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Channel 4 today withdrew from the race to buy Virgin Media's £100 million-plus entertainment channels, which include Living, Challenge and Bravo as well as Virgin1.

The broadcaster of Big Brother is understood to have written to Virgin Media, saying that it would not submit a binding bid for Virgin Media Television, because it believes it has better uses for its limited cash resources.

With Channel 4 out, Virgin Media faces the dilemma of whether to sell the channels to its archrival BSkyB, which put in the largest first round bid at about £160 million, or one of the remaining contenders. BSkyB is 39.1 per cent owned by News Corporation, parent company of The Times.

Time Warner, NBC Universal and RTL, the owner of Five, have all looked at the business, but initial offers were understood to be below £100 million. Final bids are due imminently.

Living, home to Britain's Next Top Model, is the most watched of the Virgin Media channels, but the bulk of the profits comes from phone in and other competition revenue generated by Challenge, a quiz and game show channel.

Channel 4 was seen as a strong contender because it wanted to merge the Virgin Media channels into a proposed joint-venture with BBC Worldwide, the BBC's commercial arm. It is now more likely to use its cash reserves to buy into UK TV, the company behind Dave, G.O.L.D and Watch.

UK TV is currently half-owned by BBC Worldwide with the balance held by Virgin Media. Channel 4 wants to buy some or all of the Virgin Media stake, worth a little over £200 million, with the BBC taking up any remainder.

The BBC has permission from ministers to buy up UK TV, and Channel 4 has a cash balance of £153 million, which it could use to support a deal.

Channel 4 pulls out of Virgin Media TV auction