The obstacles in Murdoch's way

The course of true media love never did run smooth. Rupert Murdoch's discreet eyeing-up of Channel 5 has met with flat indifference, and that could be the latest in a long line of obstacles in his way. Murdoch, the self-styled underdog of the British Establishment, has long sought a place at the UK's terrestrial TV high table. The publication of the Government's long-awaited Communications White Paper in May seemed to hasten the consummation of the relationship, with plans to scrap rules barring newspaper owners from buying a stake in the channel.

The appeal of Channel 5 for Murdoch is obvious. Since its launch five years ago, it has matured from the wacky teenager of the broadcasting industry to an aggressively commercial young channel. It is moving consciously upmarket, with a slate of sophisticated programming and a planned campaign from ad w¸nderkind Trevor Beattie.

It has a savvy and dynamic chief executive in Dawn Airey and, crucially for Murdoch, it's the only broadcaster to buck the current advertising slump. Apart from the holy grail of a terrestrial foothold, Channel 5 offers Murdoch opportunities to promote his Sky channels with tasters of its programming and valuable economies of scale.

But would its owners want to sell? The German media giant Bertelsmann, which owns 65 per cent of Channel 5, has been making positive noises about the channel, but it was thought it planned to go one better and buy a large chunk of ITV, possibly Carlton or Granada - a move that would have required the selling of its Channel 5 share. The resignation of the expansionist Thomas Middelhoff, chief executive of Bertelsmann, was seen as another piece falling into place for Murdoch. With the Government apparently smiling on most of his ambitions, the way seemed clear for Murdoch to snap up the infant of terrestrial TV. But no. Bertelsmann is indeed considering its options, but any attempt by Murdoch to swoop on Channel 5 looks full of problems.

For one thing, the committee chaired by Lord Puttnam, set up to scrutinise the Broadcasting Bill, wants to put a spoke in the Government's plans to allow foreign broadcasters to buy into British broadcasting.

Downing Street, with more than one eye on a possible euro referendum, has apparently already made up its mind about foreign ownership and plans to ignore the Puttnam recommendations. As far as Tony Blair is concerned, Murdoch can do what he likes. Tim Yeo, the Tories' former shadow media secretary, thinks the Government is quite capable of doing a "stitch-up deal...if it was under pressure from the Murdoch group."

But even with the PM on Murdoch's side, things may not be that simple, for he arouses strong feelings, and politicians are now taking sides for a major scrap. This week, Liberal Democrat frontbencher and committee member Lord McNally was unusually trenchant in warning the Government that it was being "high-handed", "silly" and " insulting" to Parliament by trying to push its plans through. "The least courtesy the Government can give to the committee is to read the report before rushing to judgment," the peer said. "I was surprised to read that the Government 'has made up its mind' on this issue. Well, Parliament hasn't made up its mind yet. These are important issues which will set the debate for the communications industry over the next 10 to 15 years," he said.

His colleagues in the Lords, where the Government has no overall majority, are likely to dig their heels in. Their Lordships don't take kindly to high-handed government.

And the Commons won't be any more docile. "Tony Blair will get stiff opposition across the political spectrum if he allows any newspaper groups to get their hands on a broadcaster in the UK before the new regulatory system has been bedded in," warns Nick Harvey, Lib Dem media spokesman. The Government's plan may yet fall foul of existing competition law on media mergers and acquisitions. Under Office of Fair Trading rules, a merger referral is "triggered" if the merged company supplies 25 per cent or more of goods or services in a given market. So, would Sky - operating in satellite TV - be considered to be in the same market as Channel 5, in terrestrial broadcasting?

Bizarrely, no one seems to know. "We would look at that under the terms of the process," says an OFT spokesman. In lay terms, that means they'll cross that bridge when they come to it.

And there is yet another hurdle for Murdoch, the most obvious one. "I'm not sure that this shakeup would necessarily lead Bertelsmann to sell and get out of the UK," says Kingsley Wilson, an analyst at Investec Securities.

"Channel 5 has enjoyed doubledigit advertising growth in the past few months and investing in it is a far cheaper way to boost a share of the UK market than investing in ITV."

Merrill Lynch's Neil Blackley goes even further. Now that Middelhoff, for whom US expansion was preferable to building on existing European strengths, has gone, the idea that Murdoch will take over Channel 5 is "a complete non-starter". "Every public utterance it (Bertelsmann) has made on the subject suggests the last thing it wants to do is to get rid of it," says Blackley. It's also far from clear that the minority shareholder, Lord Hollick's United Business Media, would want to sell up. Certainly, RTL's chief executive, Didier Bellens, always a Channel 5 enthusiast, continues to insist it is totally committed to the company.

There are also those who even doubt that Sky, with a digital platform and a growing subscriber base, wants to buy - for now. Which is just as well. With Bertelsmann cherishing its UK outpost and ad revenue rising, it is sitting pretty.