RTL plans to auction off Channel Five

RTL has appointed a team to prepare a “tender process” for the sale of Channel Five, according to reports in The Telegraph today.

The Luxembourg-based group, which is majority-owned by German media company Bertelsmann, hinted at an uncertain future for the British broadcaster in March last year, saying the channel’s business model was “not sustainable”.

The broadcaster, which has been hit badly by the advertising downturn, has since been linked with Channel 4, although C4 has been reluctant to enter into talks of a possible merger deal.

Channel 4 has now been named as a potential bidder for the broadcaster.  Other UK-based broadcasters thought to be in the running are ITV and BSkyB, as well as US-based companies Warner Bros and Endemol.

Both Channel 4’s chief David Abraham and ITV’s non-exec chairman Archie Norman have already met with RTL’s chief executive Gerhard Zeiler this year, although both newcomers are understood to be keen to focus on their existing businesses before looking to invest in others.

In March, Five reported a €10 million (£8.54 million) operating loss for 2009, a drop from its €2 million operating profit in 2008, which caused RTL to write down the value of its UK-operation to €112 million (down from €589 million in 2007).

RTL reported that spot ad revenue at the Five portfolio, which also includes Five US and Fiver, was down by 23.6%.  This decline represents a substantial fall, even in the context of the overall TV ad market, which was down by 12.5% year on year.

Aside from declining ad revenues, Five’s poor results are also attributed to its costly import contracts.  Its schedule, which has been deemed “weak”, relies heavily on US shows such as CSI: Crime Scene Investigation and FlashForward as well as Australian soaps such as Home & Away.

As a result, reports suggest the European company may struggle to instigate a bidding war.  Competition laws surrounding mergers may also prevent UK-based companies from investing in Five.

However, in response to today’s news, RTL said: “There will be further consolidation in the UK broadcasting market.”