Channel 4 hit out yesterday at the proposed merger with Five as it battled to persuade ministers that it should remain in public ownership.

In a last-ditch intervention days before the publication of the Government’s Digital Britain Green Paper, Channel 4 indicated that it believes that Five faces serious financial problems of its own. Its internal estimates show that Five’s advertising revenues could fall by 20 per cent in 2009 – from a total of £370 million – reflecting the collapse in advertising and weak viewing figures.

Andy Duncan, the chief executive of Channel 4, wants to keep it in public ownership but is facing a financial shortfall that the regulator Ofcom says will stretch to £100 million a year in the next decade. A spokesman for Channel 4 said: “Our objection to a deal with Five is that a merger of that type would not solve the problems that both broadcasters face. It would create a slightly bigger broadcaster facing the same problems.”

Channel 4’s assault prompted a swift response from Five’s owner, the German media group RTL. Gerhard Zeiler, RTL’s chief executive, said: “I bet you that when the figures for 2008 are compared, Five will be more profitable than Channel 4.”

Mr Zeiler said that he wanted to form a “public private partnership” in which a merger would bail Channel 4 out “at no cost to the taxpayer”. He promised that the merged company would maintain Channel 4’s news and current affairs output. “That is the point of the whole deal,” he said.

Five, a commercial station, is expected to make a modest profit of less than £10 million this year, although it is half the size of Channel 4. By contrast, Channel 4, run on a not-for-profit basis, made only £1.6 million in 2007, and will struggle to produce better figures in 2008.

Channel 4 insiders believe that a tie-up with Five will save only £20 million a year in reduced overheads and that Five is saddled with expensive long-term programme deals for Neighbours, CSI and Home and Away. Five rejects that and argues that the cost savings would total more than £50 million.

Mr Duncan is desperately courting an alternative rescue, which would involve a merger with the BBC’s lucrative commercial arm, BBC Worldwide. However, exasperated BBC executives do not want to hand over Worldwide, the owner of the Radio Times, Doctor Who DVDs, and the BBC’s for-profit international operations. They believe that the combination of the two amounts to a “Frankenstein” merger.

That creates a headache for the ministers who will have to decide between the BBC, Channel 4 and Five. On Thursday Andy Burnham, the Culture Secretary, is due to give a speech outlining the plans before the Green Paper is published next Monday.

However, such is the controversy, it is expected that Digital Britain will struggle to reach a final verdict and instead will hold out several options for Channel 4.

One broadcasting insider said: “I think these leaks and disagreements tell you one thing: it’s complicated.”

How they compare

Channel 4

Top show Big Brother
Best soap Hollyoaks
News presenter Jon Snow
Share of viewing 8.1 per cent
Digital channels share 12 per cent
Turnover £944.9 million*
Pre-tax profits £1.6 million*
Owner Taxpayer * Figures for 2007.

Five

Top show CSI
Best soap Neighbours
News presenter Natasha Kaplinsky
Share of viewing 5 per cent
Digital channels share 6.1 per cent
Turnover £341 million*
Operating profits £10 million*
Owner RTL, in turn owned by the German group Bertelsmann

Sources: Channel 4, RTL

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