BT is the most likely UK company to bid for Channel 4, according to a new report that estimates a sale protecting the broadcaster’s model might only raise about £500m for the government.
The 74-page report, entitled the consequences of privatising Channel 4, argues that the impact of selling off Channel 4 would be “overwhelmingly negative” for the UK economy, the broadcasting industry and creative industries.
The report, commissioned by Channel 4’s board, refutes the widely reported £1bn potential sale price attached to the broadcaster, arguing it is unachievable unless a buyer was given huge scope to commercialise the not-for-profit business.
Last week, the culture secretary, John Whittingdale said Channel 4 could be “better off” and have a “stronger future” in private hands.
The report, by academics at London Business School and Oxford University Centre for Corporate Reputation, refutes this view, arguing Channel 4 has a “comfortably sustainable” business model as a state-owned, commercially funded broadcaster.
According to the report the most likely purchaser of Channel 4 is a US buyer or consortium, such as Discovery or Channel 5-owner Viacom, with the prime UK candidate BT.
“The most likely [UK communications company] candidate is, in our view, BT,” the report says. “Given its cash flow and balance sheet, BT could certainly afford to buy C4, even after the EE acquisition. It is also already expanding in TV, although this development is still at a relatively early stage.”
The report says a UK comms company might be considered a “more attractive” buyer politically than a US company, because it would keep C4 in UK hands and is most likely to keep its publisher-broadcaster model intact, but the government would have to run an open, competitive bidding process.
Channel 4 could be valued “optimistically” at £530m to £620m, including £175m in cash from the broadcaster’s balance sheet, but the report believes a “realistic maximum price” would be £400m to £500m – unless the government allows a buyer to radically overhaul Channel 4’s model. "Any price above this approximate range can only come from [the buyer’s] ability to get more ‘bang for the buck’ – revenue per pound – from Channel 4’s content budget,” says the report.
“This is the big issue for privatisation because of the tension between delivering the remit and maximising shareholder value and, therefore, the privatisation proceeds.”
A new buyer would need to shift a significant amount of Channel 4’s £600m-plus content budget to, mostly, buying US programming from the suitors’ own production businesses.
The report’s writers claim to have seen one investment bank presentation that looked at a scenario of a 30% cut in total content spend, and a 10% cut in marketing spend.
This would imply a 50% reduction in C4’s spend on UK content, which stood at £430m in 2014.
“Any change in C4’s ownership or business model would require primary legislation, taking about two years to go through parliament,” says the report.
“Given the associated effort, risks and inevitable controversy, and the heavy current political agenda (Europe, refugees, the NHS, etc), it seems unlikely – although not inconceivable – that the government would wish to proceed with C4 privatisation in the hope of raising just £500m from the sale, just above C4’s book value (£443m).”
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