Relicensing of the Channel 3 and Channel 5 licences
Methodology for a review of the financial terms of the Channel 3 and Channel 5 licences
The current Channel 3 and Channel 5 licences expire on 31 December 2024. Under the Communications Act 2003, licensees have the right to apply to Ofcom to renew their licences for a further ten-year licence period (from 1 January 2025 to 31 December 2034).
As part of the licence renewal process, we must determine the financial terms on which the licences will be renewed. We must notify the licensees of our determination and if they accept the terms, we must subsequently issue the renewed licences as soon as reasonably practicable.
This statement sets out our methodology for determining the financial terms of the Channel 3 and Channel 5 licences. We have broadly followed the same approach as the methodology used the last time we determined the financial terms of the Channel 3 and Channel 5 licences in 2014. We have made some updates to reflect current market and regulatory uncertainties, such as the proposed changes to the regulatory framework in the draft Media Bill, and comments from stakeholders in response to our consultation, which closed on 28 July 2023.
Before we can renew the Channel 3 and Channel 5 licences, Ofcom has a duty under section 229 of the Communications Act to submit a report to the Secretary of State ahead of a new licensing round setting out our opinion on the ability of the Channel 3 and Channel 5 licensees to contribute to the fulfilment of the purposes of public service broadcasting (PSB), at a commercially sustainable cost, over the next ten-year licence period. On receipt of this report, the Secretary of State must decide whether to block licence renewal or amend some aspects of the licence.
You can find our section 229 report and the Secretary of State’s decision to proceed with licence renewal below.
In March, the Government published the draft Media Bill, which proposes changes to the regulatory framework for public service broadcasting. The timing of the draft Bill and the final form of any measures it would introduce remain uncertain. The impact such measures may have on licence valuations for the purpose of setting financial terms is also uncertain. In this document we set out the approach we are minded to take regarding the Media Bill.
On 29 March 2023 the Secretary of State confirmed that she does not intend to prevent the renewal of the Channel 3 and Channel 5 licences, nor use her order-making powers to amend the public service remit and/or other statutory requirements attached to the licences.
The current licence holders (ITV, STV and Paramount Global) have until 30 April 2023 to submit their applications for licence renewal. Upon receipt of their applications, we will proceed with the licence renewal process, this includes considering the extent to which the licensees will fulfil their PSB obligations over the next decade and we expect to publish our final decision in early 2024. We will also determine the financial terms on which the Channel 3 and Channel 5 licences will be renewed.
Ofcom has a duty under section 229 of the Communications Act to submit a report to the Secretary of State by 30 June 2022 in anticipation of a new licensing round for the Channel 3 and Channel 5 services.
The report gives our opinion on the ability of the Channel 3 and Channel 5 licensees to contribute to the fulfilment of the purposes of public service broadcasting (PSB), at a commercially sustainable cost, over the next ten-year licence period. The purposes of PSB are designed to secure the delivery of a wide and balanced range of high-quality programmes, which meet the needs and satisfy the interests of as many audiences as practicable. The report is part of the process leading to either the renewal or re-advertisement and award of the licences, in time for the next licence period beginning on 1 January 2025.
Channel 3 and Channel 5 are an important part of the PSB system, alongside the BBC, Channel 4 and S4C. Each of the public service broadcasters plays a unique role in ensuring that the system has something for everyone, so that together they can meet the needs and interests of as many different audiences as possible.
Our key findings
- The current licence obligations are the minimum contributions to PSB that we expect for audiences, and Channel 3 and Channel 5 have a good track record in delivering them.
- Over and above the specific licence obligations, Channel 3 and Channel 5 licensees contribute more broadly to the PSB purposes and objectives, for instance by investing in a wide range of original UK content that meets the needs and interests of different audiences. Our research shows that the channels continue to be valued by audiences.
- The current obligations could be commercially sustainable, such that the licensees can continue to deliver them over the next licence period. This position would be strengthened by implementation of the Government’s proposed legislative reforms to establish new prominence and availability rules for PSB online TV services.
For these reasons, we think there is a good case to proceed with renewal, and we are not making a recommendation, in our report, that the Secretary of State uses their order-making powers to amend or remove the conditions that must be included in the licences or to block renewal of the licences.