The chief executive of Channel 4 has said that if the broadcaster was privatised it would need to make profits of about £200m annually and the TV schedule would need to be packed with entertainment shows and popular foreign-made hits to be commercially viable.
The “fierce independence” of Channel 4’s news and current affairs coverage would also be under pressure under privatisation, the channel’s boss, David Abraham, told the House of Commons culture select committee on Tuesday.
Asked his opinion on what margin of profits would be expected from Channel 4 if it was expected to compete commercially, Abraham said: “20% to 30% would be a reasonable margin, at a minimum.
“On [current] revenues of £930m/£950m it would be at least £150m to £200m of margin we would have to find.”
Abraham, who previously worked in the private sector at companies including UKTV and Discovery, said that he has not made a “detailed analysis” of how to run the state-owned, not-for-profit broadcaster as a privatised, commercial entity.
Asked by Jesse Norman, the chair of the culture, media and sport committee, how this would be achieved, Abraham said that there would be major ramifications for Channel 4’s public service programming commitments.
“One [route to make profits] is you’d just cut costs,” he said. “But there would also be consequences in how you would run the schedule and the commercial decisions you’d make and whether you could run the [public service] remit at the same time. What inevitably we would do with the schedule is to go for more entertainment, more foreign acquisitions, programmes with international appeal. Conversely, a large international company could pump money into Channel 4 and aggressively pursue a commercial schedule that could compete with ITV.”
Abraham, who said that it was “not for us to prove if Channel 4 could be run for profit,” added that the broadcaster would have to cut back significantly in working with the 500 independent production companies with which it currently interacts.
“Inevitably we’d do what ITV and Channel 5 have done over the last 20 years,” he said. “We would pay attention to the cost of the [public service] remit and we would probably have to come back [to regulator Ofcom] over time and ask for the remit to be eased in order to deliver the margin.”
Abraham said any sale would inevitably be to an international investor rather than a public flotation, adding that a management buyout would be difficult. “You are actually talking about flogging channel 4 not floating it,” he said.
He added that although provisions could be made to ensure a privatised Channel 4 retained its news programming, shareholders would inevitably put some pressure on the channel’s coverage, which is subsidised by the rest of its shows.
He said: “I can imagine getting a call in the middle of the night from a shareholder sharing their view about something we were going to air that was going to have a lot of impact. That does happen [in the commercial sector].
“The nature of that coverage would subtly change over time. And the fierce independence of our journalism, I can’t help but think, would alter over time.”
Channel 4 chairman Lord Burns, who is coming to the end of his term in January, said that the government has not asked him to look at privatisation options for Channel 4.
Burns was asked by Norman to justify the level of bonuses paid out to Channel 4 staff including Abraham, which hit 90% of of the maximum allowed for 2014 resulting in the chief executive taking home £855,000 last year – almost double the pay of BBC director general Tony Hall.
Burns said the channel had always competed for talent somewhere between the BBC and commercial broadcasters, and that 2014 had seen the company perform particularly well in terms of its creative output, while laying the groundwork for improvements in financial stability.
“The view of the [renumeration] committee was that from a creative point of view it was difficult to see how 2014 could have been better, and there was some way to go on the financial side.
“[We look at] longer term consequences of what is happening. C4 is not just about year-to-year performance.”
Abraham added: “In 2009 there was a begging bowl. Five years on, we have a portfolio [channel] share which is remarkable ... revenue growth of £100m and £70 to £80m more spent with British producers. The broader context of the journey is not insignificant.”
