The BBC is in talks with Channel 4 to mount a £500m bid to take control of UKTV , which broadcasts channels including Dave and Gold.
UKTV has a mix of 10 free to air and pay-TV channels as well as a free streaming service. It is 50% controlled by BBC Worldwide, with the remaining stake owned by US media company Discovery.
BBC Worldwide, the commercial arm of the BBC, wants control of UKTV because it is the biggest driver of its profits and source of funds it funnels back to the licence fee-funded BBC each year.
UKTV’s profits have rocketed from £29m to more than £90m in the past eight years. It pays £54m a year to BBC Worldwide for the rights to an extensive library of BBC shows from Top Gear to Dad’s Army.
Much of the content on UKTV channels recycles BBC archives, but channels such as Dave have commissioned their own programming, including the hit comedy panel show, Taskmaster.
But BBC Worldwide does not have the financial flexibility to buy out Discovery, which is understood to be a seller if the right deal can be reached, and has been seeking a partner.
Channel 4 has about £190m in cash reserves, including a £75m revolving credit facility, that it could use as part of a strategic package toward a takeover of UKTV. It is understood that the state-owned broadcaster is also allowed, in some circumstances, to raise significant further funds from financial markets.
UKTV is also of huge strategic importance to Channel 4 as it handles the £225m-a-year TV ad sales contract for the broadcaster.
A tie-up would, at a stroke, provide Alex Mahon, Channel 4’s new chief executive, with instant exposure to a new revenue stream in the pay-TV market.
Channel 4 is not allowed to own production companies, so it cannot follow rivals such as ITV in driving income from creating global TV hits, and pressure from advertisers shifting spend to digital firms such as Google and Facebook continues to mount.
Discovery, which owns broadcasters including Eurosport, inherited the £500m stake in UKTV when it took over Scripps Networks in a $12bn (£9bn) deal last year.
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BBC Worldwide’s joint venture partners in UKTV down the years, which have included Virgin, Scripps and now Discovery, have all faced the key issue of having shareholders that want full ownership of businesses to consolidate on their balance sheets. New potential partners such as and ITV or Sky would face the same pressure, while state-owned Channel 4 faces fewer issues as a minority partner.
It is understood that plans have also been tabled looking at a possible break-up of UKTV, but these have not progressed.
Channel 4, UKTV and the BBC declined to comment.