Response to the House of Lords Communications Committee inquiry on
Public service broadcasting in the age of video on demand
Executive Summary
1.1 Channel 4 welcomes the opportunity to respond to the House of Lords Communications Committee inquiry into public service broadcasting in the age of video on demand. Over the last few decades, the UK’s public service broadcasting (PSB) ecology has played a vital role in British public life, supporting British democratic values and culture. British TV programmes and films also have an important role to play in showcasing Britain to the wider world, and are important drivers of soft power overseas. However, recent years have seen dramatic shifts in both the structural landscape of broadcasting as well as viewing behaviours, and we therefore believe it is appropriate to explore the role and future of public service broadcasting within this current context.
1.2 The Committee is particularly seeking to understand the impact that video on demand services have had on the public service broadcasters. It is worth stressing from the outset that the PSBs and VOD services are not separate entities – the UK’s public service broadcasters have driven innovation in the VOD space and all oversee VOD services that are highly popular amongst UK viewers. The Committee’s differentiation between ‘on-demand services’ and public service broadcasting is therefore not reflective of the UK market.
1.3 The key ‘on-demand services’ that the Committee is interested in understanding the impact of is the rise of large, vertically integrated SVOD services delivered Over The Top (OTT) and that are typically global in scale – companies such as Netflix, Amazon and Apple. We welcome the contribution of these companies, which have brought significant benefits to both the UK economy through investment in British production, as well as enhancing the consumer experience through innovative functionality. These services have also proved to be welcome partners for Channel 4, as co-production partners and as valuable distribution platforms for our content.
1.4 While SVOD services differ in many respects from content being consumed on social platforms, their impact on the UK’s PSB ecology should not be considered in isolation from social media platforms as these services and platforms are part of the same challenging and complex set of audience and market shifts and need to be understood in the round by policy-makers.
1.5 Nonetheless, the PSBs are also often in direct competition with both the SVOD services and the social media platforms for audiences, revenues and talent. As the Committee notes, these global services are becoming increasingly powerful and increasingly popular – but without the shared public service values that have shaped British broadcasting to date. The current media landscape is therefore a complex ecosystem that the Committee is right to want to scrutinise.
About Channel 4
1.6 With a mission to innovate, be diverse, present alternative views and stimulate debate, Channel 4 is required to take risks and challenge the status quo. As a publicly-owned, but entirely commercially-funded public service broadcaster, Channel 4 sits as a unique hybrid alongside the BBC, ITV and Channel 5. This model ensures that Channel 4 operates free from both commercial and political influence, as a broadcaster that is not shareholder-owned but which also operates at no cost to the public purse. Under this model, Channel 4 puts its profits back into programmes, with the ultimate objective of delivering its statutory remit and specific Ofcom licence obligations. Combined with Channel 4’s status as a publisher-broadcaster, which means all of its commissioned programmes are made by external production companies, Channel 4 is an agile and innovative challenger brand in the creative industries.
1.7 It is also important to note, within the context of this specific inquiry, that Channel 4 itself operates a highly successful video on demand service, All 4. This service is home to a compelling collection of catch-up, archive, exclusive and acquired content, from Hollyoaks to Walter Presents, our curation of foreign language drama. All 4 has also developed partnerships with brands such as Vice and Adult Swim to distribute their content on its service. All 4 is available free at the point of use across all devices and platforms, including mobiles, tablets, set top boxes, connected television sets and streaming sticks. As mentioned above, it is therefore not accurate to differentiate between the world of public service broadcasting and world of video on demand – for Channel 4 and all of the other PSBs they are intrinsically intertwined.
PSB is the cornerstone of UK broadcasting and has played a vital role in shaping society
1.8 Public service broadcasting has been the heart of the UK broadcasting system ever since the first BBC radio services launched in the 1920s, almost a century ago. The PSB model has evolved over time to reflect technological advancements. Over the years, it has been at the forefront of new services on black and white TV, colour TV, information services (e.g. Teletext), digital TV and – more recently – online services.
1.9 PSB has also evolved – and innovated – in terms of the operating models that underpin the organisations providing PSB content. Starting with the publicly-owned licence-fee funded BBC, this was followed by the creation of a regional network of commercially-funded ITV companies (that have since consolidated), then Channel 4, with its unique hybrid model and Channel 5 as a commercially-owned public service broadcaster. In all these cases, it is important to appreciate that the PSB model is about more than the programmes made. It also encompasses the approach taken by the PSB institutions, all of which are driven by their various PSB remits and obligations.
1.10 By evolving with the times, the PSB model has remained a vital part of the UK broadcasting sector. According to Ofcom’s 2018 Media Nations report (2017 data)[1]:
- The main five PSB channels and BBC portfolio channels together spent £2.5 billion on first-run UK network originations, rising to £3.1 billion when the commercial PSBs (including Channel 4’s) portfolio channels are included. This represented 41% of the total spend on network TV programmes of £7.5 billion, or 72% of the total excluding the sports channels.
- More than half (51%) of all broadcast viewing was to the main five PSB channels.
- Including their full TV portfolios, the PSBs accounted for 70% of all TV
- 75% of regular or occasional PSB viewers were satisfied with PSB broadcasting – and viewer satisfaction has risen in recent years despite an increase in competition.
- 84% agreed that the PSBs’ news services are trustworthy (and a separate 2018 report from Reuters Institute found that the top three most trusted news brands in the UK were all from the UK PSBs: BBC News, ITV News and Channel 4 News).
1.11 Ofcom’s current definition of PSB, based on that agreed by Parliament in the 2003 Communications Act, in terms of purposes and characteristics does an effective job of capturing the different elements of PSB across the system:
Purposes | Characteristics |
Informing our understanding of the world | High-quality |
Stimulating knowledge and learning | Original |
Reflecting UK cultural identity | Innovative |
Representing diversity and alternative viewpoints | Challenging |
| Widely available |
| Distinctive |
1.12 As noted above, Channel 4’s own public remit is set out in the Communications Act 2003 and the Digital Economy Act 2003, and covers the public value ambitions of its content, the range of types of media in which it commissions content, and its contributions to the production sector as a publisher-broadcaster.
1.13 As Ofcom’s purposes and characteristics and Channel 4’s public remit indicate, the rationale for PSB is not about addressing narrow market failures, but rather delivering public value across the full range of TV programme genres. News and current affairs are of course vital, but just one part of the overall PSB mix. In other genres, the PSBs have historically shone a light on important social issues facing Britain and provided important cultural landmarks. And the PSBs have been responsible for some of the most important exposes, of both domestic and global importance; recent ground-breaking and fearless investigations include Channel 4 News’ undercover investigation into Cambridge Analytica and its ties to Facebook, and Leaving Neverland, which documented how Michael Jackson groomed and abused two young boys. In other genres, sports such as the Paralympics have shaped UK attitudes towards disability and, in comedy, Derry Girls provides viewers with unexpected insights into the historical conflict in Northern Ireland.
1.14 With such a range of PSB models and organisations providing PSB content (including smaller providers such as Channel 5 and, in Wales, S4C), the British PSB model is arguably the most sophisticated and – as indicated by their programmes’ global commercial success and critical acclaim - successful in the world.
2.1 While it is clear that the SVOD services have led to substantial change within the TV model, Channel 4 believes strongly that they cannot match the value generated by the UK public service broadcasters and that, at a time when the UK is considering its role in the world going forward, public service broadcasting is more important now than ever before.
2.2 Indeed, the UK is facing a number of broad social and political issues that speak directly to the specific remits of the public service broadcasters. Information from social media networks have driven the creation of filter bubbles, where national discourse is divided and segregated into mutually reinforcing ‘echo chambers’. Political discourse is polarised and uncertain, and there are high levels of mistrust from the public on those they perceive as the elite. People are increasingly concerned about the power of technology over their lives – whether that is concerning the safety of their personal data, the integrity of their democratic elections or the impact of artificial intelligence. Young people in particular are increasingly facing mental health issues in part attributed to the rise of social media. All of these issues mean that there is a need more than ever for national broadcasters with specific remits to provide trusted, accurate information, to hold power to account, to reflect Britain as it truly is and to give space to diverging voices and crucially allow them to hear each other.
2.3 In the current social and political context, many have argued that the need for reliable and trusted news is more important now than it has been for many decades, and this makes the PSBs more important than ever as trusted sources of news. Viewers recognise the value of the PSBs’ news services: Channel 4’s long-running audience survey of viewer perceptions of the independence of TV news (reported each year in its Annual Report) shows that, in 2018, the main news programmes on the BBC, ITV, Channel 4, Channel 5 and Sky all registered substantial increases in their scores for being independent from the government and from the influence of big businesses. Channel 4 News was the most highly regarded TV news provider across the two metrics, with its highest ever scores: 91% of its regular viewers regarded it as being independent from the government, and 88% of regular viewers agreed that it is independent from the influence of big businesses. Reuters Institute found that the top three most trusted news brands in the UK were from the PSBs. Ofcom’s 2018 News Consumption report[2] shows that across four measures – high quality, accurate, trustworthy and impartial – TV scores ahead of radio, newspapers, other internet and social media.
2.4 The universal reach of the PSBs is another essential component of their ability to deliver public value. The PSBs together have a reach of over 90% at the start of 2019. This reach factor is very important: being able to reach the whole population, in the way that the PSBs do, is intrinsic to the positive externalities that result from connecting people and providing communal experiences. An event that is behind a subscription paywall leads to an audience that is necessarily limited, and therefore by definition is not bringing the nation together in the same way as something available to everyone. (As evidence, see the drop-off in interest to sports that move from free-TV to pay-TV services; not only does individual viewing fall, but also those sports often become a more diminished part of the national conversation than when they were universally available.)
2.5 This universality is also key to the PSBs’ vital and unique role as a public space. Beyond the value of individual programmes, the PSBs are important institutions that play a vital role in the 21st century as a modern version of the public square. Over the centuries, there has always been an important place in society for the public square: a space when issues can be debated and different viewpoints expressed by informed participants in a respectful environment. At different times in the past, the main home of these public spheres have included coffee houses, newspapers and magazines and, most recently, television.
2.6 When the internet age dawned, many people expected that this would become the new public square, with more people able to share their views more widely than ever before. The reality, however, has turned out very different: while the internet, and in particular the social media platforms such as Facebook, YouTube and Twitter, have brought many positive benefits to modern life, their tendency towards the enabling of polarisation and online harassment suggests that the internet has not proved to be the most effective forum for rational and open public debate. As well as creating platforms that privilege angry or extreme views, the internet has also splintered into millions of self-selecting ‘filter bubbles’: people tend to retreat into groups defined by their friends, tastes and personal views or prejudices, within which other perspectives are excluded, and which at their worst encourage people to create their own facts and reinforce (rather than challenge) their beliefs.
2.7 Crucially, these debates on the social media platforms are effectively typically taking place in ‘secret’ - as each person’s individual feed is targeted and personalised according to the algorithms of platforms, and therefore only targeted people will see certain information. These personalised feeds cannot be viewed or accessed by others. (This has been an issue in terms of regulating political advertising for example, as regulators have not been able to get an overview of what adverts have been served to whom, with the Electoral Commission stating that “only the voter, the campaigner and the platform know who has been targeted with which messages”.) Despite the stated ambitions of social platforms to connect people, they are not shared forums, common to all, which means they are in effect creating the opposite of public discourse – a series of personalised individual feeds and views that do not intersect. This is in contrast to broadcasting – where all of our programmes can be seen by the whole of the public and therefore can shape and contribute to public debate.
2.8 So while there is a need – now more than ever – for us as a society to process what is happening and to attempt to work through the challenges of the day, the internet has not proved to be an effective space for this, and it is television, and in particular the UK television ecology overseen by policy-makers, that continues to be the medium best-placed to stage debates and reach mass audiences with informed perspectives presented within a trusted and non-partisan environment. While the SVODs, as audio-visual content providers, are also capable of delivering to this role, they do not invest in news or domestic current affairs, and their global model means they are unlikely to be so attuned to and focussed on the national debates of a particular country. It is therefore the PSBs that are uniquely placed to act as the modern public squares. They reach the entire population; they are highly trusted; and their PSB missions and values means that they are the natural place for public conversations on the issues of the day. They exist to mirror the nation and chronicle the state of the nation, and to offer a pluralism of views on key topics.
2.9 Public service broadcasters have always played a role in responding to wider national debates and public policy trends – from the BBC’s Cathy Comes Home which caused a national debate on homelessness through to Channel 4’s ground-breaking portrayal of gay characters in shows such as Brookside or Queer As Folk at a time when homosexuality was not widely accepted in society. More recently, the BBC’s Blue Planet led to widespread campaigns to address the issues of plastic pollution in our natural environment and programmes, and the repercussions from Channel 4 News’s investigation into Cambridge Analytica continue to play out – ranging from criminal investigations through to public inquiries being opened around the world into Facebook’s activities.
2.10 Programmes such as these show that the PSBs are the places for public conversations on the important political and social issues of the day. Indeed, Channel 4 has sought to host these kinds of discussions ever more prominently over the last 12 months, hosting live public debates on key issues ranging from Brexit (The Real Brexit Debate) through to gender identity (Genderquake: The Debate). Other broadcasters and SVOD providers can engage to some degree in these conversations, but they do not have the PSBs’ reach nor does the totality of their commissioned output offer a coherent picture. As well as their PSB remits and obligations, the PSBs operate within a highly-regulated environment that has established them as trusted brands that provide curated spaces that meet clear audience expectations both around the range and quality of programming offered, and in terms of programme standards and protection from harm (viewers know they and their families will not be exposed to unexpected or harmful content, fake news, etc). They provide a safe space that allows programme-makers to push boundaries and address challenging or controversial issues without the trolling, hate and polarisation that accompanies such issues when they are debated online. Commercial brands likewise know that their adverts will not be placed alongside inappropriate content on the commercial PSBs’ services.
2.11 Given the current political environment, the PSBs are as important now as they have ever been in terms of informing our understanding of the world and providing a public space for national debates. It is not surprising that research conducted by YouGov in 2018[3] showed that half of 16-34s state they would head to traditional TV when they want video content that can widen their world view, and that TV is also the most cited medium for young audiences to go to when they are looking for content that makes them think about subjects differently. Separate research found that the PSBs are selected three times more by 18-34s than Netflix, Facebook or YouTube for providing trustworthy, accurate information about subjects, and that 42% of 18-34s state they would go to a PSB news source first to get their news, versus 13% that would go to a newspaper. For these reasons, the PSBs remain highly relevant, and will continue to do so in the future.
Channel 4 has a unique role to play in the PSB landscape
2.12 Within this vital PSB ecology, Channel 4 has a unique and distinctive role to play. Channel 4 has a detailed statutory public service remit comprised of 15 components, including requirements: to produce high quality news and current affairs; to support and stimulate well-informed debate on a wide range of issues; to support emerging talent; and to challenge established views and promote alternative views and new perspectives. Channel 4 delivers to this remit across a wide range of formats and genres, from the ground-breaking investigations of Channel 4 News, the only hour-long news programme on any of the public service channels shown in peak time, through to the social issues examined in dramas such as Hollyoaks and Brexit: The Uncivil War; from the reflection of modern Britain in shows such as Gogglebox and Great British Bake Off to the regional representation in Derry Girls and Ackley Bridge, Film4’s vital investment in British independent feature film such as the Oscar-winning Three Billboards Outside Ebbing, Missouri and The Favourite through to our pioneering sports coverage of the Paralympics.
2.13 With a specific remit to reflect cultural diversity, Channel 4 plays a vital role in driving inclusion across the industry and in reflecting the full diversity of Britain today on-screen. Many of the most iconic Channel 4 moments have diversity at their heart – from the first black sitcom Desmond’s to Brookside’s pre-watershed lesbian kiss in the 1990s and our gold-standard Paralympic sport coverage over the last decade. We are committed to creating more space for diverse and under-represented voices on screen – with recent highlights including Peng Life, which brought YouTuber Elijah Quashie to a mainstream audience, as well as the Bafta-nominated The Big Narstie Show. Off-screen, we continue to work with diverse talent and companies – supporting more than 40 diverse directors through our Spotlight on Directors initiative and funding a series of targeted Progression Bursaries to support diverse mid-career talent across our content, including people from BAME and working-class backgrounds as well as people with disabilities.
2.14 Channel 4 is also a major investor in feature film through its Film4 production arm. Dedicated to supporting the best of British independent film, Film4 is responsible for developing the careers of some of the UK’s most distinctive film-makers, from Danny Boyle to Steve McQueen. We have a strong commitment to supporting diverse and emerging film-making talent – backing several directorial debuts from female and BAME directors and with recent high-profile projects from female directors including Cannes prize winners You Were Never Really Here from Lynne Ramsay and American Honey from Andrea Arnold, and Rungano Nyoni’s BAFTA-winning I Am Not A Witch. Film4’s role as a key player in the international film market has a further benefit in terms of promoting the UK’s soft power – giving a platform on the world stage to film-makers such as Martin McDonagh and actors such as Olivia Colman.
2.15 Channel 4 also has a particularly strong relationship with young people compared to the other PSBs. More than two-thirds of all young people in the UK are registered with Channel 4, and we are the only PSB to attract significantly greater viewing amongst 16-34-year-olds than across the general population. This relationship is particularly important in the factual space – Ofcom’s news report found that while TV is the main platform for news across the overall population, it is overtaken by social media for 16-24-year-olds. It is a concern, then, that social media is the worst-performing form of media in terms of perceptions of trust. As a result, young people are the most vulnerable part of the population in terms of their consumption habits and reliance on social media for news. The gap in young people’s exposure to trustworthy news and factual content is therefore a substantial and growing public policy issue, which Channel 4 is well placed to respond to. Indeed, 36 of the top 50 most 16-34 skewing shows in 2018 across the PSB channels were on Channel 4 and seven of the UK’s top ten factual entertainment programmes amongst 16-34s were shown on Channel 4. In terms of news, 16-34-year-olds make up a higher proportion of the audience of Channel 4 News than the corresponding profile of the national news programmes on the other main PSB channels, and Channel 4 News is one of the UK’s biggest video news brands on social media.
2.16 In 2018, Channel 4 announced that it will be seeking to increase its regional impact through its 4 All the UK plan – the biggest organisational change in Channel 4’s 36-year history. Channel 4 has always had a strong focus on supporting companies right across the UK, investing more than £1.5 billion on content outside London over the past 10 years. However, as with other industries, the TV sector as a whole has become overly concentrated in London. We therefore set out an ambitious plan to significantly expand our footprint outside of London. This includes a commitment to spend more than 50% of our main channel spend with producers in the Nations and Regions by 2023, resulting in a cumulative boost of up to £250 million in Channel 4’s Nations and Regions commissioning spend and supporting up to 3,000 additional jobs in the Nations and Regions economy. We will also open three new offices outside London by Autumn 2019 – a new National HQ in Leeds and two new Creative Hubs in Bristol and Glasgow. Once the new offices are open, over 50% of Channel 4’s existing Nations and Regions suppliers will be within a one-hour train journey of one of our offices. This will bring Channel 4 Commissioners much closer to potential suppliers across the country. Channel 4 News will also expand its footprint in the Nations and Regions opening new bureaux, giving a huge boost to regional representation, aiming to become the first peak-time national news programme to regularly co-anchor from outside of London.
2.17 Finally, in Channel 4’s case it is critical to stress that our business model acts an incentive for us to deliver our public service remit – indeed our model means that all profits generated from our successful programmes are reinvested back into the delivery of our public service remit. Delivering public purpose is at the heart of who we are – rather than a ‘cost of doing business’.
3.1 While the SVOD players undoubtedly make a valuable contribution to some of the PSB purposes and characteristics, if we examine the range of content that they produce, and consider the extent to which it meets the PSB purposes and characteristics listed above, it becomes evident that the SVODs fall short in comparison with the PSBs. Moreover, we believe that even as their UK commissions grow in the future, they will never deliver many elements that make the PSB system so valuable – nor do their globalised business model, strategies and purposes incentivise them to do so with purpose and conviction.
PSB Purpose 1: Informing our understanding of the world
3.2 The Committee is well aware of the concerns around fake news and the risks to democratic processes such as elections from digital and social media, including – to name just three – the difficulties of identifying trustworthy sources of news, the tendency for services such as YouTube and Facebook to push consumers (through recommendations, etc.) towards more extreme points of view and thereby exacerbate political polarisation, and the inability of social media services to prevent malicious operators from influencing elections or spreading outright lies. As noted above, we believe that the PSBs have a clear role to play here in addressing some of these issues – in contrast to the global SVOD services which do not offer news programmes, nor do they cover domestic current affairs. As such, their contribution in this area is very limited. This is supported by research commissioned by Channel 4 which shows that 60% of 18-34 year olds in the UK think the PSBs are at good at keeping them up to date with what’s going on – compared with just 9% who think Netflix is good for this.
3.3 The contrast in approach is exemplified by the response of the PSBs and the SVOD services to Brexit. As well as keeping viewers informed in their daily news programmes, they have offered viewers greater analysis and broader views in programmes spanning genres such as current affairs, documentaries and dramas – from Channel 4’s acclaimed drama Brexit: The Uncivil War to the BBC’s documentary The Brexit Storm. The global SVODs, by comparison, could never be expected to take the decision to commission a swathe of programming looking at Brexit across multiple genres, given the low likely demand for such content outside the UK or in secondary windows in the UK over time.
PSB Purpose 2: Stimulating knowledge and learning
3.4 If we look more generally at the factual space, Netflix and other SVOD services do offer a range of documentaries (both as original commissions and through their acquisition strategies), and it should be acknowledged, and welcomed, that they have helped to drive the popularity of feature-length documentaries in particular. But in terms of UK-focused contemporary social and political affairs, the SVODs’ contributions to these debates have been limited: the topics they have explored have tended to be global issues, such as climate change, food supply or the drugs industry, stories that aren’t political in nature (such as true crime, sports or history) or focussed on US issues (such as Flint Town, about the state of policing in America and The 13th about racial inequality). It could also be argued that these are relatively ‘safe’ topics where the harms are generally well-established. Overall, they have been cautious when it comes to investigative documentaries: there is little evidence that they are willing to hold the most powerful people, governments or institutions to account in the way that the PSBs do, and their incentives mean that they focus on topics with global appeal or which have enduring value in their archives, as opposed to topical but transient political issues for which UK audiences would often welcome informed analysis.
PSB Purpose 3: Reflecting UK cultural identity
3.5 While the global SVODs only recently began commissioning content from the UK, it should be recognised that they are committed to commissioning more content from around the world, including the UK, and that at their most ambitious – e.g. Netflix’s The Crown – they have committed to content that strongly reflects UK cultural identity. However, even if the volume of UK-made commissions increases in the years ahead, it seems highly unlikely that by themselves they will choose to make a wide range of programming from all parts of the UK. This simply is not a consideration for the SVODs in their investment strategies: investment decisions are primarily made in the US, and even when they establish commissioning bases more locally, these typically take the form of pan-European hubs. This is in stark contrast to the regional footprint of the UK’s PSBs, and in particular to the strong and growing commitments made in recent years by the BBC and Channel 4.
3.6 Our 4 All the UK plan is aimed at ensuring that the UK media better reflects the country as a whole, both on and off screen, something we believe is critical if we are to meet the challenges faced by both our industry and the UK more broadly – and which is at the heart of the public purposes. However, this strategy is one that we believe the global SVOD services would be unlikely to pursue – not least given the significant operational costs of the plan. This demonstrates the difference between the strategies and incentives of the PSBs, who are seeking to prioritise their regional contributions in order to reflect the whole of the UK, and the SVOD services who are attracted to London as a global media hub and who are focused on reaching a global audience.
3.7 Ofcom data shows that audiences still highly value local content – with a 2018 report finding that “UK audiences want programmes that reflect life in the UK, and tell UK stories”. Research conducted by Channel 4 found that 59% of 18-34s think the PSBs are good at providing content about issues that are important to the country they live in vs just 13% that think Netflix is good at this. This is likely to be because of the SVODs’ incentives and strategic priorities when they commission content. Notwithstanding their increasing investment in content from outside the US, their global model means that SVODs will always pay great attention to the value of their content around the world, as (broadly speaking) a dollar earned from a subscriber is worth the same whether the subscriber is in the US, UK or any other country. Content that super-serves consumers in the country where it is made but attracts little interest elsewhere will generally not be as valuable to a global SVOD operator as content that can attract bigger audiences around the world – this is the whole point of being a global network. And it results in commissioning strategies very different from those of UK broadcasters whose primary – if not sole, as with Channel 4 – focus is their domestic audience, and which therefore routinely invest in content that provides significant value in the UK regardless of its appeal elsewhere.
PSB Purpose 4: Representing diversity and alternative viewpoints
3.8 The SVODs deserve much credit here: in many respects, their programming has been inclusive in terms of their representation of gender, ethnicity, sexual orientation and gender identity, and they have played their part in contributing to standards on diversity that all broadcasters are working towards. Also, their status as globally-oriented broadcasters gives them a unique advantage in being able to provide diverse perspectives from around the world: Netflix subscribers have access to original commissions from many countries and in many languages. This is all to be welcomed, and complements popular initiatives in recent years from the BBC (which brought Scandi-noir to UK screens on BBC Four) and Channel 4 (with its Walter Presents service offering international dramas from around the world, some of which are also shown on the main channel or More4).
3.9 That said, there remains a vital role for broadcasters to reflect the specific diverse nature of the UK population and of different parts of the UK. As a recent example, Channel 4’s documentary Great British School Swap set out to explore racial segregation in Britain, by switching the places of 12 Year Eight and Year Nine pupils from a predominantly Asian secondary school in Birmingham with those in a school in Tamworth where 95% of the students are from a white British background. The series has been highly acclaimed for revealing the levels of racism between different communities in the UK. This kind of approach is most effectively done with programming made in the UK, with authentic UK settings and authentic UK lived experiences – this will only ever be a small part of the SVOD players’ outputs.
3.10 Moreover, while the SVODs may seek to make sure that each of their commissions is individually diverse, there is no evidence that they would ever commit to a coherent systematic project to address particular aspects of diversity across broad swathes of programming in the way that Channel 4 has done with disability: first by transforming TV coverage of the Paralympic Games, bringing disability sport to mass audiences, and then taking disability issues to other parts of the schedule, e.g. with The Last Leg, as a result changing society’s views on disability. This commitment included training schemes and other initiatives to promote disabled talent in front of and behind the camera. It is our view that only a PSB with a specific remit to promote diversity would ever do this.
4.1 Despite our belief that the core rationale for public service broadcasting remains as strong as ever, it is clear that the global SVOD services have had a considerable impact upon the UK broadcasting market. Netflix and other challenger brands have upended the TV model, which has historically been organised around the concept of linear scheduled TV channels.
4.2 Netflix’s development over the last few years has been rapid. After starting life as a DVD-rental business (sending discs to subscribers in the post), it rapidly pivoted, first to become a US-based streaming service primarily offering acquired content (so akin to a video rental store), then moving into original content, and then expanding overseas to become a truly global operator commissioning content from all over the world. Its content budget has grown rapidly to an estimated US$12 billion in 2018, well ahead of established competitors in its home market (HBO spent $2.5 billion on content in 2017, and CBS spent $4 billion), and more than the total spend on first-run network originations in the UK.[4]
4.3 Netflix and other new SVOD services operate a global release model (similar to that of blockbuster Hollywood films), releasing content simultaneously in all markets. Their growth (and ability to attract capital) means they can invest high levels (per hour) across a wide range of genres, producing high quality content with production values closer to those for feature films. This global broadcasting model is well-suited to the internet age: content can be marketed globally, bolstered by reviews and word-of-mouth online on social and digital platforms.
4.4 For Netflix in particular, its apps (for mobile devices, browsers and TV platforms) are best-in-class in terms of their user experience: it has innovated in terms of promoting content and encouraging binge-watching. And it has also ensured that its services are widely accessible, e.g. by being prominent on most TV streaming devices, or through Netflix using its financial muscle globally to negotiate the inclusion of Netflix buttons on many smart TV sets. All of this has made these SVOD services very popular amongst young demographics. As they grow, their business models take advantage of economies of scale and the benefits of digital distribution, creating a virtuous circle that drives further growth.
4.5 These trends have led to a subsequent and substantial impact both in terms of UK production and on viewing habits. There has been an overall decline in the last decade in viewing to broadcast TV and in viewing to the public service broadcasters specifically, particularly amongst young audiences, and this is becoming more acute. And although PSB broadcasters continue to reach vastly more people in an average month, services such as YouTube, Netflix and Amazon Prime are growing their monthly reach very quickly – research commissioned by Channel 4 found that claimed usage of Netflix grew by 32% year on year between 2017 and 2018[5]. Thinkbox data found that amongst 16-34s SVOD viewing made up 15.7% of their viewing data, up from 12.2% in 2017.
4.6 In addition to this correlation with changing viewing habits, we also know that the SVOD services are shaping expectations about viewing experiences – with consumers increasingly expecting video on demand services to provide features including long rights windows, simultaneous release of programmes, high-end technology and advertising free consumption. Netflix and Amazon can deliver these features due to their substantial resources and ability to operate at a global scale, which enables them to make significant investments in technology and develop aggressive rights strategies. The VOD services developed by the broadcasters need to compete effectively with the SVODs – but lack these same resources (and in Channel 4’s case, global rights).
4.7 As the Lords Committee notes, the high production budgets of the SVODs has also had an impact on the production tariffs of UK productions, particularly in the areas of scripted drama and comedy. This is a response to viewers having higher expectations of the value of what they see on-screen (essentially an inflation in on-screen value), which means that broadcasters are having to spend more to meet these expectations. The average budget per hour for Channel 4’s commissioned drama was £1.5m in 2017 compared to £725k in 2013 (real terms). This is an increase of over 100%. This is particularly driven by an increase in costs of production crew, as a result of increased demand and high tariffs from other content producers.
4.8 Channel 4 has responded to these increased costs to date by co-producing with international investors on our drama titles, and has seen some significant success with this approach. However, we do not believe it is appropriate for Channel 4 to develop co-productions for all its titles, given the likelihood for co-producers to want stories that are likely to have a more global appeal, and we believe it is important that UK-specific stories do not get diluted. We also know that longer-term concerns have been raised by high-profile talent such as Peter Kosminsky about whether we and the other public service broadcasters are becoming increasingly priced out of the market, particularly in genres like drama. Ofcom published a report in March 2018 which stated that “the big global online players have substantial programme budgets...this is in turn driving up costs, especially for premium drama. The cost per episode of high end drama is now as much as $10m (£7.8m).” This compares to the average cost per hour of PSB originated first-run drama as around £750k according to Ofcom data – demonstrating the large disparity between the content budgets of the PSBs versus the international players.
4.9 The increased investment from the SVOD services has also had a tangible impact on the capacity of the UK production sector, particularly in terms of the demand for skilled production crew and studio space. For example, our experience in both film and television is that high levels of inward investment from global studios and services like Netflix have meant that studio space is often block booked for months at a time – making it harder for smaller productions and independent films to secure studio space. While high levels of inward investment to the UK is clearly welcome in terms of its economic impact, it does also create capacity and demand issues which we believe the SVOD services should play their part in addressing (as noted further below).
4.10 Finally, another longer-term consequence of the SVOD services is on brand attribution – and the risk of the PSB brands being diluted as more of our programme brands are consumed on aggregator brands such as Netflix and Amazon. As the Committee notes in its Call for Evidence, “it is not always clear when content on video on demand services are produced by a public service broadcaster”. For example, Channel 4 developed and creatively led the series The End of the F***ing World which was co-produced with Netflix, using writing talent that had been developed on other Channel 4 shows. However it was commonly perceived by both press and audiences as being a Netflix ‘Original’ show.
4.11 The importance of retaining brand attribution is a key strategic focus for Channel 4 going forward, and we are investing significantly in marketing to ensure that our programmes and our brand cut through with audiences. Where we negotiate co-productions directly with the SVOD platforms, we are ensuring that our brand stings are ‘burnt in’ to the beginning of shows once they appear on these services and the programming tiles that viewers scroll through attribute the shows to us. Where, however, the SVOD services acquire Channel 4 shows from producers and distributors in the UK second window, we are reliant on distributors supplying the shows with this branding and this is haphazard at best, given we are one step removed.
4.12 Outside the UK, where services such as Netflix and Amazon Prime negotiate international rights for Channel 4 commissioned shows, they then brand these as eg ‘Originals’, despite merely being an acquisition rather than an original commission. Channel 4 titles that we have funded and developed such as Derry Girls and Catastrophe are all described as Netflix or Amazon Originals on the US version of those platforms for example. In contrast, the public service broadcasters have clear and formal reporting requirements set by Ofcom of what constitutes original and acquired content – it would not be possible under this regulatory regime to classify acquired shows such as Homeland, The Handmaid’s Tale or The Good Place as ‘Channel 4 Originals’ just because we have the UK rights to show them.
Wider impact of technology platforms beyond the SVODs
4.14 Looking specifically at the £1.6 billion UK online video advertising market, video advertising on Facebook and YouTube is already six times the size of broadcaster VOD advertising revenues. Advertising on these platforms is not subject to any regulation whereas Channel 4 has voluntarily held itself to the same regulatory standards in All4 VoD advertising as for TV advertising as we believe these regulations are important to protect consumers.
4.15 We are also concerned at the increasingly powerful role played by many of these companies as the gatekeepers to audiences. Vertically integrated global technology platforms are becoming gatekeepers to content – with services such as Amazon Fire and Apple TV delivering hardware, software and programming content within one company. Going forward, Google’s Android TV – successful in other markets – is actively seeking to capture a significant UK market position and Amazon is looking to launch Amazon Fire televisions imminently. For these organisations, television – whether devices or content – is just part of their wider voice-enabled ‘connected home’ strategy and they often use television services as loss-leaders in order to secure the central position in the connected home ecology, or to support services such as Amazon Prime delivery. They are therefore willing and able to charge loss-leading prices in order to capture market share and so we see considerable risks that in the future, the majority of televisions or devices through which audiences consume content will be provided by vertically integrated global giants.
4.16 The risk for UK PSBs is that, as controllers of the devices on which audiences are choosing and consuming content, the global giants use their position as gatekeepers to prioritise their own content above that of the public service broadcasters. Conversely, they could also seek to sell prominence – in the way that Amazon sells sponsored listings on their retail service, or Google sells prioritisation in their search results. UK PSBs would be beholden to ‘black box’ algorithms to surface their content to audiences, in the way that the algorithms of the social networks such as Facebook also act as gatekeepers for media brands to reach their audiences – as evidenced by the dramatic falls in traffic to news sites as a result of Facebook changing their algorithm in 2018 to prioritise friends and family posts over news content. PSBs may be faced with the necessity of having to divert funds from creating content to paying for the prominence of that content to reach audiences on their TV sets.
5.1 Despite the significant changes as outlined above, it is worth emphasising that until now, viewing to TV has remained remarkably resilient. Ofcom’s latest data shows that broadcaster TV continues to dominate people’s total TV and audio-visual daily viewing, making up 71% of their total viewing. The remaining 29% was non-broadcast content such as YouTube and subscription on-demand services such as Netflix and Amazon Prime. This is reinforced by more recent Thinkbox data, published in April 2019, which found that broadcaster TV continues to account for 69% of our video day. Far from being a diversion away from broadcast viewing, for most viewers SVOD services are used to complement existing TV and broadcaster video on demand (BVOD) services. Thinkbox research from April 2019 suggests that only the heaviest 20% of Netflix viewers watch more Netflix than they do broadcast TV.
5.2 Within this, the public service broadcasters together reach on average more than 90% of the UK population in an average month – vastly more than YouTube, Netflix and Amazon Prime. Indeed, a single episode of The Great British Bake Off delivers more young commercial impacts than YouTube can, in the UK, in an entire day.
5.3 Despite the fact that we are seeing the biggest shifts in viewing from young audiences, and that as a result of Channel 4’s strong relationship with young people we feel the effects of their viewing changes earlier and more acutely than others, Channel 4 remains a particularly important brand for this audience. Channel 4 is the only public service broadcaster to attract significantly greater viewing amongst 16-34 year olds than across the general population, and we have a significantly greater viewing share amongst 16-34 year olds than the other PSBs.
5.4 The public service broadcasters have been able to maintain this strong position with audiences because of a continued commitment to investing in high quality content that resonates with the public as well as a strong track record of innovation. Indeed, far from being content to rest on the laurels of the linear channels, the PSBs have continuously set out to innovate in terms of distribution over the last decade – from joint investments in Freeview, a free-to-air digital television platform that played a vital role in securing the future of free-to-air broadcasting, through to each investing in their own VOD services – BBC iPlayer, ITV Hub, Demand5 and All 4.
5.5 Channel 4 was the first broadcaster in the world to launch a VOD service – 4oD in 2006 – which 13 years later has evolved into All 4. As well as being the first to launch an on-demand service, Channel 4 was also the first to register viewers online, enabling us to tailor programme recommendations and deliver targeted advertising to viewers. All 4 now has nearly 20 million registered users including more than two-thirds of all 16-34s in the UK - demonstrating Channel 4’s ability to reach audiences across different platforms and compete with other online services. All 4 continues to grow and digital is now a £100 million a year business with 24% growth in our digital revenues in 2017 and further record growth in 2018 (results will be published in June as part of our 2018 Annual Report).
5.6 We have also innovated on social platforms – ensuring that we are reaching consumers where they are rather than expecting them to come to Channel 4. Channel 4 was ranked the 36th biggest social brand in the world at the end of 2018 – above brands such as Netflix, Amazon, ITV and Sky. Our social strategy has proved particularly impactful in the news space – with Channel 4 News becoming one of the UK’s biggest video news brands on social media in 2018. More than 1.5 billion minutes of Channel 4 News, Dispatches and Unreported World were viewed on YouTube and social media. Channel 4 News has also announced a partnership with Facebook to produce a news show, Uncovered, exclusively for Facebook Watch. The 10-minute show will focus on a single international issue each week, going beyond the headlines to tackle stories that often go unreported.
5.7 Channel 4 has also adapted the investment strategy of Film4 in recent years into a more commercially sustainable model that can drive revenues back into Channel 4. This strategy invests £25 million per annum in a slate of around 12 high-quality and distinctive films, broadly split between remit-focused films (such as those from first-time film-makers) and bigger equity stakes in films we believe have broader commercial potential. This approach has led to Film4 taking larger stakes in recent Oscar-winning successes such as Three Billboards and The Favourite, which have delivered both critical acclaim and commercial box office, leading to increased revenues for Channel 4.
5.8 Our focus on innovation and diversification has ensured that Channel 4 is commercially robust and sustainable and well-placed for future. The latest results from Channel 4’s forthcoming Annual Report show continued financial sustainability for the organisation, particularly driven by digital growth. This continues to reaffirm the conclusions of the Lords Communications Committee in their 2016 inquiry into the sustainability of Channel 4, which concluded that “the evidence shows that, as far as it is possible to predict the future, C4C is sustainable for at least the remaining eight years of its licence term.”
5.9 Building on this position, since the arrival of the new Chief Executive in Alex Mahon in 2017 and Director of Programmes Ian Katz in 2018, Channel 4’s strategic focus has been to ensure that we are sufficiently adapting as a business to respond to the changing viewer expectations and market developments outlined above. Our challenge is to invest in driving digital growth whilst also preserving linear advertising revenues.
5.10 Crucially, we believe that in order to fully stand out in a crowded market place, we must sharpen the distinctiveness of Channel 4’s brand – by playing to our strengths and ‘dialling up the difference’ in terms of our creative output. This means supercharging our efforts with young people, including increasing E4’s budget by £10 million and investing more in comedy and new talent, accelerating our digital capability by boosting our spend on All 4, setting up a new dedicated Digital Creative Unit in our new National HQ to create purely social content, and no longer commissioning solely for TV but for all platforms. We are also seeking to build a culture of inclusion and diversity – ensuring that we stand out as a proudly British brand that reflects Britain in all of its diversity.
5.11 We are also ramping up our commercial and creative partnerships – evolving our thinking so that we don’t think of other platforms, brands and organisations as solely competitors; but as partners to maximise our brand among wider audiences. We are therefore working with brands such as Vice and Adult Swim to bring 100s of hours of original content to All 4, as well as with more traditional competitors such as Sky – with whom last year we agreed an innovative partnership to keep Formula 1 free to air on Channel 4 as well as bringing some of the biggest dramas to both platforms as box sets.
5.12 We are also seeking to collaborate with the other public service broadcasters. We welcome the helpful statements from both Ofcom and the Government that the PSBs should work together in order to help build propositions of scale. Channel 4 believes that PSB VOD collaboration could deliver an improved viewing experience to consumers while enabling PSBs to compete effectively against US digital giants. We are having positive and constructive discussions with ITV and the BBC about how Channel 4 could partner with them to build the scale of Brit Box.
6.1 Public service broadcasting is the result of public policy intervention – and policy-makers have therefore had a long and vital role in supporting and championing public service broadcasting. The UK’s highly successful PSB ecology is the result of a number of carefully considered market interventions by policy makers, chief amongst which is the PSB compact – an agreement between PSBs, Parliament and Ofcom, as the designated regulator, through which PSBs are provided with benefits such as EPG prominence and access to spectrum, in return for the delivery of their public service obligations (in Channel 4’s case in the form of its statutory remit and specific requirements such as the provision of high-quality news and current affairs).
6.2 Channel 4 believes that as the media market changes, policy-makers should seek to actively reaffirm the importance of the principles that have underpinned the development of a world-class PSB ecology and which we have emphasised in this response: such as universality; plurality; discoverability and prominence; free access; transparent governance; and high content standards. Policy-makers must also consider the PSB ecology in the round, recognising that damage to any aspect of it can have unintended consequences on the overall value the PSBs bring to the UK public and UK plc.
6.3 It is also important for policy-makers to keep under review, whether the balance between the obligations and the benefits within the PSB compact is still the right one. As the value of Digital Terrestrial Television (DTT) spectrum declines, and the Electronic Programme Guide (EPG) becomes just one gateway for accessing content amongst others, it is important to ensure that the components of the PSB compact remain balanced overall, so that the PSBs have the right incentives to invest in content.
6.4 The regulations contained within the PSB compact must also be considered within the context of the regulatory environment faced by our competitors, including both the global SVOD services and wider tech platforms such as Facebook and Google. As Tony Hall has noted, “in so many ways – prominence, competition rules, advertising, taxation, content regulation, terms of trade, production quotas – one set of rules applies to UK companies, and barely any apply to the new giants”.
6.5 In many areas Channel 4 believes it is right and appropriate for the PSBs to have stronger levels of regulation and content standards than other platforms, given their special role and remit. We are therefore not seeking either a ‘levelling up’ or ‘levelling down’ in all cases. However, it is important that this is reviewed to ensure that that we are not at a competitive disadvantage, that there is a clear rational for any imbalance and that these obligations and scrutiny are appropriately offset with benefits.
6.6 The following sections highlight a number of the more pressing policy and regulatory considerations.
Prominence
6.7 One of the biggest challenges for Channel 4 and for public service broadcasting in the years ahead will be ensuring viewers can continue to find our content. As argued above, public service broadcasting is vital to our culture, our democracy and the continued global success of our creative industries. But it is a system that needs to be supported and nurtured to ensure it can continue to compete with the dominance of global players. Prominence is the cornerstone of the public service broadcasting compact – ensuring audiences can easily find the public service content Parliament has asked us to produce and commercial public service broadcasters like Channel 4 can continue to fund that content by attracting large enough audiences is essential. It is important that policymakers consider the discoverability of the content PSBs are being asked to produce, particularly as viewing habits change.
6.8 PSB prominence is one of the key interventions which supports PSBs’ ability to sustain investment in content and the delivery of their public service missions. Prominence serves a dual purpose: first, by ensuring viewers can easily find the content Parliament has asked PSBs to provide, it both increases the impact and effectiveness of socially important content; second it maximises the commercial viability for commercially funded PSBs – thereby incentivising continued investment.
6.9 The current prominence regime was introduced as part of the Communications Act 2003 and calls for PSBs to be given “such degree of prominence as Ofcom consider appropriate” and gives Ofcom a duty “to draw up, and from time to time to review and revise, a code giving guidance as to the practices to be followed in the provision of electronic programme guides.”2
6.10 Channel 4 believes that the existing prominence rules have failed to keep pace with technological and market developments and are constantly being undermined by online and pay platforms. The rules are strictly limited to the linear EPG and take no account of how viewers are increasingly accessing content in different ways. For example, while All 4 contains all of the content aired on Channel 4, it receives no guarantee of prominence. The linear EPG itself is increasingly difficult to find with smart TV manufacturers and pay TV platforms in particular pushing users towards unregulated areas of their platforms where they disaggregate content and can promote their own content or the content of organisations that pay for the privilege. Platforms now push users towards their own algorithmically generated recommendations and top picks and developing proprietary technologies to determine audience viewing choices via voice control. These changes have fundamentally changed how content is discovered and current prominence rules don’t apply to any of these new ways of finding content – therefore the current prominence rules are no longer fit for purpose, and risk public service broadcasting being undermined and hidden away from viewers.
6.11 The lack of regulation in this space is being exploited by the global SVOD providers who are increasingly requiring manufacturers to include a dedicated button on their remote control, for example, or use their significant resources to negotiate global deals for their apps to have prominence on the home screens.
6.12 If PSBs are to be able to continue to compete effectively with the global SVOD services it is essential that the rules are updated. As part of their submission to Ofcom’s review of public service prominence in 2018, the main PSBs – the BBC, ITV, Channel 4 and Channel 5 – agreed a joint approach which we believe will deliver an effective updated prominence regime. This approach can be summarised as:
6.13 Government should introduce legislation that extends the current regime to all licensed PSB linear services and associated on-demand services provided by one or more PSB licence holders on all major user interfaces. This includes ensuring the EPG itself receives prominence within user interfaces, extending prominence to the PSB VOD services on smart TVs and streaming sticks, and ensuring PSB content is prominent regardless of how viewers access content, including through algorithmically generated recommendations and voice search.
6.14 Ofcom would be empowered to apply the principles set out in legislation in a more detailed way through implementation of guidelines and enforcement.
6.15 Legislation should require Ofcom to define within published guidance the scope of the regime and the degree of prominence to be provided – the PSBs believe the appropriate level of prominence for PSBs is significant prominence and that this should be equivalent to the degree of prominence Ofcom has mandated for PSBs on linear.
6.16 We are currently awaiting Ofcom’s conclusions from this review, with the Government having committed to bring forward legislation to address the issue if Ofcom recommends that it is needed. There is cross-party support for reform – with Government, opposition parties and the DCMS Select Committee all stating support for updated legislation. Channel 4 therefore urges the Committee to call for Ofcom to make clear, proactive recommendations on this issue to ensure that public service content can continue to be discoverable in a video on demand era.
Spectrum and listed events
6.17 In addition to prominence, there are a number of other regulations related to public service broadcasting that we believe it is important that policy-makers seek to maintain to ensure the continued strength of the PSB ecology. These include continuing the listed events regime, preserving the Digital Terrestrial Television (DTT) platform and renewing the PSB multiplex licences for Channel 3 and 4.
6.18 The Listed Events regime is aimed at ensuring that TV coverage of major sports events remains available to everyone, irrespective of their ability to pay. The UK has an A-list that is designed to preserve live coverage of certain major events on free-to-air TV (e.g. Olympics, World Cup, Grand National, Rugby World Cup Final) and a B-List that does the same for TV highlights (e.g. 6 Nations, Commonwealth Games).
6.19 The Listed Events regime is aimed at ensuring that the public have free access to major events and that major sporting events reach the widest possible audience. We believe the regime has successfully struck delivered these objectives, and we encourage policy-makers to ensure it continues.
6.20 Digital terrestrial television (DTT) plays a vital role in enabling the PSBs to deliver their remits and missions. DTT is the UK's most widely used TV platform, watched by 20m UK households and available to 98.5% of UK homes. At the heart of this is Freeview – the UK’s largest platform - offering more than 70 digital TV channels and 95% of the UK’s most-watched programmes, free at the point of use without subscription. Despite increased competition from online services, Freeview still plays an key role for consumers with 80% of all TV viewing still to live linear TV.
6.21 Freeview Play (FVP) builds on this success and gives UK viewers a seamless combination of live and on-demand content all in one place with no monthly subscription. It is the UK market leader in free-to-view connected TV and BBC, ITV, Channel 4 and network operator Arqiva – the four shareholders of Digital UK – have committed to an investment of £125 million over the next five years to build on the success of Freeview and accelerate its transition to a fully hybrid platform, providing the best in free-to-view live and on-demand TV.
6.22 The success of Freeview is built on the strong foundations of the DTT platform which is made up of six national terrestrial multiplexes. There are three PSB multiplexes, two of which are owned by the BBC (BBC A and BBC B, its T2 HD multiplex) and one of which is jointly owned by ITV and Channel 4 (D3&4). These multiplexes hang off our PSB status and the spectrum they use enables PSBs to reach 98.5% of households in the UK. The other three multiplexes are commercial multiplexes, owned by Arqiva (ARQ A and ARQ B) and ITV (SDN). They sell capacity to channel providers who want to broadcast their channels in the UK. These commercial multiplexes have lower coverage than the PSB multiplexes, only reaching around 90-92% of households in the UK. Each multiplex is licensed by Ofcom for a set duration and Ofcom decides the operating parameters. There are also two interim commercial multiplexes but these are due to stop operating in 2020.
6.23 The D3&4 licence is due to expire in November 2022 and in order to continue to provide the benefits outlined above, it is vital this licence is extended to give ITV and Channel 4 certainty over investment and the ability to plan long term investments in the platform for the future. While the licence isn’t due to expire until 2022, beginning the process of renewing the D3&4 licence is urgent; the replacement of the licence will require a tender process which will need to be completed by 2020 given procurement and transition timing.
6.24 The renewal of our licence will enable us to continue to offer consumers a compelling alternative to pay-TV with PSB prominently at its heart. Importantly, the ability to reach viewers at scale is vital in ensuring we can maximise the advertising revenue we can generate from our content and continue to invest in PSB content.
6.25 As PSB licences run to 2024 (beyond the 2022 expiry date of current multiplex licences) we propose that multiplex licences are extended to 2034 to align with the expected renewal of PSB licences which are typically 10 years.
Advertising restrictions
6.26 We also believe it is important that policy-makers consider defending the PSBs against regulations that could have a disproportionate impact on them. As a commercially funded public service broadcaster, Channel 4’s primary source of revenue is from advertising. This revenue is then reinvested back into delivery of our public service content. However, this means that we are particularly sensitive to any proposals to introduce restrictions on advertising - for example the proposals currently included in the Department of Health and DCMS consultation into advertising restrictions for products high in fat, salt and sugar.
6.27 Channel 4 believes that obesity is an important problem and that broadcasting, advertising and wider civil society all have an important role to play in helping to tackle this issue. Channel 4 has a proud history of programming that encourages viewers to make informed choices around food, health and wellbeing - since 2010 we've invested over £100m in programming that informs and educates our viewers with over 76 series across 40 of our brands, from Jamie Oliver’s campaigns around school dinners and sugar consumption through to food series such as Food Unwrapped. In 2017 Channel 4’s healthy eating programming reached 28 million people – nearly half the population. This includes one-third of 16-24s and two in five households with children. One of our hardest hitting programmes in recent years was Jamie’s Sugar Rush - 74% of viewers agreed that the programme opened their eyes to how much sugar they are currently consuming. 65% of parents agreed that the programme made them think differently about what they should be feeding their family and half claimed to have reduced their sugar consumption since watching.
6.28 This demonstrates the effectiveness of voluntary approaches such as messaging within public service programmes. However, we also acknowledge the role of regulation – and the current rules on HFSS advertising in broadcasting have been described by Ofcom as “amongst the strictest in the world”. Channel 4 does acknowledge, though, that it is important to regularly review whether the level of regulatory protection is appropriate and therefore understands the need to consult on this issue – and we welcome the Government’s approach in the consultation to present no favoured option and to commit to an evidence based policy.
6.29 We believe there is no clear evidence to suggest that a 9pm watershed on TV advertising is the most effective way of tackling obesity. Indeed, the Government’s own figures suggest a 9pm ban would result in a reduction of just 1.7 calories each day for children – less than one tic tac. This is because, as Ofcom concluded in its 2007 review “advertising has modest direct effect on children’s food choices” and because children’s exposure to HFSS advertising on TV has declined dramatically – analysis from O&O commissioned by the broadcasters measured a 62% decrease in the amount of advertising for HFSS products seen by children before 9pm and found that children now see less than 1 HFSS ad per day pre 9pm. We believe that the proposed 9pm watershed for food and drink adverts is not only unlikely to improve children’s health, but could cause long term damage to British public service broadcasting and the kinds of programmes that have the highest potential of influencing behaviours in this area. Commercial broadcasters estimate the loss in revenue from a pre-2100 advertising restriction to be up to £200 million p.a. (impact on Channel 4 is estimated at c. £43 million p.a.) which would have a direct impact on programming budgets and the level of public service provision that they provide – particularly in the context of the wider competitive and structural challenges to broadcasting noted above.
6.30 Channel 4 is also concerned that a TV ad ban, especially if done in isolation, would risk making obesity worse, not better. Work carried out by OC&C clearly shows that in the event of a 9pm ban food and drink companies would seek to maintain sales by diverting spending to other less regulated advertising mediums, including online where children are increasingly spending more of their screen time, and importantly to price promotions – making HFSS food and drink cheaper. It is therefore vital that any regulatory options apply equally across all advertising mediums to ensure there is both a level playing field in the market as well as ensuring that children are protected equally in both the broadcast and online space.
6.31 Channel 4 welcomes the interventions made by the Lords Communications Committee on this issue to date, in the form of the letters sent to the Secretary of State for Health, Matt Hancock MP and the Minister for Health, Steve Brine MP, which noted both the lack of evidence that a television advertising ban would have on obesity rates as well as the disproportionate impact that it would have on commercial public service broadcasters. We encourage the Committee to continue to make this case to Government, particularly in the context of this wider inquiry into the issues impacting on public service broadcasting. Further restrictions on HFSS advertising on television broadcasting would be a further layer of regulation that the SVOD services are not impacted by, as they rely solely on subscription revenues.
Regulatory consistency
6.32 We also believe that in light of the widespread changes in the media sector, that it is appropriate for policy-makers to review the balance of regulations between TV and online platforms – both in terms of the SVODs specifically and the wider social media giants such as Facebook and YouTube. As noted above, we are not seeking either a ‘levelling up’ or ‘levelling down’ in all cases, as we do not believe that levelling the playing field for the sake of it should be the goal. However, it is worth observing that there are some areas where there is not a clear rationale for such inconsistent approaches.
6.33 We welcome the Government’s proposals under the Online Harms White Paper to establish a new independent regulator for internet platforms aimed at providing greater protection for citizens. We believe independent statutory regulation of this kind is vital in seeking to address some of the harmful content that has proliferated on these platforms on recent years. This regulator could be Ofcom, which is experienced and credible as a proportionate content regulator, or a new regulator, but Channel 4 believes that what is vital that they have sufficient resources and digital expertise to be able to fully understand and oversee the technology platforms. We also believe it is vital that there are clear and strong sanctions for internet companies that breach the rules, akin with the sanctions faced by broadcasters who could ultimately lose their licence to broadcast if Ofcom found us to be in consistent breach of the Broadcasting Code. Regulatory fines cannot just be an easily-absorbed “cost of doing business”, as they are often treated by the largest new tech companies.
6.34 However, we are concerned that there are some areas that the White Paper does not address – in particular the size and dominance of these technology platforms in relation to the digital advertising market, and the need for greater regulation of online advertising so it is line with the regulations on broadcast advertising. This is particularly relevant for platforms such as Facebook and YouTube.
6.35 For example, in TV, ultimately it is the broadcaster (i.e. the distributor/publisher) who has both control of where advertising is placed (i.e. alongside which programme content it appears within a linear schedule) and responsibility for ensuring the adverts it carries comply with the rules. Broadcasters have binding legal (licence) obligations to comply with the BCAP advertising code and face the possibility of fines, shortened licence duration or even revocation of licences in the event of serious non-compliance. The result is careful pre-scrutiny and a high level of compliance. Internet companies, however, have no legal obligations to ensure compliance with rules onlne, and there are few legal sanctions if they accept and run infringing advertising compared to broadcasters. We believe this needs to be urgently addressed by policy-makers to ensure that broadcasters face a level playing field in commercial terms, with those companies they are competing directly with for advertising revenue.
6.36 With regards to the global SVOD services, a key area where PSBs are tightly regulated but the global SVOD services are not is regarding the issue of rights. As the Committee is aware, all of the PSBs are subject to regulation on their terms of trade between independent producers – a regulation that was introduced in the Communications Act 2003 to prevent dominant buyers from abusing their position in rights negotiations. The terms of trade dictate the length of the primary licence window that public service broadcasters are entitled to on the programmes that they (in the case of Channel 4 usually fully) fund, and then after the expiry of this window all intellectual property rights are granted to the independent producers to then sell the programme to buyers around the world.
6.37 The terms of trade has been a high-profile topic of discussion and scrutiny in recent years, and there is no doubt that their introduction has led to the dramatic growth and development of the independent production sector – with Pact reporting that total TV production sector revenues hit a high of £2.7 billion in 2017, a rise of nearly a third over the past decade. This growth has been driven by international revenues as a result of secondary rights sales of programmes around the world, leading to the global success of dozens of highly successful British production businesses. However, it is notable that services such as Netflix and Amazon Prime are not subject to any regulation or even transparency regarding their rights deals – despite being widely known for their highly aggressive rights demands (typically requesting total and permanent worldwide rights in exchange for the production fees) and despite being the biggest buyer for many high-profile British companies (the CEO of British company Studio Lambert, which makes Channel 4 shows such as The Circle and Gogglebox, recently stated publicly that Netflix was now their biggest customer). This means that there is a growing anomaly in terms of the protections in place for British producers.
6.38 It is also the case that under the PSB Compact, the PSBs deliver a range of obligations in return for specific benefits. These obligations have taken the form of a set of quotas in each of the licences of the public service broadcasters. In Channel 4’s case, this includes a requirement to show a specific volume of original content (as opposed to acquisitions), a specific volume of content commissioned from independent producers, a specific volume of content commissioned from outside of London, a specific volume of content commissioned from outside of England and a specific volume of news and current affairs content. In addition to these licence obligations, Channel 4 also has additional requirements set out in its public service remit – to cater to the tastes and interests of older children and young adults, to appeal to a culturally diverse society, to provide educational content for young audiences, to stimulate debate including with content from around the world, and to commission and show British films.
6.39 Channel 4 is required to monitor closely its delivery of these obligations and reports back to Ofcom on their delivery in the form of 42 metrics published on an annual basis. These results are then assessed by Ofcom in a variety of formal reporting requirements – including the five-yearly PSB Review, the five-yearly Channel 4 Review and an Annual Report.
6.40 While Channel 4 believes that it is right and appropriate for public service broadcasters to be held to a higher set of commitments than other media providers, given the unique status and purpose of these organisations, we also believe that there would be benefit in, at minimum, asking the global SVOD services to commit to some level of transparency and reporting of their activity in the UK – so that the regulator and industry can obtain a coherent picture of the SVOD’s contribution to British broadcasting. We believe that the broader availability of such cross-industry data would be beneficial to all investors of UK content: the SVOD players as much as the PSBs.
Other levers to support public service broadcasting
6.41 The Government has already demonstrated its ability to consider and implement policy ideas aimed at supporting the creation of publicly valuable content. The Government has introduced the Young Audiences Content Fund, launched in April 2019, a pilot contestable fund to support content specifically aimed at under-18s on free-to-air Ofcom regulated platforms. Channel 4 has supported the introduction of this fund, which we believe will enable valuable public service content for young people that may not otherwise be supported by the market alone, given the commercial challenges of children’s content provision. We have already been in close dialogue with the BFI as they have developed and launched the fund and are now open to ideas from producers that suit both the ambitions of the fund and Channel 4’s wider public service remit and distinctive voice.
6.42 There are a wide range of other policy levers available to policy-makers to support public service broadcasting – for example, potentially introducing tax incentives for key genres (as the Government has done for high-end television and animation for example) or examining the use of a levy on technology companies to fund journalism for examples, as was proposed by Dame Frances Cairncross in her review for the Government on the future of journalism. Channel 4 believes there is merit in scrutinising such proposals closely and looks forward to discussing them with the Committee in the months ahead.
April 2019
25
[1] Source: https://www.ofcom.org.uk/__data/assets/pdf_file/0014/116006/media-nations-2018-uk.pdf
[2] Source: “News Consumption in the UK: 2018”, Ofcom, Figures 2.2 and 12.4
[3] Source: Research commissioned by Channel 4 from YouGov in August 2018. Sample of 2,065 adults, of which 589 were aged 16-34
[4] Source: Fortune (http://fortune.com/2018/07/08/netflix-original-programming-13-billion/)
[5] Digital Landscape 2018 based on monthly reach among all adults