Channel 4 today confirmed it is to close loss-making Film Four's distribution and international sales arms, leading to the loss of around 50 jobs.

FilmFour's budget is to be slashed by two-thirds from £30m to just £10m a year, and will be incorporated into the Channel 4 programming budget.

Paul Webster, the chief executive of FilmFour Ltd, is to leave after his position was downgraded to head of film.

In a statement, the managing director of 4Ventures, Rob Woodward, said FilmFour had failed to prove itself a "meaningful player" in the international market.

Mr Woodward admitted Channel 4 "does not have the scale to make a financial success" of FilmFour.

He added: "This has not proved possible given the sheer scale of the major studios. 4Ventures has explored different options for the existing business, including a range of potential partnerships, but we cannot see a path to profitability as we can with 4Ventures' other businesses."

The Channel 4 chief executive, Mark Thompson, said the production and distribution outfit, which last year lost £5m, would now concentrate on trying to produce small-budget, homegrown hits.

"For a British broadcaster like Channel 4, British performance and production talent must come first," he said.

"We are moving away from our recent focus on large-budget, international projects and towards producing the kind of cutting edge British films that have been part of Channel 4's cultural and creative success of the last 20 years."

The announcement confirmed the worst fears of executives within the ailing British film industry.

Stephen Woolley, the producer of The Crying Game and Mona Lisa, said it was a "black day" for British cinema.

And Andy Paterson, the producer of the Oscar-nominated FilmFour production Hilary and Jackie, urged Channel 4 bosses not to abandon the independent sector following the closure of FilmFour Ltd.

The proposals, approved yesterday by the C4 board, will be put to FilmFour employees as part of a 30-day statutory consultation period. Film Four's existing staff of around 60 is expected to be cut to about 10.

The new head of film will oversee the film division and manage the £10m commissioning budget, and will seek to boost annual investment through third party partnerships. However, FilmFour will no longer distribute its own films.

Mr Webster told his C4 bosses he did not wish to be considered for the new role.

"My responsibility now is to the staff and the filmmakers," he said. "We are working to ensure a smooth and seamless transition. I wish Mark Thompson and his team all the best for the future."

But John McVay, the chief executive of trade body the Producers Alliance for Cinema and Television, warned: "It will be difficult to make a real impact on the business with that kind of money.

"Although the budget cuts will seriously reduce opportunities for independent film producers, the restructuring provides a positive opportunity for FilmFour to refocus on cutting edge material by working in collaboration with UK producers and distributors," he added.

Film Four is expected to meet its production commitments on two upcoming movies, Motor Cycle Diaries and Edgardo Mortara, starring Anthony Hopkins. Staff will be kept on to oversee completion of these projects.

C4 said its other 4Ventures businesses, including the FilmFour movie channels, would be unaffected by the proposals.