Channel 4 seeks closer ties with BBC as five sees merger fade

Channel 4 is to press for urgent talks with the BBC over a partnership or partial merger in a move that will undermine its previously planned merger with five.

Channel 4 is to press for urgent talks with the BBC over a partnership or partial merger in a move that will undermine its previously planned merger with five.

Industry sources believe the change of strategy from Channel 4 could force five into the arms of either Rupert Murdoch's media empire or a merger with a less prominent player such as Flextech, owned by Telewest.

It is understood that Channel 4 will seek to agree a deal with the BBC by the end of this year so the outcome can be fed into the Green Paper that the Government is expected to produce on the renewal of the BBC's charter early in 2005.

The future of Channel 4 and five were perhaps the biggest talking points of this year's annual television industry conference in Edinburgh this weekend.

The newly installed chief executive of Channel 4, Andy Duncan - who until this summer was the BBC's director of marketing - emphasised at the conference that the broadcaster was exploring "all options". But he explicitly said he wanted to talk to the BBC. "What we have in common is that we're [both] there for a public purpose," he said.

Mark Thompson, the Director General of the BBC, also new in the job, said at the conference yesterday that he was open to the idea. "We are at a point in our history where our relationship with other public service broadcasters needs looking at ... where we can sensibly collaborate and combine, then so much the better. I welcome a dialogue with Andy from Channel 4 and other public service broadcasters. We may be dealing with a period of consolidation in the channels business."

Jane Lighting, the chief executive of five, said the channel had many options other than the Channel 4 deal, including launching new stations.

It is believed Channel 4 may offer the BBC a commitment that it will not lobby the Government for a slice of the corporation's licence fee income in return for sharing resources in other areas.

The "partial merger" of the BBC and Channel 4 in some areas could encompass the BBC's Worldwide commercial arm, which is currently under review. The BBC is in the midst of delicate negotiations with the Government over renewing its charter. Many believe the corporation needs to offer something to safeguard its continued public funding.

Helping to secure the future of the other publicly owned television group would win the BBC favours with the Government and the media regulator, Ofcom, industry sources said. Ministers and Ofcom are concerned that Channel 4 would find it difficult to maintain its remit for a minority and risk-taking programming agenda if left purely to the market.

Furthermore, with ITV rapidly retreating from its public service role, a larger burden for such programming rests on Channel 4. Also, the Government is not thought to be enthusiastic about the change of status that would be required to allow Channel 4 to merge with five. One industry insider said: "Government, Ofcom and Channel 4 are all now thinking along the same lines ... how to keep Channel 4 market-led but still independent."

One Edinburgh delegate, the television consultant Graham Lovelace, of Lovelacemedia, said: "Five doesn't have a multi-channel strategy. When we are a fully digital nation, a single channel is going to find itself crowded out."

Closer ties between Channel 4 and the BBC would be a blow to five. Five's shareholders, especially Lord Hollick's United Business Media, had warmly embraced the idea of a merger with Channel 4. But first the Government and now Channel 4 executives have questioned how it would be possible to combine the publicly owned Channel 4 with the private, profit-maximising five. It is understood Channel 4 executives had previously held detailed discussions with five's owners, UBM and RTL.

While Mr Murdoch's BSkyB has ruled out buying five, some believe any deal would be done with his News Corp parent company.