Chapter 6: Alternative ownership options
267.The other ownership options presented in Chapter 2 are to maintain the status quo with regulatory reform, mutualisation and a partnership or merger. We will now look at each of these in turn.
Status quo with support from regulatory reform
268.C4C could remain as a publicly owned, not-for-profit company, but assisted by all or some of the ideas in the Ofcom 2015 review such as treating the remit as across the whole portfolio and extending EPG prominence for C4C’S digital channels and All4.
269.Creative England supported the extension of the remit to the portfolio: “the broadcaster may be able to more effectively, and more meaningfully, deliver PSB goals to its core (young) audience, be better placed to adapt to a fast and ever changing media landscape and accommodate changing media consumption habits.”289 The Arts Council agreed that this may bring a “modernisation of public service broadcasting to include content across platforms to achieve public service outcomes.”290
270.However there was concern that the extension of PSB status across all services could lead to “an option for C4C to ‘water down’ their PSB commitments across their channels and platforms.”291 Pact agreed that this “would dilute its remit and could lead to important PSB content being shown on secondary channels, or online only, rather than in a more prominent position on the Channel 4 main channel. This would not, in our opinion, be in the best interest of viewers.”292 The Arts Council were concerned about a potential withdrawal of content from the main channel. VLV said it would be “crucial to ensure adequate delivery of the C4C remit where it can make the most impact, which may still be on the main channel.”293
271.The IBT suggested “regular assessments to ensure that C4C maximises the impact of its PSB content and is not allowed to move it onto platforms where it will have less impact.”294
272.Commercial broadcasters were also critical of the extension of benefits to C4C’s portfolio services and a potential negative impact on their business. Sky believed that “the regulatory framework already confers significant indirect advantages on C4C’s ancillary services through cross-promotion and awareness that its prominent parent channel provides. Granting benefits such as prominence to additional services would only serve to stifle growth and investment by competitors.”295
273.The Commercial Broadcasters Association (COBA) told the Committee that “Granting EPG prominence to Channel 4’s suite of portfolio channels would mean other channels would have to be displaced in order to accommodate those channels. COBA members have invested heavily in developing their businesses–EPG position being a key component of that development, and something for which channels can pay significant sums. Losing their often hard-won EPG position would damage a channel’s audience share, revenues and, by extension, content budget.”296 Pact felt that should any of the PSB benefits be extended to C4C’s portfolio channels, the PSB obligations should be extended in a similar way.297
274.Pact considered that this would be of negligible financial benefit to C4C as it already “trades advertising slots in bundles which include C4 main channel alongside airtime slots on the portfolio channels such as E4 and More4.”298
Mutualisation
275.Mutualisation is a form of not-for-profit ownership. Not-for-profit organisations in the UK can take several forms such as a company limited by guarantee, a community interest company, a mutual enterprise or a charity.
276.Mutualisation was proposed to the Government by Lord Burns in his last year as Chair of C4C. He said that “for most activities in life I am a great believer in shareholder companies … I just think that for most activities it is the best way of doing things. However, broadcasting is a very different type of landscape and requires different treatment.”299
277.Lord Burns told the Committee in his ‘exit’ interview that the main advantages would be that the Government could take some money out of C4C, if it wished, that it would be easier to do joint ventures and that it would provide Channel 4 with a “safe harbour rather than having to refight this battle about the ownership of the Channel every 10 or 15 years”.300
278.He saw the benefit of this approach for the Government as being able “to put some debt on to the Channel 4 balance sheet where at present there is no debt, and the Government would probably be able to be paid something for it.” This would enable the Government to remove C4C from the public sector but allow it to “remain a not-for-profit company rather than one that was motivated by shareholder value.”301
279.Lord Hollick, former Chief Executive of United News and Media, agreed that, if the ownership model were to change, this was the best option for the broadcaster. He told the Committee: “if the Government is intent upon monetising the book value of its £450–500m investment and is resolved to sustain the remit in full and maintain C4’s financial flexibility it should consider the transfer of Channel 4 to a mutual established to hold C4 in the public interest.” He said that following the transfer:
“Mutual C4 will become an independent commercial entity run for the benefit of the public and with the financial flexibility to fulfil its remit to innovate, to support the UK’s production industry and to develop its business alone or in partnership with others as appropriate. For its part the Government will receive £450m to £500m which will enable it to emulate its predecessors by re-investing the funds in the creative economy to promote growth and competition.”302
280.John Newbigin agreed: “To recast a major organ of our public media as either a publicly-owned mutual or, at least, an organisation with a major emphasis in its remit on partnerships and collaborations, involving national and regional organisations, businesses and individuals would be a powerful demonstration to the country and to the world that Britain really is an exceptionally creative nation.”303
281.The Government did not respond to Lord Burns’ suggestion when it was proposed. However the Secretary of State told the Committee that he welcomed the “fact that Channel 4 came forward with a potential option for examination.” He did not feel that this option addressed the issue of C4C’s dependence on the advertising market and he raised concerns about the potential for mutualisation “diminish[ing] accountability”.304
Partnership/Merger
282.It has been suggested that it may be beneficial to merge C4C with a broadcaster of similar size, such as Channel 5. This would create a new company to hold C4C’s licences and be responsible for the remit. The Committee received little new evidence on this option, however it has been suggested in the past.
283.David Elstein told us that when he proposed a merger between Channel 4 and Channel 5 in 2000, he concluded that the two broadcasters could have:
“merge[d] all … back office operations—accommodation, HR, advertising, engineering transmission—everything other than programming, and left the two programming teams alone to do what they were obligated to do under their licences, we would be able to save between £130 million and £190 million a year. That was 16 years ago.”305
Minority private investment
284.Minority private investment was one of the options reported as being under consideration by the Government on 10 May.306 When asked about this option as a potential hybrid solution Lord Burns said: “I am pretty happy to have investors in Channel 4 if they receive a fixed rate of return, but once they want a return that is an equity-style return, it depends upon the long-term shareholders and that begins to cause a problem.”307
285.The Committee has considered the options of mutualisation and part-privatisation, as well as full privatisation. We have concluded that the risks and uncertainties of these approaches outweigh possible benefits for C4C and the creative industries of the UK. The Committee sees no substantive argument for changing the ownership of C4C.
298 Ibid.
300 Ibid.
301 Ibid.
306 ‘Channel 4 escapes privatisation after Downing Street intervention’, The Telegraph (10 May 2016): http://www.telegraph.co.uk/business/2016/05/09/channel-4-escapes-privatisation-after-downing-street-interventio/ [accessed 26 May 2016]
307 ‘Lord Burns: ‘Don’t destroy a success story’, Royal Television Society: https://rts.org.uk/article/lord-burns-%E2%80%98don%E2%80%99t-destroy-success-story%E2%80%99 [accessed 26 May 2016]