Select your language

Suggested languages for you:
Log In Start studying!
StudySmarter - The all-in-one study app.
4.8 • +11k Ratings
More than 3 Million Downloads
Free
|
|

All-in-one learning app

  • Flashcards
  • NotesNotes
  • ExplanationsExplanations
  • Study Planner
  • Textbook solutions
Start studying

Channel 4 Privatisation

Save Save
Print Print
Edit Edit
Sign up to use all features for free. Sign up now
Economics

Love watching The Great British Bake-off or Derry Girls? Have you ever thought about the money their producers make off them and how they sustain those series? In this explanation, you will learn more about the economic side of Channel 4, and how it maintains its series, shows, and news programs. In other words, the side we as watchers never think of.

What is Channel 4?

Channel 4 is one of the most popular broadcasting companies in the UK. It is also known for purchasing and supporting small independent programmes instead of making its own shows.

Channel 4 was established by Margaret Thatcher's government as a cultural challenge to BBC One, BBC Two, and ITV. It is a public-owned but commercially funded broadcasting company. This means that similar to BBC One and BBC Two, the government owns it, while it gets funded from its own commercial activities. In other words, government funding doesn’t support Channel 4.

The main source of income for Channel 4 is from TV advertising.

How does Channel 4 make a profit?

According to a report from the UK parliament, Channel 4 is a publicly-owned, non-profit corporation without shareholders. Its income surplus is retained and invested back into commissioning content.1

The corporation itself was in deficit for years. However, thanks to the reduction in programme production due to the Covid-19 pandemic restrictions and the surge in spending on TV advertising, Channel 4 made a surplus of £74 million by the end of 2020.2 This money isn’t going to be a surplus. It will be reinvested in the production of content.

Statistics have shown that despite Channel 4 being the fourth most popular broadcasting service in the UK, its annual revenues have had a slight decline by the end of 2020 since its peak in 2016.

Channel 4 Privatisation Revenue graph StudySmarterFigure 1. Total revenue of Channel 4 from 2005–2020, statista.com.

As we mentioned before, more than 90% of Channel 4's income comes from advertising. As you can see in Figure 1, Channel 4 received £934 million in revenue in 2020. The remaining 9% of Channel 4's income comes from its operations, like 4Studios.2

Privatisation of Channel 4

Privatisation is shifting ownership from state-owned assets to the private sector.

Examples of privatisation can include railways, energy supplies, and factories. This usually involves the sale of state-owned businesses to individuals or private organisations.

Generally, governments might opt to privatise a firm because of these benefits:

  • More capital for projects.
  • Improving competitiveness in the market.
  • Improving efficiency.

In addition, the private sector has some advantages over the public sector:

  • Better pay for its workers.
  • More room for innovation.

In the case of Channel 4, the government claimed Channel 4 needed more money if it wanted to grow. This extra capital could come from taxpayers or private investment.3 The government argued that without this capital, Channel 4 would struggle to invest in the technology and programmes it needed to compete with other streaming giants like Netflix and Disney+.

However, the discussion around the channel’s privatisation was met with a lot of criticism. Critics were concerned about the type of content the channel would need to produce to satisfy the shareholders rather than the audience.

In the end, due to such criticism and other factors that we will explore, Channel 4 hasn't been privatised, remaining state-owned.

You can learn more about the advantages and disadvantages of privatisation in our Privatisation explanation.

Economic Factors that Affect the Privatisation of Channel 4

There are many economic factors that affect the privatisation of Channel 4. Some of these are:

  • Government policies. The possible tightening regulations on video-on-demand services may encourage viewers to switch back to TV.
  • Taxes. Changes in taxes could affect the willingness of stakeholders in the private sector to invest.
  • Wages. Changes in wages could lead to higher costs in human resources. This would cause higher demand for capital.
  • Exchange rates. Changes in exchange rates can influence the willingness of foreign investors to invest.
  • Demand and supply. Changes in demand can have direct effects on the viewing rates as well as on the income from ads. Businesses may switch to more popular channels for higher exposure rates. Changes in the supply of small programmes can influence Channel 4's selection, thereby affecting the viewing rates.

Unlike the privatisation of the Royal Mail, which was funded by the government, Channel 4 is not backed by government funding. Since taxes finance government spending, we know that Channel 4's privatisation wouldn't be affected by taxes.

The demand and supply could be driving the government to privatise Channel 4 as it implies a further need for capital to create more programmes for the audiences.

Also, the demand for video-on-demand services (VODs) has increased substantially, and the government believes that improving creativity is the best way to capture the audiences for Channel 4. To ensure creativity, private capital is required.

The petition to Stop the Privatisation of Channel 4

Debates over privatisation are ongoing. Most voices suggest that there will be more drawbacks than advantages. The main disagreements are mainly around the concerns about creativity and content selection.

Critics worry that privatisation may lead to a focus on the programmes the shareholders consider more profitable while leaving the independent producers out.

Moreover, the audiences also worry that the shareholders would keep the surplus instead of investing it in quality shows for the audiences.

Economic Advantages of the Privatisation of Channel 4

There are some benefits that would come from privatising Channel 4. Some of these benefits include:

  • Wider sources of capital. The private sector is known for its unlimited source of finance, so privatising the channel would allow Channel 4 to have access to more capital. This capital could be used to improve the channel’s technology and programme selection. In turn, this would allow the channel to compete with popular streaming services.

  • Attract more audiences. Channel 4 could use the capital injection to develop and film more shows that attract a wider range of audiences.

  • Greater efficiency. In the hands of the private sector, there is a large profit incentive. This incentive can benefit Channel 4 by becoming more efficient and cost-effective. This will also help increase Channel 4's profits and help the firm to become more competitive.

Economic Disadvantages of the Privatisation of Channel 4

There are also some drawbacks that come from privatising Channel 4. Some of these are:

  • Job losses. Channel 4 works with many smaller production firms. The privatisation of Channel 4 could result in a halt in collaboration with these firms. These firms might struggle to raise capital and produce films and TV shows without the help of Channel 4, which would cause them to face financial difficulties. This would no doubt have an impact on jobs as it is estimated that 1,300 jobs could be lost from Channel 4’s privatisation.4
  • A slowdown in the creative economy. An independent report from EY shows that the privatisation of Channel 4 could result in around £2 billion being transferred to private owners from the creative economy.5 With less output and productivity occurring in the creative economy, its impact is bound to have an effect on the wider national economy. A slowdown in the creative industry will impact thousands of individuals who work in this industry.

The Future of Channel 4

As the use of online tv services continues to increase, the modernisation of broadcasting services is more important for the industry.

The government, however, has not come to a conclusive decision regarding the future of Channel 4. As we mentioned before, there are still disagreements concerning the risks over the benefits of privatisation and ensuring that broadcasting services are sustainable.

Channel 4 Privatisation - Key Takeaways

  • Privatisation involves shifting ownership from state-owned assets to the private sector.
  • Channel 4 is a public-owned but commercially funded broadcasting company.
  • More than 90% of Channel 4's income comes from advertising.
  • The government claimed that more money would be needed if Channel 4 wanted to grow.
  • The privatisation of Channel 4 was met with criticism. Many worried that the surplus would go to shareholders' pockets rather than be reinvested in good quality shows.
  • Channel 4 has not been privatised, yet the debates around the improvement of the industry as a whole remain.

Sources

1. Parliament report, ‘The future of Channel 4’, 2021.

2. Mark Sweney, ‘Channel 4 privatisation - how will it work and who will buy it?’, The Guardian, 2021.

3. Alexa Phillips, ‘Channel 4's privatisation 'needed' to compete with streaming services, culture secretary to announce’, Sky News, 2021.

4. Mark Sweney, "Channel 4 privatisation ‘could shut up to 60 production companies’", The Guardian, 2021.

5. Ernst and Young, ‘Assessing the impact of a change of ownership of Channel 4’, 2021.

Channel 4 Privatisation

Channel 4 was established by Margaret Thatcher's government as a cultural challenge to BBC One, BBC Two, and ITV. 


It is a publicly-owned but commercially funded corporation. It doesn't produce its own programmes but purchases from small independent producers.

The government believed that Channel 4 needed extra capital to grow and the source could be the private sector.

Channel 4 is a non-profit organisation, its income surplus is reinvested in the commissioning of other programmes. 

The simple answer is no.

In general, accessing private capital should bring independent producers more cash to invest in new programmes. Thereby, programme creators and producers would enjoy a higher level of freedom to create programmes for audiences. 

Final Channel 4 Privatisation Quiz

Question

What is Channel 4?

Show answer

Answer

It is a public-owned but commercially funded broadcasting company.

Show question

Question

Government funding supports Channel 4.

Show answer

Answer

False

Show question

Question

What is Channel 4's main source of income?

Show answer

Answer

Advertising 

Show question

Question

Does Channel 4 make a profit?

Show answer

Answer

No, it is a non-profit organisation.

Show question

Question

What does Channel 4 do if they have a surplus?

Show answer

Answer

Its surplus would be reinvested in the commissioning programmes.

Show question

Question

What was Chennel 4’s surplus at the end of 2020?

Show answer

Answer

£74m

Show question

Question

Fill in the blank: Channel 4 is the ______ most popular broadcasting service in the UK.

Show answer

Answer

fourth

Show question

Question

What percentage of Channel 4's income comes from advertising?

Show answer

Answer

> 90%

Show question

Question

Define privatisation. 

Show answer

Answer

Privatisation is shifting ownership from state-owned assets to the private sector.

Show question

Question

Name three general reasons why a government might opt to privatise a firm.

Show answer

Answer

  • More capital for projects.
  • Improving competitiveness in the market.
  • Improving efficiency. 

Show question

Question

Name two competitors of Channel 4.

Show answer

Answer


  • Netflix
  • Disney+
  • Amazon Prime Video

Show question

Question

State and explain two advantages of Channel 4's privatisation.

Show answer

Answer

Any two from:

  • Bigger sources of capital. Channel 4 wouldn't only be relying on the capital the government give them. Privatising will allow Channel 4 to have access to more capital. This capital can be used to improve its technology, and programming which will allow them to compete with popular streaming services.
  • Attract more audiences. Channel 4 can use the money to develop and film more shows that attract a range of different audiences. 
  • Greater efficiency. In the hands of the private sector, there is a large profit incentive. This incentive can benefit Channel 4 by becoming more efficient and cost-effective. This will also help increase Channel 4's profits and help the firm to become more competitive.

Show question

Question

What are some disadvantages of Channel 4's privatisation?

Show answer

Answer

  • Job losses. Channel 4 works with many smaller production firms. The privatisation of the channel would result in these many firms facing financial difficulties. It is estimated that 1,300 jobs could be lost from its privatisation.
  • Slowdown in the creative economy. An independent report from EY shows that the privatisation of Channel 4 could result in around £2bn being transferred to privates owners from the creative economy.5 This slowdown can possible impact the UK's wider economy and thousands of individuals too.

Show question

Question

Why does the government want to sell Channel 4?

Show answer

Answer

The government believed that Channel 4 needed extra capital to grow and the source could be the private sector.

Show question

60%

of the users don't pass the Channel 4 Privatisation quiz! Will you pass the quiz?

Start Quiz

Discover the right content for your subjects

No need to cheat if you have everything you need to succeed! Packed into one app!

Study Plan

Be perfectly prepared on time with an individual plan.

Quizzes

Test your knowledge with gamified quizzes.

Flashcards

Create and find flashcards in record time.

Notes

Create beautiful notes faster than ever before.

Study Sets

Have all your study materials in one place.

Documents

Upload unlimited documents and save them online.

Study Analytics

Identify your study strength and weaknesses.

Weekly Goals

Set individual study goals and earn points reaching them.

Smart Reminders

Stop procrastinating with our study reminders.

Rewards

Earn points, unlock badges and level up while studying.

Magic Marker

Create flashcards in notes completely automatically.

Smart Formatting

Create the most beautiful study materials using our templates.

Sign up to highlight and take notes. It’s 100% free.