Can Channel 5 survive?

Published on Saturday 31 January 2009 13:02

AS LORD Carter's 80-page interim report on Digital Britain hit the desks of the country's media barons last week the verbal debate surrounding the future of public service broadcasting notched up a decibel or two.

With a throng of media and telecoms bosses including ITV's Michael Grade, the BBC's Mark Thompson, Channel 4's Andy Duncan, as well as EMI owner Guy Hands locking horns in a verbal battle over Lord Carter's and Ofcom's vision for the country's communications strategy, one media heavyweight has been notable for her relative silence.

In the slew of public outbursts following Ofcom's proposals, Dawn Airey, the chief executive of Five, has limited herself to a short statement noting her pleasure that Five's public service role "had been mentioned". This was followed by an appearance before Lord Fowler at the House of Lords communications committee when she argued that her company did not need state subsidy to deliver public service broadcasting. "We don't have the begging bowl out. The settlement we have at the moment is pretty good for Five," she said.

Few can blame her defensive stance. Since taking the helm in October, she hasn't had a great deal to shout about. Five's family of channels – it runs Five US and Fiver as well as Britain's fifth terrestrial channel Five – has seen its share of the net TV advertising market shrink by 1%. Its share of the viewing figures has also dwindled from a high of 8% to 6% with many predicting that much worse is to come. Asked what he thought the viewing figures would be in six months time one media analyst replied: "Absolutely horrific."

If that wasn't bad enough the Culture Secretary Andy Burnham has effectively ruled out any hopes Five had of a merger, proposed by Five's owner, with the state-owned Channel 4.

Five's owner is German broadcaster RTL, part of the massive Bertelsmann media group, which has long bemoaned the fact that it doesn't have any sizeable presence in the UK, one of the world's biggest media markets.

With the debate surrounding the Government's plan to reform public service broadcasting widely expected to herald the end of government-owned Channel 4 in its current form one key question remains unanswered: what will happen to Britain's fifth channel?

"Five is a bit of an anomaly," says one media analyst who asked not to be named. "Bertelsmann owns a vast number of channels across Europe and clearly Five is subscale to them in having a meaningful share of the British market. To grow it they would have to invest heavily. It has some presence in multi-channel but it is just not making any kind of inroads at all and it looks like it is destined to be stuck at 6% of viewing."

Five has never posted more than a modest profit since it was launched in 1997. It is understood to have made money in the first half of last year and RTL's chief executive Gerhard Zeiler has predicted that its results will be ahead of those of the not-for-profit Channel 4.

But a closer look at the financial picture does not look good. Turnover of around 305m in 2008 is expected to tumble by nearly 63m as the television advertising market falls 10% and the audience loses 1% to ITV, Channel 4 and BSkyB. Airey herself has said that she expects a "very significant" 10% reduction in advertising revenue compared to a 5% fall last year. "This is unpleasant and we are looking at it with a degree of anxiety," she said. "There will be staff losses, staff are aware of that."

One of Five's main problems is that it is locked into expensive deals signed up by its former chief executive Jane Lighting in an attempt to chase large audiences.

Lighting paid 300m for a 10-year deal to show Australian soap Neighbours and she hired Natasha Kaplinsky as a 1m-a-year news anchor on top of buying the rights to the Uefa Cup.

Airey has engaged consultants Eden McCallum to try to shave costs. It is understood as many as 90 redundancies from a workforce of about 270 are on the cards as the channel looks to slash a third from its wage bill. This comes on the back of its decision to drop the Trisha Goddard talk show after more than four years. Airey said she could no longer justify the show "in the present economic climate". Last week it emerged that Kaplinsky had accepted a 375,000 pay cut to read the news part-time when she returns to Five after her maternity leave.

The channel's supporters argue that in House and Grey's Anatomy they have signed up some popular programmes while factual series, such as Ice Road Truckers, was another success. But it still rankles that Five has never enjoyed the success of a Big Brother.

This can be partly blamed on the disruption surrounding the creative team which has suffered from having three programming bosses in less than two years. Dan Chambers left abruptly in 2006 while his replacement, the BBC's Jay Hunt, quit within months to return as BBC1 boss. Lighting and her managing director Lisa Opie have also left. Last week it was announced that Hannah Barnes, the director of programmes for Five's digital services, was stepping down without a job to go to.

RTL and Bertelsmann are understood to favour the possibility of mergers. With the Government throwing its backing behind Channel 4, signalling that a tie-up between the broadcaster and BBC Worldwide, instead of a merger with Five, was the best way to protect its future, analysts speculate that Bertelsmann's chief executive, Hartmut Ostrowski, could look to ITV.

Paul Richards, media analyst at Numis Securities, says: "With a merger with Channel 4 looking less likely, the question is now whether RTL might now look at ITV – owning the two is a real option."

Another City analyst said: "What could be interesting is the prospect of RTL doing a swap with Sky. In this case RTL would buy Sky's stake in ITV and use this as a platform to launch a full bid for ITV enabling it to get a much bigger presence in the UK as part of its European portfolio. Sky would then own Five neatly bypassing its problem that it can't own ITV because it is protected under law. If Murdoch then said he was going to invest everything in Five he could possibly build a meaningful commercial, free-to-air competitor in the UK that is not reliant on subscription television. The fifth channel could become something more substantial and build a greater share."

The Government's final report into the future of public service broadcasting is expected later this year and could recommend the creation of a second body to compete with the BBC in producing public service content, with Channel 4 at the centre. But analysts are not ruling out a role for Five. Amid all the wrangling one thing is clear, the status quo cannot continue.

"Five as it is, is not an irrelevance," says one analyst. "But it is pretty peripheral in the overall scheme of things."