By Robert Bean, Managing Partner at Grunberg & Co
The former culture secretary, Oliver Dowden, re-affirmed the Government’s plans to privatise Channel 4 shortly before he left the role – despite an outcry from dozens of firms in the TV and film industry.
Since then, his replacement, Nadine Dorries, has apparently echoed this sentiment saying that privatisation would help the channel to grow.
More than 40 production and film companies wrote an open letter to the Government to scrap the plan to withdraw public support of Channel 4 but it seems that the Government is committed to its proposals.
Under the changes, the existing state-owned organisation would be sold to a for-profit company.
Although Channel 4 is commercially funded through TV advertising revenue, it is not required to generate a profit, giving it greater freedom over programming.
Channel 4 fears that any new owner would reduce investment in regional offices and productions and set its sights on ratings over producing original content.
The financial impact of privatisation
Independent research commissioned by Channel 4 earlier this year suggested that privatisation of the channel could reduce its economic contribution in the supply chain, particularly in areas outside the South East, by up to 30 per cent.
This could strip as much as £2 billion out of the creative economy, devastating jobs – with estimates suggesting up to 26 per cent of jobs related to the industry and its supply chain being lost.
A separate study by Ampere Analysis has also suggested that as many as 60 British TV production companies could face closure if a new owner were to cut the budget for the creation of original content.
The creators behind award-winning shows like Derry Girls have already flagged their concerns in the open letter about original content being underfunded in the event of privatisation.
Many have suggested that much of the UK TV and film industry would not be able to continue if a new buyer cut back on original content following a buyout, leading to a loss of productions that reflect life across the country.
In the letter, published in The Telegraph, the industry says that the decision to privatise would lead to the loss of businesses in regions outside the South East, which would work against the Government’s plans to ‘level up’ the country.
What can the TV and film industry do to prepare?
Although the plans to privatise Channel 4 are yet to be finalised, it is looking increasingly likely to go ahead in the years to come, unless the Government does a sudden U-turn.
Building resilience in a business takes time and so there is certainly an argument for TV and film production companies to start tightening their belts and taking action now.
The first, and perhaps the easiest step to take, is to consider the costs they already incur during production to see whether these can be reduced in some way.
A wide range of factors goes into the creation of a film, from the people that are employed to the services that the production company use.
If some costs can be cut now and the project made more cost-effective, then it may be possible for firms to build funds to protect their future.
There is also a wide range of tax reliefs available to the creative industry sectors in the UK. Although they are widely used already by many production companies, they are worth revisiting to ensure that they are being maximised to reduce tax bills.
Some of these reliefs can reduce a company’s Corporation Tax bill. For example, if a company makes a loss, some or all of this loss can be surrendered at a rate of 25 per cent for a payable tax credit.
These are available for a wide range of productions, including high-end television projects, animated films and children’s television. This relief is available on qualifying UK core production expenditure on 80 per cent of the total core expenditure or the actual UK core expenditure incurred, whichever is lower.
In some cases, these initial steps may not be enough and more drastic measures may be needed. This could include the merging of smaller production companies so that they benefit from economies of scale and greater purchasing power.
In the run-up to any privatisation deal, businesses operating in the industry need to conduct financial scenario planning to evaluate the risks to their businesses in the best and worst outcomes.
This may help them to evaluate which of the options are best suited to their needs. Unfortunately, in some cases, if there isn’t sufficient interest in their projects some production companies may be forced to close their doors.
This is likely to have a trickle-down effect throughout the industry, affecting suppliers, so they too should spend some time thinking about how the privatisation of Channel 4 could affect them and what they can do to pivot into new areas.
Seek help
Businesses that are concerned about the impact of privatisation in the UK film and TV industry should seek help from their professional advisers to get a clearer picture of their prospects and the options available to them, should the worst happen.
