And now the news from ITN: job cuts, low morale and a downgraded service

ITN, once a pillar of the broadcasting establishment, has fallen on hard times. Chris Blackhurst wonders if it can survive any further belt-tightening

Stewart Purvis, the chief executive of ITN, wants to explain something. There is more, much more, to ITN than providing the news for ITV. So keen is he to get across the message that ITN is not hamstrung by agreeing to service ITV at a drastically reduced rate, that he insists on taking disbelievers on a personal whistle-stop tour of the company's headquarters.

We walk at blistering speed through newsrooms, "all state-of-the-art, digitalised", down back stairs, through anonymous doors. "This is the ITV newsroom; over there is Channel 4 News. These are our radio stations. Those people there are working for ITN Archive, a good business in its own right; that bit there is the 24-hour News Channel, and here is Channel 5 News." Finally, we arrive at Purvis's office.

To ram home his theme, he produces a chart showing that there is more, much more, to his company than ITV. Sure enough, ITV is shown as just one of several customers of ITN.

Later that day, an e-mail arrives from the ITN press office. It is a statement to staff from Purvis, outlining the total number of jobs expected to be lost as a result of the lower-priced ITV contract: 133. That includes the job of head of foreign news, which is to be merged with another post.

Make no mistake – ITN is in a hole. For the second year running, it is on course to post an annual loss. As of August, the predicted figure was £1m – but that was before 11 September and a sharpened advertising downturn, and the unforeseen cost of covering Afghanistan. Two of ITN's five shareholders, Daily Mail and General Trust, and United Business Media, are thought to be keen to get out. They would like the rules to be relaxed so they can sell their 20 per cent stakes to the other three investors: Carlton, Granada and Reuters. At present, no shareholder can own more than 20 per cent of ITN. But in yesterday's media ownership consultation paper, the Government said it will consider raising the bar to 40 per cent – if Carlton and Granada were to merge, say – or may scrap the limits altogether.

In terms of output, too, the company is not what it was. C4 News wins regular plaudits, and ITN is producing far more news programmes for more customers than it ever did. But the ITV flagship News at Ten bulletin was once 26 and a half minutes long, allowing in-depth reports and analysis. Now, after a humiliating shunt to an hour later to accommodate the ITV companies' wish to reshape the schedule to sell more advertising, and then a return to something like its old slot, the programme is just 16 minutes. And even then, its position is not guaranteed: it often gives way to live football.

Standards, say company old-timers, are not what they were. In their day, ITN was the arm's-length supplier of its news to ITV. These days, ITV calls the shots: ITN bulletins carry puffs for ITV programmes; newsreaders and reporters appear on other ITV broadcasts, blurring the company's traditional distinction from the network. (Mark Austin fronted the reality contest Survivor; Nicholas Owen hosted a questionable exploration of the death of Diana, Princess of Wales; and the star anchor, Trevor McDonald, presents Tonight, the current-affairs programme.)

Again, in another blow to independence, Steve Anderson, ITV's controller of news, has called for more show business, sport and "stories about people's lives", giving ammunition to former station chiefs and staff who argue, forcibly, that the newscasts are dumbing down.

It is not just the question of content that is causing friction. The tender document for the new ITV contract also made plain that the channel wanted to see a boost in weekend bulletins (traditionally big audience draws, but inexplicably short on substance and lacking star presenters) and the dropping of the ITN logo (the bulletin is to be "ITV News", not "from ITN, the ITV news", and journalists must sign off their reports as working for ITV News, not ITN).

On the financial side, the company's condition is no better. ITN has annual sales of £100m, yet still manages to make a loss. That is because, insiders say, the only seriously profitable client the company has is ITV. The C4 contract just about breaks even; C5 nets a small loss, of around £100,000 a year; the returns from the archive are small; and the 24-hour ITN News Channel (a Purvis baby) and the cable channel EuroNews eat money.

Now, the company has agreed to supply ITV at a far lower price over the six years from 2003. By the end of next year, the current contract will be worth £49m annually. The new one is priced at £35.5m, which raises the question: how do you find £13.5m of savings in a company already making a loss of £1m a year?

To secure the deal, ITN saw off a challenge from the Channel 3 News consortium, which included BSkyB. The consortium tendered £32.5m, while ITN indicated that it would supply ITV news for £39.5m. ITN came in with a more acceptable formal bid of £35.5m.

Mr Purvis is annoyed by the suggestion that he was prepared to win the ITV contract at any price: "The people undercutting were BSkyB. They said, 'Whatever ITN does, we'll do it cheaper', so they started it." New digital technology, explained Mr Purvis, means journalists can edit their work. (His critics point out that the equipment is already installed and working, and still the company loses money.)

Instead of focusing on the lower price, he said, people should look at the stability that a longer deal provides (originally, the new contract was for five years, but ITN has secured a six-year term). Ratings are also a good barometer. The 6.30pm ITV news has an audience of 5.5-6 million, compared with the 6pm BBC's 6-6.5 million. The later bulletins are about level as well.

Then there is the question of value for money. Here, ITV news scores well. The BBC 1 news budget, reckoned Mr Purvis, is over £100m, with the overall Corporation news outlay reaching over £200m.

"The cost of viewer reach on ITV is one third that of BBC 1 news," said Mr Purvis. The difference should surprise no one who has ever been to political party conferences and witnessed the sea of BBC journalists all covering the same event, but might give Greg Dyke and the BBC governors pause for thought. They may also be interested to learn that, according to Mr Purvis, ITN, historically the higher payer, now pays less than the BBC.

Not everyone agrees about the importance of News at Ten. "Whatever the chattering classes think, the peak time for news is early evening. When I was editor, the audience in the old 5.50pm bulletin was sometimes twice that of the 10pm one." The earlier bulletin was short, 10 minutes.

The ITV controller wants more lifestyle news, and he will get it, but, Mr Purvis insisted, ITN will still cover the vital stories. "It's a question of balance. We broke the surrender of Kunduz to an audience of 4.7 million; at the same time, 4.6 million were watching the BBC."

Veterans may carp at blurring. Let them, said Mr Purvis. "It's been going on for years on C4 and C5. If Jon Snow appears on a C4 debate, nobody complains. ITV has been blighted by sectionalism for too long. It makes sense for the same people to appear in both current affairs and the news." But Mark Austin? "He will not be presenting the next show of Survivor."

Enough of ITV. Mr Purvis wants to stress the other things. ITN News Channel "is on business plan", archive sales are "bang on target". The future, though, is uncertain. The prospects of flotation, once being willed by the staff, must have receded, given the company's poor performance. It is hard to see how serious profits will emerge.

In the end, that will be Mr Purvis's undoing: ITN is owned by private investors; it has to make a profit. He and his company are trapped. They have demanding shareholders (some of whom happen to be their customers and want to have their cake and eat it) and they have standards to maintain. The price of ITV news has come down by half in the last decade. This is the third time Mr Purvis has negotiated a lower contract. It may well be the last.