Ofcom Proposes Big Changes To UK Broadcast Sector

BBC Worldwide is the commercial arm of the BBC and Five is owned by RTL.

Britain's media regulator proposed a raft of changes to the broadcasting industry on Wednesday, such as allowing mergers between rivals and less regulation, in an attempt to support the embattled sector.

Under the proposals, broadcaster Channel 4 could merge with rival Five or form a partnership with the commercial arm of the BBC, and ITV could be freed from the majority of its public service content remit.

However, the regulator rejected any suggestion that Channel 4, known for edgy programming and strong news, should take money directly from the licence fee -- a tax on every television-watching household which funds the BBC.

BBC Worldwide is the commercial arm of the BBC and Five is owned by RTL. The BBC said it did not have an immediate response to the report while RTL Chief Executive Gerhard Zeiler recently suggested he could be open to a merger with Channel 4.

"The central challenge is how a strong and historically successful public service broadcasting system can navigate from analogue to digital," Ofcom Chief Executive Ed Richards said in a statement.

"These proposals set out what we believe is required to fulfil a vision of diverse, vibrant and engaging public service broadcasting content across a range of digital media."

Channel 4 welcomed the news, and said it supported the idea of a partnership with BBC Worldwide, while shares in ITV were up 0.8 percent against an otherwise lower market.

Channel 4 Chief Executive Andy Duncan said a partnership with the commercial arm of the BBC would "best meet Ofcom's criteria of strategic logic, scale of synergies and sustainability, as well as serving licence fee payers' interests."

"It would create an exciting new organisation, combining and optimising strong brands, content and distribution, appropriately governed within a competitive system," he said.

Ofcom said it had issued its report to address structural changes in the commercial broadcasting sector, such as the digital switchover and pressures on television advertising.

These factors could create a shortfall of up to 235 million pounds ($330 million) per year by 2012 and mean programmes such as regional news, current affairs, British children's programming and some types of drama and documentaries would only be available on the BBC, it said.

ITV, Britain's biggest commercial broadcaster, should be freed up as a strong commercial network to make entertaining, engaging content with national and international news but with limited public service commitments.

Independent consortiums could provide regional news.

Analysts at UBS said a merger between Channel 4 and Five, or the BBC, could create a stronger competitor for ITV, depending on its remit.

"While headlines of additional funding and savings could help sentiment (for ITV), the reality is that these benefits have been known about for many years and should be in forecasts," they said.

Ofcom said the government would need to take decisions on many of these matters within the next year as the current public service broadcasting model was not sustainable.

The regulator said it would work with the government across a range of issues including possible Channel 4 partnerships.