The government’s proposed privatisation of Channel 4 risks reducing competition, leading to higher prices for ad spots and ultimately a shift away from TV to online advertising, according to leading industry bodies.
In their official responses to the government’s consultation on the planned sale of Channel 4, the Advertising Association, the Institute of Practitioners in Advertising (IPA) and the Incorporated Society of British Advertisers (ISBA) all raised concerns that the sale would reduce the number of TV advertising sales houses.
ISBA and the IPA said they opposed the privatisation of Channel 4.
The Advertising Association said it would not comment on the different options for privatisation “as there are different perspectives within our membership”, which includes advertisers, agencies and all the advertising-funded media.
However the association said there were “many questions that need to be answered by the government about why it believes Channel 4 should be privatised now”, noting there were “no calls from members for privatisation prior to the announcement of this consultation”.
In its submission, the Advertising Association said three sales houses in the UK, including the one owned by Channel 4, kept the market competitive. The “big three” are considered to be Channel 4, ITV and Sky.
It said: “Advertisers and agencies are concerned that privatising Channel 4 will weaken competition in the TV advertising marketplace, and could lead to a reduction in the number of TV sales houses.”
In a separate submission to the consultation, ISBA stressed that if Channel 4 were sold to a domestic broadcaster – such as ITV or Sky – then “the combined broadcaster and media buyer would be in a position to secure undue dominance in the TV advertising market”.
It added: “The reduction in the number of TV advertising sales houses would reduce competition in the market and be a significant concern for advertisers.”
IPA’s own submission reiterated that a previous report on the privatisation bid – by creative industry research firm Enders Analysis – found the sale would appeal to commercial rivals such as ITV or Sky.
It said: “This presents clear risks to the plurality of and competition within the commercial TV advertising marketplace.
“A less competitive TV marketplace would not be in the interests of advertisers and could drive up the unit price of TV advertising. This could in turn accelerate the migration of advertiser budgets away from television and into online platforms.”
Other concerns raised by all three bodies about privatisation include the potential loss of its appeal to diverse and young audiences, as well as light TV viewers.
IPA said the broadcaster’s ability to reach these audiences “is invaluable to many British companies selling products and services, and their advertising agencies seeking to maximise reach and build brands”.
The Advertising Association warned the government it would “need to think very carefully” about safeguards that will be required “to protect the risk-taking and inventiveness for which Channel 4 is currently known”.
Channel 4 echoed the concerns of the advertising industry bodies, noting in its submission that a change in ownership “would likely have a significant negative impact on the UK’s advertising market”.
It agreed that any consolidation of advertising sales houses as a result of Channel 4’s privatisation would “significantly” reduce choice for advertisers and would likely lead to an increase in the price for TV advertising, while potentially prompting more advertising budgets to be targeted at online platforms.
It also said it disagreed with the government’s assertion that Channel 4 is too reliant on advertising revenues that are in decline.
While the broadcaster agreed linear TV viewing was dwindling at the same time as competition for viewers’ attention on streaming services was increasing, it said “these challenges apply to all broadcasters, regardless of ownership status”.
It added that “both digital and broadcast advertising remain robust”.
It said: “Advertising will continue to be a strong business model: all forecasts show that the digital advertising market will continue to grow, broadcast advertising remains resilient, and consumers will continue to value free to view, advertising-funded content.”
As the government consultation closed earlier this week, on 14 September, advertising industry leaders joined forces to sign an open letter by Campaign calling for Channel 4 to stay in public ownership.
Two-thirds of advertising professionals oppose the plans to remove Channel 4 from pubic ownership, according to a poll carried out by Campaign in the summer.