Edinburgh: Channel 4 Boss David Abraham Says UK TV Biz Showing U.S. How It’s Done

Channel 4 chief executive David Abraham delivered the James MacTaggart Memorial Lecture at The Guardian Edinburgh Television Festival in the Scottish capital this evening. And he came out swinging. He added the acquisitive John Malone to the “pool of MacTaggart bogeymen” and said, “In recent years we’ve seen a parade of Americans standing up here at the MacTaggart telling us how things ought to be done. But, how do you explain the number of U.S. entities queuing up to buy our producers and now, our broadcasters? Doesn’t this suggest that, maybe, as with our gun laws and health system, it’s us who are showing them how it ought to be done?” The MacTaggart is an occasion for reflection on the state of the UK TV biz and a chance to address what’s currently top of mind among execs. A trio of Murdochs have delivered the speech in the past, and, in his talk last year, Kevin Spacey touted the Netflix model and challenged TV execs to be ballsier. Referring to Spacey and Netflix’s House Of Cards tonight, Abraham wondered if the streaming giant would have “bought a show about a murderous politician who broke the ‘fourth wall’ of drama if the BBC hadn’t taken that risky decision, decades before?”

Abraham’s speech reserved a fair amount of warning about consolidation and the advancement of U.S. media groups into the British TV arena. He also addressed the issue of public service broadcasters, of which Channel 4 is one, and the need to keep investment high in the sector. With the UK government focusing on creating tax breaks to attract foreign productions, Abraham said, “Bringing American movie and drama productions here is great for jobs in the same way as making iPhones in China is great for China — but the IP and profits are on the first boat out of here.”

An erstwhile advertising executive who once wanted to be a documentary producer, Abraham is a former Discovery exec who joined Channel 4 in 2010. The company is a publicly-owned but independent entity with a formal remit to innovate and finance independent producers to take risks. Its hot shows include surprise success Gogglebox, which watches families as they watch and comment on TV; Come Dine With Me; Made In Chelsea; The Undateables; and Benefits Street. The feature division, Film4, has backed such Oscar winners as The Queen, Slumdog Millionaire and 12 Years A Slave. The department recently hired respected Universal veteran David Kosse as director replacing the outgoing Tessa Ross and demonstrating the expanded ambitions of the division. The broadcaster has annual revenues of over £900M and cash reserves above £200M. It spends big on commissioning original programming from UK producers and also airs a fair share of imported content. Its 16-34 demo share is the highest it’s been for a decade or more, the company says. Today, it announced the acquisition of minority stakes in four UK indie producers.

In his address, Abraham said his point wasn’t “to wrap ourselves in a Union Jack,” but rather to encourage the industry to focus “on the very principles which have created much of this economic value in the first place — and about us doing the hard thinking now about how to maintain and grow that system in a world which has got bigger and much more consolidated.” Still, he had some choice words for those deep-pocketed Americans.

Saying 2014 could go down as the peak year of the “Gold Rush of British Television,” Abraham pointed to the acquisitions frenzy that’s been raging in Britain recently. That includes Viacom’s purchase of Channel 5, Liberty buying Virgin Media, ITV constantly on the takeover prowl — and a potential target itself — and Warner Bros and Sony scooping up UK indies. “Diversity of ownership on both the supply and the buying side of our industry is reducing rapidly. Consolidation is driving ever bigger bets,” Abraham said calling the UK’s free-to-air channels “the must-have accessories, the tiny dogs of 2014” for U.S. media companies who want to “stay ahead of each other by internationalizing their revenues, priming their distribution pipes and shielding their tax exposure.”

So, he said, “Channel 5 now takes its orders from Viacom in New York. Liberty and other U.S. shareholders are trying to play footsie with ITV; which could eventually put Britain’s largest commercial channel in the hands of Dr. John Malone, resident of Colorado and who also now controls the UK’s pay-cable platform Virgin Media, our largest producer, All3 and Discovery.”

Regarding potential mergers like Fox/Time Warner and Shine/Endemol, he asked “how long before that would subsume Sky Europe (presumably all taking sensitive nuanced direction from a Murdoch in New York)? By the way, such an entity would have combined revenues three and a half times the size of the entire UK television industry. Just think about that for a moment.”

Below are some key excerpts from the rest of Abraham’s lecture:

“Our Independent sector, built up and nurtured over decades, is being snapped up almost wholesale and acquired by global networks and sold by private equity investors at a faster rate than tickets to a public flogging of [controversial Top Gear host] Jeremy Clarkson. Several owners have admitted to me privately that even they, as they sell, cannot fully understand the thinking behind how their companies are valued.

“It is estimated that soon the proportion of turnover of UK production that will qualify as ‘independent’ will drop from 76% to around 50%. The term ‘superindie’ has, in effect, become redundant. There are now just indies and studios.

“The truth is that UK production has turned in 20 years from an ugly duckling into a very valuable goose indeed – one that, as a result of hard work and talent, has laid some very valuable golden eggs. But, while recognizing how powerful and desirable a world force UK production has become, I want to use my speech today to make two crucial points.”

“Firstly, we might just be kidding ourselves if we think that this all happened by hard work and talent alone. The flowering of UK companies, to push creative boundaries, has been made possible by enlightened politicians and regulators backed by huge public support. That is the remarkable thing. Their wisdom and foresight has created our unique ‘PSB system,’ with its plurality of organizations and owners and its variety of missions and business models.”

…“While UK production is an undoubted commercial success story, I wonder if it will continue to be a creative one. Scale demands an increased focus on cost-cutting and margins. Reformatting ideas is more efficient than the messy business of finding new ones. Fear of risk overtakes an appetite for it.

“Will the next generation of TV execs in this room have the same opportunities as the last? Or will they be so starved of quality scripts that they will have to submit their own police dramas under gender-reversed pseudonyms, like Ruby Solomon? (I look forward to the series by the way). And what about those of you who don’t plan to get rich but just have a quite reasonable expectation of working in a vibrant industry, and doing interesting and original work?

“In addition to the uncertainty that all these deals create, my belief is that much of the value of the companies that are being bought has depended on creative freedom and independence. This in turn blossomed in large reservoirs of creative risk capital. Creative competition has driven innovation – all to the benefit of the UK viewer. The PSBs, of course, aren’t the only broadcasters to invest in UK content. However, a look at the numbers alone shows who really takes more risks.

“Although the total revenues of pay TV in the UK dwarf those of the PSB sector, 80% of the £1.7B spent on original commissions from UK producers in 2013 came from the PSBs. The other 20% of it, £381M, went to UK indies from multichannel players in total. Meanwhile, Sky alone, gave £750M back to its shareholders in the last financial year.

“Channel 4 is different. Although also commercially-funded, it’s a not-for-profit organization. This means we spend our revenues on screen rather than on shareholders. And, as a publisher-broadcaster, we can and do spend the majority of that through UK producers. But let’s imagine for a moment what a profit-maximizing C4 would look like. To deliver say, a 20% margin, I would take fewer creative risks with far fewer companies. I would push acquisitions, repeats, and ad funded programs. And I’d minimize public service obligations as ITV and Channel 5 have done over the years. I’d have to take a load of production in-house. Obviously.

“But, is that what viewers, producers and advertisers really want?

“In short, we believe in our ‘not for profit model.’ Most of all though we believe in our unique public service remit – given to us by Parliament: to be innovative and distinctive. Or put another way: to take creative risks.”

…“At least once a decade, we have returned here, to Edinburgh, to this most central of all questions: what is the best way to organize ourselves so as to maximize the creative potential of this medium in this country, and in accordance with our national appetite for creative and distinctive British content?

“The more UK content creation there is the better. Everyone wins. It is equally clear that the PSBs are the most effective at delivering it. We spend much more, across more genres, and with more certainty. We also take many more creative risks. It’s baked into our numerical obligations. But it’s also hard-wired into who we are.

“Recent government measures have been focused on tax breaks to support inward investment for production in the UK. Bringing American movie and drama productions here is great for jobs in the same way as making iPhones in China is great for China – but the IP and profits are on the first boat out of here.

“In contrast, PSB investment is the Nation’s investment – based on our spectrum, and two broadcasters that we, the public, own outright. With the next PSB Review and the next Charter round we have a critical opportunity to update the PSB settlement and help the whole UK creative economy to continue to grow.”

…”The world is rushing in and that is wonderful, but a word of warning.

“This special landscape of ours did not, as I have said, happen by accident. So we should not assume that, left purely to the market, it will continue to thrive. To keep the PSB system growing we need to nurture, not neglect it.

“Today, I have set out ways in which we, Channel 4, are doing that. We aren’t doing it alone, of course. No one single person or company can. We need politicians and regulators to act. They have done it before and they must do it again – or the public will not thank them. So I call on them to act and to act decisively: update and strengthen the PSB system. The system that has delivered so spectacularly for UK viewers and for UK PLC.

“And I call on you to do everything you can to persuade them. If you care about creativity: speak up and speak up now. Stay silent and our special system may wither. Once gone, it will never come back. This TV Festival is a wonderful showcase for the very best creative ideas, teams and skills we have to offer today.”