ITV ponders public service options

ITV is "running the numbers" on the cost of handing back some or all of its ITV1 licences to regulator Ofcom.

The move would mean ITV giving up its status as a public service broadcaster and switching from analogue to digital-only transmission of its main network ITV1 earlier than expected. According to sources, weighing up the pros and cons of doing away with its public service obligations follows pressure from ITV investors.

With the share price in the doldrums at around 65p and rumours of potential bidders circling such as RTL and Haim Saban, all options for the future of ITV are being considered. The 11 ITV1 licences, for regional franchise including Granada, Central, Yorkshire, London weekday and London weekend, give the broadcaster some special privileges such as its prominent position on the digital TV electronic programme guide, which is decided by Ofcom.

If ITV were to hand back any licences it would lose those privileges and have to pay what the Communications Act 2003 calls 7% "of the qualifying revenue for the last complete accounting period of the licence holder falling within the period for which the licence is in force".

Currently, under predictions for the ITV family of channels for 2008 that would mean it paying out between £100m and £112m. One of the biggest fears is the impact of switching to digital on loyal ITV viewers, particularly older audiences who do not have digital television.

However, it is only just over a year until a key part of ITV's heartland – the Granada region, where Coronation Street is made – is due to switch from analogue to digital television anyway. Next autumn, 3 million viewers in the Granada region in north west England will go digital at the flick of a switch.

It is no secret that ITV has become frustrated in its plans to cut back some of its public service obligations – from children's television to regional news. Over the last year or two there has been a steady trickle of requests to Ofcom. At the moment ITV has to clear it with Ofcom if it makes a "significant change" to ITV1's programming mix, as a result of which the channel would in any year be materially different in character from in previous years.

Most recently the regulator told ITV to re-think its plans to make cutbacks in regional news that could save around £40million a year. To ITV's frustration, Ofcom is not due to resolve that issue until the autumn. One source told Mediaguardian.co.uk that although ITV is "running the numbers", executive chairman Michael Grade is loathe to be the man who oversaw the end of ITV's history of public service broadcasting.

The source said: "Michael has brought back News at Ten and championed news. He's under pressure from investors though, so ITV has to evaluate what the opportunity cost of handing back licences is." Another commentator pointed out: "There is a declining value of the licences. At what point is the value lower than the cost of handing them back. What do you do with the licences at that point?"

It is not clear whether or not ITV could hand back a single licence or would have to give all 11 back to Ofcom all at the same time. An ITV spokesman said: "We're currently looking at all of the options set out in Ofcom's public service document."

In the first stage of Ofcom's latest public service broadcasting review, published earlier this month, the regulator set out four likely scenarios for the future, only one of which included ITV retaining its existing PSB status.