1.1 The Welsh independent production sector has gone from strength to strength in recent years. In 2020, 15% of commissioning spend came from Wales, a 7% increase from the previous year. Cardiff is also a well-established production hub and many popular programmes such as His Dark Materials, Sarah Beeny’s New Life in the Country, and A Discovery of Witches are all produced in Wales by local production companies.
1.2 Pact is concerned that the Government’s proposals for the future of Channel 4 will damage the independent production sector across the UK, impact jobs, and limit opportunities for the next generation of creative talent. Pact commissioned independent economic consultancy, Oliver & Ohlbaum Associates (O&O) to undertake an assessment of DCMS’s proposals for Channel 4. Which found that the Government’s proposals would lead to £4.2 billion of lost investment by 2032, an increase from the £3.7 billion we had originally estimated in 2021. This lost investment would not only have an impact on the UK’s production sector, but also the wider creative economy.
1.3 Despite increased competition from streaming services and other competitors such as YouTube and Tik Tok, the PSBs still remain popular with UK viewers. In 2021, the weekly reach of PSB channels was 76% of all individuals. Pact is a strong supporter of the PSB system. We want to see the PSBs continue to succeed, and the Government should be wary of completing changing the current delicately balanced model.
2.1 Pact has chosen to answer the questions most relevant to the UK Film and TV production sector.
Q1. Are the current models of funding for public service broadcasting in Wales sustainable to ensure the future of a successful and dynamic broadcasting industry in Wales?
3.1 The current mixed model for PSB funding works well in practice. The combination of licence fee (BBC, S4C) and commercial funded PSBs (ITV, Channel 4, Channel 5) helps to ensure that UK audiences get a diverse range of high-quality content whilst also receiving value for money. Many PSBs also now have multiple revenue streams. For example, ITV expanded into production with ITV Studios, and in 2021 revenues were £1,760m. The BBC’s commercial subsidiaries delivered dividends of £144mm to the public service in 2021/22. These mixed funding models work well for the PSBs and allow them to invest more in their businesses and content.
3.2 Dips in the advertising market are inevitable, and the Government should be wary of completely changing the current funding model, particularly now that is showing signs of recovery post-COVID. In 2021, Channel 4’s revenue exceeded £1bn for the first time ever. The BBC’s total income for 2021/22 increased from £5bn to £5.3bn and 73% of people in the UK now watch BBC TV in a week on average, which is more than any other TV or SVOD provider. In Wales, the PSBs main five channels remain popular with a combined viewing share of around 57% in 2020.
3.3 The UK Film and TV production sector is hugely successful both domestically and internationally. This success has made the UK a highly attractive place for inward investment. In 2021, inward investment across film and high-end television reached over £4bn. This inward investment into the UK leads to an increase in studio facilities and jobs within the sector. Investment from international partners in the form of co-productions also benefit the PSBs, as it means they can commission high quality content which they may not have otherwise been able to afford, for example the BBC and HBO co-production, His Dark Materials.
3.4 Producers also play a role in contributing to the financing of PSB programmes. The UK PSBs very rarely fully fund programmes meaning that producers have to find other sources of funding, such as deficit financing (secondary sales both UK and international), co-production financing and tax reliefs, to make up the production budget. By doing this and taking on a greater share of risk, it reduces the cost to the PSBs whilst maintaining the high-quality of the programme, which in turn benefits audiences.
3.5 Production finance models differ depending on the genre, for example the financial model for Children’s TV productions is more complicated and relies on the Animation and Children’s Television tax relief. The PSBs investment in children’s content has been in consistent decline for over a decade now. In 2002, the PSBs spent a combined £163m on first-run hours of children’s content, and £63m of this came from the commercial PSBs. By 2020, this spend on first run UK originated content had declined to around £57m. This decline has meant the UK market for children’s producers has rapidly shrunk and is struggling due to a lack of investment. For producers of Welsh language content for children the market is even smaller. Pact has long been concerned about the decline in UK children’s content especially given that consumer demand for high quality children’s content remains. The current model for funding children’s content is unsustainable and broadcaster investment is likely to keep declining.
Q2. What impact will the privatisation of Channel 4 have on the broadcasting sector in Wales?
4.1 Channel 4 plays a unique role in the UK broadcasting ecology. It’s public service remit and its status as a publisher-broadcaster prevents it from making and owning its own programmes. This was one of the key founding principles when it was created by the Thatcher Government in the early 1980s. While the media landscape may have changed since then, Channel 4 still plays an important role as a start-up incubator, by taking risks on those just starting out in the industry, and as an investor in production in the Nations and Regions. In 2021 Channel 4 spent £10.8m on commissions from producers based in Wales, which is an increase of 76% from the previous year.
4.2 Channel 4 commissions more programmes from small production companies than the other the PSBs between 2015 – 2016. This has enabled generations of creative entrepreneurs and small innovative start-ups to break into the UK broadcasting market and grow their businesses, initially working for Channel 4 and then supplying other broadcasters. Every year, Channel 4 commissions content for the first time from around 15 independent production companies. Which then go on to become successful businesses with further commissions from other broadcasters.
4.3 In April 2022, the Government published their Broadcasting White Paper, which sets out their future vision for the wider UK broadcasting ecology. It also details the Government’s proposals for the future of Channel 4, these include:
4.4 Currently, 100% of Channel 4’s hours go to external production companies. This helps to ensure a wide range of high-quality programming from a range of suppliers across the UK. Under a new owner, Channel 4 would be free to commission 75% of qualifying hours from any future in-house studio or broadcaster-owned studio (such as ITV Studios, Paramount Studios). This move to 75% in-house is a transfer of value away from British SMEs to large profit driven corporations. New owners would seek to maximise profits back to shareholders and invest in their own IP rather than take the risk of commissioning a small start-up indie looking to break into the industry. Reducing the independent production quota to only 25% will result in a loss of jobs, investment and opportunities for SMEs who are just starting out.
4.5 To enable Channel 4 to make and own its own programmes, new owners would need to free up commissioning slots for its own production arm, which would mean cancelling a range of productions. Channel 4 may also have to scale back on programme investment, production is a hit driven business and hits are not a guarantee. BBC Studios and ITV Studios have an advantage with a substantial back catalogue of IP, it would take Channel 4 many years to build a catalogue similar to its competitors. This would be at the expense of the independent production sector.
Q3. What should the future of public service broadcasting in Wales look like given the growth of global streaming platforms and changing viewing habits especially of younger generations of consumers?
5.1 The majority of Pact members still rely on the PSBs for commissions, in 2020 84% of producers UK commissioning revenue came from the PSBs. However, multi-channel broadcasters such as Sky, international broadcasters such as Discovery, and subscription-video-on-demand services such as Netflix and Amazon, are all spending an increasing amount on commissioning UK producers. While producers benefit from this mixed ecology, many still choose to work with the UK PSBs in large part due to the Terms of Trade. The Terms of Trade give indies control over their own intellectual property (IP). Ownership of IP is a long-term asset value for the company, critically it can be used to attract capital and investment back into the UK. By attracting external finance by selling or pre-selling their IP, indies can take risks and innovate, recouping on development funding invested by the production company into specific projects. It also helps PSBs to pay less towards their programming and manages to provide audiences with diverse and high-quality programming. Harnessing the global markets through secondary rights and international IP have allowed indies to accept low margins on UK domestic commissions and invest more of their commissioning income into programmes and Research & Development (R&D) for future projects.
5.2 The current PSB framework including the Terms of Trade, has shown to be flexible and adaptive enough to cater to these new preferences by agreeing to new Terms of Trade that will allow PSBs to utilise content in longer windows. That said, distribution is not the sole challenge to be faced by PSBs. Pact considers that the issues that face PSBs are focused on editorial and content in a more competitive market for audiences, especially younger viewers.
22 August 2022
 Analysis for Pact by Oliver & Ohlbaum, published in ‘A New Age for UK TV content and a New Role for the BBC’, August 2014
 Pact Census Independent Production Sector Financial Census and Survey 2021, by Oliver & Ohlbaum Associates Limited
 Pact Census 2021
 O&O Assessment of DCMS’s Channel 4 Privatisation Proposals: Remit and Regulation, O&O, May 2022
 Ofcom Media Nations Report 2022
 ITV Annual Report 2021
 BBC Annual Report 2021/22
 Channel 4 Annual Report 2021
 BBC Annual Report 2021/22
 Media Nations: Interactive Report 2021, Ofcom
 Children’s analysis (PSB Annual Report), Ofcom, December 2014
 Media Nations 2021: Interactive Report, Ofcom
 Channel 4 Annual Report 2021
 Channel 4’s impact on the UK’s International Competitiveness and Global Profile, O&O Associates, p18 2021
 Pact Census 2021
 The providers of every licensed PSB channel must draw up, and amend when required, a code of practice setting out the principles they will apply when agreeing terms for commissioning independent productions. These Terms of Trade are regularly negotiated by Pact on behalf of independent producers