Channel 4: Advertisers are ‘right to be worried’ about privatisation

Advertisers and agencies are “right to be worried” about the impact privatising Channel 4 will have on the broadcaster’s distinctive programming, its audience, and competition for advertising spend, it has said.

Top marketers at brands including Boots, Zoopla, Phoenix Group and Little Moons agreed last month that the government’s controversial decision to privatise Channel 4 was “worrying”, with some fearing its “bold and brave” scheduling may not survive.

ISBA’s director general Phil Smith also expressed his disappointment at the decision, highlighting a lack of competition between the TV sales houses in the UK as a “key concern”. If there were any consolidation between the three advertising sales houses owned by Channel 4, ITV and Sky, it could create “undue dominance” in the market, he said.

ITV is reportedly preparing a takeover bid, while there has been speculation that Sky, Discovery and Channel 5 owner Paramount may be interested.

Speaking on a press call today (5 May), Channel 4’s chief operating officer Jonathan Allan told Marketing Week these concerns were valid, and should be taken into account by the government.

“Advertisers and agencies are right to be worried. There’s a beautiful symbiosis between our [public service] remit and the audiences that Channel 4 attracts, being both young and upmarket. And that has led to a huge digital transformation and digital growth in viewing over time,” Allan said.

“Anything that potentially weakens Channel 4’s distinctiveness is no doubt going to be a concern to advertisers and agencies, because it may reduce the value of the audience that we bring to them, the quality of the programming, and the attitudinal demographics that are what the channel is for. So I think they’re right to be concerned about that.”

We’ve laid the foundations for ongoing investment, financial success and stability through transformation to a digital business, which is fuelled by advertising.

Alex Mahon, Channel 4

Allan said advertisers are also right to be concerned about competition in the UK for advertising spend.

“Clearly that becomes more of an issue if there’s a consolidation play. So that’s an issue that advertisers should be concerned about and those views should be taken into account.”

Channel 4’s digital advertising revenue grew by a “huge” 40% in 2021, CEO Alex Mahon revealed as she delivered a performance update for the year. The broadcaster’s share of the digital ad market was 35%, ahead of its 28% share of linear TV advertising. Digital advertising now makes up 19% of Channel 4’s revenues.

“Our reach, our volume and our profile makes us an extremely attractive proposition for advertisers, and it demonstrates why our business model is already making huge strides to being future proof,” Mahon said.

“[Our] youth skew makes the platform an attractive proposition for advertisers and for brands who want to reach this audience with their campaigns.”

An alternative proposal

Allan and Mahon’s comments came as Channel 4 made public for the first time its proposed alternative solution to privatisation, which was put to the government before it decided to proceed with its plans to privatise the channel.

The broadcaster said the plan would ensure it could “thrive” for the next 40 years, and claimed the UK economy would make more in gross value added (GVA) by 2026 than the Exchequer would gain from one-off sale proceeds.

Overall, the alternative solution planned to increase Channel 4’s public contribution, enable creation of more distinctive British IP and the means to export it globally, “level up” the creative sector with new jobs and training across the UK, and support more SMEs in its supply chain with increased content investment.‘Worrying’: Marketers react to Channel 4 privatisation

Spending on the 4Skills programme – which offers apprenticeships, training, work experience and internships – was to double to £100m over the next decade, offering 100,000 young people a way into the media industry. The broadcaster also planned a dedicated 4Skills School outside of London, the first national TV skills school outside South East England. Overall, it expected to provide new skills for young people from all backgrounds worth around £2bn to the economy.

Channel 4 laid out plans to become a northern-based broadcaster, with the majority of its workforce based outside London and 5,000 jobs created in the nations and regions through its supply chain. It expected to invest £2bn in nations and regions content over the next decade, reaching at least 50% of content. Channel 4 also outlined plans to expand its northern-based digital content production outfit 4Studio.

The business also proposed leveraging “significant” new private capital for the first time to bring in £1bn of new investment in British content by 2030, and the launch of a new international proposition – ‘Global All 4’ – to export British IP and become a “truly global”, digital-first public service broadcaster (PSB).

Anything that potentially weakens Channel 4’s distinctiveness is no doubt going to be a concern to advertisers and agencies.

Jonathan Allan, Channel 4

Mahon admitted that currently much of Channel 4’s more innovative programming “loses money”, explaining this is the benefit of its not-for-profit model.

“It’s no exaggeration to say that the streamers regard Channel 4 as a wonderful and cost free R&D department, [which] saves them hundreds of millions of pounds,” she said.

“It’s very true to say that our innovation loses money. It’s obvious that shows about HRT [hormone replacement therapy] and the menopause, [or] a day of all black programming and the Paralympics, are significantly loss making. That’s what makes it even more of a privilege to make them – because of the impact they have on UK society in a way that everyone can value and can celebrate. And much of that is inextricably bound up in our not for profit model.”

However, while Channel 4 discussed the proposals “in detail” with the government, “clearly it is not the choice they made”, Mahon said.

“I think that’s disappointing and a shame for the UK creative industries.”

2021 performance

However, despite the uncertainty regarding its future ownership, 2021 was an “impressive” year for Channel 4, Mahon said, as the broadcaster broke records for its overall revenue growth.

Channel 4 delivered corporate revenue of more than £1bn for the first time in its 40 year history, a 25% increase on 2020. The broadcaster made a “record” surplus of £101m, surpassing its previous record the year prior and marking its first three figure surplus since launching in 1982.

At £272m, Channel 4 also has its highest cash balance in over a decade, Mahon said.

“These results demonstrate that the current business model has delivered dynamic growth, revenue diversification and long-term sustainability. Financially, Channel 4 is in the robust health that it has ever been,” she added.

In November 2020, Channel 4 outlined a new strategy with targets for digital transformation and diversification, named Future 4. The broadcaster aims to be a digital-first company by 2025, to double All 4 views to 2 billion per annum, and to generate 30% of ad revenues from digital. Channel 4 is “on track” to achieve these targets, Mahon said.

Digital viewing now drives “most” of the broadcaster’s commissioning and scheduling decisions over linear, which reaped “massive rewards” in 2021, she said. The broadcaster therefore looks at digital performance as its “priority metric”.

All 4 recorded another record-breaking performance, with 1.5 billion views, an increase of 21% since 2020. Last year, the proportion of viewing that was streamed digitally was 13%, which Mahon claimed was more than double that of ITV and Channel 5.

Meanwhile, 80% of UK 16- to 34-year-olds are registered with All 4, and Channel 4 claimed a “superior” 16 to 34 profile on video on demand by at least 10% compared to Sky or ITV.

“We’ve laid the foundations for ongoing investment, financial success and stability through transformation to a digital business, which is fuelled by advertising,” Mahon said.