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How Much Is Britain'S Channel 4 Worth?

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Last Updated : Sep 02 1996 | 12:00 AM IST

The lowest figure, unsurprisingly, comes from Michael Grade, the channel's chief executive. Given that he has promised to fight privatisation with ''every breath in his body'', he has an incentive to underplay its value.

Still, such a low estimate is laughable. Grade has used discounted cash flow, a perfectly acceptable technique, to dream up the valuation.

But by projecting sharp increases in programme budgets and other costs, Grade has managed to make the channel's operating profits of 128 million last year virtually vanish over five years.

That may be a clever conjuring trick, but not much more. Moving to the real world, the remaining difference in Channel 4's valuation turns on whether it would have to pay the government a licence fee post-privatisation.

Assume that it will not and the channel's operating profits for last year turn into earnings of 86 million. Apply a multiple of 20 -- the average for the media sector - and you get a value of 1.7 billion.

In practice, Channel 4 would probably have to pay a licence fee if it was privatised, if only to level the playing field with the ITV companies.

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Say it paid 50 million a year. Apply the same multiple and the channel is worth only 1 billion.

But that does not mean the government has miraculously lost 700 million in value. It does receive less money upfront; but each year its coffers are replenished to the tune of 50 million.

There are, of course, other ways the Treasury could extract value from Channel 4 without risking a political backlash from privatising it.

One option would be to extract a few hundred million pounds of cash from the channel's debt-free balance sheet.

Another would be to slap on a hefty licence fee, while keeping it in the public sector. The government could even do both.

Faced with such prospects, even Grade might welcome privatisation.

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First Published: Sep 02 1996 | 12:00 AM IST

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