If George Osborne is intent on selling off Channel 4 to the private sector, he should consider carefully before he acts the arguments advocated by Lord Burns, who stood down as the broadcaster’s Chair last month.

“One of the things often lost in this conversation is that Channel 4 is basically an intermediary between private-­sector organisations,” he stressed.

“It’s not as though Channel 4 is a public-sector organisation doing everything itself. Essentially, it raises £1bn from advertising and uses that almost exclusively to purchase things (that is, programmes) from the private sector,” he added.

With privatisation very much back on the Government’s agenda, it was inevitable that Terry Burns should devote most of his remarks to the subject when he spoke at an RTS/Channel 4 valedictory dinner last month.

His distinguished audience at the House of Lords was a roll call of the sector’s great and good. Present and past Channel 4 board members were in attendance, including former Deputy Chair David Puttnam.

John Birt, who once applied to be the station’s first CEO, was there. So, too, was the man who actually got the job, Sir Jeremy Isaacs, now 83 and still deeply passionate about the broadcaster (see below).

Regulators were also out in force: Ofcom Chair Dame Patricia Hodgson and the head of the BBC Trust, Rona Fairhead, together with her predecessor but one, Sir Michael Lyons.

The night’s master of ceremonies, RTS President Sir Peter Bazalgette (himself an erstwhile Channel 4 board member), began by asking Burns if he knew anything about broadcasting when he was appointed Chair of Channel 4 in 2009. An economist, Burns served as Permanent Secretary to the Treasury from 1991 to 1998.

“I knew a little,” he replied, somewhat disingenuously. Burns led a review for then-Secretary of State Tessa Jowell MP that looked at the remit, finances and governance of the BBC during the last Charter review, a decade ago.

Moreover, Burns was reportedly in the frame to become Chair of the BBC Governors in 2001 and the BBC Trust in 2007, and was said to have been considered for the top job at Ofcom when the watchdog was set up in 2003.

He recalled: “Back in the 1970s, I was a talking head on Weekend World and I had the great fortune to meet John Birt, then in charge of the show.

“It turned out that we had houses quite close together in Wales. I spent many hours tramping over the hills of Wales hearing John’s tales of the broadcasting industry.

“He and I have been close friends ever since and I learnt a great deal from him.”

As befitted a Whitehall mandarin who served six successive chancellors – five Tory and one Labour – Burns was keen to stress the economic case for preserving Channel 4’s status quo.

He said that he had been involved in a lot of privatisations during his Treasury tenure. “There are always two reasons put forward for looking at ownership,” he explained. “One is whether or not there is any financial reason for doing it. The other is whether it will actually improve the industry.

"I think the secret of Channel 4 is that it is, essentially, a not-for-profit business"

“I assume that there are investigations to see whether a change in ownership and the way in which Channel 4 is set up will improve public service broadcasting in this country.”

However, as far as we know, Ofcom is not yet looking into this important question.

Taking these two tests, probed Bazalgette, could the broadcaster be improved?

“On the first test, it seems there is no financial reason for it at all,” replied Burns. “The Govern­ment has got as much in the way of asset sales available to it as it could possibly hope to need over the forthcoming years.

“If you recall, it is still quite heavily into banks and other organisations.

“No doubt, there is a debate to be had and I am more than happy to engage in the issue of whether or not it could improve public service broadcasting in this country.

“My view, quite clearly, is that any substantial change in the ownership of Channel 4 towards an equity-based ownership would be very damaging.”

One of Burns’s first acts at Channel 4 was to appoint David Abraham as the organisation’s CEO, replacing Andy Duncan.

The outgoing C4 Chair pointed out that Abraham believes privatisation would risk cutting the programme budget by a third – from £600m to £400m. With shallower pockets, a reduction in creative risk taking and the possible end to comedy commissioning – ­latterly, one of the jewels in the broadcaster’s crown, thanks to Catastrophe and the final season of Peep Show – would be on the cards.

The quantity of imports would probably increase, too. Fans of shows such as The Returned and Fargo might consider this a good thing.

The independence of Channel 4 News could be threatened, while current affairs coverage might be marginalised. More dramatically still, privatisation risked putting 19,000 independent production jobs in jeopardy.

Bazalgette reminded Burns that Secretary of State John Whittingdale MP thought that Channel 4 could be privatised with its existing remit intact. Did Burns agree?

“The fact is that Channel 4 is a very extraordinary invention. The notion that you should have something in the public sector with a remit from Parliament that is commercially funded and that commissions all of its programmes from independent producers has worked extraordinarily well.

“I think the secret is that it is, essentially, a not-for-profit business.

“I say essentially because what the Act says is that Channel 4 has to return or use all of any surpluses that it generates on the purposes of the channel. This means that any surpluses that we make are put back into programmes.

“That generates a particular set of incentives and enables us to meet the remit that Parliament has given us.”

The framework allowed Channel 4 to “cross-subsidise across programmes” – enabling unprofitable shows (the esteemed Channel 4 News) to be part-funded by cash cows such as Humans and Gogglebox, which itself was tweaked before finally becoming a hit.

 

“We are not under pressure as commercial, equity-funded organisations are: they, of course, have to cut out those things that lose money and concentrate on the things that make it,” stressed the peer, a coal-miner’s son.

Burns, like many before him, including media consultant Claire Enders, highlighted Britain’s unusual broadcasting ecology and Channel 4’s place within this.

“We really do have a mixture of different models,” he said, “the BBC, funded by a licence fee, advertising-­funded ITV and Channel 5, not-for-profit Channel 4, and subscription-based Sky. “They have different ownership systems and different incentive systems.… They match each other very well and provide us with a variety.…

“You see this around the world: the great danger with public service broadcasting and free-to-air broadcasting is that they are forced to be like each other. It becomes the chase to the centre, each wanting to outdo the other by doing the same type of programming.

“Our system has generated this very happy result, probably largely by accident.… Different incentive systems provide different kinds of programming, aimed at different kinds of audiences: some for profit and others that can fund loss-making programmes.”

Remarkably, despite the onward march of the internet, Channel 4 “has managed to hold its place to an extraordinary degree and remains successful, particularly in peak time, where most viewing takes place,” Burns noted.

He emphasised: “I would be reluctant to meddle in any significant way with this ecology. I am very supportive of the BBC continuing to play the role it does.”

But there were ways of changing the Channel 4 model that fell short of full privatisation, suggested Bazalgette. There could be outside investors, with government keeping a golden share. Burns had speculated that the Government could go for mutualisation, had he not? How would that work?

“I don’t think I have ever used the word mutualisation. It is not a word I am very fond of,” Burns replied.

He added: “Government has been very nice, because it has left us to do this without taking any return at all. It’s been a very happy situation. We have no debt interest costs.”

So, should there be a return for the Government? Were one to be agreed, the state could then share in the success of Channel 4 – which may lie at the root of privatisation being back on the agenda, Bazalgette mused.

“That is something that could be debated. That is something that could be constructed,” said Burns. “I would be much less opposed to something that would require that we paid a fixed return than to being owned by people who had the responsibility of realising shareholder return.”

The sound of a kind of compromise had reared its head in the House of Lords. Watch this space.

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Burns on BBC governance

 ‘One of the concerns I have about the BBC is that it’s never been in a position where the executive has seen the board as a particularly supportive, helpful body.

‘David Clementi [former Deputy Governor of the Bank of England] is looking at whether the regulator should be OffBeeb, Ofcom or some combination.

‘I am slightly reluctant to get into this debate because I think it is much less important than the first part of it, which is that there should be a proper board put in place.

‘I could live with either of the main options being discussed as far as the oversight part is concerned.’

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Burns on BBC Charter terms

‘It would be a terrible mistake [if the next Charter was for five years]. Charter review is a very long, drawn-out process and an important issue for the BBC.

‘If the BBC’s independence is to be maintained and it is not to spend all its time planning for the next Charter, it should be 10 years.

‘If we are going to have fixed-term parliaments, it stands at a rather awkward point. Maybe something needs to be done about that.

‘I can see no merit at all in a very short Charter period.’

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Isaacs: why C4 is still essential

‘As you know, I was there when it started. I hope I’m not going to be there when it finishes. We live in interesting times.

‘It seems to me that Channel 4 is tasked with adding a distinctive flavour to the mix of media in this country. Well led, it does that pretty well and, sometimes, excellently well. The coverage of the Paralympics was public service broadcasting at its very best. Nobody else in Britain would have done that.

‘“Stand up for free enterprise, won’t you?” Margaret Thatcher said to me before we went on air. I know that, in the end, she didn’t think our programmes did quite enough of that.

‘But the fact is, by the Government insisting that Channel 4 take its programmes from independent producers, it created a great wave of new enterprise in our society.’

 

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Question & answer

Q

Chris Bryant MP, former Labour Shadow culture secretary: Is Channel 4 still naughty enough?

A

Lord Burns: I am not sure I am the person to answer that question. There are things that it shows which tell us something about the UK that, I have to say, do shock me.

Some of the dramas, some of the health programmes.… If the message is that we want a bit more of that, Jay [Jay Hunt, Chief Creative Officer] is here – she creates these wonderful programmes – and we will take it on board.

 

Q

Steve Morrison, ex-CEO, All3Media: If there is a hybrid solution, with a minority private investor, would that be a good outcome?

A

Lord Burns: My present view, without having seen any work on the proposal, is that it would not be. You wouldn’t be one thing or the other.…  

I am pretty happy to have investors in Channel 4 if they receive a fixed rate of return, but once they want a return that is an equity-­style return, it depends upon the long-term shareholders and that begins to cause a problem.

It wouldn’t cause problems immediately. I don’t want to exaggerate this.… We have a schedule that can be adjusted. But this is something that would gradually
eat away.…

If you look at the whole history of ITV and Channel 5, there’s been a gradual erosion of the requirements previously placed upon them. I am not blaming them for that. It’s not surprising. That is what happens.

 

Q

Chris Curtis, Editor, Broadcast: Does Channel 4 need to be based at its expensive HQ in Horseferry Road, which it owns, and has Channel 4’s relatively aggressive stance on the terms of trade impacted on potential support from the indie sector, its most obvious supporter, against privatisation?

A

Lord Burns: On the latter, I am already very impressed with the support we’ve had from the indie sector and, indeed, from the advertising sector, which has pointed out the very important part we play in reaching hard-to-reach audiences.

I don’t think there’s any problem with indies and the terms of trade. We’ve had quite a lot of support from them.

As for Horseferry Road, bear in mind that Channel 4 commissions all of its programmes… it is very convenient being in Horseferry Road for people who want to come and visit us.

But I don’t think that there is any absolute reason for being there. There are lots of locations that could do. Frankly, this is a sideshow. It makes very little difference.… The deal on Horseferry Road has been very good.