Channel 5 Broadcasting clinched the auction for Britain's newest terrestrial television service with a bid of pounds 22m, because UKTV, which had bid pounds 14 million more, failed to provide programming proposals of sufficient quality, the Independent Television Commission (ITC) decided.
The award marks the triumphant return of Greg Dyke, formerly head of LWT and now chief executive of Pearson TV, to mainstream British television. The decision by the ITC to reject the highest bid, from Canadian-led group UKTV, as well as Richard Branson's Virgin TV application - both on programme quality grounds - surprised industry observers and provoked an angry response.
"We are gutted," a spokesman for Virgin TV said. "This is really a kick in the guts." Virgin TV, which controversially bid the same amount - pounds 22,002,000 - as the Pearson group, was said last night to be considering its options.
UKTV, the highest bidder, at pounds 36m a year for the 10-year licence, issued a terse statement. "Considering that we were the highest bid, and are confident that we exceeded every other threshold, our group will be meeting shortly to review the decision." The group is understood to have arranged meetings with legal counsel on Monday to see whether there are grounds for judicial review of the ITC decision.
The ITC failed both bids on the grounds of programme quality, and specifically questioned Virgin TV's plans on the provision of news services. No criticisms were made of the two business plans or proposals to retune as many as 4m video recorders up and down Britain, to allow viewers to receive the new signal.
The mood at Channel 5 Broadcasting, made up of Pearson, media and financial services company MAI and European broadcaster CLT, was ebullient. Mr Dyke said: "We are delighted. Running a television channel is the best fun in the world."
Mr Dyke formerly ran LWT, the weekend ITV service in London, until Granada took it over in 1993. The creator of Roland Rat and the man who brought Blind Date and The Gladiators to the British viewing public, he joined Pearson's television arm earlier this year.
MAI controls two ITV licences, Anglia and Meridian. Pearson also owns Thames Television, formerly the holders of the London weekday licence and the producers of such hits as The Bill. Rival bidders suggested the ITC preferred established players over new- comers: "These are the people [ITC Chairman] George Russell is comfortable with," said one insider. "How does this achieve diversity? This is just ITV2."
Frank Barlow, chief executive of Pearson, said "We were asked to provide a diverse service, with something for everyone. That, I am convinced, is what we have done."
Channel 5 Broadcasting intends to televise a mix of light entertainment, sports, drama and public affairs, and has a programming budget of about pounds 110m a year. The service is due to start on 1 January 1997, and will be available to about 70 per cent of British homes.
According to the ITC, the variety and diversity of the proposed schedule met all conditions of the licence.
Virgin TV, which had proposed what it called an innovative and diverse range of programming, accused the ITC of opting for a channel "very similar to the existing four."
New Century Television, the fourth bidder, was also passed on all tests. But its bid of only pounds 2m, compared to Channel 5 Broadcasting's pounds 22m, ensured it would lose.
"We have no regrets," said Sam Chisholm, chief executive of BSkyB, the satellite and cable broadcaster controlled by Rupert Murdoch, and the leading partner in the New Century consortium. "If Channel 5 Broadcasting can make the channel work, good luck to them."
Channel 5 is expected to take an audience share away from the other main commercial channels, ITV and Channel 4. Most analysts forecast a market share of about 15 per cent. On that basis, Channel 5 Broadcasting expects to be able to break even within three years.
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