In this article, we look at Part 3 of the draft Media Bill, the Government’s resolution to initially one of the most controversial aspects of the Media White Paper, regarding the future of Channel 4.
Channel 4 to remain publicly owned
Harold Wilson once famously said “a week is a long time in politics” and, although the Government’s U-turn on the privatisation of Channel 4 may have taken a little longer than a week, the proposal was short lived and appeared doomed from the start, with 96% of respondents to the Government’s consultation “on a potential change of ownership of Channel 4” against the proposal. But how did we get here?
The latest plan to sell Channel 4, which is owned by the state but entirely self-funded through its own commercial activities, was announced in the Government’s Broadcasting White Paper in April 2022 as part of an apparent wider effort to modernise the sector. This followed a period of consultation in 2021 which the then Secretary of State for the DCMS, Oliver Dowden, said was needed because the broadcasting landscape had “changed beyond recognition” with increased global competition, changing viewership habits and a decline in linear advertising revenue.
However, as in 2017 when the Government previously announced a plan to sell Channel 4, the proposal was met by huge opposition from the industry including, notably, from Channel 4 itself as well as from within the Government, a key concern being the potential dilution of Channel 4’s public service remit together with the impact on the UK’s independent production sector.
Channel 4’s unique model (more on this below) means that it commissions hundreds of independent producers from around the UK each year to produce its programming. Privatisation, it was feared, could shift production away from independent producers (as its multi-million pound annual budget for commissions would likely be a key cost-saving measure for any new private owner) which could have a knock-on impact on the wider creative industry, at a time when the independent production sector is already under immense pressure.
With this backdrop, it was perhaps not entirely surprising when, in January, the Government published its Channel 4 Press Release and confirmed that, after reviewing the business case for Channel 4’s sale, the decision to privatise Channel 4 was not the right one. However, the Government did indicate that reforms would be needed in the draft Media Bill to give Channel 4 more commercial flexibility and provide a sustainable future for the broadcaster.
A new look Channel 4
Unlike other PSBs, Channel 4 does not and currently cannot produce any of its content in-house – it is a “publisher-broadcaster” which means it must commission or acquire all of its content from third parties. One of the main arguments in favour of privatisation was that Channel 4 being publicly owned severely limited its ability to borrow money and to raise private sector capital to invest in new platforms and products, as well as to produce and sell its own content. This also constrained its ability to compete with global SVOD services.
Sustainability duty on Channel 4
The draft Media Bill provides that a new legal duty will be imposed on the Channel 4 board to carry out their activities in a way that they reasonably consider most likely to enable them to “at least sustain the level of their activities” over the long term and to “be securely in a position to meet costs incurred in carrying on their activities.” Channel 4’s annual report (to be laid before Parliament) must include a report on Channel 4’s sustainability duty. The explanatory notes clarify that this intentionally follows the similar duties placed on company directors in the Companies Act 2006 and ‘activities’ include activities that Channel 4 considers appropriate for carrying on its primary functions, which are the fulfilment of Channel 4’s public service remit (a nod to industry concerns in this regard) as well as the performance of its media content duties.
Whilst enshrining this duty in statute undoubtedly sends a message, it remains to be seen what effect this legal duty may have on the broadcaster given its generality, the fact it is unlikely to go beyond the obligations and aims of the board anyway, and, crucially, what measures, if any, the Government may take to support this.
Ability for Channel 4 to create its own content
The draft Media Bill also removes the restriction on Channel 4’s involvement in the making of programmes to be broadcast on Channel 4. This was originally proposed in the Broadcasting White Paper as part of privatisation plans, and then again confirmed in January despite the decision for Channel 4 to remain publicly owned, so is not a surprise – the existing model makes Channel 4 more reliant on advertising revenue than other broadcasters so the removal of the “publisher-broadcaster” restriction is intended to give Channel 4 a greater ability to produce and monetise its own content and grow its commercial income.
Whilst the decision not to privatise Channel 4 has been met with relief by most, this element of the draft Media Bill is causing concern for many, particularly the independent production sector, who query the long-term effect if effective protections are not put in place.
The Government said in its Channel 4 Press Release that it will work closely with the independent production sector to consider necessary steps to ensure that Channel 4’s important role in driving investment into the sector is safeguarded and any changes to Channel 4’s commissioning model would need to be introduced gradually, with appropriate checks and balances. One such protection being discussed between the Government and producers is the increase of Channel 4’s “indie quota” from its current level of 25 percent of programmes. While the draft Media Bill empowers the Secretary of State to define the level of the indie quota, it does not set any specific level, in the absence of any immediate consensus on the issue (we understand that discussions are ongoing).
Greater access to capital
Another measure to “ensure the future for Channel 4” referenced in the Government’s Channel 4 Press Release but not set out in the draft Media Bill is to afford Channel 4 greater access to capital. The Press Release provided that the DCMS will make it easier and simpler for Channel 4 to draw down on its £75 million credit facility and provide Channel 4 greater access to private capital for ambitious investments to promote its long-term sustainability.
The CMS view – surprise score 0 / 10
Last year the decision not to move ahead with the privatisation of Channel 4 would have been a surprise. However, as discussed above, the draft Media Bill reflects the position adopted in the Government’s Channel 4 Press Release in January this year, including the removal of the “publisher-broadcaster” restriction. It remains to be seen what protections the Government will put in place in this regard, and accordingly how the removal of this restriction will affect the industry, particularly the independent production sector. One particular group concerned about the impact is the so-called non-qualifying independent producers (or NQIs). This comprises companies that operate as independent producers, but do not meet the statutory requirements to be treated as a qualifying indie (often because they have a broadcaster shareholder). The NQIs currently supply many programmes to Channel 4 and fear a squeeze between a higher quota for qualifying indies and Channel 4 commencing its own production activities. What we might well see (but is not in the current draft Media Bill) is some commitment to keep Channel 4’s production activities separate from its commissioning and to ensure that NQIs, indies and Channel 4 production all have the same ability to pitch for shows beyond the indie quota.
Channel 4 has said it welcomes the Government’s commitment to engage closely with the independent production sector about the impact and seems keen to emphasise its commitment to investment in the UK production sector generally. However, what is clear is that it will have to balance this against its new legal duty brought about in the draft Media Bill to sustain a secure financial future for the Corporation.
We will be watching this Media Bill closely as it passes through Parliament, so keep an eye out for our updates on our dedicated CMS Media Bill webpage. If you would like to discuss any aspect of the Media Bill or how it may affect you, please get in touch.