A post-Brexit recession will cause a hyper-cyclical decline in the advertising revenues of broadcasters and publishers

The Vote Leave idea of the UK joining a free trade area for goods with the EU would sever UK access to the Single Market for services, damaging the export-reliant audiovisual group, among many other sectors of strength

Made-in-the-UK IT, software and computer consultancy services will lose eligibility for government procurement tenders once the UK is an outsider to the EU

On TV, UK public service broadcasters (PSBs) have operated within a privileged ecosystem; a guaranteed electronic programme guide (EPG) prominence placing their channels at the forefront, helping sustain their market share and spawning digital families

But technological changes within the TV set are eroding this prominence, and on devices, such structural advantages are non-existent

To confront dramatically falling mobile engagement, despite consistently excellent content, the PSBs need to collaborate and replicate their privileged linear position or they will struggle against the major SVOD players

Enders Analysis co-hosted its annual conference in conjunction with Deloitte, Moelis & Company, Linklaters and LionTree, in London on 8 March 2016. The event featured talks from 22 of the most influential figures in media and telecoms, and was chaired by Sir Peter Bazalgette.

This report provides edited transcripts of the talks, and you will find accompanying slides for some of the presentations here.

Videos of the presentations are available on the conference website.

The Government is exploring the privatisation option for future Channel 4 ownership on account of its concerns about the sustainability of the Channel 4 business model in light of recent viewing trends.

Channel 4’s focus on 16-34s has put it under extra pressure, but the topline figures do not remotely tell the true story. 2010-2013 was a period of disruption due to special factors. Little decline has occurred since, and Channel 4 group 16- 34 and peak time viewing shares have held firm since 2010.

As for revenues, the trading dynamics of UK TV advertising have seen audience loss more than matched by increased spend, benefiting both Channel 4 and ITV. This is not about to change, while BBC3 closure and Channel 4 digital video growth will reinforce the financial sustainability of Channel 4, now delivering its remit better than ever.

Channel 4 is a key pillar of the UK’s audio-visual economy. Its unique commissioning model fosters a hotbed of new creative UK talent, an ecosystem of independent producers, many micro.

Channel 4 commissions a greater share of its budget than any other broadcaster, public or private, also fostering the creative economy outside the M25, and 9% of commissions will be to the Nations by 2020.

The future success of the stand-alone independent production companies is not in the hands of ITV and Channel 5, but of Channel 4 and the BBC – the pure PSBs.

Channel 4 has confirmed it will distribute catch-up and archive TV shows via YouTube on a non-exclusive basis starting in November, with the broadcaster responsible for selling advertising around its content

The partnership looks to be a win-win: Channel 4 stands to get a huge lift in its online audience while retaining control over sales, while Google achieves a breakthrough deal with a major broadcaster with the hope of more to come

We expect a rash of similar deals as rights holders, broadcasters and video service providers jostle for position in the nascent internet TV market, but few will benefit from the special synergies offered by Channel 4-YouTube

Channel 4 broke even in 2008 despite a 5% fall in total TV NAR (net advertising revenues), through a combination of outperforming the market and £25 million in programme budget cuts. Its annual report also underlined its credentials as the alternative PSB voice, based on market research conducted over the year

The crunch time is likely to come in 2009 and 2010. Although financially better placed in many ways than ITV, and more flexible over committed programme spend, the recession threatens Channel 4 with a cumulative annual net deficit of around £150 million in 2010 without further action

Financial pressures facing Channel 4 highlight the need for urgent government action, in the absence of which much depends on the outcome of Virgin Media’s efforts to sell its content assets and the ultimate willingness of BBC Worldwide to engage in a JV with Channel 4. Consolidation would help even if it did not solve all of Channel 4’s pressing financial concerns

The essential conclusion of Ofcom’s Second Public Service Broadcasting Review is that the present commercial PSB model is unsustainable in the digital age. The Ofcom solution of fixing on Channel 4 as the “alternative, commercial PSB voice”, while freeing up the Channel 3 and 5 licensees from most of their PSB obligations, still leaves a major funding gap

A particularly attractive solution is some kind of synergy-generating merger/JV/partnership, but difficult to achieve in practice. The attached note examines the main issues that we may expect to arise with the existing proposals

Kangaroo – the proposed BBC Worldwide/ITV/Channel 4 video-on-demand (VOD) service – has been terminated by the Competition Commission (CC) due to fears that it could control the wholesale and retail supply of UK TV VOD

In our view the CC decision is a lucky escape for all three shareholders since it will save them from investing potentially tens of millions in an ill-advised venture which could have become a bottomless money pit when they can least afford it

Near term ITV and Channel 4 will refocus their internet strategies around their own portals and online syndication deals, but these are unlikely to deliver significant revenue; Marquee – the BBC’s proposition to open up iPlayer to other PSB broadcasters – could help, with the advantage of being very low cost

The final Ofcom statement on the future of PSB advocates fixing the commercial PSB crisis by designating Channel 4 as the core alternative provider of public service programming to the BBC, and freeing up ITV and Five commercially by means of considerably lightened PSB obligations

The fundamental issue of the Channel 4 (or any other) solution is funding the new commercial PSB model. Eyes are now being set on a Channel 4 partnership with BBC Worldwide, centred on its UK assets as the marriage made in heaven

Another major recommendation of the Ofcom PSB proposal is the abolition of the national Channel 3 breakfast time licence, currently held by GMTV, which is running a viable business with its own sales force. This recommendation appears at odds with Ofcom’s commitment to plurality in news provision and its statutory duties to encourage competition in the communications industries