Channel 4 Privatisation

Kevin Brennan Excerpts

Tuesday 14th June 2022 Commons Chamber

[Kevin Brennan (Cardiff West) (Lab)]

I endorse what the Father of the House just said. That is not to say that I do not have sympathy with Ministers. I was a Minister in the last Labour Government and I understand that Ministers face very difficult decisions. It is not always a decision between simply what is right and what is wrong. Sometimes, it is not a decision between good and evil. Sometimes, it is a decision between the unacceptable and the unpalatable. So I have sympathy with Ministers when they are considering policy.

However, I have been trying to imagine the meeting that the Secretary of State and her Ministers must have had to discuss this topic. Presumably, the permanent secretary came along and said, “Secretary of State, I’m afraid that I’ve got some bad news for you: we haven’t got a problem.” The Secretary of State said, “Really? That’s worrying. What haven’t we got a problem with?” The permanent secretary said, “I’m afraid we haven’t got a problem with Channel 4.” The Secretary of State said, “Why? What has it been doing?” The permanent secretary said, “I’m afraid to tell you that it hasn’t been costing the taxpayer a penny while it has been operating as a public service broadcaster. It gets worse. Last year, it brought in £1.2 billion in revenue and a record financial surplus of £100 million. If that is not enough, it does not even need to borrow any money to finance its operations. I’m afraid to tell you, Secretary of State, that there is much more of this. It has also been rapidly growing its digital advertising revenue, moving into the advertising market that is the future in a way that is far outstripping all of its commercial competitors. Worse still, its digital strategy is way ahead of all its commercial competitors. It has been, annoyingly, fulfilling its remit to appeal to young people. It is the most successful broadcaster of any commercial broadcaster in reaching 16 to 34-year-olds and hugely diverse audiences.

On top of that, I’m afraid to tell you, Secretary of State, it has been commissioning content from independent producers all over the country—”

[Madam Deputy Speaker (Dame Eleanor Laing)]

Order. The hon. Gentleman is doing it, too. You cannot say, “I want to tell you, Secretary of State.” You have to say, “Madam Deputy Speaker, I want to tell the Secretary of State.”

[Kevin Brennan]

I apologise, Madam Deputy Speaker, but I was quoting, in an imagined scenario, the permanent secretary. I was not referring to you, Madam Deputy Speaker. This is a creative debate about the creative industries. I was creating an imagined conversation, so I do apologise if—

[Madam Deputy Speaker]

Order. I apologise to the hon. Gentleman. I had not quite picked up on the context. He is probably allowed to make an imaginary quotation, saying, “You, Secretary of State.” Fine—proceed!

[Kevin Brennan]

I know that satire and irony does not translate very well into Hansard, Madam Deputy Speaker. Perhaps it could be put into italics, so that everybody can realise.

[Jesse Norman]

I just wondered, in the spirit of chivalry, whether I might be able to give the hon. Gentleman an extra minute by making an intervention.

[Kevin Brennan]

I have a feeling that that might not be in order, Madam Deputy Speaker.

[Madam Deputy Speaker]

Order. I would just point out to the right hon. Member for Hereford and South Herefordshire (Jesse Norman) that he might find he is disappointed at the end of the debate when he himself loses a minute.

[Kevin Brennan]

I am very grateful to the right hon. Gentleman for his motives. I hope he achieves his objective, but I am not sure whether I will get that extra minute.

In the imaginary conversation, the permanent secretary might have gone on to say, “On top of that, Channel 4 works with 300 production companies a year. It spends more on external production in the nations and regions than any other commercially funded broadcaster, dedicating over half its total content spend to content produced there. I’m afraid to tell you, Secretary of State, that, in addition, Channel 4 has created hundreds of high value jobs in the nations and regions, including by moving a large part of its operations out to Leeds”—I am afraid it was not Cardiff; I wish it had been Cardiff, but it has moved an important HQ out to Leeds—“and announcing plans to significantly increase its investment in skills.”

The permanent secretary might have continued, “On top of that, I am afraid it has been taking decisions with the public interest at heart. I’m afraid to report, Secretary of State, that it has been taking those sorts of decisions, including broadcasting the Paralympics, which otherwise would not have been exposed, and giving a whole hour every night in prime time to news. The news, which counters the misinformation that is such a blight of our age because of the internet, is subcontracted to a production company”—as ever, to ITN—“and subject to Ofcom’s rules of impartiality. And it has been absolutely integral to the success of our film industry.”

“In other words, Secretary of State,” the permanent secretary must have said, “it is a shameful litany of success from Channel 4, and we really ought to do something about it.” Presumably, the Secretary of State would have said in response, “Well, quite clearly, we cannot allow things to go on as they are, because we are going to risk the Government’s reputation for incompetence if this carries on. We have to protect it, and, after all, we were absolutely silent in our manifesto on the issue of privatising Channel 4. Therefore, it is absolutely imperative that we should definitely do it. We did not seek a mandate from the electorate to privatise this successful, publicly owned, public service broadcaster, so we absolutely ought to do it.”

I say to the Minister for Media, Data and Digital Infrastructure, the hon. Member for Hornchurch and Upminster (Julia Lopez)—a very thoughtful Minister, who I am sure will make the best fist of this whole thing both here and eventually in Committee, if this lamentable proposal ever gets that far—that that is where we are at the moment: caught up in an episode of “Parliamentary Pointless”, with a policy that nobody promised in search of a problem that nobody perceives.

Lord Parkinson, the Arts Minister, appeared before the Digital, Culture, Media and Sport Committee this morning, and told us he has six Bills coming down the track in the House of Lords. I would have thought he had enough on his plate, without a pointless proposal of this kind. If colleagues in this place do not prevent this daft proposal from going any further, and the idea ends up down in the House of Lords, I am telling you—you, Madam Deputy Speaker, and the House—that it has no chance of making swift progress in the House of Lords, because it was not in the manifesto. As a result, as Lord Parkinson accepted this morning, the Salisbury convention will apply, and their lordships will feel as free as ever to delay the proposal and if necessary, as they are constitutionally entitled to do, invoke the Parliament Act. The proposal is pointless and should be abandoned.

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[Damian Collins (Folkestone and Hythe) (Con)]

Before I start, I would like to do as the shadow Secretary of State did and declare my entry in the Register of Members’ Financial Interests. I, too, was a guest of Channel 4 at the BAFTA ceremony. I would also declare, as other Members from across the House have done, that I am a fan of “Derry Girls”, as, I am sure, as part of his cross-community work, is the hon. Member for North Antrim (Ian Paisley). This is a channel that makes great programmes that are part of our national psyche and it is an important part of our broadcasting landscape.

However, I say to Opposition Members and some on our side that I have an honest disagreement with Channel 4 and with people who are opposing privatisation; the company, although well run, is running into such strong industry headwinds that this cannot be taken off the table and it has to considered seriously. As Channel 4 said in its own “The Next Episode” response to the Government’s White Paper, all options have to be considered. That has to include the option of privatisation.

The challenges to the sector are very real. A lot has been made of the fact that the last financial year was a successful one for Channel 4 and for the UK advertising industry. There was a major spike in advertising revenues. That is partly to do with a major surge in advertising spend coming out of the pandemic, which saw a big increase in revenues for all broadcasters. The pandemic also meant the delay to the European championships and the Olympics, and such major international tournaments traditionally have a considerable inflationary impact on the advertising market. So we have to look at this in a wider context: the increases in ad revenues seen in 2021 may not be repeated; and the diversion away from linear television advertising—traditional spot advertising—to digital media is a continuing trend. Channel 4 may be the leading UK broadcaster in that respect, but currently only 16% of its revenues come from digital advertising. Although it wants to move that target to 30% by 2025, that may still be a significant challenge.

If there is a major challenge to the TV industry, to the advertising industry, and if there were a recession—TV advertising is traditionally one of the earliest and worst-hit sectors—Channel 4 would be much more vulnerable to the economic shocks that would come, because it does not have other revenue sources. These trends may be familiar across PSBs, which have seen long-term declines in revenue if they are commercial, and in audience numbers, including at peak time. However, the BBC can make money from making programmes. ITV can make money from making programmes, for itself and for other people. Channel 4 does not have that option.

Let us look at the period before the pandemic. In trying to observe a trend, that is probably the fairest thing to do, because we do not yet quite know what impact the pandemic has had, in terms of lockdown in 2020 and recovery in 2021. What does the picture look like? I think everyone here would agree that when Channel 4 was set up its purpose was to invest its money in UK original productions made by independent production companies. It was set up at a time when the BBC and the ITV companies largely made most of their stuff in house, so it was a necessary vehicle to get financial investment into the independent production sector. This was a sector where Sky, Amazon and Netflix did not exist, and it was far more reliant on that funding.

If we look at what has happened to Channel 4, and this is true for other PSBs as well, we see that in 2006 it spent £516 million in first-run original content. In 2019, the year before the pandemic, the figure was £436 million, so we have seen a 15% decline. That declining revenue also bought a lot less as well, because inflation in the TV production market is making it more and more expensive to make programmes. So in 2006 Channel 4 broadcast 3,388 hours of first-run original content, whereas in 2019 it broadcast 2,473 hours, which represents a decline of 27%. This trend away from traditional broadcasters towards digital markets, with the pressure that has on their budgets and the declining amount of money they can afford to spend on new programming, has been a trend for a number of years now. The concern we must have is that if there was a shock in the digital ad market and if Channel 4 cannot hit its targets of allowing digital revenues to grow as broadcast revenues decline, it is much more vulnerable. It does not have the reserves and it does not have the ability to make money elsewhere. That is why even Channel 4 is proposing significant changes to its remit.

[Kevin Brennan]

The hon. Gentleman says that Channel 4 is proposing this, but that proposal was a direct response to a request from the Secretary of State to propose alternative sources of revenue. It was not initiated by Channel 4 because of its concerns about its finances.

[Damian Collins]

As I pointed out earlier in the debate, in that document Channel 4 itself says that it requires a radical reset of its role. If it is to take the opportunity of the changing digital landscape in the future, it needs to be in a position to invest more money. That extra investment will not come from advertising revenues. Channel 4 has been the most successful traditional UK broadcaster in switching to digital, but even there the best one can say about the last few years is that the increase in digital revenues has just about kept pace with the decline in broadcasting revenues. Digital is not raising more money incrementally for Channel 4 to invest in programming at a time when new entrants to the market are increasing their spend significantly—by hundreds of millions of pounds. The danger is that Channel 4, with its unique voice, will be less able to compete, less able to commission, and will run less new programming than it could in the past and that other broadcasters will do. That has to be addressed.

Channel 4 has said that its role needs to be radically reset. It is calling for its digital streaming service, All 4, to be global—to reach a global audience—to increase ad revenues. That is a sensible idea, but the independent production companies that make programmes for Channel 4 would have to give their consent to being unable to sell their programming internationally on their own, as they would in other territories. It calls for the creation of a joint venture in which Channel 4 holds a minority stake that would raise £1 billion to invest in new programming over the next five years. That would be a sensible measure to bring in a significant extra boost in revenue, although it would only bring Channel 4 back to where it was in 2006. As part of that joint venture, Channel 4 would have the intellectual property rights for programming and make money from selling those programmes. Channel 4 believes that may be within its current remit, although it would significantly change the spirit of the remit. The independent production companies might have concerns about that extension, but it is probably necessary.

The idea that the status quo can continue is wrong. It would be wrong of us to assume that it can continue and to say that we will deal with this problem, if it comes, in the future, and in the meantime see Channel 4 gradually wither on the vine, with declining revenues, declining investment in programming, unable to compete, until the point where it cannot go on and requires a bail-out from the Government or the other PSBs. That is the risk we are taking.

The Government’s “Up Next” White Paper is not an ideological tract; it is a sensible and serious at look at real issues in the TV sector. We may have different views on what the right format would be; Channel 4 has put forward its ideas and other bidders will do the same. I think the bidders will be more than the traditional players; others will bid as well and we should look at those options, but they will all be options for change, suggesting a way that Channel 4 can raise more money to invest in what we want it to do—making great programmes.

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[Jesse Norman (Hereford and South Herefordshire) (Con)]

It has been a good debate, but I must say that I am not persuaded by many of the arguments that have been put forward, even by my distinguished colleagues, the former Chairs of the Digital, Culture, Media and Sport Committee, my right hon. Friend the Member for Maldon (Mr Whittingdale) and my hon. Friend the Member for Folkestone and Hythe (Damian Collins). It is a pity that the consultation was carried out in the way that it was. For a subject as vexed and contentious as this, it would have been more appropriate for at least the individual and organisational contributions to have been if not published, then at least digested in more detail and reflected.

If the Government are committed to exploring all the options, as has been recognised by many hon. Members on both sides of the House and as I think it is fair to say the Government have said, it is important that there should be an options paper to show which options have been considered. I was sad to see that the option of mutualisation has not been considered, because it has been effective in other areas. Welsh Water, which is in many ways the best of the water companies, is a mutual company limited by guarantee. I still hope that mutualisation will be considered.

The truth is that, notwithstanding some of the concerns that have been raised, Channel 4 is not a problem, and this measure comes at a time of severe and rising concern among people of this country about the cost of living, inflation and slow growth, and, in policy circles, about the loss of productivity. It is not just that Channel 4 is in rude health—although, as has been pointed out, revenues can go up and down over time—and has been sustained by its huge growth in digital advertising and its remarkable ability to reach interesting younger audiences; it is also that it is a highly dynamic organisation and a highly managerially innovative organisation. Therefore, for the Government to start to panic now about what its future advertising revenues may be is to rule out the possibility that diverse, interesting, engaging and innovative responses may be undertaken by this innovative team.

It is also strange for a Conservative Government to wish to sell off a business in the face of competition, rather than embracing and welcoming that competition and expecting the business to fight its corner. Let me remind the House that the intellectual property does not go anywhere. The fact that it is not trapped in Channel 4 does not mean that it does not reside within independent production companies, and that creates the dynamic tension and energy that has always sustained the sector.

I am afraid that I regard this as an unnecessary attempt to address a non-problem at a time of much wider concern. I refer hon. Members and the Government to the ancient Conservative principle: “If it ain’t broke, don’t fix it.”

[Kevin Brennan]

On the point about intellectual property, is it not interesting that the people behind some of the most successful productions in recent years, such as Michaela Coel, have refused to go to streamers such as Netflix because they insist on keeping the intellectual property, rather than letting it reside with the British small production companies, writers and creators who are responsible for it?

[Jesse Norman]

The hon. Member makes an interesting and fair point. Of course, if advertising revenue were so unattractive, the rest of the market would not be piling into it. At the same time, no matter who the owner of the enterprise will be, they will not be immune from wider inflation in programming costs. That is the nature of the business, and the question is what innovative and constructive responses will be undertaken by the management team to address that.

The plan is also bad economics from a public standpoint. The House will know that I spent a couple of years as a Treasury Minister, including during the period the Secretary of State talked about when all the support was given to the cultural sector, and I think it is bad economics. Even if the constraints were relaxed in the way that has been described, the revenue to be derived would be only, on a net basis, in the order of £500 million to £1 billion. My successor, the present Chair of the Digital, Culture, Media and Sport Committee, my hon. Friend the Member for Solihull (Julian Knight), has pointed out that that is a drop in the ocean compared with the wider problem. At a 4% interest rate, £500 million amounts to £20 million a year. Are we really going to give up all the control, energy, drive and impetus that exists in Channel 4 now, and the £200 million of directed programming from independent production companies that comes from that, in return for the equivalent of a £20 million annuity? I do not think that makes any economic sense at all.

Overall, this is not a Conservative proposal. What matters in this case is the quality of the ownership. Channel 4 has an independent ownership structure; it happens to be owned by the state, but its ownership structure has made it resilient to political pressure and able to commission highly innovative, risky and interesting forms of programming, for which we celebrate it.

--- Later in debate ---

[The Minister for Media, Data and Digital Infrastructure (Julia Lopez)]

I welcome the chance to close this debate on the importance of our much-loved cultural institutions, the future of UK broadcasting and the plan to sell Channel 4. I thank hon. Members for their contributions and thoughts.

The motion rightly recognises the role that our broadcasters play in bringing our nation together. There is no better example than the absolutely extraordinary coverage of Her Majesty’s platinum jubilee celebrations. I echo the Secretary of State’s tribute not only to our fantastic DCMS officials, the royal household and our broadcasters for the jubilee coverage, but to every person who participated in the exceptional showcase of British talent, from the glorious eccentricity of the pageant and the precision of the military parades to the musical power of Saturday’s concert and its innovative production, which included breathtaking light displays around Buckingham Palace, complete with drone corgi. It was a magical, delightful, magnificent kaboom of creativity.

I confess that I read the motion with a wry smile, because the hon. Member for Manchester Central (Lucy Powell) has been teasing and tantalising us with Labour’s patriotic pitch in the media for a couple of weeks now. Today, we saw it on the Floor of the House. During the glorious jubilee, the penny finally dropped for the Opposition that British people actually feel rather proud of our country. The hon. Lady has flogged to her leader the idea that the privatisation of Channel 4 is just the wedge issue that Labour needs to convince voters, after five years of campaigning for Comrade Corbyn to be Prime Minister, that it is the party of our most cherished institutions. “We are the patriots!”, she cheers from the Front Bench.

The trouble is that our plan for Channel 4 is not some ideologically driven attempt to dismantle all that is great about British broadcasting, no matter how hard the hon. Lady has tried to mischaracterise it today. It is part of an ambitious and considered strategy to ensure that British public service broadcasters not only survive in a very rapidly changing market, but grow and continue to be relevant to British and global audiences for many years to come, producing the kind of content that delights and informs viewers, underpins our cultural and democratic life and, critically, generates economic growth across our country. The structure of Channel 4, the sustainability of the licence fee and the diminishing value of linear prominence are all issues that have been knocking around for many years, but, as has been discussed at length today, market changes have injected real urgency into this debate, and we will not allow the can to be kicked down the road any further when the future of our public service broadcasters is at stake.

[Kevin Brennan]

I agree with the Minister on prominence, and in fact the Government should have acted sooner, as I called for them to do several years ago. She talks about kicking the can down the road, but what will happen after 10 years under her plans? Is she not kicking the can down the road for the future of this public service broadcaster by saying that in 10 years’ time anything can happen?

[Julia Lopez]

I can account for what the Secretary of State and I have done within our roles, and I think we have pushed forward an extremely ambitious set of reforms in the short time we have been in DCMS. This is an exciting time to be in public service broadcasting. I always thank the hon. Gentleman for his contributions because I know he has expertise in this field.

It is this Government and this Secretary of State who have decided to act, bringing forward a comprehensive package of reforms to support our PSBs through the first broadcasting White Paper in 20 years. It is the next step in a long history of support for our creative industries. It was a Conservative Government—under Margaret Thatcher, no less—that established Channel 4 in the 1980s to stimulate independent production and distinctive content. It has worked, and then some. It was a Conservative Government that encouraged Channel 4’s move to Leeds to spread the benefits of the creative sector beyond London. It worked. And it is a Conservative Government that are tackling the limitations of Channel 4’s ownership structure in this new broadcasting landscape, redirecting sale proceeds into a creative dividend to address the skills challenges of now.

Let me just touch on those limitations, because it is important to remind the House of them. Channel 4 is a fantastic broadcaster that has great management, innovative programming, high quality journalism and a diverse audience, but it is uniquely challenged in two ways. First, the publisher-broadcaster restriction means that it cannot own its intellectual property, so it finds itself reliant for 74% of its income on linear TV advertising revenues. Such revenues have fallen 31% sector-wide between 2015 and 2020, and that trend is set to accelerate as audiences move online and change their viewing habits.