David Abraham speech to Enders Analysis Conference

9 March 2016

Good afternoon everyone.

I’d like to begin by sharing with you an idea for a new drama. It’s called The Unnamed Civil Servant. The anonymous lead is seen in the opening shots walking into Downing Street brandishing a document that sets out “options to extract greater public value from Channel 4 - focussing on privatisation”.

But after that exciting start, the drama rather trails off. We don’t hear any really good arguments for the proposal but plenty of uncertainty is generated. Off-stage, a European referendum campaign then takes all the available energy.

I appreciate that the drama leaves something to be desired – drama mainly – but so far all we have is the cliff-hanger. When we come back after the break for the European referendum no-one, including the Government, really knows how the story ends.

Fact can be stranger than fiction. A proposal that comes from nowhere, that did not feature in the Conservative Party manifesto, which was, indeed, specifically rejected before the election, is suddenly brought forward. Then all goes quiet.

So, when Claire Enders asked me to speak at this event today, I hesitated.

I know the audience here largely consists of finance and investment professionals and I was conscious that if I convinced you that we were doing a great job at Channel 4 you might conclude it could be worth billions more as a privatised company.

Alternatively, you might conclude that I was doing such a terrible job that I was reducing its value to the point where it seemed like a bargain, as long as you then found a half decent CEO.

So, I am damned if I’m good and damned if I’m bad. Either of which is better than the third option, which is to further my reputation as a Little Englander, frightened by all the American takeovers of UK media assets.

So, instead that’s why I want to make the case today for the existing model under which Channel 4 operates. I want to argue that, despite the concerns the Government may have about our future, our model continues to work well because we keep innovating.

More than that, I believe that the good work our staff does is directly related to the operating model that we have. C4 is good for UK business and privatisation is a solution in search of a problem.

 

Our Remit

Not many CEOs have their employment objectives enshrined in statute, but I do. The 1981 Broadcasting Act, upgraded several times since, sets the terms of my contract. It is not a burden.

On the contrary, I believe in it because it delivers public value at no direct cost to the taxpayer. If Parliament votes to change our ownership, that’s their prerogative. But until such time, we intend to keep delivering the will of Parliament.

Our remit is expressed both in Channel Four’s annually measured licence requirements as well as in its statutory obligations to innovate and take creative risks. These are tracked and monitored by Ofcom annually in detailed studies.

In truth though, the spirit of the law matters as much as the letter. What this means in practice is a balancing act in the schedule. We need programmes of great value to the public and programmes that drive our revenue - and wherever we can, we try and do something very hard, which is to achieve both at the same time.

Think of some of the work of which we are most proud. News and investigative journalism, the Paralympics, comedy, home grown drama, international programmes, indie films and developing new talent. They all cost us money but they are all a core part of what Channel 4 is. I simply do not believe that the likes of C4 News, our Paralympics coverage, or our commitment to backing distinctive British films, would survive in anywhere near their current form if Channel 4 was privatised.

They all have to be paid for and this is one justification of more commercial slots such as Come Dine with Me, The Simpsons or Big Bang Theory. Or shows that start off as weird experiments but end up as popular hits – like Gogglebox.

But that is not their only justification. I regard our commercial programmes as innovative and clever television too. They are there in the schedule to provide entertainment as well as money. Which is why, we don’t apologise when sceptics question what these programmes have to do with the remit.

And the public seems to agree with us. Channel 4 is consistently rated as more likely to take risks and more likely to cater to minority tastes than any other broadcaster. I am proud to say that more people are saying this now than at any time since 2009. Which is presumably one reason why last week the ex-Head of the Commission for Racial Equality said that ‘based upon actual data about how people behave, Channel 4 right now is the most important agent of integration in our national media’.

 

Our Sustainability

Despite the undoubted novelty of Netflix and Amazon Prime, at Channel 4 we are reassured that when the British public hear our name they think of a brand that remains very much part of the culture and zeitgeist of the nation today.

We can see the proof of that claim in the particular appeal we have to young and upmarket viewers, brands and their advertising agencies.

They like our shows because they say something unique about the country and society we are continually in the process of becoming – something which has cultural impact with millions of people. And this is backed up with a pipeline of UK shows from UK producers in which we invest over £400m per year.

We can see it too in the fact that our ratings are up. That is true across all individuals in 2015, and in primetime, it is true across our entire portfolio. Last year we were the only terrestrial network to see year-on-year increases across each of our major demographics: 16-34’s; ABC1s and individuals. And we continue to punch above our weight in on-line video too; with a share of advertising revenues far higher than our linear share.

By any measure, Channel 4 today is in a strong place both creatively and commercially. Revenue in 2014 (our last reported year) was £938m. In a few months our results will show that 2015 has been an even better year. In 2016 we expect revenues to exceed £1bn. And our reserves remain well above £200m so we can keep planning investments into the UK creative industries with a long-term-view.

With numbers like that I find the conversation about our funding model rather puzzling. I took over at Channel 4 in 2010 at the very moment that the idea of a funding gap had been completely discredited. That’s why Lord Burns and I stuck to the simple task of cutting our cloth. We wasted no time waiting for a bailout from anyone.

The talk that was common in those days, of a £100m financial shortfall, sounds like an echo from half a world away. When Ofcom renewed Channel 4’s licence for a further 10 years in 2015 they said that although UK broadcasters face competitive headwinds that are blowing ever stronger, Channel 4 has adapted and continues to adapt.

And since this is an Enders conference, allow me to quote a recent Enders report on Channel 4: ‘The privatisation case would be made easier if the current model were unsustainable. Only, Channel 4 is delivering its remit with great success, is commercially sustainable, and promises both to remain highly sustainable and grow its PSB contribution through its current licence ending 2024’. I could not agree more.

In truth, we have evolved over the decades from a single channel, to a portfolio of digital channels to a multiplatform player. We have also developed a strong presence in the fast growing on-line video marketplace and created effective commercial partnerships with key players like UKTV and BT Sport.

 

Creative Renewal

As Chief Executive, the past five years for me have been characterised by the sense of a permanent revolution driven by two main imperatives: creative innovation to refresh the flow of the highest quality original programming and the need to control our own viewing data.

To be effective, creative innovation is a gradual and continual process based on leadership and creative partnerships – which, in our case, sits at the heart of the people and values of Channel 4.

After years of overreliance on Big Brother we began to invest properly in our pipeline. We made a deliberate decision to dip into our reserves for two years and work with the best companies on the most interesting new ideas.

Thanks to the phenomenal talent and efforts of our commissioning teams led by Jay Hunt, working with all our creative partners, we are now seeing the rewards. I am thinking of work that sets the national conversation like Dispatches, 24 Hours in A+E , The Island, Hunted, Gogglebox, First Dates, Indian Summers and Deutschland 83 and films like Amy, Room and 12 Years A Slave.

All this has allowed us to remain hugely competitive in multiple genres. You just have to look at our recent BAFTA and Oscar wins to see this.

And this year we have the triple live sports whammy of Formula 1, The Paralympics in Rio and The Grand National to drive our ratings.

 

Data Strategy

But great content also needs to be protected by first party data of the highest quality. Last year I spoke at this conference and said that a broadcaster without a data strategy is like a submarine without sonar. The better the data strategy the more value we deliver to audiences and advertisers.

When I first announced our innovative approach back in 2011, the UK TV industry was sceptical. Today – programmatic trading is becoming a reality for our entire sector and first party data is central to how it operates.

Last year I announced our 10 millionth registered viewer. Today that number stands at over 13.5m, which includes over half the 16-34 year olds in the UK.

By this time next year I would expect this to be at 15m and for our combined non-linear revenues to be reaching £100m out of total revenues of over £1bn per annum.

Today, we are, as a business, now broadly neutral between whether a viewer watches via channels or on-line. We are trading Analogue Pounds for Digital Pounds. Which is clearly a very different story to what’s happening in print and on-line journalism.

Last year we enhanced the core catch-up service with live streaming, downloading and original short-form commissions. So far we have delivered 45 commissioned short-form series from 34 independent producers; nearly half are new to Channel 4. Shorts make up nearly 1 in 20 views on platforms where they are available.

Walter Presents is a more recent addition and consists of a library of around 700 hours of curated high-end foreign language drama from around the world.

It launched only weeks ago to some critical acclaim, has already attracted 5.5m views as of yesterday and we are now in talks with potential international partners to roll it out beyond the UK. It’s an excellent example of how there are always new ways to deliver the remit.

 

Growth Fund

Channel 4’s remit also set us up as a publisher-broadcaster, to stimulate growth and support the UK independent production community.

We remain true to that original purpose. We still work with more independent companies than ITV and Channel 5 combined.

So part of Channel 4’s public purpose is to ensure that the UK retains an Indie sector which is the envy of the world. This is especially important given the weight that is now attached to the UK creative sector in driving the UK economy as whole.

In 2014 we saw the opportunity to help re-seed the sector, which has been consolidating quickly, through our £20m Indie Growth Fund. We provide ‘smart’ funding to help small indies grow.

But we expect that over time, we can benefit from their success by exiting our investment and continuously reinvesting back into the next wave of companies. We now have a portfolio of investments into nine fantastic production companies that together increased turnover from under £30m in 2014 to a forecast of nearly £70m by the end of this year.

 

Conclusions

So these are just some of the components of Channel 4 today that together add up to a very strong position. We are proud of how it has gone and excited about the future. Which is why it pains and perplexes me that two distinguished and prominent predecessors of mine, Michael Grade and Luke Johnson, who in their day eloquently defended the unique Channel 4 model against previous attempts at disruption, have spoken out recently in favour of selling.

They both seem to be arguing that Channel 4 now faces a far more complex environment than it did back in their day: so complex that we should give up trying to go it alone.

I don’t doubt that it is harder today than it was. I would love to turn back the clock to the 1980s, when the Labour party had a very left wing leader and the Tories were arguing about Europe.

But, I really do not share their pessimism. I am by no means complacent but I simply do not see an existential threat on the horizon that we can’t identify and respond innovatively to – it’s what we are good at.

Neither do I really understand why exactly they believe Britain’s creative industries would be better off with C4 sold to a pay-platform or a foreign buyer.

As I say, this is a solution searching for a problem. Nobody seems able to explain why they want to do this. Or indeed, exactly how they intend to do it while retaining our remit securely.

Michael Grade, these days of the red benches in the House of Lords, tells us that we can become a ‘media powerhouse’ in private hands and that he thinks my position ‘flies in the face of commercial logic’. Michael did a good job at Channel 4 but success in building ‘powerhouses’ has not exactly trailed him since.

I think we can draw a lesson from Michael’s career which he seems to be missing. And that is true even if we disregard the fact that he changes his mind on this issue more often than he changes his socks.

Luke Johnson seems a bit unsure what he thinks too. As recently as September last year he told the House of Lords Communication Committee that “without Channel 4 the indie-TV production sector would not exist.”

In 2011 he said of Channel 4 that “there can be no other part of the state that offers such enjoyment and value to the taxpayer for so little, while also boosting the economy”. He was a vociferous opponent, through 2009 and 2010, of a merger between Channels 4 and 5.

In 2008, giving evidence to the Culture, Media and Sport Select Committee, Luke said “there is a grave danger that the terms of any privatisation would lead to tearing the heart out of Channel 4”.

Yet today Luke Johnson, for a reason I cannot quite fathom, is understood to be making the case for privatisation.

Luke’s own answer, when he was Chairman, was to get out the begging bowl and ask for cash from the BBC or directly from the taxpayer. That move, away from self-sufficiency, is even less politically plausible today than it was back then.

Luke’s inability to stick to one line and Michael’s many changing positions over the years, have made them the flip and flop of British broadcasting.

I want to give them both a message today. Cheer up. Stop worrying so much – and in Michael’s case – go and enjoy your Channel 4 pension. The model is working.

You don’t have that just on my say-so. That is also Ofcom’s verdict and that of Enders Analysis too. The BAFTAs and the Oscars tell the same story. So do the revenues.

13.5m registered viewers can’t be wrong. And next week we shall publish a detailed report from Ernst & Young on the long-term sustainability of our business model.

So to end – let’s now return to the drama The Unknown Civil Servant. As investment professionals you will be familiar with the idea that ‘preserving optionality’ never comes for free. My fear is that the Government may not fully appreciate this.

After six months of questions in parliament, rumours and leaks we should soon begin to consider the effect of prolonged uncertainty on our staff, our business partners and our advertising clients.

If we had failed to creatively renew Channel 4 over the past 5 years, or if we had not built a powerful proprietary data platform and successful commercial partnerships, I might also fear today for the future of 4.

The fact that we have done so gives me confidence that far from needing the assistance of a private owner, we are well placed for the future.

If Channel 4 did not exist in its current form, a government that cares about innovation and the creative industries would be looking to invent it.

So let’s set aside these fantasies about powerhouses; yes let’s keep renewing our model by all means - but flogging off 4 will be bad for viewers and bad for the creative industries of the UK. In the words of Michael Grade himself: “Channel 4 works, can it please be left alone to get on with its job, serving all the viewers.”