The watchdog has backed a government plan to allow consortiums of television and newspaper groups to bid to provide local services, but would not give complete backing to a controversial proposal to provide 'top-up funding'.
Ofcom says the shortfall in funds will come due to the costs of providing regional news growing while the number of viewers and advertising revenues is 'eaten away by competition'.
The conclusion from Ofcom came in response to a Department for Culture, Media ad Sport (DCMS) consultation. The watchdog says ITV regional network licences could be in deficit by as much as £38-£64 million by 2012.
In a statement on their site, the watchdog said: 'The report shows that the UK's local and regional media are facing unprecedented challenges, driven by growing use of the internet.
'While not-for-profit, community and ultra-local level community media are becoming more important in delivering public value, awareness and impact of these services remain low.
'The report highlights the fact that consumers continue to tell Ofcom they value a choice of regionally-based television news and relevant local content.
'Ofcom's analysis suggests that independent news consortia could be an effective means of achieving this valued choice of news, alongside the BBC, while providing a potential platform for the future development of more local services, including local TV, and using other media.'
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