HTV, one of the media sector's hottest takeover candidates, is backing a bid by Rupert Murdoch's BSkyB to supply news to ITV in competition with Independent Television News.
The news emerged as the company revealed sharply higher profits for 1995 and predicted further gains in 1996.
Chris Rowlands, HTV chief executive, said: "We have an agreement in principle to support Sky's application to be a nominated news provider".
The other partners in the joint venture are ITV companies Yorkshire-Tyne Tees, Meridian and Anglia, as well as the financial information company Reuters, a shareholder in ITN. The group is expected to underbid ITN for the contract to supply news to ITV. Reuters currently has a "non-compete" clause with ITN but its lawyers are believed to have argued it is not enforceable.
BSkyB is expected to lodge its application in coming weeks. It has promised to reduce the annual cost to ITV for its news services to about pounds 30m, from the current pounds 55m paid to ITN.
Meanwhile, HTV's pre-tax profits climbed 66 per cent to pounds 12.1m, on revenues ahead 11 per cent to pounds 135m, in line with expectations. The company revealed it spent pounds 300,000 on its unsuccessful bid for the Channel 5 licence, as part of the Virgin consortium.
HTV is considered a potential bid target for Carlton Communications, Michael Green's media company, which last week abandoned a possible bid for MAI, Lord Hollick's media and financial services group.
The core broadcasting business, which includes the ITV licences for the West and Wales, had turnover of pounds 104m. The newly named Harvest Entertainment division, which takes in film, TV production and programme rights, posted revenues of pounds 30.8m. Harvest's contribution to profits increased from 30 per cent to about 37 per cent year on year.
Louis Sherwood, the chairman, said the growing importance of production and rights acquisition has helped transformed HTV into a "medium-sized media company, not just an ITV licence franchisee like some of the others."
Through its Patridge Films and First Independent brands, HTV is a major supplier of wildlife and childrens programming to a range of UK and overseas broadcasters.
The company continued to push costs down in 1995, partly by squeezing margins at independent suppliers as part of what Mr Sherwood described as "getting value for money."
Advertising revenues were slightly down year on year, partly because two major advertisers, Boot's and Gillette, dropped HTV from their list of broadcast outlets. Gillette has since returned to HTV, while Boot's has plans to do so soon.
Mr Rowlands said he was optimistic that the company's licence payment to the Treasury, which totaled pounds 23.3m last year, would be reduced following discussions with the Independent Television Commission. Several ITV companies tabled very high financial bids to win their franchises in the last licencing round in 1992, and these could be renegotiated starting later this year.
Analysts expect that HTV could see its net payments to Treasury decline substantially from 1997 on. That could be offset by a drop in the levy paid to ITV by Channel 4.
Investment Column, page 18