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Government mulls over Channel 4 choices

LONDON - The Government has narrowed down the options for securing the future of Channel 4 to four, with the two favourite ideas being tie-ups with either the BBC or a commercial rival.

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It has engaged investment bank UBS to advise on potential courses of action, which include privatising C4, merging it with a rival -- with Five in the frame, a tie-up with the BBC, or handing it a slice of the BBC's licence fee.

According to the Financial Times, the less popular options are privatisation and top-slicing the licence fee.

The possibility of a merger with a commercial rival has been boosted by Five's German owner RTL's recent engagement of investment bank JP Morgan to study a bid for Channel 4.

Two forms of closer links between the BBC and Channel 4 have been put forward, but have met with opposition from each side.

Sir Michael Lyons, the BBC Trust chairman, has publicly questioned an Ofcom idea to merge BBC Worldwide with Channel 4.

In return, Andy Duncan, chief executive of Channel 4, last week immediately rejected most of the proposals put forward by the BBC to share resources with other public service broadcasters.

A study by Deloitte for the BBC said the proposals would deliver £120m of value by 2012.

Duncan said: "With the exception of the suggested partnership with BBC Worldwide, we don't believe these proposals offer any tangible financial benefit for Channel 4.

"Based on our considerable experience of selling advertising around on-demand viewing, we've given the BBC clear feedback that their assumptions about the commercial benefits of a link with the iPlayer are inaccurate.

"We do not share their view that this particular proposal could deliver an immediate and sizeable financial upside.

Relations between the two sides are also frosty after Channel 4 News reported yesterday that the BBC spent £45,600 on a September party to launch its fantasy series 'Merlin'.

Two key reports are due early next year which will help decide the future of the broadcaster, which claims it will have a £150m annual shortfall by 2012.

Ofcom will publish the conclusions to its PSB review while Stephen Carter, the new minister for communications, technology and broadcasting, will reveal his Digital Britain action plan.

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