Speculation leading up to yesterday's communications bill indicated that the government would leave in place the ban that prevented owners of 20% of the national newspaper market from owning a terrestrial TV licence.
Instead, the government is to remove this legislation, allowing companies such as News International, owner of The Times and The Sun, to buy Channel 5, although they may not acquire ITV.
The bill has been broadly welcomed by media owners and the opposition, and it is seen as a significant step forward in allowing the broadcasting industry to grow.
ITC chairman Sir Robin Biggam said: "Publication of the draft bill for consultation represents an important stage in the development of a 21st-century framework for Britain's communications sector". Shadow culture secretary Tim Yeo said he welcomed the removal of many of the limits on ownership of UK newspapers and terrestrial TV, but he felt the government could go further.
Jonathan Allan, TV director at media-buying agency OMD, said that the government's decision to allow Murdoch to take a stake in Channel 5 would come as a "surprise" to the media-buying industry. The sector, he said, had been convinced that the ban would be retained on all terrestrial TV stations.
"Murdoch lobbied the government like mad and removal of the legislation is obviously a sweetener as he has such power in the media," Allan said.
It is thought that the government wants to keep Murdoch on side ahead of a referendum on the euro, which could go either way depending on the stance of his newspapers, notably influential tabloid The Sun.
However, Ian Twinn, director of public affairs at the ISBA, welcomed the ruling. "Channel 5 needs investment, which it would get if Sky were to take a stake in it. It may also benefit from Sky's programming. It is better programming that draws audiences to channels, which provides better value for advertisers," he said.
Allan added that one major surprise was that the current owner of Channel 5 would also be allowed to own ITV. This would leave the way clear for pan-European broadcaster RTL -- which owns 65% of Channel 5 -- to take over either Carlton Communications or Granada.
The news that Carlton and Granada are to be allowed to merge was expected, but it is a move the advertising industry is opposed to, largely on the grounds that ITV's two sales houses would combine and limit competition at the UK's main commercial broadcaster.
Allan said: "Even if the Competition Commission, which regulates advertising sales independently of the communications bill, prevents the two sales houses from merging, there is still the problem that they will be reporting to the same company."
He said that if the commission does prevent them from merging, the two would have to have separate mechanics to ensure that are motivated to compete.
"We are always against consolidation because it is harder to get companies to trade off one another," Allan said.
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