Why Channel 4 is the canary in the digital ad mine
Photo: Jelle Taman
Yesterday, UK publicly owned (yet ad-funded) broadcaster Channel 4 announced that it was laying off 200 staff and closing 40 roles; reducing its headcount by 18%. In the press release for the announcement, Chief Executive Alex Mahon stated:“.. the reality of the rapid downshift in the economy and advertising market demand we must change structurally."
She also said that the focus on the new cost-conscious strategy was to ensure that Channel 4 would remain
"a trusted, disruptive, and distinctive brand".
At the heart of this new strategy is a focus on reducing operational costs and increasing digital revenues that accounted for just 27% of annual revenues in 2023. The new strategy seeks to move this share to over 50% by 2030.
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Channel 4 is losing out to international hybrid SVOD
At the heart of the strategic challenge facing Channel 4 is the accelerating competitive threat posed by hybrid subscription video on demand (SVOD): the introduction of ad-supported basic subscription tiers into international streaming services. The runaway leader is Netflix who’s Basic with Ads tier now counts for 40% of all new Netflix sign ups in the UK. Netflix also accounted for 9.1% of total screen time engagement in the UK in December 2023, according to BARB. This represented a 9.3% increase in Netflix’s engagement share in the UK in just 12 months. Netflix’s Basic with Ads tier launched the prior month in the UK. Over the same period, Channel 4’s viewing time decreased from 7.3% of viewing time in December 2022, to 6.2% of viewing time in December 2023 – a decline of 15.1%.
Next month Netflix will be joined by Amazon as it introduces advertising into its standard Amazon Prime Video service at an additional fee for the ad-free tier (this model is now standard in the US for Netflix’s competitors).Hybrid SVOD is not just taking away viewer engagement from national broadcasters such as Channel 4. It is also taking away ad spend as ad budgets increasingly gravitate to paywalled audiences that are, by default, more valuable to advertisers because the viewers have paid to view the content.
Channel 4 cannot compete on ad-supported video on demand TV-streaming content
With an annual commissioning budget of $0.9 billion (£713 million), Channel 4 cannot compete with Netflix’s $14.2 billion (total amortised content spend in 2023). Ad revenues are driven by engagement, burn through expensive content inventory, and require a wide array of VOD content outside of compelling premium live content such as sports (which Netflix has also now invested in for 2025). If Channel 4 is serious about growing its share of digital revenues then it needs to invest in creating content that can compete around, rather than directly against, the large international streaming services. Examples include localised streaming content commissioning and investing in unique interactive fan worlds for owned IP.
One thing is clear, business as usual is no longer a viable option for Channel 4, nor the other national broadcasters with the same hybrid SVOD disruption profile.