ITV owners face licence blow

GOVERNMENT proposals threaten to deliver a devastating blow to the future of ITV and Channel 5 as Britain's key commercial broadcasters, it emerged this weekend.

Carlton and Granada hold most of the licences for ITV and, along with Channel 5, have automatic first refusal to rebid if their broadcasting rights come up for renewal.

But a clause in the Communications Bill would end this right, Financial Mail has established. The companies say this will severely hit investment plans for their operations because their very future as broadcasters would be thrown into doubt.

The clause would not come into effect until 2014, but it crucially affects the present value of ITV and Channel 5 because the security of their long-term rights to broadcast is undermined, making them less attractive to investors.

ITV and Channel 5 are pleading with the Government to revoke Clause 150 of the Bill, which could become law next year. Their stance is backed by the Independent Television Commission, which says the clause threatens the investment in infrastructure that is required to meet the Government's target of switching off the analogue transmission signal by 2010.

The TV companies are also understood to be concerned that the clause would make them less attractive to possible buyers. Carlton and Granada, as well as Channel 5, are viewed as potential bid targets - ironically because the rules on ITV consolidation and media ownership are relaxed by the Bill.

ITV feels that the effect of the clause could be so serious that it has told the Government in a written submission that it would 'fundamentally undermine the process of consolidation within ITV'.

Carlton and Granada are expected to merge soon, but the clause means that the two companies' individual licences for ITV regions might not be retained.

Gerry Murphy, Carlton's chief executive, said: 'Both of these businesses are of a long-term nature. You have to take investment decisions that live on for years. 'If this clause stands, that investment will not be made. The present system gives licence holders first refusal and provides an incentive to invest.'

Channel 5 is majority-owned by German media giant Bertelsmann, but under new rules contained in the Bill it could be bought by Rupert Murdoch's News International, which was previously prevented from owning it because of the extent of its newspaper interests. But executives at Channel 5 recognise that the clause has worrying implications for the value of the company.

It has yet to show a profit, though it is regarded as one of the success stories of commercial television. A spokeswoman said: 'This clause will have a serious impact on our business if it is allowed to stand. It is our single biggest concern in the entire Bill.'

The City, too, is concerned about the effects of the clause. One leading TV analyst said: 'It is a nightmare. It is entirely typical of the Government to have come up with something so stupid.'