The last few days have been full of headlines about commissioning moratoriums, cancelled shows and even indies cash-rolling productions.
At the centre of it all is Channel 4, which recently confirmed that it was deferring bonuses for its executive team, including CEO, Alex Mahon.
The broadcaster was buoyant only a few months ago, talking of bright futures and investments in the independent sector – having freshly fought off the government’s attempts to privatise it.
Fast forward to today and it’s a different picture:
Politicians have started asking about its long term sustainability. Production companies say they’ve heard rumours of an unofficial commissioning moratorium. Multistory Media’s Four Weddings was cancelled just before it was due to go into production. The Last Leg has had its run reduced to 7 episodes. The daytime version Kirstie’s Handmade Christmas, is being “rested” – although a prime time version will be made.
There are also reports that some producers are being asked to cashflow productions at short notice. It’s not unusual for broadcasters to agree funding models in advance with indies, but John McVey, the CEO of PACT said this felt more like a “kick-bollocks-scramble:”
“If Channel 4 wants to ease its cash flow problems then that’s fine, just come out and talk about it sensibly. This last-minute kick-bollocks-scramble is not good for anyone, including them, their reputation, and their relationships.”
So what’s happening?
The easy response is a “very difficult” advertising market and increasing inflation. That’s not just at Channel 4, that’s across the industry, but the picture is slightly more murky than just a “drop in advertising revenue.”
“For the year to the end of April (23), we have seen advertiser spending on linear TV down sharply at 10% – 15% (by supplier), and we do expect that trend to continue, making 2023 a deflationary year overall. However, it is vital to put that in the context of the 16% uplift in 2022, on top of the 11% uplift in 2021,” Matt Rutherford, Head of AV at UM Manchester explained (you can read the full length interview with Rutherford here).
“It is also crucial to put broadcast TV alongside broadcast VOD, which is predicted to be up by over 4% in 2022 to almost £850m. The broadcasters have all sought to adapt their online offerings accordingly. This year, All 4 has come under the Channel 4 banner, while ITVX is a significant upgrade on the ITV Hub. It is clear that the role of the major suppliers is moving from TV channels to content aggregators.”
Channel 4’s Strategy Director Khalid Hayat was at a DMCS Committee this week and when asked about cancelling shows at the “11th hour” and if the channel was “genuinely sustainable in the long term” the response was:
“Channel 4 is in very strong creative health. […] We are in very strong creative health. The pressures that you describe in relation to some of the commissioning decisions that we have recently made, for instance, are short-term market pressures. All of us as commercially funded broadcasters are experiencing pressures in the ad market relating to the economic conditions in which we find ourselves as the UK.
“Our priority throughout this period is to preserve shows as much as we can, and to minimise any disruption or cancellations to commissioning. Any decisions that we make are about ensuring and delivering the sustainability of Channel 4’s remit. The year 2022 was a record one for content investment for Channel 4. We invested more in 2022 than we did in any other year. We are going to invest a similar amount in content this year, but what we are doing is phasing our activity a bit more, given the market conditions in which we find ourselves. While we acknowledge that our activities in the short term are painful for some of our suppliers, and we are grateful to them for working with us through this period, they reflect short-term market conditions. They do not in any way reflect any concerns about long-term sustainability. What we will be doing shortly is briefing indies on our 2024 and 2025 commissioning needs. We will be briefing indies on that later this year in order to give visibility of our commissioning plans going forward.”
Channel 4 relies heavily on advertising, a lot more so than say ITV, which has other revenue streams, including its own studio operations.
The Government is set to relax Channel 4’s publisher-broadcast restrictions in the new Media Bill, which will enable it to make its own content and build IP.
Without that back-up it means that changes to the economy are likely to hit Channel 4 first, like a canary down the mine. So, other broadcasters could start experiencing difficulties later down the line as budgets get tightened even more.
In May, ITV said that its advertising revenue had fallen 10% and that it anticipated a 14% fall in this month alone.
“In Q2 we continue to see strong growth in digital advertising with revenues expected to be up over 20%. The outlook for TAR [total advertising revenue] is challenging as expected given the current macroeconomic environment with TAR forecast to be down 12% in Q2,” read the statement to the Stock Exchange.
At Sky its advertising revenue fell 9.6% in Q4 2022.
“While it is important not to overstate the decline in TV advertising (the decline in 2023 only takes spend back to 2021 level), it does point to a shift from broadcast media to more addressable advertising formats, with more trackable results for advertisers,” continued UM Manchester’s Rutherford.
“While TV offers relatively low CPTs compared to other media, the large size of the audience means that the capital cost of TV has always been high. The geographic and demographic targeting offered by VOD and other digital formats can overcome this, getting rid of the high bar to entry for video advertising.”
The BBC, which has its own non-advertiser battles, with the Licence Fee agreement, has seen “exceptionally high inflation in the industry” meaning that the £285m cost savings it was expecting to make by the end of the 2027/2028 Charter period have rocketed to £400m.
With the cost of production and commercial deals rising – look at the stand off between European broadcasters and FIFA over the Women’s World Cup – it suggests that across the industry there could be some belt-tightening going on.
For those with their own studio operations, that may mean a few more “cheaper” in-house productions, something Channel 4 can’t fall back on, given its absolute reliance on independent production companies.
In 2018, Channel 4 was given a £75m credit facility, as a “financial backstop for exceptional circumstances.” Are these “exceptional”? Potentially, but it hasn’t accessed the fund, this is due to a belief that this is a short term issue.
Production staff
Cancellations and delays may frustrate viewers and investors. For production teams, it’s more fundamental.
Inflation and the rise in the cost of living was already impacting freelancers, who Channel 4 calls its “beating heart.”
For them, last minute cancellations can be devastating, given they may have booked out several weeks or months to work on a project.
Bectu fears it’s getting critical.
Last month, the union talked about the “feast or famine” of the broadcast industry. Indeed there may be a period of balancing out going on.
During the Covid-19 pandemic, marketing priorities shifted. Out of home and events fell off a cliff, but one thing that shot up was broadcast and online viewing – and advertisers noticed, so budgets were available.
Once production was able to re-start, everyone launched into action almost simultaneously.
It was the perfect storm, an industry that has long been calling for investment in infrastructure and training, suddenly faced with everything coming all at once.
Studios were booked out across the country. You couldn’t get enough skilled staff and that meant the freelancers with the right experience could charge premium rates, as could locations. So budgets had to increase.
By 2022, Screenskills, amongst others, warned of skills shortages across the industry. It said that this was leading to “over-promotion, rate inflation, senior staff stepping in to complete junior responsibilities and production being delayed.”
A year on and Bectu is warning of an “unprecedented” lack of work.
“We are deeply concerned at increasing reports of unscripted freelancers struggling to find work, with many telling us this is the longest period without work that they have ever experienced,” said Head of Bectu Philippa Childs in May.
“The ‘feast or famine’ nature of the industry – whereby there may be an overabundance of work one minute, and none the next – is an incredibly challenging environment to work in and we urge the industry to come together not just to address the current crisis, but to commit to long-term change. Broadcasters must better communicate with freelancers and give them a seat at the table to find solutions to a system that places all of the risks of employment and unemployment on the individual workers.”
This is by no means just a Channel 4 issue, but a spokesperson from Channel 4 spokesperson responded to Bectu:
“Channel 4 cares deeply about the indie community and our wider supply chain of freelancers. They are the beating heart of our business.
“While we recognise the actions we are asking of some are causing some short-term pain, the plan we have in place underscores our ongoing commitment to our financial sustainability and our continued support of the UK’s independent production sector.”
What happens next is difficult to predict. Should the economy pick up, then so will advertising – and commissioning and acquisitions will follow. However, that returns to the cycle of “feast or famine.”
There is also the new unknown of what happens when Channel 4 is allowed to produce its own content in-house. Will that lead to hiring, or will it “adversely impact” on indies as warned by industry trade bodies?
Bectu believes it’s time for the industry to work together to ensure there’s “good and consistent work throughout the year.”
Childs added:
“We are engaging with the BBC and other broadcasters, as well as production companies and other stakeholders, and we call on the industry to come together as a matter of urgency to develop a strategy to address both the current crisis, and drive long-term change.”
The union said that such uncertainty and lengthy periods of unemployment “did nothing” to increase the industry’s diversity and inclusivity.
How that can be achieved is the million, possibly billion dollar question, as UK inward investment in film and high television alone was £5.37bn last year.
Ultimately, as UM Manchester’s Matt Rutherford concluded, it’s all about the quality of the output, if it’s good enough, it will be funded, whether by a broadcaster or a brand:
“One of the key attractions of TV advertising has always been the quality of the content, and the desire of advertisers to associate with that. If the TV stations can create engaging new content, the audiences will watch, whether on TV, VOD, clipped on YouTube or through their Apple Vision Pro set. And brands will be right there to take advantage of that engagement.”
