come from the buyer’s ability to get more ‘bang for the buck’ (revenue per pound) from Channel 4’s content budget.”257
230.David Elstein said the “commercial opportunity is you have that £940 million of steady cash flow at the moment, and that is what it has been for the last five, six, seven years … If you add on to that the £230 million of cash reserves and the £85 million of building value—let us put a six times multiple on it—that looks about £1.5 billion, and you are still going to be able to deliver a high-quality Channel 4.”258 The Committee noted that the value of C4C to the Treasury in the event of a privatisation would be proportionately diminished if there was an advertising downturn.
Ownership
231.This section looks at the current restrictions on media ownership in the UK and possible buyers if C4C were to be fully or part-privatised.
232.The current UK broadcasting landscape is set out in the table below.
Table 1: Ownership of media brands
Company |
Foreign company |
Percentage stake |
|
ITV |
Liberty Global |
9.9 |
|
Channel 5 |
Viacom International Media Networks |
100 |
|
Sky |
21st Century Fox |
39 |
|
Financial Times |
Nikkei |
100 |
|
Talkback Thames |
RTL (Bertelsmann) |
100 |
Ownership restrictions
233.The current national restrictions on the ownership of UK media companies are:
- No one can own more than 20 per cent of a Channel 3 licence and national newspapers with more than 20 per cent market share. The same restriction applies to any media company which is more than 20 per cent owned by someone who has more than 20 per cent of the national newspaper market. [Sometime known as the “20/20” rule, it is really a “20/20/20” rule.]
- Specific prohibitions on licence holding. There is still a prohibition on political parties holding any broadcasting licences and on religious bodies holding certain licences for Channel 3 and Channel 5, any national radio analogue licence, and multiplex licences.
- Channel 4 and S4C may not hold Channel 3 or Channel 5 licences.
- The Nominated News Provider for Channel 3 cannot be under the control of political or religious bodies or bodies which would be barred from holding a Channel 3 licence.
- Media Plurality Public Interest Test. The Secretary of State may intervene in media mergers where he has concerns about media plurality.259
234.The Competition and Markets Authority (CMA) is responsible for investigating mergers which could restrict competition, conducting market studies and investigations in markets where there may be competition and consumer problems. Several witnesses felt that there could be a role for the CMA in any potential privatisation of C4C. The guidance provided by the CMA is outlined in the box below.
Box 6: Competition and Markets Authority guidance
|
A merger must meet all three of the following criteria to constitute a relevant merger situation for the purposes of the Act: 1.Two or more enterprises (broadly speaking, business activities of any kind) must cease to be distinct, or there must be arrangements in progress or in contemplation which, if carried into effect, will lead to enterprises ceasing to be distinct. 2.Either the UK turnover associated with the enterprise which is being acquired exceeds £70 million (known as ‘the turnover test’), or the enterprises which cease to be distinct supply or acquire goods or services of any description and, after the merger, together supply or acquire at least 25 per cent of all those particular goods or services of that kind supplied in the UK or in a substantial part of it. The merger must also result in an increment to the share of supply or acquisition. (This test is hereafter referred to as ‘the share of supply test’). 3.Either the merger must not yet have taken place, or it must have taken place not more than four months before the day the reference is made, unless the merger took place without having been made public and without the CMA being informed of it (in which case the four-month period starts from the earlier of the time the merger was made public or the time the CMA was told about it). The four-month deadline may be extended in certain circumstances. |
Source: Competition and Markets Authority, Mergers: Guidance on the CMA’s jurisdiction and procedure (January 2014): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/384055/CMA2__Mergers__Guidance.pdf [accessed 20 May 2016]
235.Ofcom published a review of media ownership rules in 2009 which states:
”The media ownership rules operate in parallel to the merger regime, which aims to prevent consolidation that would substantially reduce competition in particular markets. The merger regime may indirectly protect plurality by doing so. The Secretary of State (for Business, Innovation and Skills) can also intervene in a media merger if it raises public interest considerations, including plurality.”260
236.The Committee would expect the Secretary of State for Business, Innovations and Skills to consider the matter in the event of C4C privatisation as it would clearly be a matter of public interest.
237.Ofcom would also have a role in determining the award of any licence. In regard to the award of Broadcast Licences, under Sections 3(3) of each of the 1990 and 1996 Broadcasting Acts, Ofcom:
(a) shall not grant a licence to any person unless satisfied that the person is a fit and proper person to hold it; and
(b) shall do all that they can to secure that, if they cease to be so satisfied in the case of any person holding a licence, that person does not remain the holder of the licence.261
Ofcom state that it “will take into account any relevant misconduct of those who manage and control the licensee”.262 These rules prevent or limit control of television and radio by certain owners whose influence might cause concern. (for example, political parties and religious bodies)
238.There are three main types of circumstances in which Ofcom would consider a person to be not fit and proper:
(1)where the holding of a licence by a person of that nature poses a clear risk of substantial harm to an audience, for example if a licence holder had a history of fraud;
(2)where the ownership would bring into question public confidence in the regulated activity as a whole; and
(3)where the licensee lacks respect for, or the ability to comply with, the regulatory regime, and therefore the continued ownership would undermine the regulatory regime, for example if a licensee commits serious and repeated breaches of its licence conditions.263
239.The Committee is not convinced that the current process of determining ownership, if C4C was offered for privatisation, would deliver an acceptable outcome for a privatised C4C.
240.As we stated in paragraph 189, the Committee would expect the Government, in the event of any proposed privatisation, to ensure that an appropriately robust and transparent process of consultation be followed prior to Parliament’s consideration of the proposal.
Who are the likely buyers if Channel 4 were to be privatised?
241.The Government’s position is not yet clear regarding the future of C4C, therefore speculation on likely buyers is theoretical. However, it would be an essential part of any consultation on this topic to consider the available options and the likely impact on C4C and the wider industry.
242.A report commissioned by C4C and authored by Patrick Barwise and Gillian Brooks, The Consequences of Privatising Channel 4, stated that the most likely buyer would be “a US buyer or consortium, such as Discovery or Channel 5 owner Viacom, with the prime UK candidate BT. The most likely [UK communications company] candidate is, in our view, BT… Given its cash flow and balance sheet, BT could certainly afford to buy Channel 4, even after the EE acquisition. It is also already expanding in TV, although this development is still at a relatively early stage.”264
243.The report says a UK communications company might be considered a “more attractive” buyer politically than a US company, because it would keep Channel 4 in UK hands and is most likely to keep its publisher-broadcaster model intact, but the Government would have to run an open, competitive bidding process”.265
244.The Secretary of State said:
“I do not think that there is any shortage of interest, not just from big, US-based international broadcasters but from some in the UK … I talk to a large number of media companies. There is no shortage of potential interest, but before anyone is going to say for definite, they would want to see what we have decided about the structure and a remit—all these things. There are a lot of companies in the media industry at the moment that see it as an opportunity to grow, invest and do well.”266
245.Scripps Networks International has stated that it would look at buying Channel 4 if the broadcaster was put up for sale.267 Scripps Networks is an American company which owns media brands including Food Network, DIY Network, Cooking Channel and Travel Channel. In 2001 it bought a 50 per cent stake in UKTV in a deal reportedly worth £339m.268
246.Claire Enders advised the Committee that if “you were going to proceed down the route of introducing primary legislation that substantially altered the remit, there would be many, many takers.” She said the companies likely to be interested would be “American companies” and that “We have seen every company, including Vivendi and even Bertelsmann, express an interest in Channel 4.”269 However she continued to say that if it was sold with the remit that would “narrow the group down very strongly. Then only European companies would be interested.”270
247.David Elstein told the Committee that:
“Liberty Global does not have any particular broadcast assets in the UK, but owns Virgin Media. That looks a very acceptable home … Discovery is the most obvious of all the potential partners, not least because it has a big portfolio of pay-tv sports rights, which require free-to-air expression at some level, so partnering up with a free-to-air channel would make sense. There are three or four European companies I could imagine.”271
248.On the possibility of Sky or ITV being interested in buying the Corporation, the Secretary of State said:
“That would be, first, a matter for the competition authorities. There were would be issues around general competition policy both in terms of advertising and the reduction in competition for television advertising, as well as potentially around news provision. The first thing one would want to do is get advice from Ofcom and the competition authorities on whether there were concerns in that area.”272
249.David Elstein said: “if Sky bids for Channel 4, I am confident that the competition authorities would say, ‘Sorry, in the advertising marketplace you are going to be too large. That is an unacceptable merger’”. He thought “News Corp rather than Sky is a possible.”273
250.The impact on the advertising market was also identified as having a key role in who would be eligible to purchase or part purchase C4C. David Elstein said, “I do not think ITV would be allowed to merge with Channel 4 because of the impact on the advertising marketplace.”274
251.There are currently three main television advertising sales houses in the UK:275
(1)ITV: Sells advertising for the ITV portfolio of channels.
(2)Channel 4: Sells advertising for Channel 4 and the portfolio, alongside all of the UKTV channels, BT Sport, ESPN as well as a selection of music channels.
(3)Sky: Sells advertising for wholly owned channels such as Sky 1 and Sky Atlantic along with others including various Viacom stations such as Channel 5.
A buyout or merger between two of these groups would leave only two television advertising sales houses in the UK.
252.The Committee was concerned that, in the event of a privatisation, because of the limited number of advertising sales houses, a purchase by a UK company could be considered too great a risk under competition law, making it more likely that that an overseas company would be the buyer.
Could an independent producer buy Channel 4?
253.Some of the biggest independent production companies in the UK are international owned (for example, Endemol Shine is 50 per cent owned by Rupert Murdoch’s 21st Century Fox and 50 per cent by Apollo Global Management). Some of these companies would, undoubtedly, have the means to invest in the broadcaster. The BBC were approached by Avalon and Hat Trick in 2015 with a proposal to buy BBC Three in an attempt to prevent the channel from moving online only.276
New digital intermediaries such as Amazon or Netflix?
254.There was little support for the idea that a new digital intermediary such as Amazon or Netflix might be interested in buying C4C. John McVay told the Committee: “I cannot see why they would be interested. They are in a pay model and in 130 countries. I think Channel 4 would be at the margins of their interests.”277 C4C referenced the importance of these new companies as advertisers rather than rivals: “while much has been said about the rise of global OTT278 services such as Netflix and Amazon, it is to traditional, linear TV that these companies turn to market themselves … Google, Facebook and Netflix spend over 60 per cent of their marketing budgets on TV advertising.”279
Foreign investment
255.C4C is a very influential broadcaster in the UK and occupies a prominent position on the electronic programme guide. Whilst it was widely acknowledged that overseas investment is, in itself, not necessarily a negative outcome, there was concern expressed regarding who the potential buyers might be and what their commitment to UK broadcasting would be.
256.Ofcom told the Committee:
“Were you to see the acquisition of either Channel 4 or ITV, the core thing that is delivering the revenues to those businesses is their attractiveness to UK consumers, and all our research suggests that UK consumers love new UK programmes .… what we care about is what the broadcasters deliver to audiences, and of course we care about UK production. A foreign-owned broadcaster still ought to have a commercial incentive to produce content that is targeted at UK audiences. We do not automatically assume that foreign ownership is always a bad thing.”
However it did acknowledge, “there could be concerns in some areas.”280
257.David Abraham told the Committee:
“It is possible to observe that there have been some very big changes in consolidation of ownership of production and potentially future changes in the control of Sky, for example. Were all those to come to pass and we were to play them through in the next five to seven years, we would have a very different landscape where big decisions were being made outside the UK. That is a broader ecology point than it is specific about who individual assets such as ours might be owned by.”281
258.It could be expected that C4C would be attractive to large overseas media companies such as Russia Today or a Chinese investor. In response to this the Secretary of State said: “I think that both of those would raise serious questions about the motivation. There is a test for determining whether a person is appropriate for owning a broadcasting channel. Certainly the performance of Russia Today in meeting impartiality requirements has not been particularly strong in recent times.”282
259.There was concern that a foreign buyer might seek to produce programming for an international audience in order to create more revenue. Colin Browne said “that there would be pressures on Channel 4, or what became of it, to produce programming that was geared towards an international market and international audience. Therefore, one would lose one of the big strengths of Channel 4 at the moment, which is making programmes for the British market, and for parts of the British market that are not covered by some of the other mainstream broadcasters.”283
260.The Secretary of State acknowledged that any decision would need to be considered on “plurality grounds, which Ofcom might also look at.”284
261.In the case of news, there was concern that an owner might, if able to acquire C4C under plurality guidelines, seek to influence its news agenda. The Secretary of State gave the example of Fox News in the US and Sky News. He said “Fox News is probably not fully in accordance with the impartiality requirements of Ofcom—it has not been put to the test, but I suspect some might argue that it is not—whereas Sky News has an extremely strong reputation for delivering accurate, impartial news. There has been no evidence of its ultimate owners wishing to change that.”285
262.Mr Whittingdale told the Committee that “I am not going to say yes or no to a particular company here and now, but obviously those issues would need to be thought about very carefully.”286
263.The Committee has reservations about future potential owners, were C4C to be privatised, and we seek greater assurances from the Secretary of State that any new owner would be robustly held to conditions which ensured no negative impact on the viewer or the creative industries of the UK.
Safeguards/processes
264.Ofcom told the Committee:
“Once it [C4C] is in the commercial sector, we already have a process we apply for the range of commercial licensees. Whenever there is a change of control of the commercial broadcasters that we license, we go through a change of control process. That process has historically involved us assessing the delivery of those broadcasters against quotas and asking ourselves whether under the new ownership we think there is likely to be a change in that level of delivery that would concern us. If we think that there might be a change, we have the ability to vary the licences, essentially to lock in historic levels of delivery. That is never a perfect mechanism, but it gives us a certain level of ability to handle changes in delivery that we think come with changes of ownership. That is a generic ability that could certainly apply in case of a foreign bid”.287
265.David Elstein has advocated a guarantee of “taking back the spectrum, the EPG slots, the things that are specifically in the gift of government and regulator, in the event of A, B, C or D. My modest experience of dealing with these international organisations is that what they most like in life is high-quality content. That is what they are looking to make. That is what works for them internationally.”288
266.We do not believe that the current system of licence holder evaluation would be suitable for the expectations and protections which should be in place for the sale of one of the UK’s major public service broadcasters. We are concerned that this is too light touch for a sale of an important UK public service broadcaster.
225 Digital Economy Act 2010, sections 22 and 23
229 Channel 4, Channel 4: Taking risks, challenging the mainstream: http://www.channel4.com/media/documents/press/news/C4_Risk_Report_Singlepages_FOR_NINA.pdf [accessed 14 June 2016]
232 This figure is for total suppliers across all content and differs from the Ofcom definition.
233 Channel 4, ‘Channel 4 set to launch £20m Growth Fund for independent sector’ (23 January 2014): http://www.channel4.com/info/press/news/channel-4-set-to-launch-20m-growth-fund-for-independent-sector [accessed 14 June 2016]
238 Ibid.
240 Communications Act 2003, section 295
250 ‘Channel 4 condemns government for “prolonged uncertainty” over privatisation’, City AM (10 May 2016): http://www.cityam.com/240785/channel-4-condemns-government-for-prolonged-uncertainty-over-privatisation [accessed 14 June 2016]
252 ‘Whittingdale: ‘no change’ to Terms of Trade’, Televisual (27 May 2016): http://www.televisual.com/news-detail/Whittingdale-no-change-to-Terms-of-Trade_nid-5997.html [accessed 14 June 2016]
256 EBITBA is earnings before interest, taxes, depreciation and amortization.
257 Patrick Barwise and Gillian Brooks, The Consequences of Privatising Channel 4 (May 2016): http://www.channel4.com/media/documents/press/news/Desktop/Barwise_final%204May’16.pdf [accessed 14 June 2016]
259 The Leveson Inquiry, Department for Culture Media and Sport submission: Media Ownership Summary (9 July 2012): http://webarchive.nationalarchives.gov.uk/20140122145147/http:/www.levesoninquiry.org.uk/wp-content/uploads/2012/07/DCMS-submission_Narrative-on-media-ownership.pdf [accessed 14 June 2016]
260 Ofcom, Media Ownership Rules Review: http://stakeholders.ofcom.org.uk/consultations/morr/summary [accessed 20 May 2016]
261 Broadcasting Act 1990, Broadcasting Act 1996
262 Ofcom, Frequently asked Questions: Fit and Proper’ in relation to broadcast licensees: (updated 10 May 12): http://stakeholders.ofcom.org.uk/binaries/broadcast/tv-ops/fit-proper/FandPFAQ-update.pdf [accessed 20 May 2016]
264 Patrick Barwise and Gillian Brooks, The Consequences of Privatising Channel 4 (May 2016): http://www.channel4.com/media/documents/press/news/Desktop/Barwise_final%204May’16.pdf [accessed 14 June 2016]
265 ‘BT ‘most likely’ UK company to bid for a privatised Channel 4’, The Guardian (4 May 2016): http://www.theguardian.com/media/2016/may/04/bt-most-likely-uk-company-channel-4-privatised [accessed 14 June 2016]
267 ‘UKTV co-owner would look at buying Channel 4 –but Disney rules itself out’, The Guardian (8 March 2016): http://www.theguardian.com/media/2016/mar/08/uktv-owner-channel-4-disney-scripps [accessed 14 June 2016]
270 Ibid.
275 Turner Media Innovations also sells advertising for their channels including Cartoon Network and TCM.
276 ‘BBC Three: TV production companies bid to buy channel’, BBC (20 January 2015): http://www.bbc.co.uk/news/entertainment-arts-30894987 [accessed 14 June 2016]
278 Over The Top services: the delivery of audio, video, and other media over the Internet.