The proposed merger between Carlton Communications and United News & Media (UN&M) – besides managing to infuriate both BSkyB and Granada – could bring together two UK broadcasters with a combined market capitalisation of some Pounds 8 billion (Euro13 billion), giving them a unique broadcasting platform covering the rich southern half of England, and might herald significant changes in the world of thematic channels. The deal, if it goes through in its present suggested form, would create a broadcaster that reaches 65 per cent of the UK television market by over-the-air terrestrial transmission. Combined, the new group would have an annual income of some Pounds 4 billion and operating profits in the region of Pounds 646 million.

The question over how far the deal will progress is a valid one. Granada, which controls its northern England franchise base from Manchester, is widely reported to be planning a rival bid for UN&M. Rupert Murdoch is a possible contender and there are the likes of Disney, Time Warner, Kirch Group and Vivendi.

Looking at the overall picture (including satellite and cable) the Carlton/UN&M grouping would also control an estimated 32-40.55 per cent of the UK market for television advertising (the variable comes down to methodology in calculating market share, with the larger figure including sales if Scottish Media Group is included). Either way the end result is way above the 25 per cent self-regulated threshold. The deal potentially would also drive a coach and horses through the more onerous existing regulatory limitations on size and audience share. It is widely reported that both Michael Green, chairman of Carlton, and Lord Clive Hollick, CEO of UN&M, have sounded out the various industry regulators about the likely regulatory prospects for the merger.

So far neither Carlton nor UN&M have made much of an inroad into multi-channel TV, and the market has taken a dim view of their performance in this sector with both players seemingly condemned to a slow decline in their fortunes as the importance of terrestrial (analogue) delivery waned. Indeed, more than one analyst last Friday spoke of Carlton being sold somewhat cheaply, again a result of the company’s lacklustre share price performance over the past year. One analyst was sceptical that the changes would lead to any real progress in developing new media.

Nevertheless, a stronger combined entity – if rival Granada doesn’t itself enter the contest – could mean a wholesale re-evaluation of the group’s thematic channels. Already Carlton’s ONdigital digital terrestrial investment is being marked as a potential for a separate flotation next year on the back of expected buoyant post-Christmas sales. Carlton’s own thematic channels are already being examined with a view to possible format changes. UN&M has a 33 per cent stake in SDN, which controls digital terrestrial multiplex A. To date it has not exploited that investment, although the multiplex is expected to be used to launch a PPV service. So far UN&M’s only investment in thematic TV has been the Rapture channel, about to expand its hours on Sky Digital.

There has been speculation that the whole of ITV might now be in line for some kind of mix and match merger into one entity. However, a guide to the difficulties in store for large media mergers of this kind comes in the form of Granada’s and Carlton’s experience in ONdigital. This has not been a happy story, with confirmed reports of heated boardroom arguments which has resulted in the shift of power away from Carlton into Granada’s influence, if not control (the Granada/Carlton shareholding in ONdigital is 50/50).

Even if the merger goes ahead, Carton and UN&M do not currently pose a serious threat to the multichannel business of experienced hands Flextech, BSkyB, Discovery, Turner, MTV Networks or even the BBC. All of the above have for years successfully migrated programming and brands across into the multichannel universe. Both Carlton and UN&M have yet to prove their skills in these areas.

The merger proposal has already pushed up other media stocks, notably that of BSkyB, which saw its share price rise during the week to Pounds 8.20, double its 52-week low point of Pounds 4.13. BSkyB now has a market capitalisation of Pounds 14.17 billion.

• As Interspace goes to press, BSkyB’s acquisition of 24.9 per cent of Leo Kirch’s pay-TV platform Premier World is expected to close on December 3. BSkyB last week took a 5 per cent stake in on-line retailer Toyzone.co.uk.