In a speech last night to the Royal Television Society, Richards acknowledged that the economics of the current model look worse than ever.
It believes Channel 4 could have an annual deficit of between £60m and £100m by 2012.
In addition "overall the costs of holding a PSB licence will outweigh the benefits for most Channel 3 licensees well before switchover is complete and in some cases imminently".
In contrast Richards' assessment of the BBC was that is in "rude economic and creative health and that is an essential foundation stone" for PSB.
Richards argued that the regulator needed to provide a solution because there was "little evidence to support the idea that the market will step in" to provide marginally profitable or unprofitable programming such as original drama, investigative documentaries, regional news and original UK children's programming.
He warned it was nearly time when "people will need to begin to say which side of a number of arguments they stand".
Ofcom is now presenting a choice of three funding options, having decided to discard a fourth option in which the BBC only would provide PSB, which there was hardly any support in a previous consultation.
The three options are the refined evolution model; the refined BBC/Channel 4 model and the refined competitive funding model.
Richards promised to provide more detail and assessment of the implications of each model next week, but summarised them as follows:
A refined evolution model:
In this model the main commercial PSBs would retain obligations. ITV1 could become a network of nations-based licences, or a single UK licence, with obligations at network level for UK origination, UK and international news, but probably nothing else. Additional funding is likely to be required for nations and regions news.
Five's role would focus on UK origination, in particular UK children's programming, and news. Channel 4 would have an extended remit to innovate and provide distinctive public service content across platforms, with additional funding.
A refined BBC/Channel 4 model:
If ITV1's and Five's incentives are no longer credibly aligned with public service purposes, and not for profit institutions are chosen as the primary way of securing those purposes, a BBC/Channel 4 model would offer advantages.
In this model the BBC and Channel 4 would be the main recipients of public funding and regulatory assets. Channel 3 and Channel 5's licences would be auctioned or the spectrum rights and other regulatory assets transferred directly to Channel 4 and the BBC to enhance their public service propositions.
Competition for new funding could be introduced for nations, regions and potentially local news too. Channel 3 licensees would have no ongoing public service benefits or obligations, but could compete for funding to provide nations and regions news, alongside others if they wished. Five would also lose public service status but could similarly bid.
A refined competitive funding model:
If audiences turn rapidly to new platforms and forms of content, and we value competition for funding as a means of ensuring accountable and efficient use of public resources, a competitive funding model offers advantages that we should keep open.
In this model, additional funding would be opened up to a wider pool of providers. Channel 4 could retain its PSB status along with its existing regulatory assets, but be required to bid for any additional funds alongside other providers. Channel 3 licensees and Five could also bid for funding, but alongside others, if they wished to continue to play a role.
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