Two weeks ago it was reported that Five and Channel 4 had held tentative merger discussions within the last six months. The talks brought together Channel 4 chief executive Mark Thompson and Five owners Lord Hollick, the chairman of United Business Media which owns 35% of Five, and RTL, the majority shareholder.
According to a report in The Guardian this morning, Thompson confirmed yesterday that discussions had begun.
Talks are reported to have initially centred on combining sales operations, but were widened to take in the possibility of a full-blown merger.
The paper says that at a meeting of the Channel 4 board last week the go-ahead was given by directors to appoint City advisers to pursue the merger idea.
The idea of a merger between the two is tricky. Channel 4 is owned by the government with a value, if it were to be sold, of somewhere in the region of £2bn. A sale would require the OK from Parliament.
One option being discussed is running the two businesses together but with separate television schedules, along the lines of BBC One and BBC Two.
Although the talks predate the appointment of Luke Johnson as chairman of Channel 4, observers have pointed to his commercial background as a signal that the media regulator Ofcom feels a change in the channel's ownership is likely and desirable, and appointed a chairman who would be able to push it through.
The Guardian reports that several new ownership options are being examined including creating a trust to run the two companies, which would allow the dovetailing of commercial and public ambitions.
The talks were brought about over rising concern in the multichannel environment about the future of Channel 4 with the merger being seen as a way for the two channels to maximise their strength in the market.
It had been known that Five and Channel 4 were interested in a possible tie-up on airtime sales with BSkyB seen as another partner. The airtime sales talks were put into motion following fears about the creation of a single ITV sales house. Five and Channel 4 were concerned that alone they would come under pressure from the merger of Carlton and Granada's sales operations.
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