BT emerges as suitor to merge with cash-strapped Channel 4

BT is set to emerge as a likely candidate to merge with Channel 4 after the broadcaster's chairman said he would welcome talks that could offer a solution to its £150m funding shortfall.

Luke Johnson, Channel 4's chairman, is reported to have said that a tie-up with BT's television subsidiary BT Vision is "worth exploring", after holding preliminary talks with the group.

A BT spokesman said the company "never comments on rumours and speculation", but it is understood that initial soundings were taken last year, but then shelved after Channel 4 expressed a preference to merge with the BBC's commercial division, BBC Worldwide.

The need for a partner for Channel 4 is becoming more apparent, with the Government keen for a solution to what will become a £150m annual funding shortfall by 2012. A deal with BT would have other obvious benefits for Channel 4, not least the ability to transmit its programmes on BT lines into homes and offices.

BT's pay-TV service could also gain from having access to the broadcaster's top programmes such as Time Team and Hollyoaks.

The Government has stressed a new arrangement for Channel 4 is needed, and there have been a host of suitors. ITV has lobbied minister about creating a single terrestrial commercial broadcaster, which would incorporate ITV, Channel 4 and Channel 5.

The plan was submitted to Lord Carter, the communications minister, last month, with ITV describing its proposal as "blue-sky thinking" to produce "radical solutions to the problem of who provides sustainable competition to the BBC".

The Government has indicated it is willing to listen to any plan to secure the long term future of state-owned Channel 4.

The broadcaster is expected to suffer increasing funding problems in the years ahead, and there are therefore concerns for its £600m a year spending on programmes – especially as advertising revenue is expected to continue to fall with a greater proportion allotted by companies to online marketing.

The Government has long been thought to favour a deal with BBC Worldwide.

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