08 March 2004 17:43
Complex combination
Julian Manyon, ITN's Moscow correspondent during some of the most dramatic moments of the past decade, had a
wonderfully believable explanation for the apocalyptic nature of Russian politics. The political culture, he argued, was
that when people saw a political or economic crisis on the horizon, their instinct was to accelerate towards it in order
to get it over, one way or another.
There are some signs of a similar tendency in British television at present. The Communications Act was meant to set
the structural framework for the next decade. The new regulator, Ofcom, was to establish the context for longer-term
planning with a review of public service television.
But already some fundamental changes being mooted across the industry go beyond many of the assumptions behind both
the Communications Act and Ofcom's review. Indeed, the reported talks over some kind of closer alignment between
Channel 4 and Five, were not even in the script as presented to parliament last summer.
The main focus of the horse trading as the Bill became law was on protecting, as far as possible, C4's unique
remit as an innovative, commercially-funded public service broadcaster. One of the ways of doing this, it was argued,
was to reduce the prospects of Five being taken over by an aggressive major player. So Five was given a series of
additional and unwelcome public service obligations which would be triggered if it grew in size significantly as a
result, either by acquisition or organic growth.
What is now being discussed, seriously, is something completely different - a range of relationships between C4 and
Five which start with combined airtime sales, move on to co-operation on scheduling and end with a possible full-blown
merger of the two companies.
Both companies stress the exploratory nature of the discussions, but both know that once the talks became public the
genie had been let out of the bottle. And any chances of the speculation being damped down was ended at last
Tuesday's FT New Media and Broadcasting conference, when Ed Richards, the former Downing Street adviser and now
senior partner at Ofcom, said that in economic terms, such a combination might make sense. For Ofcom, a deal on the
right terms would sit pretty comfortably with its belief in market solutions.
Ed Richards put his finger on the fundamental argument for a merger - that having an audience share of 5 per cent to
10 per cent is strategically a dangerous place to be. Five is currently around 6.5 per cent, C4 just under 10 per cent.
C4 and Five could regard themselves as the main losers of the Communications Act - they face ever tougher competition
and even performing relatively well, which both are at present, leaves them vulnerable.
Everyone involved can see advantages in a merger, but not everyone has the same interests. Five has two owners - RTL
with 65 per cent and Lord Hollick's United Business Media, with 35 per cent. RTL is proud of the fact that it is
either the number one or number two commercial broadcaster in all its other European markets - a merger with C4, on the
right terms, would give it around 16 per cent share and run ITV a reasonably close second. The effect on the
advertisers, already deeply dissatisfied with the decision to allow ITV to control a 50 per cent share of the television
advertising market, would be to reduce choice further by creating a C4/Five sales house with about two-thirds of what TV
advertising revenue is left.
United, having sold its ITV interests at the top of the market, might be happy to sell off its remaining stake in
Five. Alternatively, the prospect of being part of such a significant player might tempt Lord Hollick to stay in the TV
business.
C4 is in a different position - it is not a company with duties to shareholders, but effectively a public
corporation. Its new chairman, Luke Johnson, whose deal-making and entrepreneurial skills look like having an early
outing, was appointed by the government on Ofcom's advice.
Putting it together with Five in a structure which gives Five's commercial owners what they want will not be
easy and, even if resolvable, may well need legislation. Pessimists fear it could be the prelude to a full-scale
privatisation of C4, something its board and management have always fought.
And there is also the issue of C4's unique programme remit. Here C4 and Five are quite well placed to make it
work. In terms of company culture, they are more similar than you might think - Five's directors of programmes
(Dawn Airey, Kevin Lygo, Dan Chambers) have all come from C4; while C4's most recent directors of programmes (Tim
Gardam and Kevin Lygo again) both came from Five.
While the ITV merger has seen the consolidation of Granada as the dominant culture in the new company, it is not hard
to see people at C4 and Five working together on complementary scheduling across two channels with a single sales house
and at the same time delivering economies of scale.
But you would end up with a uniquely complex operation - aimed at maximising audiences and advertising revenues in
one part of the business, while meeting ambitious public service standards and maintaining an advertising premium in
another. One analogy being used is the Guardian Media Group where purely profit-driven commercial operations sit
side-by-side with newspapers responsible to a trust, rather than shareholders, for their performance. And C4 itself is
no stranger to the black arts of cross-subsidising demanding programming with ratings-grabbing hits.
What would emerge at the end of this, however, is a system with four rather than five main competing broadcasters
(and cultures) - BBC, ITV, Sky and C4/Five - a more varied ecology than the US, say, but further evidence all the same
that pluralism of ownership and approach, not on-screen quality, is fast becoming the first casualty of the new
broadcasting era.
Richard Tait is director, Centre for Journalism Studies, Cardiff University. He was editor-in-chief of ITN from 1995
to 2002
richard@tait167.freeserve.co.uk
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