Channel 4 Explores Debt Facility as Ad Market Tumbles

Dan Meier 29 November, 2023 

The TV advertising downturn could force Channel 4 to dip into an emergency £75 milion debt facility next year, the UK broadcaster told a select committee on Tuesday.

Facing questions from a House of Commons culture, media and sport select committee, Channel 4 chief executive Alex Mahon said the TV market has been hit by its worst advertising downturn in 15 years. The sector is expected to fall 14 percent this year, according to the broadcaster, which has forecast revenue losses for the next two years.

As a result, the ad-funded public service broadcaster (PSB) will consider tapping into the revolving debt facility it set up in 2018 in case of situations where the company required financial assistance. The PSB does not take state funding and is entirely financed by its commercial activities.

The decision follows a series of cost-cutting measures at the broadcaster, reducing its investment in technology and programming over the past year. Since 2020, when UK production was largely affected by lockdowns, Channel 4’s content spending has been edging back up to pre-pandemic levels, reaching a record £730 million in 2022. Content spend has now retreated to “a slower pace”, according to Mahon, as the channel attempts to redress its advertising losses.

“We are in what I would call market shock territory,” she said. “This level of advertising fall has only been deeper during the 2008 recession.”

Digital transformation

This advertising downturn coincides with a period of digital transformation at Channel 4, which aims to have 30 percent of revenues come from digital advertising by 2025. Digital made up 22 percent of the company’s revenues in 2022, but with Channel 4 still reliant on linear advertising for around two-thirds of its revenues, digital sales are not enough to offset the broadcaster’s linear losses.

Mahon told the committee that the price of digital advertising is the same as linear, sometimes higher due to the targeting capabilities available on the broadcaster’s streaming service. Digital advertising brings in more than £250 million per year, Mahon explained, compared with £500 million for linear.

But the broadcaster saw its revenues fall 2 percent YoY in 2022, and anticipates steeper declines in 2023. Back in July, Channel 4 forecast full-year revenues above £1 billion, owing to improving market conditions in the back half of the year. Now Mahon warns that this recovery has failed to materialise.

“We all expected a hard year but we have not seen the predicted recovery in the second half or the fourth quarter,” she said. It is worth noting that other European broadcasters, including the UK’s ITV, have seen their ad revenues start to pick up during the second half of the year.

The warning will likely stoke government fears for the sustainability of Channel 4, almost one year since the government abandoned its plans to privatise the broadcaster. Mahon told the committee Channel 4 would not require state subsidies, pointing to the company’s commercial performance over the past 10 years. “We are exposed to the ad market,” she said. “The cycle of surpluses and deficits is completely normal for Channel 4 and I don’t see that changing.”

Meanwhile, the Media Bill currently making its way through parliament is designed to strengthen the PSB against competition from international streaming giants. The legislation would enable Channel 4 to produce its own programmes and hold the rights to said content, potentially making the broadcaster less reliant on the fluctuations of the advertising market.

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