How Channel 4 privatisation would impact TV trading
Opinion
The status quo would be shaken by a Channel 4 privatisation, but thanks to ISBA and Enders there is an existing framework for improving today’s trading model.
Beyond enjoying a nice business lunch, I’ve never thought that bankers and media folk shared much in common. That is, until I read a quote from Claire Enders saying that “you can’t find a banker in the City that hasn’t wasted time on a Channel 4 privatisation”. And she’s right.
The issue of privatisation has come up multiple times in the channel’s 40-year history, so why waste your time and mine thinking about it?
After all, the facts have already been brilliantly laid out by CEO Alex Mahon and the trade press is awash with opinions on the matter (Simon White’s article deserves special credit in adding an advertiser’s point of view to the debate).
The answer is that, if the last 10 years has taught us anything about politics, it’s that a headline-grabbing, base-pandering policy must now be taken seriously. Otherwise, before you know it, you’re stuck in a queue to Dover so big that it can be seen from the moon, wondering whether your passport will expire before you reach the front.
So, let’s imagine the impact on the TV advertising ecosystem were this privatisation to go ahead…
What do we have now?
To examine what the future may look like, it’s worth touching on what we have now, warts and all. Fortunately, it has been merely a year since ISBA and Enders Analysis published arguably the most robust report on the UK TV advertising industry.
It had four concrete recommendations going forward:
- Unified measurement across linear and broadcast video-on-demand (BVOD)
- Transparent and sustainable advertiser-agency contractual terms which prioritise impartial media recommendations
- A move away from share to dealing on volume across linear and BVOD
- A two-tier approach to trading, with audience & context buys divided into standard & premium programming
On the face of it, a private Channel 4 does not necessarily conflict with all the above – though admittedly the report was written before the broadcaster’s alternative proposal to privatisation was tabled. However, a deeper look suggests otherwise. Let’s go through each recommendation:
Unified measurement across linear and BVOD
One of the big barriers to unified measurement thus far has been competition, specifically the sharing of valuable information on BVOD delivery. That said, in CFlight we have a (part-baked) broadcaster-based solution in which Sky, ITV and Channel 4 have entered into a joint-venture to provide cross-platform TV advertising measurement.
The question is, as the only broadcaster involved in CFlight with publisher-broadcaster status, would a private Channel 4 improve or worsen collaboration on the measurement front?
The answer depends on the buyer. An ITV-Sky duopoly, though it would reduce the number of stakeholders (and therefore complexity) would also up the competitive ante and reduce the incentive to collaborate.
A foreign actor, such as Paramount or Warner Bros. Discovery, could back away from integration with CFlight or other cross-platform initiatives such as ISBA’s cross-media measurement initiative Origin. Smart addressable solutions like Planet V and AdSmart could be in danger too.
Transparent and sustainable advertiser-agency contractual terms which prioritise impartial media recommendations
There is only one thing that truly facilitates impartial media recommendations in our industry, and that’s an agency’s business model. A model that uses kickbacks or arbitrage in any way to add income to the bottom line will inevitably result in biased media recommendations for clients.
Sadly, a private or public Channel 4 will not make a difference here. Yes, an ITV-Sky duopoly could weaken agencies’ buying power, but there are plenty of other media channels that agencies can leverage for their own benefit.
A move away from share to dealing on volume across linear and BVOD
Arguably the biggest barrier to change in TV trading is the ubiquity of share deals underpinned, directly or indirectly, by contract rights renewal (CRR). Until now, the 19-year-old mechanism has been protected by a handful of vested interests, despite ISBA’s report highlighting the damage being caused to overall TV advertising revenues.
In this sense a takeover of Channel 4 would disrupt the status quo, though it’s hard to speculate what might happen to CRR – and share based trading – as a result. An acquisition by anyone other than ITV could have the effect of entrenching CRR, with the UK’s biggest commercial broadcaster being backed into a corner.
Alternatively, a takeover by ITV would force the CMA to reconsider the role and suitability of CRR, potentially removing it entirely or replacing it with something new.
A two-tier approach to trading
The last recommendation from ISBA and Enders requires an evolution, rather than a revolution, of current TV trading practices. Premium airtime would be defined by the broadcasters and sold independently, while ‘standard’ airtime would effectively resemble ‘the rest’ and be sold at scale on an audience-buy.
This highlights an interesting angle for any potential ITV or Sky deal. Assuming the UKTV sales contract formed part of the takeover (a big if), then ITV could add considerable scale to its ‘standard’ offering, while setting its sights on Bake Off and Gogglebox to bolster its stable of premium shows.
Sky, on the other hand, already benefits from huge scale when it comes to ‘standard’ airtime. Live sports and the odd US special aside, it could do with adding some premium programming to its slate.
As far as a foreign buyer is concerned, the two-tier trading approach is not a million miles off the existing US model…
So where does all that leave UK TV trading?
Well, there’s no doubt that the status quo would be shaken by a Channel 4 privatisation. The risk for agencies and advertisers is that it could go either way.
On the one hand, competition, innovation, and collaboration could be stifled. On the other, a shock to the system could blow the cobwebs off an antiquated trading model, opening the door to new ideas.
Fortunately, there’s a third option. Thanks to IBSA and Enders, there is an existing framework for improving today’s trading model. Given that the privatisation deal is far from concluded, I would urge the major stakeholders involved in TV trading to get a move on and work towards implementing the recommended changes before it’s too late.
Ian Daly is head of AV at Bountiful Cow.