Whats this Channel4 ?

Channel 4 and Ownership

It may seem that C4 is not a significant 'owner' in the sense that media conglomerates such as AOL-Time-Warner or 'News International' are.

This, however, misses the fact that C4 as a 'distributor' finances a significant 'supply chain' and is also a 'marketable brand' which has control and ownership of the greatest asset of any media company; copyright.

Means of production - The supply side

Broadcasters can buy programmes from three sources:

'In-House' - content produced by their own production teams
'Acquired' - content that was originally created for another broadcaster
'Third-Party Content Providers' - this includes a range of organisations, from small Independents, to larger 'super-indies' (such as Endemol and RDF) and major international companies such as the Hollywood studios

Some of these content providers are purely commercially driven, others are more motivated by creative or ideological issues.

"There is... a broad spectrum of creative and commercial objectives underpinning the programme supply market, ranging from a focus predominantly on creative endeavour through to a focus on generating strong commercial returns."

'ITC Review of the Programme Supply Market'
October 11th 2002

C4's remit has meant that it has been the major market for the 'creative' end of this spectrum.

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The demand side

The 'supply side' produces programmes for sale but it is the 'demand side' of the business that creates the market.

In the UK there are several different models of how the demand side is organised and financed.

Broadcasters such as BBC and ITV who rely heavily on their own in-house production
Broadcasters such as BSkyB which use a mix of their own productions and third party content
Broadcasters such as Channel 5 which are owned by media companies with their own production resources, but are not fully 'vertically integrated' (they can decide whether to buy content from their 'parent company' or not)
Broadcasters like C4 which has no production assets and source all their content from third party suppliers

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Finance

UK broadcasters are also funded in different ways. From the licence-fee funded BBC, the publicly-owned but commercially funded Channel 4, through to the purely commercial 'shareholder driven' BSkyB.

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Economies of scale

Small independent production companies (of which there are over 1000 in the UK) have had a good record of making excellent low-budget innovative and creative 'one-offs'. Where a programme is 'big- budget' or needs (risky) heavy investment over a number of years, however, the 'full funding model' works less well. A larger media organisation is able to wait for profits, write off failures and exploit intellectual property rights more effectively.

As an example, C4 and the BBC were able to fund Aardman Animations for such films as 'Creature Comforts', but only a company like 'Dreamworks' could finance projects like 'Chicken Run'.

As C4 attempts to grow the UK TV market, it is trying to use its influence to make sure that there is a healthy balance of small independents and larger suppliers (sometimes called 'super-indies') such as 'Endemol' (who produced 'Big Brother').

Large national producers and 'clusters' of smaller regional companies can make 'economies of scale' to make programmes which can compete in price and quality with those produced by the major 'studios' such as HBO.

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Entry barriers

For a production company with good programme ideas (and contacts) it has been relatively easy getting in to the market compared to other countries and other industries.

C4 and other broadcasters use the 'full funding model' to commission programmes. This means that the production costs are paid 'up-front'. The independent producer receives a modest profit- but without having to take a financial risk.

The market is also stimulated by a statutory 25% independent production quota imposed on ITV, C4 and Channel 5.

One concern arising from Ofcom's review of the UK TV Industry is that the high production values and economies of scale offered by 'super-indies' may concentrate production in these larger companies.

"Ofcom may need to monitor whether – in the medium term – the rise of the super-indie could have any adverse impact on the prospects for entry into the production sector."

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Secondary rights

As well as obtaining the copyright of material produced on its behalf by idependents, C4 has the ability to exploit the 'secondary rights' of the programmes for other media apart from television. This could include websites, 'books of the series' and even merchandise such a toys, mugs and T-shirts.

Because of the C4 'brand image' and marketing expertise the channel is generally able to exploit these rights more effectively than the small independent producer.

"Most broadcasters in the UK fully fund ... programmes commissioned from independent producers. The broadcaster takes the financial risk on the production in return for retaining all revenue from its exploitation on terrestrial TV. ...Revenue from the exploitation of secondary rights is usually shared, on the basis that both broadcaster and producer have brought value to the programme through their involvement.

"...It is Channel 4's aim to maximise revenue generated by rights exploitation for the benefit of producers and the channel, rather than retain control of rights for control's sake."

'ITC Review of the Programme Supply Market'
October 11th 2002

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The Ofcom code of practice

To deal with the complex issue of 'secondary rights', The Communications Act of 2003 (section 285) requires every licensed public service channel (ITV, C4 and C5) to draw up a code of practice to govern the commissioning of independent productions by the broadcaster.

The Codes must ensure that:

A reasonable timetable is applied to negotiations for the commissioning of an independent production
That there is a clear agreement made about broadcast rights before broadcast
That there is 'sufficient transparency' about the amounts of money to be paid in respect of rights.
That satisfactory arrangements are made about the 'duration and exclusivity' of these rights
That procedures exist for reviewing the arrangements made in accordance with the code of practice and for showing compliance with it in reports to Ofcom
That provision is made for resolving disputes about how the code is applied

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The importance of C4 to the independent sector

When the Government started C4 it virtually created the independent sector in the UK.

"The launch of Channel 4 has proven to be one of the most stark, and successful, forms of government intervention to ensure a creative and competitive programme supply market."

'ITC Review of the Programme Supply Market'
October 11th 2002

By 2003, C4 had become even more important to the independent sector, spending 52% of its programme budget to commission 62% of the Channel's output.

In 2004 British broadcasters spent approximately 2.6 billion pounds on 27,000 hours of original programming. 56% of the programming budget was spent 'in-house' with the remaining 44% going to independent production companies. Over half of this money went to 'Super-Indies' (larger production companies, with turnover in excess of £12m).

Ofcom, however, has become concerned that more production has either been taken 'in-house' or has gone to a relatively few 'Super-Indies'. This trend has been resisted by C4 (and by the BBC).

"Channel 4 and the BBC tend to commission from a larger number of external production companies than do ITV1 and Five. For example, in 2004, Channel 4 used 240 external suppliers and the BBC 185 external suppliers – while ITV1 and Five commissioned from 92 and 75 external suppliers respectively."

The 'C4 model,' however, still continues to have a large impact on UK Television.

"The independent production quota (and the associated definitions of qualifying programmes and producers), as well as Channel 4’s position as a key publisher-broadcaster, still seem to be important in ensuring “direct” competition continues to be promoted – providing external producers with access to commissioners and certainty of a contestable source of commissioning funds...We have seen that the BBC and ITV1 continue to source the majority of their original network content from their respective in-house production divisions. However, as long as Channel 4 and Five source their content externally, there continues to be a counterweight to the BBC’s and ITV1’s reliance on in-house production."

(Ofcom Television production sector review 2006)

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