Options to save Channel 4 are narrowing

The options to keep Channel 4 afloat are narrowing down to a tie-up with either the BBC or a commercial rival, it emerged on Tuesday, as the government appointed UBS to help it solve the funding gap in public service broadcasting.

Although the investment bank will investigate a series of options, people close to the situation said that other possibilities, including a privatisation of the state-owned broadcaster and public funding for Channel 4 from the BBC’s licence fee, were sliding down the agenda. Early indications of the government’s direction are likely to come by the end of next month.

“The government is going to take a very pragmatic view,” one person familiar with the issue told the Financial Times. “I think it’s going to happen pretty fast.”

The government’s mandate to UBS is understood to leave it with wide room to manoeuvre, but emphasises the need to come up with a sustainable model agreed between all the large figures in the UK television market.

The crisis in PSB funding, affecting both Channel 4 and to a lesser extent ITV, has arisen for two reasons. The economic downturn has combined with a shrinking audience share, as more homes use multi-channel digital television, to bring advertising revenues down.

Channel 4 says it will be losing £150m ($237m, €166m) a year by 2012, although the FT has been told that the Treasury believes the figure is an overestimate and that the likely loss will be about £100m annually.

Andy Duncan, Channel 4 chief executive, says it would have to give up its remit as the alternative PSB voice to the BBC to remain commercially viable.

One option outlined by Ofcom, the broadcasting regulator, is for Channel 4 to get income from BBC Worldwide, the commercial arm of the publicly-funded broadcaster. This is opposed by the BBC and the BBC Trust, its governing body, which say it would be impossible to achieve through legislation.

Another choice would be a merger with Five, the RTL-owned commercial channel. RTL is thought to be open to discussion, but there is no suggestion that this option is more advanced than any other.