Channel 5 is giving us all an art attack

You either love Channel 5, or you hate it. During the four years that it has been on our TV screens, it has been better known for its soft porn than anything else. The Daily Mail dubbed it "Channel Filth," and launched a hate campaign against the "vulgarity and smut that has made Channel 5 a disgrace to British broadcasting", no less.

It became notorious for the tackier side of TV viewing. A fine example was the programme Sunset Beach – now scrapped – which developed a cult student following, although its hammy acting and labyrinthine plots did nothing for the status of the channel.

But this "three f's" [films, football and fornication] image could be about to change. As chief executive Dawn Airey prepares the channel for the media's most perilous period for a decade, with plummeting advertising revenues and an uncertain economic outlook, she appears to be shifting the channel's strategy. Channel 5 is heading upmarket.

At one time, a programme on the 16th-century painter Albrecht Dürer would only have appeared in prime time on the rather more highbrow BBC2 or Channel 4. But Channel 5 has moved its programme Great Artists – which this week will feature Dürer, with Rubens, Titian and Turner to follow – from a Sunday lunchtime to a crucial early evening slot. It is also increasing its production of documentaries, for the most part on crime and the Second World War.

It has poached key programmes from its rivals, although they are not all as culturally rich as Great Artists, and last week the company announced a coup with the coaxing of several Top Gear presenters and staff from BBC2.

The airing of the soap Home and Away, which it snatched from ITV, has also provided a much-needed boost to its viewer numbers.

"Channel 5 has been doing very well since it's been showing Home and Away. It's done great things for the subsequent programmes," says Neil Blackley, an analyst at Merrill Lynch.

But what the channel really needs is to produce its own talent, as a home-grown hit show would raise its profile. "You always get more credit for producing your own famous faces than poaching other people," admits a spokesperson for Channel 5.

This was, in part, the reason why the senior programming team at Channel 4 was lured over to the opposition. Kevin Lygo, who is now Channel 5's director of programming, presided over a mini-era in programming at Channel 4, which included Ali G, So Graham Norton and Trigger Happy TV. The aim is to reach the estimated third of viewers who don't even bother to turn on the channel – on top of the 18 per cent who can't tune in because of their location.

"That's why things like the artists programme and documentaries are there, to attract those kinds of people," the spokesperson added.

The real target, although not publicly aired, is to beat Channel 4. Overall market share in viewer numbers is relatively flat, at 6.1 per cent last month, up only 0.1 percentage points on the previous year. It has a long way to go to beat Channel 4, which has a market share of 9.7 per cent.

But its fundamental problem is that its yearly budget is just under £150m, while Channel 4's triples that.

David Elstein, Ms Airey's predecessor, battled with shareholders to get an increase in budget for most of his reign. "I think a 10 per cent market share is non-achievable," he says. "It would need a huge amount of investment. It would have to get to £190m to stand a chance of getting to 7 or 8 per cent, and around £250m to get to 9 or 10 per cent."

It appears there are others who would like to have a hand in running the company. United Business Media, headed by Lord Hollick, considers the 35 per cent it owns a saleable commodity – at the right price. RTL, the pan-European broadcaster that owns the rest, is more keen to keep it. Yet at the moment it is draining the owners' bank accounts. The channel's move into an operating loss of €18m (£11m) for the first half of this year – compared to an income of €6m for the corresponding period in 2000 – helped push RTL into an overall loss.

Rumourmongers are also whispering about RTL's intentions to bid for Carlton Communications or Granada, the two significant ITV operators. Under current legislation they would have to sell most of their Channel 5 shareholding to realise this dream.

Pundits are hotly tipping Rupert Murdoch to make a move into terrestrial television. But there would be many obstacles ahead. Under current law, he would find it impossible. As he owns The Sun and The Times, he would only be allowed to buy a fifth of any terrestrial broadcaster.

The Government is shortly to change these rules. No one knows what the imminent green paper on cross-media ownership will contain, but it is widely expected to loosen the restrictions.

If the laws were relaxed enough to allow Mr Murdoch to buy an ITV company, the outcry would be deafening, as the channel is so large. Many British MPs, particularly those on the left, would be aghast at the thought of the Dirty Digger getting his hands on such a large part of the UK's media industry.

Channel 5 could be the next best thing for Mr Murdoch, and its tabloid TV content would fit in nicely with what he does best. But others are more sceptical that terrestrial TV is worth the bother – or the money – for the media giants. "Why would you want to do it?" says one analyst. "Just wait for everyone to go digital."

This is a problem perplexing the terrestrial channels, although the largest commercial channel, ITV, is most vulnerable.

The increasing penetration of digital TV could herald a massive fragmentation of the advertising market into the myriad of channels available on the services. Terrestrial TV channels could soon have a minority following, although, as this is what Channel 5 has at the moment, maybe this doesn't pose such a big problem for it.