Channel 4 is bracing for another privatisation battle as the Government weighs whether to bring in a “deep-pocketed” investor to support the broadcaster through a deep advertising recession and the accelerating shift towards streaming.
Ministers are laying the groundwork for a review of the state-owned broadcaster that could lead to all or part of it being sold. It comes as concern mounts over Channel 4’s future. The broadcaster is publicly owned but receives no taxpayer funding and depends almost entirely on advertising sales. The television advertising market is expected to fall by 20pc this year as coronavirus prompts brands to slash budgets.
A Government source said: “Channel 4 doesn’t have any other income. They are sorely dependent on advertising and that is going to come under strain.
“Having an owner, or part-owner, with deep pockets that is willing to invest is really valuable.”
It is understood a potential privatisation could mean a complete takeover by a rival such as Channel 5, owned by ViacomCBS, or the sale of a minority stake to a newcomer, the source said.
News UK, Rupert Murdoch’s newspaper publisher and radio broadcaster, is preparing to move into video programming, for instance. It has repeatedly explored options for a move into television, industry sources said, particularly following the takeover of Sky by Comcast, which left Mr Murdoch without a stake in British broadcasting. A minority investment in Channel 4 could help address media plurality concerns, one media merger specialist said.
The discussions, which are at an early stage and may not lead to a transaction, in part because legislation may be required, form part of plans for a radical shake-up of traditional television and public service broadcasting licences.
As well as a potential privatisation of Channel 4, ministers are considering whether to scrap the public service obligations on ITV and Channel 5.
They carry a cost for the broadcasters, which must show news and other public service programming that tends to be less popular than drama and game shows.
However, under the current regime ITV and Channel 5 are guaranteed prominence in channel menus, which makes it easier to secure large audiences and thus advertising revenue.
ITV’s status as a public service broadcaster is discussed every few years. In previous cycles the broadcaster has threatened to ditch its obligations to produce news as it seeks other concessions in return. But this time, ministers are themselves considering whether to scrap ITV’s special status and have the news provided by other means.
Sky is lobbying for such a change amid claims there is “diminishing value” in ITV and Channel 5 and a cross-sector approach – through tax credits or contestable funding would mean public service shows reach a “greater proportion of UK audiences”.
As well as the immediate challenges of the pandemic, traditional commercial broadcasters face the threat of audiences defecting to streaming services such as Netflix and Disney+.
Channel 4, which has a remit in law to reach young audiences, is in the front line of the shift. The amount of time 16 to 24-year-olds spend watching broadcast TV each day fell 49pc to 85 minutes between 2010 and 2018, according to Ofcom.
Channel 4 is also unable to capitalise on the strong demand from Netflix and its rivals for box-sets, as the rules under which it was established by the Thatcher government prevent it owning the rights to most of its programmes.
The Government source said: “That is why you need to look at the various options. Viacom bought Channel 5 and was willing to spend money on it and now it is producing serious content and shows like All Creatures Great and Small.”
Viewers flocked to Channel 4 early in the pandemic, however, with traditional TV and on-demand audiences up 2pc and 27pc respectively since the beginning of 2020 compared to the year before. Yet the advertising downturn during the crisis forced it to cut its production budget by £150m, find £95m in savings and draw down a £75m revolving credit facility.
John Whittingdale, the media minister, thrust Channel 4’s future back into the public eye at the Tory party conference on Tuesday when he questioned whether it had a “sustainable future”.
He previously advocated a sale under David Cameron, but was blocked by Number 10.
Alex Mahon, the Channel 4 chief executive, mounted her defence at an Ofcom conference the following day.
She stated that the pandemic had “proven the flexibility” of the broadcaster’s model and pointed out that it had not needed any government funding.