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Summary:

S4C is sitting on a £26.1 million investment fund that could be used to plug expected cuts to its public budget.

The publicly-funded Welsh…

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S4C is sitting on a £26.1 million investment fund that could be used to plug expected cuts to its public budget.

The publicly-funded Welsh-language broadcaster’s commercial arm S4C Digital Media Ltd (S4CDM) made £33 million in 2005 from selling its stake in the SDN Freeview multiplex to ITV (LSE: ITV). It used the cash to create a digital investment vehicle.

But S4CDM has made only one deal since – a £9.5 million equity investment it led in 2008 in to Inuk Networks, an Abercynon startup operating a service for viewing TV on computers.

S4CDM still has £26.3 million in assets, according to 2009 annual accounts. But there’s little prospect of a return on the sole investment. Now, with the Department for Culture, Media & Sport (DCMS) reportedly ready to cut 24 percent (£24.2 million) from S4C’s £101 million annual public grant over the next four years, S4C may come under pressure to use the funds for its core public service instead of digital investing.

The purpose of the S4CDM fund is currently being reviewed,” S4C tells paidContent:UK.

The story…

Flush with cash from having sold the digital terrestrial spectrum that it had originally been granted by Ofcom, S4C invested in promising young Inuk together with Sir Terry Matthews’ VC house Wesley Clover in 2008.

S4C’s contribution had been £6 million, giving it a stake of 20 to 26 percent, and was approved by the then culture secretary Andy Burnham by parliamentary order upon the S4C Authority‘s request, according to correspondence between the authority and the DCMS which was released to a Freedom Of Information (FOI) request this month.

The S4C Authority had thought the investment would “secure a continuing outlet for S4C Digital on a broadband network in the future“, watched particularly by young diaspora away at university, since Inuk’s main business was delivering IPTV to halls of residence.

But, despite the new money, within months, we heard Inuk was struggling under the weight of its costs. In December 2008, S4C’s then CEO Iona Jones flew home from a holiday to attend an emergency meeting on the matter and, on Boxing Day, S4C loaned Inuk a further £1 million, in return for an option on all Inuk

  1. Robert
    I must take issue with the one aspect of your piece on S4C that I know a good deal about.
    S4C’s stake in SDN did not come about as a result of selling digital capacity gifted to it by Government. In 1998 it identified the potential value of UK spectrum on Multiplex B and bid for it, through a commercial subsidiary, in an open auction, at the same time as ITV, through OnDigital, was bidding for the three other commercial multiplexes. SDN (which stood for S4C Digital Media)’s bid was unopposed – partly because the mux had complex obligations, and partly because there was a limitation that no one could bid for more than three muxes. SDN was awarded the licence and went on to secure equity partners in the form of NTL and UBM to develop the fully commercial business model involved. In doing so, it used, as the basis of its investment, revenues from advertising and programme sales, which were officially categorised as its own funds and could therefore be used to develop new revenue streams, i.e., like any business, it made some sacrifice in its ability to deliver dividend at the time (in S4C’s case this would have been in the form of extra spending on the programme service) in order to secure greater returns for the programme service in the future.
    Again, like any business, the new startup went through several years of trials and tribulations, including the collapse of ITV Digital and the subsequent startup of Freeview. It paid its share of investment in digital rollout and breathed a sigh of relief as it gradually became clear that there was indeed value in the capacity. Eventually, when ITV decided it needed extra digital terrestrial capacity for strategic reasons, the shareholders decided to sell at what was considered generally to be a very good price.
    I don’t believe it is nit-picking to state that therefore the benefits which the “SDN Fund” offer to S4C are not a windfall, but the fruits of calculated commercial risk-taking by its employees, in its name, and are therefore for the S4C Authority to use as it sees fit, to enhance the service for the benefit of viewers.
    Is it not also the case, that even if the Authority were to follow your suggestion, £26m from the fund could only be used once, not every year as you seem to imply?
    Huw Jones
    Chief Executive, S4C 1994-2005

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  2. Huw, diolch am eich neges.
    – So what was the price SDN put up to win the multiplex (I think it was A, rather than B)? Or, rather, what was S4C’s contribution to this? (It would be interesting to know what effective profit S4C made from the sale to ITV, on the original investment).
    – I hope I haven’t suggested there is £26m available *each* year – rather, that the £26m in S4CDM today equals the amount it’s rumoured S4C will lose over the next *four* years. So, in the event of the rumoured cutback, the S4CDM funds could provide a four-year buffer at current levels, over which it seems downsizing provisions would need to be planned.

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  3. Robert
    You’re right – it was Mux A not B. What I recollect is that the £33m S4C received from the sale (total proceeds approx £144m (?) was the net profit, since the initial investment had been made in the form of a comparatively small equity investment and the greater part as loans, which were repaid to the shareholders out of the sale proceeds, before the profit was declared. Clearly the question re. how far the money might go if used in this way depends on which figures re. possible cuts one is talking about. Your piece referred to “24%” cuts – hence my comment. In any case, the fundamental argument should be about the cost of running a high-quality channel, and that debate should take place in the same context as that of other PSB funding, i.e the BBC. Until now S4C’s right to an arms-length funding formula, defined by Act of Parliament, has always been respected in the same way as the BBC’s Charter.
    Huw

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