Ch4 levy to cost Carlton pounds 31m

Carlton Communications faces a pounds 31m hit from the loss of the Channel 4 funding formula, which will not be offset by gains from a reduction in its licence fees.

One of the big three ITV owners, along with United News & Media and Granada Group, Carlton will suffer most after the funding formula is phased out, according to a new report from Merrill Lynch.

Although the company, which owns the Carlton, Central and Westcountry franchises, will gain pounds 13.8m from renewing its licences, it stands to lose pounds 31.1m between 1998 and 1999 when the payments from Channel 4 cease. Between now and 2001, Carlton will shed pounds 17.3m from the combined effect of licence renewal and the loss of the Channel 4 revenues.

The funding formula, which came into effect in January 1993, obliges Channel 4 to hand over to ITV half of any advertising revenue it takes over a 14 per cent threshold. ITV has so far received pounds 257m from Channel 4, and will receive a further pounds 85m this year, Merrill says.

The end to the funding formula and the ITV licence renewal will barely affect Granada, while United will come off best, gaining pounds 24.2m. Scottish Media Group will lose out by pounds 7.6m, Merrill adds.

ITV companies are considering proposals from the Independent Television Commission about licence renewal. Each broadcaster's payment to the Treasury varies dramatically under the present system, depending on whether companies had to compete with rival bidders. Scottish Television and Central paid only pounds 2,000 annually because they did not have any competition for their licences. By contrast, HTV contributes pounds 22m each year because of a tough contest against three other contenders.