Film Four, the troubled film production business set up to recreate Channel 4's distinctive ethos on the big screen, is to be significantly scaled back after a series of disastrous investments.
Losses of more than £5m last year have prompted Channel 4's new chief executive, Mark Thompson, to order a shake-up at the film division in an attempt to protect the main television channel.
Some broadcasting sources said one option under consideration was to merge Film Four with Channel 4's television drama department - in effect, closing it down. Others say Mr Thompson would balk at such radical action.
At the very least, Film Four is likely to be refocused. Instead of sinking millions into risky big-budget ventures such as Charlotte Gray and Lucky Break, its biggest financial failures last year, it would concentrate on making productions for Channel 4.
The future of the current management at Film Four, under chief executive Paul Webster, is in doubt. Film Four has not had a box office hit since East is East three years ago.
At least two senior drama industry figures have received tentative approaches about whether they would be interested in overseeing the business. It is not known how any new appointment would affect Mr Webster's position.
Channel 4 and its associated businesses lost £28m last year, the biggest shortfall in 10 years. Mr Thompson has said that any peripheral investments should not jeopardise the main television channel.
Because Film Four's shortfall accounts for almost a fifth of Channel 4's total losses, it is first in the firing line. Big changes at Film Four would also put a question mark over the future of Channel 4's separate loss-making subscription film channel, which shares the Film Four name.
Mr Webster confirmed that changes were being planned. "We are talking about creating a stream of made-for-TV films. There is a certain audience for film and TV drama not served by either sector at the moment. Films like those the BBC programmed as part of Screen 1 and 2 used to appear regularly on TV.
"Many films do not have much of a chance on the big screen, a lot of pressure is put on them when they would be better served as a piece of Channel 4 drama."
Mr Webster said it would be an "augmentation of what we already do", but Channel 4 insiders confirmed that the broadcaster was looking to scale back Film Four, not expand it.
The new strategy marks a return to the original aim of Film Four's predecessor, Film on Four, set up principally to make original productions for the television channel.
Film on Four went on to make modest investments in big-screen co-productions, achieving notable successes with Paris, Texas and My Beautiful Laundrette.
Under Channel 4's last chief executive, Michael Jackson, the film division was relaunched as Film Four with a bigger budget and a more ambitious brief.
But senior figures in the British film industry have come to regard Film Four as a hindrance rather than a help, believing it has got out of its depth. Some directors have been questioning their relationship with it, while independent cinemas report frustration at its marketing.
The expensive campaign for Lucky Break was ridiculed for making the film look like a slapstick comedy instead of an intelligent satire, and there were problems finding a US distributor for Charlotte Gray, which has now secured only a limited release.
