C4 abandons five merger talks

Channel 4 likely to seek public funding for PSB remit as strategic U-turn leaves five needing a suitor.

In a dramatic shift of strategic direction, Channel 4 has pulled out of merger talks with five, increasing the likelihood it will now seek public funding to protect its position.

Andy Duncan, the chief executive of Channel 4, met with his board at the beginning of the week to make a final decision on whether merger talks should continue. The discussions, which had been going on for a year, were instigated by Duncan's predecessor, Mark Thompson, now the director-general of the BBC.

The board unanimously decided to withdraw from the discussions in order to pursue other strategic objectives designed to protect Channel 4 in the multichannel world.

Speaking to Campaign, Duncan said: "A full strategic merger with five would not be appropriate. The heart of the decision was that a merger would not protect the DNA of Channel 4's public service remit."

However, Duncan has not completely ruled out alliances with other broadcasters.

As first revealed by Campaign, he confirmed that he was still looking at the possibility of creating a strategic alliance with the BBC (Campaign, 30 June). Such a partnership could potentially include link-ups with the BBC's education and technology divisions.

Channel 4's short- term position is relatively healthy - it has increased its share of commercial impacts on last year and agencies are likely to increase their spend with the station in the forthcoming deal negotiations.

Channel 4 is also preparing to launch the digital channel More4 next year.

But in the longer term, Channel 4 will have to act to protect its position as a public service broadcaster.

The idea of merging the publicly owned Channel 4 with the commercial channel five was always fraught with complexity. It is now likely Channel 4 will ask Ofcom for public money to continue to fulfil its remit, when it makes its submission on the future of PSB next week.

Channel 4's decision increases the pressure on five's shareholders RTL and UBM to find the terrestrial minnow a suitor. In the summer, five's chief executive, Jane Lighting, revealed she was discussing a merger with her former employer Flextech Television.

Although a deal would make strategic sense for five, Flextech's owner, the cable company Telewest, has only recently emerged from major debt restructuring. Sky could also emerge as a bidder, most likely over the longer term as five's declining audience share depresses its value.

- Comment, p56.