Channel 4 privatisation: the inside story

In the end, it all happened rather quickly: a low-key phone call from the DCMS to Channel 4 brought the news that the government was determined to privatise the broadcaster and an hour later chief executive Alex Mahon had sent an all-staff email to alert her colleagues of the outcome.

“We were not given much notice, not given much choice, and the decision was not what we wanted to hear,” admitted one C4 insider.

Those at the top of C4 now face a tricky dilemma. Many within the indie sector are outraged by the decision and want the broadcaster to ramp up the rhetoric and come out fighting with more aggression.

Some within the organisation share that view too, with chief content officer Ian Katz, whose natural tendency is to be provocative, believed to be among those who favour a more combative stance.

But C4 has spent many months making the case to avoid privatisation, including sending the government a detailed document (4: The Next Episode) with a counter proposal including radical ideas such as selling Horseferry Road and raising private money to spend on content.

It did not work, and others within the broadcaster now believe its lobbying efforts should focus on safeguarding or enshrining parts of its distinctive remit, ahead of a sale taking place.

Can C4’s top team help ensure any new quota around in-house production is kept to a reasonable level, for example? Or get the currently voluntary 50% N&R programming quota enshrined in the terms a new owner must abide by?

The latter was part of the Next Episode masterplan, and if such conditions can be achieved then the broadcaster’s role in the PSB ecology could remain close to its current status, irrespective of which organisation owns it.

There is tension between these two lobbying positions, and Mahon must ultimately decide whether rocking the boat is worth the risk of being burnt more badly by government.

Several well-placed sources have indicated that they expect C4 to keep fighting and one question is whether it should attempt to get the public more engaged in the debate.

C4 is thought to have considered the idea of a direct appeal in the past: what would be the impact of emailing All 4’s 24m-strong database with a message that the shows they love and the organisation that created them are under threat?

That kind of provocative move might be made more unlikely by C4’s new chair taking up his post today (11 April).

Business grandee Sir Ian Cheshire, who has close links to the Conservatives, will have taken the role with the understanding that his task will be to shepherd C4 through a sale.

Mahon may have written a thoughful piece defending C4’s status in The Times, but more aggressive moves from the executive team may not go down well with a chair who will want them to focus on the day job.

Whatever formal lobbying follows, whether from C4 directly or interested stakeholders, it will almost certainly be targeted at backbench Tory MPs, especially in the Red Wall seats.

DCMS and No 10 look certain to stick to their decision, with Nadine Dorries penning a Daily Mail salvo about the “Leftie luvvy lynch mob”, so convincing backbenchers to rebel is the only option.

“There is real anger in the north,” said True North co-founder Andrew Sheldon.

“We had HS2 and they took it away. Then we had C4, and now that could be taken away too. Red Wall MPs know that could cost them on the doorstep. Voters don’t understand the intricacies, but there was huge pride in Channel 4 moving to the north. Just three years after the government applauded that decision, it’s happy to throw that into reverse too.”

The Lords is expected to provide noisy opposition too, especially since selling C4 was not in the Conservative election manifesto, but hopes of Parliament genuinely blocking privatisation seem just that – hopes. The government has a working majority of 77 and only around 10 Conservative MPs have raised serious misgivings about the policy.

Remit in the spotlight

A white paper is expected around the end of the month, which will kick off what could be an 18-month path towards primary legislation and sale of the PSB.

The DCMS is being tight-lipped about the contents of that paper. For would-be bidders, a production sector trying to grapple with the seismic news, and C4’s 800 employees, one of the most crucial elements will be whether the remit and licence obligations that C4 must adhere to will be retained or watered down.

Issues such as its publisher-broadcaster model, commitment to staff and programming from the nations and regions, and defining instinct to order distinctive shows will be up for grabs.

The future of the remit has effectively become a £1bn question, given that is the figure that DCMS sources continue to brief. In contrast, Channel 4 cited Alvarium’s £500m valuation in its Next Episode document, and the gap between the two sums could be based on the strength (or otherwise) of the remit and especially the plans around IP ownership.

A further complicating factor is the work Ofcom needs to get done around new licence obligations for Channel 4. The current licence expires at the end of 2024, after a 10-year period, and it took the regulator circa 18 months to establish its obligations last time around.

If a similar timetable is followed, Ofcom would begin the project this summer, which makes it likely the government will be attempting to run a sales process at precisely the same time the regulator is reshaping the quotas any new owner would have to fulfil.

C4’s remit is more intangible than its licence obligations, which specify the volume of hours the broadcaster needs to deliver in news and current affairs, from outside the M25 and originations in peak time and any bidder would only be able to effectively value C4 as an asset if it knows the rules of engagement.

Shellshocked staff

Mahon led two calls with C4 staff this week: one with the leadership team and the other with all employees. Her tone on both was the same – warm, empathetic, calm and reassuring, with an emphasis on getting colleagues to focus business as usual and delivering the remit.

There will be no change to C4’s short term strategy or investment plans she told staff, and she will head out on a road trip after Easter to the National HQ in Leeds, and satellite offices in Glasgow and Bristol.

A big part of her job will be to reassure a disbelieving C4 workforce. Some of them were there back in 2017 when privatisation was escaped, and there had been a sense in recent months that the government’s long-term plan had lost momentum.

Former culture secretary John Whittingdale was seen as the instigator of privatisation, and with Nadine Dorries seemingly more interested in giving the BBC a bloody nose, there were hopes that the policy might become an orphan within government.

Instead, the arrival of Andrew Griffith as director of the No 10 policy unit in February appears to have given it fresh momentum. The MP for Arundel and South Downs, who worked for Sky for 20 years, told Enders Analysis last summer that consolidation within UK broadcasting would help the sector navigate the “mega-trends” affecting the industry.

“[The SVoDs] have come from nowhere and are pouring billions into the space – albeit globally. I don’t think C4 tying up with ITV or C5 is something that [regulators] should be falling off their chair about as they may have done five or 10 years ago,” he said.

Griffith also sat on the government’s nine-strong Future PSB panel and has advocated evolving the terms of trade to help future-proof C4.

“The opportunity is there to give it more of an IP base, along with new access to capital, and the opportunity to participate in consolidation, while preserving some of its best bits.”

Those quotes, from July 2021, chime almost exactly with the rationale and vision coming from DCMS when revealing its decision to privatise C4. So it would not be too much of a surprise if Griffith’s favoured outcome also informed government thinking strongly.

Paramount (formally ViacomCBS) and ITV would certainly also be able to present themselves as good stewards.

As the incumbent commercial PSB licence holders they rarely butt up against Ofcom, never have any issues fulfilling their obligations, and are stuffed full of high-powered execs who know C4 intimately.

Kevin Lygo and Julian Bellamy are the most prominent C4 alumni at ITV, while Paramount’s Ben Frow and Sarah Rose both had distinguished spells at Horseferry Road.

The pressing issue for ITV would be how the Competition Commission would view the impact of an acquisition on the advertising market.

Judged in isolation, a circa 70% share of TV ad sales would almost certainly be unacceptable, but if the regulator considers the wider advertising space, including digital giants such as Google and Facebook, it might conclude that kind of scale is precisely what is required in order to compete.

But it is too early to genuinely have a good sense of the likely buyer, given this is an unprecedented opportunity in the market and there is likely to be significant interest from overseas companies too.

The powerful newly-merged Warner Bros Discovery, led by David Zaslav, is widely expected to take a good look at C4, other US studios will likely follow suit, and Sky is reported to be interested. Plus, there is also the prospect of a white knight bidder emerging that might look to buy C4 to keep it fundamentally the same – rumours of this are already doing the rounds.

A period of intense speculation is inevitable now that one of British TV’s most important institutions is up for grabs. Buying C4 represents an unprecedented opportunity for the industry’s big players – but they will just be keen to know the precise terms on which they are bidding and the regulations surrounding the prize asset they are sizing up.

C4 is up for sale – how different it will be in private hands is not yet clear.

This story first appeared on Screen’s sister site Broadcast.

• Dorries and Mahon set out opposing privatisation views