From the bargain basement to high Five: Richard Desmond stands to make £600m from sale of television channel

 

Within days of buying Channel 5 for £103m, Richard Desmond sacked seven of the nine members of the board, axed 80 of the 250 staff and disposed of the broadcaster’s well-appointed, modern headquarters in London’s Covent Garden.

Little more than three years later, he is looking to sell the business for in excess of £700m – 10 times the company’s likely earnings before taxation this year.

One wonders what Gerhard Zeiler, the chief executive of the Luxembourg-based RTL Group, which sold Channel 5 to the Northern & Shell publisher in what appears to be the greatest bargain in the history of British broadcasting, makes of this now.

“We saw a window of opportunity to realise a transaction based on a fair evaluation of Five,” is what Mr Zeiler said after shaking on the deal in July 2010. RTL dropped the word “Channel” from the broadcaster’s title when it acquired the business in 2002. It later changed the “five” to lower case, and then to upper case. But none of these rebranding exercises could lift the company out of last place in Britain’s free-to-air television sector.

But Mr Desmond, 62, previously known as a print mogul and the publisher of the Daily Express and Daily Star newspapers, had seen potential that RTL had apparently not noticed. The previously stagnant television advertising market was showing new signs of life. In the time since Mr Desmond went into broadcasting, a revived ITV has seen its share price quadruple and the entire sector’s fortunes have benefited.

With portable devices providing a means to catch up with missed shows and an additional screen for using social media while watching popular programmes, the big television channels remain essential inventory for media buyers.

By the end of 2011, Channel 5 (the “channel” was quickly reintroduced by Northern & Shell) announced a 28 per cent increase in advertising revenues. Part of the credit for this success goes to the broadcaster’s sales director Nick Bampton, who has been innovative in working with commercial clients.

But the growth in Channel 5’s value has not just been a result of improved advertising revenues. The whole television sector has been boosted by the show of confidence reflected in the vast amount of cash that has been pumped into the market since July 2010. A year after Mr Desmond’s comparatively modest outlay, the American media company Scripps Networks International invested £339m in buying a 50 per cent stake of UKTV from Virgin Media. Early last year, another American media giant, Liberty Global, paid £15bn to acquire Virgin Media itself.

The battle for football rights between Sky and BT has also added to the sense of television’s viability. The rivals paid £3bn for Premier League rights last year before BT made a staggering further investment by spending £897m on Champions League rights in November.

When Mr Desmond acquired Channel 5 there were concerns that a public-service broadcaster had been delivered into the hands of a businessman who had made much of his fortune from adult entertainment. As the sole shareholder of a private company, he became the first individual to control a public service broadcaster. In the main, Channel 5 has managed to avoid censure from the broadcasting regulator Ofcom under its new owner.

Which is not to say that the broadcaster (a family of channels that includes 5USA and 5*) has moved upmarket. Acquiring Big Brother as a flagship show was one of Mr Desmond’s first strategic moves. As rival Channel 4 has sought to put distance between itself and its former blockbuster asset and undergone a “creative renewal” of its schedule, Channel 5 has used the reality programme to boost its ratings.

Last July Channel 5 beat Channel 4 in the ratings over a full week, the first time that had happened in the 16 years since its launch. It was an important psychological moment for a broadcaster that has often been looked down on by newspaper television critics.

A confident Mr Desmond arrived at Cambridge last September to address the Royal Television Society’s annual conference. The channel was about “being populist and proud of it”, he said, as he took swipes at rival networks.

Ben Frow, who he has installed as director of programmes, has mocked Channel 4 for making a documentary called The Man with the 10-Stone Testicles. “There’s a line we won’t cross at Channel 5,” he said.

The network champions documentaries series such as And Proud, a voyeuristic show which follows the lives of unashamed shoplifters or benefit claimants.

Its Minute by Minute strand examines the background to disasters such as the Lockerbie air crash or the King’s Cross fire. And then there is its signature show: a new series of Celebrity Big Brother starts tonight.

Channel 5 is still last among the free-to-air channels with 6.13 per cent adult audience share across its family of channels. But that belies a new swagger. Christmas audiences were at their highest since 2007 with populist shows such as Britain’s Craziest Christmas Lights and Michael Buble’s Christmas Special.

A month before he landed Channel 5, Mr Desmond told this newspaper: “I’ve got so much money it’s ridiculous.” His personal wealth was then estimated at £950m and he had cheekily suggested he might make a bid for The Sun, which he has long admired. If Northern & Shell’s bankers Barclays manage to find him a buyer for his broadcasting network at the price he wants, he could yet follow up on that boast.

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