ITV top man Michael Grade has suggested that one solution to the current problems being faced by both his company and Channel 4 would be for the two companies to merge.

He also proposed a further merger with Channel 5 - effectively putting all non-BBC terrestrial telly channels into the ownership of one body.

Government backing?

Such a radical plan would need government backing as it would technically speaking breach media ownership and competition laws.

BSkyB would be sure to lobby hard against the creation of a competitor as powerful as Channel-ITV-Four-Five. Especially given that their being forced to sell their share of ITV.

ITV struggling to balance the books

Grade's plan is being mooted as he tries to make ITV's books balance in the face of a major advertising recession and growing competition for other digital services.

As previously reported, Grade is expected to sell Friends Reunited and ITV's bit of the Freeview infrastructure, and then slash programme budgets and cut jobs, in a bid to make things add up. And even then he may still have to cut dividend payments to shareholders.

C4 'totally public funded'

Another plan of his was to make commercial public service broadcaster Channel 4 a wholly publicly funded enterprise - presumably funded by the licence fee - thus taking a major competitor for terrestrial TV advertising out of the marketplace.

The Competition Commision recently came down on these proposals.

Digital Britain report favoured merger

The government's Digital Britain report looked favourably on proposals for Channel 4 to either merge with Channel Five, or to forge a closer alliance with the BBC's commercial division BBC Worldwide, in a bid to overcome their future financial problems.

Channel Four prefers the latter of those proposals, and is already in talks with Beeb Worldwide - with proposals that C4 buy Virgin Media out of the UKTV network, so that that becomes a C4/BBC joint venture, seen as a stepping stone towards the Beeb and Channel 4 launching a combined commercial broadcasting enterprise with public service objectives, assisted though not funded by the licence-fee funded main bit of the BBC.

That said, the BBC Worldwide/C4 partnership is reportedly raising some political concerns, and a parliamentary report leaked to the Guardian opposes those proposals, saying it will make BBC Worldwide too commercially dominant and "aggressive".

The report apparently suggests a number of new rules to restrict the operations and growth of BBC Worldwide, with or without a Channel 4 alliance.

Additional reporting by CMU Network