Channel 4 mulls changing status to trust

State-owned broadcaster wants greater commercial freedom to compete with ITV but rules out privatisation
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Mark Thompson, Channel 4's chief executive, is planning to instigate talks with the Government to discuss a change in the status of the publicly owned broadcaster in the hope of making the channel more able to compete against its larger commercial rivals.

Mr Thompson and his fellow Channel 4 executives believe all options need to be explored by the Department of Culture, Media and Sport. One option would be to convert to trust status, similar to the ownership structure of the Guardian Media Group.

However, the broadcaster is understood to have rejected asking for a slice of the BBC's licence fee and does not want public funding. But it also believes a full-scale privatisation could force it to become too commercial and shed its controversial identity.

Executives at the state-owned broadcaster, home to such hits as Big Brother, have already held talks with Five, the rival commercial channel, about cooperating in several areas although both were playing down reports of a full scale merger yesterday, claiming the speculation was wide of the mark.

Channel 4 is understood to be "pausing" to reflect on the initial talks with Five, which is owned by RTL, the German broadcaster, and UBM, the British media group where Lord Hollick, the Labour peer, is chief executive.

Discussions between Channel 4 and Five have been going on since last year when the merger of Carlton and Granada, to form one ITV, was permitted. The pair began discussing merging their advertising sales houses. However, the talks quickly moved on to subjects such as cooperating on programme scheduling to reduce clashes and maximise audiences. The pair has also discussed joint programme acquisitions. Although Channel 4 is public-owned it receives no public money but it cannot raise private capital through a share issue, for instance, to help it compete against ITV and BSkyB. The present BBC licence fee guarantees the corporation £2.7bn a year, leaving Channel 4 to rely almost exclusively on its own advertising revenues. This year they are expected to be about £630m.

That Channel 4 needs to try to gain the cost reductions and synergy benefits of cooperating with rival broadcasters was reiterated by broadcast industry veterans yesterday. Michael Grade, a former chief executive of Channel 4, said: "Channel 4 and Five are too small. Although Five could continue to survive as a subsidiary of rich parents, as it is, Channel 4 is much more vulnerable." However, Mr Grade warned that too much outside commercial interference in Channel 4 could undermine its public service remit. "There is a real danger there for viewers but, by the same token, there is a problem of it being too small given the might of ITV, BSkyB and the BBC. They have a huge set of problems to work through," he said.

It is understood that Channel 4 believes the next step is to engage Tessa Jowell, the Secretary of State for Culture and Media, and her officials, in talks about changing Channel 4's legal status. The broadcaster is likely to engage financial advisers as part of its deliberations.

A trust structure, similar to the Scott Trust that controls The Guardian, is one option being considered. However, this is likely to involve the Government relinquishing its ownership rights which the Treasury may object to.

Although changing Channel 4's legal status would require legislation to enact, executives believe now is the opportune time to begin talks with the Government.