ITV in Public Service crisis

At present, ITV meets quotas on news and current affairs, arts and religious programming, regional output and children's shows as laid down by the media regulator Ofcom, in return for public service status.

But the £220 million cost of adhering to these targets far outweighs the benefits, according to Mr Grade.

In addition some of ITV's best-loved arts and current affairs programmes could be cancelled after the broadcaster reported a 28 per cent fall in profits.

Historically, ITV's PSB status meant it was given priority positioning on the airwaves. However, with the whole country going digital by 2012, its position will be diminished. A new arrangement is needed urgently or ITV will be left with no choice but to hand back its public service licence and become another multichannel broadcaster, said Mr Grade.

"If we can't get quick resolution then, as Ofcom itself outlined in its consultation paper, there is an option for ITV to give up its public service status," he told BBC Radio 4. "It's not a threat, it's a realistic scenario."

ITV would continue to provide international and national news, Mr Grade said, but he made no such pledges for arts, religion, current affairs or children's TV. Regional news would continue but "in a configuration that meets the modern world".

ITV "more than meets" its public service obligation through its £1 billion annual investment in production, said Mr Grade. It does not need Ofcom's "nanny state regulation" which, in addition to quotas for programming, imposes controls on everything from advertising minutes to the amount of programmes commissioned outside the M25. Mr Grade denounced the rules as "Alice in Wonderland" and "20 years out of date".

[Ofcom has] proposed to maintain ITV1's quotas for original UK productions, independent productions and national and international news.  But ITV's regional news services may be overhauled to ease pressure on the broadcaster as it suffers an advertising slowdown, according to the TV watchdog.

ITV1 could have quotas for programmes made outside London reduced from 50% to 35% under the proposals.

The Ofcom report said: "We regard its most recent proposals, developed after detailed discussion with us, as a credible means to sustain quality national and regional news services on ITV1, and propose to accept them.

There is currently a subsidy for commercial public service broadcasting, which Ofcom estimates would be able to contribute £185m in 2012.  But Ofcom said the total public funding needed for audiences to enjoy the same level of content would be between £330m and £420m - leaving a shortfall of up to £235m.