Speaking ahead of his appearance at the Royal Television Society tonight, Ofcom’s chief executive Ed Richards has made a strong case for Channel 4 to be part- subsidised by the national TV licence.
Top-slicing the licence fee, of which the BBC has always historically been the sole beneficiary, would ensure Channel 4 is able to play "a significant public service role in the digital age," according to Richards.
The Ofcom chief added that the "external situation" surrounding the financial prospects of Channel 4 are now worse than when its finances were last reviewed, some 18 months ago.
He added: "To break even, Channel 4 would need to cut its investment in public service content year-on-year from here to 2012 to the detriment of the public service content that audiences tell us they value.
"We have subjected these projections to close scrutiny and, while we are not as pessimistic as C4 itself, we do believe that this annual deficit could amount to between £60m and £100m by 2012, excluding the costs of the Next on 4 vision.
"In principle Channel 4 could simply spend its reserves to sustain short-term investment in public service content. But no sane business would run through its savings to fund unsustainable outgoings without some security of its future income.
"Channel 4 should have a significant public service role in the digital age, building on its current contribution as a publicly owned not for profit institution. It needs an economic model and funding mechanism to support this as a pressing priority."
His comments have been welcomed by Channel 4, who warn the picture is even more desperate than forecast because the Ofcom report excludes the cost of delivering the new public service responsibilities the channel proposed in its ‘Next on 4’ strategic blueprint, which would add more than £50m in expenses.
Andy Duncan, chief executive of Channel 4, said: "We’re very encouraged that Ofcom now broadly accepts our forecasts on the size and urgency of our funding gap and agrees that identifying a new funding mechanism for Channel 4 is a ‘pressing priority’.
"We also warmly welcome Ofcom’s endorsement for our Net on 4 creative vision and its recognition that Channel 4 is critical to ensuing ongoing competition to the BBC in the provision of high-quality public service programmes."
Separately, Richards will also suggest that ITV’s financial position is worse now than six months ago, blamed in part on the cyclical nature of the business and the economic downturn.
He will also admit that the arguments for retaining the public service roles of both ITV1 and Five after 2014 are "more evenly balanced".
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