C5 bidder tries rule dodge

Channel 5 Broadcasting, one of four consortia bidding for the fifth terrestrial television licence, has established a controversial shareholding structure to avoid cross-media ownership limits, the Independent has learned.

The company was also betting the Government would relax the ownership rules before the channel licence was awarded, thus increasing its chances of receiving approval from the Independent Television Commission for its proposed ownership structure.

The bet may pay off today, when Stephen Dorrell, the Heritage Secretary, unveils the Government's Green Paper on cross-media ownership. Although the Green Paper will begin the long-term process of defining the national media market, it will also include short-term relaxation of the cross media-ownership rules.

These are expected to involve an increase in the number of radio stations a company may own and in the minimum circulation that triggers a referral to the Monopolies and Mergers Commission from 25,000 to 50,000.

In addition, newspapers with a market share of more than 15 or 20 per cent trying to buy a "controlling stake" in the owner of a television licence would be subject to an investigation, with the regulator required to demonstrate that an acquisition is not against the public interest.

Under current ITC rules, bidders for the Channel 5 licence were obliged to meet the current ceilings imposed on media companies. These limited Pearson, publisher of the Financial Times, to no more than 20 per cent of Channel 5. If it wanted to keep the independent status of Thames Television, its TV production subsidiary, the limit would be 15 per cent. But by taking advantage of a two-tier ownership structure, Pearson, if its bid is successful, is to hold 26 per cent of non-voting stock in the new channel, with a 14 per cent voting stake.

Pearson's lawyers argue that the company should be able to retain Thames' independent status. A Pearson spokesman said that programming arrangements between Channel 5 and Pearson's two television production arms, Thames and Grundy Worldwide, would be used to calculate its economic interest in the new channel.

Pearson refused to provide further clarification, claiming the information was part of its confidential submission to the ITC.

Chris Smith, shadow heritage secretary, last night called on the ITC to make all material related to the ownership structure of the Channel 5 bids public. "We are in the public consultation process now," he said. "It is surely the public's right to have all necessary information in order to take informed views."

Until the rules are changed officially, the the ITC will use current limits in their evaluation of the four bids. A spokesman said yesterday that the commission would review the Government's proposed changes to the cross-media ownership rules before deciding whether to allow the bidders to make alterations to their submissions.

One of Pearson's partners in the venture MAI, the financial services and media company, is also benefiting from the two-tier structure. The company, chaired by Lord Hollick, controls two ITV licence holders, Anglia and Meridian, and last week bought 14 per cent of Yorkshire-Tyne Tees from Pearson. MAI will hold 20 per cent of the Channel 5 Broadcasting's voting shares but fully 31 per cent of the non-voting stock.

A third partner, European broadcaster CLT, does not face cross-media restrictions as it does not hold ITV licences or control newspapers in Britain. The Luxembourg-based company will have 33 per cent of voting shares and 28 per cent of non-voting stock in the event the consortium wins the licence.

The fourth consortium member, Warburg Pincus, is to hold 33 per cent of the voting stock and only 14 per cent of non-voting shares. It is thought Warburg will be able to transfer shares to Pearson or MAI in the event that the Government liberalises rules in its White Paper on cross-media ownership, due out this week.

A further part of the Green Paper is expected to invite consultation on how the wider media market should be defined.

Three other bidders are in the running for Channel 5. They included Virgin TV, backed by Richard Branson's Virgin Group; New Century Television, made up of Rupert Murdock's BSkyB, Granada, PolyGram, European broadcaster Kinnevik, Goldman Sachs and Andrew Lloyd Webber's Really Useful Company; and UKTV, led by CanWest, the Canadian broadcaster.