The ruling Conservative government has floated the idea of privatising Channel 4 for years now. But now it seems fairly likely the government will follow through and put the broadcaster up for sale.
The government has not yet fully committed to the idea. But a speech crafted by the government and delivered by John Whittingdale (who was at the time the minister of state for media) in front of British TV’s high table earlier this month left no room for doubt. The Conservatives want to keep Channel 4 as a public service broadcaster, but as a privately-held company.
What’s less clear is who would actually buy Channel 4? The broadcaster is in solid financial shape, judging by its own reports. And its reach among young UK viewers is unmatched by any other terrestrial channels. But the government clearly feels it needs an injection of cash to remain competitive in the future. And its obligations as a PSB, while perhaps protecting Channel 4’s unique position in the UK TV sector, could look like an unnecessary burden to potential buyers.
Here’s a look at who might be eyeing up Channel 4 if it’s put on the market:
Talk of privatising Channel 4 dominated this year’s RTS conference in Cambridge. So it was somewhat inevitable that ITV CEO Carolyn McCall was asked in her keynote session if she’d be interested in buying out Channel 4.
McCall, like others at the conference, unsurprisingly remained noncommittal.
The primary reason why ITV might want to buy Channel 4 is also a big reason it may not happen. ITV and Channel 4 combined would dominate the UK TV advertising market. Combined, the two broadcasters account for around 32 percent of UK TV viewing – or close to half when the ad-free BBC is discounted.
Advertiser trade group ISBA said in its response to the government’s consultation that a combined Channel 4 and ITV would have “undue dominance in the TV advertising market”.
The government could nonetheless choose to allow the merger. John Whittingdale, back when he was still the media minister, said the government has “a completely open mind” when asked directly if Channel 4 could merge with ITV.
But ITV itself doesn’t seem to be in an acquisitive move. The broadcaster ruled itself out of buying BT Sport earlier this year, with McCall saying the company is very focused on its balance sheet, given the lingering uncertainty related to the pandemic.
Another home-grown option would be BBC Studios, the BBC’s commercial arm. Conservative MP Julian Knight, chair of the Digital, Culture, Media and Sport Committee, floated this option earlier this year, and indeed Ofcom suggested the merger back in 2009 (under its previous BBC Worldwide branding) as a solution to Channel 4’s financial difficulties at the time.
Unlike a merger of ITV and Channel 4, this deal wouldn’t create competition concerns in the UK TV ad market, given that BBC Studios only sells advertising in international markets.
And there would be several upsides. BBC Studios has plenty of experience working with other UK broadcasters. It linked up with ITV to launch the subscription streaming service BritBox in the US. And Channel 4’s sales house already sells inventory for UKTV, which is owned by BBC Studios.
Channel 4 has also recently spoken about its ambitions to launch an international ad-supported video on-demand service. BBC Studios, with its experience in selling British content abroad, could be a very valuable ally.
But looking at BBC Studios’ history, it has more experience in selling businesses than buying them. Previous noises around BBC Worldwide acquiring Channel 4 ultimately came to nothing. The broadcaster’s biggest previous M&A moves are its merger with 2 Entertain in 2004, and its purchase of a 75 percent stake in Lonely Planet in 2007 – which it sold six years later.
Back in 2016, a report commissioned by Channel 4 itself on the impact of privatisation listed BT as the most likely UK company to make a bid.
“Given its cash flow and balance sheet, BT could certainly afford to buy Channel 4, even after the EE acquisition,” said the report. “It is also already expanding in TV, although this development is still at a relatively early stage.”
But five years later, the reverse is true. BT is scaling down its TV business, now looking likely to sell BT Sport to DAZN. BT’s focus now is on investing in its 5G mobile network and next-gen full fibre broadband, spending billions in the process. In this context, acquiring Channel 4 looks very unlikely.
A big part of the conversation around privatising Channel 4 relates to the difficulties of competing with the big streaming services. Perhaps if you can’t beat them, join them. John Whittingdale told Times Radio earlier this year that the government wouldn’t rule out a big streaming service, such as Netflix or Amazon Prime, buying up Channel 4.
But it’s very hard to see Netflix making a bid, for a variety of reasons.
Owning Channel 4 would take Netflix into the advertising business, something which it’s purposefully steered clear of thus far. If Netflix was secretly wanting to expand into advertising, as some believe it will, an acquisition like Channel 4 would provide tech and expertise, as well as an established separate brand for an AVOD service. Buying an ad-supported business and maintaining separate branding might have better optics than launching ‘Netflix with Ads’, given how vocal Netflix’s leadership has been about not running ads.
But if Netflix wanted to make this kind of move, there would likely be better businesses out there for it. For a start, PSB requirements in the UK would look like an unnecessary burden to the streaming giant.
But more importantly, pretty much every acquisition Netflix has made in the past has related to IP – with the recent acquisition of Roald Dahl’s works a prime example. So it would be a strange move for Netflix to buy a broadcaster without its own studio. Netflix would gain some IP rights through buying Channel 4, but the studios that Channel 4 works with would be more sensible targets for Netflix, rather than Channel 4 itself.
Unlike Netflix, Amazon is already in the advertising game.
But in some ways, this is a reason for Amazon not to buy Channel 4, rather than an argument in its favour. Amazon is already launching IMDb TV, its ad-supported streaming service, in the UK – which would look like a lot of unnecessary work if the company were then to just buy a broadcaster.
Nonetheless, owning Channel 4 would certainly strengthen its ad offering. And it wouldn’t be Amazon’s first TV acquisition – the company bought a stake in sports TV network YES Network two years ago.
But Amazon, like Netflix, is likely most interested in IP (the YES acquisition looked to be a way to pick up sports rights, rather than a strategic investment in linear TV). Again, Amazon would more likely want to target studios, like its recent buyout of MGM.
The International Giants
While buying a broadcaster would be out of character for the streamers, it would be very much in the playbook of the international TV giants, each of which has been active on the M&A front over the past few years.
The first of these, WarnerBros. Discovery, is itself newly formed (or more accurately, in the process of being formed) out of the merger of AT&T’s WarnerMedia with Discovery. And The Telegraph reported at the start of August that Discovery has entered early stage talks, exploring the possibility of a merger.
Channel 4 would strengthen the company’s UK presence, where neither WarnerMedia nor Discovery are major players in the traditional linear world. And Channel 4’s rights deals would add an interesting new content pillar to WarnerBros. Discovery’s combined offering, adding more shows geared towards younger audiences.
The Telegraph‘s report claimed Discovery sees ownership of Channel 4 as an interesting way to get more value out of its expensive Olympics rights, rather than sublicensing them out to the BBC. This could dovetail with Channel 4’s existing coverage of the Paralympic Games.
But the company is already set to be tied up combining the sprawling assets of WarnerMedia and Discovery into one unified offering over the next few years. Adding Channel 4 into the mix might be too much to take on at the same time.
ViacomCBS has the fairly unique position of already privately running a British public service broadcaster – Channel 5. So the prospect of catering to Channel 4’s PSB obligations may be somewhat less daunting, compared with other broadcasters. And this might also ease any government concerns about placing Channel 4 in the hands of an American owner.
And ViacomCBS already has an interest in the UK with Channel 5, but the addition of Channel 4 would grant it a much stronger presence (Channel 5 has around a six percent share of UK TV viewership). ViacomCBS’s own streaming efforts through Channel 5 have struggled to get off the ground, but a combined AVOD service with Channel 4 would have a much wider reach – and greater pull with advertisers.
Richard Berndes, an analyst at Kagan, says that ViacomCBS would be an “easy fit” for Channel 4, given its existing placing in the UK market.
But there is still a question about bandwidth for the company. The merger between Viacom and CBS only closed less than two years ago, and the business is currently focussed on rolling out its Paramount+ streaming service in international markets. Buying a major broadcaster, particularly one which is focused so specifically on one market, might be seen as more work than its worth.
Kagan’s Richard Berndes said that Comcast-owned Sky is the other natural fit for Channel 4, and its name has popped up frequently in rumours about potential buyers.
Channel 4 and Sky already work together quite closely in a number of areas. The two earlier this year extended their existing broad partnership, which has seen Channel 4 use Sky’s addressable TV advertising product AdSmart, and the two pledge to collaborate on further advanced advertising products.
Sky would have less to gain than ViacomCBS on the tech side, given it already has an established streaming service in NOW. But NOW’s ad-offering is fairly new and limited – pairing up with Channel 4 would quickly establish it as an AVOD heavyweight.
But Sky has so far proven most comfortable forging a broad range of partnerships with broadcasters on both sides of the Atlantic, rather than pursuing M&A itself. It may well be that the partnerships it has in place with Channel 4 are already sufficient for Sky’s own ambitions, where it seems to be seeking to become a single access point for all the content consumers are after.