UK's Channel 4 had merger talks with Five: report

LONDON (Reuters) - The heads of British television station Channel 4 and its commercial rival Five have held secret merger talks, although they are unlikely to lead to a deal, the Guardian newspaper reported on Saturday.

Channel 4 Chairman Luke Johnson met Gerhard Zeiler, chief executive of Five's European owner RTL AUDK.LU, in December after encouragement from the government, the report said.

In the coming weeks, Britain’s Communications Minister Patrick Carter and the media regulator Ofcom will announce plans to reform public service television to help it cope with falling revenues.

Channel 4, publicly owned but commercially funded, has announced plans to cut jobs and spending in the face of the global economic downturn.

The channel, home of shows like “Big Brother” and “Hollyoaks,” has seen its advertising revenues fall in recent years, along with other TV stations.

In a report, Ofcom blamed the decline on competition from the Internet and the erosion of advertising fees due to digital video recorders that allow viewers to skip commercials.

Channel 4’s Johnson said he went into the talks with an open mind, but later realized that a merger was not a good idea.

“Having done due diligence before, we can’t see how it makes economic or cultural sense. It makes even less sense now,” he told the newspaper. “It would be a tragedy. It would, to a fair degree, make my tenure as chairman a failure.”

Channel 4’s Chief Executive Andy Johnson said a merger with Five was not the answer to the two sides’ financial problems.

“Five at best is a modest contribution to the problem,” he told BBC radio. “Fundamentally, I believe Britain needs a second strong public service organization to compete with the BBC.”

Other possible options for Channel 4 include some direct public funding or a merger with the BBC's BBC.UL commercial arm, BBC Worldwide. No one at Five or Channel 4 could immediately be reached for comment.

Reporting by Peter Griffiths, editing by Anthony Barker