The Independent Television Commission, which is managing the auction, faces the embarrassing prospect that its deadline for bids will pass this week without a single tender.
The two backers that withdrew on Friday were Columbia Tristar, the United States studio owned by Sony, and CanWest, the small Canadian broadcasting company. The ITC has reserved the right not to award the licence unless it is satisfied that the consortium is 'credibly backed' and has convincing plans for the retuning of video recorders.
Only two backers are left in the consortium. Thames Television - limited under UK media rules to a 20 per cent stake - and Moses Znaimer, president of City TV, the Canadian broadcasting company. Despite the setback of losing half its support, Channel 5 Holdings - the bidding consortium - still intends to go ahead with a partially financed application on 7 July.
For the bid to succeed, the consortium will almost certainly have to find new backers to replace those who have pulled out. Sources say that Thames Television's investment will be mainly in programming and facilities and are sceptical that Mr Znaimer, although a wealthy entrepreneur, can come up with the investment needed to launch the channel.
The ITC had hoped to award the franchise by November. Channel 5 is intended to be a third independent channel for general entertainment.
The estimated start-up costs range from pounds 100m to pounds 300m, including the cost of retuning up to 80 per cent of the country's video recorders.
A spokesman for the consortium said talks with further potential shareholders would continue throughout the weekend. It is hopeful that Time Warner, which backed the Entertainment Channel - the aborted consortium led by TV-am and The Daily Telegraph - would renew interest after Tuesday's deadline.
Paul Styles, media analyst with KPMG, said: 'I fail to see how this will ever get off the ground. I will not be surprised if the franchise is not awarded.'
If successful, Channel 5 Holdings plans a national service with local city opt-outs. It will launch in London and possibly Manchester next year, with a gradual roll-out thereafter.
The Entertainment Channel withdrew last week because it said the risks were too great. Bruce Gyngell, head of TV-am, said: 'At best Channel 5 will be a nightmare.'Reuse content