SELECT COMMITTEE ON COMMUNICATIONS
REPORT: A PRIVATISED FUTURE FOR CHANNEL 4?
Evidence Volume
Contents Arts Council England – written evidence (SCF0016) ...... 1
British Broadcasting Corporation (BBC) – written evidence (SCF0029) ...... 8
British Film Institute (BFI) – written evidence (SCF0017) ...... 9
Campaign for Broadcasting Equality CIO - written evidence (SCF0027) ...... 15
Channel 4 – written evidence (SCF0019) ...... 21
Channel 4 – oral evidence (QQ 41-49) ...... 39
The Children’s Media Foundation – written evidence (SCF0005) ...... 52
Commercial Broadcasters Association – written evidence (SCF0026) ...... 55
Compact Media Group – written evidence (SCF0024) ...... 60
Creative England – written evidence (SFC0014) ...... 62
Creative Industries Federation – written evidence (SCF0013) ...... 69
Creative Skillset – written evidence (SCF0025) ...... 75
Department for Culture, Media and Sport (DCMS) – written evidence (SCF0021) ...... 81
DCMS – oral evidence (QQ 50-63) ...... 86
David Elstein – oral evidence (QQ 22-31) ...... 99
Enders Analysis – oral evidence (QQ 1-10) ...... 111
Equity – written evidence (SCF0008) ...... 123
Professor Sylvia Harvey – written evidence (SFC0028) ...... 126
Lord Hollick – written evidence (SCF0030) ...... 133
Paul Horgan – written evidence (SCF0002) ...... 135
Incorporated Society of British Advertisers (ISBA) – written evidence (SCF0004) ...... 140
International Broadcasting Trust (IBT) – written evidence (SCF0009) ...... 145
ITN – written evidence (SCF0015) ...... 164
Carolyn Jackson-Brown – written evidence (SCF0006) ...... 174
John Newbigin – written evidence (SCF0007) ...... 176
Ofcom – oral evidence (QQ 11-21) ...... 179
Ofcom - supplementary written evidence (SCF0031)...... 191
Michael Pritchard - written evidence (SCF0001) ...... 194
Producers Allliance for Cinema and Television (Pact) – written evidence (SCF0022) ...... 195
Pact and Voice of the Listener and Viewer (VLV) – oral evidence (QQ 32-40) ...... 213
Sandford St Martin Trust – written evidence (SCF0003) ...... 228
Sky – written evidence (SCF0018) ...... 233
Stonewall – written evidence (SCF0012) ...... 238
Teledwyr Annibynnol Cymru (TAC) – written evidence (SCF0011) ...... 240
Viacom International Media Networks – written evidence (SCF0023) ...... 246
Voice of the Listener and Viewer (VLV) – written evidence (SCF0010) ...... 248
VLV and Pact – oral evidence (QQ 32-40) ...... 261
2 Arts Council England – written evidence (SCF0016)
Arts Council England – written evidence (SCF0016)
Introduction
1. Arts Council England’s mission is 'great art and culture for everyone'. We work to achieve this by championing, developing and investing in arts and cultural experiences that enrich people's lives.
2. As the national development agency for the arts, museums and libraries, we support a range of activities from theatre to music, reading to dance, photography to digital art, carnival to crafts. We support and invest in high quality arts practice and the best emerging practitioners that represent the backbone of our cultural infrastructure and contribute to the future of the UK’s dynamic creative economy.
3. The Arts Council directly invests between £4- 5m each year in public service content initiatives, distributed both online and on television. We work closely with Channel 4, BBC, Sky, Google and others to support innovation in the accessibility and the growth of great arts and culture digitally.1 In addition Arts Council funded organisations are increasingly producing work of this nature as part of their creative mission. This includes companies across England like the National Theatre, Miracle Theatre in Cornwall, BALTIC Centre for Contemporary Art in Newcastle Gateshead, Royal Opera House, and Norfolk Museums.
4. Our response to the Select Committee focusses on Channel 4 Corporation’s (C4C) engagement with arts and culture. This includes its investment in arts, music and specialist factual programming as well as its important role within the wider cultural ecology and creative industries.
5. The Arts Council believes that:
A strong Channel 4 with a continued Public Sector Broadcasting (PSB) remit is critical to the UK’s art, culture and creativity. Channel 4’s innovative arts, music and specialist factual programming makes an essential contribution to current and future PSB plurality. As the main creative competitor to the BBC, it delivers public benefit through increasing audience choice, driving up quality and achieving mass impact and reach. This also impacts on wider public engagement in arts and culture As well as extending broadcast and online output for the arts, Channel 4 is also plays an important role nurturing new voices, talent and diversity within the wider cultural and creative industries. Any consideration of the future sustainability of C4C should consider how it will maintain and strengthen both its current investment in arts and cultural
1 The Arts Council’s Creative Media policy http://www.artscouncil.org.uk/document/creative-media-policy
1 Arts Council England – written evidence (SCF0016)
programming and its successful collaborations with arts and cultural organisations Channel 4 could expand delivery of its arts and cultural remit by sharing its expertise, data and platforms with cultural organisations for public benefit. They could do this is by developing and commissioning a new wave of regional independent producers from the arts and culture sector. Any changes to C4C’s business model must ensure its existing public benefit is protected and fulfilled at a minimum. Changes which might lead to reduced PSB remit and reduced original content investment across key genres such as the arts should be avoided.
Funding
Is C4C financially sustainable? Is the revenue provided by advertising sufficient to make Channel 4 Corporation (C4C) sustainable?
6. Recent independent economic analyses by Ofcom2, Ernst and Young 3 and Enders Analysis4 suggest C4C is financially sustainable. These three reports consider C4C’s place within the wider current and future market, and its resilience to address the impact of digital disruption. Ofcom states that it re-licenced C4C until 2024 on the basis of its current model.
7. Any consideration of the future sustainability of C4C must demonstrate that it is able to continue to balance its commercial sustainability with successful delivery of its public service obligations. Since 2008 there has been a steep 25% reduction in arts and music original content across the PSB compact.5 It would be concerning if the current investments in C4C arts and music genre programming were to further decline. At present C4C has a broad cultural offer reaching a diverse audience, and the potential to reach niche markets not served by other broadcasters. This offer would likely be reduced and narrowed.
Are there any other commercial/non-commercial revenue streams which could/should be explored?
8. Channel 4 is an important source of public investment in the arts and through its specialist factual output, in history, science and ideas that support our knowledge economy.
2 “In relicensing the core C4 service for ten years in 2014, we made it clear that we believed that the current funding model for that channel was sustainable.” From Public Service Content in a Connected Society, Ofcom’s third review of public service broadcasting (Dec 2014) http://stakeholders.ofcom.org.uk/broadcasting/reviews- investigations/public-service-broadcasting/psb-review-3/ 3 The Future of Channel 4 in a changing market environment: Ernst and Young LLP (March 2016) fhttp://www.channel4.com/media/documents/press/news/Desktop/EY%20C4%20report%20FINAL%20160316.pdf 4 Channel 4 Sustainability and Privatisation, Enders Analysis December 2015 http://endersanalysis.com/ 5 Ofcom Public Service Content in a Connected Society, Ofcom’s third review of public service broadcasting (Dec 2014)
2 Arts Council England – written evidence (SCF0016)
9. Channel 4 funding amplifies the effects of other public and private investment in arts and culture. C4C’s investments and strong partnerships with cultural organisations generate income for artists and creatives across the creative industries. They support the creation of new work and back emerging talent. As well as widening diversity, training and regional production across the UK.
10. Development agencies and public bodies such as Arts Council and BFI co-invest in a range of arts and film content with C4C and others. Considering public and Lottery investment alongside that for public service content is essential to drive greater public value and support our growing creative economy.
11. The Arts Council has had a variety of partnerships with Channel 4 since its inception in 1982. Such joint partnerships allow us to deliver projects that may not have been possible for either Arts Council or Channel 4 on their own. This has helped to deliver both arts policy and public service broadcasting policy outcomes. Our partnerships broadly cover three main areas of arts and cultural programming:
Co-commissioning and co-funding experimental and original artist films. Usually short films specifically made for broadcast television and online platforms;6 Programmes exploring projects which are bringing new audiences to culture, like the pioneering Operatunity and Orchestra United which followed the creation of a Halle Harmony Youth Orchestra including inner Manchester’s diverse community.7 New documentaries about arts and culture brought about by partnerships between arts and cultural organisations and independent producers.8
12. Random Acts, our £6m partnership with Channel 4 over three years, is one current example. Five ‘network centre production hubs’ will identify new young artistic filmmaking talent and help them get into the creative industries. The hubs comprise over 150 arts organisations, educational bodies and independent production companies. 80% of the investment is outside London. Channel 4’s £3m investment in the project includes commissions for artists, television series production and online distribution to showcase films. They are also marketing and promoting Random Acts across their platforms.
13. 360 films by new young filmmakers will be shown on Channel 4 platforms over the next two years. These platforms are crucial to ensure the films reach C4’s young audiences. Early evaluation suggests the scheme is identifying and nurturing new diverse talent. 25% of the current 130 participating young people from either a BME background or with disabilities.
6 These include : Animate TV, 4 Dance, Dance for the Camera, Margate Exodus, Random Acts 7 Others include : Ballet Changed my Life, Big Art Project/Mob Log, Castleford 8 These include: Habit of Art/National Theatre, Duchess of Malfi/ENO, Swallows and Amazons/Bristol Old Vic; Cinderella/Matthew Bourne, Our Boyz in Havana/Ballet Boyz
3 Arts Council England – written evidence (SCF0016)
14. The Committee should consider the funding landscape and legacy from C4C’s partnerships as part of its consideration of sustainability. Such cooperation supports Channel 4’s business model and increases its public benefit. It also sustains artists, organisations and communities.
Viewing
Is viewing of Channel 4 (the main channel) and C4C sustainable? To what extent is the decline in reach and share on the main channel a problem for C4C?
To what extent is Channel 4 (the main channel) equipped to deal with the challenges posed by new technology and viewing habits such as online and search and recommendation?
15. Reports cited above suggest Channel 4 is successfully maintaining its portfolio viewing share. The process of digital switchover and that the prognosis for future audience sustainability and growth on its current model would appear strong. By continuing to develop its on demand offer, and investing in its data strategy, C4C seems well positioned to monetize the growing amount of on demand viewing.
16. Key to C4C’s current success and future sustainability is to engage younger audiences across its portfolio of channels. Channel 4 attracts a significantly higher proportion of the 16-34 audience compared to any other Public Service Broadcaster, including the BBC and ITV.9
17. This younger audience and reach has been one of the main reasons for the Arts Council’s collaboration with C4C. Such joint partnerships allow us to deliver projects that may not have been possible for either Arts Council or Channel 4 on their own.
18. We would like arts and cultural sector organisations to collaborate with Channel 4 as they seek to build younger audiences. Similarly we would encourage further sharing of audience insights from the Channel’s innovative data and registered user research. There is significant potential to connect and cross promote arts and cultural content across both platforms and sectors, to grow the overall share of audiences and consumers for arts and cultural programming, products, events and activities across the UK.
Remit
Would changes to the Channel 4’s remit provide greater sustainability for the broadcaster?
9 http://www.channel4.com/media/documents/corporate/annual-reports/C4_Brochure_Single_Pages_2ndJune15.pdf
4 Arts Council England – written evidence (SCF0016)
19. Enders’ Analysis has suggested changes may provide greater profit in the future, but they warn that this would come at the cost of reduced public benefit. We would urge caution should changes to the current remit result in a reduced PSB focus on the arts and cultural programming. This would impact adversely on the cultural and creative industries and wider sustainability beyond C4C.
20. The current model allows Channel 4 to balance genre remits such as arts that are less commercially attractive against more commercial offerings including entertainment. We believe that Channel 4 currently achieves this balance very well. It provides distinctive, culturally diverse programming. It also brings on new talent, provides production funding for independents, and works with cultural organisations as required in the Digital Economy Act 2010.
Does the current regulatory system provide for adequate assessment of C4C’s performance against its obligations?
21. The current regulatory system broadly serves its purpose of reflecting and assessing performance on specific aspects of its remit. There is both flexibility and some vagueness of C4C’s more general PSB remit obligations,10 but C4C balances a wide PSB remit with financial sustainability. Improvements could be made to reporting of C4C’s current arts and music output and work with cultural organisations. They could be covered more explicitly within Ofcom’s annual review of its media statement.
22. We recognise the limits of regulatory reporting. Only measuring areas of public service content through hours of output or volume of spend in specific genres gives an incomplete picture of performance. It does not show C4Cs role in providing access to information, alternative views and new perspectives. Nor the cultural, social and economic benefits it provides as a ‘greenhouse’11 for the creative economy.
23. As the arts and cultural sector develops its own digital and media capacity, there is un-locked commercial and public value to be realised. To do so we will need increased collaboration between C4C and cultural organisations to produce new content. Channel 4 could open up its commissioning process directly to cultural organisations as it has done so successfully for the independent production sector. It could also help more arts content reach new audiences across Channel 4 platforms. Tracking the impact on the wider sector could form a strengthened PSB arts remit of the future.
What benefits/drawbacks could there be to Ofcom’s suggestion in its PSB review that PSB obligations be applied to C4C as a whole rather than to the main channel alone?
10 (b) that cultural activity in the United Kingdom, and its diversity, are reflected, supported and stimulated by the representation in those services (taken together) of drama, comedy and music, by the inclusion of feature films in those services and by the treatment of other visual and performing arts; http://www.legislation.gov.uk/ukpga/2010/24/section/22 11 http://www.channel4.com/media/documents/corporate/annual-reports/C4_Brochure_Single_Pages_2ndJune15.pdf
5 Arts Council England – written evidence (SCF0016)
24. Benefits include the modernisation of public service broadcasting to include content across platforms to achieve public service outcomes. However, a considerable potential drawback lies in withdrawal of content from the main channel and C4C’s capacity to serve audiences. Programmes such as Grayson Perry’s In the Best Possible Taste and Donmar Warehouse’s The Vote achieved critical acclaim and peak audiences of over 1 million. These help people discover arts and culture, and ensure C4C is a creative competitor to the BBC, with mass reach and impact.
25. Obligations must extend across all C4C channels and platforms in order to respond to shifting audience consumption. Especially since the main Channel 4 TV platform comprises 90% of Channel 4 investment. Other Channel 4 broadcast and online platforms will remain important ways to attract new audiences.
Ownership
What are the different models of ownership for C4C? What are the positives and negatives of these? Would a change in ownership, such as privatisation, affect the remit of C4C, and in what ways? What impact might privatisation have on:
a) key PSB genres such as news and current affairs; b) the independent production community; c) those communities/audiences currently served by C4C’s remit; d) the advertising industry; and e) the viewer/consumer?
26. There is an important role for Channel 4 in ensuring plurality of arts and cultural content within public service broadcasting. It does so alongside the BBC and an increasing wave of new public service content from the arts and cultural sector.12
27. Any future ownership structure at C4C which put other considerations above its public service obligations or reduced its current public benefit would be concerning. There would be a clear danger of less investment in arts and cultural programming. This would mean less public benefit, less visibility for the arts, less support for independent production, and a less interesting cultural offer for viewers and consumers. As C4C has demonstrated, it is achievable and desirable to balance both commercial profit and PSB obligations within C4C for sustainability and the greater public good.
28. An indication of any likely relaxation of PSB obligations specifically in relation to arts can currently be seen in Ofcom data that shows a reduction of programming by ITV
12 Ofcom Public Service Content in a Connected Society, Ofcom’s third review of public service broadcasting (Dec 2014)
6 Arts Council England – written evidence (SCF0016)
and Five since 2010 in key areas of ‘strategically challenged’13 genres, including arts genre programming.
29. Ofcom’s review of public service broadcasting notes that overall levels of commercial PSB channel investment in specific genres and sub-genres are driven by three key factors:
a) level of funding available to invest, b) the channel’s public service remit and licence obligations. c) the level of investment required to optimise value to shareholders. This is influenced by competition for audience share in specific market segments.
30. Ofcom notes in relation to Channel 4 that its public ownership, remit and obligations mean that the correct incentives are currently in place for C4C to maximise investment in PSB output within the levels of funding available.14
31. In conclusion, any future changes to C4C’s business model should ensure its existing PSB remit including arts, music and specialist factual programming is protected as the minimum level, with an aim of extending their ambition. Any changes which might lead to reduced PSB remit and reduced original content across key genres such as the arts should be avoided. The committee should also carefully consider C4’s current wide-ranging impact on the wider arts and cultural sector and UK citizens in relation to any such changes.
20 April 2016
13 5.49 Ofcom Figure 50: Current strategic position of genres within schedule, by broadcaster in Ofcom Public Service Content in a Connected Society, Ofcom’s third review of public service broadcasting (Dec 2014) 14 5.51 Ofcom 2014
7 British Broadcasting Corporation (BBC) – written evidence (SCF0029)
British Broadcasting Corporation (BBC) – written evidence (SCF0029)
We welcome this opportunity to input into the Committee’s Inquiry into the Sustainability of Channel 4.
The BBC’s starting point is that the global and domestic success of the UK’s broadcasting sector is the result of a rich ecosystem, characterised by a mix of private and public institutions with different remits and different sources of funding.
As a publicly-owned, commercially funded but not-for-profit broadcaster, with a remit to be innovative, Channel 4 has played an important and complementary role to that of the BBC. With this successful model in mind, it is important to be clear what problem possible policy options are designed to fix. In our view, any policy changes in relation to Channel 4 should be consistent with maintaining its important contribution to public service broadcasting (PSB), including Channel 4’s investment in a wide range and depth of high-quality and distinctive programming.
Whatever policy options are explored for Channel 4, it is also worth considering the broader changes which will affect PSB in the coming decade. In particular, globalisation and vertical integration are likely to increasingly bring the commercial incentives of distribution platforms into conflict with the objective of the wide availability and consumption of PSB. Existing statutory interventions in support of PSB, such as appropriate prominence guarantees, focus on traditional TV channels and Electronic Programming Guides only, leaving unprotected PSB content made available on-demand and on new content gateways. This should be rectified through a modernisation of PSB prominence rules. Such measures can play an important role in helping grow the success of the UK sector and safeguarding the impact of all PSB provision, including that of Channel 4.
18 April 2016
8 British Film Institute (BFI) – written evidence (SCF0017)
British Film Institute (BFI) – written evidence (SCF0017)
Submission from Ben Roberts, Director BFI Film Fund on behalf of the BFI
Summary
1. In 2011 the BFI became the lead organisation for film in the UK. It is now a Government arm’s-length body and a distributor of Lottery funds for film.
2. Our mission is to ensure that film is central to our cultural life, in particular by supporting and nurturing the next generation of filmmakers and audiences. The BFI serves a public role which covers the cultural, creative and economic aspects of film in the UK.
3. Both the BFI and its precursor as distributor of National Lottery funding, the UK Film Council, have worked hand in hand with Channel 4, specifically its Film4 division, to invest in and support British independent film with an excellent track record in talent development and commercial, breakout successes.
4. Our response to the Select Committee focuses on C4C’s engagement with film, and associated moving image content including high end TV drama (defined under the High-end Television Tax Relief rules as having a minimum core expenditure of £1m per broadcast hour) with some focus on recent changes in approach at Film4. We have not commented on C4C’s broader remit, merely its relevance to, and impact on, the British independent film sector.
5. In the BFI’s view:
We recognise the increasing financial pressures placed on C4C as a result of shifts in consumer behaviour and technological change and the associated pressure to become sustainable. We have seen this directly in its approach to film; Recent changes to Film4’s investment strategy which focus on recoupment and delivering value for money to C4C could narrow its commitment to British independent film; By association, the BFI, reflecting the views of many of its stakeholders (both industrial and cultural) in the British independent film sector would be wary of any ownership structure at C4C which reduced or could compromise its PSB obligations; C4C remains very important to the UK film industry and to UK film culture. Their broadcast of film surpasses that of other PSBs, and their continued support for high-end drama content is increasingly vital as the screen industries continue to converge;
9 British Film Institute (BFI) – written evidence (SCF0017)
C4C currently contributes more ‘programmes of distinction’ to the National Television Archive than any other PSB; The current system of monitoring C4C by Ofcom requires more focus on film, as evidenced by their 2015 statement which omits C4C’s commitments to film investment and programming; and Whilst C4C’s commitment to diversity is to be applauded, we would welcome a commitment to apply the BFI’s Diversity Standards to all investments made by Film4.
Responses to Specific Questions and Areas of Interest Funding
6. The BFI can only speak to Channel 4’s funding of, and investment in, film both through its position as an important public funder of film via Film4 division, and as a conduit for feature films across its portfolio of channels, especially through the Film4 channel.
7. Film4’s investment division has, since its inception in 1982, been a very important source of public investment in British films, working alongside organisations such as the BFI and BBC Films to unearth, support and promote the careers of British film talent.
8. For much of its lifetime Film4 has operated as a ‘loss leader’ for the C4C family, helping the Corporation to deliver on its broader, statutory PSB remit, but being rewarded through the cache attached to the success of their award-winning projects such as Danny Boyle’s Slumdog Millionaire and Steve McQueen’s 12 Years a Slave.
9. Historically, Film4 often agreed to ‘recoup’ their investments behind commercial investors on the understanding that their input brought with it a quality marque, an element of de-risking and the opportunity to fulfil C4C’s statutory obligations, as set out in the Digital Economy Act 2010 (DEA) to cultivate quality content and talent in respect of film.
10. Section 22 (1) (b) and (c) of the DEA 2010 state that C4C must participate in;
“(b) the making of high quality films intended to be shown to the general public at the cinema in the United Kingdom, and
(c) the broadcasting and distribution of such content and films.”
11. Sub-Section 2 of the same clause states that C4C must participate in
“(c) the broadcasting or distribution by means of electronic communications networks of feature films that reflect cultural activity in the United Kingdom (including third party films).”
10 British Film Institute (BFI) – written evidence (SCF0017)
12. Sub-section 4 of the same clause states that:
“In performing their duties under subsections (1) to (3) C4C must—
(a) support the development of people with creative talent, in particular—
(i) people at the beginning of their careers in relevant media content or films, and (ii) people involved in the making of innovative content and films,
b) contribute towards the fulfilment of the public service objectives (as defined in section 264A).” [of the Communications Act].
13. Recent changes in Film4’s approach to investment in films offer a snapshot of how a drive towards a ‘sustainable’ business model might change the strategy of the broader C4C family.
14. Whilst Film4’s remains an important part of the UK film ecosystem their investment decisions appear to be aligned to a need to more broadly balance subsidies for riskier material with profit on commercial projects.
15. Film4 is now more willing to partner with non-British studios which offer both potential returns on investment and, in some instances, more ‘saleable’ product to exhibit on their channels as the time becomes appropriate.
16. C4C recently announced that it was increasing its investment in Film4 for 2016 by £10m to £25m. Whilst this boost is welcomed the BFI would encourage it to be used as a way for Film4 to invest in a greater and broader range of films, and caution against it being used as a financing facility (e.g. debt, tax relief advances) in competition with that already available in the market.
17. As mentioned already, the same is true of film across the C4C family. Broadcast of films remains an important source of revenue, and is often built into project budgets at inception stage. The BFI estimates that it was worth £1.4billion to the industry in 2014.15
18. Both Channel 4 and the Film4 channel remain key broadcast channels for film. According to the BFI’s Statistical Yearbook Channel 4 shows more British independent films, more foreign language films and films at ‘peak viewing time’ than other PSBs16. The year on year trend is also ‘flat’ with a similar number of films, in all categories, being shown on Channel 4 over the last ten years. Film4 showed almost 2600 film in 2014.17
15 http://www.bfi.org.uk/sites/bfi.org.uk/files/downloads/bfi-film-on-uk-television-2015-12-18.pdf 16 Ibid 17 Ibid
11 British Film Institute (BFI) – written evidence (SCF0017)
Viewing
Is viewing of Channel 4 (the main channel) and C4C sustainable? To what extent is the decline in reach and share on the main channel a problem for C4C?
To what extent is Channel 4 (the main channel) equipped to deal with the challenges posed by new technology and viewing habits such as online and search and recommendation?
19. As an organisation charged with supporting a cultural medium which finds itself challenged by the changing habits of consumers, and the shift towards multi- platform consumption, the BFI has a degree of sympathy for, and solidarity with, Channel 4. Our own BFI Player offers a platform for both significant cultural cinematic content and ‘free to access’ digitised content from the BFI National Archive. This has helped bring the work of the BFI to new audiences and improved our own understanding of both the opportunities and challenges of operating in an increasingly broad media environment.
20. From the perspective of the BFI we would urge C4C to stay true to its statutory PSB remit in maintaining a point of difference and continuing to focus on setting a high bar for quality and diversity of screen content which appeals to young audiences, regardless of where they watch it. Whilst consumption of screen content is increasingly fragmented, talent and productions techniques are increasingly convergent – with many actors and film makers switching easily between TV and film. Channel 4 has been, and should continue to be, the ‘go to’ place for high quality narrative story-telling for young people in the UK. The success of shows such as Boy A, Top Boy, Humans and Babylon have spillover benefits for the broader screen eco- system and demonstrate that Channel 4 will always find an audience if it continues to focus on what it does best.
21. C4C are leading in the area of audience insight. They have nearly 12m registered viewers including over 50% of all 16-24yo in the UK (via All4) whose behaviour they can track and map against demographics and location backed by a dedicated team of c.50 people focused solely on this function. As a PSB they should share some of this insight with the publicly funded film and cultural bodies who find it prohibitively expensive to tap into this level of insight and expertise.
Remit
Would changes to the Channel 4’s remit provide greater sustainability for the broadcaster? Is the current legislation too detailed, or too vague?
22. Our answers to the questions on both Funding and Viewing outline the BFI’s position on C4C’s remit. We would be concerned that a further move toward ‘greater sustainability’ might endanger the broadcast of independent film on TV and could potentially water down C4C’s commitment to unique, high quality drama and
12 British Film Institute (BFI) – written evidence (SCF0017)
documentary programming which is such a strong ‘teaching school’ for many British film makers, writers and actors and which are expressly outlined in section 4 of the DEA 2010.
23. Similarly we would be concerned about ‘greater sustainability’ compromising Channel 4’s commitment to diversity both in front of and behind the screen in its representation of minority interests and UK wide stories. 24. Whilst Channel 4 has taken strong steps to support diverse programming, we would welcome their support and ‘sign up’ to the BFI’s own Diversity Standards which are widely regarded as best practice in the screen industries by helping to support for opportunity, access and breadth of subject matter.
25. The number of programmes of distinction requested from C4C by the BFI’s National Archive is currently the highest amongst the commercial PSBs. This is because their existing remit allows C4C to fulfil their particular PSB duties in ways which we find valuable for the national collection, such as “alternative views and new perspectives”. These have been particularly strong in relation to diversity and disability programming in recent years and the BFI National Archive would be concerned that this may suffer if the channel were to pursue a more commercial path.
What benefits/drawbacks could there be to Ofcom’s suggestion in its PSB review that PSB obligations be applied to C4C as a whole rather than to the main channel alone?
26. The BFI does not consider that the Ofcom recommendation presents the right path forward, rather it might present an option for C4C to ‘water down’ their PSB commitments across their channels and platforms. We would prefer a model which saw the PSB obligations applying ‘jointly and severally’ to all C4C channels and platforms. From a film perspective this would ensure that Channel 4 continued to exhibit a diverse slate of films, and that the Film4 channel also continued to serve a broad audience rather than shifting towards screening mainstream films and away from supporting independent cinema from the UK and overseas.
Does the current regulatory system provide for adequate assessment of C4C’s performance against its obligations?
27. Whilst the current system seems broadly sensible and ‘light touch’, we would like reference to be made to all aspects of C4C’s remit under both the Communications Act 2003 and Digital Economy Act 2010 in every assessment process.
28. The 2015 letter18, for example, makes no reference to C4C’s film related obligations either in relation to their investment in production or the broadcast of film content
18 http://stakeholders.ofcom.org.uk/binaries/broadcast/tv- ops/c4/Ofcom_letter_to_Channel_4_Corporation_on_its_Statement_of_Media_Content_Policy_2014_2015.pd f
13 British Film Institute (BFI) – written evidence (SCF0017)
across their platforms despite these obligations being explicitly set out in the Digital Economy Act 2010.
29. Section 23 of the DEA gives C4C an obligation to publish an annual statement making clear how it has fulfilled its obligations in relation to Section 22 and other public service obligations, as part of its overall “media content policy”.
30. On a more general note, Section 5 of Clause 22 of the DEA gives C4C a duty to consider the desirability of working with “cultural organisations” in regard to discharging its duties, including around film. Such cultural organisations presumably include bodies such as the BFI, yet we have seen no assessment of this in Ofcom’s letters in recent years.
Ownership
What are the different models of ownership for C4C? What are the positives and negatives of these?
Would a change in ownership, such as privatisation, affect the remit of C4C, and in what ways? What impact might privatisation have on:
(b) key PSB genres such as news and current affairs; (c) the independent production community; (d) those communities/audiences currently served by C4C’s remit; (e) the advertising industry; and (f) the viewer/consumer?
31. The BFI’s view is that any new ownership model should continue to provide support, at least at current levels, for the British screen ecosystem through investment in production, and through its fulfilment of existing PSB remit obligations to diverse programming, talent development and high-quality drama programming.
32. We would have concerns around any ownership model which may erode some of C4C’s existing statutory duties, including its obligations to British independent film.
20 April 2016
14 Campaign for Broadcasting Equality CIO - written evidence (SCF0027)
Campaign for Broadcasting Equality CIO - written evidence (SCF0027)
Channel 4, Diversity and Privatisation
1. The Campaign for Broadcasting Equality (CBE) welcomes this opportunity to submit written evidence to the inquiry into the sustainability of Channel 4 (C4).
2. There is, as yet, no gold standard in public service broadcasting for driving diversity. C4 has done more than any other public service broadcaster to advance diversity and CBE is concerned that privatising C4 would compromise its exemplary approach.
C4 360-degrees Diversity Charter
3. In January 2015, C4 launched its 360-degrees diversity charter.19 It pledged that 20% of all staff be black, Asian or minority ethnic (BAME) by 2020 and included targets for employing disabled and lesbian, gay, bisexual and transgender (LGBT) staff.
4. At the launch, C4’s head of diversity, Oona King, said “previous attempts to improve diversity, including the Creative Diversity Network, had lacked the transparency, accountability, incentives and hard cash to succeed”.20 The C4 Charter demonstrated a profound understanding of the challenges to increasing diversity and provided a comprehensive and persuasive thirty point plan for achieving its targets, including detailed Commissioning Diversity Guidelines, clear employee in-house targets as well as wider initiatives to support a pipeline of diverse talent into the industry.
5. When he was CEO of C4, Michael Grade used to say “The BBC exists to keep us all honest.” When it comes to diversity, C4 sets a benchmark which other public service broadcasters should seek to match. BBC Worldwide, the BBC commercial enterprise, achieved 21.3% BAME staff in 2015 but such staff are not in creative or editorial roles but rather in business, sales and finance. The BBC’s licence fee funded programme making and broadcasting arm only achieved 12.2% BAME in 2015, still marginally short of the 12.5% target set for 2007.21 BBC has now said 15% of staff and leadership would come from black, Asian and minority ethnic (BAME)
19 http://www.channel4.com/media/documents/corporate/diversitycharter/ Channel4360DiversityCharterFINAL.pdf 20 John Plunkett “Channel 4: 20% of staff will be from ethnically diverse backgrounds by 2020” Guardian 12 January 2015 http://www.theguardian.com/media/2015/jan/12/channel-4-diversity-pledge-bame-lgbt-2020 21 Campaign for Broadcasting Equality CIO Submission to the Puttnam Inquiry into A Future For Public Service Television, 8 April 2016 http://futureoftv.org.uk/wp-content/uploads/2016/04/Campaign-for-Broadcasting-Equality-CIO.pdf
15 Campaign for Broadcasting Equality CIO - written evidence (SCF0027)
backgrounds by 2020 but it is not clear if the non-commercial programme making and broadcasting arm is expected to achieve this.22
C4 360-degrees Diversity Charter – One Year On
6. Driving diversity in employment requires a frank acknowledgement of the extent of the problem and of failures as well as successes. C4’s practice contrasts favourably with the BBC’s approach. The BBC’s report “Equality And Diversity at the BBC – 2014/15” does not report negative data. 23
7. C4’s report “360-degrees Diversity Charter – One Year On”24 was launched at a packed event in the House of Commons on 19 January. Idris Elba was the main speaker but before he spoke, Dan Brooke, a C4 Board Executive, reported on the past year’s progress with the Diversity Charter.
8. Brooke was commendably clear about the 6 initiatives in which C4 had not made as much headway as it anticipated. The report listed each of the 30 initiatives stating the Objective, the Result and the Lessons learnt. It provides a model for evaluating diversity plans which other public service broadcasters should emulate.
9. Brooke explained how C4 implements its initiatives. It has a cross-departmental task force that meets every two weeks to push the detailed work forward. Each commitment has a champion accountable for its delivery. A wider group from all parts of C4 meets every two months to ensure company-wide feedback is being constantly incorporated. The cross-departmental task force then reports to the Executive and to the Board every three months.
10. The success of C4’s approach is demonstrated in research Trevor Phillips presented to the Oxford Media Convention.25 It showed that C4 is the only broadcaster managing to appeal to black, Asian and ethnic minority audiences on the same scale
22 BBC Diversity and Inclusion Strategy 2016 – 20 http://downloads.bbc.co.uk/diversity/pdf/diversity-and-inclusion-strategy2016.pdf 23 Paragraphs 58 – 65, Written Evidence from the Campaign for Broadcasting Equality CIO to House of Lords Select Committee on Communications Inquiry into aspects of BBC Charter Renewal. http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/communications- committee/bbc-charter-renewal-public-purposes-and-licence-fee/written/21757.html 24 http://www.channel4.com/media/documents/press/news/ 24114_C4%20Diversity%20Report_FINAL.pdf 25 Trevor Phillips, “The Media and Diversity: Not Quite Black and White”, IPPR Oxford Media Convention, 2 March 2016 http://www.ippr.org/files/events/files/events-speech-phillips-160302.pdf?noredirect=1
16 Campaign for Broadcasting Equality CIO - written evidence (SCF0027)
as the population as a whole. BBC2 takes a 5.7% share of the total audience but just 3.3% of black, Asian and ethnic minority viewers, and, while almost 30% of the UK watches the BBC’s Six O’Clock news bulletin, just 15% of BAME viewers do so. In comparison, C4 attracts 5.6% of all viewers and 4.7% of the BAME audience, while its news bulletin gets a 3.2% share of the news audience as a whole but 5.6% of BAME viewers.
Sustainability and the Remit
11. The narrow issue for CBE is whether the C4 public service broadcasting sector leadership and advances in diversity would be sustainable if C4 moves to profit- maximising status.
12. It has been reported that the Secretary of State has argued, “The reason we are looking at different options for the future of Channel 4 is to ensure it can continue to deliver the remit, in what is to become a very fast-changing and challenging environment.”26
13. It would be hard to design a remit with sufficient specificity to capture and require the commitment to diversity that is currently demonstrated by C4.
14. Even Statutory Duties may be ineffective drivers as Ofcom has demonstrated with regard to Section 27 of the Communications Act 2003. Section 37 gave Ofcom the duty to take appropriate steps to promote equal opportunities in broadcasting. Launched on 29 December 2003, Ofcom sought to do the minimum necessary to fulfil this obligation. 27 It is only in 2016, thirteen years later, that Ofcom is looking at the maximum possible action it can take under Section 27 and other legislation.28
15. Remits and licence conditions can encourage diversity but they cannot drive it. Only determined and committed leadership at the most senior level can drive diversity. No other institution has matched the quality of leadership on diversity that C4 has enjoyed.
16. Thirty five years ago, C4 demonstrated it was not difficult to drive diversity. Two of the key elements were Institutional Commitment from Jeremy Isaacs, Chief
26 Kevin Rawlinson “Channel 4's public service remit will be protected, vows culture secretary” Guardian, 21 January 2016: http://www.theguardian.com/media/2016/jan/21/channel-4s-public-service-remit-will-be-protected- vows-culture-secretary 27 Campaign for Broadcasting Equality CIO response to Ofcom’s third review of public service broadcasting http://stakeholders.ofcom.org.uk/binaries/consultations/psb-review- 3/responses/Campaign_for_Broadcasting_Equality_CIO.pdf 28 Letter to the author from Minister for Culture and the Digital Economy, 22 March 2016
17 Campaign for Broadcasting Equality CIO - written evidence (SCF0027)
Executive and Leadership and Vision from Sue Woodford Hollick, Commissioning Editor, Multicultural Programming. They quickly delivered the current affairs series “Eastern Eye”, “Black on Black” and “The Bandung File and “No Problem,” the Black Theatre Co-operative’s sitcom and the first original comedy series of its kind addressing the lives of a black British family which ran from 1983 to 1985. “No Problem” was followed by “Desmonds” made in and set in Peckham, London, and featured a predominantly Black British Guyanese cast with 71 episodes from 1989 to 1994.29
17. Despite the remit, the momentum to advance diversity attenuated when Mark Thompson arrived at C4 from the BBC, in 2002, to become Chief Executive and for many years the channel lost its focus on BAME programming and employment.
18. The resurgence of C4’s commitment to diversity is thanks to the appointment of Oona King as Head of Diversity in 2009 and the support of David Abraham, the Chief Executive. Oona King has provided charismatic and determined leadership at C4 and in developing project Diamond with the Creative Diversity Network. The C4 diversity targets and the plans and personnel that are in place to achieve them would be unlikely to survive a change in ownership.
19. David Elstein has argued to your committee that C4 is “not doing what it ought to be doing.” 30 This is patently not the case when it comes to diversity. If there were to be a tendering process for a C4 licence it would be likely to be managed by Ofcom. We support Elstein’s evidence that Ofcom does not have the expertise to hold licensees to very detailed direct scrutiny that was to be found in the IBA and ITC. The intent behind the Communications Act 2003 was that Ofcom should be an even lighter touch regulator and for broadcasting licensees it is. We do not share Elstein’s optimistic view that Ofcom can now re-acquire the expertise that was embedded in the ITC which equipped the latter to manage the auction process for Channel 3 (ITV) licences and then apply detailed enforcement to licence conditions. Ofcom will have a sufficient challenge in extending its skills base to take on additional responsibilities for regulating the BBC.
20. We support Trevor Phillip’s view “Based on the actual data about how people
29 Campaign for Broadcasting Equality Written Evidence to Lords Communications Committee Inquiry on BBC Charter Renewal, 13 November 2015 30 Oral evidence, 19 April 2006 http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/communications- committee/the-sustainability-of-channel-4/oral/32175.html
18 Campaign for Broadcasting Equality CIO - written evidence (SCF0027)
behave, Channel 4 right now is the most important agent of integration in our national media. Privatisation would destroy that at a stroke.”31
Funding Ecology
21. Three organisations dominate the UK broadcasting: the BBC, ITV and Sky. They are each partly defined by their primary source of income – the licence fee, advertising revenues and subscriptions, respectively – and in turn by the interests and requirements of the relevant stakeholders. 32
22. C4 has been specifically designed to be different, in that it is primarily defined in terms of its output; independent of the way that it might be funded.
23. C4 has been designed to coexist and cohabit pragmatically with the dominant organisations, and to challenge and complement them in terms of content, rather than to challenge them in terms of its scale, sales performance or financial results. For C4, the latter are a means to an end, rather than the end itself.
24. While the majority of C4’s revenues come from advertising, in the past it has also generated subscription revenues (from E4 and Film 4 before tactically moving away from this as part of its support for the Freeview platform) and from programme sales (before revising its terms of trade with its suppliers). How it has been funded has evolved and adapted gradually over time.
25. Rather than being consumed with a debate about ownership and how Channel 4 is funded, and how steps might be taken to reform this, we should be more concerned about how the overall broadcasting ecology will develop in the future, and the importance of conserving the diversity and plurality of the content within it. In this case, a significantly more ‘eco-friendly’ approach would be to focus on ensuring that C4 and its funding are able to continue to evolve and adapt on a more gradual basis, with its output being carefully monitored to ensure that C4 remains healthy and robust and in line with its remit.
31 Trevor Phillips, “The Media and Diversity: Not Quite Black and White”, IPPR Oxford Media Convention, 2 March 2016 http://www.ippr.org/files/events/files/events-speech-phillips-160302.pdf?noredirect=1 32 CBE is indebted to Grant Murray whose expertise in media finance from CFO roles in ITV companies, Channel 5, Guardian Media Group and Johnson Press has informed this argument.
19 Campaign for Broadcasting Equality CIO - written evidence (SCF0027)
26. In 1980, a Conservative Home Secretary, Willie Whitelaw was responsible for this radical intervention in broadcasting, the creation of Channel 4, of which he was immensely proud. It is a legacy for which he is still remembered. It would be sad if Whitelaw’s legacy and the channel’s diversity ethos were to be sacrificed, prematurely, for a mess of pottage.
April 2016
20 Channel 4 – written evidence (SCF0019)
Channel 4 – written evidence (SCF0019)
Introduction
Channel 4 welcomes this inquiry from the Lords Communications Committee, which will provide an important platform for evidence-based discussion at a time when Channel 4’s future is under scrutiny.
There is widespread agreement across Parliament and industry that the success of the UK’s television industry is due to the special ‘ecology’ within 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. This mixed ecology has led to the UK’s content sector – in broadcasting, film and digital content and games - becoming one of the best in the world in terms of quality and economic success.
C4 has a unique and important place within this highly successful ecology. This contribution is enabled by the specific way in which Channel 4 is set up – in terms of the role it is asked to play by Parliament through its remit and the model under which it operates.
Channel 4’s statutory public service remit requires it to deliver a specific set of social, cultural and economic impacts. These are contained in the Communications Act 2003 and updated in the Digital Economy Act 2010.
Channel 4’s remit – laid out in statute – is comprised of 15 elements:
1. INVEST IN HIGH QUALITY CONTENT “participate in the making of a broad range of media content of high quality.” 2. INNOVATION “Demonstrate innovation, experiment and creativity in the form and content of programmes. 3. DISTINCTIVE “Exhibit a distinctive character.” 4. CULTURAL DIVERSITY “The making of a broad range of relevant media content of high quality that, taken as a whole, appeals to the tastes and interests of a culturally diverse society.” 5. TALENT DEVELOPMENT “Support the development of people with creative talent, in particular people involved in the film industry and at the start of their careers.” 6. STIMULATE DEBATE “Support and stimulate well-informed debate on a wide range of issues, including by providing access to information and views from around the world and by challenging established views; promote measures intended to secure that people are well informed and motivated to participate in society in a variety of ways.” 7. ALTERNATIVE VIEWS “Promote alternative views and new perspectives.”
21 Channel 4 – written evidence (SCF0019)
8. INSPIRE CHANGE IN PEOPLE’S LIVES “Provide access to material that inspires people to make changes in their lives.” 9. PARTNERSHIP “Working with cultural organisations” 10. MULTI-MEDIA “The making of a broad range of relevant media content of high quality; the broadcasting or distribution of relevant media content by means of a range of different types of electronic communications networks.” 11. EDUCATION “Make a significant contribution to meeting the need for the licensed public service channels to include programmes of an educational nature” and to provide educational content for teens, reflecting the requirement to provide “a sufficient proportion of schools programmes.” 12. OLDER CHILDREN AND YOUNG ADULTS “The making of relevant media content that appeals to the tastes and interests of older children and young adults.” 13. NEWS “The making of relevant media content that consists of news.” 14. CURRENT AFFAIRS “The making of relevant media content that consists of current affairs.” 15. FILM “The making of high quality films intended to be shown to the general public at the cinema in the United Kingdom – as well as the broadcasting and distribution of such content and films.”
This contrasts with the significantly more limited statutory remits for Channel 3 and Channel 5, which are limited to: “the provision of a range of high quality and diverse programming.”
Since 2010 the Channel 4 remit can be delivered across C4’s portfolio of outlets – TV channels and on online and digital platforms, as well as through investment in film for theatrical release – although formal public service status (and associated obligations and benefits) applies only to the main channel. Through its Ofcom public service licence a number of additional quotas are imposed, reflecting certain aspects of the remit. These include quotas for news, current affairs and production (origination and commissioning from the Nations and regions) and access service obligations. Channel 3 and Channel 5 mainly have similar quotas, albeit with some points of differentiation, so the obligations that set Channel 4 apart and ensure that its output is distinctive are the qualitative statutory elements.
There are a number of features of the Channel 4 model which support the fulfilment of the remit:
- It is publicly owned and entirely commercially funded. This means that it earns all its money in the marketplace but puts all of these profits back into programmes, at zero cost to the taxpayer. As such, it is incentivised to focus on delivering its remit and generating the funds to do so – it is not distracted by the needs of shareholders; and its self sufficient funding means it is able to operate independently of both Government and shareholders which particularly supports its remit to be risk-taking innovative, distinctive and alternative.
22 Channel 4 – written evidence (SCF0019)
- As a publisher-broadcaster, it commissions all its content (in TV, film, online and games) from hundreds of production companies, mostly SMEs, from right across the UK. - This specific set of attributes has enabled Channel 4 to play a vital role in British life for the last 30 years – investing more than £10bn in programming since its inception, developing hundreds of production companies from micro-businesses to global players, and launching the careers of creative talent such as Sacha Baron Cohen, Steve McQueen, Danny Boyle, Graham Norton, John Boyega, Alexandra Roach, Andrea Risborough and the latest award winning comedy talent Michaela Coel, Sharon Horgan and Rob Delaney.
Despite considerable change in the broadcasting sector over the last thirty years, Channel 4 remains in robust health, partly driven by its remit for innovation. Channel 4’s portfolio of channels account for c.11% of viewing – a footprint that has remained broadly stable over 30 years, as well as having the second highest share of commercial impacts. Channel 4’s sales house commands over 25% of the UK TV ad market, drawing in around £1bn in revenue, over £600m of which goes into content every year. Currently, revenues and investment in UK content are the highest in C4’s history, we have won a record number of industry awards and audience reputation statements show that perceptions of Channel 4’s remit delivery are at an all-time high.
Taken together, these metrics – which we discuss in more detail below, and are supported by extensive third party expert analysis – show that Channel 4 is delivering its two core objectives very successfully: delivering its remit and ensuring the organisation is financially secure. On this basis Channel 4 looks set to remain sustainable – creatively and commercially – for the foreseeable future, and in a position to continue to make a substantial and meaningful contribution to British broadcasting, its audience and the creative industries it supports.
About this response
In this response Channel 4 sets out its views on each of the topics identified by the Committee in its call for evidence. In order to provide the Committee with as much supporting evidence as possible, this is supplemented by a series of annexes containing third party expert analysis and public commentary from a range of leading figures in the creative industries.
Funding
The Committee has asked for views on the extent to which Channel 4 is financially sustainable under its current model. Our strong view is that this is the case – and it is a view which a range of independent experts support. This includes Ofcom, who renewed Channel 4’s licence for ten years after extensive analysis of C4’s long-term forecasts, as well as expert analysts such as Enders Analysis and Ernst and Young after comprehensive analysis of market forecasts. The full reports are attached as annexes to this submission, but a key
23 Channel 4 – written evidence (SCF0019)
excerpt from each of these reports shows the level of consensus around Channel 4’s financial sustainability:
“In relicensing the core C4 service for ten years in 2014, we made it clear that we believed that the current funding model for that channel was sustainable.” Ofcom 2015
“Channel 4 is delivering its remit with great success, is commercially sustainable and promises both to remain highly sustainable and grow its PSB contribution through its current licence ending in 2024”. Enders Analysis, 2015
“Overall, Channel 4 has a track record of demonstrating flexibility and adaptability in the face of changing policy, consumption patterns, and economic conditions that impact on both short and mid-term profitability. This stands it in good stead to deal with future challenges – and we expect Channel 4 to remain sustainable as a standalone business, assuming it retains its current flexibility and ability to adapt.” Ernst and Young, 2016
Channel 4’s own revenue data shows that, rather than the last few years indicating gradual decline, Channel 4 has remained very stable. This has come about as a result of Channel 4’s particular appeal to valuable audiences to advertisers (especially young adults and light TV viewers), its propensity to innovate and the strength of the TV advertising market. As the chart below shows, Channel 4’s core TV advertising revenue has remained strong over the last five years; at the same time digital revenues have grown. Channel 4 is set to show a sizable increase in its revenue in 2015, to be published shortly in its Annual Report, and is currently on track for growth in 2016.
Channel 4 has been consistently fast to respond to market developments: in the early years of multi-channel television Channel 4 launched a suite of portfolio channels; in the early years of internet connectivity, we were the first broadcaster in the world to launch a video on demand platform; and in an age of personalisation we were the first broadcaster in the UK to launch a first party data-strategy.
This strong financial performance has seen Channel 4 increase content investment over the same period – rising to a new high of £602m in 2014, and is set to show a further record content investment figure when its 2015 figures are published.
Table 1: Channel 4 Corporation revenues and content spend (£m), 2010-15
2010 2011 2012 2013 2014 Corporation 935 941 925 908 938 revenue (£m) Total content spend 578 592 608 597 602 (£m)
24 Channel 4 – written evidence (SCF0019)
Total originated 362 419 434 429 430 content spend (£m)
Channel 4’s core business model continues to be television advertising, which is in robust health. Indeed, while there has been an enormous growth in the online advertising market this has been largely at the expense of print media rather than television. Viewing to the TV is forecast to be stable over the next 10 years at over 3.5 hours per day33, with the decline in viewing live and 7 day catch-up TV on the TV screen forecast to slow to less than 1% per year, as the level of tablet take-up and broadband speeds plateau over time. Alongside this, viewing of broadcasters’ content on other screens, such as mobiles and tablets, is expected to grow – with the broadcasters’ video-on-demand services forecast to grow by more than 300% by 202534.
In addition, TV will also remain effective at delivering mass reach. Advertisers continue to see TV as the best way to reach a mass audience, despite the small decline in linear viewing, with 2014 commercial impacts for individuals, ABC1AD and AD1634’s 27%, 34% and 10% higher than in 200435. The TV advertising market topped £5bn for the first time in 2015, and is forecast to grow even further over the next few years. Channel 4’s total sales house commands 25.9% of the advertising market, with total revenue of over £1bn in 2014.
It is also worth noting that while much has been said about the rise of global OTT services such as Netflix and Amazon, it is to traditional, linear TV that these companies turn to market themselves. 2015’s biggest new TV advertiser was none other than Facebook. Google, Facebook and Netflix spend over 60% of their marketing budgets on TV advertising36.
Within the TV advertising market, Channel 4 has been able to maintain its commercial premium, and is well-placed to do so in future as a result of high levels of content investment, innovation in the ad-break market, such as live and split-screen ads, as well as its continued resonance with hard to reach groups highly valued by advertisers, such as the 16-34s demographic.
In addition to the resilience of television advertising, Channel 4 has grown its revenues in recent years as a result of diversification. Channel 4’s appeal to hard to reach audiences particularly the young, translates into the digital world. This has included significant investment in our data strategy, which now has over 13.5m million viewers registered with Channel 4, including half of all 16-34 year olds in the UK. This has enabled us to work with commercial partners to offer innovations like targeted advertising. We have evolved 4oD into All4, a service that incorporates live TV, catch-up, box sets, shorts, and exclusive online originals. This is a unique offer and has ensured we are responding to the media habits of younger audiences - the average age of an All4 user is 28.
33 Enders Analysis, 2015 34 Redshift for the Ofcom PSB Review, March 2015 35 BARB, 2015 36 Thinkbox, February 2016
25 Channel 4 – written evidence (SCF0019)
The combination of a compelling digital proposition, underpinned by a data strategy that enables us to charge sales premiums, has meant that Channel 4 is now broadly indifferent – in revenue terms – between whether a viewer watches content on Channel 4 or All 4. Channel 4 was also the first broadcaster in the UK to launch programmatic buying for digital ad sales – an automated form of sales which uses software and data to buy ad spots and increases the potential for new, innovative forms of advertising, with more precise targeting. This strategy, with solid growth in digital viewing, is translating into dynamic and significant growth in online revenues which were £63m in 2014. Put simply, we are trading ‘analogue pounds’ for ‘digital pounds’.
We have also developed new areas of investment and innovation - for example All4Games, our games publishing arm based in Scotland, the Indie Growth Fund, in which we take minority stakes in burgeoning production companies, and the Commercial Growth Fund, in which we take equity stakes in companies in lieu of advertising spend. These areas are ways in which Channel 4 can continue its role in supporting and nurturing emerging businesses, as well as providing new business and revenue opportunities.
No company is immune to market change, but Channel 4 has shown itself able to innovate successfully over 20 years of technological change from multi-channel, the internet and mobile. Channel 4’s strategic investments in recent years have ensured it is on the best possible footing to compete in a digital world, and there is no evidence that Channel 4 could not continue to innovate and stay ahead of market developments under its current ownership model. Indeed, it is the current model that in part enables C4 to take the kind of creative risks and invest in innovation that appeals to younger and harder to reach audiences. In this sense the model and the remit are positively and mutually self-supportive.
Significantly, external analysts have noted that Channel 4’s track record of innovation in the face of technological change means that it is well placed to respond to changing viewing trends and that this is a key attribute in supporting Channel 4’s future financial sustainability. Channel 4 continues to appeal strongly to younger audiences and has a younger audience profile than other broadcasters, with 28% of its share coming from 16- 34s. While it is true that 16-34s watch less live television than the average UK population, Ofcom’s latest figures show that 72.5% of 16-34s viewing is still to live or recorded TV versus 85% for all adults. A further 6.5% is to free on-demand platforms such as All 4 and iPlayer and only 5% of 16-34 viewing is to sites like YouTube. In addition, the proportion of Channel 4’s prime time audience which is aged 16-34 has remained constant despite the changes of the past five years, from 18.5% in 2010 to 18.4% in 2015.
In terms of future viewing trends, EY has concluded that “there is limited evidence that UK VOD viewers will shift significantly away from UK content such as that provided by Channel 4”, while Enders Analysis has predicted “a sharp slowdown in the rate of decline among adults 16-35 over the next two years, based on our analysis of recent trends”, and have forecasted that, on the basis of current BARB trends, 74% of total viewing of video programme content will remain live or up to 7-day time-shift/catch-up across 2015-2025.
26 Channel 4 – written evidence (SCF0019)
Should a more marked decline in live TV viewing occur, analysts have concluded that the innovations that Channel 4 has made in recent years, such as increasing moves towards on- demand content and the ability to monetise on-demand viewing, will ensure its sustainability in the face of future change. This is further reinforced by Enders Analysis’ forecast that broadcasters’ live and on-demand content will still account for 83% of video viewing across all screens in 2025. In addition, Enders Analysis has forecast that Channel 4’s innovations in both digital content and the way it sells digital airtime will result in a doubling of digital revenues, driven by an increase in digital video viewing.
The Committee have also asked whether any other revenue streams for Channel 4 should be considered. Channel 4 is clear that it is not seeking to be a recipient of public funding. We believe the independence of our not-for-profit commercially-funded model is a better way to deliver our unique remit than by receiving public money. Indeed, we would go as far as saying we believe that public funding could undermine Channel 4’s existing model: we would be reluctant to move away from an entirely self-sustaining model. As outlined above, we will continue to look at self-sustaining ways to innovate our core advertising funded model – such as through the use of first party data and striking new types of partnerships with third parties.
In addition, we have identified a number of policy and regulatory solutions that policy- makers could consider with the aim of enhancing the public service broadcasting system as a whole. In its submission to Ofcom’s Third Review of Public Service Broadcasting, Channel 4 called for updates to the current regulatory framework that impacts on public service broadcasters more widely, to ensure that maximum value is being extracted from the system, and reinvested back into UK content. This includes reform to the current regulatory system which governs the relationship between pay TV platforms and PSBs, updates to the regulation underpinning the commercial relationship between broadcasters and producers, and strengthening the EPG prominence regime to ensure it is fit for purpose as viewers begin to move away from traditional EPGs.
Viewing
The Committee asks whether viewing to Channel 4 is sustainable – noting declines in reach and share on the main channel.
Viewing to all the main public service TV channels (BBC1, BBC2, ITV1, Channel 4 and Channel 5) has declined in recent years. However, we would note that in relation to Channel 4, declines have actually stabilised in recent years, and in some areas reversed. In 2015 the main channel bucked the trend of the other PSBs to see audience share increase in 2015 for the first time in nine years. Channel 4 was the only public service channel to see growth in all three of the key demographics of: all individuals (up 1% year on year), 16-34 year olds (up 2% year on year) and ABC1 Adults (up 6% year on year). More broadly, Channel 4 has responded to market changes through investing in its own portfolio channels. Despite intense competition C4 portfolio audience share has been stable – with 10.6% share in 2015 compared to 10.8% in 2005.
27 Channel 4 – written evidence (SCF0019)
Table 2: Audience share (%) of broadcasters’ portfolios, 2005-2015
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 BBC 35.2 34.5 34 33.5 32.6 32.9 32.9 33.6 32.4 33.1 32.8 ITV 24 22.9 23.1 23.2 23.1 22.9 23.1 22.4 23.1 22 21.2 Channel 4 10.8 11.9 11.7 11.8 11.5 11.4 11.6 11.5 11 10.9 10.6 Channel 5 6.4 5.9 6 6.1 6.1 5.9 5.9 6 6 5.9 6.01 Other (>350 channels) 23.6 24.8 25.2 25.4 26.7 26.9 26.5 26.5 27.5 28.1 29.4
Channel 4’s viewing has also been stable in key public service areas. Channel 4 delivers most of its original programming in its peak-time schedule, to maximise the impact of its public service content. In 2014 (the latest reported data), 68% of the main channel’s peak- time schedule was devoted to first-run originations. Peak-time viewing is therefore an important metric of public service impact. C4C’s portfolio share in peak-time has grown every year for the last three years, and in 2015 was at its highest level since 2008. Growth of peak-time viewing on the main channel was even stronger – up 8% year on year in 2015, and was also up year on year for 16-34 year olds and ABC1 Adults. Channel 4 News also increased share and reach in 2015 – the first time reach has increased since 2008 and second successive year in which its share increased.
Crucially in an age where young people are migrating to other platforms, Channel 4 has a particularly strong relationship with 16-34 year olds. Channel 4 is the only broadcaster in the world with a larger share of viewing amongst 16-34s than the general population, and 2014 saw Channel 4 achieve the highest ever share of 16-34 year olds in its history with a record share of 17% across our portfolio of channels. We are also a vital provider of news, current affairs and documentaries that engage young people – 86% of the top 50 factual programmes amongst 16-34s in 2015 were on Channel 4, and Channel 4 News has the youngest profile of any of the main news programmes with 16-34’s accounting for 14% of viewing. Our programmes play a vital role in informing young people about wider social issues – whether through finding engaging ways to address contemporary themes like Cyberbully (a drama about a teen being bullied online) and Hunted (a game show highlighting the implications of surveillance in Britain) as well as topical programmes like The Last Leg and Gogglebox.
Channel 4 also has a more diverse audience than the other public service broadcasters, with a higher proportion of BAME viewers – an audience which broadcasters find traditionally hard-to-reach. In 2016 to date, 9% of Channel 4’s portfolio audience have been BAME viewers, compared to 6% for both the BBC and ITV. In 2015, the Channel 4 portfolio had 10.1% share of BAME viewers, compared to 10.6% for all individuals. Channel 4 also has a smaller differential between its TV portfolio viewing shares amongst BAME and white viewers than that of any of the other PSBs (-6% in 2015 vs. -31% for the BBC, -33% for ITV and -15% for C5). In addition, Channel 4 News has a higher proportion of BAME viewers than other public service broadcasters – in 2016 to date, BAME audiences have accounted
28 Channel 4 – written evidence (SCF0019)
for 18% of Channel 4 News’ audience (+3%pt year-on-year), compared to 7% for BBC1 and ITV.
Remit
How the remit works
Channel 4 has a unique public service remit. It is clear and comprehensive, set out in statute and agreed by Parliament. Unlike the other commercial PSBs, Channel 4’s remit applies to all its content across all of its services, including its digital channels and online content, as well as its non-programming activities. It was last updated as recently as 2010 through the Digital Economy Act. As outlined in the introduction the remit contains 15 core elements. These incorporate a detailed set of behaviours and purposes - including requirements to be distinctive and innovative, to inspire change in people’s lives, stimulate debate, show alternative viewpoints, nurture talent, as well as requiring Channel 4 to invest in particular genres such as film, news, current affairs and educational content for teens. The remit also requires quotas to be applied to areas of production such as original commissioning, and production in the Nations and regions and in certain genre areas. These are set out (in relation to the main licensed PSB channel) in the Ofcom licence.
In addition to the statutory remit, Channel 4’s licence to broadcast issued by Ofcom contains specific quotas as required by legislation. Table 3, below, summarises the remit and licence obligations:
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Table 3: Summary of remit and licence obligations
Statutory remit Ofcom licence obligations 1. INVEST IN HIGH QUALITY CONTENT News: 208 hrs p/a 2. INNOVATION 3. DISTINCTIVE Current affairs: 208 hrs p/a / 80 hrs in peak 4. CULTURAL DIVERSITY 5. TALENT DEVELOPMENT Schools: 30 mins p/a (fulfilled through 6. STIMULATE DEBATE education content for teens; can be delivered 7. ALTERNATIVE VIEWS cross platform) 8. INSPIRE CHANGE IN PEOPLE’S LIVES 9. PARTNERSHIP Originations: 56% / 70% peak 10. MULTI-MEDIA 11. EDUCATION Regions: 35% out of London commissioning 12. OLDER CHILDREN AND YOUNG ADULTS hours and spend 13. NEWS 14. CURRENT AFFAIRS Nations: 3% out of England commissioning 15. FILM hours and spend (9% from 2020).
(& also independent quota which applies to all PSBs and access services which apply to all channels)
Channel 4’s specific quantitative quotas, set out in its Ofcom licence, have remained constant or increased (with the exception of a small reduction in its originations quota in 2010 from 60% to 56% and adjustments to its schools and lunchtime news requirements to reflect digital delivery). For example, Channel 4’s regional production quota was increased from 30% to 35% in 2010, while new quotas for 9% Nations production by 2020 was set at licence renewal. C4 has often made additional voluntary commitments, such as its annual engagement with the Ofcom Nations Committees alongside its increased Nations quota and to a 100% subtitling target. Channel 4 has never missed a quota and over the past decade has consistently exceeded its quotas – particularly for peak time news, peak time current affairs, regional and Nations production, independent production and audio description.
As part of Ofcom’s change of control process for Channel 5, Viacom agreed to increase quotas for peak-time original production (40% to 45%), news (260 hours to 280 hours) and news in peak time (100 hours to 120 hours) following its acquisition of Channel 5 in 2014.
However it is worth noting that these increases were to 'bake in' Channel 5's current performance relative to its quotas at that time with a view to ensuring continued delivery of originations and news at those levels. At the time of Channel 5’s acquisition, Viacom also pledged to increase investment in UK originated content on a voluntary basis. While increased investment is of course a positive development, when this commitment was
30 Channel 4 – written evidence (SCF0019)
made Channel 5 was investing relatively low levels in UK content (C5 invested £90m on first- run originated content on its main channel in 2013, compared to Channel 4’s investment of £377m on first-run originated content on the main channel). In addition, there is no legal backstop for Ofcom to enforce this. Indeed some commercial broadcasters, while exceeding their quotas in some areas, have been forced to seek regulatory relief and significantly reduce quotas in other areas, including news, current affairs, regional programming and children’s, due to commercial pressures. For example, as a result of the economic downturn in 2009, ITV’s current affairs quota was cut from 78 hours to 43 hours per year. Its regional production quota was also cut from 50% to 35% hours and spend in 2009, after it was fined by Ofcom for not meeting its 50% out of London expenditure quota in 2006 and 2007.
Like all broadcasters, C4 is regulated by an external independent regulator, Ofcom, who oversees our compliance with the Ofcom Broadcast Code as with all other broadcasters. To ensure that Channel 4 is fulfilling the qualitative and quantitative components of the remit, Channel 4 also has in place a comprehensive and detailed governance and accountability framework – comprising internal and external mechanisms. This rigorous framework is unique to Channel 4; it does not apply to Channels 3 and 5:
A unitary Board chaired by a Non-Executive Chairman and comprised of Executive members and a majority of Non-Executive members with a wide range of expertise. Non-Executives are appointed independently by Ofcom and approved by the Secretary of State. The Board is required to fulfil two core functions: fulfilment of the remit and ensuring the Corporation is financially secure to do so. Scrutiny from Ofcom for delivery of its public service remit: Ofcom oversee Channel 4’s specific accountability arrangements, comprised of the Statement of Media Content Policy (SMCP), an annual report which details how Channel 4 has delivered against its public service remit as outlined in legislation. The SMCP is developed in consultation with Ofcom and the accountability process includes a formal annual scrutiny session with the Ofcom Content Board, extensive information exchanges with Ofcom executives over a period of months, concluded by a public letter from the Chair and Chief Executive which provides an assessment of Channel 4‟s remit delivery. The Digital Economy Act 2010 also requires Ofcom to conduct a periodic and longer- term review of Channel 4‟s assessment of its remit delivery – the most recent of which was published alongside Ofcom’s PSB Review in 2015 and which concluded that “overall, C4C is performing well” Accountability to Parliament through the laying of our Annual Report and a voluntary annual public scrutiny session of our Chairman and Chief Executive with the Culture Media and Sport Select Committee. Additional voluntary accountability arrangements on key remit areas such as reporting on the progress of our 360 Diversity Charter, and formal additional engagement with Ofcom Nations representatives on delivery of our Out of London quota.
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How Channel 4 delivers the remit
In recent years, Channel 4 has been engaged in a process of Creative Renewal, through its Investing in Innovation strategy. As a result, UK content investment has been maintained at high levels over the past four years, with Channel 4’s creative contribution accounting for 73% of revenue and investment of £430m in UK original content in 2014. In 2015, Channel 4 also increased Film4 funding from £15m to £25m a year.
As well as investing peak levels in content, crucially this has led to peak levels of creative success and reputational recognition for remit delivery. The strategy – in part triggered by the decision to end Big Brother and other long running strands, and free up hundreds of hours in the schedule – has been based around experimenting with a vast range of new titles and developing returnable hits. This has led to a schedule that now features an array popular, returning series which form a ‘spine’ of familiar programmes, such as 24 Hours in A&E, Educating (Yorkshire/Essex/Cardiff), The Undateables, First Dates, One Born Every Minute and Gogglebox, around which we continue to experiment with new and one off programmes – such as The Tribe, Hunted, Escape from ISIS, Cucumber, Things we don’t say about race that are true, The Murder Detectives, Humans, Indian Summers and Grayson Perry’s series ‘Who Are You?’
Over this period Channel 4 has seen numerous notable creative successes as a result of its strategy, which demonstrate the ways in which the remit can be delivered across a wide range of genres and programme formats. From poignant and quirky comedies such as My Mad Fat Diary and Chewing Gum – which tackle the issues faced by teenagers as they grow older - to innovative factual shows such as Hunted (with themes of online identity and privacy) and Gogglebox (which holds a mirror up to society and now commands nearly 6m viewers per episode). High quality and thought-provoking dramas such as Indian Summers and Humans - Channel 4’s largest drama audience for 20 years – also tackle important issues including the UK’s colonial past and the impact of artificial intelligence, as well as being beautifully crafted cultural works in their own right.
Channel 4 also airs more news and current affairs than any other main PSB channel. Recent ground-breaking news and current affairs investigations include the Emmy award-winning Children on the Frontline and Nigeria’s Hidden War, the moving and award-winning documentary Escape from ISIS – and of course, Sri Lanka’s Killing Fields. In 2012, Channel 4 also brought Paralympic sport to the mainstream with its coverage of the London 2012 Paralympics. Watched by just under 40m people, it transformed perceptions of disability and disabled sport, with 83% of viewers agreeing that Channel 4’s coverage would positively change perceptions of disability. Channel 4 is currently preparing to broadcast the Rio Paralympic Games in September.
Diversity is a key part of the remit and a key part of Channel 4’s creative priorities. In 2015, Channel 4 launched its 360° Diversity Charter, a five year plan of 30 commitments aimed at improving diversity within the organisation and proactively across the media, encompasses all under-represented groups – including BAME, LGBT, disability, gender and social mobility.
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Through the Charter, Channel 4 has introduced Commissioning Diversity Guidelines - genre- specific two-tick criteria to ensure that its programmes across the board work towards increasing diverse talent on and off-screen. As of January 2016, 85% of Channel 4 commissions now meet the guidelines, up from 67% pre-Charter. Programmes such as Muslim Drag Queens, Kitchen Impossible with Michel Roux Jr and First Dates continue to showcase a diverse range of on-screen talent, while behind the camera more people from diverse backgrounds are making programmes, such as Humans, Time Crashers and No Offence. Beyond programmes, Channel 4 has also invested £1.6 million in a new generation of exciting, BAME-led indies in 2015 through its Indie Growth Fund and discovered fantastic new writing talent from the North of England, Sharma Walfall and Nuzhat Ali, through its Northern Writers’ Award.
Among viewers, Channel 4 has a 25%pt lead over other public service broadcasters for showing minority viewpoints; a 23%pt lead over the average for showing different kinds of cultures and opinions and a 22%pt lead over the average for challenging prejudice. In 2015, a Marketing Week survey also found that Channel 4 is the most successful British brand at communicating diversity in its marketing and advertising, across the UK.
Engaging young people with a wide range of public service and educational content is another key priority for Channel 4, particularly given its strong appeal to young audiences. For example, during the 2015 General Election, Channel 4 shut down E4 - the biggest digital channel for 16–34-year olds – to encourage young people to vote. Over three quarters (76%) of the audience to Channel 4’s Alternative Election Debate on Election night were aged 16- 34s, while Cameron & Miliband Live: The Battle for Number 10 had the highest proportion of 16–34-year-olds than any of the other main debates (24.6%).
Channel 4’s new strategy for reaching older children (10-14 year olds) is also starting to bear fruit, with programmes reaching much larger volumes of this younger audience while also performing strongly with a broader audience. Importantly the success of this new strategy has been reflected in the kinds of programmes which have proved most popular with 10– 14-year-olds. UK originated public service content features strongly with programmes like Gogglebox, Educating Cardiff, Born Naughty and The Secret Life of 4, 5 and 6 Year Olds all performing particularly well with this audience, with the latter doubling Channel 4’s slot average for 10–14-year-olds. Highlights from 2015 also included a special episode of Gogglesprogs, which replaced Channel 4’s usual Gogglebox cast with children ranging from 5–12-year-olds giving their uninhibited opinions and hilarious takes on the key TV moments from the last year; while Britain’s Favourite Children’s Books, a special 90 minute programme, counting down the nation’s 50 best-loved children’s books was watched by 258% more 10–14-year olds than the slot average.
Channel 4’s creative success has been reflected in significant awards success over the past five years, with record BAFTA and RTS nominations and award wins. Channel 4 also won Channel of the Year at the Edinburgh TV Festival in 2014, Campaign Advertiser of the Year and Medium of the Year in 2015, as well as Channel of the Year at the Broadcast Awards in 2016, with judges of the 2016 Broadcast award noting: “Distinctive and popular, C4’s output
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is at its strongest since Jay Hunt took over in 2011.” In film too, Film4 has seen record creative success, with popular hits such The Inbetweeners movie, as well as the Oscar- winning Twelve Years a Slave, The Imposter, The Iron Lady, Room, Amy and Ex Machina.
Creative Renewal has also seen Channel 4 broaden its production base to work with a wider range of companies, including many SMEs and companies based outside London. Channel 4 has deepened its relationship with suppliers, working with over 250 production companies across TV, digital and film, and in 2014 accounted for over a third (36%) of all spending on indies by the public service broadcasters (a higher proportion than BBC 1 and 2 combined). Over 50% of programme hours on its main channel were also commissioned from outside London in 2014.
Since 2015, Channel 4 has had an increased Nations quota (rising to 9% by 2020) and is actively engaging with production companies in the devolved Nations to further develop those areas of the sector on a sustainable footing. In addition to regular focussed commissioning briefings across the UK, the team also oversees the Nations and Regions portion of Channel 4’s £2m Alpha Fund which supports diverse indies across the UK seeking to grow, be it through developing a creative idea into a programme or gaining their first commission.
Channel 4 also works with more independent production companies than any other channel and 28% of its investment in 2014 was in independent production companies with a turnover of £25m or less. Beyond programme commissions, Channel 4 has been supporting creative SMEs in a number of ways. For example, its Indie Growth Fund, launched in 2014, is a £20m fund established to support the UK independent production sector outside of the normal commissioning cycle by providing access to funding for small to medium-sized creative companies. Since launch, it has invested in nine companies.
Alongside this upwards trajectory of creative and commercial success, remit delivery is also at an all-time high, with the majority of Channel 4’s remit reputation trackers (7 out of 10) at their highest ever levels as of 2015.
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Figure 4: Channel 4 remit reputation trackers, 2009-15
Ownership
As noted above, Channel 4 is in strong commercial and creative health, is financially sustainable, well placed to respond to disruptive market change and is comprehensively and successfully delivering its public service remit.
It is entirely appropriate for Government to look at the ownership of Channel 4 as a publicly owned asset, and we have engaged constructively in the review of ownership process. However, it is not clear what problem radical reform to Channel 4’s ownership would be seeking to solve.
Successive Parliaments and Governments (including the current one during the course of this review) have stressed the importance of C4’s special public service remit and the need for it to be maintained. This stability and clarity of purpose has provided the bedrock on which C4 has been able to innovate and evolve in response to radical market changes. For C4 the model is based on an incentive of ‘remit-maximisation’ – as opposed to ‘profit- maximisation’. The alternative ownership change that has been talked about most often in relation to Channel 4 by the current Government has been a privatisation or part- privatisation. Whatever the exact structure of a privatisation or the identity of any new owner, this would represent a change from a ‘profits into programmes’, profit maximising structure to one of profit-maximisation. For the managers of C4, this would fundamentally alter C4’s incentive structure. We would expect to see a difficult tension between remit and profit and a reduction of the remit.
In its most recent PSB Review, Ofcom highlighted the different incentives of the UK’s public service broadcasters. It noted that “growth in TV advertising and other sources of income
35 Channel 4 – written evidence (SCF0019)
for the commercial PSBs does not necessarily translate into growing investment in content, unless the right incentives are in place.” Ofcom stated that Channel 4’s “public ownership and the public service remit and obligations” mean that “the correct incentives are in place for C4C to maximise investment.” By comparison, Ofcom noted that the privately-owned public service broadcasters, ITV and Channel 5, may have “only limited incentives to maximise investment in content”, and that they “may be incentivised to invest only to the degree required to compete effectively for audience share”. In particular, it noted that Channel 5 “is unlikely to be incentivised to increase investment to any great degree in lower audience genres such as current affairs, religious programmes and arts programmes” and that “lower-audience niche PSB genres such as serious international/investigative current affairs […] are unlikely to be commissioned in any volume as there will always be higher- audience, more commercially attractive options.” As a result, increased competitive pressures, with investment prioritised in shows likely to most increase audience share, may lead ITV and C5 to narrow their PSB contributions, reducing them to the minimum required in their licences, to enable them to maximise value for their shareholders. As the PSB contributions from ITV and Channel 5 decline, the role of the BBC and Channel 4 as public service broadcasters would become even more important.
Any profit incentive would place both qualitative and quantitative elements of C4’s public service delivery under constant pressure to be reduced – as has consistently been the case with ITV over the last 10-15 years. As such, it is hard to see how the delivery of C4’s public service remit could be maintained as it is today.
a. Less UK content, more acquired content, more repeats: in order to deliver a 20- 30% profit margin (ITV’s is 28%), C4’s UK programme spend would be cut – by up to £200m pa – and replaced by bought-in content, likely to be cheaper US content, and more repeats b. Distinctiveness of programming would be lost: investment in loss-making genres would be cut altogether, or reduced, and a more ratings-chasing approach taken – especially in News, Current Affairs, British Film, Paralympics, Documentaries, Education, Drama, Comedy. Far fewer new programmes would be tried, with a greater focus on long-running formats; plus there would be much less creative risk- taking with programme ideas, subject matter and talent. c. C4’s current support for the UK’s independent production sector would be significantly diminished: a profit-maximising owner would want to take substantial amounts of production in-house, to the detriment of entrepreneurial SMEs across the UK. Far less production would be spent through indies and far fewer independent producers would be worked with. There would also be even greater pressure to minimise ‘terms of trade’ obligations with producers. As a result, a recent in-depth survey from Broadcast magazine found that 76% of the UK’s independent producers were very concerned about the prospect of Channel 4 privatisation.37
37
36 Channel 4 – written evidence (SCF0019)
d. Impact with hard-to-reach audiences would reduce: a reduced focus on hard- to- reach audiences and diverse subject matter; reduced investment in grass roots training, new talent & diversity initiatives.
Leading figures in the industry have publicly expressed concern about privatisation and a negative impact on Channel 4’s remit, including analysts, advertisers, programme-makers, talent, diversity specialists, competitors, educationalists and independent production companies:
“If Government is considering privatisation of Channel 4, considerable thought should be given to the implications for remit delivery and the potential for organisational uncertainty. Given Government’s commitment to continued PSB status for Channel 4, any consideration of privatisation options needs to be accompanied by a clear statement of the problems that Government is trying to address, and the outcomes that Government is seeking to achieve. In particular, there is a need to balance the potential (but inherently uncertain) benefits that privatisation may bring against the potential risks to remit delivery if Channel 4 moves from a not-for-profit to profit- maximising status. Any privatisation process is also likely to be a complex one, and that complexity could create uncertainty within the current Channel 4 organisation. It is important to minimise this uncertainty, in order to avoid risks to the public value generated by Channel 4’s PSB remit and original content investment.” – EY “[…] fulfilling the remit in terms of its harder and softer items is, as we have said earlier, much more than just about ticking boxes for the regulator to assess performance. It has also, and we cannot underline this strongly enough, everything to do with creating a mindset that makes the remit and the Channel 4 brand come alive. On this account, privatisation of Channel 4 will present two major risks. First, private ownership automatically involves a completely different and profit-oriented mindset. […]The second major risk in the event of privatisation is that the purchaser will set its priority on solely producing content for the UK market that can be exported to other markets, thereby generating revenue synergies. This would very significantly alter the independent production sector, potentially completely eliminating 300 suppliers.” – Enders Analysis “As things stand, Channel 4 remains relevant for audiences and advertisers alike. It offers something different to its competitors and that is important. To privatise it would be to potentially jeopardise the status of Channel 4 and that is not a risk worth taking.” – Karen Blackett, Chief Executive, MediaCom “A quirkily brave and occasionally brilliant broadcaster will be reduced, as ITV companies were, to a profit centre. Hundreds of millions of pounds which are currently used to make programmes will be diverted into shareholders’ bank accounts. Channel 4, as we know it today, will cease to exist.” – Peter Kosminsky, Director of Wolf Hall and The Promise “Private ownership would inevitably turn Channel 4 to a more risk-averse strategy, investing in proven talent and production companies, and therefore reducing the amount of exciting new talent able to break through. For companies in Wales, we believe this risk-averse approach would lead to a more London-centric strategy. We
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have already seen 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.” - Iestyn Garlick (Chair, TAC – representing 55 production companies in Wales) “Based on the actual data about how people behave, Channel 4 right now is the most important agent of integration in our national media. Privatisation would destroy that at a stroke.” – Trevor Phillips, Former Head of the Equality and Human Rights Commission “I am concerned about privatisation […] The impact of changing Channel 4 could be disastrous. It does an extraordinary job at taking risk on commissioning programmes that might not otherwise be commissioned.” - Stephen Lambert (Chief Executive, Studio Lambert) “Channel 4 promotes diversity in three ways: the content it broadcasts, the audience it attracts and the talent it promotes… At a time when diversity has rightly risen to the top of the ad industry’s agenda, we should unite in expressing our support for Channel 4 in its current form as a force for good in Britain’s cultural and commercial life, which costs the taxpayer precisely nothing.” - Tom Knox (President, Institute of Practitioners in Advertising) “When C4 launched in 1982, the public got a bold, risk-taking, innovative broadcaster, and the economy got a new independent production industry that would go on to become one of the UK’s most valuable exporters… “The consequences of privatisation are clear. Put simply, there’s a very real danger we’ll lose both.” – Melanie Leach (Chief Executive, Twofour Group) “But would a move into commercial ownership make such a difference? I think it would – and not for the better. The UK television ecosystem is one of the best in the world precisely because it supports rich complementary diversity, and reducing the variety endangers the whole. It is Channel 4’s public ownership within a commercial framework that enables bolder longer-term decisions on creative output, develops a unique "membership" model with its viewers and supports the infrastructure of independent production and creative talent.”- Mark Lund (Chief Executive, McCann Worldgroup UK) “The animus of shareholders is growth and profit. In television, this means familiar replaces unpredictable, mass beats niche, forget experimental, minimise risk… The British TV diet contains a ton of good stuff that suits viewers and shareholders alike. Channel 4 exists for the other space. Shareholders have to have growth – either dividends or value. They won’t give you a carrot for greatness.” - Richard Eyre (Chairman, Internet Advertising Bureau)
21 April 2016
38 Channel 4 – oral evidence (QQ 41-49)
Channel 4 – oral evidence (QQ 41-49)
Evidence Session No. 3 Heard in Public Questions 41 - 63
TUESDAY 26 APRIL 2016
Members present
Lord Best (Chairman) Earl of Arran Baroness Benjamin Baroness Bonham-Carter of Yarnbury Lord Goodlad Lord Hart of Chilton Baroness Healy of Primrose Hill Baroness Jay of Paddington Lord Sherbourne of Didsbury ______
Examination of Witnesses
David Abraham, Chief Executive Officer, and Dan Brooke, Chief Marketing and Communications Officer, Channel Four Television
Q41 The Chairman: I welcome David Abraham and Dan Brooke from Channel 4. We are delighted that you can join us. This is our last session taking evidence on Channel 4. We have had some very interesting witnesses before us and we are thrilled that you are here for our last day. You might want simply to begin. We will not worry about your biographies, we are sorted for those, but if either or both of you would like to opening statement to launch us, you would be very welcome to do so before we start throwing questions at you. So, please, fire away if that suits you. David Abraham: Thank you very much, Lord Best and the Committee, for setting aside your time and attention in a period of some uncertainty for public service broadcasting in general and for Channel 4 in particular. We have been following the proceedings of the Committee, and clearly you have been looking in some detail at issues of ownership and the ownership models of Channel 4. This is a question that we, as chief executives throughout the last three decades, have had to consider and address. I have always been very comfortable in doing so, because Channel 4 is of course a public organisation that is underpinned by a very clear set of principles and ideas, and if we cannot explain why these ideas still matter in a world that is changing very rapidly, perhaps we do not have the right to continue with the model that we are working under. The challenge is that our model is hybrid; it is perhaps somewhat more subtle and complex to the public than the one the BBC operates to, but in my view it is no less important
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because of that. We remain a big, critical investor in the creative economy—we spend some £700 million a year in it—as well as a small but, I think, perfectly formed British institution, a defender of robust plurality in news and current affairs. We are part a national talent accelerator and part a defender of diverse audiences. Channel 4 has been instrumental in developing over 300 of some of the best independent British films, including over 19 Oscars and counting, and we have been introducing British audiences on television to extraordinary creative breakthroughs such as fixed-rig filming, for example, in documentary genres and Paralympic sport. Across multiple genres, Channel 4 is a creative counterweight to the BBC, because it competes directly and very ambitiously with it but with far smaller resources. In summary, we see ourselves as a highly efficient creative greenhouse—a place where ideas and people are incubated and nurtured for the nation. This eclectic mix of outcomes is sometimes described by sceptics, and perhaps by competitors, as a self-selecting and fuzzy licence to do what we like and to perpetuate the institution, but that is not the way we see it. This special mix is unusual and it is what drew me to Channel 4 six years ago after 25 years in the private sector. I love the fact that Channel 4 is run as a business. It is hungry every day to earn its keep, it is lean in its use of resources but it is set up to do what many talented people in the creative industries want to do first and foremost, which is great work. As one of my colleagues recently and memorably said to me, “We don’t do this to make money. We make money so we can do this”. So I complete my opening remarks by picking out just three things from the last 10 days or so that came out of Channel 4 and that have come to national attention. On Sunday night, the BAFTA craft awards were held. Channel 4 won seven awards, two more than any other individual channel. A notable winner was Michaela Coel, who you might have read about in the press in the last few days talking about diversity in the media industries. She produced her first series with E4, called “Chewing Gum”. One thing that struck me in her various interviews was her talking about the role that Channel 4 had had in nurturing her as someone who was still in her 20s and about how she converted her ideas and her talent to the screen. She said of Channel 4 that as an institution it had perhaps had more confidence in her than she had herself at the point at which the project began. Last night, we started a new comedy called “Flowers”—it is on at 10 o’clock every night this week and is a very unusual show, again by a writer and performer, Will Sharpe, who is still in his 20s; it is his first show—taking a risk on a new voice that will come to greater national attention in the years ahead. A few days ago we learned that “American Honey”, a film by Andrea Arnold, the leading British film director, who did some of her early work with Film4, was selected to compete for the Palme d’Or at the 2016 Cannes film festival, clearly making an important contribution to Britain but also to the development of women directors in the film industry. These are examples of us delivering a key aspect of our remit to develop talent and take risks, but they also reflect a creative organisation that is firing on all cylinders after several years of creative renewal. Our purpose is as much about the spirit of what we do as it is the letter. So whatever the outcome of these important parliamentary deliberations, our hope
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is that we keep the quality, the originality and the appetite for creative risk-taking front and centre of the process. Thank you.
Q42 The Chairman: Thank you very much. Let us get into our questions. You will have seen the quote from Secretary of State John Whittingdale: “Channel Four’s market share has been falling every year for the last four years. It’s still delivering good content and it’s still delivering the remit and covering its cost but my concern is whether it can still do that in five or 10 years”. How do you react to that concern of government? Why is John Whittingdale worried? Why is he raising this issue? David Abraham: We are a little puzzled, because in the last couple of years, certainly in prime time, our shares have been increasing, which is unusual for a terrestrial channel, and our online viewing has been growing at quite a pace, so our revenues over the last two or three years have also been growing. The key factor is whether we are developing our distribution strategy in line with changes in consumer behaviour, and we believe that we are. But those issues have to be matched by the creative impact of the organisation to deliver to its remit, and the important thing about Channel 4 is that it is entirely commercially self-sufficient, its proposition is appreciated by advertisers, and they have continued to support us as a business as well as as a creative partner. The question that the Secretary of State raises is fair when one looks over the broad spectrum of terrestrial channels overall and the fact that they have faced competition over the last decade or so from many different perspectives, not least the fact that they themselves—indeed, all of us—have diversified from single channels into a portfolio of channels and now into services that also work online. Taken overall, we are holding on to a similar amount of audience share and impact that we had 10 years ago, and we are also seeing proportionately the value of what we are offering advertisers continuing to drive revenue growth. The Chairman: You dismiss the argument that you are not sustainable in the longer term. David Abraham: No one can ever be complacent about the long-term future if one does not continue to innovate. This is a question of whether you have a distinctive brand, whether you are producing high-quality content, whether audiences are coming to you, and whether the management of the organisation is competitive. We make no assumptions about the right to exist indefinitely without that effort, but the evidence seems to suggest that—and external analysts, some of whom you have spoken to, would certainly support the view that—our market-share position is strong, the medium of television continues to operate strongly in the UK, and Channel 4 has a very distinctive position within it. The Chairman: Do you want to add anything, Dan? Dan Brooke: No, thank you.
Q43 Lord Sherbourne of Didsbury: We are exploring, as you know, the pros and cons of privatisation. The first question I would like to put to you is this. Obviously, privatisation can take different forms and there could be different owners, but could any opportunities come from privatisation that would make your job easier to do and that would strengthen Channel 4?
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David Abraham: I cannot answer the question hypothetically. All I can observe as someone who ran commercial channels until the point at which I got to Channel 4 is that my job was different because I was seeking to maximise profits. Channel 4 is in a position to take greater risks with more companies and more unusual projects, some of which I referred to earlier, because it is in the privileged position of not having to deliver those profits. So the question is whether the core purposes of the organisation are consistent with a profit- maximising objective. I find that idea quite challenging, and I have been open to saying that on previous occasions. There are more specific questions about the framework within which we operate, the fact that we hold reserves, the fact that we have no debt, and the fact that there are examples of things that we might do differently if we were freed to operate in a slightly different framework, but they do not play to the core purposes of the organisation. Lord Sherbourne of Didsbury: So you see no real reason for thinking that it could be helpful in any way at all? David Abraham: I recognise that many arguments have been tabled for why being part of some big, global conglomerate would somehow defend us from the forces of change that are affecting all media organisations in the world, but I would like to think that commercial innovation and technical innovation are part of what Channel 4’s remit is about. We have proved ourselves to be pretty proficient in staying ahead of the marketplace and making investments from within our resources as opposed to needing external funds to do those things. Lord Sherbourne of Didsbury: The next hypothetical question is: if you were privatised, what would the biggest danger be? David Abraham: It would become immediately challenging to deal with the trade-offs that we make daily between the programmes that deliver commercial returns and those that deliver to the remit that may not be commercially sustainable. Right now, there are various aspects of the remit that we try to cross-subsidise. So we would be far more constrained in our ability to maximise the delivery of the remit as we currently do, because that is our core purpose. The profits in effect, where they exist, go back into programmes. So I would see us working with fewer production companies, adapting the schedule to be more commercial, going for ideas that perhaps came off the shelf more than jumped off a creative cliff and took big creative risks. All that, over time, would change the nature of Channel 4. It would still be called Channel 4, but it would not necessarily be the Channel 4 that we know. Lord Sherbourne of Didsbury: That assumes that the remit would change. If someone were prepared to buy Channel 4 with a clear, similar existing remit, what would the danger be then? David Abraham: There are two aspects to that. One is whether the remit would stay indefinitely from that point and whether, as we have seen with other broadcasters, there would be efforts to optimise profitability by adjusting the remit over time. But even at the point at which agreements were made, there would be a difference between the letter of a remit and the spirit of a remit. You could produce a certain number of hours. Let us take
42 Channel 4 – oral evidence (QQ 41-49)
news as an example. We all know that “Channel 4 News” has a certain forensic investigative approach. Certain subtle things like that would change over time as priorities changed. Dan Brooke: The fundamental incentive structure of the organisation would change overnight. At the moment, it is remit-maximising first. If we were no longer non-profit, which one assumes would happen if it was privatised, suddenly the primary incentive would be profit maximisation and everything else second. So I think that is right. You could undoubtedly keep the words of the remit on the page, but you only have to look at the difference in output between Channel 4 and the other commercial public service broadcasters that are profit-maximising—just the difference across a range of genres and activities—to see something approximating what one would get if one changed the incentive structure.
Q44 Lord Goodlad: The Secretary of State recently said that he thought that the remit was “fuzzy”, and David Elstein told us last week that there is little in the remit that Channel 4 has to adhere to and that the only protection is the good will of Channel 4. How would you rewrite the remit in the future if you had the chance, or would you just leave it as it is? Dan Brooke: We think that it works very well. We do not see it as “fuzzy”. Producers tell us that they do not see it that way, and viewers certainly do not see it that way when we conduct extensive market research with them, which we do regularly. There is a bit of complexity in this that is worth unpacking, because I know that some of the evidence that you have received has suggested that the remit has been diluted in some way. We are puzzled by that, because the picture that we see is the reverse. We have a wide range of public service obligations and responsibilities. They sit formally in two different places, which I think is where the complexity lies. They sit in statute, with our public service remit, and they sit in our public service broadcasting licence with Ofcom. Let me deal with the former first: they tend to be qualitative in nature. There are broadly three different categories in the remit. We have themes such as innovation and diversity; we have audiences that we are required to appeal to—for example, young people; and we have genres that we are required to have—for example, news, current affairs and film. Those tend to be qualitative in nature. We have conducted analysis on how the number of those obligations has changed over time. The year 2003 was an important date because we had the Communications Act. We also had the Digital Economy Act 2010. Pre-2003, there were five elements of the remit that we were obliged to fulfil. Now, in 2016, the number has risen to 15, so the number of remit obligations that we have has trebled from, if you like, the old world to the new world. That is just the remit. Then, with Ofcom and what was the ITC licence, there were 16 quotas—the obligations there are all quotas—and today there are still 16 quotas. Now, a minority of those 16, the subject to the quota, has changed; for example, we used to have an obligation to produce religious programmes—a quota for religious programmes per week. We do not have that any more, but we have a quota for producing programmes in the nations of the UK. There have been some small changes to the absolute level and the numbers attached to the quotas, but they are relatively incidental in the grand scheme of things.
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The third thing that has changed substantially, to go back to the remit, notwithstanding that the elements of it are largely qualitative—I know that you have heard from Ofcom about the importance of this balance between qualitative and quantitative—is that we have attempted to put quantitative metrics against them with Ofcom that are independently audited in our annual report, the statement of media content policy, to put some kind of numbers against those qualitative elements. In the old world, there were none of those; there were zero metrics against the remit. Now, in 2016, we have 42 different metrics, which are everything from the hours of news that we produce to the ratings for news among young people, the ratings for news among BAME audiences, and qualitative things such as how independent from government the news feels. I am not sure that I have answered every part of your question, but I am grateful for the opportunity to put on record the actual situation, which is that our public service responsibilities have increased substantially over time, and that our accountability for them has also increased, not the reverse. David Abraham: If I could just add some colour to what Dan said, I would love to submit to you a speech that Jay Hunt, our chief creative officer, made recently about the process of coming up with innovative programmes, because so many examples of breakthrough ideas in television do not conform to box-ticking. Often, they are hybrids of known genres working in new ways with new techniques, so it has always proved problematic to think of the measurement of a remit only through a box-ticking exercise. The ultimate guarantee that we are not operating by a voluntary code but by an absolute one is that we are a not-for- profit organisation that is overseen by Ofcom. We go to extensive meetings with the Content Board; it attends a board meeting every year. The supervision feels close; it feels real. Culture is “fuzzy”, but the regulatory framework in which we operate from a management perspective is far from that.
Q45 Baroness Benjamin: You mentioned the remit earlier. Channel 4’s remit states quite clearly that it should “appeal to the tastes and interests of older children and younger adults”. But the Secretary of State has raised concerns about the lack of children’s programmes on Channel 4 and so have others, including Ofcom and others who have given evidence to this Committee. How do you respond to this criticism? Dan Brooke: We have always had a strong relationship with young people. We have the youngest audience profile of any public service broadcaster in the world. I suspect that this is why Parliament decided that we were a good home for a responsibility to appeal to older children, which came through in the Digital Economy Act 2010. To give that a tiny bit of context, first, we have always understood “older children” to be children aged 10 to 14. While that is obviously a narrow age gap, 10 year-olds as we all know, are very different from 14 year-olds. Secondly, and notwithstanding our strong tradition with young people, our tradition has actually tended to be with teenagers and older, so we do not come at this with a strong hinterland in appealing to that audience. Lastly, as a commercial broadcaster with a self- sustaining model, there is some challenge in the business model in this area, because we are funded almost entirely by advertising and advertisers do not buy 10 to 14 year-olds as a demographic that narrow.
44 Channel 4 – oral evidence (QQ 41-49)
That is the context. I am sorry to introduce the term, but we have been on a journey with this. We started out with online and with games. Notwithstanding what we are told about how children do not watch television any more, we had some success with online games but we took the view that children still spent quite a lot of time watching television. So we started commissioning programmes targeted specifically at that group. Probably the best example is a drama that we made called “Youngers”, which was on E4 and also had a very diverse cast. That programme was successful, but we noticed that Channel 4 programmes in prime time, which were constructed for a more general audience, were capturing a far larger number and having a greater impact with 10 to 14 year-olds than the programmes specifically targeted at them. So our strategy has shifted a bit to prime time programmes on Channel 4, where we now try to introduce characters, themes or storylines that we think will be relevant to older children. A good example of that is “Educating Cardiff” or “Gogglesprogs”, which is a version of “Gogglebox” where children are on the sofas and not adults. We are finding that the audiences that we are generating for those programmes are much higher for 10 to 14 year-olds than they were before. One thing that I think will make a big change in this area is a returning drama that we are hoping to launch at the beginning of next year. When I say returning drama, I mean a drama that has soap-like qualities. It will be set in a school and have characters and storylines that we hope will appeal to older children. We are very excited about that. There is a bit of a wait for it, but nevertheless it is coming down the track. Let us pull back and ask ourselves, “How are we doing in our ratings among this audience?” First, the index of our total audience on Channel 4 for 10 to 14 year-olds is higher than it is for any of the other public service broadcasters. Secondly, our audiences among this group are growing—last year we were 6% up in our ratings for this group. I do not say that it is perfect; I know that there are people who would like a different strategy or like us to do more, but we are trying and we have had some success with the strategy that we are deploying. David Abraham: It is probably worth adding that if there were to be substantive changes to this aspect of the remit, we as managers would need either to move money from something else to pay for it or to return perhaps to some of the broader discussions that began and have not been concluded on the regulatory levers that could assist Channel 4 to do more. I have been pretty open in raising issues about how, for example, adjustments to, rather than the abandonment of, the terms of trade could help Channel 4 in future. I have also raised issues around transmission fees, EPG prominence and other things that I think are still under consideration between Ofcom and DCMS. If the exam question is what more could be done to create the environment in which Channel 4 could continue to do more, that opens up new possibilities. Otherwise, it becomes a zero-sum game between wanting to do more, which of course we would like to do, and having to find ways of doing less elsewhere. You might have noticed that we significantly increased our commitment to funding independent British film this year. We are due to spend £25 million this year in the British independent film sector, which is up from £15 million in prior years. There is always more that we try to do when our revenue moves, but it also has to come from somewhere. The Chairman: Thank you for that. We are half way. There is a Division in the House. We will have a six-minute break and we will resume shortly when this vote has passed us by.
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Baroness Benjamin: I have not quite finished, actually. The Chairman: We have not quite finished, says Baroness Benjamin, so we will return to the tail end of this question. The Committee suspended for a Division in the House.
Baroness Benjamin: It has been suggested that a new fund be set up and that Channel 4 should take responsibilities for the 12 to 16 year-olds. How would that fit within your planning, and do you not feel that we should have not just the one drama that you mentioned but other dramas that go right across the genres, as you do for adults—factual programmes, wildlife programmes? Do you not feel that that age group is not really being served anywhere else and looks to Channel 4 to be served there? David Abraham: We would always be enthusiastic to do more. There are two issues to address here. One is that we have always adhered to a philosophy of self-sufficiency. We believe that there is a link between our financial self-sufficiency and our editorial freedom. So we would be wary of any mechanism whereby, for the first time in 34 years, Channel 4 received public funds. It could open up an extra level of complexity to our model that we would rather avoid if at all possible. We would look for other mechanisms in the broader environment. Baroness Benjamin: Such as? David Abraham: Such as transmission fees; that is, the value that the public service broadcasters are bringing to the pay platforms. We could look at the regime whereby value is currently exchanged between ourselves. Ofcom has looked at that and has said that it would be worthy of further consideration. We are very keen to continue that conversation. The broader issue, as Dan has touched on, is that we have to accept that there have been some profound changes in behaviour and technology in the 20 years since we can remember coming home and being captivated by traditional linear channels as schoolchildren. We have to think about the means of distribution to solve this problem as well as content. That is where the developments behind All 4 are relevant: the fact that, for example, half of all 16 to 34 year-olds in the UK have registered with us represents a fantastic opportunity for us to build and deepen that relationship through our online platform. These investments have to be looked at in their totality, but the principle that we would prefer to stick to is our own self-sufficiency rather than going for some kind of public grant. Baroness Benjamin: What about tighter regulation from Ofcom of your remit? David Abraham: As Dan said earlier, we feel that we are working under a pretty tight and clear remit as it is. E4 is the leading channel for teenagers in the country. Baroness Benjamin: But they are watching overseas, brought-in programmes; they are not watching homemade programmes specifically targeting their lives and made in the UK. David Abraham: Partly, they are. We do commission some original programming on E4, and we would clearly like to do some more. We have to look at this in the round in terms of the proliferation of smartphones and the use of YouTube short-form clips. Again, if you go to All
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4, you will see that we are experimenting widely with what we call short-form content, which is mobile content—more snackable forms of content. That is a very interesting new area for us that is leading us to develop new ideas that could go on to long-form content. So there is innovation going on here, there is experimentation. We would like to do more, but, again, to the extent that it is an added element to the remit, we have to look at where the funding would come from, given all our other obligations. Baroness Benjamin: That is very encouraging, thank you.
Q46 Earl of Arran: On the culture of Channel 4, how much of its culture and its content is linked to the operating model? What would the effect of privatisation be on this culture? David Abraham: That is a very insightful question that goes to the very heart of my opening remarks. Effectively, when I worked for a private company and came in in the morning, my obligation was to find a way of maximising the returns to the owners. That was my moral and fiduciary duty. My duty in my current role is to take the remit that has been given to us by Parliament and to optimise all the activities of the organisation to that end. If I fall short of that, Ofcom will raise it with me. If I fall profoundly short of it, I would not expect to keep my job. This permeates the organisation. We encourage our creative teams to take that extra level of creative risk that that they would not have the privilege of doing if they were working in a commercial environment. It is part of that culture to work with young talent, to push investigations further and deeper than other editorial organisations are free to do. Let us take last night’s “Dispatches”, for example. We did a big story about the airline industry and practices in ticketing. These kinds of investigations come from an independent, bold editorial organisation. In every department and genre, we are seeking to do things differently and take those risks. I strongly believe that the culture would change under a private model. Earl of Arran: Would it matter if the owning company was UK or international? David Abraham: I am very agnostic about the domicile of ownership. I have worked for a lot of American companies in my career and many of them are very creative. But I have made the observation. You are our legislators. This is about balance. As the Committee has commented, there is a mixed ecology in the broadcasting system between private operators, pay operators, free-to-air operators, licence fee-funded—the hybrid around Channel 4. The balance between all those creates great creative competition. 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. Lord Hart of Chilton: Let us assume that the current remit remains the same. Could Channel 4 be a profitable investment? David Abraham: We are producing surpluses and profits. Lord Hart of Chilton: Assuming privatisation.
47 Channel 4 – oral evidence (QQ 41-49)
David Abraham: If you asset-stripped the organisation, if you took fewer creative risks, if you sliced the news back, did fewer “Dispatches”, stopped doing independent British film, worked with 50 companies not 300, of course you could make Channel 4 more profitable. The question is: is that what you would want? Lord Hart of Chilton: Yes, but do you assume that that would happen if you privatised? David Abraham: If you sought to maximise the profitability of the organisation, yes. I know that the Committee has heard arguments that it would be incredibly easy to deliver the remit for £40 million or £50 million and therefore that you can be both remit-maximising and profit-maximising, but that is a hypothesis that without more detail is very difficult to demonstrate. Lord Hart of Chilton: Do you assume that with privatisation comes a desire to maximise profitability? David Abraham: It is an obligation of a private company to maximise returns. The argument that these two priorities are somehow natural bedfellows is very difficult to demonstrate in practice, because we have not seen it. We have the history of ITV, which is that of a private company that had clear and explicit public service obligations that have been eroded over time. We have Channel 5. While people have said that it has increased its obligations in recent years since it was sold to Viacom, those obligations are inherently lighter than those under which we operate. So they are very different beasts. It is down to culture and core purposes of every employee in the organisation. Our employees do not have shares; they do not have profit share. We have variable pay in relation to the delivery of our core purposes. But the whole incentive structure, as Dan said, is very different. Lord Hart of Chilton: Do I assume that, with the remit kept constant as it is, very few people will be interested in privatisation? David Abraham: It would go to price. It is not difficult to look at the balance sheet of Channel 4 today, and the market would then take a view as to whether it would hope to erode the remit over time while seeking to maximise it in the short term. Those are complex calculations that you can test only if you put it into the market. Lord Hart of Chilton: What do you think the attempt to erode the remit would be? Where would the first person look to alter it? David Abraham: An hour of news every evening. You would go to how many hours of “Dispatches” there are. You would go to an unprofitable Film4 subsidy model. You would go to children’s programming. You would go to the amount of comedy that we do—it is a very challenging genre in terms of profitability. You do less drama, you do more acquisition, you buy more entertainment shows and gameshows, you acquire more and you repeat more. These are the basic practices of optimising the commerciality of a schedule. Lord Hart of Chilton: Do you think that the Government would really be in the business of seeking to maximise the return they get from privatisation and be disposed to watering down the remit? David Abraham: I cannot speak for the Government. Maybe your next witness will do that. I can say that we understand that this is not about maximising the value of Channel 4,
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because the contribution that we could make would be relatively small versus other issues that we know the Treasury are looking at. The Chairman: David Elstein explained to us that in his view you could make savings of perhaps £200 million a year if you were acquired by someone who could merge your operations with another, similar, broadcaster. That level of savings was surprising, but did it ring true at all? Dan Brooke: As I understand it, that number, if hypothesised, would exist across the two different organisations. Let us say for the purposes of argument that £100 million of that would need to come out of Channel 4. Do not forget that at the moment Channel 4 is a non- profit organisation, so the first thing that would need to happen before the benefit to which savings would go would be to pay a margin. What would the margin be? ITV’s, or some version of it, is perhaps the nearest thing to what you might get for Channel 4—or Channel 5’s. We do not know what Channel 5’s margin is because it does not publish it, but ITV’s margin is 28%. That is £280 million that you have to find out the Channel 4 business model before you even start. Could £100 million of that come out of Channel 4? We struggle to see where it can come from. We have done some comparisons on the cost of putting our channels to air relative to other commercial competitors. The closest, again, is ITV, and we believe that, based on available data, we are more efficient at putting television channels to air. So we are not quite sure where that scale of saving would come from. On the idea that that saving can somehow be deployed against spending on programming, the first thing that has to be deployed against it is the profit that the purchasing organisation will have to make out of the thing that it has just acquired.
Q47 Baroness Jay of Paddington: You have already talked in your response to Lord Hart and in earlier answers to other questions about your concerns about news and current affairs, and you raise the particular point about “Dispatches” last night, and similar programmes. Of course, the Secretary of State has specifically pledged to protect that genre of programming. If you think that is realistic—perhaps you do not—how could you address that in a changed remit? David Abraham: There are two aspects to that. One, which I have experienced myself in previous roles, is the extent to which, as editor in chief, you take those kinds of risks in the full knowledge that you might upset commercial interests. That is a very real issue in an editorial organisation, and we see it played out many times across newspapers and the history of media. So we would be more cautious and less robust in our contribution to news and current affairs plurality as a result. Then there is the slightly more technical aspect to this. Let us say that we were running a privatised Channel 4 and fell short of some of these remit obligations, as I think one of you pointed out when you spoke to Mr Elstein. When he was running Channel 5 he fell short of some of those obligations. What can the regulator actually do? Yes, you can withdraw a licence and you can fine, but those are pretty draconian things for the regulator and the Government to consider for the owner of a public licence; whereas, bluntly, Ofcom currently both operates as a referee of our editorial output in a very clear and overt way and, on an annual basis, breathes down our necks to ensure that we are delivering our remit across a
49 Channel 4 – oral evidence (QQ 41-49)
complex range of measures. That is a very real thing. We would be picking up the phone and saying, “We’re a private company now. There’s a limit to how much you can push us around, unless you really want to be very aggressive about it”. Dan Brooke: You could regulate for the quantity of activities to be continued—so many hours of news—but how do you regulate for quality and for the subject matter that is included in the news? “Channel 4 News” specialises in foreign news. As David says, it is the only hour-long programme in peak. How do you regulate for the scheduling of the programme? These are extremely difficult things. The only way you could even attempt to do it would be through large amounts of additional bureaucracy and then substantial amounts of micromanagement by the regulator—to all of which a new owner would say, “ITV and Channel 5 don’t have that degree of bureaucracy and micromanagement, so can’t we have as little as they’ve got?”, and so the whittling process would begin. Baroness Jay of Paddington: So shortly, in practice, you think that the pledge to protect “Channel 4 News”, Channel 4 current affairs and Film4 is pretty unrealistic. Dan Brooke: As I say, you could protect the quantity that was produced but not the quality or any of the other aspects that I have mentioned. Baroness Jay of Paddington: And I thought you told Lord Hart that under a privatised model even the quantity would be under threat. Dan Brooke: Yes, it would. You would be constantly going back to regulator and saying, “We can’t do this. We can’t afford it”. This has been the history of commercial public service broadcasting in the UK over the past 25 years. David Abraham: Mr Elstein brought a very interesting example to you in which he compared what happened in the recession, when ITV came to him and said, “Listen, we’re in dire straits here. Can we reduce our obligations?” He pointed out that he thought that Ofcom ought to have tied it to the same mechanic that we had, because we also came to him and said, “We need to reduce the number of original hours that we can afford this year, but when the market comes back we will increase it back up to what it was”. In ITV’s case, it was left at the lighter level of obligations, so you can see in practice situations from history that point to varying the obligations according to the realities of the solvency of the business. The Chairman: We have a couple of questions to go, but I am told that the Secretary of State is awaiting us, so if we may we will go rather briskly through them.
Q48 Baroness Healy of Primrose Hill: I will be quick. Are you confident that Ofcom will be able to put an effective regulatory structure in place and have the ability and the expertise to regulate a privatised Channel 4? David Abraham: We touched on this briefly in answer to a prior question, but it is worth referring the Committee to the views of Ofcom in 2008, I think, when the merger of Channel 5 and Channel 4 was proposed. That was an attempt to combine a holding company that was reporting back to a foreign privately-owned company and then to merge it with the interests of the public service centre of Channel 4. Ofcom’s view at that time, I think under
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Lord Carter, spelt out quite clearly that this was a very challenging thing for Ofcom to oversee in the long term.
Q49 Baroness Bonham-Carter of Yarnbury: Very quickly, you are doing well. Should this not mean that you should be a little more adventurous than you are being? In particular— John McVay of PACT brought this up—you seem to be working rather tightly with 300 indies. There are a lot more out there. Should you not be expanding your net a bit? David Abraham: We absolutely agree that one of the core purposes of Channel 4 is to interact with the widest possible diverse group of creative people around the country. Actually, we interact with over 400 indies, although of course on an annual basis we are developing ideas that might take over a year to come to fruition. John referred to that, and we did work with PACT on all that outreach. But there is also the converse dynamic that the success of our schedule has, by definition, led to more returning series. Those more returning series have been produced by companies that then become very attractive to consolidators and often to international companies—and, so it comes to pass, those companies are often sold. That is a product of our success and one of the reasons why we created a new £20 million growth fund, invested in nine new companies so far, that is the new seed-corn of the next generation and the next wave of companies. So we are working with the nations and the regions on more stringent obligations that are now 9% by 2020. That is the course that we are now on, but we entirely support the philosophy that PACT has set out, encouraging us to work with as wide a range of companies as we can. We currently work with more companies than Channel 5 and ITV combined. The Chairman: Thank you both very much indeed. That was extremely helpful to us. You are absolutely at the heart of our inquiry, so it has been great having you with us. David Abraham: Thank you very much for having us.
51 The Children’s Media Foundation – written evidence (SCF0005)
The Children’s Media Foundation – written evidence (SCF0005)
1. Background
The Children’s Media Foundation (CMF) www.thechildrensmediafoundation.org is a not-for- profit organisation supported by public donation, which campaigns for greater range and variety in the content provided for children and young people in the UK, advocates a research-based approach to policy and regulatory decision-making, and supports the production of UK-based programming that offers British children the opportunity to hear their own voices, experience their own stories and explore their own culture and society.
2. Context
CMF is responding to this Inquiry in the context of Channel 4’s provision for older children and young people.
3. Funding
Is C4C financially sustainable? Is the revenue provided by advertising sufficient to make Channel 4 Corporation (C4C) sustainable?
Broadly it would appear so. According to the most recent Ofcom review, published in 2015, Channel 4’s real term investment in first run UK originated content increased during the last review period, in contrast to the other Public Service Broadcasters.
However we would argue that there is serious under investment in original content provided for both children under 14, and from 14 to 16 - particularly the former.
Are there any other commercial/non-commercial revenue streams which could/should be explored?
We believe that there could be.
CMF has proposed the creation of a new content production fund specifically to stimulate the production of original UK content for children and young people. We are not advocating a contestable fund as proposed in the recent Government recent Green Paper on the future of the BBC, which is dependent on taking funds from the Licence Fee. We believe a completely new fund should be created using new and alternative sources of finance. These sources could include Lottery funds, the proceeds of levies, new creative partnerships, ethical advertising, educational funds, foundation funding and corporate sponsorship.
This proposal requires radical new thinking, and none of this has ever been investigated in depth. Accordingly we have asked The Secretary of State to commission a feasibility study
52 The Children’s Media Foundation – written evidence (SCF0005)
into a new fund, examining all potential sources of finance, and comparing it with examples in use elsewhere.
Were this fund to come to fruition C4 would certainly be in a position to benefit, provided it committed to producing content within the Fund’s criteria – which we would be broadly aimed at addressing market failure, providing more factual and drama content and a wider age-range of content.
4. Viewing
Is viewing of Channel 4 (the main channel) and C4C sustainable? To what extent is the decline in reach and share on the main channel a problem for C4C? To what extent is Channel 4 (the main channel) equipped to deal with the challenges posed by new technology and viewing habits such as online and search and recommendation?
Changes in viewing habits are clearly happening, and certainly speeding up as far as younger viewers are concerned. Equally there is little to attract them to the main channel. C4C has in the past had a good track record in innovation on the main channel and online, using the latter in particular to address the younger audience. They should be looking to build on this, without at this stage abandoning a parallel mainstream provision.
5. Remit
Would changes to Channel 4’s remit provide greater sustainability for the broadcaster? Is the current legislation too detailed, or too vague? What benefits/drawbacks could there be to Ofcom’s suggestion in its PSB review that PSB obligations be applied to C4C as a whole rather than to the main channel alone?
Does the current regulatory system provide for adequate assessment of C4C’s performance against its obligations?
We believe that there could be benefits in Ofcom’s suggestion that PSB obligations should be applied to C4C as a whole rather than to the main channel alone as long as this does not result in a diminution of public service overall. The portfolio of C4C channels gives them greater flexibility in their approach to the younger audience. The younger audience naturally gravitates towards E4 and any stimulus which can be put in place to reward C4C for providing public service-type content for the younger audience on that channel should be considered.
Does the current regulatory system provide for adequate assessment of C4C’s performance against its obligations?
We feel that with regard to provision for children and young people it does not.
53 The Children’s Media Foundation – written evidence (SCF0005)
The 10 - 14 audience has very particular needs and a special point of view. They are at a very particular stage in their development, educationally, culturally, emotionally, physically and socially. If any audience requires content geared specifically to it, the young teen audience does. It is a difficult audience to reach but that does not mean it should be abandoned by public service providers.
Channel 4 committed to providing content for the 10-14 year-old audience in their last Licence renewal application. However, in the last three years they have made very little content for this age group – in fact only a single short-run series each year.
Ofcom identified this as insufficient, but have since accepted Channel 4’s response which sees content provision for under 10’s as incorporated within programmes of general appeal This is insufficient, does not meet the remit agreed in the most recent licence round, but has been accepted by Ofcom without penalty.
The obligations on Channel Four are not sufficiently clear in terms of age-range, genre etc. We would like to see specific targets introduced and outcomes assessed – based on the commitment made in the Licence renewal application.
6. Ownership
We feel that the privatisation of Channel 4 would be counter-productive to the provision of content for children and young people - as well as to other under-served minority audiences. This is an archetypal public service remit.
We also believe that some of the content appropriate to this audience would be likely to offend a more commercially facing audience. Channel4 has always taken risks. Privatisation would impose limitations.
If as seems likely privatisation resulted in the commissioning of less original content there could be a severe impact on the independent production community, which in the children’s area is already suffering badly from the lack of a properly competitive market, with no original commissioning at CiTV or Channel 5.
It would be ironic if Channel 4, the prime creator of the independent production community, were responsible for its demise!
19 April 2016
54 Commercial Broadcasters Association – written evidence (SCF0026)
Commercial Broadcasters Association – written evidence (SCF0026)
Introduction
1. The Commercial Broadcasters Association (COBA) is the industry body for multichannel broadcasters in the digital, cable and satellite television sector and on- demand services.
2. COBA members are critical to the global success of the UK broadcasting sector and its “mixed ecology” of public and private investors. As arguably the fastest growing part of the UK television industry, they are increasing their investment in jobs, content and infrastructure:
Scale: In the last decade, the sector has increased its turnover by 30% to more than £5 billion a year. This is rapidly approaching half of the UK broadcasting sector’s total annual turnover, and has helped establish the UK as a leading global television hub.38
Employment: As part of this growth, the multichannel sector has doubled direct employment over the last decade.39
UK production: The sector has increased investment in UK television content to a record £725m per annum, up nearly 50% on 2009 levels.40
38 Ofcom International Broadcasting Market Report 2013 39 Skillset, Television Sector – Labour Market Intelligence Profile 40 COBA 2014 Census, Oliver & Ohlbaum Associates for COBA
55 Commercial Broadcasters Association – written evidence (SCF0026)
Executive Summary 1. COBA welcomes the opportunity to provide a response to the House of Lords Communications Committee’s inquiry into the sustainability of Channel 4. We wish to focus on key points around Channel 4’s remit: specifically, the point raised in the committee’s terms of reference about extending PSB obligations to Channel 4 Corporation as a whole. This was originally mooted by Ofcom in its recent review of Public Service Broadcasting, as the committee notes, but we stress that, to our knowledge, the regulator did not undertake any market impact assessment regarding such a move. 2. While a targeted approach to extending Channel 4’s obligations may make sense in some cases – such as allowing Channel 4 to fulfil schools obligations online – granting Channel 4’s wider range of channels and services PSB status, and more to the point giving them PSB benefits such as prominence on the Electronic Programming Guide (EPG), would have serious negative consequences for the wider market. 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. 3. We stress that PSBs and their portfolio channels already retain a dominant market share of 72.5%, driven by growth from their portfolio services. These portfolio channels already have a significant competitive advantage in being able to cross promote with their PSB sister channels41. While all broadcasting groups can do this, PSB groups have an additional advantage in having larger audiences to start with, an advantage which stems from their existing PSB benefits of EPG prominence and universal availability. 4. In recent years, strong growth in investment in UK content has come from the wider market of multichannel broadcasters. Indeed, combined with investment from VoD services, producer equity and the recently introduced production tax reliefs, we believe there has never been more investment in UK content, as well as in the infrastructure around launching and growing channels. However, non PSB broadcasters have a relatively small share of the market – just 27.5%42. Their growth and ability to invest therefore remains fragile. Granting further benefits to Channel 4’s portfolio channels will undermine this growth.
41 Public Service Content in a Connected Society, Ofcom’s Third Review of Public Service Broadcasting, Figure 44, page 81 42 Ibid, Figure 44, page 81
56 Commercial Broadcasters Association – written evidence (SCF0026)
Response to inquiry 1. The market context
1.1 The UK broadcasting sector is a global success story, based on an increasingly mixed ecology. Investment in UK content now flows from a genuine range of sources, including public service and non public service broadcasters, producers, tax-based production incentives, international markets and new media such as VoD services. Because of this mixed ecology, while investment from specific PSB channels may have declined – and the extent of this is highly debatable – our contention is that there has never been more funding for high quality original (UK) content. Indeed, UK content production is all the healthier for being less reliant on any one source.
1.2 In terms of investment in UK content specifically from multichannel broadcasters, COBA’s 2014 census estimates that spending by non PSBs on first-run UK content is nearly £600m a year (and this excludes investment by the portfolio channels of PSBs), rising to £725m if repeats are included.43 Much of this content is available free-to-air - more than half of the channels on Freeview are non PSB.
1.3 Despite this strong growth in investment from non PSB sources, PSBs and their portfolio channels retain a dominant share of the UK television market. Indeed, PSB status has enabled PSB broadcasters, including Channel 4, to successfully respond to perhaps the two biggest structural challenges in recent years, digital switchover and VoD. PSBs have adapted to digital switchover by successfully launching portfolio channels, and increasing their group market share as a result. Viewing share of PSB portfolio services in multichannel homes grew from 5% in 2001 to 21% in 2013, outpacing the rest of the market.44 Overall, PSBs maintain near universal reach and, with their portfolio services, a combined audience share of 72.5%, representing nearly three quarters of the market. Channel 4’s portfolio channels have increased their audience share in recent years, from 4.4% in 2008 to 6.1% in 2013, mitigating declines at the main PSB channel. As a result, the group’s audience share has remained relatively stable, falling slightly from 11.9% to 11% over this period.45
1.4 Linear viewing and advertising remain strong, but PSBs have also enjoyed success with their VoD services. The biggest providers of long form audiovisual content in the UK VoD market are not Netflix or Amazon, but the BBC iPlayer, ITV Player and 40D.46
43 COBA 2014 Census: Multichannel investment in TV production, O&O for COBA 44 The Costs and Benefits of the C3 Licences, Communications Chambers for COBA, December 2014, Figure 7, page 16 45 Public Service Content in a Connected Society, Ofcom’s Third Review of Public Service Broadcasting, Figure 44, page 81 46 Communications Market Report, 2014, Ofcom, page 145
57 Commercial Broadcasters Association – written evidence (SCF0026)
1.5 This success in developing digital portfolio channels and VoD services is founded on their PSB status, and the ability to cross promote content between the PSB parent and other services. While all broadcasting groups can do this, PSBs have an advantage in that they have greater audiences in the first place, due to their PSB benefits of prominence and universal availability. Ofcom recently acknowledged this, stating:
“We recognise that a cross promotional benefit may arise from operating multiple channels, a benefit that may be realisable whether or not a PSB licence is held. However, in the case of a PSB licence holder, the cross promotional benefit could be enhanced by virtue of the ‘appropriate’ EPG prominence accorded to the PSB channel."47 1.6 In summary, therefore, we believe the UK’s increasingly mixed ecology is working well. However, we caution that growing investment from non PSB channels remains fragile, given that such channels are competing for around 25% of the UK market, a relatively small share compared to PSB groups. Channels’ ability to invest in content, as well as their incentive for investing in developing their business more generally, rests on the prospect of being able to generate a return on a reasonable basis. Tipping the market further in favour of PSBs, by granting them further benefits, will inevitably dampen such incentives and, as a result, investment in UK content, infrastructure and jobs.
2. The market impact of granting Channel 4 additional PSB benefits
2.1 We are therefore deeply concerned about Ofcom’s suggestion that Channel 4 might fulfil its remit through its portfolio services – and more specifically that those portfolio channels might be awarded additional PSB benefits such as EPG prominence. While a targeted approach – such as allowing Channel 4 to fulfil its schools remit online – may be appropriate, wholesale changes involving Channel 4’s suite of portfolio channels could have profound consequences for the rest of the broadcasting market, damaging revenues for the rest of the sector and causing major disruption, for what is in our view a highly uncertain, and potentially damaging, outcome.
2.2 Were the Channel 4 portfolio channels to move up the EPG, other channels would inevitably be forced to move down, with potentially profound consequences for those services. EPG ranking is one of the key parts of a channel’s business model, helping determine share, revenues and, by extension, content budgets. Non PSB
47 Methodology for determining the financial terms for the Channel 3 and Channel 5 licences, Statement, Ofcom, July 2013, page 16, Section 3.61
58 Commercial Broadcasters Association – written evidence (SCF0026)
channels pay significant sums to secure EPG positions, and these represent one of the key elements on which they base their long-term business strategy and investments. Being forced to move to less attractive positions would create huge disruption across the sector, creating significant levels of uncertainty as well as damaging revenues. In turn, reducing revenues for non PSBs would be likely to dampen their investment in original content, as well as their investment in infrastructure and jobs.
2.3 Furthermore, we believe it is unnecessary to give Channel 4’s portfolio channels greater prominence on the EPG, given that its channels are already in a strong market position, buoyed by their relationship to its main PSB channel, as we have already noted.
2.4 In addition, we are not convinced that extending Channel 4’s PSB obligations would lead to an increase in investment in genres where there is perceived to be shortage.
2.5 We therefore ask the House of Lords Communications Committee to be mindful of the potential negative impact on the wider market of any proposals to grant PSB benefits to Channel 4’s portfolio services and channels. We note that Ofcom did not, to our knowledge, carry out any assessment of market impact in suggesting that Channel 4 might be allowed to deliver its remit through its wider services.
2.6 Finally, as regards prominence to Channel 4’s VoD services, we believe intervention is wholly unnecessary. Despite the absence of any statutory requirement, 4OD is widely and prominently available on key on-demand platforms and as a result, audiences are not, in our view, experiencing any problems finding Channel 4’s catch- up service. Supported by its relationship to its main PSB channel, the service is also performing well. Out of all on-demand services, 4OD is the third most used at 20%, preceded only by BBC iPlayer on 38% and ITV Player on 22%.48
April 2016
48 Communications Market Report, 2014, Ofcom, page 145
59 Compact Media Group – written evidence (SCF0024)
Compact Media Group – written evidence (SCF0024)
COMPACT MEDIA GROUP is a UK based leading independent media advisory group and the world’s largest independent collection agent for secondary broadcast rights. CMG’s clients include BBCWW, ITV, DreamWorks Animation, A+E Networks, Sky Vision, All3 Media, Fremantle Media, Sonar Entertainment and in total roughly 750 clients on long term contracts from the UK and worldwide. Compact is independently owned and trusted to manage confidential data and client funds. We account for exports of royalties in excess of £40m per annum with the majority coming from the EU. We work to maximise the value of the creativity of our clients through commercial expertise and across the entire intellectual property life-cycle. Due to our position within the British TV industry and our role supporting those involved we feel it might be helpful to submit this evidence in line with the ongoing enquiry into Channel Four’s sustainability. This short note offers outline thoughts only, but which we would be happy to expand on should the committee find this useful for its enquiry. We have looked solely at the question of programme commissioning rather than other aspects of the committee’s enquiry. The ultimate outcome here from our point of view is to make sure that Channel 4 has a strong and secure future that reflects the interests of British production companies and our diverse UK production talent pool. We think that any outcome from the review of the ownership of Channel 4 which increases investment in production is highly desirable; and the status quo may not be the best way to achieve this. An inventive, creative approach to a sale could provide a significant financial and creative boost to a vital part of the UK economy. Over the last 34 years Channel 4 has upheld and provided a unique remit and commissioning ethos. This does not have to change because of a change to alternative ownership structures. Indeed it can be enhanced. The ability for the Channel to provide significant cultural and economic value to the UK does not have to change under alternative ownership structures. In fact to change alternative ownership structures may be an opportunity to strengthen Channel 4’s public service remit. Channel 4 has always invested in smaller production companies through programme commissioning. This investment in turn helps the wider industry. It allows smaller production companies to operate creatively and grow. C4’s approach to IP ownership, through operating as a publisher broadcaster rather than a rights owner is also a significant benefit. In order to maintain and enhance these aspects of the existing system we feel that there should be an obligation on any new structure to invest a specified annual proportion of the channel’s turnover into the UK Production Community so the creative, independent and minority companies can still continue to do what they do so well. We would also
60 Compact Media Group – written evidence (SCF0024)
suggest that a creative fund, raised from a change in ownership, should be set up. This would be used to support and grow UK creative content. Under this approach, specific creative content – for example in relation to minority interests – would be identified as recipients of a certain proportion of commission spend. Channel 4 is a valuable asset as it stands but with this sort of approach, it could become even more valuable and a very powerful media company. We believe this can be achieved through two routes: using any sale proceeds to create a ‘Creative Fund’ administered by C4 to be used exclusively to bring in indigenous production talent; and legislating to ensure a minimum spend on UK production, including for public service programming from the channel. Part of this spend would be targeted at non- traditional digital viewing platforms. We would expect any new ownership structure to ensure existing obligations are adhered to, principally in relation to Terms of Trade. Different models of ownership can be explored including creating a social enterprise but we believe this is a secondary consideration to the more fundamental question of how to ensure that levels of investment in UK production are not only protected but also increased via regulation underpinning any sale. This approach would also have the benefit of widening the pool of stakeholders invested in the success of a new indigenous international brand to rival the existing predominantly US global entertainment brands.
20 April 2016
61 Creative England – written evidence (SFC0014)
Creative England – written evidence (SFC0014)
About Creative England
1. Creative England invests in and supports creative ideas, talent and businesses in film, TV, games and digital media. The focus of our activities is in the English regions outside the M25 – a recognition of the comparative disadvantages suffered by individuals and businesses who do not have immediate access to the networks and opportunities that are associated with being located in London.
2. In addition to direct investment, we also offer individual support with business planning, skills development, leadership training, mentoring and networking opportunities. In essence, our purpose is to identify future opportunities to create innovative content, products and services that support the growth of an increasingly important sector of the UK economy.
3. In this submission, we focus our comments on the role that Channel 4 plays in the following areas: new voices, new talent, new businesses and impact on the creative sector, diversity and regional reach.
4. For further information about this submission or Creative England, please contact our Public Affairs Executive, Liam O’Shea, at [email protected] or call 0117 376 3317.
The most successful policy intervention on behalf of the creative industries ever conceived?
5. Channel 4 has undoubtedly been one of the most successful policy interventions on behalf of the creative industries ever conceived. Its statutory remit to deliver distinctive, high quality content, cater for diverse and minority tastes, and contribute to the strength and diversity of the UK’s creative economy has been a major spur to the growth of the UK’s £84.1 billion a year creative industries, and the success of UK creative talent and content around the world.
6. Championing, representing and catering for diversity, and enabling creativity, has remained central to Channel 4’s public service obligations from the very start - from showing the first ever lesbian kiss in British television to commissioning the first long- running black sitcom, Desmonds, Channel 4 has been a diversity pioneer and a creative trail blazer.
7. Channel 4 does not exist in isolation. It represents a key pillar in the UK’s globally admired mixed broadcasting ecology. This ecology provides differing creative missions
62 Creative England – written evidence (SFC0014)
and this has had the effect of galvanising competition, driving up the quality of content and adding to diversity of thought. Any significant changes to the operating model of Channel 4 - e.g. privatisation - could have significant repercussions across UK broadcasting, the independent production sector and the wider creative economy.
A vital supporter of early-stage creative talent
8. 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”.49
9. This is vital as the film and television industry needs ‘nursery slopes’ – a reasonably well- funded space in which talent can develop, take risks and innovate. Channel 4, Film4, and the broadcaster’s other portfolio of platforms have traditionally provided spaces of this kind, both on and off screen.
10. Filmmakers like Steve McQueen and Danny Boyle provide high-profile examples of talent developed and nurtured by Channel 4. However, over the course of the broadcaster’s existence, scores of film, TV and other media professionals have been given the opportunity to “cut their teeth”, develop their creative voices and progress their careers – to the benefit of the UK film and television sectors, and the creative economy as a whole.
Delivering original and innovative programming
11. In its recent third review of Public Service Broadcasting, Ofcom noted that audiences want to see more original and innovative programming, but appear to feel that the Public Service Broadcasters (including BBC, ITV and Channel 5) are “duplicating successful programme ideas and formats, potentially at the expense of more original, innovative and challenging programming”.50
12. However, according to Oliver & Ohlbaum, Channel 4 “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; and commissions content from a wider pool of independent production companies than any other PSB channel”.51
13. Its analysis of programming over the course of 2013 found that “41 per cent of Channel 4 titles were new and 60 per cent were less than six years old” – in comparison to BBC1 and BBC2 combined, where “57 per cent of all programme strands were more than five
49 http://www.publications.parliament.uk/pa/ld200910/ldbills/001/10001.20-26.html 50 http://stakeholders.ofcom.org.uk/binaries/consultations/psb-review-3/summary/PSBR-3.pdf 51 http://www.channel4.com/media/documents/press/news/C4_Risk_Report_Singlepages_FOR_NINA.pdf
63 Creative England – written evidence (SFC0014)
years old, and almost two in every five titles were more than ten years old”. There should be little doubt that Channel 4’s unique remit is at the heart of this risk taking behaviour. Significantly, Ofcom research has found that audiences consider the output on each of Channel 4’s platforms to be of high quality.52
Supporting the wider creative economy
14. Channel 4’s publisher/broadcaster model has, and continues to make, an enormous contribution to the UK’s creative economy. Over the course of 30 years, Channel 4 and its public service remit has been at the heart of turning a handful of independent film and TV programme makers into arguably the most dynamic and creative force in independent film and television production anywhere in the world.
15. The current model not only makes a huge economic contribution in its own right, but also helps create a strong and diverse production base which benefits other broadcasters, the supply chains of independent production companies, the UK film industry, the wider creative economy and the quality and diversity of content enjoyed by the public.
16. Film 4 is a major pillar in the UK’s film ecosystem and has developed and co-financed some of the most successful UK films ever made. In television production, Channel 4 invests more on new original programming from independent producers than any other UK broadcaster. The main channel alone commissions from over 230 different companies (90 more than any other PSB channel) and over 360 creative partners across Channel 4 platforms. 53 The supply chain of this investment supports around 19,000 jobs.54
17. Channel 4’s commissioning practices also have a huge impact on the strength of regional production centres and regional creative economies. C4C invested over £153 million on content from independent production companies based outside London in 2014 and over half (52%) of all hours of new original programmes on the main channel were from outside the capital.55 That investment plays a huge role in underpinning much of the UK’s creative economy outside of London.
18. Channel 4’s commitment to growing and developing the independent production sector is to be commended. The £20 million Indie Growth Fund, for instance, was established to nurture the independent sector by taking minority stakes in small independent production companies. This is great for the industry as it will help high growth potential
52 http://stakeholders.ofcom.org.uk/binaries/consultations/c4-media-content/summary/c4-content-review.pdf 53 http://www.channel4.com/media/documents/press/news/C4_Risk_Report_Singlepages_FOR_NINA.pdf 54 http://www.theguardian.com/commentisfree/2016/jan/09/selling-off-channel-4-cultural-vandalism-vince-cable 55 http://annualreport.channel4.com/investing-innovation
64 Creative England – written evidence (SFC0014)
business build critical mass whilst also providing a counter to the increasing consolidation of much of the indie production sector.
A1.1 Is it financially sustainable?
19. The whole broadcasting industry is almost unrecognisable to how it looked at Channel 4’s inception. Driven by the digital revolution, declines in key sources of funding like advertising and the globalisation of media markets, broadcasting has changed drastically over the last few years. However, Channel 4 has proved to be quick to adapt to this changing environment and to capitalise on new technologies.
20. In its review of Channel 4 in 2014, Ofcom commented that “falls in viewing to the main channel have been largely offset by growth in audience numbers for its portfolio channels, and its on-line catch up service”. It added that “the limited decline in total reach and share at the C4C TV family level is positive from the perspective of C4C’s financial sustainability”.56 By re-licensing the core Channel 4 service for a further ten years in 2014, Ofcom sent a clear message that it believes the broadcaster is financially sustainable for the duration of its current licence.
21. Despite all of the challenges faced in this increasingly competitive broadcasting sector, in 2014 Channel 4’s revenues increased by £30 million (to £938 million) and the corporation held cash reserves above £220 million for the fifth year running.57 Channel 4’s content strategy also appears to be paying off. According to EY, last year viewing on the main channel increased for the first time in a decade.58
22. At the same time, C4C appears to have been successful in executing a data strategy to help form direct relationships with viewers (having registered over 13.5 million people so far). This has enabled the delivery of targeted content and advertising – thereby increasing commercial returns from advertisers.
23. C4C has also taken measures to diversify its investment portfolio (e.g. the Indie Growth Fund and Commercial Growth Fund) and attract revenues from other initiatives such as its video game publishing arm, All 4 Games. This particular initiative is enabling C4C to reach out to new and highly lucrative markets in a way other UK broadcasters are not.
56 https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjH- YWlu53MAhXHI8AKHXmNBnwQFggjMAE&url=http%3A%2F%2Fstakeholders.ofcom.org.uk%2Fbinaries%2Fcons ultations%2Fc4-media-content%2Fsummary%2Fc4-content- review.pdf&usg=AFQjCNGbW3KF8TWBMnU3JqK5l_6q7KskSQ&sig2=pnE74VoUHtXDDRIGCpWIoQ 57 http://www.channel4.com/media/documents/corporate/annual-reports/C4%20Annual%20Report%202015.pdf 58 https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved= 0ahUKEwjKpcbiiJ3MAhWnC8AKHXCMDIgQFggiMAE&url=http%3A%2F%2Fwww.channel4.com%2Fmedia%2Fdo cuments%2Fpress%2Fnews%2FDesktop%2FEY%2520C4%2520report%2520FINAL%2520160316.pdf&usg=AFQjC NGcJiMHTCMDZcyqD6m58iL3UkA-yQ&sig2=3NgA5chru0bwcbF7A0_kkg&bvm=bv.119745492,d.d24
65 Creative England – written evidence (SFC0014)
24. Change will undoubtedly continue to accelerate in the years ahead. Channel 4, however, has proved to be adaptable to such change. There is no reason to believe that Channel 4 will not continue to be financially sustainable in the medium term.
Would a change in ownership, such as privatisation, affect its remit?
25. As Channel 4 acknowledges, its “…public service remit extends beyond the value we offer to the viewing public to our contribution to the strength and diversity of the British creative economy”.59
26. Under its operating current model, Channel 4 has no shareholders expecting a return on investment. It is able to reinvest revenue back into new original content and into the delivery of its unique public service remit - at no cost to the public. This delivers social, cultural, economic and creative returns to the UK public.
27. A change in ownership, such as privatisation, would fundamentally impact upon Channel 4’s remit. Channel 4 CEO David Abraham has estimated that with a 20% margin, £200m a year would be diverted from programming to meeting the expectations of private investors.60
28. With an imperative to deliver shareholder returns, it is hard to imagine that a for-profit Channel 4 would continue to take risks on new and emerging talent or continue to provide the same development opportunities to the next generation of burgeoning British talent. Likewise it is hard to imagine that a for-profit Channel 4 would have the same commitment to innovation and experimentation, or continue to show the same commitment to small and regional production companies, or independent production in general.
29. With the rapid consolidation of the indie production sector in recent years, pressure on margins may lead to more programme re-runs or more commissions going to the so- called “super-indies” – those production companies with the scale of their global benefactors to help drive efficiencies and keep costs low. C4C may even move some production in-house in a bid to secure higher margins and more predictable income from owning the rights to programmes. This has been the case with ITV which saw the value of external commissions drop by £95 million between 2008-2013 and internal commissions rise.61
30. Under privatisation the key determinant of programme commissioning and film investment practices would likely be profitability over innovation and Channel 4’s other
59 http://www.channel4.com/about_c4/promises_2001/promises_intro2.html 60 http://www.theguardian.com/commentisfree/2016/jan/09/selling-off-channel-4-cultural-vandalism-vince-cable 61 http://stakeholders.ofcom.org.uk/binaries/broadcast/reviews-investigations/psb- review/psb3/Annex_1_PSB_spend_and_output_2014.pdf
66 Creative England – written evidence (SFC0014)
cultural and social obligations. This direction of travel would greatly impact upon the strength and diversity of the UK’s creative economy, as well as Channel 4’s unique PSB remit.
Should Channel 4’s PSB obligations be applied to C4C as a whole?
31. The up-take of digital technology has transformed the way we consume media and Ofcom has noted a growing generation gap, with younger and older people’s consumption habits increasingly differentiated across different communications media. Only 50% of 16-24s’ total audio-visual consumption and 61% of 25-34s’ total consumption, is through linear television, compared to 69% for all adults.62
32. This trend is only likely to become more pronounced over time. As competition for our attention intensifies, and with the emergence of a digitally literate young audience, Channel 4, and the wider PSBs must find new ways to remain relevant and cater for diverse audience tastes.
33. The pace of change shows no sign of slowing down. It is time to better focus the broadcaster on delivering in those areas of PSB where it can make the most distinctive contribution. Consideration should be given to how Channel 4 can deliver the values and purposes that underpin PSB across the whole array of its various platforms and what more could be done to deliver PSB obligations using online and other digital platforms (e.g. games, apps etc.).
34. It should also be noted that Channel 4’s portfolio channels and platforms are already delivering many of its content-based obligations. As Ofcom concluded in its third PSB review, these other platforms provide “original content; serving specific demographics or interest groups (for example, comedy, lifestyle and film audiences were particularly well served by E4, More4 and Film4 respectively); and importantly, extending the reach of Channel 4’s original PSB programming through repeats or catch-up opportunities on these additional services”.63
35. By updating and simplifying the framework of Channel 4’s PSB obligations so that there is a single remit across all of its platforms, 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.
62 http://stakeholders.ofcom.org.uk/binaries/consultations/psb-review-3/summary/PSBR-3.pdf 63 http://stakeholders.ofcom.org.uk/binaries/consultations/psb-review-3/summary/PSBR-3.pdf
67 Creative England – written evidence (SFC0014)
36. Such an approach may also encourage originality and innovation in the delivery of its PSB obligations and contribute towards the overall well-being of the UK’s independent production sector ecology and wider creative economy.
April 2016
68 Creative Industries Federation – written evidence (SCF0013)
Creative Industries Federation – written evidence (SCF0013)
Scope of response/Executive Summary
The Creative Industries Federation is the national membership organisation bringing together all of the UK’s arts, creative industries and cultural education to speak with one voice. You can find out more about the work we do by visiting www.creativeindustriesfederation.com or the in addendum to this submission.
1.1 As a representative body for the sector, which includes the arts, media, broadcast and other creative industries, during the BBC’s Charter Renewal and the coinciding public enquiry, the Federation felt compelled to provide evidence. We held three events (in Manchester, Birmingham and London) to gather views from our diverse membership on the impact of potential changes to the BBC’s remit on the UK’s creative industries. This informed our response to the Government’s Green Paper on Charter Renewal, available on request64.
1.2 In anticipation of potential privatisation plans for Channel 4 (which were first leaked in September 2015) we would like to reiterate and expand on some of the evidence gathered which expresses the value of public sector broadcasting to our sector.
1.3 The UK creative industries are booming, and are an increasingly important part of the economy - with growth outgunning finance and insurance65. Public investment and ownership of all sorts contribute to the UK’s unique mixed economy in the creative industries and help to feed this success.
1.4 Work produced by the Creative Industries Federation - most notably ‘How public investment in the arts contributes to growth in the creative industries’ (2015)66 - has demonstrated that captains of industry (from fashion, advertising, film, visual art, publishing and more), embrace this mixed economy - where Government investment supports innovative ideas, and public investment and risk-taking returns and stimulates private profit.
1.5 Yet business is in some ways running ahead of politicians where, despite the creative economy boom, the Department for Business, Innovation and Skills does not include the creative industries in its data for industrial growth and the current education system fails to deliver the skills needed by the sector - see the Federation’s ‘Creative Education Agenda’67. This is despite vocal support from the Chancellor at the Autumn Statement and subsequent spending reviews.
64 Please contact [email protected]. 65 Easton, Eliza, Jonothan Neelands, and Te-Anne Robles. “How Public Investment in Arts Contribute to Growth in the Creative Industries.” Creative Industries Federation, July 2015. Available from: http://www.creativeindustriesfederation.com/assets/userfiles/files/CIF_Arts%20and%20Growth%5B3%5D.pdf 66 Easton, Eliza, Jonothan Neelands, and Te-Anne Robles. “How Public Investment in Arts Contribute to Growth in the Creative Industries.” Creative Industries Federation, July 2015. 67 Easton, Eliza, and Jonothan Neelands. “Creative Education Agenda.” Creative Industries Federation, May 2015.
69 Creative Industries Federation – written evidence (SCF0013)
1.6 We would urge the Government to see the retention of a public remit for Channel 4 as part of an investment in fast-forwarding growth and diversity in the creative industries in general, and in broadcasting in particular. This is both in terms of creating innovative and groundbreaking content, as well as in terms of diversifying workforce and on screen programming.
1.7 The selling of Channel 4 could raise c.£1bn for the Government68, but we would argue that this is a relatively small return for the loss of the channel’s public remit. If it were to be sold, the channel would be incentivised by shareholder interest instead, but it is the channel’s public remit that prioritises investment in skills, the exclusive use independent production companies all over the country, and a diverse workforce and output. Even if the company wished to continue many of these streams of work, it might be unable to as shareholder interests would direct the commissioning standards and output. A public remit does not only benefit the production sector - the variety of voices who contributed to the Creative Industries Federation’s submission to the green paper on the BBC demonstrate that broadcasting is a fundamental part of our entire creative industries ecosystem, from music (classical and popular), to film, advertising and design69.
1.8 This paper will be followed up by an event held by the Federation, which will look at how PSBs function within the creative economy at large - but in particular consider the implications of a potential privatisation of C4C.
About Channel 4 and the creative industries
2.1 Channel 4 is the UK’s only publicly-owned but commercially funded public service broadcaster, which makes it unique within the wider UK creative industries ecosystem. In addition to Channel 4 itself, C4C also comprises E4, More4, Film4 and 4 Music as well as on demand services. The channel returns its profits into programming and talent development - acting as an incubator that feeds the sector as a whole.
2.2 Because of the terms under which it was established and its remit as given by government, Channel 4 has no in-house production company, which means that it uses independent production companies from all over the UK, and invites them to create content that fulfills its public remit of high quality content which is educational, distinctive and innovative. It currently works with more than 300 production companies in the UK. In 2014 more than half of these were situated out of London, which has given an essential boost to the Government’s ambition of fostering creative industries hubs outside of the capital and the South East. Without a public remit, there would be no requirement on Channel 4 to use these companies - they could move production wholly or predominantly in-house with consequences for the current independent production sector and, potentially, the diversity of content currently demonstrated. Channel 4 would not be tasked with the risk-taking
68 http://www.independent.co.uk/news/media/tv-radio/channel-4-could-be-sold-for-1bn-by-a-new-tory-government- 10061986.html 69 Creative Industries Federation submission to the Green Paper on BBC Charter Renewal available on request. Please contact [email protected].
70 Creative Industries Federation – written evidence (SCF0013)
required by a public remit and, indeed, the requirement for shareholder returns would be likely to limit risk-taking in favour of more cautious programming.
2.3 Channel 4 and the BBC are both essential to the independent production sector, not only because they are willing to take risks (although in recent years there have been criticisms of the BBC becoming more risk averse), and commission and employ a diversity of companies, but also because they provide the certain funding and IP ownership needed by smaller production companies70. This supports talent and training around the country and helps to develop creative hubs, but would not necessarily offer immediate returns for shareholders so Channel 4 privatisation would be likely to put the future of some of these companies at risk.
2.4 C4C continues to be well regarded both among public and industry experts. Film4- backed films won three Oscars this year, while C4 altogether picked up eight RTS awards. In particular, Channel 4 is perceived as the PSB that is the most ‘risk-taking’. This is a view of individual creatives such as the director Danny Boyle and by the audience at large who place Channel 4 significantly above other PSBs in terms of perceived risks.
2.5 Although some in broadcasting and advertising have supported the idea of a privatised Channel 4 (notably Lord Grade71), there have been many more industry voices who have argued that the public remit of Channel 4 has helped to create its distinctiveness and a platform for content and advertising, representative of particular demographics of viewers. These have included Karen Blackett, Chair of MediaCom UK, Mark Lund, Chief Executive of McCann Worldgroup UK, and Richard Eyre, Chairman, Internet Advertising Bureau.72 They, among others, are concerned that if the channel were privatised, this distinctive voice might be replaced by something which was more generally appealing - which would be a bad thing for advertisers and content makers alike, as they would not be able to accurately target their content.
Channel 4 market impact
3.1 The research produced by Enders Analysis, who are Federation members, in January 2016 argued that Channel 4 and the BBC were the foundations of a now world-beating production ecology. We would echo their analysis that the independent sector has seen its share of UK commissions grow (from £2.2bn in 2009 to £2.9bn in 2014), partly as a result of policy changes made by the Conservative Governments of the 1980s and 1990s73. This
70 “Channel 4 Market Impact.” Enders Analysis, January 2016. 71 http://www.campaignlive.co.uk/article/michael-grade-backs-channel-4-privatisation/1376013 72 http://www.campaignlive.co.uk/article/channel-4s-unique-remit-cherished/1375458 73 “The Conservative Governments of the 1980s and 1990s deliberately fostered the growth of independent production, introducing the requirement for ITV and the BBC to spend at least 25% of their commissioning budgets with independent producers, while Channel 4 has never been allowed to produce its own programming in-house. The 1997-2010 Labour Governments built on that success, for instance introducing Terms of Trade, negotiated between the public service broadcasters (PSBs) and independent producers after the 2003 Communications Act, which enabled producers to fully exploit their rights. The Coalition extended Labour’s successful policy of tax relief for film production in the UK to animation and high-end TV production”. “Channel 4 Market Impact.” Enders Analysis, January 2016.
71 Creative Industries Federation – written evidence (SCF0013)
political success was then built on with legislation introduced by the Labour Government, including the Terms of Trade, negotiated in 2003 after the Communications Act.
3.2 However, there is now an issue with new television content. Total investment in original television content in the UK (outside sport) fell by £400m between 2008 and 2013. Investment by all the public service broadcasters combined fell by around 15 per cent. Increased investment by pay-TV channels made up some of the difference, but not all, and a majority of their expenditure is on sport. These figures and a useful further analysis of public service broadcasters (PSBs) and multichannel provision can be found in Ofcom’s ‘Third Review of Public Service Broadcasting - Public Service Broadcasting in the Internet Age’74.
3.3 We would urge the House of Lords to recommend that this Government continue to invest in this world-beating sector - which is still increasing in growth from foreign income and new multi-platform exploitation of intellectual property - both indirectly through funded skills bodies and training schemes, and more directly via financial support for the BBC and the ownership and public remit of Channel 4. Although investment and ownership of C4C is not the only way to invest in the media and broadcast sector, many of our members value its public remit which encourages investment across the country in small businesses, supporting production companies, and fast tracking diversification of content and sector workforce.
3.4 In terms of growth, between 2013 and 2014 the GVA of the film, TV, video, radio and photography sector overall increased by 13.8 per cent, driven by recent growth in production and distribution in media, and by television programming and broadcasting activities. Although it had previously decreased by 3.0 per cent between 2012 and 2013, and 2.0 per cent in the year prior to that, since 2008 there has been 4.7 per cent growth at large.
3.5 Our television and production sector has also become essential to the UK in terms of soft power promotion. For example, Chinese businesses have been cited saying that they have much to learn from C4C series ‘Undercover Boss’, which sees senior executives going ‘back to the floor’ to understand how their businesses really work, including empathising with hard working staff. The series is now broadcast in more than 200 territories75.
Diversity
4.1 Channel 4 has made a major and comprehensive commitment to diversifying its workforce and on-screen presence with its ‘360º Charter’. This charter is a five year plan with 30 commitments to improve diversity across the board, with detailed commissioning diversity guidelines and clear numbers and targets. It also aims to be a catalyst for changing the wider attitude of public service broadcasters, and broadcasting at large. The Charter was praised by Sir Lenny Henry who said that it was “an extraordinary step forward”, although
74 http://stakeholders.ofcom.org.uk/binaries/consultations/psb-review-3/statement/PSB_Review_3_Statement.pdf 75 http://www.independent.co.uk/arts-entertainment/tv/news/not-bad-for-a-small-island-that-no-one-listens-to- british-tv-exports-hit-12bn-8864779.html
72 Creative Industries Federation – written evidence (SCF0013)
he called for further ring-fencing of money explicitly for BAME projects76. The ‘One Year On’ paper shows progression on 24 of the original 30 initiatives77.
4.2 Channel 4 has also become well known for producing iconic moments which highlight its commitment not only to diversifying the workforce but to showing a range of lifestyles and backgrounds on television. These range from Queer as Folk and the first pre-watershed lesbian kiss on Brookside to Undateables, The Autistic Gardener and their coverage of the Paralympics, which was watched by 40m people - 83 per cent of whom said the coverage would positively change perceptions of disability. More recently, the Alternative Voices campaign saw five people with communication difficulties join the continuity announcement team78.
4.3 This on-screen diversity has also been echoed by the public perception of the broadcaster. Audiences have rated the channel above other PSBs for showing the views and perspectives of BAME, LGBT and people with disabilities.
4.4 Last year, the Creative Industries Federation published ‘Creative Diversity: The state of diversity in the UK’s creative industries, and what we can do about it’ which showed a lack of diversity across gender, sexuality, disability, age and socioeconomic background across the sector even though the failure to diversify meant wasted business opportunities. Channel 4’s position as a commercial channel with a public remit and ownership means it is able to push diversification to the top of their agenda without consulting shareholders. It reaps the benefits of diversification in commercial terms while proving to other businesses that it is possible actively to diversify whilst remaining competitive. Furthermore, this means that generations of talent are not lost while they wait for the market to ‘catch up’ and the life chances of those who would benefit from these opportunities are not diminished.
76 http://www.broadcastnow.co.uk/channels/channel-4-raises-the-diversity-bar/5081824.article 77 “360o Diversity Charter: One Year On.” Channel 4, January 2016. 78 http://www.channel4.com/programmes/bornrisky/articles/alternative-voices/
73 Creative Industries Federation – written evidence (SCF0013)
ADDENDUM
About: The Creative Industries Federation
The Creative Industries Federation is the national membership organisation for all of the UK’s arts, creative industries and arts education institutions.
We believe that much of the success of our arts and creative industries is the legacy of ongoing Government investment in arts and culture, as well as in schools, higher and further education, and in industry. Together these provide the foundations for our talent, from artists to fashion designers, from graphic designers to actors, and from filmmakers to musicians, to thrive.
A combination of public and private investment and industry excellence has made the creative industries the fastest growing part of the economy. The benefits to the entire country lie in the culture produced and enjoyed, the jobs and business generated, the towns and cities regenerated, the tourists attracted and the “soft power” wielded worldwide.
But in the face of strong investment in culture and skills training by other countries around the world who are keen to emulate what we have achieved, we need to act now to secure and build on that success.
We are researching and presenting the case to secure the investment, policies and infrastructure needed to maintain our cutting edge. We aim to identify blockages to growth and help fix them.
Our reports and submissions have covered the economic case for the arts, diversity, arts education and the role of the BBC. Forthcoming plans include global trends analysis and business breakfasts.
We organise events with leading members of Government and the shadow cabinet, and roadshows to learn the views of people across the entire country. Our political engagement stretches across Government including the Prime Minister’s office, the Treasury, DCMS and DfE. Chancellor George Osborne spoke both at the Federation’s launch and at our first anniversary celebration in January 2016 and on both occasions endorsed the importance of the sector to the British economy and society.
The Federation was the brainchild of designer Sir John Sorrell and boasts a heavyweight board and advisory council, and hundreds of members from architecture to publishing, advertising to video games, as well as craft, dance, design, education, fashion, film, galleries, heritage, music, museums and theatre. We are independent of Government and funded by members.
20 April 2016
74 Creative Skillset – written evidence (SCF0025)
Creative Skillset – written evidence (SCF0025)
Scope of the inquiry
The Government has stated that they are looking at the options for the future of the publicly owned broadcaster, Channel 4 Corporation. The Lords Communications Committee is investigating Channel 4’s current model, remit and sustainability, in terms of viewing and finance. The Committee is also looking at other possible models for the organisation, including privatisation, and examining the impacts that these might have on the public and the wider industry.
1. Context for Creative Skillset’s response
1.1 Creative Skillset is the creative industries’ key skills partner, working with and for industry to enable relevant skills provision that improves productivity, employability and creativity. Our objective is meeting our industries’ skills needs by achieving an effective skills and talent development pipeline via portable skills from entry to executive level, in a fast-moving and intensely competitive global industry. We work across sectors including film, television, animation, games, visual effects, radio, publishing, advertising and marketing communications.
1.2 As the creative industries’ key skills partner we recognise the economic importance of investing in the capability of the UK’s workforce to help drive growth and support global competitiveness. We are a member of the industry-led Creative Industries Council, which acknowledged in its Government-backed strategy for the Creative Industries, *Create UK79 that skills are an essential driver of economic success and an enabler of enterprise.
1.3 Channel 4 is one of Creative Skillset’s critical industry partners and a lead investor in skills and talent development. Channel 4 plays a crucial role in building a workforce which has a strong, diverse mix of skills to help drive creativity, employability and productivity across the UK’s creative industries. From supporting talented directors such as Steve McQueen (Hunger, 12 Years A Slave) and comedy writers such as Michaela Coel (Chewing Gum), Channel 4 has a proven track record in nurturing talent for the long-term benefit of industry and individuals.
1.4 Channel 4’s current requirements as a Public Service Broadcaster (PSB) includes a talent development remit80 to contribute both to its own output and to the strategic skills base of the creative industries workforce. This specific remit 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. In our observations of working across the Creative Industries, the more commercial a channel becomes, the less emphasis there is on training that supports
79 Create UK Strategy: http://www.thecreativeindustries.co.uk/resources/strategy 80 Chanel 4’s remit: http://www.channel4.com/info/corporate/about/channel-4s-remit
75 Creative Skillset – written evidence (SCF0025)
the broader needs of the screen and creative industries. There has been wider acknowledgement of the need to balance the risks of remit delivery under a shift away from its current PSB responsibilities as cited in a recent report about the future of Channel 4, by Ernst and Young81: “In particular, there is a need to balance the potential (but inherently uncertain) benefits that privatisation may bring against the potential risks to remit delivery if Channel 4 moves from a not-for-profit to profit maximising status.”
1.5 Our response focuses therefore on the Committee’s questions on viewing and remit, as they are most relevant to Creative Skillset’s objectives and operations.
1.6 Overall, Creative Skillset recommends that, should there be any change to Channel 4’s current operating model, the framework within which Channel 4 delivers its remit should be protected to ensure its ongoing contribution to developing the creative industries workforce. We have previously suggested mechanisms for strengthening the PSB Codes of Practice, in our response to OFCOM’s 2015 review of the TV Production Sector82. Such an approach could help to protect Channel 4’s delivery of public value through developing the creative industries workforce.
Lords Communications Committee questions to which Creative Skillset is responding
Viewing: To what extent is Channel 4 (the main channel) equipped to deal with the challenges posed by new technology and viewing habits such as online and search and recommendation?
Remit: Would changes to the Channel 4’s remit provide greater sustainability for the broadcaster? Is the current legislation too detailed, or too vague?
2. Channel 4’s unique remit, and the importance of talent development
2.1 Channel 4 was established in 1982 and has a statutory requirement as a Public Service Broadcaster (PSB) to deliver high quality, innovative and alternative content as well as having a distinct focus on supporting the independent production sector. As a publisher- broadcaster, which last year alone worked with 338 production companies83 Channel 4 has enormous direct and strategic impact on the capability of the small and large independent production companies it works with – and as a result, the largely freelance workforce84 that make up the indie sector.
2.2 Channel 4’s remit also requires it to be educational, to reflect cultural diversity, to inspire change in people’s lives and to nurture talent. This requirement was updated in
81 The Future of Channel 4 in a Changing Market Environment published by Ernst and Young: http://www.channel4.com/media/documents/press/news/Desktop/EY%20C4%20report%20FINAL%20160316.pdf 82 OFCOM’s review of the TV Production Sector: http://stakeholders.ofcom.org.uk/broadcasting/reviews- investigations/TV-production-sector-review/ 83 Key facts about Channel 4: http://www.channel4.com/media/documents/corporate/C4_KeyFacts_2016.pdf 84 According to Creative Skillset’s 2015 employment survey of the creative industries, 52% of the workforce in independent TV production are freelance. http://creativeskillset.org/about_us/research/creative_skillset_employment_survey_2015
76 Creative Skillset – written evidence (SCF0025)
2010 under the Digital Economy Act85, which called for Channel 4 to participate in a broader range of activities to support the development of people with creative talent and, 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. Taking film as an example, Channel 4 has taken its requirement seriously – not only at a content level, by increasing Film4’s annual budget to £25m, but also by investing some £1.5 million in the National Film and Television School in Buckinghamshire. This delivers benefits both to the future workforce and to the UK’s filmmaking profile globally, with Film4 behind some 19 Oscar wins since 2007.
2.3 Channel 4 was a founding partner of Creative Skillset. It has not only shown commitment to developing its own employees but also to the wider creative industries’ ‘talent pool’ – reflecting its PSB remit. This is particularly important in light of the Government’s shift away from public subsidy of skills, as Channel 4 has provided core funding to our organisation (Channel 4 provided £252k funding in 2015/16) as well as co- investing in the TV Skills Fund to support the training of freelancers across the TV industry (Channel provided £110k in 2015/16). At a policy level, Channel 4’s membership of our High-End TV and TV Skills Councils helps shape strategic skills and training development. Through the High-End TV and Film skills levies since 2013, Channel 4 has also encouraged investment of around £400k86 from the productions it commissions in upskilling the film and TV workforce. Almost every Channel 4 production within scope of the levy has invested in the development of its crew to ensure the quality, mobility and capability of the talent pool, thereby helping to future-proof UK content. This is a crucial output in the context of shifting viewing trends due to the rapid pace of change across new technologies and multi-platform content consumption, affecting all broadcasters and the wider screen industries.
2.4 Multi-skilling for the digital world was recognised by three-quarters of production companies interviewed in a Creative Skillset survey as an area where there is a gap between existing and required skills in the television sector which we raised in our response to OFCOM’s 2015 review of the TV production sector87. As technology evolves, an industry- wide approach is important to ensure shared investment in upskilling a fluid workforce that can work across all PSBs.
3. Channel 4’s strategic role in developing the creative workforce
3.1 Channel 4’s CEO, David Abraham, sits on the Creative Skillset board, helping to shape the strategic skills and training needs of the UK’s world-class creative industries, from entry level qualifications such as Apprenticeships through to executive development.
3.2 This strategic approach to talent development has been exemplified through Channel 4’s leadership of major skills initiatives such as the Government/industry co-funded Employer
85 Section 22 of the Digital Economy Act 2010: http://www.legislation.gov.uk/ukpga/2010/24/section/22 86 Statistics are Creative Skillset unpublished data on levies collected through the voluntary system applied to the Film and High End TV sectors. 87 OFCOM’s review of the TV Production Sector: http://stakeholders.ofcom.org.uk/broadcasting/reviews- investigations/TV-production-sector-review/
77 Creative Skillset – written evidence (SCF0025)
Ownership Pilot launched in July 2014. Channel 4 led the £37m bid which involved some 500 industry partners from across the UK, including the CBI and several Local Enterprise Partnerships. With Creative Skillset managing delivery of the three-year project, David Abraham’s leadership of the multiple stakeholders was vital to enabling impact across a broad range of creative industry sectors – with initiatives spanning fashion and publishing, as well as TV and film. Sustaining Channel 4’s cross-sectoral influence at Government level is particularly important in view of the impending Apprenticeship levy system coming into force in 201788. David Abraham sits on the Prime Minister’s Apprenticeship Delivery Board and, as the only representative of the creative industries, provides an influential voice in reflecting the creative industries’ needs in the development of Apprenticeships which have the potential to diversify and strengthen talent pool entrants. Channel 4 has already worked with Creative Skillset to develop content for the Broadcast Production Assistant Apprenticeship – and, as Creative Skillset continues working with creative businesses to shape new Apprenticeship content and standards.
3.4 Channel 4 is providing vital leadership and intelligence in the run-up to the new Apprenticeships April 2017 launch. It is essential to protect Channel 4’s PSB remit: without this, there may not be sufficient incentive or drive to provide an industry-wide approach to skills development and investment that is so important to sustaining a fluid, flexible workforce.
4. Diversity
4.1 In an increasingly competitive global market place, our creative industries need a diverse workforce with the rich mix of skills vital for creativity, employability and productivity. The Communications Act 2003 also states that ‘Broadcasters with a Public Service remit are required to show that the diversity of the UK is reflected in the representation of services and content they provide.’89
4.2 Channel 4 plays an important role in diversifying and sustaining the UK creative industries’ workforce. This is borne out of its PSB remit to appeal to culturally diverse groups, offer alternative perspectives and nurture new talent. The corporation has its own ‘360o Diversity Charter’ – a five-year plan to improve diversity on and off-screen. The Charter puts ‘…diversity at the heart of all decision making at Channel 4, across all activities on- and off-screen, at every level and with all external partners and independent producers. It includes 30 significant activities worth £5m of investment and covers a wide definition of diversity including BAME, disability, LGBT, gender and social mobility.’90
88 The Government initially announced the Apprenticeship Levy in Budget 2015, which applies to UK employers to fund new apprenticeships. In England, control of apprenticeship funding will be put in the hands of employers through the Digital Apprenticeship Service. The levy will be charged at a rate of 0.5% of an employer’s paybill. Each employer will receive an allowance of £15,000 to offset against their levy payment. It will be introduced in April 2017 The levy will only be paid on annual pay bills in excess of £3 million, and according to Government, less than 2% of UK employers will pay it: https://www.gov.uk/government/publications/apprenticeship- levy/apprenticeship-levy 89 The Communications Act 2003 sets out the remit of Public Service Broadcasters with regard to diversity, in Section 264: http://www.legislation.gov.uk/ukpga/2003/21/contents 90 Channel 4 Diversity Charter published 12.1.2015: http://www.channel4.com/media/documents/commissioning/Channel4360DiversityCharter.pdf
78 Creative Skillset – written evidence (SCF0025)
4.3 With a distinctly younger audience compared with other broadcasters, Channel 4 has direct and influential access – not only via the delivery of relevant content to younger audiences but also by inspiring the next generation of creators and makers. Channel 4 News, for example, reached two-thirds of 16-34 year olds last in 2014, and it has a higher proportion of young and BAME viewers for news than any other PSB. It already engages in joint activities with Creative Skillset, such as the ‘Open Doors’ initiative which invites school- age young people into Channel 4 to learn about the range of roles available in and the routes into working there. Channel 4 has also furthered this outreach through its own ‘4Talent Pop Ups’ – a national programme of skills workshops to promote careers within the industry and identify undiscovered talent. Deliberately targeting young people from disadvantaged backgrounds through events delivered across the UK, some 648 attended workshops in 2015 alone.
4.4 At a senior level, Channel 4 has also recognised the importance of supporting future leaders and decision makers in business. As part of its commitment to diversity and social mobility, it has funded six bursaries91 for the new Executive MBA for the Creative Industries (EMBACI), developed by Creative Skillset working with Ashridge Education. The bursaries could cover up to 90% of the recipients’ fees, widening access to applicants from less advantaged backgrounds. It should be noted that Channel 4’s bursary support is for any successful applicant to the EMBACI.
4.5 For screen-related industries (particularly television, film, animation, visual effects and games) Channel 4’s success in supporting diverse content and developing diverse talent is essential for future industry success and sustainability.
5. Summary and conclusion
5.1 Skills development in the UK’s creative industries workforce could be negatively impacted by any move toward a more commercial, privatised model that may diminish Channel 4’s current remit, particularly around ‘talent development’. Potential repercussions could include a reduction in support for the independent production sector if there was a move towards more in-house programming, therefore reducing the overall size and diversity of the workforce in which Channel 4 invests. Also, Channel 4’s ability to engage hard-to-reach audiences could be diminished – which would have a significant impact on the amount of investment in the development of diverse skills and talent.
5.2 Creative Skillset believes that current legislation is sufficiently detailed around Channel 4’s remit. It is vital to protect and enhance Channel 4’s ability to continue to support skills and talent development. In the event of any shift away from its current PSB
91 Creative Skillset in partnership with Ashridge Business School and Lord Puttnam's Atticus Education, launched the Executive MBA for the Creative Industries -the first and only online EMBA designed exclusively for busy creative professionals. http://creativeskillset.org/who_we_help/creative_professionals/executive_mba_for_the_creative_industries. Channel 4 subsequently announced bursaries for the Executive MBA for the Creative Industries on 28.1.2016: http://www.channel4.com/info/press/news/c4-funds-6-bursaries-for-new-executive-mba-for-the-creative- industries
79 Creative Skillset – written evidence (SCF0025)
remit, we would recommend that robust mechanisms are put in place to protect and regulate the Channel 4’s leadership and investment in talent development to sustain the broader creative industries. This would not only enable Channel 4 to maintain its own distinctiveness and competiveness but also continue to build the strongest possible UK workforce across the creative industries, helping to deliver productivity, creativity and employability.
April 2016
80 Department for Culture, Media and Sport (DCMS) – written evidence (SCF0021)
Department for Culture, Media and Sport (DCMS) – written evidence (SCF0021)
1. Channel 4 Corporation (C4C) is a publicly-owned and commercially-funded public service broadcaster. C4C’s legislative underpinning has been updated several times since its creation in 1982, including by the Broadcasting Act 1990, the Communications Act 2003, and the Digital Economy Act 2010.
2. The Government is committed to public service broadcasting (PSB) television in the UK. Ofcom reviews consistently show that PSB is valued by the public, and a broad body of evidence shows that it makes a key contribution to one of the most successful television industries in the world. C4C is a valuable part of that PSB system, and the government is looking at a wide range of options for C4C to ensure its safe and secure future in what is a challenging and fast-changing broadcasting environment.
Funding
Is C4C financially sustainable? Is the revenue provided by advertising sufficient to make Channel 4 Corporation (C4C) sustainable?
3. The government believes C4C’s ability to deliver public value in a financially sustainable manner is key to its continued effectiveness as a public service broadcaster.
4. C4C’s existing model is highly reliant on TV advertising revenues, which consistently constitutes over 90% of total revenues. The TV advertising market is forecast to be strong over the near term - for example, in January 2016, GroupM (the UK’s largest media buying agency) forecast UK TV advertising to grow by c.7% in 2016.
5. However, TV advertising revenues are susceptible to changes in the wider economic environment, as was demonstrated following the financial crisis. In 2008, C4C argued that its model was becoming untenable in light of the decline in viewing experienced by the core channel and increased competition brought about by digital switchover and that, in the future, Channel 4 would require some form of additional financial support if it was to continue to deliver the same level of PSB. The then Chairman, Luke Johnson, told the CMS Committee that “unquestionably, the very robust and successful model that has persisted for over 25 years for Channel 4 needs some adaption.” The successor Chairman and Chief Executive of Channel 4 subsequently took a different view and the funding gap crisis was, in the words of the CMS Committee, “consigned to history”, replaced by a more robust assessment of future advertising revenues and the potential for further efficiencies.
6. Many analysts have also highlighted a variety of structural risks to TV advertising revenues due to market and technological developments in the sector. Indeed, C4C has itself publicly noted these risks and their potential to impact C4C’s future sustainability, stating:
81 Department for Culture, Media and Sport (DCMS) – written evidence (SCF0021)
7. “Channel 4 believes the potential downside risks associated with [...] factors, such as a faster shift to on-demand viewing, the emergence of new disruptive entrants, faster fragmentation of audiences, production cost inflation outpacing funding, and structural changes to the licence fee of TV, outweigh the potential opportunities. Moreover, Channel 4 is arguably the PSB most likely to face the future first, given its focus on risk-taking and trying new things, and also its targeting of young audiences, who are the most avid users of new technologies and platforms.”
8. In Ofcom’s 2015 review of C4C’s delivery of its remit and licence obligations, it suggested that given this range of challenges, greater flexibility around C4C’s remit and licence obligations could be one option to help support its financial sustainability. The government is considering a broad-range of options to ensure C4C’s future sustainability.
Are there any other commercial/non-commercial revenue streams which could/should be explored?
9. The Broadcasting Act 1990 gives the C4C Board scope to undertake activities that are conducive or incidental to their central functions of fulfilling the public service remit and ensuring Channel 4’s future.
10. As noted above, C4C is heavily reliant on TV advertising revenues. However, it has sought to grow in this area through the development of its portfolio of (limited public service content) channels; the expansion of its advertising sales house to include sales on behalf of third party broadcasters (notably UKTV and BT); and through the monetisation of Video on Demand (VoD) content through its All4 platform.
11. Production businesses and international distribution have been important areas of revenue growth for other broadcasters, including ITV, which has sought to achieve an equal split in advertising and production revenues. There are income streams both from production for other broadcasters and IP ownership of own-produced content. C4C’s opportunities for growth in this area are limited by its status as a publisher-broadcaster, which means it is restricted in its involvement in production for the main channel only. Within this limitation, C4C has sought to generate additional commercial return through the launch of its ‘Production Growth Fund’, which it has used to take minority stakes in emerging production companies.
Viewing
Is viewing of Channel 4 (the main channel) and C4C sustainable? To what extent is the decline in reach and share on the main channel a problem for C4C?
12. Channel 4 Corporation’s portfolio audience share has remained relatively stable over the last decade; slightly increasing from 10.8% in 2005 to 10.9% in 2014. However, portfolio channels have increasingly compensated for a decline in the main channel audience share where the majority of its public service content (and impact) resides.
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13. Over more recent years, C4C and main channel audience shares have shown a downward trend: C4C has fallen from 11.4% in 2010 to 10.9% in 2014, and the main channel (including C4+1 and 4Seven) from 7.0% in 2010 to 5.9% in 2014. The main channel’s average monthly reach has also dropped, from 82.1% in 2010 to 77.4% in 2014.
14. The main channel, as the only channel with PSB status, is crucial to the broadcaster’s public value. Ofcom has noted that “since around 90% of C4C’s originations budget is allocated to the main channel, which continues to attract a higher audience share than all the portfolio channels combined, Channel 4 continues to play a disproportionately important role in fulfilling C4C’s duties.”
15. Ofcom highlighted the reduction in the main channel’s audience share and reach as an area of concern in its 2015 review, stating “the rate of decline for Channel 4’s reach and audience share was significantly higher” than the other PSBs over the period 2010-13. Since then, the audience share for the main channel has appeared to stabilise, with a marginal increase in 2015. Nevertheless, material further reductions could, as Ofcom noted, “create the risk that C4C’s impact could lessen over time.” Ofcom has also raised public concerns about other areas of C4C performance against its remit obligations, including regarding the reach of its news programming and the provision of content for older children.
To what extent is Channel 4 (the main channel) equipped to deal with the challenges posed by new technology and viewing habits such as online and search and recommendation?
16. As noted above, C4C has some discretion within its founding legislation as to how it conducts its business and delivers its remit, and it has used this to seek to develop other funding streams and explore other ventures. C4C has also emphasised the importance of its ‘data strategy’, based around the registration of viewers to the VoD platform, in how it intends to adapt changes in technology and viewing habits.
Remit
Would changes to Channel 4’s remit provide greater sustainability for the broadcaster? Is the current legislation too detailed, or too vague?
17. The government regards C4C’s ability to deliver against its remit and maximise public value in a sustainable manner as a priority. The impact of any changes to the remit on C4C’s sustainability would depend on the nature of any such changes.
18. The remit as currently drafted is in parts vague, and it may therefore be difficult to assess performance reliably. For example, the Digital Economy Act 2010 requires C4C to “provide access to material that is intended to inspire people to make changes in their lives”, and to “stimulate well-informed debate on a wide range of issues”. While this lack of specificity may support C4C’s creative flexibility, it could be that greater clarity could benefit
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C4C by helping focus its resources, and maximise C4C’s delivery of public value as a public service broadcaster.
What benefits/drawbacks could there be to Ofcom’s suggestion in its PSB review that PSB obligations be applied to C4C as a whole rather than to the main channel alone?
19. The remit obligations introduced with the Digital Economy Act 2010 apply to the whole of C4C. The licence obligations, and the original obligations as set out in the Communications Act 2003, apply only to the main channel.
20. In its 2015 PSB Review, Ofcom noted: “Channel 4 Corporation currently operates under a complex system of regulation, with a set of obligations for its main channel and an additional, slightly different remit for its full range of TV and internet services as a whole. Only the main channel (Channel 4) is a PSB service, meaning that it is the only Channel 4 service given benefits such as EPG prominence.”
21. Government remains committed to a strong, clear remit for C4C. The government notes that there are pros and cons when considering changes to how the remit is delivered by C4C - on the one hand greater flexibility may enhance sustainability and creativity; on the other it could run the risk of diluting the PSB value delivered by C4C, which is currently concentrated mainly on Channel 4.
Does the current regulatory system provide for adequate assessment of C4C’s performance against its obligations?
22. Ofcom has a range of regulatory responsibilities in relation to C4C’s remit obligations, including:
o Ofcom has the power to renew the licence for the Channel 4 public television broadcasting service, and in doing so must set the licence conditions that it considers appropriate and determine the duration of the renewed licence. o The Communications Act 2003 requires Ofcom to assess the effective operation of the PSB system as a whole through periodic PSB reviews. The Act also requires Ofcom to undertake periodic reviews of C4C’s delivery of its media content duties. o The Digital Economy Act 2010 amended the Communications Act 2003 to set out a new requirement for C4C to prepare an annual Statement of Media Content Policy and to report on its performance in carrying out the proposals contained in the previous year’s Statement. The Act also requires C4C to consult Ofcom in preparing each Statement. o Ofcom must approve the arrangements that C4C proposes to put in place to secure that all significant risks that their other activities will have an adverse effect on the carrying out of their primary functions (i.e. the provision of Channel 4, the fulfilment of its public service remit and their media content
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duty) are identified, evaluated and properly managed. The proposals must be submitted upon the giving of a notification by Ofcom.
23. As noted above, there are challenges in assessing and enforcing the more qualitative aspects of the remit obligations. While Ofcom can raise concerns about aspects of performance, and has indeed done so, it would be unlikely to directly vary a licence and impose new quotas unless there was an unequivocal failure to deliver the remit – which, given the nature of the remit, is unlikely.
24. We are looking at a range of options for ensuring the future sustainability of C4C, including modifications to the status quo such as clarifying the remit and ensuring the governance is appropriate and suitable for the Corporation. For instance, at present the legislation requires that Ofcom both regulates C4C and makes all the non-executive appointments to its board, which is unusual.
Ownership
What are the different models of ownership for C4C? What are the positives and negatives of these?
25. C4C is a publicly-owned and commercially-funded broadcaster. There could be a broad range of alternative ownership models involving public and/or private ownership, and different sources of funding. Alternatives could also include mutualisation models.
26. The government is currently considering a wide range of options for the future of Channel 4, including the status quo and different ownership models, to ensure the broadcaster’s safe and secure future.
Would a change in ownership, such as privatisation, affect the remit of C4C, and in what ways?
What impact might privatisation have on: a. key PSB genres such as news and current affairs; b. the independent production community; c. those communities/audiences currently served by C4C’s remit; d. the advertising industry; and e. the viewer/consumer?
27. The Government is currently considering the strengths and weaknesses a range of options to ensure the future sustainability of C4C, and so cannot offer detailed comments to the Committee at present. As stated above, and publicly, we remain committed to a strong, sustainable C4C and recognise the value it delivers to viewers and the wider creative sector alike. The Government will of course consult on proposals before taking forward any reforms.
26 April 2016
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DCMS – oral evidence (QQ 50-63)
Evidence Session No. 3 Heard in Public Questions 41 – 63
TUESDAY 26 APRIL 2016
Members present
Lord Best (Chairman) Earl of Arran Baroness Benjamin Baroness Bonham-Carter of Yarnbury Lord Goodlad Lord Hart of Chilton Baroness Healy of Primrose Hill Baroness Jay of Paddington Lord Sherbourne of Didsbury ______
Examination of Witness
Rt Hon John Whittingdale OBE, MP, Secretary of State for Culture, Media and Sport, Department for Culture, Media and Sport
Q50 The Chairman: Welcome, Secretary of State John Whittingdale. Thank you very much for joining us. It is great to have you before us again, this time to talk about Channel 4. We do not need to hear your biography, you will be glad to know. If you would like to make an opening statement, feel free to do so. If you do not, we will go straight into questions. If you would like to say anything more generally about Channel 4 that we might or might not cover later, do please open with that. John Whittingdale MP: Obviously I welcome the opportunity to talk to the Committee about the various options that might be suitable for the future of Channel 4, but, as I think we explained before, this is still work in progress. Therefore, I am afraid that I will not be able to give you any decisions or indications yet of where the Government are going. This is a live debate, and a very important one. Channel 4 plays a very important role in the landscape, and my intention is to try to ensure that Channel 4 remains a viable, well- resourced, strong contributor to the public service broadcasting environment.
Q51 The Chairman: Thank you. I quoted you to the Channel 4 team before you came in. You said: “It’s still delivering good content and it’s still delivering the remit and covering its cost but my concern is whether it can still do that in five or 10 years”. Are you still concerned?
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John Whittingdale MP: That is one reason why I think it is worth looking at the future of Channel 4. I remember not too long ago, when I held my previous job as Chair of the Commons Committee, the then management of Channel 4—the chairman and chief executive—telling us that a black hole would emerge in the future because the advertising revenue would not allow them to continue to deliver the public service content that they are required to deliver. At that time, there was the suggestion that the Government might have to step in and fund it. Since then, the advertising market has recovered quite well and Channel 4 is doing much better. First, however, Channel 4 is very heavily dependent on the state of the advertising market, which is always a little uncertain to say the least. Channel 4 themselves have indicated that there are potential risks attached to the future. They have said publicly: “Channel 4 believes the potential downside risks associated with these factors, such as a faster shift to on-demand viewing, the emergence of new disruptive entrants, faster fragmentation of audiences, production cost inflation outpacing funding, and structural changes to the licence fee of TV, outweigh the potential opportunities. Moreover, Channel 4 is arguably the PSB most likely to face the future first, given its focus on risk-taking and trying new things, and also its targeting of young audiences, who are the most avid users of new technologies and platforms”. So the future is very uncertain. We are in a time when the media landscape is changing faster than at any other time, and that carries risks with it for a publicly owned but commercially funded broadcaster that is almost wholly dependent on advertising revenue. The Chairman: Although Ofcom said that the most likely outcome is that Channel 4 is sustainable, but you might disagree with that. John Whittingdale MP: Ofcom went on to suggest to us that, “there is the potential for significant change in this sector over the licence period, and a downside scenario could pose significant risks”. I think everybody recognises that we are at a time of very rapid change, which is affecting all broadcasters, but Channel 4, for all reasons, is perhaps more vulnerable to potential risks than others. Lord Hart of Chilton: You have given us two statements, one from Channel 4 itself and one from Ofcom. What date are they? John Whittingdale MP: Goodness. I do not have the dates on me. I am happy to supply them, but I do not think they are historic; I think they are relatively recent. Lord Hart of Chilton: We would like to know that. John Whittingdale MP: I am afraid that my note does not have the dates, but I am very happy to supply them. Lord Hart of Chilton: Including the date for the Ofcom quote. The Chairman: Can we detect from your decision to look into Channel 4’s future that you have a wider policy interest in the possible relaxation of restrictions more generally on UK broadcasting? John Whittingdale MP: Obviously the biggest issue in the in-tray is the renewal of the BBC’s charter, which expires at the end of this year. The BBC has such a huge impact on the whole broadcasting landscape that the issues that we were examining that relate to the BBC would
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also affect other broadcasters and the general media environment. Given the rapid change that is under way, it was felt that it was the right time to look at the future not just of the BBC but of other areas. Obviously the other broadcaster owned by the Government is Channel 4, and some of these factors will influence Channel 4, as I suggested. Then we looked at other ways in which the Government intervene to influence the media companies. There are two in particular. One is the terms of trade, which we said we wanted to look at, not necessarily to change but to see whether they were still delivering the outcome that was the original reason for putting them in place. The other is the issue of retransmission fees—the relationship between the content owners and the platforms that transmit it. We have been looking at that as well. Actually, that was started under the last Government. The Chairman: There is a Division in the House of Lords. We are going to need to take a break, I am afraid. I apologise for that. We will try to keep it to five minutes, if we may. John Whittingdale MP: Indeed. I will see whether we can find the answer to Lord Hart’s question in the meantime.
The Committee suspended for a Division in the House.
Q52 Baroness Jay of Paddington: I have a question that you may or may not want to answer. You spoke of a connection between your concern about Channel 4 and the renewal of the BBC charter. Can you expand on that? How do those two things relate specifically? John Whittingdale MP: There is no direct connection. I felt at the time that obviously the BBC charter is a huge intervention in the market by government with massive public funding. That has been the first and biggest task in my in-tray. One reason why I thought it right to have a fundamental review of the BBC charter was the extraordinary change that has taken place in the 10 years since the last charter. That change is affecting every broadcaster, so it seemed right that one should not just pick out the BBC. Now was the time to look at all the ways in which government is involved in the media market to see whether changes needed to be made to take account of the direction of travel and the speed of change. That applied to Channel 4 and, as I said to the Chairman, to other ways in which the Government intervene through things like the terms of trade and retransmission fees. Baroness Jay of Paddington: So it is just a general scoping about the change in broadcasting over the past 10 years. John Whittingdale MP: It is. Obviously the BBC and Channel 4 have a more specific remit than other broadcasters. One thing that we are looking at as part of charter review is the areas on which it is right that a publicly funded broadcaster should focus and where commercial broadcasters are not supplying enough content. That applies equally to Channel 4, because it was set up specifically to address audiences that perhaps were not being served fully by the existing broadcasters. Therefore, the argument for looking at the BBC is the same as that for looking at Channel 4.
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Baroness Jay of Paddington: I know that people will want to come back to the remit, but perhaps I could come back to the issues of the potential privatisation of Channel 4. As you will be aware, Terry Burns, one of the ex-chairmen of Channel 4, has proposed a mutualisation of the organisation. Does that have attractions for you? John Whittingdale MP: Terry came in and presented that, and we are looking at every option. I welcome the fact that Channel 4 came forward with a potential option for examination. I am not sure that it addresses the problems really, in that one of the concerns is that Channel 4 is heavily dependent on a quite volatile advertising market. There is an argument that Channel 4 will have a stronger future if it has a private sector partner, either in part or in whole, that has deep pockets and is willing to invest in the growth of the business. Mutualisation does not provide that. Actually, it diminishes accountability, which I also regard as important. So I am not quite sure that it offers Channel 4 any great advantage, but obviously we will consider it alongside all the options. Baroness Jay of Paddington: The argument, of course, is that it is a question of the potential to continue with something like the present remit or at least to firm it up—I think you said that you thought it was a bit “fuzzy”—and not necessarily to have the part-privatisation solution that you mentioned just now, which might bring its own quite substantial financial complications. John Whittingdale MP: That is something that we can talk about. I regard the remit as a separate issue from whatever ownership structure is chosen. The remit should, in my view, be continued and possibly strengthened whichever ownership structure we decide is appropriate. The remit is why Channel 4 was set up in the first place. It has delivered some remarkable, innovative programming over the years, but there are concerns that in some areas it is perhaps not clear enough and that in the longer term there is a case for revisiting it and seeing whether we should not be more specific in certain areas. Baroness Jay of Paddington: It is interesting, though, in view of some of the other evidence that we have received, that you do not seem to feel that one has an impact on the other. John Whittingdale MP: I am aware that some have argued that a private-sector part or full owner would want to dilute the remit. I do not think that is the case. One thing that has come across very strongly since this public debate began is that a lot of broadcasters are potentially interested in Channel 4 but that one reason for that is the strength of the Channel 4 brand. It is a very visible, very well-respected broadcaster, and the last thing they are going to want to do is undermine that by moving it downmarket or changing the nature of its programming. Baroness Jay of Paddington: Thank you. John Whittingdale MP: Lord Chairman, can I perhaps come back to Lord Hart, because I have the answer to his questions? The Channel 4 quote I gave was in Channel 4’s own submission to the Ofcom PSB review in February 2015. The Ofcom quote was, I understand, in the 2014 licence review consultation, but it said not an entirely dissimilar thing to the Committee a few weeks ago. Lord Hart of Chilton: Thank you very much.
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Q53 Baroness Bonham-Carter of Yarnbury: I have a slightly tangential question that goes back to Lord Burns and, you will not be surprised to hear from me, to the BBC. When Ofcom suggested that Lord Burns should be given a further year as chair and this was overturned by government, it was felt that this may have had something to do with the fact that he was not totally in agreement with the policy that you were looking at. This has created a knock- on concern about things that you have been saying about the appointment of governors to the new BBC body. Do you understand this concern? John Whittingdale MP: I am aware that some have expressed it. I do not agree with it. Lord Burns’ record in this area goes back a long way. He produced a very powerful report on the BBC that, in my view, it was a shame was not adopted by the then Government, because a lot of the issues that he identified in the BBC are issues that we are now confronting in this charter review. Under his leadership, as I indicated earlier—under the previous management—there were significant problems. The advertising market has recovered. Nevertheless, the current management have managed to bring it back into a situation where it is producing a return that is covering its costs. But Lord Burns’ term of office came to an end. Generally, our view is that it is good for all the bodies for which we make public appointments—although in this case it is an Ofcom appointment that comes to the department for approval—that at the end of the term it is right that someone fresh is brought in. It seemed to me that that was right for Channel 4 as it would be for all the other organisations. Baroness Bonham-Carter of Yarnbury: Despite what Ofcom had recommended. John Whittingdale MP: Ofcom came to this rather late. Obviously it has a lot of other things on its mind. I would have preferred to have had a conversation earlier so that we had a proper opportunity to have a process without an interregnum, which is what we had. But I am very happy with Ofcom’s recommendation and the appointment of the new chairman. Lord Sherbourne of Didsbury: Can I follow up Baroness Jay’s question about what some of our witnesses have talked about as a trade-off between the remit and an acceptable return to a potential investor? That was obviously the concern of Lord Burns, who said that he was worried that if the remit was maintained it would be difficult for a private company to make the return that they wanted, and he thought that it would not be a viable business model. On the other hand, as I understand it, you are saying that you think that is distinctly possible if you have a remit that is even tighter than it is today. Mr Abraham said earlier that you could have a remit that would be fine on paper but that would erode the spirit in the way it was carried out. That would be the way in which people would make money: they would be able to tick the boxes but would not maintain the spirit of the remit. How could you avoid that? John Whittingdale MP: The first way in which you avoid it is by setting very clear requirements as part of the remit that are enforced by Ofcom. As I said, there is perhaps a case for making the remit more explicit in some areas. That would be a condition of the broadcasting licence issued by Ofcom, and it would be regularly reviewed in the way it is now. So I see no reason why Ofcom should not be equally demanding of Channel 4 in private ownership or part-private ownership as it is now. Part of the difficulty is that Channel 4’s model is to deliver public service content, but it does so on its main channel for
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a bit of the time. The rest of the programming is essentially much more popular and is designed to raise money to pay for the public service. That has been the model for many years. I am slightly concerned that while it is very easy to pick out some very innovative shows that absolutely fair and square meet the remit, it is sometimes harder to find them in the schedule, particularly outside peak. Today, for instance, during the daytime schedule on the main channel, are five episodes of “Will and Grace”, which are repeats, quite a lot of “Frasier”, and “Four in a Bed”. That takes up about half the schedule today. There are also some nuggets of programming about which you can say, “Yup, this is the remit”, but one of the reasons why some companies, some investors, have expressed interest is because they have a greater ambition for Channel 4. At the moment, under that model it is covering its cost and supplying its remit in that part of the schedule, but some potential investors have suggested that this is a business that could grow; this is a time when media businesses are doing very well, and people want to invest money and grow businesses, so one could have greater ambition for Channel 4 if they had access to the kind of investment that could be available from a partner.
Q54 Lord Goodlad: Still on the remit, Secretary of State, you said that you think that it is fuzzy, and David Elstein told us last week that he thinks that Channel 4 is held to account very little through it. If you wanted to make it more specific, how would you like it to be more specific? John Whittingdale MP: There are two elements to the remit. It is very easy to decide whether or not Channel 4 is meeting one of them, because of its quantitative requirements—its production quotas: a certain number of hours have to be produced outside London or in the nations; there are independent production quotas; and there are some programming quotas, principally for news and current affairs. The other is the much broader requirement that programmes should demonstrate innovation, or should appeal to culturally diverse audiences, or should be educational. I have sometimes wondered—and I remember asking Channel 4 this in my previous capacity and never quite getting the answer—which programmes are remit-serving programmes and which programmes are revenue-generating programmes. “Channel 4 News” is plainly meeting the remit, but other programmes I think stretch the definition of the remit, and there is a case perhaps for making clearer exactly the kind of programming that we expect Channel 4 to deliver in order to serve the remit. Then the distinction between that and the more populist commercial programming will be clearer.
Q55 Baroness Bonham-Carter of Yarnbury: It is very good to hear you say that you want the remit to be strengthened, but obviously news, particularly “Channel 4 News”, has come up a lot because there is concern, if Channel 4 is privatised, about how this would remain and how you would safeguard it. Before you arrived, we heard from Channel 4 that you can regulate the quantity but you cannot regulate the quality. How would you make sure that if it was in private hands we would still have a “Channel 4 News” of the quality that we have now? John Whittingdale MP: First, of course, Channel 4 does not make its news.
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Baroness Bonham-Carter of Yarnbury: No, ITN does. John Whittingdale MP: ITN makes its news. Baroness Bonham-Carter of Yarnbury: But Channel 4 gives it the space. John Whittingdale MP: It does, but ITN has developed a news offering on Channel 4 that is distinctly different from what you will find on ITV. Sometimes it is deeply annoying, but it certainly provides an alternative viewpoint, and in that sense it is delivering the remit extremely well. I would not expect the requirement, the contract, of the kind that exists between Channel 4 and ITN to change because of the ownership. It is very much at the core of the remit; it is the one area that is specified—how many hours of news it needs to broadcast in peak time. Then there is the broader requirement of the remit. ITN does a good job, and obviously it is also subject to the Ofcom requirements for things like impartiality. Baroness Bonham-Carter of Yarnbury: In a way, my question is in your answer, because, as you say, “Channel 4 News”, although produced by ITN, is very different from “ITN News”. If Channel 4 is in private hands, how does it retain its— John Whittingdale MP: Are you asking whether I am concerned that if Channel 4 were privately owned, its new ownership would say, “We’re going to tell ITN to dumb down the news and make it full of stories about celebrities and less about foreign affairs”, or something? First, that would be instantly challengeable as a breach of the remit. Secondly, there is no reason for them to do that. As I said earlier, the Channel 4 brand is strong and attracts interest from investors because it has a very good reputation, and one thing they will not want to do is damage that reputation. Baroness Bonham-Carter of Yarnbury: But having that chunk of prime time is a big thing, and there is a history with commercial PSBs of saying, “We can’t do this. Our obligations have to be watered down”, and I am not quite sure how you think a privatised Channel 4 would not come under that kind of pressure. John Whittingdale MP: The answer is very easy: you say no. If they say, “We’re under pressure. We need to have the remit watered down”, the Government and the regulator say, “Sorry, this is written in stone. This is why Channel 4 exists. We’re not going to water down your remit”. Baroness Bonham-Carter of Yarnbury: Okay. Thank you.
Q56 Baroness Benjamin: I turn to regulation. Are you confident that Ofcom would be able to put an effective regulatory structure in place and have the ability and the expertise to regulate a privatised Channel 4? John Whittingdale MP: Ofcom obviously assesses the delivery of the remit at the moment. It also assesses the public service broadcasting obligations that are on other PSBs—ITV, Channel 5. It already has some involvement in regulating the BBC, and under David Clementi’s proposals it would have more involvement. So Ofcom already has quite a lot of experience in this area. Baroness Benjamin: But when Ofcom gave evidence, it said that it was not responsible for decisions in relation to the ownership of Channel 4 or its remit. What did it mean by that?
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John Whittingdale MP: That is perfectly true in relation to ownership. It has a duty to report on plurality, which might be affected, but the remit is set by Parliament. Ofcom has a duty to assess whether the remit is being delivered, which it does at the moment. It is perfectly true that it would not write the remit; the remit would be set by the Government. Baroness Benjamin: How would you protect against the sort of dilution of obligations that has happened with ITV, for instance: making fewer children’s programmes, art programmes and so on? John Whittingdale MP: As I said earlier, at the end of the day the remit can be diluted only if it is agreed by the Government. Obviously if there were a complete collapse in the advertising market, which would affect Channel 4 whatever its ownership structure, arguably it might be better protected against that if it had a strong private sector partner, just as happened a few years ago when Luke Johnson and Andy Duncan were in the management. They said, “We can’t deliver the remit in the future unless we get public money”. Happily that turned out not to be necessary, but that kind of occurrence could happen, which would cause them to come and say, “We need to dilute the remit”. Of course, it would then be for the Government to consider whether it really was the case or whether there were other ways of addressing it. But to my mind the reason for Channel 4’s existence is to deliver the kind of programming that is specified in the remit. Therefore, I would be highly reluctant or resistant to any suggestion that it should be diluted.
Q57 Earl of Arran: Secretary of State, you obviously discuss carefully and closely with the Treasury exactly what you think the value of Channel 4 is, which presumably takes into account the licence, the building et cetera. Given that privatising Channel 4 will create a lot of fuss and require primary legislation through both Houses, do you really still consider that an option, or is the Treasury that desperate? John Whittingdale MP: As I suggested before and I repeat today, this is not about raising money for the Government. You are right that Channel 4 has some valuable assets such as its real estate and indeed the value of its brand, which is more important. But this is not a sort of “How can we find some more money for the Government?” It is about trying to find an ownership model that will sustain Channel 4 into the future. If there were to be a change there are a number of options and we will come forward with our decision—I have no doubt that it would be robustly debated in Parliament and would expect nothing else. There are differing views in your Lordships’ House as much as there are in the House of Commons. Once we have decided what the right outcome is, I will strongly make the case for it. Earl of Arran: Presumably the Treasury is pretty interested in such a deal. John Whittingdale MP: I have come under absolutely no pressure from the Treasury to come up with some money. Obviously, the Treasury ultimately controls the shareholder executive that is the Government’s representation in the ownership, but I have had no pressure from the Treasury to proceed with this on the basis of trying to raise money. This is all about the right structure for Channel 4. The Chairman: Claire Enders told us that the Government would be very pressed to be get more than £1.5 billion. Have you received advice?
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John Whittingdale MP: 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, not least the remit. If we strengthen it—as I have said, I think there is a case for strengthening it—that could affect the value, although I still believe that for a buyer it is the strength of Channel 4 delivering the remit that is part of the attraction. However, it is not something that we would really know until it was tested.
Q58 Baroness Benjamin: It is written in Channel 4’s remit that it must reflect the cultural diversity of the UK, but over half of black viewers when questioned said that they felt that they were underrepresented and unfairly portrayed across the public service broadcasters. In his speech to the Oxford Media Convention, Trevor Phillips said, “Based on the actual data about how people behave, Channel 4 right now is the most important agent of integration in our national media. Privatisation would destroy that at a stroke.” Are you concerned about this? John Whittingdale MP: I am concerned about the issue; I am not sure I agree with Trevor Phillips. I am concerned about what you said right at the beginning about the failure not just of Channel 4 but the broadcasters as a whole to meet the needs of and serve particular minority community audiences. That is a very important issue in our consideration about the future of the biggest public service broadcaster, the BBC, and we are looking at it closely as part of charter review. I have had conversations with a number of people about how we might seek to address it. There is a failure here right across the broadcasting landscape. Channel 4 has written into its remit that it is required to appeal to a culturally diverse society. It has a more explicit statement in its remit than other broadcasters, so one would expect it to do more. As I said earlier, that is part of its remit which I would expect it to continue to deliver. I think Trevor Phillips said that one of the consequences of “Big Brother” moving from Channel 4 to Channel 5 was that there were now fewer ethnic minority participants. I am not sure that is necessarily a test of the delivery of a remit. We need to look much more carefully than just at the racial origins of people on “Big Brother”. There is a serious problem here, but it goes broader than Channel 4. Baroness Benjamin: So how would you safeguard this issue if Channel 4 were to be privatised? Have you given any thought to how this could be achieved? John Whittingdale MP: As I said, the remit is very broad at the moment; it provides no explicit guidance as to how to go about appealing to a culturally diverse society. That does not necessarily mean quotas for representation on screen or hours and particular times of programming, but it is certainly an area that we will look at as part of how we might refresh and strengthen the remit. Baroness Benjamin: Do you like the Lenny Henry plan? Would you want Channel 4 to do something like that? John Whittingdale MP: Lenny has come in a couple of times to talk—actually, not about Channel 4 but about the BBC. I know that he is keen on quotas, which I am not particularly keen on, but we are all seeking to address the same issue. My discussions with Lenny Henry and others during charter review I have found extremely valuable. I hope that you will see evidence of that when we are in a position to publish.
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Q59 Baroness Healy of Primrose Hill: I am sure you are very concerned about the independent production sector generally because of its role in the creative industries. They are concerned about possible privatisation of Channel 4. John McVay, the chief executive of PACT, told the Committee that it was “mad” to interfere with the system as it is at present. With this in mind, what do you think the impact of privatisation would be on the industry? John Whittingdale MP: I think that John McVay’s principal concern was around terms of trade, which we said we wanted to look at. We have not yet announced the outcome of that review, but the Ofcom analysis is very clear and powerful. I hope that we will be able to say something, because I know that John is concerned about the uncertainty around it. I do not want to delay setting out our view. On privatisation, whether or not it occurs, one of the arguments made by those who suggest that there is a case for introducing a partner, either in whole or part, is that they will invest and grow the business, which means commissioning more content. For instance, when Viacom took over Channel 5 recently, it made the commitment that it would invest in original programming to a greater extent than under the previous ownership and that it would be UK-originated. When we come to look at potential options, commitment to invest in new programming is an important issue. Baroness Healy of Primrose Hill: And you do not think that the special role that Channel 4 has performed in growing small, independent production companies would be at risk. John Whittingdale MP: The independent production sector has changed dramatically, and obviously a lot of the small companies are no longer small companies. They have either become big companies or been acquired by international broadcasters or UK broadcasters. But the independent production quota, which applies only to qualifying indies, which are generally the smaller, newer ones, is another part of the public service requirement, and that stays.
Q60 Lord Hart of Chilton: We have heard evidence of potential purchasers should Channel 4 be put on the market, but who do you think are the likely buyers? You said earlier that you knew of some interest. John Whittingdale MP: A number of people have stated publicly that they might be interested. This is a time when a lot of companies want to grow media businesses and invest, as you have seen through enormous amounts of acquisition activity and mergers. I do not think that that is going to change. 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. If we decided to try to find somebody who wanted to invest in growing business, I do not think that there would be any shortage. As I have said, Channel 4 is a very strong brand. It has certain advantages. The other strength or value that it has in return for delivering the remit is its position on the EPG as a public service broadcaster—that is also a valuable asset. I think there is a view that the business can be grown, that it can be run more efficiently and that that in itself will reduce costs. Certainly, the experience of privatisation in other areas is that it leads to efficiency gains and more streamlined and lower-cost operation. Lord Hart of Chilton: So have you had a lot of people already beating their way to your door?
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John Whittingdale MP: 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. Lord Hart of Chilton: Should a big British player such as ITV or Sky be allowed to buy Channel 4? John Whittingdale MP: 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. Lord Hart of Chilton: But if the competition authorities did not rule them out, you would see no reason why they could not. John Whittingdale MP: As I say, that is a big “if”, and it is not just competition. There are plurality grounds, which Ofcom might also look at. 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. Lord Hart of Chilton: Some of the biggest independent production companies in the UK are internationally owned. What would be the impact on the rest of the sector if an owner of a big independent bought Channel 4? John Whittingdale MP: 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. I go back to what I said at the start: that a business whose revenues are almost entirely dependent on the state of the advertising market is obviously at a greater risk. Therefore, ITV is seeking to diversify. 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. Lord Hart of Chilton: If there were a purchaser from an overseas sector, what do you think the effect would be on the channel? Earlier, you indicated that you thought that any purchaser would seek to acquire the brand and want to keep to it, build on it and make it even more lustrous. Is that really right? John Whittingdale MP: I think that part of the interest is around the unique role that Channel 4 plays in the UK broadcasting environment. Certainly, they would not to change it into a sort of multinational-type channel. It is still early days, but the commitment that Viacom made in acquiring Channel 5 was a substantial commitment to investment in this country. I would hope that somebody expressing interest in Channel 4 would be equally committed to UK broadcasting and UK content. There is no doubt that, as has been demonstrated any number of times, high-quality, UK-commissioned content sells around the world.
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Lord Hart of Chilton: So if it were to be a foreign investor, does it really matter who it is? Could it be Russian, Chinese? John Whittingdale MP: As I say, I am not going to single anyone out. 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. Lord Goodlad: Do you, Secretary of State, envisage a possible role for private shareholders in the future—viewers, members of the public having shares? John Whittingdale MP: That is an interesting possibility. As I say, no options are closed off. There might be a role for employees. I am very open to looking at a number of options.
Q61 Lord Hart of Chilton: You touched earlier on safeguards. You said that the remit could be kept the same and that the licence would have strict conditions. Some of the experiences that we have had of overseas purchasers giving commitments to things have led only to a series of events over time watering down those commitments. So one is always a bit sceptical about how fiercely one keeps to the word of anything, whether it be a licence or a remit. Eventually huge money begins to pay in terms of watering down. John Whittingdale MP: I am not quite sure which industry or company you are referring to. Lord Hart of Chilton: For example, Cadbury. John Whittingdale MP: Cadbury is not the subject of Ofcom regulation. There is a big difference. Lord Hart of Chilton: But it is an example of commitments given and then broken. John Whittingdale MP: But this is a broadcaster, where it is not just about accepting somebody’s word; there is a legal requirement to deliver on commitments. If they break their word, they will be in breach of the terms of their broadcasting licence.
Q62 Baroness Jay of Paddington: I hope I am not intruding on Lord Hart’s questions, but you were fairly robust in responding to the Russia Today idea, but you also mentioned big US-based companies. I think we would agree that they do not necessarily have similar concepts of PSB to those of some broadcasters in this country. What would you be able to do, short of using a sledgehammer of withdrawing a licence if, as Lord Hart says, big money was trying to influence Channel 4 News or whatever it might be? John Whittingdale MP: I see no reason why that should be the case. Just to give you an example, you have two news channels under the same ultimate ownership: Fox News in the US and Sky News. 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. Lord Hart of Chilton: I do not want to pursue this much further, because the fact of the matter is that if you went down that route it would have to go through both Houses. The
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question would really be how determined anyone would be to face the flak, of which there would be much, in pursuing it. John Whittingdale MP: As we have seen this afternoon in both our Houses, Governments do things that provoke strong debate and which some people disagree with. I am sure there will always be some people who take a different view whatever view we reach, but part of my job is making the case and trying to persuade people that this is in the best interests. Baroness Bonham-Carter of Yarnbury: Can I just say that Rupert Murdoch told this Committee in a different time that he was very keen to change Sky News and that it was down to the ecology of British broadcasting and the existence of the BBC and Channel 4 that he felt he could not. John Whittingdale MP: I would be very surprised if that were the case, because I think Sky News is a very important part of the Sky brand. I do not think it would get any support. There is clearly an appetite for more partial news in America with different viewpoints, which is fine—you switch on Fox News and you know what you are going to get—but that is not what we have in this country; we have an impartiality requirement that applies to all broadcasters, and that is going to stay in place.
Q63 The Chairman: Can we conclude with a word about the timetable? We are now expecting and looking forward very much to the White Paper on the BBC. Our guess is 23 May or somewhere around then. John Whittingdale MP: I could not possibly comment. I have said that I hope to publish the White Paper in May. I think I said that six months ago, and it remains the case. The Chairman: Excellent. We are looking forward to that and there will be a debate here on it. With Channel 4, any timetable? John Whittingdale MP: I cannot say. I am conscious that it is not helpful for a debate to go on indefinitely, so I hope that we can come to conclusions, but these are complicated issues, and at the end of the day this is as much a matter for my colleagues in government as it is for me. We will have to have our own debate before we then have perhaps the debate that Lord Hart predicts in Parliament. The Chairman: Secretary of State, thank you very much for joining us. Apologies that we were disrupted, as one is in this building. But thank you very much indeed; it was extremely helpful to us.
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Evidence Session No. 2 Heard in Public Questions 22 – 40
TUESDAY 19 APRIL 2016
Members present
Lord Best (Chairman) Earl of Arran Baroness Benjamin Baroness Bonham-Carter of Yarnbury Lord Goodlad Lord Hart of Chilton Baroness Healy of Primrose Hill Baroness Jay of Paddington Baroness Kidron Lord Sherbourne of Didsbury ______
Examination of Witness
David Elstein
Q22 The Chairman: Welcome. We are very grateful to you for appearing before us again; this is beyond the call of duty. Your contributions are extremely helpful to us. If you would like to introduce yourself for members of the wider world, and if you have an opening statement that you would like to share with us before we ask questions, please feel free. As you know, we are looking at the future of Channel 4 and, in particular at this time, the question of privatising the channel. David Elstein: Good afternoon. My name is David Elstein. I am a semi-retired broadcaster, producer and writer. I spent a large part of my life in broadcasting working to get Channel 4 to happen the way it did, to supply Channel 4 and to be a friendly critic of Channel 4 ever after, even when I was working for other broadcasters. I spent a lot of time when I was director of programmes at Thames Television working with, and alongside, and supplying Channel 4. At BSkyB I had an interesting, but not entirely consensual relationship with Channel 4. At Channel 5 I offered to merge with Channel 4. They declined my offer, although subsequently they tried to buy Channel 5. I have spent more months than I intended researching the chapter that I hope you have been supplied with, which is due to be published in June as part of the book, What Price Channel 4? I apologise for its extreme length. As Oscar Wilde said, “If I had more time, it would have been shorter”. Eventually, I will produce something more suitable for the general public.
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What struck me in my research, having been a strong supporter of Channel 4, its independent status and its performance, was that I simply had not realised the extent to which the famous remit had been allowed to atrophy. At one time there were nine formal quotas for Channel 4 and there are now three. Meeting the so-called remit could be done very cheaply. I could probably do it for £40 million a year. For me, the notion that there is a tension between privatisation and the remit is misconceived. The concept of privatisation, or the plan to introduce a privatisation Bill, does set an opportunity to reverse the tide, to reinstate as many of the old hard quotas as possible that Channel 4 used to have to abide by, to invite Channel 4 to sign on for that much tougher regime, and if it cannot, or will not, to see if anybody else will. In my view, Channel 4 has been allowed to settle into a state of comfortable middle age with reduced obligations, most of them verbal, not formal. If you read the Channel 4 report—there is another one due out next month—you will find 90 pages of verbiage on feel-good things and one page on what they actually did. In my view, this is the result of some misguided legislation in the 2000s. We cannot put that right at this Committee, but we can look forward to using the notion of privatisation as a way of opening up what we really want Channel 4 to do, how we get it to do it, and how we put enough steel into Ofcom to ensure that once there is a proper remit back in place, it will be observed and enforced. That is all I wanted to say. The Chairman: Terrific. Thank you very much for that opening statement. Q23 Lord Sherbourne of Didsbury: Can I follow up your opening remarks and ask you to amplify what you said in a more precise way in three questions? The first is in order to understand what you think lies behind the thinking of the Secretary of State considering privatisation, do you think that Channel 4 is failing in its remit? These are not mutually incompatible. Is there a worry whether Channel 4 is sustainable over a long period ahead? Either way, is the thought, whether it is doing well or not, that it could do better with privatisation? If that is the case, what precisely would privatisation help it do better? David Elstein: Channel 4 could scarcely fail to meet its remit. The only formal remit it has is to broadcast four hours of peak time news per week, which it has done since the day it launched; to broadcast four hours of current affairs programming per week, half of it in peak time; and to ensure that 35% of its commissions come from outside the M25. That is all it has to do. There is no money attached to those obligations. Channel 4 spends £50 million a year on news and current affairs. If it spent less, nobody could do anything about it. If it cut it in half, nobody could do anything about it. The remit is a fig leaf. It used to be really tough. There used to be seven hours of education, three hours of multicultural programming and 70% of the schedule had to be first-run origination. Amazingly, Channel 4 does not have to broadcast a single hour of new programming at all, if it does not want to, and it would still fulfil its remit. Of course, the news would look a bit strange, because it would be repeats. Indulge me for a moment. If we allow the news to be new programming, all the current affairs could be repeats, and everything else. There is no requirement for first-run origination on Channel 4 any longer. It could do better. Anyone could do better on what the remit ought to be. That Channel 4 does pretty well—not nearly as well as it used to in my
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view—is reassuring. It is sustainable. How could it not be? It has £900 million of revenue and no cash spend obligation at all. It could go on for 100 years on that basis. For me, that is not the issue. I do not have contact with Ministers, so I have no idea what is in the Minister’s mind in talking about privatisation. I know that in 2001 the Conservatives in opposition—Peter Ainsworth was then the spokesman for this area—put out rather an impressive document advocating privatisation. If the Committee does not have a copy of that document I can make it available for copying, because it is an interesting historical document. I am afraid I keep these things. I know I should get out more. At the time I had ceased to run Channel 5, soon after I had proposed a merger with Channel 4, so I was very interested. The notion was to release funding to support the arts generally, and to have a tougher remit. They were very explicit in their press statements saying, “We want to strengthen the remit”, and that was the remit in 2001, which was hugely more demanding than the current remit, and they were going to top up the £1 billion, or whatever, that was generated from the sale with some money from the lottery and create a major arts support fund. It was all rather—can I say this—“unconservative”. No, that would be unfair. It was an impressive piece of lateral thinking, given that the Conservative Government invented Channel 4 in the first place, improbably, against their own election manifesto. Lord Sherbourne of Didsbury: The question I asked was, what is your view today on how privatisation could improve Channel 4? David Elstein: As I say in my chapter, the process of privatisation is the trigger here. In other words, if you start a privatisation process and say you are willing to look at the sale of Channel 4, what you create is a sale document, and I would hope the sale document would reinstate every last one of the original quotas, apart from the schools, plus several more, as I specify. Once you have that written out as your threshold—if you, potential buyers, are not willing to do that, go away—you talk to those who are willing to take on those obligations and see what their appetite for it is. If there is no appetite, and nobody is willing to do it, you know privatisation is not going to help you very much. If you start the privatisation process that way round, so that before you ever get to legislation you have willing buyers, a known process, a known outcome, and Channel 4 is given the option of taking it on itself and bearing rather more risk than it is currently used to, that is how you improve Channel 4 as a service, whether it stays publicly owned or becomes privately owned. Lord Sherbourne of Didsbury: That is very helpful. Thank you. Baroness Jay of Paddington: I do not understand what possible motive there would be for those putting forward this sale document to insist on that. You said earlier Channel 4 had drifted into rather cosy middle age. I do not see why there should be any motive. David Elstein: For Channel 4? Baroness Jay of Paddington: For the people who are putting up the sale document to have a retrospective determination that there should be all these other requirements. David Elstein: As I understand it, the Government have said they intend to strengthen the remit of Channel 4. That is what they said in 2001 when they were in opposition. Both David
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Cameron and John Whittingdale are on record as saying that is the point of the exercise, so define “strengthen”. Baroness Jay of Paddington: That is a very long time ago. David Elstein: 2001 or last week? Baroness Jay of Paddington: 2001. David Elstein: 2001 is a long time ago, but we had a strong remit, which was going to be strengthened. I am not sure how they were going to strengthen it, but I would love to see that remit still in operation. The issue now for the DCMS is to specify what it means by a stronger remit. Spell it out, nail it down and see if there is any appetite for it. If there is not, you are wasting everybody’s time. Q24 Baroness Benjamin: You argue that Channel 4 does not need rescuing, but it would be a better PSB in private hands with much tougher regulation. David Elstein: I do not say it would be necessarily better in private hands. It would be better after a privatisation process, whether publicly or privately owned. Baroness Benjamin: You have also said that savings could be made at the channel to allow more money to fund a more distinctive schedule. Am I correct? David Elstein: Yes, we all know that. Baroness Benjamin: Can you elaborate a little more on why you think Channel 4 would be a stronger PSB if it was to be privatised? Where do you think the savings could be made at the channel? David Elstein: In my chapter I list the 808 jobs currently in operation at Channel 4. I know that any significant broadcaster—Viacom, Discovery, Liberty, Sky, whoever—would be able to save at least 500 of those jobs, if not 600, because most of them are already being done. You would not need a separate building, and that is £85 million. You would not need any cash reserves, because you do not need them if you are a £20 billion a year company. That is £230 million that does not have to sit in a bank deposit. My point is that when I was CEO of Channel 5 and approached Channel 4 in 2000 with the suggestion that we merge all our 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. That is an awful lot of money that is not saved because Channel 4 is a narrowly based stand- alone broadcaster. The fact that Channel 4 has twice tried to buy Channel 5 subsequently, and tried to buy the Living TV channels, also for £100 million, tells you all you need to know. This is a very narrow base from which to run any broadcaster. In my view, the merger savings that are available are of the order of £200 million a year. I can imagine some potential buyers saving a lot more because they will be able to do strange things with tax. Other buyers will do better because they will merge their airtime sales operations. It is certainly of that order. That is
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the money that is lying on the table because we let it. I think that is a public asset and it is incumbent on us to ask why we want to leave it lying on the table. Baroness Benjamin: So you would spend it on more PSB content? David Elstein: Absolutely. Baroness Benjamin: Where? David Elstein: Within Channel 4? Baroness Benjamin: Yes. David Elstein: My personal view is I would like to see some of the proceeds from a sale allocated to a public service broadcasting fund, which is more widely available than to Channel 4, but Channel 4 would be a primary applicant to such a fund. Education has vanished. It used to do seven hours of excellent programming on education every week. Naomi Sargeant, the head of education, was one of the most powerful people at Channel 4. That has gone. The Act says it must do educational and other educative programming. There is none. It has tried a little bit of children’s programmes and that did not work. Channel 5 does 24 hours of children’s programmes a week without being required to do so. Channel 4 does none. Channel 4’s origination is far too low. It needs to commission a much higher proportion of its schedule as origination. It has drifted into 57% repeats. Baroness Benjamin: Do you think the sale to a social enterprise, as suggested by Lord Burns, could achieve the best of both public and private worlds for the broadcaster? David Elstein: I am not sure what Terry Burns had in mind. I am open to any would-be organisation taking over if it is willing to deliver. The key test here is we have lost the leverage to force Channel 4 to do what it ought to be doing. It was given up in the Communications Act 2003 and the Digital Economy Act 2010. Instead, all we have is a lot of feel-good language and no means of doing anything if Channel 4 falls short. If we had privatisation as a process, part of that would be to reinstate formal quotas. I would now apply cash sums to them. I would ring-fence the budget, the news budget, the current affairs budget. I would look for Channel 4 to commission a minimum number of programmes from small independent producers, independent producers employing ethnic minority producers and directors. All these can be put in place and we can have a much better, much more PSB Channel 4 than we currently have, if we had the courage to say, “That’s how it has to be”. Baroness Benjamin: You did not include children. David Elstein: Channel 4 has edged towards children’s programming more than once. It then went to older children and failed with that. I would love to see them do good children’s programming, but I have yet to see the desire. Certainly that should be on the table. Baroness Benjamin: Thank you. Q25 Earl of Arran: We are already circling around these questions. Under its present remit would it be a profitable investment? If the remit had to change to make it profitable, what changes would you consider necessary?
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David Elstein: The current remit is so flimsy that I could take on Channel 4 and make it highly profitable. I would do it with a kick-starter fundraise. To be serious, the only obligation is to spend somewhere in the region of £50 million a year out of £900 million of revenue. That is it. I cannot think of any commercial broadcaster that would not be able to deliver that. If that is all that is going to be asked for, we would be looking at £5 billion of sale and a really crummy Channel 4 to come out of it. I would much rather raise the barriers higher now, have a really demanding bill of sale and then see what the appetite is. I would not say I know these companies well, but I have a pretty shrewd idea of how a Viacom, a Discovery, a Liberty Global, or even a News Corp, would approach an opportunity like this. It was interesting that when Viacom took over Channel 5—or Five as we must remember to call it—it volunteered to strengthen the licence conditions. Ofcom did not ask it to strengthen them; it offered to and signed on for a tougher remit. Not much tougher, but a little bit. It is not that these commercial companies have any resistance to putting out a strong Channel 4 schedule; they are balancing what that would cost against what the commercial opportunity for them would be. 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. How much of that could you save in costs? This is where I said the £200 million in answer to Baroness Benjamin. 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. Your feet are going to be held to the fire much more than those of the current management because you are going to have a set of quotas and the cash fines that are written in the legislation, and which are pretty meaningless in relation to a publicly owned Channel 4, suddenly become real. If you miss this or that quota, it might cost you £5 million or £10 million. Nobody is going to take this on lightly, if it is done properly. There are some pretty shrewd people out there. We are sitting on unrealised value, and why should we? Earl of Arran: In practice, do you think that the Government could be influenced by how much you could raise from a sale and be incentivised to relax the remit further? David Elstein: There is nothing to relax. On a scale of 0 to 10, you are at 1. To go from 1 to 0 would be shameful. I would look at it exactly the other way round and take the Government at their word. You say you want to strengthen the remit; do so, name the strengthened remit, and then go about the sale process, otherwise you are inviting people to negotiate you away. The Chairman: We have reached the halfway mark, but not in the number of questions that we have disposed of. David Elstein: Sorry. The Chairman: Not your fault. We will speed up, if we may. David Elstein: I will be less verbose. Q26 Baroness Healy of Primrose Hill: The Secretary of State has said that the public service remit of Channel 4, including news provision, will be protected in the event of privatisation. Would a privatised Channel 4 be able to keep certain parts of its remit, such as
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news? If so, for how long? I see what you are saying, that you put forward the remit and if the private companies go for it then that is workable, but if they say no it is not, we go back to the beginning. I still find it hard to see how these private companies would think that making an hour-long news programme every day is a good deal for them if they want to do anything else. David Elstein: It is utterly trivial. On Monday to Friday at 7 o’clock your advertising revenue is probably half what it would otherwise be. That is five hours out of 168. In a heartbeat anyone would take that on. Even the Lebedevs would take that on. This is thin stuff, especially as at the moment there is no cash value attached to that one hour. Your budget is not specified. At the very least, the budget needs to be specified. I would not stick at one hour of news in peak time. Go back to the nine quotas. Why not? See what the appetite is. You have an opportunity. It costs nothing to set out a statement of intent and say, “Who’s up for this?” What is the worst that can happen? Deafening silence? Okay, you retreat a little. This is the whole point of opening up the books. I make the point in my chapter that Channel 4 is extremely coy about what it puts into the public arena. It will not say what its true costs are or what its breakdown of revenues is. You cannot keep that up in a privatisation scenario. Everyone gets to see everything, and then we can make really detailed judgments. Q27 Lord Hart of Chilton: You have had a run-in with Ofcom in the past. I would like to ask you some questions about regulation. Do you feel that the regulator is tough enough in its regulation of Channel 4? David Elstein: Ofcom is interesting. In many ways I am a big supporter of Ofcom. Some of what it does is very good. Its monthly programme bulletin is excellent, dealing with complaints. Baroness Benjamin has sat on that committee, so she knows how hard that job is. It is excellent at compiling information. Its annual communications market report is terrific, the best thing going. It is okayish on some competition issues. I thought its report on the BSkyB/News Corp transaction was terrible, and said so publicly repeatedly. I do not think there are many people at Ofcom now who would defend that document. It was all done in six weeks. You cannot judge a regulator on six weeks’ work. The problem with Ofcom in relation to Channel 4, Channel 3 and Channel 5 is that it lost a huge amount of expertise in 2003 when the merger took place. The way the IBA and the ITC, its successor, operated was very detailed, using expert people holding ITV licensees to very direct scrutiny. All that went. It was partly because Ofcom and the legislation went down the route of language rather than actual quantification, which I much regretted and was very critical of the whole idea of looking at the purposes and characteristics of public service broadcasting. It is like telling a horticulturist, “All you need to do is be able to smell the flowers”. You need a lot more than that. You need expertise and design. The problem is that Ofcom does not seem to be able to do that particular job. I will give you a well-known example. In 2009, still recovering from the severe advertising recession of 2008, ITV announced that it was going to chop its regional news and current affairs budgets. It said to Ofcom, “What we are going to do is either merge a lot of our reporting, so we will have super regions, or everything will be cut across the board. Take
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your choice”. Ofcom felt it was Hobson’s choice, each was bad, and it chose what it thought was the least bad option. Ofcom should have said, “Okay, until your profits recover you can do this. As soon as your profits return to £250 million a year”—they are now £840 million a year—“all this must be restored”. It failed to do that. What we have now is an immensely profitable ITV, which has been allowed to get away with a short-term measure to chop its obligation to news and current affairs regionally. Ofcom does not know how to intervene on Channel 4 to do better. It publishes triennial reports on public service broadcasting in which it bitterly regrets the collapse of key public service areas, such as arts, education, religion and so on, and does not say to Channel 4, “Come on, guys, put it right”. Lord Hart of Chilton: Do you think it needs to change its ethos and become more proactive? David Elstein: Absolutely, but that has to be part of any legislation that goes forward. It then needs to significantly strengthen its content board. It has already made some new appointments. If we are going to go down a route of a much stronger Channel 4 remit, it needs to be told, “Enforce it”. Lord Hart of Chilton: Do you think it is going to be able to cope with this, having regard to its new likely responsibilities in respect of the BBC? David Elstein: It is a different area. I do not think it would be able to do what it is possibly going to have to about the BBC unless it is strengthened, so the two things go together. If you are going to take over judging BBC impartiality and stuff of that kind, you are going to need more than quantification; you are going to need a lot of expert people who are not afraid to express their opinions. That is what we used to have with the ITC. I ran the Thames Television licence for six years and our annual interview with the IBA, and then the ITC, was tough going. They did not hold back. Before the auction process took over, we all knew that if we did not perform we would be out at the next go round. They interrogated everything. I was responsible at the network level for adult education provision on ITV. I would send proposals to the head of adult education at the IBA or the ITC and they would come back and say, “It is not good enough. We are not going to validate that. You can transmit it, but it is not going to count. You will have to do something else as well or instead”. It was back to the drawing board. They were not afraid to express their opinion, and it was a qualitative opinion. That is what I thought was important and what we have missed for the last 13 years. Lord Hart of Chilton: If Channel 4 became part of a commercial group, is there a danger that the culture of Channel 4 would be lost? Perhaps you think there is not a culture. David Elstein: There is definitely a Channel 4 culture. All kinds of commercial people have turned up at Channel 4: Michael Grade, John Willis. David Abraham, the current chief executive, worked in advertising, had never worked in programming or public broadcasting at all, but you learn the ethos and it is a strong one. It is a popular service. A lot of people really like it. It is one of these unusual broadcasters which attracts support from a lot of directions.
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Lord Hart of Chilton: If it became part of a commercial group, do you think that would be damaging? David Elstein: No. Lord Hart of Chilton: It would survive? David Elstein: It is a risk you have to think about. If I looked at a list of potential acquirers, no doubt there would be some where I would say “Really?” but others I would not have any anxiety about. I have worked for a lot of commercial operators and so-called moguls, and quality pays for itself. Q28 Baroness Kidron: You have confused me because you said in your opening statement that you like the idea of using the notion of privatisation almost as a way of bringing Channel 4 to heel. David Elstein: Yes. Baroness Kidron: I can feel your fury that it has been let go. There seem to be a couple of risks involved in that. One is what makes you so certain that the Government are going to strengthen the remit before selling? What makes you so certain that the money you describe as lying on the table is not going to go to shareholders? I want to ask about the ecosystem of small providers and production companies that Channel 4 is so important to. We have had evidence from a number of people, both in the BBC inquiry and this one, about how it sustains them. I am not hearing anything about the risk of privatisation. You seem to be riding a little roughshod over the risks. Could you talk about that? David Elstein: I am not persuaded by the argument about paying dividends to the new owners. This is not a private equity transaction. The dividend yield on ITV shares is 1%, News Corp 1%, Liberty Global 0%, Viacom 3%. This is not a case of acquiring an asset to strip out cash for dividends. You heard me right at the start. I see this notion of privatisation as an opportunity to strengthen the Channel 4 remit, whoever ends up operating it. If it stays with public ownership you have a different set of risks involved, because the cost of this tougher remit would add to the risk to sustainability of Channel 4 as it currently stands. Government would have to take a view, which is whether we want a very conservatively managed Channel 4 with a thin remit and £230 million in the bank, or a much higher quality Channel 4 that spends a lot more of its reserve, but then might run into headwinds at some point in time which we would have to deal with. My view is you should use this opportunity to see how high you can raise the bar of quality in the public service content areas that are important, including the number of independent companies that you commission from, and see who drops out at which point. I was one of the first independents to supply Channel 4. I was one of their big eight. The company I established, Brook Productions, lives on in Brook Lapping Productions, delivering “Inside Obama’s White House” and who knows what, to British broadcasting. In 1982 when Channel 4 started, it represented virtually all independent production revenues, well over 90%. Now it is 10% of independent production revenues. In 2002, Channel 4 dealt with 414 independent producers. Last year it was 207. The world is changing around us and we need to redefine what we most want from Channel 4.
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I have added in my chapter various things that have never been part of Channel 4’s remit because in the current age those are important. This Committee, and its equivalent in the other place, has the opportunity to say to the Government, “If you are serious about strengthening the remit, be specific. Ideally, we would like to have this shopping list. These are the things that ought to be there”. Baroness Kidron: Do you consider it a risk that that remit may not be strengthened in the course of this process? Do you accept there is a risk that Government will not upgrade the remit but go ahead with the privatisation? David Elstein: I hope then everyone would oppose the sale. I would oppose the sale. That seems to me absolutely philistine. Q29 Lord Goodlad: You referred earlier to Channel 5 making an offer for Channel 4. Is there an optimum size for a global media organisation in a smallish country such as this? If so, what sort of size? David Elstein: ITV is a £6 billion organisation in equity value. The BBC is a £5.5 billion a year turnover organisation. I have lost track of how much Sky’s turnover is, I think it is nearly £7 billion a year these days, but not just as a broadcaster, it has many other businesses, telephony and so forth. BT has a turnover of £20 billion a year running a few channels. I would look at it the other way round: is there a survivable size as a small broadcaster? When I launched Channel 5 it had 220 employees and within four years it was worth £1 billion, because it was incredibly tightly run and managed. At the time that I pitched to Channel 4, they had nearly 1,200 employees—do not ask me why. It is not the actual size, it is how you manage your overhead and avoid duplication of services you do not need. I cannot pass it on to you—I am under an inhibition, having signed an NDA when I left Channel 5—but this was the document I presented to Channel 4 listing every area of operation and opportunity to save money as between the two organisations. That was O- level maths: two similar broadcasters doubling up on a whole set of activities which they did not need to. It was entrenched inefficiency. I would not say that Channel 4 needs to be part of a £5 billion, £20 billion or £100 billion organisation. All I know is there is a lot of wastage in the way it is run at the moment. Anyone would be able to dig that wastage out. Lord Goodlad: Do you see the possible privatisation of Channel 4 as part of a wider relaxation of restrictions on broadcasting in this county? David Elstein: I see it as a fantastic opportunity to tighten up our PSB ecology. I do not see any need to deregulate or relax this, that or the other. In any event, most of what would apply here would fall under competition issues. For instance, 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”. To be honest, I do not know what is in the Secretary of State’s head when he is advocating privatisation. As one analyst has put it, it might be insane. It might be ideological dogma. I prefer to attribute good sense to Ministers and say, “I am going to take you at your word. You want to have a stronger remit for Channel 4, do so and we will support you”.
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Lord Goodlad: If the decision was taken to privatise Channel 4, who would you see as the likely buyers? Do you think ITV, BSkyB or Sky should be allowed to bid, or should it be an IPO? David Elstein: I cannot see an IPO working. I do not see a private equity deal functioning, because private equity does need to take dividends out. I see it as four, five, six almost certainly US and EU companies which would find the opportunity irresistible. I do not think ITV would be allowed to merge with Channel 4 because of the impact on the advertising marketplace. I think Viacom would be allowed to, because Channel 4 and Channel 5 is a well-known, acceptable combination. Liberty Global does not have any particular broadcast assets in the UK, but owns Virgin Media. That looks a very acceptable home. News Corp rather than Sky is a possible. 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. Elsewhere in the UK, maybe BT would like to take part. Lord Goodlad: Why do you think an IPO would not work? David Elstein: You are basically selling what you have already. It is the inefficiency in what you have already that creates the opportunity for a third party to come in and make the savings. An IPO simply locks those inefficiencies in. I do not say it is impossible but I think it is improbable. Q30 Baroness Jay of Paddington: I am pursuing the whole issue of who might buy and what that impact might be. Several of the companies you have speculatively mentioned are either directly foreign companies, or at least international. You have mentioned News Corp and I gather Scripps International has announced that it could have some interest, which already has a stake in UKTV. Do you think there is any reason to be concerned about who buys it, those international or foreign investors? David Elstein: It is generic more than specific. I would want to look hard at the quality of guarantees that an organisation was putting forward. As I say in my chapter, I would contemplate a retrieval mechanism. Baroness Jay of Paddington: Can you expand on that? Everybody in this room is familiar with international guarantees that governments and regulators try to impose on foreign bodies, and they are rarely successful. David Elstein: It is a bit like a golden share, 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. Discovery does very high-end wildlife programming. I am sure it would be delighted if it owned Channel 4 to discover that here was an outlet for its very high-end wildlife programming in the UK. Baroness Jay of Paddington: Let us focus on news. You said news was trivial in the context of the overall programming.
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David Elstein: The cost. Baroness Jay of Paddington: The cost against the amount of broadcasting involved. Are you sanguine about the prospect of, for example, News Corp using that as a platform to develop something like Fox News on Channel 4? David Elstein: Given that News Corp, instead of developing Fox News developed Sky News, which is a hugely valuable part of our news coverage in this country, I would not be worried about that at all. Fox News is available in the UK. It has a trivial viewership. Sky News has a much bigger viewership, but not as big as BBC News. I do not think so. Baroness Jay of Paddington: You do not feel there are any particular concerns? People speculate in a slightly exaggerated way that you could get interest from Russia or China, but you do not feel that anyone should be, as it were, even theoretically concerned about who might own the channel? David Elstein: Keep something in your back pocket on quality control. For the most part, I do not think anyone is going to try and buy Channel 4 who is not going to be instantly acceptable, because they would not want to go through a process of rejection. Russia Today is not going to bid, nor is Al Jazeera or Iranian TV or France Today. I do not see those as realistic propositions. We are becoming speculative. Q31 The Chairman: Earlier you said, rather in passing, with what you regard as the current rather feeble remit, the value of Channel 4 might be £5 billion because of the savings that could be made and that if a much tougher remit was put in place, we still might get £1.5 billion. As you said it rather briefly in passing, are those the sorts of numbers that are in your mind? David Elstein: I would always trade quality of service for cash. In other words, if you could get a maximal remit commitment from a buyer and only £800 million cash, that is better than a not very good remit and £1.5 billion, because that is selling yourself short, disposing of the family silver unnecessarily. I hope the object of this exercise is to end up with the strongest remit that Parliament can agree upon as a condition of sale. It is a terrific opportunity to get our collective minds going and saying, “What do we really want from Channel 4?” I started my research four months ago thinking, “Oh yes, the wonderful remit. Terry Burns is right, you can have privatisation or the remit, but you cannot have both”. This is really sad. I have all the old Channel 4 reports from the 1990s and the 2000s. I started reading them and was astonished at the transformation that has taken place and nobody seems to have noticed. It is like Topsy; it just happened. Here is our chance to put right everything that has gone wrong over the past 13 years. The Chairman: Thank you very much. That is a very powerful message. We are extremely grateful to you for putting it to us very clearly. Thank you.
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Evidence Session No. 1 Heard in Public Questions 1 - 21
TUESDAY 12 APRIL 2016
Members present
Lord Best (Chairman) Earl of Arran Baroness Benjamin Baroness Bonham-Carter of Yarnbury Lord Hart of Chilton Baroness Healy of Primrose Hill Baroness Kidron Lord Sherbourne of Didsbury ______
Examination of Witness
Claire Enders, Founder, Enders Analysis
Q1 The Chairman: Good afternoon. I welcome Claire Enders in joining us. It is great to have you. Thank you very much for coming once again before this Committee. You are a real stalwart, and you always bring insights to us that are extremely important. We have the little protocol that in an inquiry of this kind people declare their personal interests, if they have any, as soon as the meeting becomes public, which is it now does. I have to declare that one of my sons is a presenter for the Channel Four group on 4Music. Baroness Kidron: I have to declare that I am a director of Cross Street Films, a small company that delivers media projects, including film and television. We work with many UK broadcasters, including Film4, which is owned and operated by Channel Four. The Chairman: So there we are. There are no other declarations of interest. Claire, would you kindly introduce yourself very briefly? Most of us know you extremely well, but please tell us who you are, and if you want to give us an opening statement on the subject before us, the future of Channel 4, please say a few words. Claire Enders: Thank you Lord Best, and I thank you and the Committee for having me here today. I am an immigrant here in the UK. I am solely British. I came to this country in 1981, a year before Channel 4 began to broadcast, and I have been a full-time media analyst every day since—so for many years. I came to London in order to go to the London Business School, and I am thought of as the leading media analyst in the UK. My company, Enders Analysis, supplies our work, inter alia, to the DCMS, to the Treasury—to all of you, I hope— and I shall make sure to put you on distribution, Lord Best, if you would like our work. I may be able to organise that, and I would be most happy to do so. I am a lifelong observer of all
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the extraordinary phenomena in the UK. I probably know more than anyone else about the advertising business, the pay TV business, how the production sector works and, in fact, how all the internet models work. Our work is taken by companies, from Google to ITV to BT. We have 10,000 readers, and I am extremely proud of the work that we do. We are not advocates; we are an independent research company. As a result, our work is public. Obviously, my name is on the masthead, and I can assure you that we do it with the utmost dedication and British genius. We have circulated to Lord Best and to the Committee three reports that we have written, which I have copies of here today and which encapsulate answers to many of the questions that are before the Committee. I urge anyone who has not read those to do so. Many of the issues that the Government are considering—to my mind, absolutely rightly at this stage— and that you will also consider at this stage, absolutely rightly, are very complex phenomena that have to do with the operation of advertising markets, trends, changes in consumption and how they affect different groups. As a result, superficial and easy answers are absolutely to be avoided in something that has had and will continue to have the extraordinary impact on society that Channel 4 has had pretty much since its inception. Lord Sherbourne of Didsbury: Before I come to my question, how do you define “sustainable”? Claire Enders: I define sustainability as financial sustainability. I run a business that is one of the top 100 businesses ever started by a woman in this country, and there are no prizes for guessing why that is: it is not because I am a genius but because it is very hard for women to start businesses. I know exactly what it feels like to be in a sustainable business, because I plot and plan one every day. To my mind, financial sustainability is the key to Channel 4, and Channel 4 has more sustainability than many other businesses, primarily because it has almost £250 million of reserves and a number of assets, including its licence, which goes to the end of 2024. It even has a borrowing facility that it could use, and it has a range of assets, such as its headquarters, which it could easily sell in a crunch. So although the debate on the financial sustainability of Channel 4 was the initial touch paper for a lot of different questions arising out of its operations and how the management has operated the business over the last five years in particular, there is no doubt at all—even David Elstein, my nemesis, has accepted this—that Channel 4 is sustainable. In fact, it is more sustainable than most other businesses that we know of. It is more sustainable than Channel 5—and more sustainable than the BBC, with its five-year settlement for instance. It is more sustainable than most other businesses, with the possible exception of ITV. Lord Sherbourne of Didsbury: And you are confident that it is sustainable over as long a period as 10 years? Claire Enders: Its licence goes to 2024, and we have done the forecasts on the basis of that current licence term. Yes, I am absolutely certain that it is financially sustainable. There are two provisos to that, which I will highlight, because they will affect the whole sector. If there is a Brexit, GDP declines will directly affect the advertising economy as well as the film and television industry. It will have a very damaging impact on those, and it will take some time to recover. Of all the businesses in our fold—in other words, in my spectrum—the business that will find it the easiest to survive, say, a 5% drop in advertising income, which could
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occur in 2017, a 2% drop in GDP at the minimum, or a drop up to 10%, would be Channel 4. However, I cannot hide the fact that that issue as a whole for advertising is very significant, and I can certainly send you some more details if you want. The other thing is financial Armageddon. We had experience in 2008 of a major crisis. TV advertising income went down by 25% in 2009, as you will well remember. That caused a lot of questions to arise out of Channel 4. I have been an analyst of Channel 4 in particular and all the other businesses for a very long time, and many of the issues that arose in 2009 about the sustainability of Channel 4 were caused by the prior management’s egregious investment strategy outside television. Between 2000 and 2010, previous managements wasted about £300 million. This management has not wasted a dime. So Channel 4 faces a very different picture today. It is very much more sustainable than it was in 2009, for sure.
Q2 Lord Sherbourne of Didsbury: Leaving aside those two provisos—let us assume that neither of those two things happen, so all things being equal over the next 10 years—are you absolutely confident that there would be sufficient advertising revenue for Channel 4 to sustain it? Claire Enders: I am absolutely certain. Lord Sherbourne of Didsbury: Because? Claire Enders: Because if there is not, there will be a problem for ITV, Sky, the entire multichannel universe, way before there is for Channel 4, and we might as well write off the whole sector. Lord Sherbourne of Didsbury: You realise that if there is not, there is a problem for everybody, but why do you think there will not be a problem? Do you think there is sufficient advertising revenue for Channel 4 over the next 10 years? Claire Enders: I am absolutely certain. I am afraid that the stock market is not always wrong, and ITV would not be worth north of £10 billion with, let us face it, an average ITV1 viewer of age 63 if that were not the case. If you want to read our work very carefully, and if you would allow me to spend time with you to explain the advertising economy to you, I would be delighted to provide that. I just want to state for you that the current turnover of the entire TV sector is about £12.6 billion, of which only £1.6 billion is online video, £5 billion is TV advertising and another £5 billion is pay TV. These are vast sectors, and I am afraid that, 10 years after YouTube was launched, no one believes that online video is going to eat this lunch. The fact is that online offers three-minute videos, and since 2005 we have seen the rise of the golden age of television: the 10-hour movie, the six-hour series on iPlayer or the 10, 20 or 30-hour series on Netflix. There are countervailing forces all the time. If you believe that the habits of 16 to 24 year-olds dictate the entire future, I am afraid to say that there is no historical evidence of that. The 16 to 24s have always had more change in their viewing habits, have always watched less television and have spent more time together, usually carousing. That has been true for every generation. So the fact that 16 to 24s have experienced, for instance, a 31% drop in their TV viewing since the Paralympics in 2012, when a lot of young people watched an awful lot of linear television, is of no concern for any reason. The age of peak of consumption in this country is 43. The entire phenomenon of television advertising is there to push very conventional phenomena. Most people from the
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age of 25 onwards are actually watching more linear television—in other words, much less online rubbish. It may be that on the back of an envelope you can wish away a 100 year-old industry, but it exists and pulses every day in an extraordinary phenomenology, of which online is but a very small part. Over the course of 20 years of online phenomena—since 1995 to the present—all the advertising has, broadly speaking, continued to grow at a 3% average growth rate through every single one of these terrifying David and Goliath themes, such as the end of TV advertising, the end of pay TV, the end of this and that. I can assure you that this phenomenology is such that the DCMS is absolutely right to extend the licence of ITV and Channel 4 to 2024 on the basis of their spectrum occupancy. That is more economically sensible than any other use. I hope that is helpful.
Q3 Baroness Kidron: I will pick up on your opinion on some alternatives, but before I do, could you give us your view on the pros and cons of privatisation? The Secretary of State, Lord Grade and various big guns have been quite clear that they think this is the way forward—deep pockets, et cetera. Claire Enders: I am not entirely sure that John Whittingdale has come to a settled view. At least yesterday evening he assured me that he had not. Let us hope that his mind is still open. I proceed from perhaps a completely different perspective from politicians. I see Channel 4, born in 1982, as something that has changed our society for the better. Attitudes towards disabled people, BAME audiences and women have changed. This is a constant force for the good and it is recognised in that way. You see the statements from the public: close to 50% believe that Channel 4 takes risks that other channels do not, makes programmes that other programmes will not, and offers options that are not available by any other means. These are the things that matter the most to me. Channel 4 is a completely sustainable business, like the BBC, not requiring a drop of government money and doing endless amounts of good. So I start from the proposition: what would our society be like without this, and is it worth a couple of billion going to reduce a debt that has just passed £1.55 trillion? You therefore have to convince me that the 20 million people who visit Channel 4 every day are somehow of no note compared to this £1.55 trillion and reducing it by an infinitesimal amount. Therefore I proceed from the counterfactual: what would our society be like without Channel 4? On the question of Channel 4’s remit were it to be privatised—I am talking about the programming remit, not so much the financial remit, which is not as important—I encourage Channel 4 to make profits every day of the week. The more profits it makes, the more the business is worth to us the taxpayer, because the profits are put into reserves, which they have been for some time. I am very sorry that the previous management wasted £300 million of it, as that is our money that has gone. I believe, and I say this in a very heartfelt way, that for Channel 4 to be privatised it would have to have a more glorious future, and it is quite an extraordinary thing to have to prove that some owner is better than the public as an owner. It may be that this Government do not wish to own broadcasting assets at all and wish to reduce by an infinitesimal amount—less than half a percent, perhaps—our multi- trillion pound debt, but in order to make those judgments they have to show in some way that the outcome will be better, and that will be a steep hill to climb. The market impact of
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Channel 4 is so marked, and it is marked in the regions. In Scotland, Channel 4 trades with businesses that have no other trading partner, and you have to remember that this is set against the background of the Government’s decision effectively to reduce the BBC licence fee by 35%, which is the biggest cut that any public service broadcaster has ever experienced in any country. Baroness Kidron: So in the world of Claire Enders there is no pro, just cons. I understand your point, and I am not saying whether I agree with it or not. I am just curious, because the argument is being made that it would have deeper pockets and that it would be able to withstand these potential threats, which you yourself have outlined, were it to be privatised. You are saying that actually— Claire Enders: Baroness Kidron, the business that will be most impacted by Brexit or a financial Armageddon is ITV. It will take it in the stomach before Channel 4. Being a publicly owned company is actually quite a vulnerable place to be. Belonging to a giant global corporation, which might completely forget about the UK tomorrow because its interests have moved to, say, China, is not a good place for a public good. All I am saying, Baroness Kidron, is that our public goods have to be safeguarded—and yes, there may be a better option. There may be a situation in which Channel 4 has all the public impacts that it continues to have, the regional impacts outside the M25, with distinctive audiences of its own, and so on, and there is a privatisation option, but I do not see it now. If it comes about, I am sure I will support it—I really will.
Q4 Baroness Kidron: Can I ask you very briefly about the other options that have been put forward and how you see Lord Burns’s suggestion and the suggestion in the Ofcom review of 2015 to extend the PSB remit to all parts of Channel 4, and whether that makes it a greater force for good, which I think were your words earlier? Can you tell us a little about the other options that are on the table? Claire Enders: But the other options are not on the table—mutualisation is not on the table. Baroness Kidron: My question is: should they be? Claire Enders: I just do not think that that is where we are in the dialogue. I say this as someone who has taken the words “public service broadcasting” very much to heart, since it was one of my core motivations for becoming British. This is a better democracy for it. The fact of the matter is that the extension of public service broadcasting principles were taken through the 2003 and 2010 legislation, and I believe in those. I am sorry, but there is more of a risk that they will be narrowed. I would hope that we would preserve the ethos, and, of course, on a more upcoming issue—the governance of the BBC—I hope that Ofcom will continue to take the public interest as its paramount concern, the public interest being us. We are in a situation where the Government have come to realise through the BBC consultation how many organisations and people in this country hold public service broadcasting very close to their hearts. That will be helpful in the development of their own debate, but we live in wait of something called the Digital Economy Act, which may try to roll back that broad PSB definition, which has brought only good. Baroness Kidron: Finally, just to press you on this one point about extending the PSB to the entire portfolio, would that extension therefore be protective of Channel 4?
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Claire Enders: No, I do not think so. Right where we are today, Channel 4 uses a very well understood model, and it has slightly more or very commercial ends to its schedule, which basically support the risk-taking, smaller audience programmes that find audiences that are unique to Channel 4. So if anything I would say that the current situation is that perhaps Channel 4 has its own flexibility in its model. For instance, it increased the amount it spends on external commissions in a down year to try to make up for the BBC losses in the regions. It has a lot of flexibility in its model. The Chairman: I am afraid that we will have to go slightly faster. We come to Question 3 and Baroness Healy.
Q5 Baroness Healy of Primrose Hill: I argue strongly against privatisation and I accept your arguments, which you have put so clearly. The Government could be desperate for money; they have had to cut back on the welfare cuts they wanted to make to tax credits. If Channel 4 were to be sold, what would you estimate its value to be to the Treasury, and how would you arrive at that figure? Claire Enders: In order to avoid a lengthy reply, I would much rather send you a written reply, if I may. The fact of the matter is that today, with a licence that ends in 2024 and no certainty of renewal, and broadly speaking with some flexibility in the remit—requiring primary legislation, may I just point out—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. You would have to expect the buyer to be slightly fooled: that is, an American buyer who thinks that the Brits are cool and the licence will be extended, as it were, pari passu. I doubt that very many people will believe that from a Government who constantly throw into the air some of the most treasured public institutions that we know.
Q6 Lord Hart of Chilton: How could various changes in technology and viewing habits affect Channel 4, and how do the opportunities weigh up against the threats? Claire Enders: I gave a speech this morning at the FT digital media conference at which I asserted that British broadcasters were in such a strong position compared to US broadcasters. TV advertising in the US is generally trending down, although obviously not this year with the election Olympics, as is pay TV penetration, but it is interesting that British broadcasters are constantly ahead of the curve: the BBC invented the iPlayer early on, launching it in 2006, and Channel 4 was the first broadcaster to be into developing a whole digital platform, so it has over 10 million people registered. All the US broadcasters basically put themselves at the mercy of YouTube and Google, and our broadcasters said, “No, we’re going to build our own platforms, own our own data and proselytise our own thing”. As a result, Channel 4 is getting an increasing amount of revenue from online digital video, as indeed is ITV. These are catch-up phenomena that give people extraordinarily good opportunities not to miss things of value, and that is true on iPlayer and on the Channel 4 site. Channel 4 is the first broadcaster in the UK to introduce programmatic advertising, so it is vying with YouTube directly on a programmatic platform. Channel 4, like the BBC, has the benefit as a pure PSB of being very innovative and flexible, of not looking at returns for shareholders and saying, “It’s not this year that we put our all into developing a new platform for our viewers”. Channel 4 has reached out on every
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device. The only business that has done as well as Channel 4—and they are very similar in some ways in their innovation—is Sky. Sky is the perfect poster player for reaching out on every screen, extending the value of each one of the rights it buys across every screen. As a result, that has greatly sustained the model. Its people have welcomed tablets and smartphones into their lives. Essentially, the impact of this is to give people personal, portable and mobile choices that they did not have before, and that extends the viewing of our long material, whether it is on the BBC, Amazon or Channel 4. So I would say that Channel 4 is way ahead of the curve in adapting to technological change in the proliferation of devices and platforms, and that is true generally of UK broadcasters. It is an area where we have excelled. Lord Hart of Chilton: Where might the threats come from? Claire Enders: There are no significant threats when you think about one thing, which is that YouTube is now 11 years old and occupies around 60% of all online video time in the UK. That, roughly speaking, is about 4% of all viewing time, so it is not as big as you think it is, but it is big. But basically you do not have an opportunity for YouTube to make £1 million or £3 million an hour. Even 11 years on, it is not the right model for creators. The average amount that Zoella, who is a very famous YouTube star, can spend on her programmes is £30,000, and I can assure you that that does not amount to a hill of beans in TV terms, when you think that “The Night Manager” cost £3 million to make. Therefore we are seeing an extraordinary renaissance, or a 10-year extraordinary fusion, which has been driven by global demand for our long drama without adverts. So British television, which is very light on adverts—and in the case of the BBC has no adverts—is finding its global place now as never before. Therefore there are many countervailing trends. You may recall, Lord Hart, that people once said that everyone would lean forward and watch on a PC. That was in the early 2000s, and you may recall why that changed. The TV manufacturers came out with televisions that looked and sounded like cinema screens, and suddenly everyone bought one of those. By the way, in the households, or hovels, of the young, you will find that by the age of 25 they are clubbing together to get one of these monsters. They are moving away from watching as individuals, hunched over like gorillas on their little laptops, to sharing the space. By the age of 25, in a very high-employment country such as this one, unlike others, you are getting people with very little time to watch. They go to work every day and will clock into phenomenal quality stuff. This is a very long answer, but all I can tell you is that British broadcasters really know their stuff.
Q7 Baroness Benjamin: In their last review of Channel 4’s statement of media content, Ofcom said, “We will continue to monitor closely C4C’s performance in … key areas”, such as content, reach and share, diversity and content for older children and young adults. You may be aware that some commentators have strongly stated that Channel 4 is not spending enough on content for older children and some core public service broadcasting genres such as the arts. What assessment have you made of this criticism, and where could Channel 4 do better in some of the other areas that I mentioned, especially diversity? Claire Enders: I am always in favour of more opera on the box, but there are also many other ways to get material. I rely very heavily on Ofcom’s assessments of Channel 4. There is
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a mass of data and, again, an area of great complexity is how Channel 4 goes about meeting its remit, which is very subtle and complex. What matters to me more is that the research commissioned by Ofcom on Channel 4 said that it is hitting stuff in the right direction. The fact that it never gets there is basically the challenge of every day. So I am really not in a position to say that Channel 4 is letting me down. Baroness Benjamin: So you do not feel that the fact that it is not spending enough on children and older children is a problem. Claire Enders: I guess my view is simply that once we have the Paralympics on, that will be enough to reach all those audiences. Very few events can reach all those audiences together, and the Paralympics is probably the most significant one that will come around. Channel 4 always has an extraordinary struggle, because in effect if you are tasked to meet minority audiences, you are bound to fail on the ratings area. It is quite a finely tuned model to get enough commercial income to continue to be able to provide minority programmes. I am sure that Channel 4 understands that it always has to improve and, indeed, it announces new initiatives: it announced a 360° initiative to increase diversity on screen—that is a very valuable and important thing to do, and if Channel 4 was not doing it I would be somewhat surprised. I am glad that they are going back on to that. Baroness Benjamin: I really want to focus on children and young people. You do not feel that the channels, such as Channel 4, should have output and content for some of our citizens, because it is a public service channel. Children, especially older children, are being served by almost no channel in the country. You do not think that Channel 4 should be focusing on this. You can use that as part of diversity, if you want to look at it that way. Claire Enders: Sure, it is. But diversity in this country also has to mean non-white and non- male, so it is a very broad topic. I have to say that my understanding of the audience share of Channel 4 does not indicate that it is completely letting these groups down. I am sorry. It may not be reaching the target that Ofcom wants of hundreds of thousands of viewers, but it is definitely not not serving them, if I may put it that way. I would rather, if you want, give you a document that outlines how it does on older children and—what was the other group? Baroness Benjamin: Young children. The BBC go up to 12 year-olds, and a lot of people are looking to Channel 4 to serve the 12 to 16 year-olds, because there is nowhere for them to go. It is in Channel 4’s remit to serve those older children and young people. I was just asking you whether you feel that it should have content and output for that bracket, or whether you think it is not necessary. Claire Enders: I absolutely believe that it is necessary, but I doubt any view that it is not serving these audiences at all today. That is simply not possible, and I will give you the data on that. You might think about programmes such as “Skins”, which were aimed directly at that demographic—or the Paralympics, which were not directly aimed at all of us, I hope. I think about 40 million people watched it in 2012, and I would hope that we would get there again.
The Committee suspended for a Division in the House.
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Q8 The Chairman: Claire, we apologise for the fact the parliamentary process goes on even while we are doing important business. We are in the middle of our questions, and I want to ask about the slightly technical phenomenon of the impact of vertical integration. In the industry, networks are buying up content creators and are doing more in-house production. Channel 4, of course, does no in-house production and, post-privatisation, David Abraham thinks that the spending on the UK indies might fall dramatically if people do the whole job themselves. Do you feel that this phenomenon of vertical integration could have an impact on Channel 4, and is Channel 4 constrained by not being able to keep more of the IP rights from the programmes in commission? Claire Enders: I do not think it is a big issue for Channel 4. To go back to the points that I made to Lord Sherbourne, owning more rights—owning rights currently produces around £75 million a year for Channel 4—might increase the amount of income that they make, so I do not think that ownership of more rights is necessary for Channel 4 to be sustainable. The corollary, again, is the 250 companies that are only commissioned by Channel 4, and potentially by the BBC, and how life would be for those companies. Clearly, the fact that Channel 4 operates terms of trade has been extraordinarily assistive to the growth of a massive sector that did not exist in 1984, which is the non-vertically integrated part of our industry: the 1,600 companies distributed across the land that produce independent programming for all the broadcasters, Sky and the multichannels. The emergence of a vast group of viable and sustainable companies is entirely down to this model. Certainly when I arrived in the UK and started to look at these issues, which I did somewhat quickly, the level of vertical integration at the BBC and ITV was absolute. They did not address many audiences either, certainly nothing other than white males on a good day. So the impact of Channel 4 on this extraordinary phenomenon cannot be dismissed. The other incredible thing about that phenomenon is the professionalisation. As we know, it took 20 years for the companies that Channel 4 commissions to start producing programmes that could be very successfully exported. Now, Channel 4 programmes originated with Channel 4 are very widely sold around the world by their producers, who have become significant companies and can take more risk. It is not something I would change unless you were privatising the business, because it has such incredible value for the regions, small companies and Channel 4’s ability to reach it remit, and I do not think it would be able to do that any other way. Channel 4 might be more attractive if it owned more IP, but it already owns quite a bit of IP and has in fact negotiated with Ofcom to own a bit more. It is not damaging the independent production industry at all for Channel 4 to own a bit more IP and for it to produce £75 million of income last year in programme sales. So it is not something that you should consider doing anything about. Certainly, if there was a privatisation without any remit, the minimum drop on UK indies would be £200 million, because in effect the new owner would vertically integrate. We have seen that happen extensively with Channel 5. There is no reason why an NBCU or any other business would not have every desire to turf out the very complex system of hundreds and hundreds of suppliers that Channel 4 operates so that it is transparent and fair. It is not a system that you would find anywhere outside pure public service broadcasting; it is a real cost. The Chairman: That is very helpful. Thank you.
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Q9 Baroness Bonham-Carter of Yarnbury: When we started thinking about doing this, the idea that Channel 4 would be of interest seemed surprising, if it was keeping its remit. What you said at the beginning of this evidence session slightly concerned me: that Channel 4 is ahead of the game in so many areas—our specialist adviser pointed out that the Grand National got an enormous number of viewers—so maybe it is more attractive than I had thought. Who do you think the likely buyers would be if Channel 4 were to be privatised? Claire Enders: If you were going to proceed down the route of introducing primary legislation that substantially altered the remit, there would be many, many takers. We have already mentioned vertical integration and IP ownership, the flexibility of the model, the flexibility to make profits, and the flexibility to trade outside small companies and so on, not meeting a minority remit. All these, most particularly an extension of the licence to 2030, would make this business of £2.5 billion or £3 billion significantly attractive. The kinds of companies that would be interested would be American companies. We have seen every company, including Vivendi and even Bertelsmann, express an interest in Channel 4. I think people see it as a very innovative business; Marketing Week gave it its prize for the most innovative marketing business. People see it as very cutting edge and very valuable. It would be an American company that bought it; Viacom bought Channel 5, Discovery bought all three media. We have a very high level of interest, which has been a very good thing. If you think about it in numbers terms, you will rapidly see that the amount invested by American global giants in the UK since 2010 is of the order of £10 billion to £15 billion of inward investment in our film and television industry, which is a very good thing. We have those advantages without having to sell the family silver, because we are part of Europe and because there is an inexhaustible supply of British creativity, craft, acting, script writing. We even create the books and export them. We are at a peak of creativity in this space. Many, many people would be interested. Baroness Bonham-Carter of Yarnbury: If there was no change of remit, would there be? Claire Enders: I think that would narrow the group down very strongly. Then only European companies would be interested. Bertelsmann and Vivendi in particular would be interested because they would see the benefits of the innovation and so on, and they would probably see that there would be opportunity, but I do not think they would be quite as flexible as all that. In 2009, there was a project to merge Channel 4 and Channel 5, and unfortunately— Ofcom will have a better memory of this—in effect, the problems of dealing with the interpretation of the remit, which was then that the channel could not make net profits, visible profits, or distributions, or guarantee an exit for any minority shareholder such as Bertelsmann. It is quite complicated, so I discount that as an option, because it is quite difficult to achieve, and it is probably better, if you are going to sell Channel 4 at all, to go for broke and try to get £3 billion—in which case you go about constructing it in such a way as to get £3 billion as well as a number of public goods remaining. Which ones they are, we will see. Baroness Bonham-Carter of Yarnbury: If that were to happen, what effect—these are rather big questions—do you see that having on our indigenous production industry and on what the viewers have on offer?
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Claire Enders: There is no doubt that Channel 4 reaches the parts that other broadcasters do not. That is what it was set up to do, that is what Ofcom tasked it to do, and if it was not doing it, Ofcom would have found a way to beat it to do it, so it has met its legislative requirements and ambitions. If the law changes, that will have massive impacts, particularly on the production industry outside the M25—that would be the top one—and of course it would have a great impact on the diversity and on the words “minority programming”. Nobody is going to outlay £1 billion, £2 billion or £3 billion in order not to earn a return, so a lot of things would get negotiated down. One of the points I wanted to draw your attention to is that in 2009 and 2010, ITV negotiated a number of reductions in its local news, and it did so all the way up until the renewal of its licence. Now that ITV is doing phenomenally well—we do not have an advertising recession at all—it is not like those have been reinstated. They have not—they are permanent losses to viewers. You may not think that losing five minutes of regional news is a loss to viewers, but it is a permanent diminution in the diversity of voices in that part. It is a very difficult one, because inevitably anyone who looks at Channel 4 says, “It’s basically all or nothing. You have so many benefits from this model”. It is hard to see a way in which you can keep that and then have another outcome. The basic nature of public goods is that there are no substitutes for them. At the DCMS, when I presented on these topics, the Secretary said to me, “But surely Amazon and Netflix will make exactly what Channel 4 makes tomorrow. Look at ‘Transparent’”. I said, “Well, yes, but Amazon has just commissioned ‘The Crown’ and ‘Top Gear’. It’s not minority audiences, guys”. It is the opposite; it has a global model and it is really not interested in our culture. I feel an enormous sense of pride in using the words “British culture”, which is something to be extraordinarily proud of and to sustain. If you look at Channel 4, which does not and has not cost us anything, and has not had to be bailed out, and out of which have come these manifest public goods—nothing is perfect; I absolutely agree with that, and there are many changes—but an extraordinary export industry has also come out of it which the UK did not have before, and a professionalisation of the film industry that ended up by attracting that £15 billion of inward investment. You have to look at things over 30 or 40 years and see that actually on no step of the way do you want to lose any of the economic benefits that you have generated out of the investment of this nation in developing those outcomes and outputs. Obviously, right this minute, Brexit would be a much more significant risk to the independent sector, marketing and advertising than privatisation would be. Fundamentally, however—I say this as an analyst of 30-plus years’ vintage—you do not recover public goods that you give away for any reason for any negotiation, and private companies have a way of negotiating extremely hard and of having no locus of respect for legal obligations if they become economically difficult.
Q10 Earl of Arran: A most compelling and passionate advocate for Channel 4. I reserve some sympathy for the Secretary of State if he tries to interfere too much with you. However, that is in the future. This is a very brief inquiry, as you know. Are there some areas that you suggest we look at and that should have more importance than other areas in our inquiry?
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Claire Enders: I would urge you to focus your minds also on the original, core and existing legislative requirement upon Channel 4 for minority audiences and not to miss out on outlining the fact that this is a mission that Channel 4 is delivering on, and it is important for us. I am really talking about groups that find their voice on Channel 4 that do not find it elsewhere, particularly BAME viewers. It is extraordinarily important not to forget the subtle impact on society that beautifully made public service broadcasting has. It has a very good impact. It is very difficult to measure, and I do not think that anyone—including Channel 4— could say, “We could measure the impact that Channel 4 has had on society these last 30 years”. We can measure the obvious huge impact it has had on independent production, on advertising diversity, on the whole competitive landscape, and so on and so forth, but I know that that is the case, because I came to this country in 1981 as an immigrant and I have felt the changes. After the 2012 Olympics and Paralympics, I felt more of that change. I just hope that you will reflect on the fact that even if I cannot prove it to you, I believe that Channel 4 has a beneficial impact on us all. The Chairman: That is a great note to end on. Thank you very much indeed, Claire. As always, you were very robust but equally very clear, which is extremely helpful to the Committee. Thank you very much for joining us. Claire Enders: Thank you so much.
122 Equity – written evidence (SCF0008)
Equity – written evidence (SCF0008)
Inquiry into the sustainability of Channel 4
1. Equity is the trade union representing 40,000 performers and creative workers. Our membership includes actors and other performers working in television and radio drama, comedy, children’s programming and entertainment. We also represent television and radio presenters.
2. Equity welcomes this Inquiry at a time when Channel 4’s future as a publicly owned broadcaster appears to be under threat. We have provided brief comments on the questions posed in the call for evidence and would welcome an opportunity to provide further oral evidence to the Committee. As the representative organisation of performers and creative workers who provide much of the skills and talent which drives C4C’s output we believe we could provide a valuable perspective to the inquiry.
Funding 3. There is little evidence to suggest that C4C is not currently financially sustainable. C4C has annual revenues of nearly £1bn and reserves and assets totalling around £500m. It also accounts for 20% of UK TV advertising spend. Crucially for Equity members, C4C invests strongly in original UK content. In 2014 C4C spent over £430m, or 66% of its income on content, compared to 58% and 52% by the BBC and ITV respectively.
4. In March 2014 Ofcom announced that the C4C licence would be renewed for another 10-year period. In doing so, Ofcom confirmed that they considered C4C’s current funding model to be ‘credible’. Ofcom also believed that renewing the licence for ten years would ‘provide continuity and certainty for long-term investments’.
5. In 2015 E&Y added that they ‘consider C4’s future to be sustainable, provided it retains the commercial and regulatory flexibility to respond to market developments and short-term change in the manner in which it has done so in the recent past’. Given these positive statements, it does not appear that there is a case for privatisation of C4C based on the sustainability of funding.
Viewing 6. The call for evidence asks if the extent of the decline in reach and share of the main channel (Channel 4) is a problem and if viewing figures for Channel 4 are sustainable. These questions appear to run contrary to the audience figures reported by Channel 4. In 2015 Channel 4 actually grew its audience share, albeit for the first time in a decade. It was also the only terrestrial channel to grow its audience share among all
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individuals (up over 1%) and among 16-24s (up by over 2%). 28% of Channel 4’s audience is 16-24 compared to 15% and 13% for ITV and BBC respectively.
Remit 7. Equity supports the current remit of C4C and has a particular interest in its responsibilities to nurture new talent, to reflect cultural diversity, to show alternative viewpoints and to invest in film. The fact that this remit has a legislative footing, most recently updated by the Digital Economy Act 2010, provides an important accountability mechanism beyond Ofcom’s oversight of all of the UK’s public service broadcasters.
8. In 2014 Equity also welcomed Ofcom’s proposals to increase the Out of England production quota for Channel 4 to 9% by 2020 as an important step towards increasing investment in television and film production in the UK Nations and encouraged Ofcom to set a higher target given Channel 4’s strong performance against its existing targets.
9. Improving diversity is perhaps the biggest challenge currently facing all UK broadcasters following sustained campaigning efforts by individuals, unions including Equity and groups such as the Act for Change Project.
10. Equity has welcomed C4C’s 360⁰ Diversity Charter and 30 commitments to improve on and off screen diversity including new Commissioning Diversity Guidelines which set targets for on screen representation of female, LGBT, BAME and disabled performers in scripted programming. As with all diversity policies set by broadcasters, Equity will be interested in watching how C4C delivers on its commissioning and portrayal targets, particularly once the Project Diamond initiative is up and running and provides its first data sets.
11. Equity has also urged C4C to ensure that promoting diversity is replicated throughout its operations and supply chains. As such, appropriate oversight of casting processes must take place to ensure that best practice in diversity at corporate level is matched by the experience of creative professionals auditioning and working for independent companies commissioned by C4C.
Ownership 12. Freed from the commercial pressures of privatisation, C4C is a leader among UK broadcasters in commissioning a range of high quality and original productions. Half of C4’s commissions are long running series and a large number of Equity members have worked as presenters or performers across C4C’s comedy, entertainment and drama output. A number of UK performers have also achieved international success following appearances in award winning films backed by Film 4.
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13. If C4C were to be privatised it is likely that, in order to match the profit margin of other broadcasters, programming budgets would be cut considerably and schedules would feature much more bought-in content and repeats. This would not be in the interest of UK audiences and would have an adverse effect on the independent production sector, which depends on the existence of C4C as a key funder - accounting for 35% of all spending on indies by public service broadcasters. In this scenario employment opportunities for performers and other creative workers would also be greatly reduced.
14. Despite assurances from the Secretary of State for Culture, Media and Sport that C4C’s remit would survive any privatisation, it is inevitable that a profit maximising owner would seek to erode the remit over time, leading to a reduction in content for diverse audiences. Any reduction in such programming would also affect the employment opportunities available to performers and other creative workers from underrepresented backgrounds who are more likely to currently gain employment in C4 commissioned programming which aims to represent the UK’s cultural diversity.
20 April 2016
125 Professor Sylvia Harvey – written evidence (SFC0028)
Professor Sylvia Harvey – written evidence (SFC0028)
INQUIRY INTO THE SUSTAINABILITY OF CHANNEL 4
The Future of Channel 4 and the Sustainability of Public Service Broadcasting in the United Kingdom
1.0. Introduction: Where is the sustainability problem?
1.1. It is right to expect that an elected Government will seek to set the agenda on the key issues of the day. The future of the ecology of public service broadcasting (PSB) is one of those issues. PSB channels, including Channel 4, are popular with British audiences and collectively took a 72 per cent share of all television viewing in 2014 (Ofcom, 2015a: 196; 198). This figure includes viewing to both the main and related portfolio channels run by the PSBs, a club created by Parliament that includes the BBC, ITV, STV, Channel 4 and Five. This popularity led Ofcom to speak of the PSB institutions as ‘…a powerful force in society’ (Ofcom, 2015b:2). It is also important to note that the PSB sector in the UK includes both privately and publicly owned channels and Channel 4 -though funded by advertisements and in that sense ‘commercial’ - is publicly owned.
1.2. The framing of the prospects for Channel 4 (C4C) in terms of a supposed lack of sustainability seems inappropriate for two reasons. Firstly because it is not alone in having confronted and weathered financial difficulties. There are other members of the PSB family that have confronted serious challenges either as a result of the banking crisis of 2008 or because, in the case of the BBC, Government has decided to use parts of an otherwise static licence fee to fund activities previously supported by Government Departments (the World Service, international news monitoring, local television, the Welsh Fourth Channel, broadband and more recently the welfare payments required to cover licence fees for the over 75s). These Government obligations of 2010 and 2015 arguably amount to a 40 per cent cut in the BBC’s budget by 2020 (House of Commons, 2011; Osborne, 2015). Thus the capacity of the BBC has been diminished by public authority with clearly reduced scale and scope and a sustainability that is arguably weakened.
1.3. ITV also suffered badly in the wake of the 2008 recession because of the general drop in advertising spend and the need to recast its business plan. Ofcom notes that advertising revenue for ITV reduced by nearly 8.9 per cent in 2008 and by slightly less - 8.2 per cent - for Channel 4 (Ofcom, 2010: 68). For ITV a much enlarged debt of £612m in 2009 had reduced to £188m by the following year but earnings per share had been at an all-time low in 2009 at 1.8 pence (ITV, 2011: 5; 26). However, both ITV and C4C were to emerge intact from the advertising recession, spurred on to produce more robust business and
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service plans and retaining a still valuable share of growing Net Advertising Revenue (NAR) despite suffering loss of audience share (Enders, 2015: 15).
1.4. Thus, whilst C4C has not been alone in facing some common problems (intensified channel competition, the search for attractive programmes and audiences, NAR retention) it seems now to have recovered well from the difficult years of 2007-10 and to have embarked on a series of innovative and successful initiatives and to have established some useful reserves.
2.0. Funding
2.1. A warning issued by Ofcom in a 2007 report noted: ‘…the possibility that significant financial problems could emerge that would affect Channel 4’s ability to deliver its remit’. C4 might need to request ‘short term support’ (Ofcom, 2007: 3-5). The banking crisis and financial crash that hit the British economy in the following year, 2008, rendered it highly unlikely that public support would be forthcoming.
2.2. Fortunately for C4C its financial health took a turn for the better, in part because of the risks it had taken in the early 2000s, developing a wider portfolio of services with the launch of several new digital channels. So although its main channel was attracting a modest 4.8 per cent audience share by 2014, this was outshone by an additional 6.1 per cent of viewing coming from the wider portfolio or family of channels – E4, Film4 etc. – giving C4C a combined UK audience share of 10.9 per cent (Ofcom, 2015a). This aggregate matched the figure of around 10 per cent of viewing that had been achieved from the original Channel 4 alone in the early 1990s in a world still relatively untouched by the multi-channel phenomenon (Channel 4, 1993:18). Substantial advertising income followed.
3.0. Viewing
3.1. The audience share figure of 10.9 per cent in 2014 positions C4C among the top three most popular UK broadcasters - above the subscription-based Sky family of channels at 8.2 per cent but below the free-to-air portfolios of BBC and ITV whose audience shares were respectively at 33.1 per cent and 22.0 per cent (Ofcom, 2015b p198). This success might make C4 a tempting prospect for acquisition by a profit-distributing operator but makes it difficult to see why Secretary of State John Whittingdale believes that a privatisation rescue is required for its own good: ‘Channel 4 would have a stronger future if it has a private sector partner who has deep pockets and was willing to invest in the growth of the business’ (Whittingdale, 2016) Just how big does the third biggest player in British broadcasting need to get? C4C is no minnow though perhaps attractive to a shark.
3.2. C4C is also popular with advertisers because it is believed to rank above other ad- funded channels in respect of its share of the most difficult-to-reach audience of 16 – 34 year olds; 28 per cent of all viewing to its main channel was believed to come from this
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group, (Channel 4, 2015: 7; Enders, 2016:). All these factors make C4 a tempting prospect for acquisition by an international media company.
4.0. Remit
4.1. Channel 4’s specific remit is outlined in the 2003 Communications Act, Section 265 with additional obligations dealing with public service, out of London production, news, independent production, original production and education (Sections 264, 288, 279, 277, 278, 296) (1). In addition the Digital Economy Act of 2010 strengthens various existing obligations notably in respect of investment in films that ‘…reflect cultural activity in the United Kingdom’, along with the production of content for ‘…older children and young adults’, support for people with ‘creative talent’ and the provision of content that will ‘… stimulate well-informed debate…by providing access to information and views from around the world’ (DEA, Section 22). From 2015 the new C4C licence also raised the bar on the amount of production to be resourced from outside the London area (raising this from 3 per cent to 9 per cent by 2020, Ofcom, 2014).
4.2. The Secretary of State has indicated that he would prefer to sell the Channel to a new owner but with its remit intact. If the totality of the existing remit were to be transferred to a new licence this might retain something of the character and quality of what C4S has come, historically, to represent. However, the two problems with such an action are, firstly, that enforcement of the wide-ranging remit could seriously limit the market-based decisions made by the new owner and would almost certainly limit the profitability of the new company.
4.3. It is a generally accepted truth that anywhere in the world 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. Although, 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. The point of principal here is that market wisdoms and shareholder interests might both be jeopardised by a strong remit.
4.4. Secondly, it cannot be assumed that the regulator, Ofcom would at all times require adherence to the existing remit. This is in part because the 2003 Act requires the regulator to take account of the costs and resources available to providers (Section 264.7). In the case of ITV we have clear evidence that over time, and under external cost pressures, the regional remit, for example, was significantly eroded; this remit had required that programmes be made specifically for people in the different English regions and in the nations of Scotland, Wales and Northern Ireland. Between 2004 and 2014 - the first ten years of Ofcom’s existence – ITV reduced the hours of regions and nations programming by 31 per cent and their cost by 66.5 per cent (Ofcom, 2015c: 29; 31). Here is clear evidence that public remits can be changed by private providers.
5.0. Ownership
128 Professor Sylvia Harvey – written evidence (SFC0028)
5.1. The Channel 4 Corporation has made the case that its ownership by the state and its ‘social enterprise’ model has enabled it to spend more of its income on making programmes than, for example, its shareholder-reliant competitor ITV. C4 claims that in 2014 two thirds or 66 per cent of its revenue was spent on content while its much larger rival ITV spent just over half or 52 per cent of revenue on making programmes. This investment in new content is good for audiences (increased choice, originality and diversity) but may not be so good for shareholders.
5.2. In absolute terms it may be useful to compare the revenues received by Channel 4 and by ITV in 2014. Total revenue for C4C was £938m of which £602m was spent on all content production, including the buying-in of foreign series etc. Some 70 per cent of this content budget (£430m) was spent on UK-originated content (Channel 4, 2015: 8; 21; 24). By contrast ITV had a total revenue of £2.956 billion (three times as much as C4 in the same year), an investment of ‘over £1bn annually in programming’ and a commitment to providing an improved dividend for shareholders. The ITV content investment figure at nearer to one third of total revenue is clearly a smaller proportion of income than that spent by C4 (ITV, 2014: 5-6; 16-17).
5.3. In 2015 David Abraham, CEO of Channel 4 - with widespread previous experience of the commercial and private sector - suggested that a privatised C4C would need to generate profits of around £200m a year on a current annual revenue of £930-950m. Questioned by the House of Commons Select Committee for Culture, Media and Sport in October he suggested that necessary cost savings would need to be made to enable the payment of dividends to shareholders (Abrahams, 2015). Significant amounts of production might need to move in-house to facilitate the ownership and exploitation of intellectual property (contrary to the founding principle of Channel 4 that it should operate as a publisher broadcaster), it would need to show more entertainment programmes, to screen more foreign acquisitions and to work with fewer independent producers. Since C4C’s establishment in 1982 a fundamental part of its activity has involved commissioning outside, independent producers a move that Parliament considered would help to secure the radical independence of the new channel, seeking new ideas, produced well outside its own corridors.
5.4. In the light of the practical changes that would need to be made to generate a surplus for shareholders the advocacy of remit retention by the Secretary of State seems somewhat implausible. Moreover, the remit argument would need to be tested and accepted by both Houses of Parliament if the necessary legal changes were to be achieved to move C4C into the private sector.
6.0. Conclusion
6.1. Not all of Channel 4’s content is innovative and it has significantly smaller resources than BBC, ITV and the subscription broadcaster Sky. Nonetheless the record shows that a very large number of awards have been given to its programmes and it is, in respect of audience choice, the third most popular broadcaster in Britain.
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6.2. In 2014 just over 300 UK and international awards and four Oscar awards were received, with Steve McQueen’s 12 Years a Slave receiving the Oscar for Best Picture in March of that year (Channel 4, 2015). McQueen, a Turner prize winner, also received C4 investment and support for his earlier and arguably riskier projects, the feature films Shame and Hunger. And there were important documentaries and documentary series: Syria: Across the Lines, Educating Yorkshire, Dispatches: Children on the Frontline, Kids in Crisis and the internationally-oriented strands Unreported World and True Stories as well as the widely respected one hour news programme in peak time. There is no doubt that the output of C4C in recent years has offered greater choices to audiences and has proved attractive in particular to younger audiences.
6.3. It is unlikely that privatisation would strengthen the range and quality of work offered by this broadcaster. And it is more likely that, as outlined above, the necessity of producing a dividend-oriented surplus would draw resources away from experiment and innovation. British broadcasting would be the poorer as a result.
Notes
(1) The Channel 4 licence, since 1982, has included the following requirements: to demonstrate ‘…innovation, experiment and creativity in the form and content of programmes’; to appeal ‘…to the tastes and interests of a culturally diverse society’; to make a ‘significant contribution’ of ‘…programmes of an educational nature and…of educative value’ and to ‘exhibit a distinctive character’, Communications Act 2003, Section 265.
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References Abrahams, David (2015) Presentation of evidence to the Select Committee for Culture, Media and Sport, 13 October. Available online at: http://www.parliamentlive.tv/Event/Index/d03828d3-9077-42a7-99ba-8ea8221a9720 accessed on 24 April 2016.
Channel 4 (2015) Britain’s Creative Greenhouse. A summary of the 2014 Channel 4 Annual Report and other key facts. Available online at: http://www.channel4.com/media/documents/corporate/annual- reports/C4_Brochure_Single_Pages_2ndJune15.pdf accessed on 25 March 2016.
Communications Act (2003). Available at: http://www.legislation.gov.uk/ukpga/2003/21/contents accessed on 15 April 2016.
Digital Economy Act (2010). Available online at: http://www.legislation.gov.uk/ukpga/2010/24/contents accessed on 15 April 2016.
Enders Analysis (2015) Channel 4: Sustainability and privatisation. London: Enders.
Enders Analysis (2016) Channel 4. Viewing Trends and Sustainability. London: Enders.
House of Commons, Culture, Media and Sport Committee (2011) BBC Licence Fee Settlement and Annual Report, HC 454. Available online at: http://www.publications.parliament.uk/pa/cm201012/cmselect/cmcumeds/454/454.pdf accessed on 30 September 2015.
ITV (2011) Annual Report and Accounts 2010. Available online at: http://www.itvplc.com/sites/itvplc/files/Annual%20report_0.pdf accessed on 19 April 2016.
Ofcom (2007) Channel 4 Financial Review. Available online at: http://stakeholders.ofcom.org.uk/binaries/broadcast/reviews-investigations/psb- review/statement.pdf accessed on 25 March 2016.
Ofcom (2010) Communications Market Report 2009. Available online at: http://stakeholders.ofcom.org.uk/binaries/research/cmr/CMRMain_1.pdf accessed on 15 April 2016.
Ofcom (2014) Renewal of the Channel 4 licence. Available online at: http://stakeholders.ofcom.org.uk/consultations/renewal-c4-licence-out-of-england- quota/statement accessed on 25 April 2016.
Ofcom (2015a) Communications Market Report. Available online at: http://stakeholders.ofcom.org.uk/binaries/research/cmr/cmr15/CMR_UK_2015.pdf accessed on 20 April, 2016.
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Ofcom (2015b) Public Service Broadcasting in the Internet Age. Ofcom’s Third Review of Public Service Broadcasting. Statement. Available online at: http://stakeholders.ofcom.org.uk/binaries/consultations/psb-review- 3/statement/PSB_Review_3_Statement.pdf accessed on 15 April 2016.
Ofcom (2015c) Public Service Broadcasting in the Internet Age. Ofcom’s Third Review of Public Service Broadcasting. Data Annex. Available online at: http://stakeholders.ofcom.org.uk/binaries/consultations/psb-review- 3/statement/PSB_Review_3_Data_Annex.pdf accessed on 20 April 2016.
Osborne, George and Whittingdale, John (2015) Arrangements for Over-75s TV Licence. Available online at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/443735/L etter_from_George_Osborne_and_John_Whittingdale_to_Tony_Hall_FINAL.PDF accessed on 30 September 2015.
Whittingdale, John (2016) Witness evidence to the House of Lords Communications Committee, 26 April, 2016. Available online at: http://www.parliamentlive.tv/Event/Index/d7561cd2-7f7b-46b7-9fa6-873838621f46 accessed on 27 April 2016.
Note: some of the material in this submission is drawn from my chapter ‘The remit and the risk factor’ in What Price Channel 4? To be published by Abramis Academic Publishing in June 2016, with kind permission of the editors, John Mair et al.
27 April 2016
132 Lord Hollick – written evidence (SCF0030)
Lord Hollick – written evidence (SCF0030)
Channel 4 was established as a publisher broadcaster by the Government in 1982 to bring distinctive and innovative programming to large audiences and to help create a thriving independent production sector in the UK. It has achieved both objectives in full measure and stands as an outstanding example of successful Government intervention to promote market growth and competition. And all this without a penny of Government money. Relying on advertising and commercial revenues Channel 4 has thrived in an increasingly competitive marketplace by investing its operating surplus in programming to attract large and, from an advertising perspective, valuable audiences.
By developing its own family of digital channels C4 has extended its reach and range and by entering into partnership to gain scale benefits in advertising sales, news production and programme development and production it has created an efficient, robust and sustainable business model well able to cope with the cyclical fluctuations in advertising revenue.
Why then contemplate the privatisation of C4? Would privatisation help to improve the performance of C4? Is C4's business model under threat and in need of deeper pockets to survive? No convincing case for privatisation has been made but the disadvantages of privatisation, be it in whole or in part, are plain for all to see. If the aim is to maximise the sale value, then C4's remit would have to be markedly diluted. That means a substantial reduction in investment in programming with original commissions being replaced by bought-in programming, the emasculation of programmes like C4 news which deliver low audiences at peak time and the elimination of the successful team of creative commissioning talent. Taken together these measures might achieve a 20 per cent plus profit margin on revenues which could tempt buyers, but at the expense of C4's valuable contribution to innovative programming, to diversity for the viewer and to the detriment of the ecology of the UK broadcasting sector.
Agreeing a valuation for a partial privatisation would run into the same tension between boosting the enterprise value and sustaining the remit. And if consummated, a partial privatisation would create a pantomime horse with the forelegs pressing hard to deliver the remit and the hind legs scampering to secure a generous return on its investment. If a commercial concern is keen to access C4's programming expertise and benefit from its distribution and marketing clout a co-production partnership would be a far simpler and more efficient way to achieve their objective.
For the viewer and the creative economy privatisation in whole or in part would be no less than an act of vandalism in stark contrast to the vision and commercial wisdom of the Thatcher Government which created Channel 4.
If the Government is intent upon monetising the book value of its £450-500m investment in C4 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.
133 Lord Hollick – written evidence (SCF0030)
The consideration for this transfer can be funded by a combination of C4's cash and liquid assets (currently £250m), a loan on its freehold property (book value £1OOm) and the operating surplus generated in future years. With 90% of its income dependent upon cyclical advertising revenues, a pension deficit of £1OOm to fund and the requirement to fulfil its remit to invest in original programming, C4 must maintain a prudent level of surplus liquidity. This can be achieved by issuing a loan note to HMG with a nominal rate of interest, redeemable over a number of years out of annual trading surpluses to cover up to £250m of the total consideration. OFCOM will continue to regulate Mutual C4, ensure compliance with its remit under pain of license withdrawal and approve the appointment of its Chair.
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.
11 May 2016
134 Paul Horgan – written evidence (SCF0002)
Paul Horgan – written evidence (SCF0002)
INQUIRY INTO THE SUSTAINABILITY OF CHANNEL 4 Evidence submitted in a private capacity
Funding
Is C4C financially sustainable? Is the revenue provided by advertising sufficient to make Channel 4 Corporation (C4C) sustainable?
Are there any other commercial/non-commercial revenue streams which could/should be explored?
1. Channel 4 is not financially sustainable. It is an inefficient broadcaster and is making losses. It has three basic channels, two more that appear to broadcast repeats of Channel 4's food and property strands, documentaries and reality programming. In addition it has three more channels that are just time-shifts by one hour. And this excludes the high-definition channels. It also has a channel devoted to broadcasting music videos and reality shows from the USA. It is not making as good a use of its channels as the BBC does and probably broadcasts many more repeats. The corporation finds itself unable to fill all the channels it has with distinct and original content.
2. The channel is not making the best use of its three and half decades back-catalogue of original programming. It would be possible for the channel to monetise these by creating a Netflix-style channel.
3. The channel could consider looking to integrate itself with other media organisations that do not have a broadcast footprint.
Viewing
Is viewing of Channel 4 (the main channel) and C4C sustainable? To what extent is the decline in reach and share on the main channel a problem for C4C?
4. Channel 4 was set up as a niche and experimental broadcaster in an era of three- channel analogue terrestrial television to cater for minority interests. Its revenue model meant that it could survive due to a funding relationship with ITV. As the number of channels has increased exponentially following the digital switch-over and the advent of internet video, Channel 4 now has serious competition for its original and experimental content. From being one of four channels, it is now only one in four million. The need for a niche, experimental broadcaster is now open to question. Most of Channel 4's output is now mainstream content to the point where it is nicknamed 'Channel three-and-a-half' by the industry. Channel 4 now recognises
135 Paul Horgan – written evidence (SCF0002)
that its viewing model is unsustainable as it is now the main terrestrial broadcaster of mainstream imported American comedies, which is quite far removed from its original brief. This demonstrates the extent of the problem.
To what extent is Channel 4 (the main channel) equipped to deal with the challenges posed by new technology and viewing habits such as online and search and recommendation?
5. Channel 4 is a media organisation, but it is tied to the television broadcast model, which is restricting its audience reach. For it to succeed, it has to embrace internet technology and not be tied to legacy 20th Century platforms. It is experiencing the same challenges as the print newspaper industry, which has seen one national newspaper abandon physical content to be published exclusively online. Channel 4 should become a platform-agnostic media corporation if it is to have a future. At present it is decisively not equipped to do this. If it makes the transition, it has the potential to become a global brand.
Remit
Would changes to the Channel 4’s remit provide greater sustainability for the broadcaster? Is the current legislation too detailed, or too vague? What benefits/drawbacks could there be to Ofcom’s suggestion in its PSB review8 that PSB obligations be applied to C4C as a whole rather than to the main channel alone? Does the current regulatory system provide for adequate assessment of C4C’s performance against its obligations?
6. The current legislation states that the public service remit for Channel 4 is the provision of a broad range of high quality and diverse programming which, in particular—
(a) demonstrates innovation, experiment and creativity in the form and content of programmes; (b) appeals to the tastes and interests of a culturally diverse society; (c) makes a significant contribution to meeting the need for the licensed public service channels to include programmes of an educational nature and other programmes of educative value; and (d) exhibits a distinctive character.
This has been used by programme-makers to produce programmes that are anti- capitalist and left-wing in character. Topical programming in the last decade can be characterised by being not so much anti-government as openly hostile to the Conservative Party and UKIP. To illustrate, the topical news programme 'The Last Leg' is little more than a rant against government ministers, while saying virtually nothing about Labour's support for dictators, terrorists and anti-semites. The science-fiction drama 'Aliens' depicts an alternate history where a Conservative government built ghettoes for extra-terrestrials. If there was an alternate history, it could have included a Labour government under Denis Healey. Instead the
136 Paul Horgan – written evidence (SCF0002)
demonisation of Margaret Thatcher continued unabated. In the case of Channel 4, 'cultural diversity' essentially means 'opposition' which is something entirely different. Channel 4 needs to remove the politics out of its diversity. Being diverse can also mean being neutral and even-handed. The remit needs to be changed to depoliticise the channel. Public service should be politically neutral. There is also no need to promote republicanism in our constitutional monarchy.
7. The obvious drawback to Ofcom's suggestion that the remit apply to all channels is that this would impact viewing figures, which would impact advertising revenue. However, it is insincere for the channel to ignore its remit, otherwise, what is the point of Channel 4? The remit has to be altered to reflect the massive changes in video technology. Channel 4 is stuck in an innovative rut as it tries to compete. The remit change would allow the model to be more sustainable as a commercial broadcaster. I would suggest that the channel no longer needs to be culturally diverse as there is no longer a 4-channel television environment where minorities are ignored due to lack of time and space. However, it can find diversity in innovation, experiment and creativity. The change in remit should be a matter for debate amongst professionals and the public.
8. The last review of the remit by Ofcom appears to have been nine years ago. There have been significant changes to the channel and digital video technology since then, not least because modern smartphones are capable of producing high-definition videos. The advances in technology mean that a review of the remit is vitally overdue. There does not seem to be any regularly scheduled remit reviews, like there is for BBC charter renewal.
Ownership
What are the different models of ownership for C4C? What are the positives and negatives of these? Would a change in ownership, such as privatisation, affect the remit of C4C, and in what ways?
What impact might privatisation have on:
a) key PSB genres such as news and current affairs; b) the independent production community; c) those communities/audiences currently served by C4C’s remit; d) the advertising industry; and e) the viewer/consumer?
9. There would seem to be four different models for ownership:
i. Public; this is the status quo which is becoming increasingly unsustainable as detailed above.
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ii. Enhanced public; Channel 4 is merged with BBC1, BBC2, BBC3, Radio1, Radio 2 and Radio 5 as a state-owned commercial broadcasting corporation with public service obligations. BBC 4, Radio3, Radio 4, Radio 4 Extra and Radio 6 remain state-owned using a reduced licence fee. This may be outside the scope of this exercise.
iii. Public/private; this would facilitate control over the remit and its adherence by statute. The function of this would be a matter for discussion. It is conceivable for Channel 4 to be bought by a consortium headed by the Guardian Media Group and also including a major telecommunications company to allow the corporation to evolve into a multimedia broadcaster with a technological backbone. The government could retain a 'golden share' to allow regulation of the remit and provision of a public service element. The golden share has been used in the privatisations, but were ruled illegal by the European Court of Justice, but these were on the grounds of freedom of capital flow and ownership. A golden share for Channel 4 would be about editorial control and not finance so may be outside the ECJ judgement.
iv. Totally private; the remit would be in doubt as commercial considerations would take priority. A golden share here would be vital to retain the channel's character.
10. Given that Channel 4 is already a commercial organisation, it is not clear whether a change of ownership would actually have any editorial impact. There would be a need for profitability, which is lacking at present. But then Channel 4 has always been a commercial organisation looking to make profits; it is now just a loss-making one, so the commercial model is currently flawed anyway and has to change irrespective of ownership. Any change will obviously have an effect on content and as such the viewers. But Channel 4 cannot be allowed to perpetually make losses. So the impact on viewers of privatisation is, in fact, moot. There has to be change of one kind or another if the channel is to survive. The issue would be that a totally privatised organisation would have profits used for the benefit of the owners and not completely ploughed back into programme-making. Some compromise, based on the golden share would be useful here, limiting the profits that could be taken out of the organisation.
11. There is no evidence in the public domain that advertisers have refused to sell their goods and services through Channel 4, and Channel 4 does not appear to have a distinct ethical advertising policy.
12. The only issue that may arise is if there is a conflict of interest between the new owners of Channel 4 and the content produced by the channel. For instance, if the new owners were an American media corporation and American consumers, who would never see the channel's content normally, were to object to it where it may conflict with their ethics. For example, if there was a drama featuring a gay love
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story that involved explicit scenes, then an American owner may receive protests from representatives of the Christian Right as they would not want to be associated with a broadcaster that produces what they viewed as pornography. Other commercial conflict of interest may occur if the channel were to investigate other commercial or related interests of the new owners or to perhaps make programmes more or less explicitly attacking the country of the owner, assuming the owner was an overseas corporation.
13. Another consideration may be based on the demise of the News of the World, that Channel 4 may produce such content or such behaviour, like the BBC did with Jimmy Savile, that so disgusted the nation that advertisers would boycott the channel. However, given that an advertiser boycott would have affected the channel irrespective of ownership, this may be moot. Legislation and a golden share may be sufficient to permit editorial independence.
14. The communities/audiences currently served by Channel 4's remit are not entirely clear, except that they are not mainstream. Given that Channel 4 currently has more channels than it can broadcast content on and also the availability of time-shifting devices as well as the internet, the channel does have a great deal of freedom to structure content delivery for these audiences without necessarily compromising profitability. People must accept that the Internet is ubiquitous and as such programming may be shifted to it.
15. There is a great structural change under way as traditional media adapts to the Internet. Consumer devices now make it possible to view content at any time and not to have to rely on a broadcast schedule. Audiences are fragmenting and disappearing from scheduled broadcast. Keeping the current business model is a guarantee that Channel 4 will continue to be loss-making. The station needs to deliver more value from its assets and also does need more investment than it can receive from selling advertising. It is has a 20th Century business model and is not adapting. I have outlined one possible model for its future by merging with other media corporations as well as those that specialise in content delivery.
7 April 2016
139 Incorporated Society of British Advertisers (ISBA) – written evidence (SCF0004)
Incorporated Society of British Advertisers (ISBA) – written evidence (SCF0004)
1. Introduction
1.1 ISBA is the representative, not-for-profit membership body for British advertisers. It represents the specific interests of some 450 companies who advertise their products and services - not the advertising agencies which create and place the advertising for them, nor the many different companies in whose media the advertisements appear.
1.2 The Committee may be aware of our organisation through our recent input into its Inquiry into the BBC Charter Review – September 2015. For further information please see www.isba.org.uk.
1.3 We submit this response against a background of numerous similar submissions to numerous inquiries over many years. These include the BBC Funding reviews of 1999 and 2006; the BBC Charter review in 2003; the Communications Act 2003; the creation of the BBC Trust in 2006 and subsequent amendments to it in 2010 & 2011; and most recently the BBC Trust review of its programmes and services on the 18th September 2015.
1.4 As individual citizens and consumers, we and our members admire Channel 4 and consume considerable quantities of its various outputs. As brand owners themselves, Britain’s advertisers recognise Channel 4 as complementary to most other commercial channels.
1.5 They understand its importance and continue to support its remit to be innovative, experimental and distinctive and providing employment and careers for many.
1.6 ISBA therefore welcomes the opportunity to present its perspectives on the issues raised in the Channel 4 inquiry to the Lords Select Committee.
2. Executive Summary
2.1 We do not position ourselves as 'cheerleaders' for the incumbent ownership model, nor its management, but we do have some clear and strong views about the possible consequences of a sale of Channel 4.
Its output and audience are complementary to most other commercial channels, especially those of scale, which makes it attractive to certain advertisers like those targeting upmarket or younger audiences.
140 Incorporated Society of British Advertisers (ISBA) – written evidence (SCF0004)
Moreover, its programming is also complementary within itself, which is why it delivers very high aggregate reach from relatively low audience programmes, another unique attribute amongst commercial broadcasters which makes it attractive to many more advertisers.
So in summary Channel 4’s audience and aggregate delivery of it are uniquely attractive to its advertisers, and any change in ownership would most likely to threaten this uniqueness.
3. Funding - Is C4C financially sustainable? Is the revenue provided by advertising sufficient to make Channel 4 Corporation (C4C) sustainable?
3.1 As the representatives for advertisers we believe that C4 is financially sustainable as it has unique draw for advertisers.
3.2 Although it commands a lower audience share than, say, ITV, C4 is particularly valuable to advertisers in its current form. It generates high unique and incremental coverage of many hard-to reach target audiences through its very diverse programme slate and by appealing to 'all of the people, some of the time'.
3.3 At present we believe Channel 4 is financially sound with reports from various media sources such as the Guardian article in January 2016. Its revenues are expected to be nearing £1bn this year with 10% coming from areas such as digital. In addition, its remit to provide distinctive, risk-taking programming support the independent production sector which is essential to the UK creative economy.
4. Are there any other commercial/non-commercial revenue streams which could/should be explored?
4.1 This is primarily for Channel 4 to answer, but we consider it innovative and thorough in its exploration and harnessing of commercial revenue streams.
5. Viewing - Is viewing of Channel 4 (the main channel) and C4C sustainable? To what extent is the decline in reach and share on the main channel a problem for C4C?
5.1 Our members’ do not see this as an issue, as stated in the Executive Summary, Channel 4’s output and audience are complementary to most other commercial channels, especially those of scale, which makes it attractive to certain advertisers like those targeting upmarket or younger audiences.
5.2 Moreover, its programming is also complementary within itself, which is why it delivers very high aggregate reach from relatively low audience
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programmes, another unique attribute amongst commercial broadcasters which makes it attractive to many more advertisers.
6. To what extent is Channel 4 (the main channel) equipped to deal with the challenges posed by new technology and viewing habits such as online and search and recommendation?
6.1 We believe C4 is well-equipped to deal with the challenges posed by new technology, it seems to have cracked the digital space with 13.5 million registered viewers (and rising) on its All4 catch up service as a prime example. 6.2 Also, leading in VOD space with All4, this now covers all bases as viewing habits evolve.
7. Remit - Would changes to the Channel 4’s remit provide greater sustainability for the broadcaster? Is the current legislation too detailed, or too vague?
7.1 The current remit for Channel 4 doesn’t need to change and remains perfectly clear. The broadcaster is an unusual hybrid, publicly owned but funded by advertising revenue and buying all its programmes from outside suppliers, which in turn helps nurture the UK’s independent TV production sector. Its more commercially successful outputs e.g. Gogglebox – have paid for public service remit programming, such as Dispatches and Channel 4 News.
7.2 If its remit was altered and it became more commercial there would be implications on the ability to create unique content and commission programmes which, perhaps, on other commercial channels would be deemed ‘risky’. Also, if shareholders/ dividends had to be paid, it would come out of revenue in turn depleting funds for quality content.
7.3 This would then have an impact on the channels ability to attract and retain new and current advertisers who are targeting the hard to reach audience.
8. What benefits/drawbacks could there be to Ofcom’s suggestion in its PSB review8 that PSB obligations be applied to C4C as a whole rather than to the main channel alone?
8.1 Over time, as viewing migrates it might seem appropriate to extend this obligation across C4C. It may also be appropriate to extend this to all channels and platforms. At present, we believe, the timing is not quite right.
9. Does the current regulatory system provide for adequate assessment of C4C’s performance against its obligations?
9.1 Yes.
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10. Ownership - What are the different models of ownership for C4C? What are the positives and negatives of these?
10.1 Advertisers are not specifically wedded to the current ownership model or management of Channel 4. However, given their preoccupation with the nature and quality of its output, it is difficult to imagine how a commercial operator could guarantee to maintain current levels of investment in content while delivering a return for shareholders. 10.2 The first model being no change at all and Channel 4 continuing to provide uniqueness and highly differentiated programmes along with its disproportionate reach element which is highly valuable to the advertiser community.
10.3 The second option is C4 being bought by another incumbent broadcaster such as ITV though this would be highly unlikely as ITV would have to have it passed through the Competition Markets Authority. Similarly if Sky decided to buy C4 the same scenario could be played out.
10.4 The third option would be purchase by another commercial broadcaster such as Discovery or Bloomberg or just a commercial company. This would certainly mean a depletion of funds for content and therefore no uniqueness to attract advertisers.
11. Would a change in ownership, such as privatisation, affect the remit of C4C, and in what ways?
10.5 Quite possibly and this would be dependent on the buyer. We would therefore request that any sale is made conditional upon strong safeguards to ensure its diversity and distinctiveness.
10.6 It is quite conceivable that, unchecked, a commercial buyer might seek to alter the structure of the company so that, say, two-thirds of its (commercial advertising) revenue might be retained for, say, one-third of the operating cost. Such an approach would have catastrophic impacts on both content and jobs.
12. What impact might privatisation have on:
12.1 Key PSB genres such as news and current affairs;
12.1.1 This is again dependent who buys C4. The impact could be a positive one, if the company buying follows the Sky model whereby Sky is under no obligation to broadcast news but does so as it feels it’s an essential part of its portfolio offering to its subscribers.
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12.1.2 The negative side to the argument would be if key genres were stripped down to the bare minimum and produced no added value to the audience.
12.2 The independent production community;
12.2.1 Currently, any profit C4 makes goes straight into programming and C4 uses independent productions to create its content. Privatisation means profit goes to the shareholders, creativity could be lost, and content creation could go to the cheapest bidder.
12.3 Those communities/audiences currently served by C4C’s remit;
12.3.1 The great point about Channel 4 that shouldn't be overlooked is that it provides genuine public service competition to the BBC. That in itself makes its presence very valuable indeed.
12.4 The advertising industry; and
12.4.1 Channel 4’s audience and aggregate delivery of it are uniquely attractive to its advertisers, and any change in ownership would most likely to threaten this uniqueness.
12.5 The viewer/consumer?
12.5.1 The viewer engages with Channel 4 through the likes of All4 and programmes such as Gogglebox and Humans.
12.5.2 Gogglebox was a slow burner in regards to ratings and is now must watch program. If C4 was privatised, Gogglebox may have been axed after its first series, or shifted to a digital channel. Programming such as F1 and the Paralympics would have been harder to deliver under a privatised C4.
Finally, ISBA appreciates the opportunity to submit its views to this Inquiry, and would be happy to provide more comment or information as required.
20 April 2016
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International Broadcasting Trust (IBT) – written evidence (SCF0009)
INQUIRY INTO THE SUSTAINABILITY OF CHANNEL 4
INFORMATION ABOUT IBT
IBT is a coalition of the UK’s international development agencies. The views in this submission reflect the concerns of IBT’s member agencies regarding adequate common understanding of the world in which we live. We are supported by a large proportion of the UK public which is concerned with the effects of ‘globalisation’ and our role as global citizens.
IBT’s position, reflected in all our policy work since 1997, is that coverage of the developing world should not just focus on images of suffering which is more often than not what is presented in news coverage. It is IBT’s view that an international dimension should be an integral part of all programming.
EXECUTIVE SUMMARY
1. Broadcasting in the UK has a crucial role to play in making us aware of what is happening in the world and the UK’s position internationally. There is extensive evidence that engagement with the wider world leads to a more tolerant society which is able to do business with the wider world. These wider social benefits of international content which reaches a mass audience are IBT’s primary concern.
2. IBT’s research demonstrates that television news and current affairs are the dominant sources of information about the world outside the UK and that, as a result of their focus on wars, conflicts and disasters, UK audiences have a distorted view of the world. This perception needs to be balanced with content which provides us with deeper understanding of the lives of people in other countries and the forces shaping our future.
3. For the past 34 years Channel 4 has played an important role in delivering such content which takes us beyond news headlines and engages us with the lives of people in other countries.
4. IBT views Channel 4 as an essential element in the broadcasting ecology of the UK. Its cross-subsidy model provides output which reflects a diverse range of alternative voices, as well as voices from around the world.
5. IBT believes that C4C’s existing operating model and remit are sustainable for the duration of its current licence which expires on December 31st 2024. We would not want C4C’s existing operating model to be undermined by any change which might
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weaken its incentives to provide high quality content which engages us with the wider world.
6. Channel 4 and its portfolio provide a range of content which is distinctively different from the other UK public service broadcasters and which appeals to a different audience. The C4C portfolio of channels is successful at attracting a broad range of viewers, especially those harder to reach groups: 16-34 year olds and the BAME audience.
7. IBT agreed with Ofcom’s conclusion that C4C is effectively delivering its media content duties in 2015 and should be financially sustainable during the period of its new licence.
8. As things stand, we do not believe that the long term decline in viewing to the main channel undermines the sustainability of C4C. It appears to have reversed this trend in the recent past, which is welcome news, and as long as any future losses in reach are balanced by growth to its portfolio channels, VOD and other services, we believe the corporation will be sustainable.
9. Assuming C4C retains adequate commercial and regulatory flexibility so that it can be adaptable, innovative and ground-breaking in this area, we believe it will be well equipped to deal with the challenges posed by new technology and changes in viewing habits.
10. IBT does not believe the C4C remit should be either relaxed or tightened. We consider that if there were any relaxation of the remit, as a result of privatisation, this would be detrimental for UK society because it is likely that the most challenging commitments in the remit would be those which are relaxed and it is these which lead to the most ground-breaking, socially valuable and innovative content.
11. In light of the role the C4C portfolio plays in delivering C4C’s remit, IBT agrees that it would be sensible to explore whether the current PSB benefits should be extended to apply to the whole of the C4C portfolio, however if this were to happen there should be 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.
12. IBT is convinced that C4C genuinely strives to deliver its remit and the current regulatory arrangements allow it suitable flexibility to find creative solutions when it appears there is a deficit in its delivery.
13. IBT’s primary concern is that C4C should be able to continue to deliver its remit with integrity and invest its surplus in public service content instead of returns being made to shareholders if it were privatised. If C4C were operated as a more commercially driven organisation, the cross-subsidy of loss-making PSB content such as its hour long weeknight news programme or international current affairs would not be
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commercially viable. It would no longer be able to justify taking risks with its commissioning strategy and its commitment to less popular content, such as international current affairs, would need to be watered down.
14. If C4C were privatised it would be inevitable that this would impact negatively on the independent production industry in the UK. There is a significant risk that a private owner of C4C would seek to reduce its costs and maximise its profits by making its own programmes. Such a move would undermine the existing publisher-broadcaster model which has been hugely successful in both providing a range of public service content for audiences but also in supporting the growth of UK independent production sector over the past 30 years.
15. Following research and careful consideration the Government issued C4C with a new licence in 2014 for ten years. IBT believes that the Government should honour this licence and delay any discussions of C4C privatisation until the current licence is due to expire.
INTRODUCTION
16. IBT welcomes the opportunity to provide written evidence to highlight the important role C4C plays in delivering public value by engaging us with the wider world.
17. Channel 4 has always contributed significantly to UK understanding of the wider world and is valued by IBT’s members.
18. IBT generally agreed with Ofcom’s provisional findings in its Review of C4C’s delivery of its media content duties in 2014 that C4C is effectively delivering its remit in an evolving broadcasting landscape. We believe it provides a broad range of content which is distinctively different from the other UK public service broadcasters and which appeals to a wide audience.
19. The C4C model is unique in the UK providing cross-subsidy funding for content which is less popular on the main channel, such as international current affairs, which would otherwise not be commercially viable. It is also able to reinvest its surplus income into the production of additional content. Its method in thus delivering public benefits sets it apart from the other commercial PSBs and for this reason we believe it should be protected.
20. IBT members are very concerned that the current debate about the future of C4C is causing great uncertainty in the market and that this could prove to be destabilising for C4C and the companies which provide it with content.
21. Following research and careful consideration the Government issued C4C with a new licence in 2014 for ten years. IBT believes that the Government should honour this
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licence and delay any discussions of C4C privatisation until the current licence is due to expire.
Is C4C financially sustainable? Is the revenue provided by advertising sufficient to make Channel 4 Corporation (C4C) sustainable?
22. In its Third PSB Review and the statement when it relicensed Channel 4 in 2014 Ofcom predicted clearly92 that Channel 4 should be financially sustainable for the duration of its existing licence period which expires on December 31st 2024.
23. We note that in 2014 C4C made revenues of £938 million, an increase of £30 million on 2013.
24. Additionally we note the findings in two reports published by Ernst and Young and Enders Analysis which confirms Ofcom’s conclusions.93 Both reports provide quantifiable evidence of C4C’s recent successful track record in adapting its methods of income generation to suit the changes in the market.
25. We also note that it is predicted TV advertising revenues will remain robust as a source of funding for Channel 4’s content investment, as outline in the Ernst and Young report94.
26. IBT is persuaded by this expert evidence that C4C should be financially sustainable for the coming 9 years.
Are there any other commercial/non-commercial revenue streams which could/should be explored?
27. At the present time we do not believe there are.
Viewing
Is viewing of Channel 4 (the main channel) and C4C sustainable? To what extent is the decline in reach and share on the main channel a problem for C4C?
28. It is clear that despite experiencing a period of ‘creative renewal’ after the decommissioning of Big Brother, Channel 4 and its portfolio channels have managed to collectively maintain their audience reach by constantly innovating and providing the audience with a mix of successful, established Channel 4 brands such as Grand Designs, Dispatches and Hollyoaks with new original content such as Gogglebox, the Educating…series, and documentary series such as Benefits Street.
92 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013) 93 The Future of Channel 4 in a Changing Market Environment, Ernst & Young, March 2016. Channel 4: Sustainability and Privatisation, Enders Analysis, December 18 2015. 94 The Future of Channel 4 in a Changing Market Environment, Ernst & Young, March 2016, pg. 7
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29. While we acknowledge that the main channel’s average weekly reach has dropped consistently since 2006 along with the other PSBs following digital switchover95, we note that in 2015 Channel 4’s main channel reversed trends by increasing its audience share for the first time in a decade.
30. IBT considers that that the main channel has an important role to play in engaging the public with international events, since it achieves the highest reach of all C4C’s services so we are very concerned that it should retain its reach and impact. However, we note that the strong performance by Channel 4’s portfolio channels, which collectively delivered the biggest reach extension of any of the PSB portfolios, appears to have resulted in a largely stable reach for C4C as a whole.96
31. It is also clear that the C4C portfolio has been particularly successful97 at engaging younger audiences which is particularly important as younger audiences migrate onto mobile devices and online content. C4 News reached two thirds of 16-34s with its coverage in 2014 and has a higher proportion of young and BAME viewers for news than any other public service broadcaster. C4C data shows that more than 50% of the UK’s 16-34 year olds have registered with C4 online.
32. C4C has worked hard to adapt to the changing viewing trends, a point acknowledged by the Ernst and Young research, and this has been an essential ingredient in its success. By innovating and pushing the boundaries, C4C’s services are a natural home for young adults and this is particularly important following the closure of BBC Three as a broadcast platform.
33. As things stand, we do not believe that the long term decline in viewing to the main channel undermines the sustainability of C4C as long as any future losses in reach are balanced by growth to its portfolio channels, VOD and other services.
To what extent is Channel 4 (the main channel) equipped to deal with the challenges posed by new technology and viewing habits such as online and search and recommendation?
34. As part of its commitment to encourage innovation online and promote access to and awareness of services provided in digital form, we note the work which C4C has carried out on its digital and online offerings which are bolstering the reach of its broadcast platforms.
95 falling to 48% in 2013 from 53.4% in 2010 96 During the review period the total reach of C4C’s channels fell by only 1.9% to 64.6% in 2013 from 66.5% in 2010. Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 4 97 According to Ofcom the total C4C reach among 16-43’s fell by 2.8 percentage points which is less than the falls seen for all the other PSBs in this age group. pg. 33, fig 1.16 Ofcom Review of C4Cs delivery of its media content duties (2010-2013)
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35. Viewing to C4C’s on-demand service rose by 28% in 2013 and it had the second highest reach of the PSB’s on-demand websites in September 2014.98
36. C4C’s success with its user registration for 4oD which began 2011 has been notable, with more than 50% of the UK’s 16-34 year olds registered with C4 online.99
37. This ability to evolve to meet the changing viewing habits of audiences has resulted in the healthy survival of C4C in an increasingly competitive marketplace.
38. We note comments made by Claire Enders to the Committee in oral evidence on April 12th, highlighting that C4C’s track record in technological innovation is only matched by that of Sky in the UK. IBT agrees that Channel 4 is probably the most technologically innovative PSB channel. While the BBC or Sky’s financial resources for technology development may be greater, C4C has led the way with its catch up service, data strategy, its online platform and programmatic targeted advertising.
39. One example of the way that Channel 4 pushes boundaries in order to ensure its content has maximum impact was in its response to concerns about reduced viewing of its weekday news bulletin. To quote the letter from Ofcom to C4C in response to the C4C statement of Media Content Policy 2014/15:
Firstly, we recognise and welcome the number of positive achievements in 2014, including:
…. the improved performance of Channel 4 News, including the first increase in audience share for some years, as well as new online initiatives to provide a variety of news formats designed to increase the reach and impact of C4C’s news output. We are encouraged to see that the syndication of content has already helped to increase online news video views and in-turn increase the number of visitors to the Channel 4 News website. We also welcome the further online innovations scheduled for 2015, including The News Wall, targeting 16 to 34 year olds with bite-sized news content, and your plans to incorporate Channel 4 News into the new All4 hub in the coming months;100
40. Another example of an instance when C4C successfully used its online platforms to effect was the online strategy which accompanied the transmission of The Promise in 2011, highlighted in IBT’s report Outside the Box:
‘In one month, February 2011, [The Promise] website received 750,000 visits and almost 2 million page views…. The Promise site features a web chat with the writer/director, interviews with the cast, picture galleries, behind the scenes video, background on the history, suggestions for further reading and a ‘tweet
98 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 11 99 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 11 100 Ofcom Letter to Lord Burns, 9 June 2015.
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constellation’ to show comments on Twitter about the series. This innovative tool aggregates all public tweets which use the hashtag #c4thepromise and groups them around particular themes, enabling the audience to visualise the scale and variety of the online conversations around The Promise and contribute to them.’101
41. IBT welcomes C4C’s efforts to innovate online, especially when strategies such as this increase the impact and reach of its public service content.
42. Assuming C4C retains adequate commercial and regulatory flexibility so that it can be adaptable, innovative and ground-breaking in this area, we believe it will be well equipped to deal with the challenges posed by new technology and changes in viewing habits.
Remit
Would changes to the Channel 4’s remit provide greater sustainability for the broadcaster? Is the current legislation too detailed, or too vague?
43. While we recognise that C4C’s obligations under its remit need to be viewed collectively since many of them overlap, our focus in this submission is on key elements of the remit which apply to us having a better understanding of the wider world, namely:
o Maintaining a well-informed and motivated population o Providing access to information and views from around the world o Promoting alternative views and new perspectives o Inspiring people to make changes in their lives
44. C4C research demonstrates that Channel 4 is particularly successful in challenging established views and promoting new perspectives.102 Viewers believe it is more likely to cover ground and tackle issues other broadcasters wouldn’t and provide alternative perspectives.103
45. IBT believes that the C4C remit is comprehensive but it is also imprecise enough to allow room for inspiration.
46. It allows enough flexibility for commissioners to interpret the C4C mission in their own way, encouraging creativity and innovation, while providing them with principles which guide and motivate them to provide content which informs, challenges, engages and educates us, in the broadest sense of the word.
101 Outside the Box, IBT, Scott, 2011, pg. 26 102 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 36 103 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 38
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47. It also malleable enough to allow a balance between the need for commercial success alongside the delivery of public service content, such as international news and current affairs.
48. IBT does not believe that the existing remit should be changed. We question the grounds for making any changes when it is clear that C4C is successfully maintaining its audience reach, maintaining its income and audience research demonstrate high levels of public appreciation.
49. IBT considers that if there were any relaxation of the remit, as a result of privatisation, this would be detrimental for society because it is likely that the most challenging commitments in the remit would be those which are relaxed and it is these which lead to the most ground-breaking, socially valuable and innovative content.
What benefits/drawbacks could there be to Ofcom’s suggestion in its PSB review that PSB obligations be applied to C4C as a whole rather than to the main channel alone?
50. IBT agreed with Ofcom when it concluded in its Third PSB Review that C4C’s broader services also made a contribution to a number of public service objectives104 as required under the Digital Economy Act.
51. The C4C portfolio channels contribute to C4C’s public purposes by helping it to maintain the group’s overall share and extend the reach of content originally shown on the main channel.
52. Ofcom audience research demonstrates that C4C’s portfolio is fulfilling a number of its duties across the portfolio channels as well, although there is more limited research relating to the portfolio than to the main channel. The majority of viewers of Film 4, More4 and E4 agreed that the channels are distinctive, showing content they would not expect to see elsewhere.105
53. In light of the role the C4C portfolio plays in delivering C4C’s remit, IBT agrees that it would be sensible to review the current ‘PSB compact’ in relation to C4C and to explore whether the benefits which currently apply to the five main PSB channels should be extended to apply to all PSB services in order to help maximise their PSB delivery and impact.
54. However, we would be concerned that if the benefits which currently apply to the main channel were extended to the portfolio channels there should be regular assessments to ensure that C4C maximises the impact of its PSB content.
55. Channel 4, as the highest profile C4C platform with the greatest reach, should still be the home of international content such as Unreported World and international
104 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 7 105 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 38
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documentaries. IBT research demonstrates that such content has been marginalised in the PSB schedules since digital switchover106 as the main PSB channels have competed to retain market share. We would want Channel 4, to continue to be identifiably internationalist in its outlook, mainstreaming international content in its peak time schedule on its main channel.
Does the current regulatory system provide for adequate assessment of C4C’s performance against its obligations?
56. Since IBT’s expertise is in assessing the impact of content which engages audiences with the wider world, we will focus our answer to this question on the issue of the amount of international content broadcast by C4C and how this has been assessed and regulated since the Digital Economy Act introduced new elements to its remit in 2010, including the commitment to broadcast voices from around the world.
57. We believe that the main channel, Channel 4, has an important role to play in engaging the public with international events, since it achieves the greatest reach of all C4C’s services.
58. Every year since 2010 C4C has reported how many hours of international content it has broadcast on Channel 4 in the previous 12 month period in its annual report. Channel 4 is the only UK broadcaster to report in this way.
59. Between 2010 and 2015 the volume of international content on Channel 4 (including the True Stories strand on C4C digital channels before 2012) has declined significantly as can be seen by the table below:
2010 2011 2012 2013 2014 136hr 155hr 54hr 70hr 54hr (+3%) (+21%) (-65%) (+29%) (-23%)
60. While IBT has been deeply concerned by the considerable reduction in the volume of international content on the main channel since 2010 we have welcomed statements in the last two annual reports suggesting that staff are keen to rectify this decline:
Two areas that we think can be further improved in 2014 are the diversity of our onscreen talent and finding space for more international output.107
In 2015, Channel 4 will strengthen its international content with series such as Indian Summers, Walking the Nile and Tribe, which will complement its domestic Current Affairs programming around the General Election.108
106 Outside the Box, IBT, Scott, 2011. 107 C4C Annual Report 2013 pg. 76
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61. IBT’s most recent report in its longitudinal quantitative analysis of non-news international content on TV, Reflecting a Changing World, noted the significance of The Tribe which was an expensive, risky move on the part of Channel 4 which appears to have been successful both creatively and commercially:
The research shows that commissioners and programme makers still maintain a strong commitment to new international factual programming. This must be encouraged and nurtured if international coverage is to remain an important part of the schedules. Broadcasters can perhaps reflect on the image of the world they present to their audiences and look for new ways to counteract stereotyping and predictability. In a very positive development, Channel 4 has addressed this head on in a series which unfortunately fell just outside the time frame of the current study. The Tribe, a ground-breaking 4 part series broadcast by the channel in June 2015, used an observational format to follow the day to day lives of a tribal family in Ethiopia. The series revealed how very similar many of their concerns are to our own and challenged the traditional views of Africa. It suggests that despite the decline in its international coverage in 2014-2015, Channel 4 maintains its belief in the importance of bringing voices from around the world to the UK audience and that it is looking for new and fresh ways to do this.109
62. While IBT is concerned by the drop in levels of international content on C4C platforms, this is a useful example to show how the corporation is responding to challenges which are identified during its annual regulatory assessment.
63. C4C is the most transparent of the PSBs in its reporting of its delivery of international content. It is the only UK public service broadcaster which provides content analysis such as this in its annual reports, as a measure of its delivery of its remit, unlike the BBC which doesn’t despite it having a remit to provide global content or ITV which has a commitment to provide international current affairs.
64. Ofcom used to require all the PSBs to report on how much international content they broadcast each year, but this reporting requirement was discontinued five years ago.
65. We commend C4C for its transparency in reporting the volume of international content it broadcasts annually and believe that this allows an honest and open debate to be held about how it might adapt its strategy to ensure delivery of its obligations.
66. We note comments by Dr Steve Unger, Chief Technology Officer, Ofcom in his oral evidence to the Committee on April 12th when he made it clear he believes that Ofcom has adequate levers available to it in order to be able to enforce delivery of the C4C remit, were that considered necessary. We are convinced that C4C genuinely strives to
108 C4C Annual Report 2014 pg. 21 109 Reflecting a Changing World, IBT, Scott, 2015 pg. 11
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deliver its remit and the current regulatory arrangements allow it the flexibility to find creative solutions when it appears there is a deficit in its delivery.
Ownership
What are the different models of ownership for C4C? What are the positives and negatives of these?
67. Proposals in recent months include privatisation or mutualisation of C4C as possible alternatives to its current model.
68. IBT’s primary concern is that C4C should be able to continue to deliver its remit with integrity and invest its surplus in public service content instead of returns being made to shareholders if it were privatised.
69. The current publicly-owned status of C4C allows it to focus its energy on delivering its remit and providing value to audiences in the form of alternative public service content. It is allowed, indeed it is demanded of it in its remit, to take risks, be innovative and push boundaries, all of which would not be acceptable if it were operated with a more commercial model. Series such as The Tribe would never be made by a commercially driven organisation.
70. If C4C were operated as a commercial organisation, the cross-subsidy of loss-making PSB content such as its hour long weeknight news programme or international current affairs would not be commercially viable.
71. As Ernst and Young highlight in their report, The Future of Channel 4 in a changing market environment, considerable thought would need to be given to the implications for remit delivery before considering privatisation as a suitable option:
Given Government’s commitment to continued PSB status for Channel 4…there is a need to balance the potential (but inherently uncertain) benefits that privatisation may bring against the potential risks to remit delivery if Channel 4 moves from a not-for-profit to profit-maximising status. Any privatisation process is also likely to be a complex one, and that complexity could create uncertainty within the current Channel 4 organisation. It is important to minimise this uncertainty, in order to avoid risks to the public value generated by Channel 4’s PSB remit and original content investment.110
72. IBT also believes that if C4C were privatised it is inevitable a commercial organisation would choose to produce its content in house, undermining the publisher broadcaster model, because then it could retain 100% of its own IP and maximise its profits. Such a move would have a negative impact for UK independent production companies,
110 The Future of Channel 4 in a Changing Market Environment, Ernst & Young, March 2016, pg. 9
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reduce the plurality of supply of content we current enjoy and the diversity of ideas on screen.
Would a change in ownership, such as privatisation, affect the remit of C4C, and in what ways?
73. IBT predicts that if C4C were privately owned many of the existing commitments in the C4C remit would have to be reduced in order to make it commercially attractive.
74. We would not want C4C to be driven primarily by commercial considerations because this would lead to a necessary reduction in less profitable output, such as news and international current affairs. Channel 4 provides more hours of News and current affairs in peak than any other main PSB channel111. This content is currently funded through the cross-subsidy model which works admirably well - delivering commercially attractive content in peak alongside more identifiably public service, innovative content.
75. It would run counter to any commercial organisation’s DNA to take risks and therefore the obligation in the remit to innovate, take risks and produce content which challenges audiences to see the world differently would also have to be reduced.
76. A change to private ownership would fundamentally change the incentives of C4C as specified in its remit to demonstrate innovation, experiment and creativity in the form and content of programmes; it would also probably preclude it from providing content which appeals to the tastes and interests of a culturally diverse society because such content is not generally considered commercially attractive enough to appear in peak- time commercial schedules.
77. IBT believes that if C4C were privatised its important work supporting the development of UK creative talent and, in particular, supporting people at the start of their careers would be reduced because this activity does not guarantee a commercial return.
What impact might privatisation have on: a) key PSB genres such as news and current affairs;
78. IBT believes that if C4C were privatised its delivery of high quality international news and current affairs content especially would be reduced.
News
111 Channel 4 briefing note, April 2016
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79. Through its news C4C fulfils many of the commitments in its remit, namely to ensure that people are well-informed and motivated to participate in society in a variety of ways; to support and stimulate well-informed debate; to provide views from around the world; and to challenge established views and promote alternative views.
80. IBT believes that Channel 4 News plays a very important role in the PSB landscape, providing the only weekday hour-long bulletin of any of the main PSBs. It is distinctive, provides in-depth coverage and provides more detailed coverage of international affairs than any of the other PSB bulletins. It is notable that Channel 4 News attracts higher proportions of key hard to reach audience groups than the other main PSB channels news programmes.
81. Channel 4 News’s track record in providing alternative international stories which are not covered in the main news agenda of the other PSBs is core to Channel 4’s remit. In IBT’s most up to date quantitative news research which will be published in May 2016, Ben de Pear, Editor of Channel 4 News, argues that the programme sees international news as central to its remit: We don’t place it above domestic news per se, but we have a long tradition of reporting international news that other people haven’t reported or reporting it first or giving our whole programme over to international issues.’112
82. IBT believes that if C4C were privatised its weekday hour-long news could be maintained but the quality of its journalism and investigations would deteriorate in order to minimise costs. There would be fewer reports from international locations, especially those where security is an issue and which are therefore more expensive to produce; time-consuming investigations would be discontinued in favour of studio interviews; and the production team would become increasingly dependent on the wires as their primary source of information.
83. Research reveals that the vast majority of adults in the UK (95%) say they regularly follow the news and that television is still by far the most-used platform with 75% of UK adults saying they use TV as a source of news (Ofcom, 2014). But there has also been a growth in the number of those who use online sources, particularly in the 16- 34 age group where 41% did so in 2014. With the proliferation of online news content which is largely unregulated, it is increasingly difficult for audiences to know which news sources are trustworthy. In this context, a reduction in the quality, range and depth of content provided by Channel 4 News would represent a significant reduction in the plural provision of impartial, accurate news for UK television audiences at a time when such provision is more important than ever.
Current Affairs
112 Small Screen, Big World, IBT, Magee and Scott, 2016
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84. Current Affairs is a genre which has been of particular concern to IBT in recent years. We welcomed the renewal of Channel 4’s licence in 2014 for a ten year period with a commitment to continue to provide peak time current affairs programming.
85. In the IBT report, An Uncertain Future – the threat to Current Affairs (IBT 2012), we highlighted the important role current affairs plays in the public service broadcasting landscape:
The case studies highlighted in this report demonstrate the contribution of current affairs to shifts in policy, reviews of current practices and holding the powerful to account. However, impact is difficult to measure and many of those interviewed were keen to stress that the real impact of current affairs is its contribution to a well-informed population.113
86. We noted that current affairs producers interviewed for the report were particularly concerned about the future of two sub-genres: investigations and international stories, saying that both were more difficult to produce and more expensive than other forms of current affairs and therefore more at risk.
87. In light of this research, we welcome C4C’s continued commitment to peak time current affairs content. We note that while there was a drop of 13% in 2014, its spend on current affairs had increased by 35.3% between 2008 and 2013.114
88. The majority of the channel’s commissioned current affairs output rests with weekly current affairs strand Dispatches alongside its global affairs strand Unreported World. This series is of particular interest to IBT because it is the only series of its kind on UK television. It provides a unique insight into how people live in other countries in a popular, engaging way offering us stories which otherwise would not reach a mainstream broadcast platform. In recent years, due to the continued commitment of Channel 4, it has reinvented itself in order to appeal to a wider audience - evolving and refreshing its approach, recruiting a new and more diverse cast of presenters and providing a great training ground for diverse talent. We cannot commend Channel 4 enough for its continued commitment to Unreported World which is invaluable in providing us with a refreshing approach to stories from the wider world.
89. We note the high level of audience appreciation for international current affairs output on Channel 4 which was highlighted in C4C’s most recent annual report:
We look at five reputational statements covering the approach and subject matter of Current Affairs programmes, such as giving a voice to groups that aren’t always heard in mainstream media, and showing stories about parts of the world you would rarely see on British TV. Across these statements, Unreported World had the highest average scores of all the main Current Affairs
113 An Uncertain Future – the threat to Current Affairs (IBT 2012), 114 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 9
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programmes and strands on the main PSB channels, while Dispatches came in second place.115
90. IBT believes that if C4C were privatised, international current affairs documentaries and series such as Unreported World would be discontinued. We predict that in order to maximise profits and reduce production costs, a commercially driven company would fulfil the commitment to provide voices from around the world through VT inserts in its main news bulletin and drop the existing current affairs provision such as Unreported World. b) the independent production community;
91. IBT believes that if C4C were privatised it would be inevitable that this would impact negatively on the independent production industry in the UK.
92. As stated above, there is a significant risk a private owner of C4C would seek to reduce its costs by making its own programmes. This would also allow it to maximise its return by owning the IP rights of its content. Such a move would undermine the existing publisher-broadcaster model which has been hugely successful in both providing a range of public service content for audiences but also in supporting the growth of UK independent production sector over the past 30 years.
93. If C4C did not commission as many programmes from the independent sector this would have an impact on the viability of many independent production companies. In 2014, C4C worked with 338 production companies and spent £430m of its total budget of £600m on independent productions.
94. Any impact on C4C’s ability to commission from independent producers would be felt most severely by smaller, newer companies which C4C currently has a remit to support with its £20m Indie Growth Fund. New, less experience companies, which by their nature pose a greater risk to C4C, are likely to lose out on commissions and production companies with a track record would be favoured. This would have a negative impact on Channel 4’s ability to deliver its obligation to nurture new talent and restrict its ability to help new producers develop their experience and skills. It is also likely that this would lead to a reduction in the number and range of new, fresher, innovative ideas since many of these come from new entrants to the market. c) those communities/audiences currently served by C4C’s remit;
95. Since it was created Channel 4 has had the remit to appeal to a diverse range of tastes and audiences. At the heart of its mission is the goal to serve audiences which are less well served by the rest of the market. These audiences include younger adults, the BAME and LGBT communities, and those with disabilities.
115 Channel 4 Annual Report 2014, pg. 25
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96. We agree with Ernst and Young when they state in their recent research:
Audience research demonstrates that Channel 4 outperforms other PSB channels at addressing minority views and this performance has been consistent over time. This demonstrates the distinctive and valuable place Channel 4 occupies in the UK’s broadcasting ecosystem.116
97. C4C and Ofcom research suggests that minority groups highly rank C4C for tackling diversity issues and showing alternative lives.117 It appears to be particularly effective at fulfilling its goals in relation to diversity through its documentary content.118
98. Channel 4 relishes challenging audiences with difficult subjects and one of its more notable successes in recent years in this area has been its representation of disability on screen. The impact of C4C’s coverage of the 2012 Paralympic Games cannot be underestimated. It attracted the largest UK audience to the event in its history. It presented its content innovatively and achieved far greater acclaim and larger audiences than was probably expected. It is widely believed that Channel 4’s Paralympics coverage had a significant impact on the perception of disability among the UK public. It has continued its commitment to disability with its five year 360 Diversity Charter and the announcement of a raft of programming focussing on disability for 2016.
99. Additionally C4C appears to be more successful than any of the other main PSBs in attracting the BAME audience. Its news coverage especially performs strongly among BAME audiences, but its multicultural content in documentaries such as Making Bradford British is also distinctively different from output on the other main PSBs. Audiences rate Channel 4 above the other PSBs for showing the viewpoints of BAME, LGBT and people with disabilities, giving it a 23% lead for challenging prejudice.119
100. As stated above, the C4C portfolio has been particularly successful120 at engaging younger audiences which is particularly important following the closure of BBC Three as a broadcast platform and the fact that younger audiences are migrating onto mobile devices and online.
101. IBT believes that it is likely that all these audiences will be less well served by UK PSB if C4C is privatised because the content which tends to appeal to such audiences is considered less commercially successful and therefore it would not be included in peak time schedules.
116 The Future of Channel 4 in a Changing Market Environment, Ernst & Young, March 2016, pg. 6 117 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 10 118 Ipsos MORI research, 2014, published as part of the Ofcom PSB Review 2014. 119 C4C Annual Report 2014 120 According to Ofcom the total C4C reach among 16-43’s fell by 2.8 percentage points which is less than the falls seen for all the other PSBs in this age group. pg. 33, fig 1.16 Ofcom Review of C4Cs delivery of its media content duties (2010-2013)
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d) the advertising industry; and
102. We have no evidence to supply in response to this question.
e) the viewer/consumer?
103. Alongside C4C’s news and current affairs output, both of which receive high appreciation levels and would be at risk if it were privatised, Channel 4 also makes a significant contribution to audiences’ understanding of the wider world through other genres which we believe would be at risk if C4C were privatised.
104. International content has always been a crucial ingredient of the C4 schedules which is why this important aspect of its DNA was reflected in the Digital Economy Act in 2010 through the commitment to provide voices from around the world. Until recently, when it was overtaken by BBC 2, Channel 4 had been the public service broadcaster in the UK with the most international content for many years.
105. There is extensive evidence that engagement with the wider world leads to a more tolerant society which is able to do business with the wider world. Non-news content is especially important because inherently news and, sometimes current affairs, tend to cover stories which represent a disaster ridden view of the world – one dominated by natural disasters, conflict and disease. These are the stories which are considered important enough to warrant airtime in bulletins or longer examination in a current affairs documentary.
106. It is crucial that audiences are provided with content in other genres which provides a more balanced view of the world – one in which they can identify with other people even if they live in another country because they share many of the same universal characteristics and aspirations of audiences in the UK.
107. It is through such content that broadcasting can be transformative and can broaden our horizons, helping us understand the world we live in more deeply.
108. International content on Channel 4 is covered by a range of genres, attracting different audiences to international issues through different prisms. C4C provides an analysis of how it delivers its international content on Channel 4 every year in its annual report.121
121 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), fig 1.7, p 22
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2010 2011 2012 2013 2014
Total 136 155 54 70 54 Hours Current 51 31 34 47 46 affairs % Docs % 11 17 9 29 23 Religion % 2 9 0 6 0 History % 4 17 23 2 0 Science % 4 2 15 7 15 Other % 29 27 20 10 16
109. From C4C research it can be seen that in addition to its current affairs output, which is the genre which provides the most international content on Channel 4, other genres, such as documentaries, history and religion also play are role in delivering its remits to provide access to information and views from around the world, promote alternative views and new perspectives and inspire people to make changes in their lives.
110. In 2013 IBT published The Environment on TV, a report which examined how climate change and environmental issues are presented by UK broadcasters. From this research it is clear that Channel 4 seeks out innovative, popular ways to present these subjects, often using topics such as the weather or food as the main focus.
111. Grand Designs was highlighted as a series which engages a wide audience while promoting sustainable building methods:
The data revealed a number of series, not ostensibly about the environment, but which nevertheless featured one or more episodes with a strong environmental theme. Grand Designs is perhaps the most obvious example of this phenomenon, essentially a series about architectural design, which often includes episodes on eco-friendly buildings.122
112. Hugh’s Fish Fight was another series which was notable for its impact on public opinion. To quote:
850,000 have signed up to the online Fish Fight campaign, and eye-catching TV, online, mobile and live events have included an on-screen call to viewers over a two-minute break asking them to tweet some of the country’s biggest
122 The Environment on TV, IBT, 2013
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supermarkets and challenge their relationships with certain fisheries. Twitter counted around 42,000 tweets in 24 hours and a peak of 22,000 at the time of the call to action, which it said was an equivalent hashtag spike ‘to those the X Factor enjoys around its biggest moments.’123
113. It is interesting to see that documentaries perform particularly well on Channel 4.124 There have been numerous international documentaries on Channel 4 which have had a significant impact. To name but a few: Syria: Across The Lines, The World’s Weirdest Weather, Walking Wounded: Return to the Frontline, Kashmir’s Torture Trail and Sri Lanka’s Killing Fields: War Crimes Unpunished. These documentaries have had an impact which goes far beyond any indication of impact provided by viewing figures alone. They have influenced public and political opinion at both a domestic and international level.
114. International content is traditionally considered less popular and therefore less commercially viable than domestic content which is of more direct relevance to audiences’ lives. IBT believes that if C4C were privatised this important aspect of C4C’s remit would be reduced because it would not be considered commercially viable.
115. If this were to happen it would represent a significant reduction in the diversity, range and quality of distinctive international content available for audiences in the UK. This would be detrimental for UK society at a time when international events are more relevant than ever and our need to understand the UK’s role in the world and international affairs in general has perhaps never been greater.
20 April 2016
123 ibid 124 They deliver 21.6% of all viewing to the main channel: Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 21
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ITN – written evidence (SCF0015)
1
1.1 ITN welcomes the opportunity to respond to the House of Lords’ inquiry into the sustainability of Channel 4.
1.2 As the UK’s biggest independent producer of commercial broadcast news, ITN embodies an organisation with public service at its heart, ensuring plurality of high- quality and impartial TV news since 1955. The services we produce for our core customers - Channel 4, ITV and Channel 5 - reach up to ten million people every day, providing essential competition to the BBC and serving a diverse cross-section of viewers, with nearly half the British population (43%) consuming our news each and every week.
1.3 ITN believes that this high-quality, independent provision from multiple sources is fundamental to a pluralistic news environment in delivering choice and alternative viewpoints that form part of our democratic process, and should be protected at all costs when considering any future policy intervention.
1.4 As producer of Channel 4 News since its launch in 1982, ITN has a long and successful relationship with Channel 4 – not only as news supplier producing Channel 4’s hour long flagship news programme, but also through a range of current affairs programming and one-off documentaries through ITN Productions. This division has an ongoing contract with Channel 4 to produce a number of Dispatches programmes, as well as supplying numerous fast turnarounds and live debates. In 2015, ITN Productions also co-produced Channel’s 4 live Alternative Election Night - the second most watched election programme that evening - as well as a Youth Leaders’ Debate on All4.
1.5 Our critically-acclaimed programming for Channel 4 is recognised across the industry for the high quality of its journalism and production. In the past three years alone, ITN has been the proud recipient of three consecutive International Emmys for its programming – two for Channel 4 News’ visceral films charting Syria’s brutal civil war and another for ITN Productions’ chilling ‘Children on the Frontline’ which scooped seven awards in total last year, including two BAFTAs, a Grierson and a Peabody. In total last year Channel 4 News won 29 major awards.
2 EXECUTIVE SUMMARY:
2.1 ITN strongly believes that the “sustainability” question around Channel 4 should focus upon the sustainability of Channel 4’s remit rather than maximising its financial returns. As such, regardless of any potential ownership options such as
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privatisation or part privatisation, it is this remit that must be protected above all else.
2.2 Channel 4’s specific remit is key for providing plurality in the UK media market. It is required to focus upon and invest in “innovation, experimentation, creativity and diversity”. Its mission is to reach younger and diverse audiences and to take risks with programmes that other channels would not. Its PSB obligations are therefore markedly different from those required of ITV and Channel 5 through their current licence requirements set by Ofcom and provide a vital public service contribution to society and the wider creative economy.
2.3 Channel 4 News’ distinct style epitomises this risk-taking and innovative approach to programming and lies at the heart of the channel’s public service delivery. Consistently lauded for its high-impact, agenda-setting journalism, Channel 4 News goes behind the headlines to fearlessly tackle the stories that often go unreported elsewhere. With a longer format it is able to develop stories in-depth, dig deeper behind the headlines, conduct longer probing interviews and discuss the news at greater length with live studio guests. The programme’s humanitarian approach to journalism, and commitment to foreign coverage, also enables it to investigate and shine a light on events and situations around the globe that might not be covered by more mainstream news programmes. It has also recently been lauded for its audience growth and impact especially in the crucial BAME demographic, and for its diverse presenter line up. Trevor Philips recently wrote in his diversity report “Channel 4 News is more popular amongst minority viewers by a factor of 78%. That should give Mr Snow and his colleagues some comfort; the presenter line up and the news agenda of C4 News must be doing something special for minority viewers.”
2.4 Long-running current affairs strand Dispatches makes another distinctive contribution to Channel 4’s strong record in investigative journalism. One of ITN’s more recent Dispatches ‘Escape from ISIS’ was so ground-breaking in its representation of Yazidi women at the hands of so-called Islamic State that The Spectator described it as: “Such an important documentary it ought to rank with the footage of British troops liberating Belsen.”
2.5 The perceived risk of a different ownership model for Channel 4 is that commercial pressure to reach a larger and more populist audience could negatively impact upon its ability to deliver its challenging remit and fulfil its obligations to reach more diverse sectors of society – particularly BAME viewers and those aged 16-34. In terms of sustainability, it is this core public purpose that must be protected, as there is a perceived threat to the hour of news at 7.
2.6 As one of the UK’s biggest independent production companies, ITN also benefits from Channel 4’s publisher/broadcaster status with all commissions made out-of- house. It is unclear whether this status would be altered by private ownership –
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particularly if the owner already had an in-house production resource. 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.
2.7 Channel 4 provides an important platform to investigate significant social issues. Channel 4 News’ independent, hard hitting, investigative journalism has significant public impact, cited regularly in Parliament and leading to a number of formal public inquiries. In 2015, it was the first news organisation to go undercover at Britain’s most notorious immigration removal centre Yarl’s Wood, resulting in the Home Office and Serco launching an immediate probe and HM Prison Inspectorate sending inspectors into the centre. Two guards were later fired and the Immigration Minister announced the suspension of the fast-track detention system leading to the release of more than 25 women. Another Channel 4 News investigation saw Sainsbury’s, Waitrose and Aldi suspend fruit orders from a major Kent packing plant - which packs one in four apples for supermarkets in the UK - after the programme revealed the terrible conditions in which migrant employees live and work. And following a joint Channel 4 News/Unreported World investigation, former public school teacher Simon Harris was jailed for 17 years and four months after being convicted of abusing vulnerable street children in Kenya. These investigations take significant amounts of time, money and a big enough slot on the programme in order to have maximum impact.
2.8 Meanwhile, ITN Productions’ latest Dispatches: Britain’s Pensioner Care Scandal (April 4, 2016) led to Haringey Council severing its contract with the care provider whose failings were revealed on film, as well as eliciting strong responses from the Minister in charge of Care and The Care Quality Commission. It is vital that there remains a protected place in Channel 4’s remit to produce such programming.
2.9 While we remain neutral on potential ownership models and the principle of privatisation, particularly given our unique position serving all three main commercial public service broadcasters, we would need to hear the case that it would be of genuine benefit to the remit (i.e. audiences) for the channel to be in private hands. Any change to the delicate ecosystem of public service broadcasting therefore needs to be delicately handled.
2.10 Please find below responses to specific questions from the consultation, where ITN has limited its views to those areas directly relevant to its experience and expertise.
3 Funding:
Is C4C financially sustainable? Is the revenue provided by advertising sufficient to make Channel 4 Corporation (C4C) sustainable? Are there any other commercial/non- commercial revenue streams which could/should be explored?
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3.1 ITN has no specific recommendations to make regarding the funding models of Channel 4. There has been no suggestion that Channel 4 is not financially “sustainable” in its current form. The best chance of maintaining sustainability is to maintain quality of output which combines both remit and an appropriate funding model. At present, and for three decades, Channel 4 News has been appropriately funded to make the most-impactful hour-long daily news programme, and the debate around the channel’s future has inevitably raised questions about the news too.
4 Viewing:
Is viewing of Channel 4 and C4C sustainable? To what extent is the decline in reach and share on the main channel a problem for Channel 4?
4.1 Viewing figures should be sustainable if the quality and innovation of programming continues to be maintained. This is in large part dependent upon editorial investment and development priorities implemented across the Channel’s output. However, as audiences increasingly access content across multiple platforms, it is arguable that viewing figures should be measured by a combination of those watching linear TV and catch-up, as well as viewing content online via tablet and mobile.
4.2 In 2015, Channel 4Newsbroadcast 238 hours of in-depth news reaching 40 million viewers. Year on year it has achieved audience growth of 4% a year for the past 2 years, and gained 6% in share, most significantly in the vital BAME demographic. The programme has by far the highest percentage of young viewers (16-34) of any news programme – making up 15% of its audience (the BBC is around 7%).
4.3 Innovations in social media and online strategy have also helped massively propel Channel 4 News to wider and younger audience and become a major player in this sphere. Meanwhile, Channel 4’s Dispatches increased its audience by 16% in 2015 driven by compulsive programmes such as ‘Escape from ISIS’ which was watched by more than 1.2m people. So impactful, the programme was cited by the Prime Minister in a speech on extremism, with the director later called to give evidence before US Congress.
To what extent is Channel 4 (the main channel) equipped to deal with the challenges posed by new technology and viewing habits such as online and search and recommendation?
4.4 Channel 4 is working hard to respond to changing audience habits and recognises that its core target demographic, 16-34s, are leading the charge in the way content is consumed. Over the past two years, Channel 4 News has revolutionised the way it approaches its online content in order to reach the widest possible audience. The digital team has completely re-orientated its production approach to ensure that its
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material is accessible by millennials on all the platforms in which they are present, often consuming on mobile devices. Whilst the content is always true to the values and remit of Channel 4 News - and indeed the most serious content is highly viewed and shared - it is produced with captions and subtitles so that it can be watched without sound through a mobile device.
4.5 This online content strategy is proving to have impressive reach. In 2015, Channel 4 News videos had more than half a billion views on Facebook. Facebook likes more than trebled to over 1 million with two thirds coming from under 35s.Most notably, the innovative Two Billion Miles interactive web project drove a soaring social media presence. This interactive video story re-purposes two years of original on- the-ground broadcast reporting – to present users with the real choices that refugees and migrants face at every stage of their perilous journeys in Europe, the Middle East and Africa. It has received widespread praise from the educational community, humanitarian and aid organisations and is currently nominated for a BAFTA TV Craft Award.
4.6 The upcoming EU Referendum, the US Presidential Election and the ongoing migration crisis continue to provide key opportunities to engage with and inform younger viewers and audiences both through daily news programmes, one-off documentaries and innovative online content and platforms.
5 Remit:
Would changes to Channel 4’s remit provide greater sustainability for the broadcaster? Is the current legislation too detailed or too vague?
5.1 ITN strongly believes that the “sustainability” question should be about protecting and/or enhancing Channel 4’s remit so that it is able to continue to make a valuable contribution to the UK media landscape – providing plurality of output across current affairs, news, drama and other programming. The remit ensures that there is a plurality of voice which is not influenced by obvious commercial pressures or demands. News and current affairs programming on the main channel plays an important role in bringing a diversity of views to stimulate public debate.
5.2 Whilst we would welcome any move to further support or underpin Channel 4’s PSB delivery, we would caution against the unintended consequence of making the remit so specific or prescriptive that creativity, innovation or editorial freedoms are affected.
5.3 It is important to note that no other news programme commissions more independent filmmakers than Channel 4 News, discovering and showcasing talent never seen before on UK screens. In line with Channel 4’s commitment to supporting the independent sector, both lone filmmakers and larger production companies have an opportunity to showcase their work on the evening bulletin and
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online. In 2015, the programme commissioned 59 independent films including this year’s Royal Television Society Independent Award winner - a Channel 4 News- funded film on Macedonia’s migrant kidnap gang by Ramita Navai Productions. This powerful report resulted in sixteen people traffickers being arrested and nearly two hundred migrants freed, and was referenced in a major Amnesty International report.
What benefits/drawbacks could there be to Ofcom’s suggestion in its PSB review that PSB obligations be applied to C4C as a whole rather than to the main channel?
5.4 If PSB obligations applied to C4C as a whole, scenarios include: a) continuation as normal with PSB obligations delivered solely by C4 (main channel), b) a range of additional PSB obligations delivered on sister channels alongside the current PSB output on C4 (main channel), c) all PSB obligations delivered on sister channels or d) a range of PSB obligations shared and delivered across C4C channels.
5.5 It is vital that the main channel continues to offer an hour-long in-depth daily bulletin to reach audiences otherwise not well served in the wider media landscape and properly fulfil its public service aims. With outcomes c) and d) there is the concern that this would diminish C4C’s ability to deliver PSB aims since they would be less able to capitalise upon larger audience numbers as the main channel does, benefiting from favourable EPG positioning.
5.6 Channel 4’s other digital channels have a younger demographic than the main channel and increasing news and current affairs output on those channels could help increase reach to that key audience. However, there is a risk that expanding the PSB remit to all C4C could diminish the PSB focus of the main channel – i.e. the PSB remit is spread too thinly to have real impact. ITN believes that the wider, more important question is whether the PSB remit should extend to online and/or digital content.
5.7 In Ofcom’s 2015 News Consumption in the UK report it stated: “Around half (51%) of people aged 16-24 use TV for news, compared to 86% of those aged 55+… Conversely, consumption of news online through any device is considerably higher for those aged 16-24 (59%) than for over-55s (23%). One in five (20%) people aged 16-24 report that they only use the internet for news, compared to just 2% of those aged 55+.”
Does the current regulatory system provide enough adequate assessment of C4C’s performance against its obligations?
5.8 Under the current regulatory system, C4C is found to meet and often exceed its PSB obligations in terms of broadcast output. Whether the additional online reach of repurposed and original content, such as by Channel 4 News, is adequately assessed or recognised is debateable. Ofcom’s 2015 News Consumption in the UK
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report found that Facebook is now the joint-fifth highest news source in terms of reach, used by 12% of UK adults, an increase of five percentage points since 2014.
5.9 Channel 4 News has enormous traction online – through social media platforms such as Facebook and Twitter. Its mobile-first digital strategy is industry-leading and puts the mobile user at the heart of the digital experience engaging with more young people than ever before. In addition to the content broadcast on Channel 4 News, clips and packages specifically produced for social platforms are published on Facebook and YouTube and via Twitter. In February this year, Channel 4 News had more than 126m video views – more Facebook views than any other news organisation in the UK; remarkable figures especially when one considers it is the second smallest broadcast news team in the UK. Critically, in contrast to claims that younger audiences are less interested in news, the material that has driven this growth is almost all serious, remit-based video and much of it original Channel 4 News commissions.
6 Ownership:
What are the different models for ownership for C4C? What are the positives and negatives of these?
6.1 Given ITN’s obligation towards impartiality and unique role as news provider to all three commercial PSBs encompassing differing ownership structures, we do not take a view on judging the relative merits or otherwise of these different models. However as noted above the present model has provided a much watched and loved show for over three decades which is regularly garlanded with awards; and any change must take the show’s future to be of primary importance.
Would a change in ownership, such as privatisation affect the remit of C4C, and in what ways?
6.2 As a key producer of PSB content for Channel 4, ITN would be concerned if C4C’s remit was reduced in any way as this would be detrimental to its PSB aims. This is regardless of whether it was connected to a change in the ownership model. A change in remit related to ownership would only be the case if market pressure overruled Ofcom’s ability to prescribe the set remit for PSB licences. ITN would call for a form of guarantee that in the event of a change of ownership the remit would be “fixed” to maintain PSB obligations; specifically the future of the hour long news. However, whether or not this in future would be altered due to commercial and market pressure is unclear. Therefore, the regulatory system must primarily seek to uphold and protect the PSB remit in all eventualities.
6.3 It has been argued that privatisation could help Channel 4 by making it more “flexible” and providing “deeper pockets” - enabling it to pay for bigger dramas such as the latest series of Black Mirror which was recently sold to Netflix after first
170 ITN – written evidence (SCF0015)
being commissioned by C4.Whilst we recognise the potential benefits of this argument, this advantage could also potentially be offset by a pressure to commission more mainstream “hits” that lead to larger, popular audiences (which attract more advertising), making it more difficult to push through “riskier” ideas.
What impact might privatisation have on:
6.4 a) Key PSB genres such as news and current affairs PSB genres are typically of less commercial value and could be at risk in a profit- focused organisation so the protection of this provision must be a paramount consideration for policymakers. Channel 4 News and Dispatches, both produced by ITN, make a vital contribution to the UK’s plural media landscape. Both programmes tell stories that would be less likely to make it onto the mainstream news agenda and are given the space to tell them in more detail. There is a risk that stories of great social and current affairs importance might not receive backing and commissions if there was not a specific remit to protect them. Similarly, since the value of EPG status is declining, due to the proliferation of channels and platforms on which content can be viewed, there is a risk that a private owner could challenge Ofcom’s negotiating power to set a specific PSB remit – or indeed reject the need for PSB status altogether.
b) The independent production community Channel 4’s status as a publisher / broadcaster is unique amongst UK PSBs. As such, all of its content is commissioned externally. This is a significant marketplace for UK independent production companies. It is not clear whether any private buyer would seek to change this status or whether it would be protected. Many private owners (such as Channel 5 and ITV) have their own in- house production resources and as such these reduce the number of hours in real terms which are available for independent producers. An unintended risk could be the reduction in hours available across the whole of Channel 4 to independent programme providers. There could also be an impact on the Channel 4 News Film Fund which provides invaluable funding and support to independent filmmakers as previously outlined in this submission.
c) Communities / audiences currently served by C4C’s remit Channel 4’s current audience is skewed towards younger people and attracting a more diverse BAME audience. There is a tension between trying to get the largest possible audience (a broad populist approach) and creating content that is intended to reach a specific diverse or minority group that may not be served by the majority of programmes or channels. There is a risk that a commercial channel seeking to increase the value of its advertising could face pressure to provide programming that is more focused on populist content rather than diverse voices or content. This would have an impact on the current C4C viewer due to a change in tone and output.
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d) The advertising industry n/a
e) The viewer / consumer Channel 4 plays a vital role in ensuring the plurality of choice within the UK media landscape. The key factor in any ownership change would be to make sure that the channel did not lose its unique tone and remit which adds so much value to audiences. Ultimately, if programmes that can only find a home on Channel 4 are pushed aside in favour of more mainstream programming that is already replicated across multiple channels, it is the viewer who will suffer.
7 CONCLUSION:
7.1 ITN strongly believes that a number of Channel 4's key strengths should be protected by ensuring the channel's remit is properly supported to deliver its core public service mission. This includes:
o Providing challenging, distinctive, risk-taking output, most crucially in news and current affairs o Offering plurality of voice reaching diverse and younger audiences o Stimulating the independent production sector by maintaining its publisher/broadcaster status o Ensuring quality of world-class PSB output through investment and innovation o An assured ongoing commitment to an hour long news programme in prime time on the main channel
7.2 While we do not take a view on the precise nature of Channel 4’s ownership structure, it is vital that delivery of these aims is the central consideration in any analysis for change.
7.3 We note the Culture Secretary's public assurances that the remit would be protected in the event of different ownership and await further scrutiny on how this would be implemented.
7.4 Any decision on a new ownership model must first lay out a clear argument demonstrating the benefit to viewers and the wider UK creative economy.
7.5 As one of the UK's largest independent production companies, we would also urge caution against any change to Channel 4's unique publisher/broadcaster status which adversely impacts the wider independent production sector.
(ends)
172 ITN – written evidence (SCF0015)
About ITN: ITN is a world-class production company made up of two business divisions: Broadcast News and ITN Productions. The organisation provides:
Daily TV News programmes for ITV, Channel 4 and Channel 5 TV programmes across factual, entertainment and current affairs for national and international broadcasters TV commercials and branded content Sports live coverage, clips and programmes Digital content services, including licensing on-the-day news and archive content through ITN Source as well as short form content for online and mobile. www.itn.co.uk
ITN: Trusted to Tell the World’s Stories
April 2016
173 Carolyn Jackson-Brown – written evidence (SCF0006)
Carolyn Jackson-Brown – written evidence (SCF0006)
Ownership Question section c):
1. I wish to submit new unpublished evidence that the impact of privatisation could directly affect marginalised communities/audiences currently served by C4C’s remit. In particular, that the level of creative risk relating to programme content could be compromised by C4C falling into private ownership or operating with the existence of shareholders with vested interests.
2. As a case-study for studying representations of marginalised groups on Channel Four, I have conducted qualitative academic research over an 18-month period, interviewing the key decision-makers involved in Channel Four’s coverage of the London 2012 Paralympic Games. This material has been gathered as part of an ongoing doctoral thesis, funded by a University of Leeds departmental scholarship, to investigate the range of influencing factors affecting onscreen representations of disability. My research reveals that the depiction of disability that reached the screens, satisfying the remit requirement to change and shape perceptions of minorities in society, was directly affected by both the organisational structure and the funding mechanism.
Case-study finding for consideration by the Committee:
3. The slightly shocking creative lynchpin used by Channel Four to successfully market disability to a mainstream audience, over the course of the London 2012 Paralympics, was actually rejected during the production process by outside stakeholders who did not want to risk the edgier representations needed to fulfil the PSB remit. However, Channel Four’s current unique business model allowed the C4C editorial and creative teams to exercise their autonomy and resist this stakeholder veto. It was the exercising of this freedom to take creative risks in the choices made about representations of the Paralympians that produced the high quality coverage affecting perceptions about disability in society. The retention of creative freedom is fundamental to any future structure of this unique channel and I would ask the committee to consider not allowing privatisation for the reason given below.
4. If there were private investors, acting as shareholders or Company Board Directors, they might be able to exert power, where the stakeholders in London 2012 were not, to influence and erode essential interpretations of the remit in relation to actual programme content. I would ask you to consider in the light of this, that if Channel Four were to be privatised, the focuses on efficiency and commercial viability could then directly relate to personal investments, and therefore bring about a collective desire for lower risk. This would adversely affect marginalised communities and audiences currently served by C4C’s remit.
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Summary:
5. The core of the Paralympics success was that the media coverage was able to normalise some forms of disability, engaging a previously sidelined group with a wider audience. The coverage did so through C4C taking creative risks. Presenting new and untried representations in the interests of any marginalised group will never be efficient or necessarily commercially viable. Therefore, it may be the case that high-risk ground-breaking programming, like the London 2012 Paralympic Games coverage, would become a thing of the past, if Channel Four were privatised. My research findings establish a direct link between risk-taking, organisational power and C4C’s unique funding mechanism. Freedom to take non-commercially viable risks was actively operated during the production of the Paralympic Games coverage, and if this autonomy is not preserved, some marginalised groups will lose the inclusive programming that currently gives them a voice and a profile in wider society. Public ownership seems fundamental and central to the continuation of this role.
19 April 2016
175 John Newbigin – written evidence (SCF0007)
John Newbigin – written evidence (SCF0007)
A change to Channel 4’s remit could help ‘re-invent’ public service broadcasting and support the cross-party view that creativity and the creative industries are key to Britain’s future prosperity
By virtue of its origins as a platform for independent producers, its structure as a publisher- only broadcaster and its remit to promote innovation and experiment, Channel 4 has a good claim to be the most effective – and cost-effective – strategy ever devised for the benefit of the creative industries. Over 30 years it has been the essential catalyst in turning the UK’s independent TV production sector from a handful of small players to the most dynamic and creative source of programmes and formats anywhere in the global television industry, now generating over £1bn a year for British GVA.
As well as providing an incentive to take risks with new and innovative companies and ideas, the remit encouraged the identification and nurturing of new talent, on both sides of the camera and, increasingly, in the field of online services.
Its remit obligation to celebrate diversity has led to ambitious, albeit rather sporadic, attempts to address the still shocking lack of diversity – in terms of ethnicity, class and physical or mental disability - in the UK television industry. It has been much more consistent in celebrating diversity in terms of gender and sexuality and, latterly, has transformed the public’s perception of disability and Paralympic sport.
It has a creditable track record in supporting talent in the nations and regions and, in the home nations, is seen as a genuinely UK, rather than London-centric broadcaster.
Its commitment to film, advocated passionately by Lord Attenborough at its birth and continued consistently since, has made it the most creative and risk-taking patron of independent British cinema, with a track record of creative and commercial success that at least equals, and perhaps betters the work of the BFI, the UK Film Council and the BBC.
Its commitment to news and current affairs, presented in the best traditions of objective public service reporting, but still retaining a radical edge, has contributed positively to the setting and the maintenance of high standards of news across the UK media landscape.
More generally, the supervision and enforcement of the remit, first by the ITC and latterly by Ofcom, has demonstrated that it is possible to set out and implement a remit without compromising the independence of the Channel’s management or requiring undue intervention by government or regulator.
In summary, it could be said with some justification that C4 delivers significant benefit for the viewing public, the UK’s television industry, and the wider creative vibrancy of Britain’s public realm. Furthermore, since the end of analogue broadcasting and the need for
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protected spectrum for public service broadcasting, these benefits are delivered at no cost whatsoever to the public purse.
Straightforward privatisation is not necessary or desirable
The model works. It ain’t broke. However, even though terrestrial, ad-funded TV has proven to be much more resilient in audience terms than many industry experts expected, and even though the overall spread of C4’s online services appears to be moving from cost- negative to cost-positive, the Channel’s revenues and audience share, though sustainable, are clearly under pressure and will continue to be so. This means that were it to be privatised and revenues therefore had to be stretched to include returns for shareholders or debt repayments to a bank, it is extraordinarily likely that amongst the consequences would be a diminution of the programme budget and/or an increase in ‘safe’ mainstream programming rather than innovation and experimentation and/or a reduction in support for talent development, regional sourcing, information and support services – in short, most of the elements that make Channel 4 a public service. Even with sincere commitment and goodwill on the part of an owner, the history of privatisations suggest that, before long, creative risk-taking would hit the brick wall of shareholder interest.
In short, to privatise Channel 4 is very unlikely to deliver long-term public benefit. It would do nothing more than generate a few hundred millions for the Treasury - and a storm of public protest.
This is not to suggest that the Channel should continue in its present form without change, but its past contribution and existing strengths point a way forward.
Possible options for a future Channel 4
With creative industry strategy now becoming a recognised dimension of government policy and with devolution, in various forms, part of the agenda for all the main parliamentary parties, it would make sense to shift the core purpose of a remit from a relatively narrow set of programme obligations on the main channel to a more broadly based set of priorities for the whole organisation. Building on the Channel’s already established contribution, a significant part of this reorientation should focus on C4’s contribution to talent development and the creative industries. The intention should not be to crudely re-cast it as a handmaiden of creative industry policy but to explore the proposition that the public service broadcasters are a vital part of Britain’s “seed capital for creativity” – with social, cultural, educational and regional impact as well as economic impact.
Integral to this shift in emphasis and purpose, consideration should be given to a change to the Channel’s structure. The success of You Tube, and many other developments in technology and consumer behaviour, are graphic demonstrations of the fact that “the people formerly known as the audience” now expect to participate as creators and broadcasters in their own right. Channel 4 with its suite of online services and its particular strength amongst younger audiences, is ideally placed to explore new ways of engaging the
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public in much more active and interactive understanding of what ‘public service broadcasting’ might mean.
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. It would be to re-interpret for a radically changed media environment the Channel’s original 1980 remit obligation to “encourage innovation and experiment in the form and content of its programmes and generally give the fourth channel a distinctive character of its own”.
John Newbigin OBE
Chair, Creative England Chair, Regions & Clusters subgroup of the Creative Industries Council Chair, British Council Advisory Board on Arts and Creative Economy
20 April 216
178 Ofcom – oral evidence (QQ 11-21)
Ofcom – oral evidence (QQ 11-21)
Evidence Session No. 1 Heard in Public Questions 1 - 21
TUESDAY 12 APRIL 2016
Members present
Lord Best (Chairman) Earl of Arran Baroness Benjamin Baroness Bonham-Carter of Yarnbury Lord Hart of Chilton Baroness Healy of Primrose Hill Baroness Kidron Lord Sherbourne of Didsbury ______
Examination of Witness
Dr Steve Unger, Chief Technology Officer, Ofcom, and Gareth Barr, Head of Public Service Policy, Ofcom
Q11 The Chairman: We welcome Dr Steve Unger and Gareth Barr from Ofcom. Thank you both very much for joining us. You are extremely welcome. Can I ask both of you in turn to introduce yourselves? If either or both of you want to give us an opening statement, please feel free to do so. Dr Steve Unger: I am Steve Unger. I am a board member at Ofcom. I have been responsible over the years for various pieces of Ofcom media policy. I talked to you previously about media plurality, for example. I led the work on pay TV. I am currently acting group director for our content group and am therefore responsible for overseeing our work on Channel 4. I will make a brief opening statement, but first I will hand over to Gareth to introduce himself. Gareth Barr: I am Gareth Barr. I am head of public service policy at Ofcom. I oversee our programme of work relating specifically to the public service broadcasters. That includes our work on Channel 4 but also the recent PSB review and regulation relating to ITV and Channel 5. Dr Steve Unger: I will make a very brief opening statement. It is worth saying a bit about our role in relation to the oversight of Channel 4 and what it is not. Broadly, we are responsible for licensing Channel 4 and for holding it to account for what it is supposed to deliver. We
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do that through several different mechanisms. I will not list them all, but it is worth highlighting three of the most important mechanisms by which we hold Channel 4 to account. First, there is a set of quotas that Channel 4 and the other PSBs are required to deliver against. We annually report delivery against those quotas. That is clearly a particularly important way of making sure at the most basic level that the quantity of certain types of programming they are meant to deliver is delivered in practice. Alongside that quite metric-focused process, we also have an annual statement of media content policy, which has been referred to previously, which is more of a mixture: there is some quantitative analysis but also some qualitative challenge, where we look in slightly more detail at Channel 4’s plans. There is an ongoing discussion with Channel 4. It then publishes what it intends to do and we publish a response to that. That is an annual process of quantitative and qualitative challenge. Finally, and perhaps most importantly, we carry out a pair of periodic reviews—the most recent was last year—in which we carry out over a roughly five- year period an overall review of where public service broadcasting is, and alongside that a specific report on where Channel 4 is. That is important, because it allows us to take a more strategic, holistic view of where the public service broadcasting ecology is, combining quantitative and qualitative analysis and making recommendations. That is what we do. It is worth emphasising that we are not responsible for decisions in relation to the ownership of Channel 4 or to its remit. Both of those are ultimately for government, and I apologise in advance that while we are very keen to help you as best we can in the areas where we have competence, we tend to be cautious about making comments outside our remit. We will go as far as we can to help you with your inquiry, but we will be cautious about commenting on matters that fall outside our remit. The Chairman: We will push you as far as we can. Dr Steve Unger: I am sure you will. It is best to understand each other at the beginning. The Chairman: Quite. My first question may give you some trouble. Dr Steve Unger: You are welcome to ask.
Q12 The Chairman: We will have a go. The basis for a lot of this discussion about privatising Channel 4 is the sustainability of the organisation. Are you surprised that that is the basis upon which the Government appear to be considering whether privatisation would be a good idea? Do you think that Channel 4 is not sustainable over the period of the licence? Dr Steve Unger: Let me set out where we are on sustainability, because there are two issues here. There is the sustainability question. We set out our views on sustainability in last year’s PSB review. We said that we were broadly comfortable that Channel 4 was sustainable over the 10-year period of the licence. I would probably not be quite as definite as I think Claire was about the 10-year period, because in this sector it is difficult to predict the future. If you look at a credible-base case, it is clear that audiences are holding up, and advertising is holding up, so if you look at a steady-state evolution, the most likely outcome is that Channel 4 is sustainable. However, we also noted that there are some risks. There are some scenarios it is possible to imagine where there are greater challenges. We linked that in particular to changes in
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audience behaviour, particularly of young people. As Claire noted, young people have always been different. They have always watched less television, perhaps because they have better things to do, but the particular point that we highlighted in last year’s PSB review was that for the first time we were perhaps seeing some evidence that that behaviour learned at an early age was carrying through into not old age but slightly older age. In the past we have always assumed that that was essentially a cohort effect whereby young people were different but as they grew older they reverted to the norm. Some of the evidence last year suggested they were starting to bring that behaviour with them and we noted there was at least the possibility that if that accelerated, you could imagine a tipping point where more viewing shifted online and that was more disruptive to existing business models. It is also fair to say that over the past 10 years many people have predicted this type of tipping point, so we need to be cautious about saying that it is now about to happen, but I do not think that over this 10-year period one can rule out the possibility that that will happen. Therefore, for us there was a baseline assumption of a steady state, but it is not unreasonable—frankly, it is prudent—to plan for more disruptive changes in the market. Part of what we are talking to Channel 4 about in the context of the statement of media content policy is how it thinks about preparing for shifts in audience behaviour. What strategies would it adopt in those circumstances?
Q13 Baroness Kidron: I think you have partially answered my question. In the 2015 review—let me just make sure I understood it—you said that “further declines in Channel 4’s audience reach and share, at the rate observed” would create risk. Dr Steve Unger: Could create risk Baroness Kidron: I beg your pardon: “could create risk”. Has anything shifted very recently to make you feel differently? Gareth Barr: That risk stands. Were you to see the declines at the rate you had, that would be a real challenge, both for the commercial sustainability of it as a business but also in terms of the impact that it can deliver, particularly on the main channel, which is where the bulk of its PSB output is. Absolutely, that risk stands. What is interesting is that since we said that, it appears that the performance of the main channel is stabilising. If that holds as the emergence of a long-term trend, that is really positive news. Nothing has changed to make us fear that that risk is more likely, but the impact of that risk could be challenging. Baroness Kidron: You have mentioned that its PSB remit is all on the first channel, but you also suggested in that same review that both obligations and privileges might be pushed around the entire portfolio. Have you changed your view? How does that view sit in the current thinking? Dr Steve Unger: We have not changed our view on that. We made two recommendations. One was about giving Channel 4 the flexibility to deliver its remit across the range of delivery channels. For us, there was nothing complicated about that recommendation; the view was simply that if we gave management more flexibility to deliver the remit across the range of channels to market that it has, that ought to be a good thing. It was difficult to see a downside in giving it that flexibility. There is certainly a question as to how much value in practice it would realise from that. The most obvious benefit would be if it was able to use
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its online channels as well as its linear channels to target younger audiences. That feels a natural thing to try to do. From our perspective, if it delivers the outcomes that we want, we should give it the flexibility to decide how it delivers them. Baroness Kidron: So you are not actually requiring more PSB off it, just an easier way to deliver it. Dr Steve Unger: It is absolutely about defining outcomes but giving them the flexibility to deliver them. The parallel recommendation, as you know, was that to the extent that there were going to be challenges, it would also be helpful for us all to be more precise about those outcomes and about what in particular we want out of Channel 4 which the market is not delivering. That was also felt to be a benefit. For me, that is a statement of the obvious.
Q14 Baroness Bonham-Carter of Yarnbury: Considering your opening remarks, I have a suspicion that you will find this question difficult. Were you surprised, considering that you are an independent body and that Channel 4 is an organisation that you want to thrive, that the Government did not accept Ofcom’s recommendation to extend Lord Burns’s tenure as chairman? Dr Steve Unger: We made the recommendation because we felt that in a period when there was some uncertainty about the future of Channel 4 it might be sensible to wait until the future was clear before appointing a new chairman. That was our rationale, but it was the Government’s decision. They took a different view, which is fine. Our response to that has been to get on with our job, which is to run an open and transparent process to appoint a new chair, and we are very comfortable with the outcome; we have a good new chair in place, which is probably the most important thing. Terry Burns had been in place for two terms, which is a good run. It is not difficult to see the counterarguments, the reasons why the Government decided that it was time for change, but in the end it is their decision. Baroness Bonham-Carter of Yarnbury: And we have a new Trade Minister, but you cannot comment on that. In Sir David Clementi’s report, he suggested that Ofcom takes on a certain regulation of the BBC. Would you not agree that this means that the Ofcom board has to have, in a way that perhaps it does not at the moment—I see Stewart Purvis at the back of the room—people who have real understanding and experience of the making of television? Dr Steve Unger: Not just the board but the organisation. So the answer is yes. Clearly Sir David’s recommendations were fairly extensive and would represent a significant change to Ofcom’s remit. It is already important, of course, that we understand how TV operates and how programmes are commissioned. In Stewart’s day, he made a very important contribution on that front. We have been recruiting for someone to head our content group, and as part of that process we have been very clear that we want someone with editorial experience who brings that type of experience into play in the organisation. So, yes, we do need to make sure that we have the experience in the organisation that matches our responsibilities.
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Q15 Lord Sherbourne of Didsbury: I hear what you say about the remit being a fait accompli, but in terms of your holding Channel 4 to account and therefore judging its success in performing against its remit, how clear or precise do you find the remit? Dr Steve Unger: It is not a fait accompli; it is just for government to decide. There are areas where we have a degree of discretion in how we interpret the remit. Government sets some very specific quotas for the delivery of certain types of programming that are very clear. Over and above that, there is the remit, which is always capable of a degree of interpretation. Of course, part of our job is to make sure that we interpret that remit in the spirit that was intended. Gareth and I talked earlier about the interesting example of a specific quota for out-of-London production as part of the most recent relicensing process. We took the view that it was appropriate to add a requirement to produce a certain amount of content out of England and consistent over and above the out-of-London quota from government. We thought it was consistent with the remit, which requires a degree of diversity. So we do interpret the remit, and on occasion we can, if you like, place additional obligations on Channel 4 to make sure that it delivers on it. Lord Sherbourne of Didsbury: Do you have any sympathy with what the Secretary of State has said: that he finds the remit rather fuzzy and that it should be more specific? Does that strike a chord with you? Dr Steve Unger: I do not want to use overemotive language. In these remits there is always a mixture of quantitative metrics, which are easy to understand. The problem with quantitative metrics is that they never really capture all that you really care about. Metrics are a great way of measuring the quantity of stuff that is produced, but they are never as good at capturing the quality, the tone, the type of content. One always has a mixture of quantitative metrics and, if you like, a qualitative narrative, and, compared with those metrics, that qualitative narrative is intrinsically slightly fuzzier. Lord Sherbourne of Didsbury: So fuzziness is always inevitable. Dr Steve Unger: I live with a degree of fuzziness in much of our work, because you cannot capture everything perfectly with KPIs and metrics in any aspect of our regulation but particularly in broadcasting. It is not possible to capture perfectly through quantitative metrics what a broadcaster delivers.
Q16 Baroness Benjamin: Are you confident that Channel 4’s obligations to older children and young adults are being met? If not, how can it be held accountable? Dr Steve Unger: The short answer is no, but I will hand over to Gareth. Gareth Barr: As part of both our review and last year’s annual process that Steve mentioned, this was the main issue that we highlighted on which we had some concerns. It is worth being clear about what the remit requires. This probably builds on the question that we have just answered, which is that they are required to provide a range of content that appeals to older children and younger adults. That is a very broad statement; it is not the same as a quota that is put in place for specific programming targeted only at an age group. The remit is relatively broad. They have put forward the case that they believe they can deliver more impact through a range of programming that appeals more broadly beyond only that age group and that sits on the main channel, rather than specific
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programming on a portfolio channel. They think they will get more people watching in that age group and that it will have more impact. We raised some questions about the extent to which that strategy was suitably ambitious, and it is an area that we intend to follow up with them on. It is a good example of where there is room for interpretation. Channel 4’s audience profile versus other channels’ definitely skews younger. E4 in particular skews much younger. In one interpretation, they are undoubtedly delivering content that appeals to younger viewers. Our question to them is whether it is sufficient to fulfil this element of their remit in the way they are choosing to do so, and we have asked them to put forward in their statement this year evidence on how they think it has performed and the impact that that strategy is having. Baroness Benjamin: If not, how can they be held accountable? Gareth Barr: At the risk of sounding slightly technocratic, we would push them hard and hope that they would react. If they do not and things reach the point where we feel that we have exhausted the conversation, Ofcom has the ability to direct them to alter their statement. In the event that we think either that they have not complied with the direction or that it is not having the required impact, we can vary the licence accordingly to ensure that the issue is rectified. I would describe those as steps of last resort. That is not where I think we are or where I hope we end up, but clearly the regime that is in place ultimately has teeth if we need to use them. Baroness Benjamin: That is good to hear. Are there other areas that give you cause for concern, and do you think these areas would benefit from having quotas? You mentioned quotas earlier. There are some complaints that not enough arts, for example, are being put out on the channel. What, in your view, needs to have something done about it? Gareth Barr: We highlighted a number of areas where we raised questions. Interestingly, one—international output—was an area where, although it is not a quota, they have a metric whereby they report the volume of hours that they are producing, which are across a range of genres but that have an international feel. We had seen a decline over time of that provision. We had seen the same with diversity, which is perhaps more surprising given the channel’s focus particularly on disability. It was also an area where we did not focus solely on the volume of output, because they at least had the plausible case that they were now focusing their output on a range of very high-profile, high-impact programmes rather than simply on a volume of hours. Quotas in and of themselves can secure a level of output, but they do not secure the impact delivered by that programming. The other obvious thing to say is that the more quotas you apply, the more you are boxing them in in their schedule and in trying to meet the needs of their viewers. That is something that we are inherently uncomfortable with, not least when the remit defined by Parliament is focused very much on the impact and the outcomes rather than the volume of output per se. Dr Steve Unger: Exactly. I would add to that that I am always nervous about quotas. They have an important role, but if one ends up with an overelaborate system of regulation with hundreds of different quotas for lots of different categories, there is a risk of regulatory failure, because you have constructed a regulatory system that is just too complex for
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anyone to understand but that also does not give flexibility to people to judge what is good for their audience. At some point, Channel 4 itself needs to judge what is good in creative terms for its audience, and we need to give it enough space to do that as well. Baroness Benjamin: Do you think it is doing enough as far as diversity is concerned, then? Dr Steve Unger: We would want it to do more, yes.
Q17 Baroness Healy of Primrose Hill: Channel 4’s 2004 licence stipulates that its news provision should be high quality, national and international; accurate, impartial, authoritative and comprehensive; and not less than 208 hours in peak viewing time each calendar year. The Secretary of State has said that the public service remit of Channel 4, including news provision, will be protected in the event of privatisation. My question is: bearing in mind that the Government have indicated that they would want Channel 4’s provision of news to be protected in the event of privatisation, how, in practical terms, could Ofcom help to redefine and police the channel’s remit in ways that would ensure that this happened? Dr Steve Unger: It is worth unpacking the different elements of that remit. There are elements of that which we straightforwardly deal with in relation to commercial PSBs. Quotas could be applied to anybody. We also apply the rules on accuracy and impartiality through our broadcasting code to the full range of broadcasters, so one would assume that we could still carry that through in the event of privatisation. Then you get to some very difficult questions about “high quality”, which you mentioned; you get some quite practical questions about what that means in practice. If there was a new ownership and a new remit, how would that new remit define “high quality” in a way that was enforceable in a commercial world? That is the issue that the Government would have to work through, and where the detail becomes important.
Q18 Lord Hart of Chilton: Mr Elstein, one of the critics of the regulatory system for Channel 4, says: “There is no set measure of success, nor any prescribed penalty for failure”. Can you let us have your views on whether the current system of regulation is effective in holding Channel 4 to account? Dr Steve Unger: I went back to David’s article, and he is always provocative in his comments. First, his comments related specifically to the additional provisions under the Digital Economy Act, so, if you like, the annual review of the SMCP process. I think that his comments related specifically to that process. There is an element of truth in what he says in that much of that process is qualitative. However, as Gareth has just said, there are teeth; as an absolute backstop, the Digital Economy Act makes clear that we have the ability to direct Channel 4 and we ultimately have the ability to vary its licence. The threshold for doing so is high, but that is probably appropriate. It is not necessarily right that we should on an annual basis continually tinker with the licence of broadcasters—that is not good for business certainty. Therefore it has teeth, but the threshold for applying those teeth is quite high. Also, and quite importantly, that is not the only way in which we hold it to account. There are quotas, which are quite measurable, and we have teeth if they do not deliver on the quotas. There is the process by which we licence Channel 4, and at that point, when the
185 Ofcom – oral evidence (QQ 11-21)
original licence is set, we have a great deal of discretion to put new obligations on it—I mentioned earlier the out-of-England obligation on Channel 4—and we then hold it to account. So I do not accept David’s statement, but I do accept that there is always a challenge in trying to hold broadcasters to account completely through quantitative metrics. This is a long-running discussion that we have had with him. The metrics capture quite a lot of what they need to do, but they do not capture everything, which is why the qualitative part of our work is also important. Lord Sherbourne of Didsbury: Can I just pick up your very last point about the qualitative evaluation, or your evaluation of quality, which, of course, does not have figures? How do you do that? Dr Steve Unger: It is not easy. There is a link here, by the way, to the work that we did on media plurality, where you can measure the consumption of media; it is much more difficult to measure the impact that that consumption has. However, we can carry out audience research. We ask audiences about their perception of the different content they watch. That gives us an evidence base, and that is what informs our assessment, probably more than anything else. However, it is not quite as much of an exact science as measuring the quantity of stuff that is produced. Lord Sherbourne of Didsbury: You have reminded me of the report you did on media plurality. It was quite a complicated report, but I remember puzzling when I read it about how you discovered what the impact was. It is a very precise word. How do you do that? Dr Steve Unger: Essentially, you carry out market research. You ask audiences not just what they watch but which of those programmes have actually affected their opinions—which have shaped the way they think about the world. That gives you some sense of what programming has the most impact in those areas, but it is much more difficult evidence to interpret than evidence on the number of hours broadcast. So you can have a go at it. There are always areas where we make some subjective judgments; we have to try to make sure that those judgments are as informed as they can be by evidence, particularly audience research. However, in the end, there also has to be a judgment; you look at that evidence in the round and you make some judgment. Lord Sherbourne of Didsbury: This is not a question but a final observation from me. I have a very good friend who is a regular pundit on television and radio. People often hear him and tell me how good he was. When I ask, “What did he say?”, they cannot remember anything. Dr Steve Unger: That suggests that he has one sort of impact, but not another.
Q19 Baroness Benjamin: Some critics of Channel 4 feel that certain areas of its remit have been eroded over time. How would Ofcom ensure that the remit of a privatised Channel 4 was protected over time? Dr Steve Unger: The starting point would be for government to specify that remit: what is the core remit that it wants to have protected in this new world. My more general comment, though, is that it is true that the remit of the various public service broadcasters has changed over time. ITV is a good example. Over the years, the things that we require it to do have reduced because of the commercial reality that the benefits it gets are not as
186 Ofcom – oral evidence (QQ 11-21)
great as they used to be in a multi-channel world. I am sorry to give ITV as an example, but it is a particularly clear one for me, because in that case we felt particularly strongly about regional news, and a decision was taken to focus particularly on protecting that. You have to judge what matters most to you, and, in the new world, what matters most to government. That then needs to be written into the remit, and we need to find ways of measuring and delivering against that remit as best we can. Our task in holding them to account has to follow what that remit is, and unfortunately the way we would do it would vary depending on the remit. I am sorry; that is an incomplete answer. We have to start with what the remit is, and we then have to work out the best way of holding them to account against it. But there have been plenty of circumstances in the past where remits have changed in response to changing market conditions and changing priorities. Baroness Benjamin: Okay. In practical terms, what resources would Ofcom need to regulate a privatised Channel 4 effectively? Dr Steve Unger: I am probably going to give another slightly wishy-washy answer. It depends on what the job is. I honestly do not know. It depends on what the remit is. It then depends pm what we would have to do to hold it to account. We would have to work through that analysis to work out what the level of resources would be. I am sorry; that is not a very thorough answer, but I am afraid it is the reality. Baroness Benjamin: You are playing the blushing bride or bridegroom, are you? Dr Steve Unger: No, it is simply that I do not know what the job is, so I cannot quantify what resource would be required to do it.
Q20 Lord Hart of Chilton: How much confidence do you have that a privately owned Channel 4, with the investment of capital and return on investment that that would require, would be able to fulfil its public service remit? Dr Steve Unger: I am at risk of giving another unhelpful answer, because it depends on what that remit is. I would have to know what the remit was and then I would have to go through the process of understanding how we would hold it to account before I could assess the risk. Lord Hart of Chilton: So you assume that any privatisation would require a change to the remit? Dr Steve Unger: I am assuming that there is at least a question as to what the remit would be post-privatisation. If there is no change to the remit, we would still have to go through the analysis, because clearly something would have changed—the governance mechanisms of the organisation would have changed. We would certainly need to look at whether the mechanism for holding it to account, given the desire to keep the existing remit, would still be effective given the changed governance and incentives of the organisation. I would not assume that it would stay the same, though. Equally, I would not assume that we could not do it at this stage. I think we would have to work through the analysis. Lord Hart of Chilton: I fear that you are going to fob me off again. My second question is: what impact would this have on the rest of the industry, including the independent production companies?
187 Ofcom – oral evidence (QQ 11-21)
Dr Steve Unger: My answer is a slight fob-off. It would at least be possible to continue to have certain constraints on Channel 4. There is a straightforward point that, as part of the process, a decision would need to be made about whether to rebalance the current terms of trade. The current terms of trade are essentially a balance between two sets of priorities, giving the public service broadcasters as much flexibility as possible over how they exploit rights but also building up this quite amazing set of independent production companies. There is a balance there between two different policy aims. First, it would be necessary to decide where that balance was set in this new world. The balance could be maintained where it is, in which case it would presumably be necessary to say to a privatised Channel 4 that there were significant restraints on its ability to produce content in-house. That would affect its commercial flexibility, but at least in principle it is possible to constrain commercial flexibility.
Q21 Baroness Kidron: I wonder whether I might stray further into your nightmare areas. Perhaps you can talk a little about the question of foreign ownership. Presumably you have taken some view. I am interested in what impact that might have on the channel and the production companies that we have just talked about but also on the viewers. Can you say a little about that? Dr Steve Unger: This has come up before in the context of Channel 5, for example. It is worth saying three things. I might see whether Gareth wants to add anything. First, as a general rule, 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. Therefore, you have to look at cases on the facts of those individual cases. As to how that would play out with Channel 4, there are probably two straightforward points to make. First, at the point of privatisation, the Government have the option of deciding whether they want to place any constraints on how that privatisation takes place. That is a question for government. Once it 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, but I would not want to say that as a matter of principle we are against capital coming into the UK to invest in the UK; we are not against that as long as it results in more UK production and better delivery to UK audiences. Baroness Kidron: Given that we have had some experience of this, have you noticed anything that a foreign owner does bring? Is there a cultural shift?
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Dr Steve Unger: We see some of that, but there is a wider issue, which is the globalisation of production. This is an issue for foreign-owned companies, but it is also an issue for UK- owned companies. The commercial incentive across many genres is to produce content that can be sold globally. That makes a lot of sense commercially. That does not necessarily support the desire to produce content that reflects UK culture and meets the needs of a UK audience. There is a clear tension there. It is clearly desirable that our production sector is able to sell globally. That has clear benefits. There is a risk that it results in more content that does not reflect UK culture and the interests of UK audiences. That is the tension that we have had to deal with for a number of years irrespective of the ownership because even UK-owned production companies face that same tension. Baroness Kidron: Perhaps I might ask the same question in an even narrower sense about PSB. We have this great PSB tradition. If Channel 4 and Channel 5 are foreign-owned, does that threaten the ecosystem of PSB? Gareth Barr: I would try to get under the skin of what would drive a concern about that. Viacom already owns Channel 5. I have not noticed a demonstrable change in the channel’s approach. It is talking about increased content investment. That would be a good thing. 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. The best of the American series are absolutely brilliant and we all like them, but actually what the bulk of people in the UK are watching is UK content. The prospect of an American company or anyone else coming in, acquiring that company and then setting about destroying all the cultural values that have made it such an appealing target in the first place is at least questionable; you would want to unpick that. I would also point to the strong demand for UK content abroad. You need to look at the reasons they want to invest in the first place and getting access to the best of British content is a compelling proposition for them. On the independent production front, the only point I would make is that one of the strengths of the current system is that you have a qualifying status for independent companies that means that if you are linked to a UK broadcaster you are no longer a qualifying independent and therefore you do not qualify for the PSB quotas. We have already seen a range of foreign acquisitions but those big global media companies are UK broadcasters while they have UK channels. Those companies that they acquire therefore no longer qualify, meaning that there is more space and money going from the PSB system into the existing pool of qualifying slightly smaller companies. There is a degree to which in the independent sector at the very top some of this is a bit self-correcting. But, as Steve says, there is no presumption that foreign is bad. The things we care about are the things that are kept within the remit. Baroness Kidron: If I can just push you on the shop window thing that I keep hearing about, we hear that Amazon might have huge things, such as “The Royals”, and it buys in to have a shop window on what is global and does not really need to worry about the local audience quite so much. That is the argument. What would you say about that? Dr Steve Unger: There is something of a concern here. I suppose we are trying to argue that, across the range of different genres, foreign ownership is not necessarily a problem and can
189 Ofcom – oral evidence (QQ 11-21)
even be beneficial. But there could be concerns in some areas, and we have to at least look at that. The Chairman: The Division bell is ringing, which probably means that this is a good moment to conclude. Thank you very much. Within the constraints that I know you felt in answering us, you have been extremely helpful so thank you both very much for coming.
190 Ofcom - supplementary written evidence (SCF0031)
Ofcom - supplementary written evidence (SCF0031)
Introduction
Ofcom welcomes this opportunity to provide further information to the committee for its inquiry into the ownership of Channel 4. We have considered the five questions put forward by the committee, in turn, below.
As previously set out, Ofcom works within the framework and definition of the PSB system provided for by Government and Parliament. It is for Government to consider the ownership of Channel 4 (“C4”) and future governance and regulatory models of the Channel 4 Corporation (“the Corporation”). Given this we have indicated in our answers where we are not able to speculate on future changes which are dependent on Government proposals.
QUESTION 1
What are the restrictions governing advertising minutage if a company owns 30% or less of a broadcaster? Is it correct to say that a minority owning company and broadcaster could cross promote their services?
The Cross-Promotion Code125 does allow broadcasters to promote certain services outside of advertising minutage restrictions; however, the conditions are that the promotion must:
be for a broadcasting–related service e.g. programmes, channels or other services that have the look and feel of a television service (such as a catch-up service); and
not be broadcast in return for payment or other valuable consideration.
QUESTION 2
In regards to the “fit and proper” test that is carried out by Ofcom when assessing a licence application can you could provide us with some more detail on what criteria this assessment takes into account?
Ofcom has an on-going duty to be satisfied that any person holding a broadcasting licence is, and remains, fit and proper to hold such a licence. Licensing application (and notice of change) forms126 ask for a range of relevant ownership information including:
Details of any past surrendered or revoked licences, current or pending investigations in relation to existing licences and past statutory sanctions for contravening a licence condition;
125 Ofcom Cross-Promotion Code: http://stakeholders.ofcom.org.uk/broadcasting/broadcast- codes/broadcast- code/cross-promotion-code/ 126 http://licensing.ofcom.org.uk/tv-broadcast-licences/
191 Ofcom - supplementary written evidence (SCF0031)
Any unspent convictions of directors or shareholders of the applicant;
Any disqualification from being a director of any individual involved in the applicant’s business;
Any bankruptcy of the applicant’s directors or shareholders; and
Any other matters which may influence Ofcom’s judgement of the applicant’s fitness.
The information provided is used to consider three main types of circumstances in which we would consider a person to be not fit and proper to hold a licence:
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;
where the ownership would bring into question public confidence in the regulated activity as a whole; and
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.
QUESTION 3
What are the sanctions that Ofcom could impose on the owner of the Channel 4 licence if that owner breached their broadcast licence conditions? The Committee had understood that Ofcom would be able to revoke the licence however the document127 suggests that this would not be the case, in that event who would have the power to revoke?
Under the current framework, if Ofcom was satisfied that the Corporation had breached a condition of the Channel 4 licence, Ofcom could, as appropriate, direct the Corporation to include in the Channel 4 service a correction or statement of findings (or both), direct it not to include a particular programme in the service on any future occasion, and/or impose a financial penalty on the broadcaster.
Ofcom is able to raise any concerns about the Corporation’s delivery of its remit and duties as part of the Statement of Media Content Policy process. If Ofcom considered that the Corporation had failed to fulfil the public service remit for C4, failed to make an adequate contribution to the fulfilment of the purposes of PSB, or failed to perform one or more of its media content duties (which apply across its television, on-demand and other on-line services) it could, in certain circumstances, direct the Corporation to take specified steps to
127 http://stakeholders.ofcom.org.uk/broadcasting/procedures/procedures--sanctions/
192 Ofcom - supplementary written evidence (SCF0031)
remedy the failure. If the Corporation failed to comply with such a direction, Ofcom could vary the C4 licence as it considered appropriate for remedying the failure.
Ofcom does not have the power to revoke the C4 licence; this would require a change in legislation.
QUESTION 4
In the event of a private owner what possible changes could happen to the non PSB channels in the C4C portfolio? At present these are licensed by Ofcom without PSB obligations beyond the general obligations in the Digital Economy Act. If a new owner of C4C wanted to change what they did would Ofcom currently be able to intervene in any way? For example; a new remit for Film4, or turning one of the +1 channels into a sports channel? Do you anticipate that this could that have any impact on their current EPG prominence on the different platforms?
How the Corporation uses its portfolio channels is a decision for the Corporation, subject to compliance with its statutory and licence obligations.
The Corporation’s portfolio channels are not subject to the programming obligations imposed on the PSB channels licensed by Ofcom. However, the Corporation is able to use the channels (along with all of its services) to deliver its media content duties.
The portfolio channels are not among the channels entitled to appropriate prominence on electronic programme guides (EPGs). EPG licensees are required to ensure that any agreement with a broadcaster for the provision of an EPG service is made on fair, reasonable and non-discriminatory terms. The prominence of these channels is therefore a commercial matter between the EPG provider and broadcaster, subject to the general competition-related requirements in the EPG code.
QUESTION 5
Could a purchaser decide to voluntarily withdraw from the licence obligations and to give notice that they no longer wished to fulfil any PSB remit (i.e. hand the licence back)? In this event could they be sued for breach of contract or would they simply lose their EPG fourth place (and nothing else?) Or would their use of broadcasting spectrum be forfeited, making it impossible to continue broadcasting in any space allocated to C4C?
The Corporation is a statutory corporation which has a duty to secure the continued provision of C4.
Whether a future purchaser was able to hand back the C4 licence would depend entirely on the statutory framework at that time.
9 June 2016
193 Michael Pritchard - written evidence (SCF0001)
Michael Pritchard - written evidence (SCF0001)
Please don’t let Channel 4 be privatized please.
23 March 2016
194 Producers Allliance for Cinema and Television (Pact) – written evidence (SCF0022)
Producers Allliance for Cinema and Television (Pact) – written evidence (SCF0022)
Introduction
1) Pact is the UK trade association which represents the commercial interests of independent television, feature film, digital content and animation production companies.
2) The UK independent television sector is one of the biggest in the world with sector revenues of almost £3bn in 2014.128
3) Channel 4 – as a publicly owned public service broadcaster, with a unique remit to promote diversity and innovation both on and off screen – plays a very important role in the British broadcasting ecology.
4) Channel 4 is the only UK PSB which is prohibited from having its own in-house production entity. It therefore has a special relationship with UK TV producers.
5) Due to its public ownership status, Channel 4 operates on a not-for-profit basis, with income generated from advertising reinvested in high-quality UK original programming, rather than on delivering a return to shareholders.
6) Pact welcomes this opportunity to respond to the House of Lords Communications Committee’s inquiry into the sustainability of Channel 4.
128 Pact Census Independent Production Sector Financial Census and Survey 2013, by Oliver & Ohlbaum Associates Ltd (July 2015)
195 Producers Allliance for Cinema and Television (Pact) – written evidence (SCF0022)
Funding
1 Is C4C financially sustainable? Is the revenue provided by advertising sufficient to make Channel 4 Corporation sustainable?
1.1 Pact considers that Channel 4 is in strong financial health.
1.2 Television advertising revenues were badly affected during the recession of 2008- 2010. However, according to analysis by EY for C4, TV advertising sector revenues as a whole have grew by 12% in nominal terms in the decade between 2004 and 2014.
1.3 In 2014, the last year for which data is available,129 Channel 4 reported a corporation revenue increase of £30 million to £938 million. It has cash reserves of above £220m and an operating surplus of £4m. C4 commands 20% of the UK TV advertising market, drawing in £1bn revenue every year. In 2014, C4C made record levels of investment in original British programming (£430m) across its channel portfolio.
1.4 Although the viewing share of the main channel has been in decline over a number of years, C4C’s audience share across its portfolio of channels has enabled it to stay broadly stable overall. Over half of 16-34 year olds in the UK are registered to use its video-on-demand platform. As far as we understand, no data is available on how many active users there are of C4 VOD services.
1.5 EY concluded in its analysis of C4C that “despite significant market change over this period, Channel 4 has broadly maintained viewing share across its channel portfolio; experienced growth in its share of a growing advertising market until 2007, followed by a fall in share to levels seen in the early 2000s; remained largely profitable; and continued to make scale investment in original content.”
129 The 2015 C4C Annual Report isn’t due out until May, but we understand from conversations with the Executive that the numbers are up year-on-year from 2014-15.
196 Producers Allliance for Cinema and Television (Pact) – written evidence (SCF0022)
Figure 1: Channel 4 key metrics and overview of challenges over 2001 to 2014
Source: EY report on Channel 4’s adaptation to a changing and challenging market, March 2016
1.6 This analysis is supported by a report produced by Enders Analysis, which found that “Channel 4 is delivering its remit with great success, is commercially sustainable, and promises both to remain highly sustainable and grow its PSB contribution through its current licence ending in 2024.”
1.7 Figures published by Enders Analysis show that Channel 4’s share of Net Advertising Revenues (NAR) has remained relatively stable, from 16% in 1990 to 20% in 2015. Enders also cites that “the broadcaster has held average cash reserves of around £250 million in recent years that have seen it through any dips.”
1.8 Looking in more detail at Channel 4’s content spend, as noted above, following a significant decline in 2009/10, this has now returned to pre-recession levels of £430m on originated content, and £182m on acquisitions and multiplatform, as shown in the chart below. Figures for 2015 have not yet been published, but we understand from Channel 4 that original content spend has increased between 2014 and 2015 and that it is also higher than 2013 levels.
197 Producers Allliance for Cinema and Television (Pact) – written evidence (SCF0022)
Figure 2: Channel 4 content spend (FY07-FY14, £m)
Source: EY report on Channel 4’s adaptation to a changing and challenging market, March 2016
1.9 On the basis of this analysis, Pact considers that C4C is financially sustainable under its current public ownership model and structure as a publisher-broadcaster.
2 Are there any other commercial/non-commercial revenue streams which could/should be explored?
2.1 Pact does not have a view on whether there are any new revenue streams which C4C should explore as we consider that the corporation’s commercial strategy is a matter for the C4C board.
2.2 However, where C4C has made commercial investments, it is important that these are properly accounted for in a transparent way so as to ensure that as much money as possible is returned into the Channel’s content budget.
2.3 Furthermore, Pact considers it important that commissioning decisions are made in a fully meritocratic way. Channel 4 has a specific duty to work with a diverse range of suppliers and it would not be proper for it to be seen to favour companies in which it has a commercial interest, for example, through ownership of a minority share.
2.4 One area in which C4C has publicly called for a change in revenue streams in order to boost public service broadcasting relates to the campaign to redress the balance of payments between the PSBs and platform operators.
2.5 Pact notes the argument that the increasing take-up of personal video recorders (PVRs) with time-shifting technology is having an impact on the potential advertising revenues which the commercial PSBs are able to generate from their content, to the benefit of the platform operators, who sell this functionality as a customer benefit.
198 Producers Allliance for Cinema and Television (Pact) – written evidence (SCF0022)
2.6 However, having spoken to all of the UK broadcasters at the time of the Government’s consultation last year on this issue, we did not receive adequate guarantees from the PSBs that, should a change in the retransmission fee regime occur, they would ensure that underlying rights holders were adequately and appropriately compensated for the use of their content in this secondary commercial way.
2.7 As the trade association representing over 400 independent television producers in the UK, Pact’s interest in this debate focuses on the impact which any changes to the balance of payments would have on the ability of the PSBs and other commissioning broadcasters to invest in original UK content.
2.8 We welcome anything which would provide long-term security of investment in content in the future.
2.9 Pact is concerned that a transfer of funds away from platform operators towards PSBs would only truly benefit independent producers if a formal, legally binding guarantee was made by each of the PSBs that all the money which might flow in their direction would be invested by the broadcasters into creating original UK content.
2.10 Given that no formal commitments have been made by the PSB channels to invest all potential additional revenues which they might receive from retransmission fees into the creation of UK original content, Pact does not have a view on whether or not the balance of payments should be amended at this time.
2.11 However, if the system was to be deregulated, then we consider it to be important that any new system includes a means in which:
Underlying rights holders would be properly compensated for the further use by retransmission of their content in this commercial way; and PSBs make a formal commitment to invest any additional revenues which they receive a result of a shift in the balance of payment into the creation of original UK content.
Viewing
3 Is viewing of Channel 4 (the main channel) and C4C sustainable? To what extent is the decline in reach and share on the main channel a problem for C4C?
3.1 Enders Analysis recently conducted detailed analysis about C4C viewing trends. It found that although it is undeniable that C4 main channel has seen a substantial decline in its audience in recent years, viewing numbers have been broadly stable since 2013. Furthermore, Enders concluded that the biggest audience loss of main
199 Producers Allliance for Cinema and Television (Pact) – written evidence (SCF0022)
Channel 4 occurred in the least commercially important segment for advertising sales – older adults during off peak viewing hours.130
3.2 On the basis of this analysis, it would appear that although potentially problematic in the longer term in relation to ensuring that C4 content is accessed by as wide an audience as possible, in financial terms, the decline in reach of C4 main channel does not appear to have caused major financial issues for the corporation, given the way in which C4C sells advertising across its channel portfolio. This is because that the decline on C4 main channel has been offset by the increase in share of the C4C portfolio digital channels (E4, More4 etc).
4 To what extent is Channel 4 equipped to deal with the challenges posed by new technology and viewing habits such as online and search and recommendations?
4.1 The C4 Board is responsible for setting the corporation’s strategy and determining how well equipped C4 is to deal with the challenges posed by new technology and viewing habits. We note that the corporation has focussed much attention on developing a data strategy in recent years.
4.2 Where C4C has sought to increase its content offering online or on new digital services, Pact has worked with the broadcaster in order to enable it to secure access to the relevant intellectual property rights in order to enable it to do so. This has been possible because of the flexibility afforded under the regulatory framework, in particular, Section 285 of the 2003 Communications Act, the piece of legislation which underpins the “Terms of Trade”.
4.3 The Terms of Trade are extremely efficient. This is in large part because of the flexibility which enables PSBs and Pact, on behalf of the independent production sector, to regularly renegotiate commercial terms and access to rights, thus enabling UK PSBs to adapt to new technology and changing viewing habits.
4.4 Channel 4 and Pact have negotiated three different deal terms since the Terms of Trade were first agreed in 2005. The first of these was in 2007, when the key change was a reduction in the licence period of programmes, in return for granting C4 video- on-demand rights in order to launch its 4OD platform. In 2010, the Terms were revised again so as to enable Channel 4 to secure the rights to launch a +1 service. In 2012/13, new terms were agreed which enabled Channel 4 to launch its new catch-up TV service, 4Seven, with revenue splits being changed towards more of a pence-per-view model. Channel 4 and Pact are very close to agreeing another new settlement which we anticipate will be finalised in the first half of this year. Pact has reached an
130 Enders Analysis report on C4 viewing trends, March 2016
200 Producers Allliance for Cinema and Television (Pact) – written evidence (SCF0022)
agreement with C4C for commercial arrangements for Terms of Trade to be introduced on E4. We encourage C4C to enter into similar arrangements on its other portfolio channels, order to provide clarity of supply to all of its independent TV content suppliers. The introduction of Terms of Trade on E4 was a result of a negotiation between Pact and C4C in which C4 gained additional uses of content for its 4Seven service. This is an example of how the regulations on the main PSB channel have had a positive ripple effect in the market.
4.5 Overall, the key changes to the Terms since they were first introduced in the 2003 Communications Act have been that the balance between payment and amount of rights has varied over time, enabling C4 to launch new channels such as More4 and 4Seven. As noted by EY in its report for Channel 4 “launching a portfolio of linear channels – including E4, More4, Film4 and Channel 4+1 in order to defend its overall viewing share and to provide further choice to audiences in a fragmenting environment…has enabled Channel 4 to maintain viewing share across its portfolio.” This would not have been possible had the legislation under Section 285 not been sufficiently flexible enough to enable Channel 4 and Pact to agree and review mutually beneficial commercial terms.
4.6 In return, the Terms have enabled greater payment to producers for holdback rights beyond the initial licence term, with C4 benefiting from greater opportunities for first- look deals and formats for returning series for Channel 4. C4 has also been granted additional rights to use content on 4OD, with appropriate revenue shares agreed. In return, producers have been able to exploit download to own markets to a greater extent in order to try to address the decline in revenues from DVD sales. Revenue sharing arrangements have been introduced for the use of clips; and producers have gained the ability to exploit digital spin-off rights.
4.7 These regular negotiations clearly demonstrate the flexibility of the legislation, and the willingness for Pact, on behalf of independent producers, to work with Channel 4 in order to enable it to acquire the necessary rights to launch new producers and services in order to keep up with technological advances and changing viewing habits.
4.8 One area in which C4 benefits as a PSB is its secured slot on the electronic programme guide (known as EPG prominence).
4.9 Pact understands that the Government is currently considering the future regulatory regime for electronic programme guides, in order to ensure that it remains fit for purpose.
4.10 Pact supports the Government’s policy objective to ensure that EPG regulation remains fit for purpose given the significant technological innovations in TV services in
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recent years. As such, we agree that the system of EPG prominence may require amendments to the current framework to create a technologically neutral EPG definition for the PSB channels, including video-on-demand content.
4.11 However Pact does not consider that it is an appropriate time for the PSB HD channels, or portfolio channels which do not have PSB obligations such as a requirement to commission content from independent producers under the Terms of Trade or a 25% independent production quota, to be included in the EPG prominence regime.
4.12 As noted elsewhere in this document, should any of the PSB benefits be extended to C4C’s portfolio channels, the PSB obligations should be extended in a similar way.
Remit
5 Would changes to the Channel 4’s remit provide greater sustainability for the broadcaster? Is the current legislation too detailed, or too vague?
5.1 The UK independent TV production sector and Channel 4 developed together, and our cultural and commercial success is in many ways interlinked.
5.2 Pact considers that Channel’s statutory public service remit to: be innovative and distinctive; stimulate public debate on contemporary issues; reflect the cultural diversity of the UK; champion alternative points of view; inspire change in people’s lives; and nurture new and existing talent …remains as important now as when Channel 4 was first established.
5.3 It is vitally important to UK independent producers that Channel 4 continues to be a publisher-broadcaster and that it retains its unique structure and remit, which ensures that Channel 4 works with a broad range of suppliers from across the country.
5.4 Film 4 is also a vitally important source of investment for UK independent film producers.
5.5 One area in which Pact considers that C4C must be held to greater account for its delivery relates to its duty to provide content which appeals to the tastes and interest of older children (aged 10-14), as well as to young adults (14-19 year olds).
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5.6 Channel 4 has a regulatory obligation as set out in the 2010 Digital Economy Act to deliver content that is of interest to older children and young adults across its channel portfolio, including online.
5.7 In its last review of how C4C was delivering on its remit, Ofcom found that: “over the review period, C4C met its duty to provide content which appeals to the tastes and interests of young adults (whom C4C defines as 14-19 year olds). Whilst Youngers, aimed at older children (10-14s), was a notable success on E4, there was no specific provision beyond this for older children in 2013.
5.8 C4C has now outlined a strategy to provide content on the main channel which, while not specifically targeted at this age group, will appeal to them and deliver greater impact than bespoke content has done so far. We have requested that C4C reports to us in early 2016 on the delivery and impact of the programmes it has identified that will appeal to this audience.”
5.9 Pact asked C4C about how its process of reporting to Ofcom was going. We were told that C4C is “liaising with Ofcom as part of the process of engagement around the Annual Report, and there is a section on the Annual Report on older children specifically. It highlights examples of 2015 programmes that resonate with older children, including Educating Cardiff, Secret Life of 4 Year Olds, Gogglesprogs and Britain’s Favourite Children’s Books, all of which were significantly up on the slot average for 10-14 year olds. The most popular original title amongst 10-14 year olds in 2015 was Gogglesprogs, which has obviously been recommissioned for a full series.”
5.10 Whilst Pact welcomes this increase in the focus of C4C in commissioning programmes which “are up on the slot average for 10-14 year olds”, we continue to call for C4C to be held to its remit to deliver programming across its whole channel portfolio which specifically meets the needs of this younger audience group.
5.11 There is no denying the fact that the amount of children’s programming on Channel 4 has fallen dramatically over the course of the Channel’s history. In the early 1990s, Channel 4 had an obligation to show over 300 hours of schools programming per year. In 2013 and 2014, it spent just £2m on programming for this age group. This accounted for just 4h of originated content.
5.12 Channel 4, through programmes such as The Snowman, also used to champion UK animation. However, the Corporation has migrated from leading in this field to lagging behind in a matter of a few years – as the amount of programming which it shows for children has declined overall.
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5.13 In the more recent past (during the 1990s), Channel 4 delivered award-winning live action shows such as Wise Up! and Coping With…Parents that were commissioned especially for older children.
5.14 Pact does not consider that the programme examples which were listed by Channel 4 above are targeted specifically at an audience of 10-14 year olds, but rather they have simply rated more highly than the slot average with that particular age group. We therefore take this opportunity to renew our call for C4C to do more in order to meet its regulatory obligations of providing content across its channel portfolio and online which is specifically aimed at the needs and interests of 10-14 year olds.
5.15 Furthermore, as well as providing programme examples to Ofcom, we consider that it would be appropriate for C4C to be required to provide information about how much it spends on content aimed at this age group, and how many hours of programming per annum specifically target this audience.
5.16 Given that Channel 4 is a public service broadcaster with a specific remit to deliver content for older children, Pact considers the current schedule on C4 and across the C4C portfolio to be extremely disappointing in terms of what it offers for older children. We welcome the programme examples which C4C has shared with us which rate more highly than the slot average amongst this demographic and we look forward to seeing how this translates to investment in both airtime and programme investment in the 2015 Annual Report. However, we strongly urge C4C to go further than increased reporting with a few examples of programmes which have reached a higher than slot average audience share for older children, and to reaffirm a much greater commitment to content for older children aged 10-14, as set out in its remit.
5.17 Furthermore, Pact supports Ofcom’s recommendation that Channel 4 should also more clearly define in future how it intends to measure its delivery of content to older children, and that it should be held strongly to account if it continues to fail on delivering this part of its remit in future.
6 What benefits/drawbacks could there be to Ofcom’s suggestion in its PSB review that PSB obligations be applied to C4C as a whole rather than to the main channel alone?
6.1 Pact considers it to be very important that the British public has clarity about the remit and purposes of Channel 4. As noted above, we are concerned that this remit could be diluted if Channel 4 was to be sold to a private owner.
6.2 We recognise that the 2010 Digital Economy Act extended C4C’s ability to include content delivered across its digital portfolio (secondary channels and online) as part of
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its PSB remit catering to the needs of older children and young adults. Pact also notes that PSB content is regularly commissioned and broadcast on non-PSB channels – including PSB portfolio channels and cable and satellite channels – yet these channels do not have PSB status.
6.3 C4C made the case for the extension of PSB status to its entire channel portfolio in its submission to the 2015 Ofcom review of public service broadcasting. The response said that: “We are increasingly delivering our remit across the full extent of our digital TV channel portfolio and online services, in a natural extension of Channel 4’s cross- funding model. It is therefore anomalous that the organisation does not get formal recognition for its PSB delivery beyond the main channel. It is likewise anomalous that while audience consumption of Channel 4’s content is spreading across the portfolio, PSB licence obligations remain focused on the main channel, meaning that Channel 4 cannot distribute its content across its linear and online services in the most effective way.”
6.4 Pact is concerned that C4C’s proposal to extend PSB status to all linear and online services 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.
6.5 This risk was highlighted by Ofcom in its most recent PSB review in which it found that allowing PSBs more flexibility in where to schedule content, although this might maximise their revenues, might also lead to some PSB output being placed in less- widely used parts of the TV schedule (e.g. on portfolio channels) or online, which means fewer people would access the content.
6.6 Moving important PSB content away from the main channel onto digital channels and online could also have a detrimental impact on content producers, as budgets for productions on portfolio channels tend to be lower than those on the main channel.
6.7 Finally, consideration should be given to the potential impact which improvements of the EPG listings of PSB portfolio channels could have on non-PSB television channels which currently occupy higher slots on the EPG than C4C digital channels, but would become less prominent if C4C portfolio channels were afforded PSB status. The multichannel sector is increasingly investing in content production, and the impact of a possible decline in their share of advertising must be considered for the implications which this could have on the market.
6.8 In practice, Pact considers that that the extension of PSB to include all C4C channels would not significantly affect its ability to generate advertising revenues, as it already
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trades advertising slots in bundles which include C4 main channel alongside airtime slots on the portfolio channels such as E4 and More4.
6.9 Therefore, on balance, Pact does not support the extension of PSB status to C4’s portfolio channels and online services.
6.10 However, should the Government choose to adopt this approach, it is essential that any extension of PSB status and benefits to C4C portfolio channels should also include an extension of PSB obligations. This must include the 25% independent production quota (as opposed to a quota of 10% which exists for all non-PSB channels); Out of London production quotas; and the Terms of Trade as per Section 285 of the 2003 Communications Act. Furthermore Pact strongly considers that the 25% quota would have to apply on C4 and each of the portfolio channels individually, rather than a collective quota of 25%.
6.11 If all C4C channels were to be classed as PSB, then Pact would seek assurances that they would all be required to adopt the publisher-broadcaster model of C4 main channel. Without this being spelt out clearly in legislation, there is a risk that the important structure of C4 would be undermined as it could seek to launch in-house production.
7 Does the current regulatory system provide for adequate assessment of C4C’s performance against its obligations?
7.1 Overall, Pact considers that the current regulatory assessment; whereby C4C provides a Statement of Media Content Policy to Ofcom on an annual basis and Ofcom assesses how it has met its obligations and reports on this; to be an appropriate balance between light-touch regulation and holding the broadcaster to account for delivery on duties which it is required to do under its licence.
7.2 However, we consider that there are certain areas of the C4C remit – in particular with regards to providing content aimed at older children – where C4C does not adequately outline how it is meeting its regulatory obligations. As noted above, we do not consider that C4C adequately meets its obligations with regards to this part of its remit, and the programme examples provided by C4C are in our view not a suitable example of how the corporation is meeting its regulatory requirements as they are programmes which have achieved a higher-than-average audience share of 10-14 year olds, rather than programmes which were specifically commissioned with this audience group in mind.
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7.3 Furthermore, C4C is not required to publish data about the amount of hours of programming commissioned, or how much they spent on meeting this regulatory obligation.
7.4 At present, Pact does not consider that Ofcom has sufficient regulatory powers to sanction C4C if it does not consider that it is meeting its obligations under the 2010 Digital Economy Act.
Ownership
8 What are the different models of ownership for C4C? What are the positives and negatives of these?
8.1 Several different ownership models could be possible for C4C, including full or part privatisation.
8.2 Pact strongly considers that the best model for Channel 4 – with the least risks and the most benefits – is for it to remain as a publicly-owned, publisher-broadcaster for the foreseeable future. The benefits of the current model, which is working well, strongly outweigh all other models of future ownership for C4C.
8.3 When considering the option of privatisation of Channel 4, Enders Analysis note that: “Channel 4 is a unique and original life - form. It is the only state and/or publicly owned broadcaster in the world that is solely commercially funded, with the great majority of Channel 4 revenues coming from airtime sales. At the same time, Channel 4 occupies a league of its own with respect to (a) having a special public service, not – for -profit remit that lays heavy emphasis on diversity, (b) reaching out to a range of minority socio-demographic and interest groups, and (c) stimulating the independent production sector, again with emphasis on diversity. How is it possible to sustain such a counter-intuitive system of a commercially funded public service that touches on many areas that privately owned commercial broadcasters would not go near under normal circumstances?”
8.4 It is this concern about the lack of Channel 4 to continue to pursue its unique remit, with a focus on diversity and innovation, under commercial ownership which leads Pact to adopt a position which favours the current model of public ownership of Channel 4.
8.5 Because it in public ownership, Channel 4 does not have a duty to maximise profits and return a dividend to shareholders. It is therefore able to invest in a high level of original UK content, at a level which it has broadly maintained since its inception.
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8.6 Furthermore, its model as a publisher-broadcaster and with a specific remit to promote diversity and innovation, has enabled it to act as a strong driver for economic growth in the UK independent TV production sector – which as a result of a strong PSB system in the UK, and an effective, light-touch regulatory regime – has grown from a cottage industry to a sector worth almost £3bn in just over a decade.
8.7 After detailed analysis, independent reports by both EY and Enders Analysis conclude that Channel 4 is likely to be economically sustainable in the long-term under its existing ownership structure. These conclusions were arrived at in their assessments of current market and regulatory conditions i.e. the status quo on Terms of Trade and a prohibition on in house production.
8.8 Furthermore, it is unlikely that the sale of Channel 4 would deliver a significant financial gain to the Treasury (the value is estimated in press reports at around £1bn), however the risks of making a change of this sort to the delicately balanced eco- system of UK broadcasting could be substantial.
8.9 We agree with Enders Analysis’s statement that private ownership would mean a different and profit-orientated mind-set, which poses a serious risk to Channel 4’s level of investment in original UK content. It is likely that under private ownership, Channel 4 would continue to invest significantly in commercially-viable content, however certain areas of its remit (such as documentaries or content covering difficult subject matters) could be at particular risk.
8.10 Furthermore, we note the second risk identified by Enders in its report that: “The second major risk in the event of privatisation is that the purchaser will set its priority on solely producing content for the UK market that can be exported to other markets, thereby generating revenue synergies. This would very significantly alter the independent production sector, potentially completely eliminating 300 suppliers.”
8.11 Whilst it is true that independent producers also increasingly operate in a global TV market (international revenues now account for a third of total sector revenues), there are many hundreds of independent producers, based across the whole of the UK, which have built businesses on the back of their talent, entrepreneurialism and story-telling which is very much UK-focussed. Any move away from UK commissioning by Channel 4 – one of the UK’s main buyers - would have a devastating effect on the hugely successful UK independent production sector.
8.12 Therefore, for the reasons listed above, although there are areas in which we consider that Channel 4 should deliver more strongly against its remit, namely in delivering content specifically for 10-14 year olds, Pact considers that there is a strong economic and cultural case for Channel 4 to remain a publicly owned, publisher broadcaster.
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9 Would a change in ownership, such as privatisation, affect the remit of C4C, and in what ways?
9.1 Channel 4 has a unique remit to: be innovative and distinctive; stimulate public debate on contemporary issues; reflect the cultural diversity of the UK; champion alternative points of view; inspire change in people’s lives; and nurture new and existing talent.
9.2 The channel was first established in 1982 as a wholly publicly owned publisher- broadcaster, funded entirely by advertising.
9.3 Going back to the 1981 Broadcasting Act, the expectations for Channel 4 included: To ensure that the programmes contained matter calculated to appeal to tastes and interests not catered for by ITV; A proportion of the programmes were to be of an educational nature; To encourage innovation and experiment in the form and content of programmes To give the fourth Channel a distinctive character of its own.
9.4 Section 265 of the 2003 Communications Act sets out that the public service remit for Channel 4 (main channel) is the provision of a broad range of high quality and diverse programming which, in particular— Demonstrates innovation, experiment and creativity in the form and content of programmes; appeals to the tastes and interests of a culturally diverse society; makes a significant contribution to meeting the need for the licensed public service channels to include programmes of an educational nature and other programmes of educative value; and exhibits a distinctive character.
9.5 And more recently, Section 22 of the 2010 Digital Economy Act spelt out C4C’s functions in relation to media content on Channel 4, its portfolio channels, and online. This included a requirement for C4C to participate in the making of relevant media content that consists of news and current affairs and content that appeals to the tastes and interests of older children and young adults. These terms are not drafted in legislation, but Ofcom has defined older children as 10-14 year olds, and C4C defines young adults as 14-19 year olds.
9.6 In the Act, “relevant media content” means material, other than advertisements, which is included in any of the following services that are available to members of the public in all or part of the United Kingdom—
(a) television programme services, additional television services or digital additional television services,
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(b) on-demand programme services, or (c) other services provided by means of the internet where there is a person who exercises editorial control over the material included in the service.
9.7 This therefore means that Channel 4 Corporation has, as result of changes introduced in the Digital Economy Act in 2010, a unique role as a commercial PSB to deliver certain PSB duties on its full range of services, including all of its TV channel portfolio, on-demand services, online services and Film4Productions. The 2010 Act also required C4C to participate in the broadcasting or distribution of feature films that reflect cultural activity in the UK.
9.8 Channel 4’s history and success is closely interlinked with that of the UK independent production sector.
9.9 The UK independent TV production sector and Channel 4 developed together, and our cultural and commercial success is in many ways interlinked.
9.10 As noted in a report produced by O&O for Pact in 2013, to mark a “decade of success” of the UK independent production sector since legislative changes were introduced in the 2003 Communications Act which gave independent producers the right to retain the IP to programmes which they made for UK PSB broadcasters, the sector has gone from strength to strength.
9.11 O&O found in this report that “The UK independent production sector today is a global leader in developing and commercialising intellectual property, doing so with broadcasters, aggregators and platform owners across the huge diversity of programme output that is commissioned each year in the UK and in every other major TV market. UK independent producers have been at the heart of some of the most iconic brands in UK TV history, whether developing some of the biggest drama and entertainment franchises (e.g. Idol, X-Factor) or the most popular game show formats (e.g. Millionaire) shown in markets around the world. The scale and scope of operations that has grown with this success has made the UK independent sector a major contributor to the UK economy both directly via employment, services expenditure and tax paid and indirectly via its capacity to support the funding of UK content for PSB and commercial broadcasters.”
9.12 The strong economic growth of the UK independent TV production sector, from a cottage industry to one with sector revenues of almost £3bn in just 10 years, has led to the creation of thousands of jobs in the UK creative industries and contributed significantly to UK export growth.
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9.13 Channel 4 and the UK PSBs have played a key role in the success of the UK independent production sector. By investing in high-quality UK original content produced by independent producers, they have enabled British entrepreneurs to build sustainable businesses and dramatically increase international exports by exploiting the secondary rights to content which was first commissioned for a British broadcaster.
9.14 Furthermore, one of the important aspects of Channel 4’s remit is that it in order to be innovative and champion alternative points of view, it works with a greater number of smaller producers than the other public service broadcasters, as shown in the chart below.
9.15 Figure 3 below shows that C4 continues to work with fewer of the largest indies than the BBC, ITV or Five. 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% (with the exception of 2011, when it dramatically reduced).
Figure 3: UK commissioning trends by size of independent producer, Pact Census 2015 Source: Pact Census 2015
Source: Pact Census 2015
9.16 Pact considers that Channel’s statutory public service remit as set out in the bullet points below has been particularly important in ensuring that C4C commissions programmes from a wide range of producers, and that this remains as important now as when Channel 4 was first established.
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9.17 It is vitally important to UK independent producers that Channel 4 continues to be a publisher-broadcaster and that it retains its unique structure and remit, which ensures that Channel 4 works with a broad range of suppliers from across the country.
9.18 As noted earlier in this paper, Pact is concerned that C4C’s ability to deliver certain parts of its remit, such as innovation and diversity, could be compromised if it was not in public ownership.
10 What impact might privatisation have on: Key PSB genres such as news and current affairs; The independent production community; Those communities/audiences currently served by C4C’s remit; The advertising industry; and The viewer/consumer?
10.1 As the organisation which represents the commercial interests of UK TV production companies, the remainder of our response focuses on answering the impact of privatisation on the second of the groups identified above – the independent production community.
10.2 As noted above, Pact strongly believes that there will continue to be an important role for Channel 4 as a key player at the centre of the British broadcasting ecology in future.
10.3 We consider that Channel 4’s current structure as a publicly-owned publisher- broadcaster should be maintained. Furthermore, we consider that Pact’s view is that privatisation carries significant risks and no benefits.
10.4 Pact therefore does not consider that the privatisation of C4C would be in the interests of UK independent producers or the wider production community. Rather Pact considers that, with a renewed commitment to deliver efficiencies and fulfil its remit, particularly with regards to programming for older children, C4C will continue as a strong public service broadcaster with an important role in the UK broadcasting ecology for many years to come.
10.5 Pact also welcomes the continuation of Channel 4’s remit. However, we believe that it should be strengthened in key areas such as delivery of content suitable for older children (10-14 year olds).
April 2016
212 Pact and Voice of the Listener and Viewer (VLV) – oral evidence (QQ 32-40)
Pact and Voice of the Listener and Viewer (VLV) – oral evidence (QQ 32-40)
Evidence Session No. 2 Heard in Public Questions 22 – 40
TUESDAY 19 APRIL 2016
Members present
Lord Best (Chairman) Earl of Arran Baroness Benjamin Baroness Bonham-Carter of Yarnbury Lord Goodlad Lord Hart of Chilton Baroness Healy of Primrose Hill Baroness Jay of Paddington Baroness Kidron Lord Sherbourne of Didsbury ______
Examination of Witnesses
Colin Browne, Chairman, Voice of the Listener and Viewer, and John McVay, Chief Executive Officer, Producers Alliance for Cinema and Television
Q32 The Chairman: Welcome, and thank you very much indeed for joining us. As you know, we are looking at the possible privatisation of Channel 4 and other aspects. We are very grateful to you for joining us. Would you like to briefly introduce yourselves, perhaps you first, John, and say where you are coming from, and if you want to make an opening statement about Channel 4, please do that for us at the outset as that would be helpful? John McVay: I am John McVay, the chief executive of Pact. Pact is a trade association that represents the interests of film, TV, children’s, animation and digital producers. We are probably as old as Channel 4. In fact, we were set up round about the same time and so we have a very close and intimate relationship with Channel 4. As with a lot of intimate relationships we do not always get on. When families meet at Christmas they might fight over the turkey. We do not do that and are staunch supporters of Channel 4, but we take a view about its current activities and its future. The Chairman: Thank you very much, John. Colin. Colin Browne: I am Colin Browne, the chairman of Voice of the Listener and Viewer. We think this is the only consumer organisation in the UK that is wholly dedicated to the interests of listeners and viewers. It was founded originally in the 1980s as the Voice of the
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Listener and we added the “Viewer” bit later. We promote and lobby for public service broadcasting, specifically for quality and diversity. Picking up John’s point, obviously we have a close relationship with the BBC and Channel 4, but we regard ourselves also as critical friends of these organisations. We are a charity. We are funded by our members, who pay £30 a year because they believe in public service broadcasting in Britain and believe that we can help support it. The Chairman: Thank you very much. Lord Sherbourne.
Q33 Lord Sherbourne of Didsbury: Can I ask each of you a separate question, at least to start? We are trying to understand the thinking behind the decision to consider privatisation. The question for Mr Browne is, do you think the remit of Channel 4 is satisfactory and satisfactorily monitored and maintained? The question for Mr McVay, which we have been discussing in previous sessions, is what is your view on the long-term sustainability of Channel 4 under the present regime? Colin Browne: To start on the remit, I could not help hearing what David Elstein said at the end. We have looked at the remit from the original 1980 Broadcasting Act, through to the Communications Act 2003, the Digital Economy Act 2010, and subsequently, and it seems to us that the remit has been strengthened at each stage. We believe the remit is pretty good, but there is an issue with delivering it. How do you measure a remit which is, to a large extent, quality driven rather than quantity driven? Clearly, one can have a debate about that. What you have to do is to look, ultimately, at the output on screen and what audiences say. The research from Ofcom and our members shows that Channel 4 broadly meets the remit which is set out for it. We are a bit reluctant to go down a more quota- driven/numbers-driven measurement of output. We think that is rather difficult in a channel such as Channel 4, and indeed in broadcasting generally. That requires intelligence on the part of the regulator, which in this case is Ofcom, and requires organisations such as ours to be alert as to the standards and quality of the broadcasting that is provided by Channel 4. Nothing is ever perfect, but broadly I would say we are content with the remit and, by and large, the reports from Ofcom hold Channel 4 pretty well to account, and certainly our own research suggests that there is a good level of consumer satisfaction. John McVay: I would like to touch on the remit at some point, so I hope some other member of the Committee might prompt me on that. From the research and data that have come out over the past few years, we think that Channel 4 is not in rude good health but is in good health. Advertising over the past decade has grown by 12% in real terms and, in spite of the effects of the recession, Channel 4 is still doing remarkably well. In fact, last year was one of the best years ever for commercial free-to-air television in NAR. Channel 4 has recovered its reserves since the recession and, as Mr Elstein pointed out earlier on, has reserves of about £230 million in the bank and generated revenues of about £1 billion a year in 2014. It is making investment in content, which is what it should do, not only for its public service purposes but to remain commercially competitive. We live in a world where distinctive and quality programming is what wins audiences. Channel 4’s demographic remains one of the most highly valued in our sector. Its CPTs are the highest in the sector. We would not say the model is bust at all.
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Yes, there are people migrating to watching television online, on tablets and on phones, but we have to bear in mind that net TV viewing across the past decade means that people are watching four hours more television, so that is more eyeballs and more availability for Channel 4 to monetise. In various agreements we have reached with Channel 4, we have helped it to launch 4oD, All 4 and its secondary digital channels. If you look at Channel 4’s total media real estate that it can monetise to advertisers, it has grown over the past six or seven years. That has enhanced its ability to generate revenues and reinvest as much of those revenues as possible back into its public service purposes, and, overall, we do not see a financial crisis. I appeared before this Committee when the chief executive was Andy Duncan, where Channel 4 was asking for a large chunk of the BBC licence fee or a bailout from government. I do not think those conditions were true then and I do not think they are true now. Lord Sherbourne of Didsbury: Would I be right or wrong to infer from what you have both said that if it ain’t broke don’t fix it? John McVay: I do not think it is broken or that the models that exist in our very carefully balanced broadcasting ecology are dysfunctional. If we look at investment in original British programming and the quality of that for our audiences, you might say that system is generating the right level of creative and commercial competition to drive value back to the public, and, indeed, advertisers and the commercial sector. Things can always be improved and you can always get efficiencies. In certain areas of Channel 4’s remit there could be some tweaks, but, overall, we think the current model is working pretty well and we do not draw the conclusion from all the research that it is a broken model. Colin Browne: That would also be our conclusion. Looking at the overall ecology of British broadcasting, which we think is delivering good broadcasting and services for the consumer—and we come at this purely from the point of view of consumers, viewers and listeners—those who propose change have to be able to demonstrate the reason for change and that it would produce something better. It is not clear to us how that could happen. To characterise it, we would say that, in a sense, the Government here appear to be looking for a solution without having defined the problem.
Q34 Baroness Benjamin: The Secretary of State, John Whittingdale has argued that Channel 4 is being restrained by not being privatised, which means it has less deep pockets. The former boss of Channel 4, Lord Grade has said: “The current settlement for Channel 4 is no longer fit for purpose and puts a risk on the public purse ...” Other critics of the status quo say that if Channel 4 were to be privatised, it would be better able to withstand commercial threats. What do you see are the pros and cons of this argument? Colin Browne: The argument that is being made there is that it would somehow be stronger and in a financially strong position to withstand competition. The detailed analyses I have read from people such as Ernst & Young and Enders Analysis, and indeed from Ofcom, seem to indicate that, in the view of all those bodies, the Channel 4 model is sustainable. Certainly, when Lord Grade was chief executive he was pretty confident that the model was sustainable.
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Obviously the world changes around Channel 4, but if you look at privatisation as an alternative, it seems to us that it is always possible to get greater efficiencies out of an organisation, and that clearly needs to be looked at, but if you have a different form of ownership, somehow you are going to have to serve the interests of the shareholders, because that is why they are investing in that organisation. Inevitably, one can argue against this by saying it will all be sorted out by the remit as long as the remit is fine, but a remit gets eroded over time. Shareholders will put pressure on over time to get a greater share of the funds. You would have to take a fairly big leap in the dark to say that greater efficiency was somehow generating more funds than you would end up having to pay shareholders to reward them for their investment. On the basis of the studies we have seen, we think it is unlikely that privatisation would leave Channel 4 in a stronger position than it is at the moment. John McVay: They could be right regarding the purpose of Channel 4. If we were saying we want Channel 4 to be the biggest, most successful commercial media company on the planet, the current model clearly does not deliver that. It is where you are coming from in your analysis. If you want Channel 4 to be a commercially driven public service broadcaster, with a remit to serve the public purposes set up by Parliament for social goods, Channel 4 does not have to be a huge, off-the-leash commercial beast to do that. It needs to be highly efficient, to monetise as much as it can, but it needs to meet its primary purposes. I look at other large, commercial global media companies and Channel 4 is not like them. However, it was designed not to be like them because of its purpose. They are two different things. Channel 4 may need access to more capital in the future to invest in more technology and to take more opportunities. Technology is very expensive. We can recall the iPlayer cost the BBC hundreds of millions of pounds to be a world-class VoD service. Allowing Channel 4 more ability to borrow might help it navigate its commercial future. To a point, if you take away its public purposes and make it fully commercial regardless of the remit, the remit will be eroded. I do not think it would necessarily damage the programming spend, because why would you buy something and then damage the product you are monetising on? However, I think it would change the mix of that programming spend and the type of programming, and that may not deliver the same public service outcomes that everyone would seem to desire from it. Baroness Benjamin: Those who argue for privatisation believe that if Channel 4 were more efficiently run—and we heard from David Elstein about savings of £200 million a day—as part of a larger group with economies of scale, it could spend more, not less, on programmes. How do you react to that criticism? John McVay: Representing producers, any broadcaster which will spend more on programmes gets my vote. However, you have to carefully consider why and how. If it was spending more money on British programming, but it was to the detriment of our overall system, you would want to be careful about that. If it was spending more money on low- value programming that had very limited international appeal which might generate good commercial returns, that may be commercially sensible, but I would be nervous about that for the long-term value of British IP and exports. We are the second largest exporter in the world. We have a positive balance of trade with Europe. All those things are partially driven by Channel 4 investment.
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Colin Browne: I would make the additional point that my experience—and I have worked in both the public and private sectors in different forms of ownership—is that the culture of any organisation inevitably reflects the way in which it is funded. If you become to some extent a profit-driven organisation, your incentives change. There is a clear link between, as I said, the way you are funded and your incentives. We believe that over time the public service remit would be eroded in the way I have described. It might not happen overnight, but the culture would change, the output would change, and, ultimately, we do not necessarily believe we will end up with more money to spend on programmes. John McVay: As a corollary, we are pro profit maximisation in commercial companies and I represent private enterprise. However, Channel 4 is clearly publicly owned and has public purposes, and whether it is run efficiently and delivering the best value at the best price for public purposes is a matter for its board, the non-executive directors and, indeed, your good selves and our friends in the Commons. Every business can be more efficient. That is what we have learned since the recession. Clearly everyone in Channel 4 wants to make sure that it sweats every pound it earns to deliver value to audiences and to the advertisers. Baroness Benjamin: Some in the industry, such as David Elstein, feel strongly that the remit of Channel 4 has been diluted, especially in the case of the arts, education and perhaps children’s content. What is your opinion on this? John McVay: We are very active in our campaign to try to persuade the Secretary of State to look again at the requirement for commercial retail broadcasters concerning children’s programming. There was an oversight in the Communications Act. It used to be a requirement for PSBs to commission original children’s programming. That has been diluted since that Act came into force and further exacerbated by the introduction of the HFSS restrictions on advertising around children’s programming. Channel 4 is the only free-to-air commercial broadcaster that still has a remit requiring it to make children’s programming. It is split into two areas: one is called older children, for 10 to 14 year-olds, and the other is young adults, for 14 to 19 year-olds. Those of us who have children—I have three boys of 20, 18 and 15—know they watch up and watch adult programming. It is up to us as parents to moderate that, or at least know what they are doing. We would say that 14 to 19 year-olds are being well served and there is a range of programming there. However, we do not recognise any programming that is specifically commissioned by Channel 4 for, say, 10 to 12 year-olds. Ten to 12 year-olds are at a very different developmental stage compared to 14 to 19 year-olds. We do not see any programming commissioned by Channel 4 that addresses their needs for drama, factual programming or documentary programming that engages with the lives of that age range. Other than watching programming on the BBC—the only broadcaster still commissioning children’s programming—that age range is watching American-acquired programming on other channels. We think there is an opportunity for Channel 4 to strengthen its remit by producing or commissioning shows for younger children, and to build audience. If it was looking to engage 10 to 12 year-olds, it would be building its audience of the future. We all remember shows when we were children which we loved and made sure we got back from school to watch. We think it is a missed opportunity and would encourage the debate about Channel
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4 and its future remit and its requirement to do more to stimulate more original children’s programming. We also think it is unhealthy if we only have one buyer of children’s programming, the BBC, because the BBC has a particular editorial view of the world, which is right and proper. Channel 4 is meant to have a different editorial view of the world as part of its requirements. We think it would generate new writers, new actors and more diversity, which is clearly part of Channel 4’s current view about its remit, and it would be a positive thing for Channel 4 to do. Baroness Benjamin: What about the arts and education? John McVay: The arts is a broad subject. I think Channel 4 has been very good on that, but it may not be someone going around an art gallery to stimulate the arts. It takes a broader Channel 4 view about that. Colin Browne: As I said earlier, we think the overall remit as broadly defined has been strengthened rather than weakened over the years. Where there are gaps—and I agree there are some gaps as we have heard—those can be addressed by regulation. It does not require a change of ownership to address that kind of issue. I think they are two different issues.
Q35 Baroness Kidron: I think you have answered some of my question, but I would like to ask you very specifically about news. The Secretary of State has said that he will protect the remit as it stands. Do you think it is reasonable to think that a private owner will protect the news as it is currently? Colin Browne: I come back to our underlying point that a remit can say so much and it is then down to the way in which that remit is regulated and the efficiency and strength of the regulation. Over the years you would see, as you have seen in other circumstances, the licensee going back to Government and saying, “I know we said we would do this, but I have a financial problem here and my shareholders are asking for a bit more money. Is it really sensible I should be doing that if the BBC is doing that anyway?” It gets eroded in that way. The remit is important and regulation of the remit is very important, but I do not think it is enough. I go back to what I was saying earlier; the character and nature of an organisation are affected by the way in which it is funded and incentivised, and I would worry about remit erosion. John McVay: I would echo slightly Mr Elstein’s comments to you earlier about news being part of your brand and something you should be doing as a mainstream broadcaster. Sky does not have to do news, yet it makes some of the top award-winning news programming. I do not think it would stop doing news. Depending on who owns it, it may change the tone or style of the news, but it would still do news. Of course, we pride ourselves in the UK on having independence and impartiality in news, but we also pride ourselves on having different tones and styles of news. Channel 4 is doing news in a particular way now because of its editorial view, and that itself may change over the next few years. It is quite hard to anticipate what a new owner, depending on their particular perspective, may or may not do. I do not think it would get rid of the news but it may change how it is done. Channel 4 has changed its news programming over many years.
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Baroness Kidron: The thread of David Elstein’s evidence, if you like, was saying that privatisation is an opportunity to make the remit stronger, to make the regulation of the remit stronger, and that is the purpose of it. He ended up saying let us not do it unless we can make the remit stronger. Do you share that view or are we going the wrong way about this? Is privatisation the wrong way to get to the same destination? You both look confused. John McVay: No, I get David’s point, but the journey of British broadcasting through regulation and legislation over the past two decades or more has been to become more flexible and more able to let broadcasters with public purposes interpret that. We see that the days of ITC or IBA tick-boxing have been consigned to history. You would have to go back to that if you were going to hold a private owner’s feet to the fire. It might say, “That is fine, but I am competing against ITV and it is not getting its feet held to the fire to the same degree. It doesn’t make children’s programming any more. It doesn’t do all these other things you are asking me to do.” I think that is a problem. If you are going to have regulation, particularly for competing companies that are commercially driven—although one is currently publicly owned—regulation has to be fair for everyone. It would seem to be that, yes, you have an opportunity to toughen up the remit. I would say you could toughen up the remit anyway for commercial broadcasters if you were so inclined, but, whatever you do, it should be fair and equitable for everyone—advertisers, commissioners, shareholders, ITV as a plc, the pension funds invested in that—and there is a whole range of things that you have to be fair about. Colin Browne: What we know on the news specifically is that “Channel 4 News” at 7 o’clock in the evening does not generate remotely enough advertising to pay for that programme. If it was privately owned/shareholder owned you would have to ask whether that cross- subsidy would still be permitted. There would be some fairly large questions about that. I was working at BT at a senior level when it was privatised and I think there the situation was entirely different. You could hold that organisation to account in very specific ways. Are you delivering telephones within a certain amount of time? Are you repairing faults within a certain amount of time? Your prices will be RPI-minus X. That was good, strong quantitative regulation. It is very difficult to apply that to a privatised broadcaster. John McVay: News does not make anyone any money. It does not make Sky money. You lose money doing news, but you are doing it for a range of other purposes. I would go back to my earlier comment about children’s programming. Making more children’s programming would probably lose Channel 4 money, but it is part of the PSB compact that there are certain things we require as a trade-off for the benefits the PSBs receive, to give us content that is otherwise not supplied by the market, or not sufficiently supplied by the market. That is why I would ask Channel 4 to do more children’s programming, because that is part of its PSB and it should maintain news. If it was privatised, I do not think we would get the children’s programming, but we may still have news.
Q36 Baroness Healy of Primrose Hill: John, regarding the people you represent, I have a question on the importance of this to the British economy. In 2014, Channel 4 worked with 338 suppliers and spent £430 million on original UK content. What effect could a change in ownership of Channel 4, such as privatisation, have on your members? Would these effects
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be consistent across all your members? For example, Channel 4 is particularly valuable to smaller indies, but I understand bigger companies are also working in the market. John McVay: Yes, we have tested out some of those numbers and it has actually been working with fewer smaller companies over the past few years. Leaving that aside, the principle is that 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. Obviously we work closely with Channel 4 to make sure that new companies are able to get access, build their businesses, and get commissioned and recommissioned by Channel 4. My producers would always like a lot more work, but it is a competition, and that is fine. The publisher broadcaster model that Channel 4 has is the model that many other broadcasters have adopted around the world. Channel 5 until recently, although it was not required under regulation, was a publisher broadcaster. It has a tiny in-house production unit which does not really perform that well. The publisher broadcaster model is the most efficient way to generate the most ideas at the best price and the best competition for you as a broadcaster. Would a private buyer seek to set up their own in-house production? Yes, it may, but it would normally be driven by its desire to retain and own and control intellectual property rights. It would not be very efficient because it would have a huge fixed cost and it might not generate the hits to give the money back. In fact, in the current negotiations on the charter, the BBC is in discussion with us and government about reducing BBC Studios’ in-house production to make it more competitive and provide more opportunities to the market to supply to the BBC. The trend in the market for good competition issues would tend to say the publisher broadcaster model is very 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. From where I sit, 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. Baroness Healy of Primrose Hill: Mr Browne, would you be concerned for your viewers and listeners that the quality and the types of programmes being made would be affected? Colin Browne: We would certainly be concerned that the diversity of programmes would be affected. It is an important part of Channel 4’s remit, as we have heard, to provide different, distinctive and diverse programming. We would have concerns. We come at this from what is in the interests of viewers, and it seems to us that to play around with this model has significant risks and it is very difficult in any firm kind of way to identify what the benefits would be. We certainly would have those concerns, yes. John McVay: I understand that under a new administration you want to look at everything and the status quo is often seen as difficult. I have reminded the Secretary of State that the status quo in British broadcasting has been arrived at through Parliament, through interventions, debates and discussions, and understanding what the purposes are of a regulated broadcasting system. In America, TV is a commodity. We do not take that view. I have often used the phrase that what we have, including with Channel 4, is a Rubik’s cube of intervention, regulation and market dynamics, which is generating one of the world’s most
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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, because that would suit other people who would like to eat our lunch. These debates are right and proper for a government of any political persuasion to look at the system, but it is a system that has evolved through successive Parliaments. It was Margaret Thatcher who created Channel 4 and who introduced the regulations for the independent production sector. It was a Labour Government who introduced the Communications Act, which gave us our intellectual property. All those things have combined to produce a system which is geared towards creativity, competition and quality. That is one of our USPs internationally, and Channel 4 is an important part of that. Colin Browne: Expanding very slightly on that, the concern we have from the point of view of our viewers is if Channel 4 were part of a larger international group, a conglomerate of some kind, once again there would be internal pressures to make programmes that were designed for an international audience. Obviously, it is good for British programmes to sell abroad, and in principle we support that, but our prime concern is programmes that are made for a British audience, preferably by British programme makers and creative talent, and we feel that is another area that would be under significant erosion if Channel 4 fell under international ownership in particular. Lord Hart of Chilton: I think Mr Browne has answered my question. The Chairman: We can move swiftly on. Baroness Bonham-Carter.
Q37 Baroness Bonham-Carter of Yarnbury: John, the terms of trade have been key to the growth of the independent production sector in the UK. How do you feel a potential privatisation of Channel 4 would affect that? For everyone here maybe you could explain what they are too. John McVay: The terms of trade were introduced in the 2003 Communications Act after scrutiny by Committees in both Houses of Parliament, which concluded that there needed to be intervention to address buyer power in the market. The four PSBs accounted for 90% of all programming spend, and were able to leverage all intellectual property rights from their suppliers as a consequence. Today PSBs still account for 87%, so not much has changed. What has changed for the independent producers is the fact we own our intellectual property under legislation and regulation, and that has allowed us to go from an £800 million sector in 2002 to a nearly £3 billion sector today. The benefits to the sector have been multiple. My members are now proper entrepreneurs and businesses which have been able to invest in programming by investing their own profits or offsetting their profits against future earnings. That money has gone on the screen with British programming and led to true price competition and broadcasters not paying the full price of the programmes they make, which has incentivised us as businesses to go and find new ways to get OPM—a technical term we use for “other people’s money”—to bring it back in to the UK from Germany, France, Latin America and America, and invest it in our
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content. That has been a really good thing because that has allowed us to maintain high- quality content even in the teeth of the recession. When many other countries were diminishing the quality of their programming or cutting the hours of programming, the UK did not do that, and that was a combination of our Rubik’s cube and the supply side being able to find those funds. It is all underpinned by a very simple piece of regulation in the Communications Act. Clause 285 requires that the four PSBs must have a code of practice that regulates the dealings between them and their suppliers, the independent producers. If you are bought by a foreign broadcaster or foreign media company with broadcasting interests in the UK, you are no longer an independent producer and therefore you do not get the benefits of intervention. We are post quite a concerted campaign by Channel 4 to try to seek the amendment or removal of the terms of trade. The Secretary of State asked Ofcom to do a specific report for him in September last year. On the back of their PSB report in July, where Ofcom found there was no problem, they produced another report, delivered to the Secretary of State on 20 December, which concluded the same thing: that the system is working pretty well and there is no rationale for major intervention. Mr Whittingdale set a number of other questions that it answered, and which were more tweaks that may be considered and not recommendations. To this day we await the outcome of the Secretary of State’s deliberations on the Ofcom report, but we are deeply concerned that since September this has had a chilling effect on the market, where many of my member companies are unable to raise the investment they are seeking to grow or develop. Baroness Bonham-Carter of Yarnbury: Sorry, what has had a chilling effect, the spectre of privatisation or the lack of response? John McVay: 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.
Q38 Lord Goodlad: In that connection, do you think that Ofcom would be able to regulate a privatised Channel 4? Colin Browne: It would probably need additional resources to do it. I have a fair amount of respect for Ofcom as a regulator. It regulates ITV’s public service requirements and recommends the appointment of the board of Channel 4 at the moment, so, with sufficient resources, I am sure that could be done, yes. John McVay: I think there is a problem in the current regulation of Channel 4 around my earlier point about children’s programming, which Ofcom has raised in its own reports about Channel 4’s remit, but, because it does not have the powers from Parliament to require Channel 4 to do more about that, it can wring its hands and say, “We are not very happy. Can you do some more, please?” If you were under the current regime, any smart commercial operator would continue to behave in the same way, or would go further, and I do not think Ofcom would have the powers to do anything about that.
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Lord Goodlad: Do you think there would need to be any changes to the present regulatory system if Channel 4 were privatised? If so, would it impact on the wider public service broadcasting ecosystem? John McVay: I think you would have to, if you wanted to be very precise and make sure any future owner was delivering precisely what you wanted. Under the current looser regime that was introduced in the Communications Act, there are a number of things Ofcom cannot require to be done. Children’s programming is one of them. I go back to my earlier point, that if you were doing it for Channel 4, you would have to do it for everyone, to be fair in the commercial market. Channel 4 is a commercial operator and you would have an asymmetrical degree of regulation for people who are competing in the commercial market. Colin Browne: Ofcom’s core competence is as an economic regulator. When one gets into some of these other areas, particularly to do with qualitative judgment and programme- making, it is not an area where Ofcom claims to have expertise or even wants to have expertise. It is not impossible, but things would have to be changed to make it happen.
Q39 Baroness Jay of Paddington: In the context of the other questions, Mr Browne talked about some of his general concerns about potential owners. May I ask you to be a bit more specific and broaden those concerns? Who do you think is the most likely to be able to purchase Channel 4 if it comes up for privatisation? If it goes to a foreign owner or foreign investors, should there be any restrictions or any possibility of restrictions on who that should be? Colin Browne: This is not really my area of expertise. Baroness Jay of Paddington: You mentioned your concerns about foreign investment. Colin Browne: My concern more generally with foreign ownership is 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. There would be serious pressure on Channel 4 under any alternative ownership, but particularly under international ownership, to remove itself somewhat from that form of programming. Speculating on one owner against another is quite difficult. To an extent, you can control a lot by regulation, but you then come back to my fundamental point that so much depends on the underlying stretch of an organisation, what ends up on screen depends on the motivation and the incentives on the people actually producing the programmes, and that in turn comes right back to the way in which that company is funded. Baroness Jay of Paddington: Do you think that would be a potential difficulty, for example, if ITV or Sky were to be the possible owners? Colin Browne: Clearly there are issues. ITV is a target. ITV might acquire Channel 4 and then be acquired itself. Once one goes down this route, it is quite difficult to know what the end point would be.
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John McVay: Having watched a number of foreign or non-UK media companies acquire UK assets, my view is we have to be very careful about how we discuss this. I am very proud that we have foreign investors pouring money into our creative economy, sustaining high- quality jobs, at both creative and high-level commercial executive level, which has led to huge growth and competitive advantage for us. The creative industries are worth 8% of GDP. They are one of the fastest growing parts of the economy. Television is the world’s biggest entertainment business. Looking to my European counterparts and competitors, which are starved of capital investment and scale, we should welcome money from anywhere on the planet, provided it meets the requirements that we set it. There are tests on fit and proper persons. There are rules people have to follow to be able to own media assets in the UK. Thankfully, we do not have the non-foreign ownership rules they have in Canada which have led to a complete diminution of the competitiveness of that system. It is a locked-in, now sub-performing system, using hundreds of millions of Canadian dollars of taxpayers’ money. We have an open market approach in the UK which is good and we should welcome investment. Baroness Jay of Paddington: For example, do you think it is realistic, as I think David Elstein was arguing, that you could, as it were, strengthen the remit of Channel 4, at least theoretically, as part of a sale document? Would that be possible? You have described the conditions on foreign ownership and investment. John McVay: Clearly anything is possible. The question is whether it means anything in the long term and whether it has any traction. If a big company with deep pockets wants to lobby to change regulation or legislation, then they are perfectly able to do so. You may start off in a very firm, tough place, but you may not end up there, and then I would question why you did it in the first place. There may have been a lot of pain and grief on the way. Being clear about the system and what the purposes are is where the Secretary of State and the Government should be looking. We have a very valuable asset, including Channel 4, but I do not think we should be sending out a message that we are not interested in foreign investment in our media or creative economy. Ironically, although David Abraham has complained about British money going back to America, the opposite is happening. Indeed, one of his most successful dramas, “Humans”, was funded 50% by an American broadcaster, AMC, and it was the biggest hit in a generation for their drama. Instead of money going out of the UK to America, I see more money from America coming here, and it is precisely because of our creative economy, our competitiveness, our quality, and our openness to investment. Colin Browne: I would make the point that joint funding is very different from ownership. Baroness Jay of Paddington: I was going to ask you to underline that point. Specifically on Channel 4, is there any role for the new content companies, such as Netflix or Amazon, regarding ownership? John McVay: 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. Baroness Bonham-Carter of Yarnbury: I have a supplementary as a result of Baroness Jay’s questions. Quite a lot of our big indies are now owned by Americans, are they not?
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John McVay: They are not indies; they are just producers. Baroness Bonham-Carter of Yarnbury: Right, but that has not had a detrimental effect. John McVay: We have produced a report, not yet published—it is with the Secretary of State—by a leading libertarian economist which showed that the characteristics of our market in the UK are a very concentrated demand side in the broadcasters but a highly unconcentrated supply side. Indeed, over a number of years we have mapped the number of start-up companies. Every year at Pact we get 100 new members and at the end of the two-year period there are 100 still standing, so it is quite a high attrition rate. In spite of consolidation in the UK supply market and foreign ownership and investment, we have seen no diminution at all in the number of companies that want to set up and compete to win commissions from our system. Indeed, in the recession we saw an increase in companies setting up and looking to become TV production companies. Baroness Kidron: I am curious to know, in that ever-so-delicate ecosystem you are describing, whether Channel 4 in the form it is acts as a sort of gatekeeper to all that nuanced work that you are describing, John McVay: I think that is a very good point. When I was asked in an informal meeting with someone at the Treasury, “Why do you think Channel 4 is important?”—and of course being the Treasury they probably expected something about numbers and money—I said, “The reason why Channel 4 is really important to the system is that it allows people to get into the TV sector who should not really be in the television industry”. It allows in mavericks, innovators and disrupters, and people who probably would not get a commission at ITV or somewhere else, and that is a very valuable purpose, particularly when the big debate across all our creative industries is about diversity. That is a very important issue for us, because if we are to achieve diversity, we should be reaching out a lot more and creating more opportunities for different voices, because those different voices are engaging with our audiences, and those audiences are driving the revenues for investment in the first place. There is a mutual purpose there. There is a lot of talk about the remit. For me, the primary purpose of Channel 4 is to be a door to let people in to a system which can otherwise seem quite hermetically sealed. Baroness Kidron: David Elstein said that fewer smaller indies are now being commissioned by Channel 4. Have you seen evidence of that over the years? John McVay: Yes, and we have been talking to Channel 4 about how to address that, to make sure that it not necessarily always commissions but it creates relationships with new and different businesses. Anyone can set up as a producer. The barriers to entry are virtually zero. The barriers to failure are equally low: you do not get any work. It is part of Channel 4’s purposes, and indeed the BBC’s. In fact, the BBC has done a lot better on this over the past few years because it introduced that as a very clear policy. We would encourage Channel 4 to do more of that, particularly out of London, particularly with companies that are bringing more diverse ideas to them, and indeed it has plans to do that. It needs to improve. I would like to answer this question a year from now when we will see where we have got to.
225 Pact and Voice of the Listener and Viewer (VLV) – oral evidence (QQ 32-40)
Baroness Kidron: John, can I add one little piece to that? There has been a lot of criticism from the broader creative industries, particularly around tech and so on, that we, as a nation, are very good at starting up and disrupting—all those words you have just used—but we sell out too soon and we do not create big, and all the bigs come and buy us. John McVay: I had a debate on this in Edinburgh with people several years ago. There are a number of reasons why business people sell: age and an exit strategy, 20 or 30 years of working hand to mouth with low margins and opportunity. The problem is not the motivation of the people who are selling; the problem is who is coming to buy. I am on the record as saying that our financial sector is not there for the long term. If you are a tech company in San Francisco you might have repeat investors who will hold your hand for 15 years so you do not sell too soon. We do not have that in the UK and that is a real shame. I have no problem with American or any other media companies buying British businesses, but, too often, they are the only ones that are going to buy them because we cannot get investment from our own financial sector, one of the largest on the planet, because we are seen as too risky. To me the problem is not the motivation for selling but who ends up buying.
Q40 The Chairman: I am going to ask each of you whether you want to make any closing remarks, but let me put that into the context of David Elstein’s earlier remarks. What he is tempting us to think of as a good idea is entering a process for privatisation which might not necessarily lead to privatisation itself, but opens up the opportunity to be rather tougher in relation to the remit that we give to Channel 4, which he regards now as pretty feeble and emasculated. John, you said we would have to be tough on ITV if we are going to be tough on Channel 4, but they are asymmetrical already and they are not exactly the same regarding regulation. Tell us why, if you think it is so, we should not be tempted by David Elstein’s scenario of getting into this, toughening it up and seeing what kind of money people would put on the table for that well-regulated, tougher regime for a new Channel 4? John McVay: Unfortunately, I did not hear all David’s comments as I only came in at the end, so I would not want to second-guess someone of his incredible intellectual abilities and his deep thought on this over many years. I would be concerned at having a false process. It would be very destabilising to everyone—to Channel 4, suppliers and regulators—and you would always be tempted, surely, if you reached the point where you thought it stacked up, to sell it anyway. If the options are, we would sell it/we would not sell it—a sort of binary process—provided that one was still legitimate, that is fair enough, but I think the temptations would go the other way and you would create a lot of instability and insecurity in the system. I do not know what advertisers would think about that and whether they would be worried about it. You would have to ask them. Because Channel 4’s remit is separate from ITV’s, there may be an opportunity to consider how that could be toughened up just for Channel 4. My earlier point was if a non-publicly owned commercial broadcaster were to own Channel 4 and you gave it a remit that was tougher than ITV’s, it might feel a bit aggrieved because it is not publicly owned, and ask why it was being held to a worse commercial settlement than ITV, Channel 5, or others would be. If it is merely about Channel 4 ownership, I think there is
226 Pact and Voice of the Listener and Viewer (VLV) – oral evidence (QQ 32-40)
scope to make sure its remit is properly focused, and the one area we are concerned about is children’s programming. Colin Browne: Much as I like David, I think that particular idea is bonkers, if that is parliamentary language, for some of the reasons John has just given. Why would you go down the route of all that uncertainty? What would it mean for the staff there and for viewers? Also, if you went down that route and in the end you did not privatise it, there would be a sense of failure, and the uncertainty would be huge. Channel 4 has just been given a 10-year franchise. Surely the key thing is to give it the consistency it needs to deliver to its viewers. By all means look at the remit, it can be tightened at any other time, but to think of going down a privatisation route or, even worse, a threatened privatisation route, just to change the remit seems very, very strange. John McVay: If you were to do that and I was one of the executives, I would look to do a management buyout or compete for it myself, so it would become even more destabilising. The Chairman: Are there final comments from either of you? Colin Browne: The only final comment I would make is, it would have been great had the Secretary of State been a little more specific as to why he was raising this issue at this time. It might have generated an even better debate, if I can put it that way. We have questioned him. He came to talk to us and he was very generous with his time, but when asked exactly why he was looking at the future of Channel 4 at this time, the answers were pretty vague: there may be a threat or there may be commercial pressures that it cannot withstand. It would have been great had he been a little more specific in his ideas. The Chairman: We are seeing him next week, so we will put those very points to him. Thank you very much indeed for joining us. It has been very helpful.
227 Sandford St Martin Trust – written evidence (SCF0003)
Sandford St Martin Trust – written evidence (SCF0003)
“My generation grew up thinking that religion was completely marginal to British life, which, as for the rest of the world, has been proved more and more wrong..." Simon Schama, historian.
About the Sandford St Martin Trust
1. In this submission, the Sandford St Martin Trust will deal with a key element of public service broadcasting, religious programming, since this is the focus of the Trust’s activity and its area of expertise. Its Trustees include people with many years’ experience of broadcasting, including the presenter of Radio 4’s Feedback and former BBC and ITV editor Roger Bolton; the former Chief Executive of the Radio Authority Tony Stoller; and the former BBC media correspondent Torin Douglas. Other trustees add wide experience of both religion and the media and include experienced producers, directors and journalists from a variety of faith backgrounds.
2. The Sandford St Martin Trust has been making annual awards for the best broadcast programmes about religion, ethics and spirituality since 1978. These are the UK’s most prestigious awards for religious broadcasting and previous winners have included Melvyn Bragg, Simon Schama, Rabbi Lionel Blue, David Suchet, Danny Boyle, Frank Cottrell Boyce, Howard Jacobson, Ian Hislop, Rageh Omar, Lyse Doucet, Sally Magnusson, Tom Hollander, Mark Tully and many more. Details can be found on our website www.sandfordawards.org.uk
3. As well as making awards, the Trust acts as an advocate for excellence in broadcast coverage of religion. It stimulates debate about the value of this kind of broadcasting and promotes religion, ethics and spirituality as important and rewarding subjects for programme-makers to engage with. In the past two years, it has produced events in partnership with the Edinburgh International Television Festival, the Media Society, Sheffield Doc/Fest and the Church & Media Network. It has submitted evidence to Ofcom’s Third Public Service Broadcasting Review (February 2015), the BBC Trust’s Charter Review Consultation (November 2015) and other inquiries. You can see details of these events and submissions, and other information about the Trust, on our website. The Trust is politically independent and is not affiliated with any media company or organisation. It does not proselytise on behalf of or promote any particular religion or faith, nor does it engage in religious activities itself.
Religious broadcasting: “core public service broadcasting territory” and an “immediate issue” of concern – Ofcom.
228 Sandford St Martin Trust – written evidence (SCF0003)
4. As stated in the Trust’s submission to Ofcom’s Third Public Service Broadcasting Review consultation in February 2015131, we support Ofcom’s view that religious programming is “generally considered to be core PSB territory”132 . We concur with the 2005 Parliamentary Select Committee on BBC Charter Review’s finding that “broadcasting covering religion and other beliefs is part of the remit of all public service channels”.133 We have also noted with dismay the dramatic decline in hours and investment by Channel 4 and ITV in religious programming since this element of the PSB requrirement was removed.134
5. The Trust believes that it is impossible to understand the world these days without an understanding of religion. Contrary to the assumptions of a largely secular media, religion is not a private matter for individuals, an add-on to the rest of life. Rather, religion is a prime motivator of both individuals and communities, inspiring and informing their political, economic, ethical and social behaviour. Lyse Doucet, BBC News’ chief international correspondent and a Sandford Award winner, wrote: “Sadly, distortions of religious belief and texts are used as political weapons in many conflicts as well as clashes over traditional beliefs and practices. That requires us to know more about the tenets of major religions and systems of belief, to be able to better assess and analyse different interpretations”.135
6. At a time when religion is seen as such a powerful influence on world events (for good or ill), the need for religious literacy has never been greater – and, with it, the need for good reporting and informed, intelligent interpretation of religion. In the Sunday Times, the journalist AA Gill wrote: “Religion has never been more tangible in world affairs and public life. Not having more sensible and serious religious broadcasting isn’t modern, it’s a failure to face modernity”.136
7. The Trust believes Channel 4 plays an essential part in the UK’s broadcasting ecology – with a cross-subsidy model which provides output which reflects a diverse range of alternative voices, representing faiths and belief systems from around the world.
8. The 2011 census indicated that the population of the United Kingdom, particularly with regard to different belief systems, is becoming increasingly diverse. David Voas, Professor of Population Studies at the University of Essex, was quoted in The Times (9 February, 2015) as saying that the future of religion in Britain will be "black and brown" as Islam and newer forms of Christianity overtake the Church of England. The 2011 census recorded that there were 2.8 million Muslims in Britain, or 4.4% of the population; 59.3% of respondents identified themselves as Christians.137
131 http://sandfordawards.org.uk/wp-content/uploads/SMMT-submission-OFCOM.pdf 132 Ofcom Review of Public Service Television Broadcasting: Phase 1: Is television special (2006), para 16. http://www.publications.parliament.uk/pa/ld200506/ldselect/ldbbc/128/12811.htm#note51 133 Select Committee on BBC Charter Review Second Report (2006), para 141 http://www.publications.parliament.uk/pa/ld200506/ldselect/ldbbc/128/128i.pdf 134 Ofcom, PSB Output and Spend PSB Report 2013 – Information pack, August 2013, Figure 5, p. 7 http://stakeholders.ofcom.org.uk/binaries/broadcast/reviews- investigations/psbreview/psb2013/output_and_spend.pdf 135 http://www.bbc.co.uk/ariel/32901415 136 AA Gill review of ‘Rev’ in Sunday Times on Sunday 30 March 2014 137 http://www.ons.gov.uk/peoplepopulationandcommunity/culturalidentity/religion/articles/ fullstorywhatdoesthecensustellusaboutreligionin2011/2013-05-16
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Remit
9. As part of its current PSB remit, Channel 4 has a responsibility to provide high-quality programming reflecting the cultural diversity of the UK. We believe this obligation is ever more important in the modern world. In particular, there is need for greater understanding of religious issues, in order to deliver proper coverage of world affairs and community issues in the UK and the clear market failure in religious programming as a result of changes to the PSB regime in commercial broadcasting. We belief that Channel 4’s assumption of “diversity” has focused on ethnicity, sexuality and regional difference and that religious diversity needs to be properly acknowledged and recognised in this mix.
10. There is clear evidence that commercial broadcasters are failing to meet the demand for religious broadcasting, despite its appeal to potential audiences. Ofcom-commissioned research in 2014, How Online Media Services Have Fulfilled the Public Service Objectives138 and Investment in TV Genres139, concluded that without there being a strong and enforceable public service requirement, the market is unlikely to provide trustworthy religious programming of a good standard.
11. The same Ofcom-commissioned research suggested that the decline in religious programming is the result of economics “further challenged by market transition with limited availability to derive compensating revenues in on-demand windows” and “smaller audiences unable to offset production costs”.140
12. An example of the decline in religious broadcasting due to commercial pressures is ITV, where Ofcom reported that spending on religious programme commissions dropped from £40 million in 2008 to £2 million in 2013.141
13. The Trust recognises that the environment in which public service broadcasters operate has changed radically in recent years, but we still believe the PSB system remains as relevant as ever. While new forms of digital content and services can make valuable public and social contributions to the audiences’ lives, their reach is fragmented and no platform or other media matches the ability of the main PSB channels to reach mass audiences every single day. In this world where digital media creates tailored content for “bubble audiences”, PSBs – including Channel 4 – play an important role in exposing audiences to alternative views and beliefs than those espoused by their own social networks.
14. The Trust believes that all public broadcasters in the digital age should have explicit online policies supporting their public service goals and priorities including religious content. The Trust agrees with Ofcom’s own assessment that without there being a specific public
138 http://stakeholders.ofcom.org.uk/binaries/broadcast/reviews-investigations/psb-review/psb3/1._Ofcom_report.pdf 139 http://stakeholders.ofcom.org.uk/binaries/broadcast/reviews-investigations/psb- review/psb3/Investment_in_TV_Genres.pdf 140 Ofcom PSB Mediatique, December 2014 http://stakeholders.ofcom.org.uk/binaries/broadcast/reviews- investigations/psb-review/psb3/Investment_in_TV_Genres.pdf 141 Ofcom, PSB Output and Spend PSB Report 2013 – Information pack, August 2013, Figure 5 p. 7 http://stakeholders.ofcom.org.uk/binaries/broadcast/reviews-investigations/psb-review/ psb2013/output_and_spend.pdf
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service requirement, the market is unlikely to provide “high-quality religious material that is original to online services, especially dealing with multiple faiths.”142
15. The Trust further notes the current proliferation of online “narrow-casting” to particular, sometimes extreme, religious interest groups. We believe that the need to balance such biased media is best done by a strong PSB network funded independently of any commercial, religious or political interest. The Sandford St Martin Trust welcomed Ofcom’s qualitative research into religious broadcasting (2004) which found that, in addition to Christian worship programmes participants identified other output which they felt could usefully be included in a more modern “religious programmes” category. These included documentaries about specific moral issues; programmes about religious and ethnic minorities; history programmes with faith or belief based focus; and news and current affairs programmes.143
16. We note with real concern that Channel 4 has not had a dedicated Commissioning Editor for Religion since 2009. The Trust believes that the withdrawal of the commercial TV channels from a core element of public service broadcasting increases Channel 4’s and the BBC’s obligation to provide such coverage and to make good the deficiency as far as possible. Certainly neither should reduce its religious programming output.
17. The Trust has also noted Ofcom’s findings that spending at Channel 4 on religious broadcasting dropped from £49 million to £20 million between 2008 and 2013.144 This period coincided with Channel 4’s decision to dispense with the role of a Commissioning Editor for Religion and the elimination of any religious programming quota.
18. Research from the independent production sector suggests that an increasing number of content providers are responding to commercial gain and global investment. That encourages production in “profitable formats” leaving gaps in other areas of provision. According to a recent study, UK independent TV producers are shying away from riskier programming and documentaries to focus on factual entertainment formats.145 In this atmosphere the platforms that non-commercial broadcasters such as Channel 4 provide for original content – including religious and ethical content - are vital for the overall creative sector.
Ownership
19. Of particular concern to the Trust is the effect that privatisation would have on the state of religious broadcasting at Channel 4.
142 Enders 2014 Case Study: Faithology p. 5 http://stakeholders.ofcom.org.uk/binaries/broadcast/reviews- investigations/psb-review/psb3/5._Faithology.pdf 143 http://stakeholders.ofcom.org.uk/binaries/research/radio-research/rpandbc.pdf 144 Ofcom, PSB Output and Spend PSB Report 2013 – Information pack, August 2013, Figure 5 p. 7 145 The Economic and Cultural Role of UK Digital and TV Independents, Arts and Humanities Research Council, http://cowboyorindies.files.wordpress.com/2012/09/bennett-strange-kerr-medrado-2012- multiplatforming-psb-industry-report.pdf)
231 Sandford St Martin Trust – written evidence (SCF0003)
20. The Trust has noted with concern the Ofcom findings that recent changes to the PSB regime, including the removal of output requirements for religious programming, have resulted in their marginalisation or removal from the schedules of the commercial PSBs.146
21. We note also Ofcom’s research on the Importance and delivery of PSB purposes (2008-2014) which found that audiences are placing increased importance on many of the PSB purposes, and particularly on the importance that PSB programmes “show different kinds of cultures within the UK” (66%) and that PSB programmes should help audiences “understand what’s going on in the world today” (80%).147
22. We agree with Channel 4’s chief executive David Abraham’s warning that privatisation would severely impact the channel’s remit to produce “programmes of great value” British public148 and Lord David Puttnam’s assertion that it is “utterly illusory” that a privatised Channel 4 would continue to invest in high quality news programming and documentaries.149 The notion that privatisation would not have the direct impact of lessening Channel 4’s already small religious and ethical output is even more far-fetched.
23. The Trust believes that plurality of ownership is essential to guarantee diversity of content and that Channel 4 plays an important role in the UK’s Public Service Broadcasting ecology as a publicly-owned, commercially-funded, public service broadcaster with a track- record for reinvesting its profits back into programmes with comparatively high audience satisfaction levels.
24. Ofcom’s record in encouraging the consolidation of ownership among broadcasters (ITV plc, Global, Bauer) means that we have no confidence that a privatised Channel 4 company would remain independent even if it started out that way.
Recommendations
25. The Trust favours Channel 4 remaining in non-commercial ownership – and our preferred model would be for a revised ownership pattern providing inclusivity of owners with a clear remit to provide diverse output.
26. That remit should include informing and educating viewers about the place and nature of religion in the modern world – both at home and abroad.
20 April 2016
146 Ibid, Mediatique 2014, p. 10 147 Ofcom PSB Annual Report 2015, July 2015, Figure 8, p. 18 http://stakeholders.ofcom.org.uk/binaries/broadcast/reviews-investigations/psb- review/psb2015/PSB_Annual_Report_summary.pdf 148 David Abraham, Enders Analysis speech, http://mediatel.co.uk/newsline/2016/03/08/david-abraham-makes-case- against-privatisation-of-channel-4/ 149 The Guardian 31/3/2015 http://www.theguardian.com/media/2015/mar/31/new-press-regulation-regime-is- business-as-usual-says-labour-peer
232 Sky – written evidence (SCF0018)
Sky – written evidence (SCF0018)
1. Sky welcomes the opportunity to respond to the Lords Select Committee on Communications’ inquiry into the sustainability of Channel 4 (“the inquiry”).
2. Sky has a multi-faceted relationship with Channel 4 Corporation (“C4C”). As an investor in TV content, Sky competes with C4C in programming, commissioning and talent acquisition. We also benefit from the positive impact it has in supporting the independent production sector, to which Sky also contributes. As a platform operator, we collaborate with C4C in order to bring its content to viewers in Sky’s 12 million homes, while we also face a number of regulatory obligations imposed on us to the benefit of Channel 4, which include providing it with a prominent position on our EPG.
3. Our response to this inquiry is framed by this relationship, giving Sky some important perspectives on the role that C4C should play, both now and in the future.
Channel 4 fulfils a distinctive role in the UK content market
4. Like all public service broadcasters, Channel 4 represents a major public intervention in the market. Since its inception, over 30 years ago, it has benefitted substantially from the regulatory framework in which it operates, receiving significant benefits such as privileged access to extremely valuable UHF spectrum and EPG prominence. With an increasing amount of public service content being delivered through commercial incentives (including through Sky’s own investments in high quality original British content), these significant transfers of public and private assets deserve careful scrutiny to ensure that they remain balanced by commensurate public service obligations.
5. C4C’s business model stems from its remit and unique status as a publicly owned, commercially funded broadcaster. In addition to the value it derives from regulatory assets, it is also given the freedom to engage in commercial activities in order to finance the provision of programming that is not profitable and that exhibits certain public service characteristics. Accordingly, it is able to finance the provision of public service content that the market may not deliver from its commercial activities (which include both broadcasting profitable programming on Channel 4 itself and other ‘non-core’ commercial businesses). It is only required to break even overall and is not required to pay dividends to shareholders or make a return on capital and is therefore able to re-invest any profits it makes in further public service content. This stems directly from and depends upon its unique ownership standing.
6. C4C clearly makes an important contribution to the UK content market. As the ‘PSB challenger’ it contributes to the plurality of public service provision, offering an
233 Sky – written evidence (SCF0018)
alternative voice to the BBC, particularly in areas such as news and current affairs. As a publisher-broadcaster, it has played an important role in the development and success of the UK’s independent production sector, which in turn has aided broadcasters such as Sky in increasing their investment in original content. C4C has also succeeded in targeting diverse and hard-to-reach audiences such as young people and BAME viewers.
7. The benefits that accrue to audiences and the wider industry are material and important – primarily because they serve to justify the significant intervention in the market that C4C represents. The value derived from regulatory assets has accrued to C4C over a long period of time, and is likely to be long-lived regardless of any future changes to its ownership model. So long as C4C continues to derive this value from regulatory assets, policymakers must ensure these market benefits remain. Otherwise, any change would risk distorting the market through an unjustified intervention.
The significant regulatory assets Channel 4 receives will guarantee its sustainability in the future, and there may be case for greater public service delivery
8. The inquiry asks for views on whether C4C remains sustainable from both a financial and audience perspective. Sky has not seen any evidence to suggest that C4C faces particular difficulties in either regard, while analysis by both Ofcom and other independent parties suggests that C4C is healthy and will remain sustainable in future.
9. As Ofcom’s annual PSB report shows, reach of Channel 4 and its portfolio channels remains strong at 62.5%, while the average weekly reach of the Channel 4 family among 16-34 year olds remains comparable to that of ITV150. While the average weekly reach of the main channel has fallen steadily from 54.1% in 2009 to 45.5% in 2014, the additional reach from the portfolio channels has increased year-on-year and represented the highest levels of additional reach when compared against the other channel families151. Moreover, Channel 4 has a strong presence in the on- demand world, with 16% of UK adults making use of its on demand service152.
10. C4C is also in a healthy financial position. In recent years it has generated consistent returns, choosing to build up its cash reserve to approximately £220 million. 11. It is only two years since Ofcom undertook the licence renewal process for C4C. During this process, Ofcom considered that delivery of C4C’s public service
150 Ofcom PSB Annual Report 2015 - TV viewing annex, available at: http://stakeholders.ofcom.org.uk/binaries/broadcast/reviews-investigations/psb- review/psb2015/PSB_2015_TV_Viewing.pdf. 151 Ibid. 152 Ofcom PSB Annual Report 2014, p. 10, available at: http://stakeholders.ofcom.org.uk/binaries/broadcast/reviews-investigations/psb- review/psb3/PSB_Annual_Report_2014.pdf.
234 Sky – written evidence (SCF0018)
obligations would remain sustainable in the future and renewed the licence on this basis for a further 10 years.
12. The strength of C4C is unsurprising given the existing regulatory framework confers significant advantages upon it. Privileged access to extremely valuable UHF spectrum allows C4C to maximise its reach and impact through its DTT services. Meanwhile EPG prominence affords its main channel significant exposure, driving high viewing share (and consequently advertising revenue), as well as enabling cross- promotion of portfolio channels.
13. Moreover, the corresponding content obligations that C4C faces are limited to those programmes that would not be produced without intervention, and as such represent a limited output. The vast majority of the programming on Channel 4 – including most of its UK originated content – is produced because of commercial incentives rather than specific licence obligations. Much of this content makes a direct return from advertising, while many other programmes are created because they enhance the broadcaster’s brand and reputation, thus supporting the wider commercial objectives of the business. This is borne out by the fact that Channel 4 comfortably exceeds many of its programming quotas (e.g. on original production, out-of-London production and current affairs in peak time)153.
14. The combination of significant regulatory benefits coupled with limited programming obligations suggests that there may be substantial residual value in the Channel 4 licence that, at present, is not being translated into public value. Sky would encourage the Committee to examine whether there is a case for C4C to deliver a greater level of public service content, over and above its current requirements, should there be a concern over current delivery of certain genres.
Any changes to Channel 4’s remit or ownership would need careful consideration in order to retain a balance between intervention and obligations
15. The inquiry asks for views on Ofcom’s recommendation (in its third PSB review) that the regulatory framework relating to C4C be changed. In summary, Ofcom suggested a number of new approaches, including:
a) applying some or all of the obligations and benefits which are currently only applicable to Channel 4 to some or all of its other services;
b) applying benefits and obligations to C4C as a whole, rather than to specific services, and allowing it the flexibility to choose how best to deliver the purposes and objectives in line with audience expectations
153 Ofcom PSB Annual Report 2015 – output and spend annex, available at: http://stakeholders.ofcom.org.uk/binaries/broadcast/reviews-investigations/psb- review/psb2015/PSB_2015_Output_and_Spend.pdf.
235 Sky – written evidence (SCF0018)
16. Sky sees no case for extending the benefits that C4C receives (such as EPG prominence) to its portfolio services, particularly given the likely net benefit that it currently gains from the existing framework. Indeed, 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.
17. If policymakers were instead to afford C4C flexibility to choose how best to deliver its PSB obligations, this would likely serve to lessen the costs it faced at the expense of public delivery. C4C would be able to reduce the opportunity cost it faces in providing public service content that the market may not produce by choosing a different method of delivery and placing cheaper and/or more popular programming in its place during peak time on Channel 4.
18. Such a move could only be justified, therefore, if it was coupled with corresponding measures that reduced the benefits which accrued to Channel 4 as a result of intervention. 19. Similar concerns would arise if C4C’s ownership model was to be amended. Sky holds no particular view on the possible privatisation of C4C. But preservation of its PSB remit – the rationale for the intervention in the first place – would be key.
20. It is worth stating that, at a principled level, Sky 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.
21. As noted, C4C continues to benefit from significant regulatory assets in the form of EPG prominence and access to valuable UHF spectrum. Moreover, it has derived value from these interventions for more than three decades now, accruing significant “legacy value” as a result. It continues to draw substantial value from this legacy, aspects of which include:
a) Very high familiarity of audiences with the channel brands b) Loyal audience following for certain programmes c) Audience reach that attracts premium advertising rates d) Strong relationships with advertisers and media buyers
22. Even if other aspects of the regulatory framework were amended as part of privatisation, this legacy value would clearly remain. Therefore any ownership changes that resulted in a reduced PSB remit for C4C would have the potential to distort competition, erode the benefits that accrue to the wider market (such as continued support for a competitive and dynamic independent production sector) and weaken the delivery of public service content as a whole.
236 Sky – written evidence (SCF0018)
23. It is therefore vital that, should policymakers be minded to consider a change in ownership of C4C, they do so only on the basis of a preserved or enhanced PSB remit.
April 2016
237 Stonewall – written evidence (SCF0012)
Stonewall – written evidence (SCF0012)
Introduction
1. Stonewall welcomes this opportunity to respond to the Select Committee on Communications’ inquiry into the sustainability of Channel 4.
2. Established in 1989, Stonewall is a national lesbian, gay, bisexual and trans (LGBT) equality charity. We have conducted research and worked with producers and broadcasters, including Channel 4, to promote the fair, accurate and diverse portrayal of LGBT people in the media.
3. This response will consider the aspects most relevant to Stonewall’s work –the impact that privatisation might have on the communities/ audiences and viewers/consumers that Channel 4 currently serves.
Ownership
4. Stonewall believes it is of vital importance that LGBT people see themselves – and that members of the public see LGBT people – represented positively, fairly and accurately across the media. We believe that Channel 4, under its remit as a public broadcaster, has contributed significantly to greater equality in our society as it takes seriously its sense of public duty to accurately represent the diversity of the audiences it serves, including LGBT people. We also believe that Channel 4’s particular remit to promote innovation and diversity in UK broadcasting has led to a much richer and more diverse portrayal of LGBT people and has helped to shift attitudes in wider society as a result.
5. We are deeply concerned that privatisation would erode this sense of public duty and stifle diverse programming. This would prevent communities from seeing programming that frequently and accurately portrays LGBT people in a positive way, and have negative consequences for equality more broadly, given the media’s role in influencing and shaping public attitudes.
6. Stonewall’s research, Unseen on Screen – a study which monitored TV programmes most popular with young people, and was also informed by a series of focus groups with young people – found that out of the major public service television broadcasters (BBC1, BBC2, ITV1, Channel 4 and Five), Channel 4 showed the highest proportion of programming featuring LGBT people. Furthermore, of all of the channels monitored, Channel 4 contributed significantly (25 per cent) to the total time spent in portraying LGBT people in a realistic and positive light. Additionally, YouGov polling of over 2,000 LGB people for Stonewall’s Gay in Britain report (2013) found that 50 per cent of respondents thought the portrayal of LGB people on
238 Stonewall – written evidence (SCF0012)
Channel 4 was realistic – the highest of all major channels. We also know from Gay in Britain that Channel 4 is perceived (alongside the BBC) to more likely take complaints about homophobia as seriously as, or more seriously than other complaints. Stonewall believes it is clear from the above evidence that Channel 4 takes its sense of duty as a public service broadcaster seriously and strives to ensure that content, accurately reflects the LGBT community.
7. Many people, including young people, look to, and are influenced by television when it comes to learning about the real world. In some cases, limited real-life acquaintances with LGBT people means that they rely on TV to learn about LGBT people and issues, including current affairs through the news and documentaries. LGBT young people often lack LGBT role models in their lives, which has a detrimental impact on their wellbeing and self-esteem and sense of belonging. Unseen on Screen found that seeing LGBT people on television has a significant, positive impact on how LGBT young people feel about themselves and on the attitudes of their peers towards LGBT people.
8. Channel 4 has continually and proactively built an understanding of the LGBT community, including by working with LGBT organisations to ensure portrayals are accurate. A strong example is the diverse LGBT storylines and characters in the popular soap, Hollyoaks
9. Channel 4’s commitment to eliminating transphobia and increasing positive, well- informed representations of trans people extends to being founding signatories of Trans Media Watch’s Memorandum of Understanding. This is particularly significant given the widespread nature of transphobia in the media and transphobic attitudes in wider society, recently acknowledged by the Women and Equalities Select Committee.
10. Stonewall believes that Channel 4, in its role as a public service broadcaster, has made a significant contribution to tackling homophobia, biphobia and transphobia, promoting greater understanding of the diversity of LGBT people and, in turn, furthering lesbian, gay, bi and trans equality in society. We would be deeply concerned at the implications of privatisation in terms of improving social equality for LGBT people and for other communities.
20 April 2016
239 Teledwyr Annibynnol Cymru (TAC) – written evidence (SCF0011)
Teledwyr Annibynnol Cymru (TAC) – written evidence (SCF0011)
About TAC
1. Teledwyr Annibynnol Cymru (TAC) represents the independent TV production sector in Wales. The sector is comprised of around 55 active production companies, based in communities throughout Wales. 2. TAC members make a range of content, in English, for the UK PSB networks and beyond, as well as in Welsh, for S4C and BBC Radio Cymru. In doing so they seek to innovate and to bring the perspectives, stories, ideas and talent of people all around Wales to viewers not just in that nation but across the UK and beyond - Welsh producers also increasingly export TV programmes and formats abroad. 3. TAC also negotiates Terms of Trade, provides advice on business affairs support and is involved in developing skills provision, working with partners such as Creative Skillset and Bafta Cymru. 4. TAC welcomes the Committee’s inquiry on Channel 4 and our comments fall into two main areas: o the case for Channel 4 remaining in public ownership, due to its unique and highly productive relationship with the indie TV production sector, including in the UK nations; o that its 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
Channel 4, public ownership and the Welsh indie sector
5. The Committee is already aware that the UK indie TV production sector is a huge success story. One of the key building blocks to creating this success is the UK’s mixed ecology of public and commercial broadcasters, all with different remits. Channel 4 was set up in 1982 to provide a boost to the UK creative production sector, something which it continues to do, spending £430m on original commissions, resulting in an increase in viewing share154. 6. Whilst independent producers have more outlets to which to pitch these days, Channel 4’s publisher-broadcaster status and its unique remit to take risks and work with a wide range of companies, large and small, makes it especially important to the sector. In the words of the independent research company Enders Analysis:
154 Channel 4. http://www.channel4.com/info/press/news/channel-4-records-first-increase-in-all-time-viewing-share- since-2006. Accessed 12 April 2016
240 Teledwyr Annibynnol Cymru (TAC) – written evidence (SCF0011)
‘Channel 4 occupies a league of its own with respect to (a) having a special public service, not-for-profit remit that lays heavy emphasis on diversity, (b) reaching out to a range of minority socio-demographic and interest groups, and (c) stimulating the independent production sector, again with emphasis on diversity.’155
7. TAC particularly welcomes Channel 4’s seeking to increase its work with production companies in the nations and regions of the UK. For example it has engaged with the Welsh Government, including co-investment in the Alpha Fund, which aims to support emerging talent and companies from the UK nations and regions. It also works with Bafta Cymru, and organisations such as Diverse Cymru. 8. The Welsh indie sector has worked with Channel 4 to provide many hours of programmes, a few recent examples of which include Telesgop’s ‘Wallace Simpson’s Secret Letters’, Avanti’s documentary ‘Britain’s Billionaire Immigrants’, Tifini’s ‘Finding Mum and Dad’ and Rondo Media’s ‘Frozen at Christmas’. 9. Channel 4 has a good track record of working with a wide range of companies including new entrants to the market and smaller companies, those companies will have some proven talent but sometimes need closer working with the broadcaster to help them negotiate the commission and production process. But they have the core ideas and talent through which Channel 4 is able to continue to be uniquely innovative and risk- taking. 10. Channel 4’s status as a not-for-profit broadcaster means it is able to reinvest profits into new original UK content. Research from Oliver & Ohlbaum shows that from 2009-2014, Channel 4 commissioned on average 354 programme titles each year156, a significantly higher amount than was commissioned by any of the other main PSB channels. Estimates are that as much as £200m could be lost to the independent sector through privatisation, money which we do not believe would be replaced in the current TV market. This is particularly concerning bearing in mind the BBC will have less funding to spend on content as a result of its paying for free TV Licence Fees for the over-75s. 11. Channel 4 takes its role as a PSB seriously and invests in news, current affairs, comedy, young people’s drama and many other genres, and applies its risk-taking and innovative strategy to that content. Much important on and off-screen talent has been discovered and nurtured as a result of this innovation-first strategy. The broadcaster also values diversity heavily and provides a unique core audience for advertisers, something which has been noted by some of the leading figures in the industry157. 12. TAC’s view is that private ownership would inevitably turn Channel 4 to a more risk- averse strategy, investing in proven talent and production companies, and therefore
155 Enders Analysis. Channel 4: sustainability and privatisation. December 2015, p5 156 Oliver and Ohlbaum and Channel 4. Taking Risks, Challenging the Mainstream. 2014, p84 157 Tom Knox. A beacon of diversity, Channel 4 must be protected. Media Weel 8 April 2016. http://tinyurl.com/je84og8. Accessed 12 April 2016
241 Teledwyr Annibynnol Cymru (TAC) – written evidence (SCF0011)
reducing the amount of exciting new talent able to break through. For companies in Wales, TAC believes this risk-averse approach would lead to a more London-centric strategy. We have already seen 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. 13. In its report on the UK TV production sector in December 2015, Ofcom stated that: ‘Changes to Channel 4 Corporation’s publisher broadcaster status or a change in management approach as a result of privatisation could result in it reducing the currently high number of independent production companies it commissions from, which would limit the opportunities for a number of independent producers.’158
14. TAC asks the Committee to recommend that Channel 4 TV Corporation remain in public ownership, so that it may continue to grow and nurture production talent in the UK, contributing to the overall success story of that sector internationally, producing a wide range of exciting content for UK viewers and highly significant income from overseas programme and format sales.
Channel 4 and Terms of Trade for Independent Producers
15. The UK independent production sector has become one of the UK’s biggest growth industries over the last ten or more years, due partly to the great creative capacity present in the UK, but also because the Communications Act 2003 set in place the fundamental principle that an indie production company should retain the intellectual property (IP) rights to its programmes. This has been essential in attracting investment into the sector and in enabling companies to make their own decisions about how their programmes and formats are marketed and sold to secondary (cable and satellite) channels and internationally. 16. The vibrance and creativity of the hundreds of companies that make up the indie production sector underpin the success of all of our broadcasters. The indie sector is one of the key reasons why many international broadcasters have their European bases in the UK. 17. In Wales specifically, the Communications Act’s provisions relating to the Terms of Trade has enabled a sector to develop which is able to produce a wide range of content for the UK network broadcasters, as well as Wales-specific services such as S4C, BBC Wales, BBC Radio Wales and Radio Cymru. This helps to provide much-needed plurality in Wales, as while there are only two Wales-specific PSBs, the fact that they are able to commission from a wide range of indies adds greater diversity of content.
158 Ofcom. Review of the Operation of the TV Production Sector. December 2015, p3 para 1.14.2
242 Teledwyr Annibynnol Cymru (TAC) – written evidence (SCF0011)
18. TAC members attest that without the protection offered by the Communications Act in terms of their intellectual property, they would not have been able to grow their businesses in the way that they have. Evidence of this can be seen in research by Oliver & Ohlbaum on the growth in TV exports before and after the Terms of Trade were introduced, with a significant rise in year-on-year growth from 2003-04159. The fact that these production companies have been able to sustain themselves and grow over time has allowed the sector in Wales to take its place alongside the rest of the UK. 19. In the experience of our members, particularly the smaller companies, any watering down of the Communications Act protections would represent a backward step in terms of the development of the UK’s creative sector. We respect the need for broadcasters to make a return on their investment, but producers’ ownership of IP has meant that they have been able to apply their entrepreneurial abilities and obvious desire for their programmes to be seen by a wider audience to marketing and distributing their own product, and to great effect. The income from indies’ IP is used to research and develop exciting new ideas, enabling the sector to be an important self- funded source of new ideas, formats and innovations from which the UK’s PSBs – and ultimately citizens and consumers - benefit. 20. Independent producers are also able to use the value of their companies’ IP to secure investment, both in the UK and overseas. As figures show, many programmes are no longer fully-funded by the broadcaster - Downton Abbey being one such example, also the Welsh-made drama series Hinterland/Y Gwyll was initially an S4C-commissioned co- production which was screened in the UK on both S4C and on BBC4, as well as overseas. 21. This highly-praised programme, now commissioned for a third series, has enabled S4C to build its profile as not just a Welsh-language service, but a broadcaster of high- quality programmes. But S4C as a publisher broadcaster is reliant on finding a wide range of companies to offer it a diverse mix of programmes. 22. Production margins being constrained is already a reality for indie producers in Wales as for the rest of the UK, with not only the general decline in PSB spend, but S4C’s dramatic decrease in budget as a result of the 2010 Spending Review. As Ofcom’s third PSB review report stated, creating new efficiencies is not an everlasting process: ‘analysis suggests that demand for production staff and studio costs is now increasing, and savings – in terms of producing the same programmes with smaller crews and fewer filming days – have largely been realised’.160
23. Ofcom’s figures show that in the five year period between 2008 and 2013, spending by the BBC and ITV on non-network first-run originations fell by 33.2% in Wales, more than
159 A New Age of UK TV Content Creation and a New Role for the BBC. O&O, August 2014, p30, Fig 6 160 Public Service Broadcasting in the Internet Age: third review of PSB. Ofcom, July 2015, p9
243 Teledwyr Annibynnol Cymru (TAC) – written evidence (SCF0011)
in any other UK Nation161. This drop demonstrates the receding commitment by the main UK PSBs to Nations, and particularly to Wales. 24. So there are many challenges for the indie sector, and the need to be able to make use of IP to build and maintain businesses is as important as ever. There is also a clear matter of principle at stake – if it is the production company that has had the core idea, and found the talent to make the programme, then the logic follows that it should retain the IP. 25. Channel 4 has previously stated that there may be a case for revising the Terms of Trade for certain sections of the independent production sector, for example larger companies, but TAC would argue strongly that the evidence shows that any artificial division between companies based simply on turnover would be a disincentive for a producer to grow their businesses and would not allow a free-flowing market to operate. TAC concurs with the findings of Oliver & Ohlbaum, in its 2015 report on the UK indie sector, that: ‘A move to create specific improved or more protective terms of trade for smaller groups risks upsetting this balance, by making the minority of suppliers in the market less attractive to broadcasters. This would in turn either lead to fewer commissions to smaller Indies, or a call for a further small Indie quota, which is likely to be ineffective in itself as it would be relatively easy for larger groups to subvert through corporate restructuring.’162
26. There is sufficient flexibility within the current Terms of Trade to allow negotiation over the ‘back end share’ taken by the indie and broadcaster respectively and already allows a producer and PSB to reach a suitable deal if there is more of a joint development of the project. There is therefore no reason why there needs to be any alteration to the legislation. 27. Concern has been expressed in the past that the rise of the so-called ‘super-indie’ has caused there to be an imbalance of power and a decline in competitiveness in the UK indie sector. However when asked to review whether there was need to reform the Terms of Trade, Ofcom concluded in December last year that:
‘these changes do not appear to have had as great an impact on the delivery of the objectives of the regulatory regime as may at first be thought. There remains a diverse and vibrant SME production sector and the system continues to promote very high levels of market entry, thereby opening it up to new voices, encouraging creativity and innovation.163
161 Public Service Broadcasting in a Connected Society: third review of PSB – consultation paper. Ofcom, December 2014, p61, Fig 34 162 Consolidation, globalisation and vertical integration – Myths and realities. O&O, March 2015, p7 163 Ofcom. Review of the TV Production Sector. December 2015, p6
244 Teledwyr Annibynnol Cymru (TAC) – written evidence (SCF0011)
28. It is important to notice that those companies which are owned by other broadcasters are ‘vertically integrated’ and are therefore ‘non-qualifying’ under the current definition of an independent producer. In turn this means that the broadcasters such as Channel 4 do not have to make the same arrangements with them. 29. Channel 4’s business model is eminently sustainable in the light of other previous competitor services, not least BBC3, now being less visible, and that the fact that it historically has a good relationship with the indie sector means it is given the opportunity to choose from a wide range of ideas. The Committee will note that in its July 2015 report on Channel 4, Ofcom reaffirmed its previous findings that Channel 4’s current business model was sustainable: ‘[Ofcom] concluded as part of the 2013/14 Channel 4 relicensing process, that C4C’s ten-year financial plan (2015-2025) was credible. We also concluded that Channel 4’s licence obligations, which include its remit, could be maintained’164
30. The Committee will note that this conclusion was on the basis of the current Terms of Trade remaining in operation. To damage the current equitable balance in indie-PSB commissioning does therefore not seem necessary to ensure Channel 4’s future, and would be a very big risk to take in one of the most successful growth areas in the UK economy. TAC therefore asks the Committee to recommend that Channel 4 remains in public ownership, and that the provisions of the 2003 Communications Act regarding Terms of Trade for independent producers should remain unchanged.
20 April 2016
164 Ofcom. Review of Channel 4. 5 July 2015, p4
245 Viacom International Media Networks – written evidence (SCF0023)
Viacom International Media Networks – written evidence (SCF0023)
Viacom International Media Networks (VIMN) is pleased to have the opportunity to submit evidence to the inquiry into the sustainability of Channel 4 being conducted by the House of Lords Select Committee on Communications.
For many years VIMN has been the most successful international supplier of pay TV channels to the UK market, in particular MTV, Nickelodeon and Comedy Central. In 2014 VIMN bought Channel 5, which since its launch in March 1997 has been an integral part of the system of public service broadcasting (PSB). VIMN recognises the important role PSB plays at the heart of the UK television industry and is committed to Channel 5 continuing to playing a significant role in the PSB system.
A great strength of the PSB system is that it comprises a range of different broadcasters with different ownership, funding and programming characteristics: the BBC, the national broadcaster, publicly owned and publicly funded; Channel 4, with its unique remit, publicly owned but commercially funded; privately owned ITV, the most popular commercial channel; and Channel 5, like ITV privately owned with public obligations, the youngest of the main PSB channels with its own distinct identity.
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.
The current status and remit of Channel 4 ensures it makes a substantial contribution to public service genres and objectives, being the main competitor to the BBC in many areas (for example, investment in UK film and in peak time current affairs). Its commitment to working with many and varied programme suppliers, large and small, means it plays a crucial role in fostering a diverse production community from which the whole TV industry benefits.
A Channel 4 in private ownership, with the aim of maximising returns to shareholders, would inevitably both reduce the range of its more costly programme commitments and narrow its supplier base. It would compete more aggressively against the other advertiser- funded broadcasters, especially Channel 5 and ITV, hence reducing in turn their ability to fulfil their public service obligations. The overall delivery of PSB would thus be poorer.
Privatisation would only be worth considering if the Channel 4 model was failing: either because it was not commercially sustainable or because it was no longer fulfilling its remit.
246 Viacom International Media Networks – written evidence (SCF0023)
We see no evidence that either aspect of the model is under threat in either the short or medium term.
Channel 4’s commercial performance as the second largest advertiser-funded channel continues to be robust. The advertising market is growing strongly and brands’ appetite for spending on television is unabated, despite the growth of new digital media. Television viewing has proven resilient; even where viewers are watching slightly less scheduled television, to a large extent they make up for it by watching the same programmes at different times and/or on different devices.
Channel 4 is largely fulfilling its programme remit and its more detailed media content duties, as discussed by Ofcom165. VIMN recognises that Channel 4 makes a significant contribution to many programme genres; and that many of its programming choices have been taken only as a result of its not-for-profit status.
Of course, Channel 4 could improve its public service delivery. In some areas it has not been as bold as its remit and duties imply it should; for example, in the provision of children’s programming. It has also seen viewing to its main channel decline over the first half of this decade (although there was a modest upswing in 2015), raising questions as to whether the channel has sufficient reach and impact to deliver effectively its public service purposes.
We believe it is particularly important that Channel 4 continues to deliver its PSB obligations on its main channel, partly to ensure such programming reaches as many viewers as possible and partly because its main rivals (ITV and Channel 5) would be commercially disadvantaged if they still needed to fulfil their PSB obligations on their main channels while their key rival was able to transfer them to a secondary service.
VIMN believes the UK’s unique mix of PSB ownership and funding models is a considerable strength of our system – from which viewers and the television industry as a whole benefits. We see no advantage, and considerable downside, to putting Channel 4 on the same ownership basis as ITV and Channel 5.
April 2016
165 Ofcom, A Review of Channel 4; Channel 4 Corporation’s performance in meeting its media content duties 2 July 2015
247 Voice of the Listener and Viewer (VLV) – written evidence (SCF0010)
Voice of the Listener and Viewer (VLV) – written evidence (SCF0010)
INFORMATION ABOUT THE VLV
Voice of the Listener & Viewer Limited (VLV) represents the citizen and consumer interests in broadcasting and speaks for listeners and viewers on the full range of broadcasting issues. It uses its independent expertise to champion quality and diversity in public service broadcasting, to respond to consultations, to produce policy briefings and to conduct research. VLV has no political, commercial or sectarian affiliations and is concerned with the issues, structures, institutions and regulations that underpin the British broadcasting system. VLV supports the principles of public service in broadcasting. It is a charitable company limited by guarantee (registered in England No 4407712 - Charity No 1152136).
EXECUTIVE SUMMARY
1. VLV considers that C4C plays a very important role in the UK’s PSB mixed broadcasting ecology, cross-subsidising PSB content from the income derived by more commercial content. It supports the independent production industry; and it provides a range of high quality content which is free at the point of reception for audiences.
2. VLV is concerned that if Channel 4’s ability to deliver its remit is undermined by the need for greater commercialism, audiences’ horizons are likely to be limited. Currently Channel 4 has the remit, and therefore the legitimate luxury, to take risks and approach content differently from other broadcasters.
3. VLV believes the best way to ensure the sustainability of Channel 4 is for its existing licence, which is due to expire at the end of 2024, to be honoured and any discussion of changing its operating model should be delayed until its licence is due to expire.
4. On the basis of evidence provided by Ofcom in its Third PSB Review, and reports by Ernst and Young and Enders Analysis VLV believes that C4C should be financially sustainable for the duration of its existing licence period.
5. VLV considers that viewing of the main channel and C4C is sustainable because the long term decline in audience reach and share for the main channel has recently been reversed and previous decline has been offset by viewing of its portfolio services.
6. C4C’s track record in recent years has demonstrated great success at adapting to technological changes and changes in viewing habits. VLV considers it is well placed
248 Voice of the Listener and Viewer (VLV) – written evidence (SCF0010)
to deal with the challenges which technology and viewing habits might pose in the future.
7. VLV is persuaded by available evidence that C4C’s operating model is sustainable and we do not believe there is need to change its remit to ensure its survival. VLV considers that if the C4C remit were more detailed or specific it would be likely to limit the creative potential of the corporation. This would make it more difficult to ensure delivery of the commitment in the existing remit for C4C to be innovative.
8. On balance VLV believes that the current regulatory system provides for adequate assessment of C4C’s performance against its obligations.
9. VLV supports the existing model of ownership for C4C because as a publicly owned corporation C4C’s output strategy is driven by public interest and VLV believes this is a fundamental aspect of its DNA. A privatised, profit-maximising C4 is likely to change C4’s incentives. If C4C is privately owned, or part-privately owned, VLV believes it will be difficult, if not impossible, to maintain delivery of its remit while also serving the needs of its shareholders. The existing cross-subsidy model would not be appropriate for a commercial company and risk taking would be difficult to justify to shareholders.
10. C4C currently makes an important contribution to the range and diversity of content available to audiences on UK free to air channels. That contribution currently includes original drama, documentaries, factual series, current affairs and its weekday hour long news bulletin. VLV believes that if this contribution were reduced this would have a negative impact on audiences because it would reduce the plurality of PSB content on free to air UK television and thus reduce audience choice.
INTRODUCTION
11. VLV welcomes the opportunity to respond to the call for evidence by the Select Committee on Communications for this timely inquiry.
12. The UK has an internationally-envied, complex broadcasting system with a range of remits, rewards and different funding options for our public service broadcasters. It supports an independent production industry which is thriving; it provides a range of high quality content which is free at the point of reception for audiences; and the system appears to be working well.
13. Channel 4 plays an important role in this mixed ecology, providing plurality of supply in key genres alongside the other PSBs, but most importantly it acts as a foil to the BBC.
249 Voice of the Listener and Viewer (VLV) – written evidence (SCF0010)
14. Fundamentally, if Channel 4’s ability to deliver its remit is undermined by the need for greater commercialism, we believe audiences’ horizons are likely to be limited. This is because currently Channel 4 has the remit, and therefore the legitimate luxury, to approach content differently from other broadcasters. It is the only UK PSB with the remit to make us see the world differently.
15. The C4C model provides cross-subsidy funding for public service content on its main channel. Its method in thus delivering societal benefits sets it apart from the other commercial PSBs and from the BBC which is publicly funded.
16. VLV opposes any change to Channel 4’s operating model were it to mean that it can no longer invest financial surpluses in the production of original UK produced content.
17. While we understand the argument that C4C’s future could be secured by a clear definition of remit and that the ownership of the company is irrelevant, it is our view that the culture and strategy of any company is deeply linked to its structure and in particular the way it is funded; and that a privatisation of Channel 4 would inevitably introduce pressures that would in turn lead to a significant change in the nature of its out output. At the very least, those who propose change need to be able to demonstrate clearly the advantages for audiences that change would bring.
18. VLV believes the best way to ensure the healthy survival of Channel 4 is for its existing licence, which is due to expire on 31 December 2024, to be considered as set in stone. VLV considers that the Government should respect the agreement which it signed up to in 2014. Perhaps when this licence is drawing to a close there can be a review of Channel 4 and its operating model, but until then it should be allowed to devote its energy and resources to delivering its distinctive remit and challenging the mainstream view for the benefit of audiences, instead of ‘defending’ itself from attack by its detractors.
Questions
Funding
Is C4C financially sustainable? Is the revenue provided by advertising sufficient to make Channel 4 Corporation (C4C) sustainable?
19. VLV believes on the basis of evidence provided by Ofcom in its Third PSB Review and its statement when it relicensed the core Channel 4 service in 2014166 that Channel 4 should be financially sustainable for the duration of its existing licence period which
166 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013)
250 Voice of the Listener and Viewer (VLV) – written evidence (SCF0010)
expires on December 31st 2024. We note that in 2014 C4C made revenues of £938 million, an increase of £30 million on 2013.
20. Additionally we note the findings in two recent reports published by Ernst and Young and Enders Analysis which confirm Ofcom’s conclusions.167 Both reports provide quantifiable evidence of C4C’s recent successful track record in adapting its methods of income generation to suit the changes in the market.
Are there any other commercial/non-commercial revenue streams which could/should be explored?
21. There are no other commercial/non-commercial revenue streams which should or could be explored at this time.
Viewing
Is viewing of Channel 4 (the main channel) and C4C sustainable? To what extent is the decline in reach and share on the main channel a problem for C4C?
22. Ofcom’s 2014 Review of Channel 4168 showed a decline in audience reach and share for the main channel. This was noted to have been largely offset by increased viewing to the other channels within the portfolio. However we note that in 2015 Channel 4’s main channel reversed trends by increasing its audience share for the first time in a decade.
23. While VLV recognises the important role the main channel plays, C4C’s portfolio has been particularly successful in attracting younger adults which contributes to its overall success by extending C4C’s reach and share among 16-34 year olds more effectively than the other PSBs.169 16-34 year olds are a core demographic for C4C both in terms of meeting its duties but also in attracting crucial advertising revenue. C4 is the only public service broadcaster whose overall viewership is getting younger.170
24. C4C’s delivery of its remit to younger audiences is all the more important because of the closure of BBC Three as a broadcast channel and the extensive evidence that younger people are watching less live television than they used to, instead watching
167 The Future of Channel 4 in a Changing Market Environment, Ernst & Young, March 2016. Channel 4: Sustainability and Privatisation, Enders Analysis, December 18 2015. 168 Review of Channel 4: Channel 4 Corporation’s performance in meeting its media content duties 169 According to Ofcom the total C4C reach among 16-43’s fell by 2.8 percentage points which is less than the falls seen for all the other PSBs in this age group. pg. 33, fig 1.16 Ofcom Review of C4Cs delivery of its media content duties (2010-2013) 170 In 2013 30.8% of the main channel’s audience was aged 4-34 compared to 15.7% of BBC One’s, 20.1% of ITV’s and 24.8% of Channel 5’s. Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 44 fig 1.26
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time-shifted content or online content, using a greater range of new media services and devices than older people.171
25. Therefore VLV believes that, when taken together, viewing of the Channel 4 portfolio as a whole is sustainable. We do not believe the long-term decline in viewing of the main channel is of itself an unsustainability problem for C4, provided that it continues to maintain its reach now in line with the other PSBs. Any future losses of reach to the main channel will need to be carefully managed and will need to continue to be offset by increased viewing to the portfolio.
To what extent is Channel 4 (the main channel) equipped to deal with the challenges posed by new technology and viewing habits such as online and search and recommendation?
26. As part of its commitment to encourage innovation online and promote access to and awareness of services provided in digital form, we note the work which C4C has carried out on its digital and online offerings which work to bolster the reach of its broadcast platforms.
27. Channel 4 appears to be well ahead of the curve technologically. Its data strategy has been particularly successful with more than 50% of the UK’s 16-34 year olds registered with C4 online. C4C’s on-demand service has been successful at attracting viewers172 and had the second highest reach of the PSB’s on-demand websites in September 2014.173
28. We note that one of the reasons cited by Ernst & Young for C4’s predicted sustainability is its successful track record in adapting its offer as new technology is developed, to ensure it maximises the exposure of its content to a range of audiences.
Remit
Would changes to the Channel 4’s remit provide greater sustainability for the broadcaster? Is the current legislation too detailed, or too vague?
29. The Channel 4 remit requires it to be educational, distinctive and innovative, reflect cultural diversity, inspire change in people’s lives, nurture talent, stimulate debate and show alternative viewpoints. The remit also requires C4 to invest in particular genres such as film, news and current affairs.
30. VLV does not consider the existing legislation is too detailed or too vague. We believe it provides a set of ambitions for C4C which act as a driving force for its
171 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 3 172 Viewings of C4C’s on demand services rose by 28% in 2013 173 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 11
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commissioning strategy which balances the need for commercial success alongside the delivery of content which is of value to UK society.
31. We note that the C4C remit has been tightened and made more detailed since 1980 when it was first set out in the 1980 Broadcasting Act. The initial commitments as laid out in this Act were supplemented by further responsibilities in the 2003 Communications Act and the 2010 Digital Economy Act.
32. We generally agree with Ofcom’s finding in its Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013) that C4C is effectively delivering its media content duties in an evolving broadcasting landscape and provides a broad range of content which is distinctively different from the other UK public service broadcasters and which appeals to a diverse audience. We note that audience appreciation levels appear strong especially for international content and content which is perceived as diverse.174
33. We believe that the main channel is particularly successful in challenging established views and promoting new perspectives.175 Viewer appreciation is high: Ofcom research shows that the public believe Channel 4 is more likely to cover ground and tackle issues other broadcasters wouldn’t and provide alternative perspectives.176 It outperforms the PSB average for showing ‘programmes with new ideas/different approaches/ideas’ (58% vs average of 52%) and programmes whose style is ‘different to what I’d expect to see on other channels’ (57% vs average of 49%).177
34. We note that the existing remit is largely based on outcomes and the impact of content which are more difficult to measure than the simple volume of content broadcast or delivery of quotas, however C4C appears to perform well when audience perceptions are analysed. According to audience research for its most recent annual report, C4 leads on taking risks and tackling issues other channels wouldn’t:
Last year Channel 4 saw a significant improvement in its scores on the reputational statements, reflecting the success of the creative renewal strategy. Its performance in 2014 was stable, as the creative renewal reached a new stage of maturity. Across all 12 reputational statements covering aspects of its remit, its average lead over the average for the other main channels was 26 percentage points, the same as in 2013. The most emphatic leads were for taking risks that others wouldn’t (39 percentage points), tackling issues other channels wouldn’t (37 points) and taking a different approach to subjects compared to other channels (29 points).178
174 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 4 175 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 36 176 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 38 177 Ofcom PSB Annual Report 2015, PSB Audience Opinion Annex, (July 2015, Figure 34) 178 Channel 4 Annual Report 2014 pg. 25
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35. Quantitatively it is possible to measure delivery of one aspect of the remit: the commitment to take risks. This can be assessed through the number of new programme ideas. We note that according to C4C Channel 4 commissions more new programme ideas than any other UK channel (354 per annum on average vs. 281 for BBC2 and 190 for ITV). While this measurement provides an indication of the fact that Channel 4 is prepared to take risks by broadcasting new programme ideas, this measurement does not in itself reflect whether these new ideas are ‘innovative’ per se. It is clear that measurements of quality, innovation and distinctiveness are to a large extent subjective and as a result have to be assessed through more qualitative methods.
36. As stated above, VLV is persuaded by all the available evidence that C4C’s operating model is sustainable therefore we do not believe there is need to change its remit to provide greater sustainability. VLV considers that if the C4C remit were more detailed or specific it would be likely to limit the creative potential of the corporation. This would make it more difficult to ensure delivery of the commitment in the existing remit for C4C to be innovative.
What benefits/drawbacks could there be to Ofcom’s suggestion in its PSB review that PSB obligations be applied to C4C as a whole rather than to the main channel alone?
37. Ofcom audience research demonstrates that C4C’s portfolio is fulfilling a number of its duties across the C4C portfolio channels as well as the main channel, although there is more limited research relating to the portfolio than to the main channel. Therefore we agree with Ofcom’s conclusion that C4C’s broader services also made a contribution to a number of public service objectives179 as required under the Digital Economy Act.
38. The C4C portfolio channels contribute to C4C’s public purposes by helping it to maintain the group’s overall share and extend the reach of content originally shown on the main channel.
39. We note the majority of viewers of Film 4, More4 and E4 agreed that the channels are distinctive, showing content they would not expect to see elsewhere.180
40. If it is decided that the benefits which currently apply to the five main PSB channels should be extended to C4C’s portfolio in order to help maximise their impact, this could influence C4C’s future scheduling and investment strategy.
41. A potential drawback for the wider PSB market could be that if, as suggested by Ofcom, the portfolio services and on-demand player were given greater prominence, this would be likely to have a negative impact on the EPG positioning of the other PSB portfolio channels.
179 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 7 180 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 38
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42. We agree that if C4C’s obligations were applied across C4C as a whole rather than to the main channel alone that 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.
Does the current regulatory system provide for adequate assessment of C4C’s performance against its obligations?
43. On balance VLV believes that the current regulatory system provides for adequate assessment of C4C’s performance against its obligations.
44. We note the oral evidence provided to the Committee by Dr Steve Unger, Chief Technology Officer, Ofcom and Gareth Barr, Head of Public Service Policy, Ofcom on April 12th 2016. We found their confidence in the current regulatory system reassuring on the basis that they believe there are adequate regulatory levers available to Ofcom to ensure that C4C delivers the commitments in its remit if it needs them.
45. We note that there were areas of delivery which Ofcom highlighted as of some concern in 2015: content for older children, first run hours of international content on the main channel and a drop in diversity content in peak time. VLV would want to see better performance in these genres in 2015, although we do not believe that delivery can be simply measured by volume of output. C4C fulfils all its statutory quotas as laid out in its licence, but they only describe half the story. We agree with Dr Unger that many of the judgements required in regulating broadcasting are qualitative. It is difficult to quantify originality, innovation and whether Channel 4 output is changing people’s views, for example, which are all key elements of its remit.
46. If the regulatory model governing C4C is changed from being based on a mixture of qualitative and quantitative measures into one based more on quantitative metrics, VLV believes this would be likely to be restrictive and not encourage innovation which is at the heart of C4C’s mission. Currently it appears that Ofcom and C4C are able to engage in a constructive discussion about its annual performance – Ofcom posing challenges to C4C and asking the corporation to devise suitable strategic solutions to address any deficits. We believe that this system of regulation, while it is more nuanced and looser than a quota-dominated model, provides C4C with the space to be creative and devise its own solutions to problems as they arise.
Ownership
What are the different models of ownership for C4C? What are the positives and negatives of these?
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47. As a publicly owned corporation C4C’s output is driven by public interest and VLV believes this is a fundamental aspect of its DNA.
48. VLV agrees with the summary conclusion of Ernst and Young in their report on the benefits of the publicly owned model:
The overall effect of the regulatory and ownership regime underpinning Channel 4 is that it operates on a not-for-profit basis. It therefore does not seek to maximise profits, instead focusing its core mission on delivering its remit, maximising public value through investment in high quality original programmes, and supporting a wide range of independent production companies. As such, rather than maximising commercial returns, Channel 4 reinvests the income it generates into high-quality UK-originated programming that contributes towards delivery of its PSB remit. 181
49. A privatised profit-maximising C4 is likely to fundamentally change C4’s incentives. If C4C is privately owned, or part-privately owned, VLV believes it will be difficult, if not impossible, to maintain delivery of its remit while also serving the needs of its shareholders. The existing cross-subsidy model would not be appropriate for a commercial company and risk taking, which is a key element of the current remit, would be difficult to justify.
50. It is likely there would be less UK content, more repeats and more acquired content in order to deliver a larger profit margin. It is likely a private owner would take significant amounts of production in-house to maximise returns from IP ownership. This would have a negative impact on the UK independent production industry which is very reliant on C4C.
51. If the existing remit is diluted VLV believes this would be detrimental for audiences, the UK economy and UK society as whole, resulting in reduced plurality of provision for audiences and a narrower range of content.
Would a change in ownership, such as privatisation, affect the remit of C4C, and in what ways?
52. As stated above, VLV believes that if C4C were a privately owned company, its existing remit would not be sustainable.
53. In order to run C4C as a commercial operation the Board would have a responsibility to deliver returns on its investment in content production.
54. As a result, VLV believes it is likely less commercially viable content, such as Channel 4’s hour long weekday news programme, current affairs investigations or content which is aimed at difficult to reach audiences would be at risk. Risk taking and
181 The Future of Channel 4 in a Changing Market Environment, Ernst & Young, March 2016, pg. 4
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innovation would become more difficult to justify as well since they do not guarantee audience share.
55. We believe it is also likely there would be less UK culturally specific content, more repeats and more acquired content in order to deliver a larger profit margin.
56. It is likely a private owner would take significant amounts of production in-house in order to maximise returns from IP ownership. This would have a negative impact on the UK independent production industry which is very reliant on C4C.
What impact might privatisation have on: a) key PSB genres such as news and current affairs;
57. As stated above, VLV believes that news and current affairs programmes will be at risk if C4C’s operating model is changed because they are not as commercially attractive as factual entertainment, entertainment and drama.
58. Channel 4 News plays an important role in the PSB landscape. It is distinctive in tone and content, provides in-depth coverage and appears to work to a different news agenda from other news bulletins on the main PSBs. In this way it provides an alternative view of the world and reinforces the plurality of UK broadcast news. It also tends to provide more in depth coverage of international affairs than other bulletins.
59. We also note that Channel 4 News plays an important role in attracting key hard to reach audience groups, with a greater proportion of 16-34 and BAME viewers than the other main PSB channels news programmes.
60. While there was a drop of 13% in investment in current affairs content by C4C in 2014, we note that Channel 4 showed more peak time current affairs than any of the other main PSB channels between 2010 and 2013:
Channel 4 showed substantially more peak-time output than any of the other main PSB channels (133% more than the next highest PSB channel: Channel 4 at 142 hours vs. BBC Two at 61 hours in 2013). However, in common with all the other main PSB channels, the total amount of viewing to peak-time current affairs fell over the review period.182
61. Documentaries such as The Jihadis Next door and serious factual series such as Benefits Street or the Educating… series would be at risk as would be any new,
182 142 hours vs BBC Two at 61 hours in 2013. Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 9
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ground-breaking innovative content. This means we would never have had, for example, Big Brother or Gogglebox, both of which were highly original concepts when they were first launched.
62. VLV believes that if C4C were privatised much of its high quality, distinctive PSB content would be unsustainable. This would represent a reduction in the plurality of UK news and current affairs provision as well as provision in other genres. b) the independent production community;
63. Last year £430m of C4C’s total £600m budget went to British independent producers. We understand this represents more than the combined spending of ITV and Channel 5.
64. There is a risk that if C4C is 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. It would undermine the existing publisher-broadcaster model which has been hugely successful in both providing public service content for audiences but also in supporting the growth of UK independent production sector over the past 30 years.
65. If C4C did not commission as many programmes from the independent sector this would have an impact on the viability of many independent production companies. In 2014, C4 worked with 338 production companies across TV, digital and film. This represented 36% of all spending on independent production by the PSBs. 66. Also, we predict that if C4C were privatised established production companies would be favoured over smaller, newer companies because they are untested and therefore represent a greater risk. This would have a negative impact on Channel 4’s ability to deliver its obligation to nurture new talent and restrict its ability to help new producers develop their experience and skills. c) those communities/audiences currently served by C4C’s remit;
67. Serving audiences which are not considered mainstream or commercially attractive has been at the heart of C4C’s mission since it was founded. When it was established the 1980 Broadcasting Act specified that Channel 4 should provide content for minority audiences and it should appeal to tastes and interests not generally catered for by ITV. Its current remit, as defined by the Digital Economy Act (2010), states that C4C’s remit requires it should make high-quality media content that appeals to the tastes and interests of a culturally diverse society.
68. C4C and Ofcom research suggests that C4C is more successful at achieving this goal than the other PSBs. Minority groups highly rank C4C for tackling diversity issues and
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showing alternative lives183 and it appears to be particularly effective at fulfilling its goals in relation to diversity through its documentary content.184
69. Its news coverage especially performs strongly among BAME audiences, but its multicultural content in documentaries such as Making Bradford British is also distinctively different from output on the other main PSBs. BAME audiences account for a larger proportion of Channel 4’s audience than other broadcasters.
70. Another recent success has been C4C’s readiness to address issues around disability on screen. The impact of C4C’s coverage of the 2012 Paralympic Games cannot be underestimated. It attracted the biggest UK audience to the event in its history and broadcast more than 500 hours of content related to the games. Its presentation of the content was innovative, engaging and it is widely believed that it had a significant impact on the perception of disability among the UK public. Its distinctive coverage of disability issues has continued with a commitment to 2016 being the year of Disability on the Channel and its 360° Diversity Charter.
71. Another key audience served by C4C, as stated above, is a younger than average PSB audience which is important in the context of the BBC closing BBC Three as a broadcast platform. VLV considers it crucial that the next generation of viewers are well catered for by PSB and will therefore appreciate the benefits which PSB brings to society in order to ensure there is support for the PSB system in the decades to come. Much of C4C’s output appeals to this audience and we consider it an important aspect of C4C’s delivery of its remit.
72. If C4C’s incentives became more commercial VLV is concerned that it would be impossible to sustain the delivery of content which addresses issues which are socially challenging and are considered to appeal to minority audiences. We fear that this type of content will be deprioritised in favour of more mainstream entertainment programming.
73. Additionally, we consider it unlikely that C4C’s remit to encourage new talent would be sustained if it were privatised since the commercial benefits which arise from its current training schemes are at the best unpredictable and difficult to quantify in commercial terms. d) the advertising industry;
74. VLV has no evidence to submit in response to this question. e) the viewer/consumer
183 Ofcom Review of Channel 4 Corporation’s delivery of its media content duties (2010-2013), p 10 184 Ipsos MORI research, 2014, published as part of the Ofcom PSB Review 2014.
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75. For VLV the main issue at stake in any discussion of the future of Channel 4 is to ensure that we maintain audience choice. VLV supports the UK’s existing mixed broadcasting ecology which provides a plurality of perspectives; broadens our horizons; entertains and informs us with high quality content; confronts our prejudices; and rewards innovation.
76. Despite the proliferation of new channels in the market since digital switchover, audiences are still calling for ‘distinctiveness’185 in PSB content. 73% rate this as an important aspect of PSB with 52% believing it is adequately delivered.186
77. Distinctiveness is becoming more important than ever as channels compete for share and schedules are dominated by leisure programming, drama and entertainment, which may be very popular but much of it could be accused of lacking originality. While the word ‘distinctive’ is often used in the debate about the future of the BBC, VLV believes it is particularly relevant to any discussion of Channel 4, with its remit which places such a high value on innovation and originality.
78. VLV believes that C4C makes an important contribution to the range and diversity of content available on UK free to air channels. That contribution currently includes original drama, documentaries, factual series, current affairs and its weekday hour long news bulletin.
79. As stated above, VLV considers that if C4C were motivated by more commercial considerations its content would need to appeal more to the mainstream audience. It would need to avoid risk-taking and innovation in favour of maximising its audience share.
80. VLV wants to see C4C continue to be imaginative – devising new, exciting ways to engage us with the world around us and we want it to encourage new talent, ensuring that we have a continual renewal of energy and ideas for the benefit of audiences. This doesn’t mean C4C should be forced only to deliver content which is not available elsewhere; it means it should have the freedom and the remit to expend time and energy working out how to refresh our viewing experience, to engage us with content and subjects commercial broadcasters wouldn’t consider because they might appear too risky.
81. Audiences patently value the output of C4C. We would not want the output on Channel 4 or its portfolio to become a hybrid of the other commercial PSB channels which we believe would be an inevitable outcome if it is privatised. This would represent a significant reduction in choice for audiences.
20 April 2016
185 Ofcom PSB Report 2015 186 Ofcom PSB Report 2015, Audience Opinion Annex, slide 17.
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VLV and Pact – oral evidence (QQ 32-40) Transcript to be found under Pact
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