Costs may rule out Channel 5 bidder

UKTV, the leading bidder in the auction to run Channel 5, has proposed a budget so large that the Independent Television Commission may disqualify it for being non-viable. The consortium, led by Canadian broadcaster CanWest, plans to spend between £150m and £200m a year, a source close to the bid told the Independent on Sunday.

The figures include £70m-£80m spread over the first two years to retune four million video recorders and a further £70m-£80m a year on programming, which would rise to as much as £150m by the end of the 10-year licence.

It also covers set-up costs and overheads as well as the £36.3m a year it bid for the licence fee. The source said UKTV expects to break even within five years.

But City analysts and advertising agencies believe it can only expect to earn between £90m and £120m a year in revenue, partly because it will cover only 70 per cent of UK viewers. "Their expenditure figures appear to add up," said Lorna Tilbian, a media analyst at stockbrokers Panmure Gordon. "The wild card is the revenue. They won't know that until they start doing it."

A serious shortfall could lead to a vicious circle in which programming budgets were trim- med, costing the new channel viewers and ultimately reducing its advertising support. David Asper, head of the company, refused to comment on details of its bid, sticking to an earlier state- ment that advertising was hard to predict beyond two years.

"We've been very conservative and cautious," he said. "We wouldn't have submitted our bid unless we were certain the business plan would give a fair return to our investors."

If it did throw out the UKTV bid, the ITC would have to decide how to choose between the consortia led by Richard Branson's Virgin and Pearson, which both bid £22,002,000. Rupert Murdoch's BSkyB, the pre-bid favourite, seems out of the running after offering just £2m.

The ITC would also have to reckon on a lawsuit if it uses one of the get-out clauses in its invitation-to-apply document to dump UKTV. "I would be very concerned if any government acted deliberately against one individual," said Mr Asper.

UKTV has been under fire since Tuesday, when the ITC opened bids from four consortia eager to run Britain's last available terrestrial channel.

Some critics complained that it is largely foreign-owned, while others pointed out that it was a last-minute entry, which was scraped together from the ruins of the NBC-Mirror Group-SelecTV consortium that pulled out eight days before the auction closed.

But the Independent on Sunday source said the CanWest package was essentially in place two weeks before that. The negotiating team was within minutes of deciding which of two companies would fill the final slot in the equity structure when news broke that SelecTV was available.

The independent British producer of shows such as Birds of a Feather was already acquainted with CanWest and the other members of UKTV, Australia's Network Ten and the Scandinavian Broadcasting System.

Talks between CanWest and other interested parties had been going on since November. The Canadian group had even co-sponsored a study with the Mirror and Virgin consortia into the cost of retuning videos.The final equity structure gives CanWest 29.9 per cent, SBS 30 per cent and SelecTV 20 per cent.

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