C4 revenue down ‘only’ 2% as TV market declines faster than expected
The UK TV ad market will decline by 6% in 2023, Channel 4 has forecast as the broadcaster admitted having to “cancel a handful of shows” in response to trading this year being worse than expected.
The broadcaster said 2022 revenue was down “just 2%” to £1.14bn, compared to a record year in 2021 when its topline surpassed a billion pounds for the first time.
Jonathan Allan, Channel 4’s chief operating officer, told The Media Leader at a press conference today that he agrees with media agency estimates that the market is facing a “U-shaped year”, with trading particularly challenging during the summer months but expected to rebound in the traditionally busy pre-Christmas period.
June and July have been particularly bad, Allan admitted, but have been mitigated by a significant amount of late media buys from advertisers. In 2020, during the Covid-19 pandemic, Channel 4 scrapped the then industry-standard of eight-week “advanced booking deadlines” in favour of a permanent four-week deadline for avoiding late-booking charges for buying TV ads.
Alex Mahon, C4’s CEO, also warned in today’s report that the business outlook “remains challenging” into 2023, with trading in the first five months indicating a “difficult” TV ad market. Linear TV advertising, which makes up two-thirds of C4’s total revenue, was 8% down year-on-year.
Allan said: “Yes, [we see] a U-shape coming back into Q4, where we think the market will really start to improve a little bit because the comparators are easier.
“What we’re hearing from advertisers and agencies are that they’re approving money quite late, they’re all retaining a lot of flexibility in their businesses to make sure they can manage anything to do with consumer demand. So it’s quite a late market at the moment.”
The rising cost of production is also biting, Katz acknowledged. While Channel 4 is being impacted by factors affecting the whole ad industry, such as persistently high inflation, rising interest rates, and ongoing supply-chain issues affected by prices and the war in Ukraine, “content inflation” has been significant for the last three years.
Katz said: “We had the extra cost and Covid measures for a good couple of years. Then on top of that, you have this huge amount of new investment from all the platforms going into content that really drove specific inflation production inflation quite apart from the wider inflation in the economy.
“The big question now is, we’re obviously seeing a cutback in spending across most of the platforms. The cuts by a big streamer is obviously much, much bigger than anything you see here. But all of the broadcasters are cutting back spending at the moment in the face of the same sorts of pressures.”
CEO on cancelling shows: ‘we took decisive action’
Channel 4 also posted a surplus for the third year running, returning £20m, before exceptional items, compared to £101m in 2021. As a publicly-owned broadcaster, Channel 4 is a non-profit organisation and must reinvest surplus into its programming.
Digital revenue is now just over a fifth (22%) of Channel 4’s total revenue (up from 19% last year) and stands at £255m. The company has a target of digital being 30% of its ad revenue by 2025.
Meanwhile, non-advertising revenues increased 15% to £121 million, now making up 11% of total revenues, which is three years ahead of its target.
Mahon also hit back at “inaccurate reporting” about the scale of cuts made by the broadcaster in response to the ad market’s downturn this year. Production companies, which benefit from Channel 4 commissions, have complained about cuts this year amid claims that the company overspent on content after failing to forecast the degree to which the ad market would decline this year.
“We spotted that there were clouds on the horizon with the ad market and took quite decisive action,” she said. “We did cancel a handful of shows, which is obviously difficult for the companies involved. We work with a lot more suppliers than anyone else, a lot more than ITV which obviously do a lot in-house and get a lot more profile than some of the other broadcasters. But the fact that we’ve done that has resulted in some inaccurate reporting, or certainly conflating issues. Of all the shows we do in a year, about half of them return. What you’ve seen subsequently is a load of articles saying, ‘Oh, this show has been cancelled’. Those shows haven’t been cancelled; they just haven’t been recommissioned. If anything it was slightly up this year, in terms of how many come back, but I think it’s understandable that we attract a lot of coverage on it because we acted quite decisively and early, but it is the right thing to do.”
Across all its services, Channel 4 spent £713m last year, a 6% increase on 2021 and a record amount spent on content.
‘Chaos and turmoil’ has impacted morale
The broadcaster also repeated calls for Parliament to pass the Media Bill as soon as possible. The draft law contains provisions on online prominence, which means that public service content will be available and easy to find across a range of television platforms that viewers use to watch TV online. In the UK, the existing rules for ensuring prominence of public-sector broadcasters does not extend to video-on-demand platforms or services that enable viewers to navigate and select TV programmes beyond the TV guide.
Sir Ian Cheshire, Channel 4’s chairman, told journalists today: “We need the Government to help to address particularly the prominence issue… Younger audiences in particular must be able to find great, safe and trusted British-produced video that reflects their lives. Prominence simply cannot come quickly enough. If the value buttons match public service media, there is no time to lose on that.”
The Bill will also remove the restriction on Channel 4 being a publisher-broadcaster. However, as the broadcaster warned in its 237-page Annual Report today, “there remains a risk that the Bill does not do enough to adapt to the trend in digital media consumption.”
The company has also recently been subject to criticism for awarding increases in executive pay. Mahon, Allan, and chief content officer Ian Katz declined a 50% bonus because, as Mahon told this morning’s press conference, “we felt we should be more in line with the rest of the staff.” This award has now been reduced to 25% of salary and “indefinitely deferred”, which means Channel 4 has accounted for the payments being made at a later date.
Mahon acknowledged that staff morale had been impacted in recent years by “chaos and turmoil” and praised employees for being “spectacular”. The company was the subject of political controversy during the Boris Johnson government, which wanted to privatise it (a policy since dropped by Rishi Sunak). Johnson’s predecessor Theresa May put Channel 4 under pressure to move its headquarters to Leeds as part of its Nations & Regions agenda, while the TV ad market plunged by 50% during the first Covid-19 lockdown in 2020.
“Being in the news every other minute is really difficult,” Mahon said. “Because when you go home, your family are asking you about it and what’s going to happen, and you worry about your job. During that period, the staff have been absolutely spectacular; they’ve delivered amazing results. They’ve delivered some of the biggest creative success we’ve ever seen, while that kind of chaos and turmoil is going on, outside.
“So I would suspect that staff are probably feeling quite tired, and pulled together very, very well for Channel 4. And we’re in another tricky year [but] in general, I have found that Channel 4 somehow, magically, is at its best when things are tough… I don’t doubt that it’s difficult for people, especially now have cost of living and inflation pressures, which is why we’ve tried to err on the side of making decisions for the lowest paid staff in the organisation.”