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At a speech at the Royal Television Society last week, C4 chief executive Andy Duncan announced the programming budget for E4 would increase from £40m to £60min 2005 .

"E4 has enjoyed fantastic creative and commercial success in its first four years on air and has reached operating profit a year ahead of forecast thanks to its must-have status among young and upmarket multi-channel viewers," Duncan said.

"Now is the right time to be boosting our investment in the channel in line with our strategic objective of strengthening our channels' impact in multi-channel homes."

C4 said the additional funds would be invested in a combination of original commissions, US acquisitions, spin-offs of C4 programmes and films.

The announcement comes days after media regulator Ofcom set out its suggested timetable for digital switchover, starting in 2008. Ofcom also ruled out any immediate injection of public funds for C4.

The main terrestrial players have all placed digital TV at the forefront of their strategy, with Five the only channel yet to launch a separate digital channel.

As well as its increased investment in E4, C4 will launch a free-to-air documentary channel, More4, later this year. ITV launched its second digital channel, ITV3, last November.

Meanwhile, the BBC, which has long been at the forefront of digital TV, is reported to be considering launching a specialist sports channel in the course of the next licence period.

Nick Milligan, head of Sky Media, described C4's investment in E4 as "brilliant news".

"I think it's fantastic for everyone in the television industry that so many companies are investing in their digital content," Milligan said. "The multi-channel arena is the future and it's great to see companies recognising it."

C4 also announced new programming heads for E4 and More4. C4's head of factual entertainment, Julian Bellamy, will also take charge of programming at E4, while Peter Dale, currently head of documentaries at C4, will move to head ofMore4.

E4 and its sister service E4+1, which plays the same content an hour later, have 2.3% share of viewing among 16 to 24-yearolds in multi-channel homes – the second most popular digital channel for the age group.

But Luke Duffy, TV group director at Starcom Mediavest, said E4 was losing viewers in the late peak timeslot – a crucial time for advertisers wanting to target a young affluent audience.

"Late peaks last year for E4 and E4+1 were down 14% year on year, and that's largely due to the lack of original programming,"

Duffy said.

"The challenge for E4 is to iron out some of the peaks and troughs they have throughout the year. Big Brother contributes lots of peaks in the summer and I would be very pleased from a buying point of view if they can get more consistency."

Duffy said launching E4 on Freeview would be an excellent way for the channel to increase its audience and this could be a better use of the extra funds than spending it on content.

Going free to air is an option understood to be under consideration by C4, but it would require the broadcaster to renegotiate its exclusive contract with BSkyB.

Alistair Munday, TV manager at Total Media, said he expected most of the £20m to be spent on independent programming and this could help establish E4 as a channel in its own right. "They have to consider the amount that they take programmes from Channel 4 and show them on E4 first," he said.

"For example, The Sopranos and Desperate Housewives they show on E4 on one week and Channel 4 on the next week, so people in multi-channel homes will choose to watch it on E4 rather than Channel 4."

Munday said he doubted C4 would abandon this strategy altogether, but it might become less reliant on it to avoid E4 cannibalising the flagship channel.

By Caitlin Fitzsimmons

Further review

C4 has previously said it could eventually face a £100m shortfall caused by digital switchover taking away the channel's advantage of being one of just three commercial analogue channels and that it might need public subsidy to help plug the gap. Ofcom said public subsidy for C4 would be difficult, but promised to review the situation in 2006/07. C4 chief executive, Andy Duncan said this was "a perfectly sensible way of ensuring a timely response."