British broadcaster ITV has been offered deep cuts in its licence fee to help it cope with the challenge of the digital age.

Industry regulator Ofcom is proposing to slash the cost of ITV's dozen licences, including GMTV, to less than £80m this year - down from the £215m paid in 2004.

Ofcom also paved the way for further reductions in licence fee payments beyond this year if advertising revenues come under pressure as more households turn to digital.

The move affects ITV plc and companies which have franchises that use the Channel 3 network such as Scottish TV owner SMG and Ulster Television. Including the Five channel, the licence fee will be about £90m this year against £180m under the terms of the previous licence deal.

ITV welcomed the changes, which it said would boost its programme budget. The moves come after months of lobbying for a shake-up of a licence fee system that dated back to the time when it managed the sole commercial television station in the UK.

Central to its complaints was the rise in digital television, which tempted audiences away from its analogue ITV1 channel and put advertising revenues under pressure.

ITV said it was unfairly disadvantaged compared with rivals such as Five, which paid less than £20m for its licence last year, and Channel 4, the BBC and BSkyB, which were not required to pay anything at all.