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Uncertain future for Channel 4

The departure of Mark Thompson leaves Channel 4 without its highly rated leader at a critical point in the broadcaster's history.

Mr Thompson was the cheerleader of a grand strategy, recently made public, of trying to merge with Channel 5. For the deal to proceed, Channel 5's German owners would need to be convinced of its benefits and it would also require the Government to change the law and allow the state-owned Channel 4 to merge with Channel 5.

Channel 4 also faces other major challenges involving the advent of the age of digital television. It must negotiate the review of public service broadcasting now being carried out by the media regulator, Ofcom.

David Elstein, former chief executive of Channel 5, said: "This does leave them rather exposed. Once you lose the champion of something like the Channel 5 deal, you sometimes also lose the impetus."

Channel 4 is also faced with a much strengthened ITV following the regulators' decision last year to allow the main two companies that make up ITV to merge. And the BBC, with Michael Grade and Mark Thompson at the top, will be a formidable management team to compete against.

But Channel 4 has a strong brand, a distinctive place in the television market, its ratings are up this year and it recently announced a threefold increase in profits to £45m.

The departure of Mr Thompson sets up the intriguing prospect of the recently appointed Channel 4 chairman, Luke Johnson, a maverick businessman who made his fortune in the Pizza Express chain, overseeing the choice of a new chief executive. This may throw up an unexpectedly wide pool of candidates. Conventional wisdom would place Dawn Airey, the former Channel 5 boss who now works for BSkyB, as one of the front-runners. Out of those turned down for the BBC director-general post, John Willis is seen as the leading contender. But it is thought that Channel 4 may opt for a candidate from the wider media industry, such as David Mansfield, chief executive of Capital Radio.

It is the advent of mass digital television that puts Channel 4 at such a delicate point. More than half the country has digital television, and Channel 4's viewing share drops from more than 10 per cent in analogue homes to 6.5 per cent in digital households. Analysts say this is why the broadcaster is desperate for the Channel 5 deal - to give it a bigger "frontprint" in homes that have a choice of 200 or more channels. As well as its existing E4 and FilmFour digital channels, the broadcaster plans to launch at least one more in the next year. An executive said: "Channel 4 has a short window to build a stronger presence, otherwise it is in danger of disappearing in the digital world."