Falling revenues: Chairman Michael Grade has said new programmes would not be affected

Presenters' pay and big-budget dramas could be sacrificed at ITV after the broadcaster's profits slumped by more than a quarter.

Insiders said it is 'no longer viable' to offer above-inflation deals to stars such as Ant and Dec in the face of plummeting revenues.

As he revealed the £36million fall in profits, executive chairman Michael Grade also warned the burden of 'nanny state regulation' is putting the future of ITV at risk.

In return for its licence to broadcast, ITV must provide a certain level of less profitable programming such as current affairs and local news.

The broadcasting watchdog Ofcom estimates the licence costs £45million a year. But Mr Grade said its public service obligations are actually costing £220million.

He warned this could force ITV to cut its £1billion programming budget or even renounce its public service status, instead existing as a purely digital broadcaster.

Speaking on BBC Radio 4's Today programme, Mr Grade was challenged as to what would be lost if ITV did so.

He replied: 'A whole host of nanny state regulation, about where we put advertising minutage, how we have to treat our suppliers - the contracts we enter into with independent producers are controlled by a regulator.

'This is all Alice in Wonderland, this all belongs 20 years ago. It's so out of date.'

Mr Grade has already said he will make an extra £35million of cost savings by the end of 2010, on top of £81million in cuts by the end of 2009.

As much as ten per cent of ITV's 6,000 workforce is under threat and senior sources admit programming and talent costs are now also under scrutiny.

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One said: 'There is no question that content is still key to turning around ITV's fortunes. But we will have to think carefully about where the money is being spent.

'Drama is a hugely expensive area - usually costing in excess of £500,000 an hour to make.

'We will have to look at the plans for big scale productions such as period dramas carefully.'

The broadcaster had some success with its Jane Austen season last year, but has shelved plans to follow it up with another season of classics.

Another senior figure added: 'There will still be quality drama, just much less of it. Viewers will see more factual entertainment in prime time.

'It has become the expectation that pay deals will jump up quite a lot - well above inflation - when they are up for renewal, but those kind of salary increases are just not viable anymore.'

ITV's golden handcuffs deals with some of its biggest stars are due to come to end in the next 12 months.

Ant and Dec's £30million two-year deal is up for renewal in 2009, as is Simon Cowell's £20million contract.

ITV's deal with Chris Tarrant and Who Wants to Be a Millionaire? also draws to a close next year.

ITV has already cut back on its children's output, and has asked Ofcom to sanction a reduction in its regional news and programming in order to save £40m a year.

ITV will be allowed to reduce the volume of regional news by a fifth and halve its commitment to other regional programming in England and Wales.

Elsewhere, it will be allowed to reduce its current affairs output by a third and reduce its out-of-London production quota.

The announcement that pre-tax profits plunged by 28 per cent, from £127 million last year to £91 million, sent ITV's stock price tumbling by more than ten per cent to just over 41p.

However, Mr Grade expects the company to perform well in the autumn with the return of ratings bankers including I'm A Celebrity . . . Get Me Out of Here and The X Factor.

So has Michael made the grade?

When Michael Grade arrived at ITV, he was greeted like a hero.

It was the return of the 'Great Entertainer', back in his rightful place at the helm of a firm founded by his father in 1955.

His arrival was meant to herald a return to the glory days of ITV, which in its heyday was the home of light entertainment and drama such as Sunday Night at the London Palladium, Upstairs Downstairs, Duty Free and Inspector Morse.

Ant and Dec's ITV deal, worth £30 million over two years, is up in 2009

In contrast, the regime before Mr Grade, headed by Charles Allen, had introduced low-cost reality shows such as Celebrity Wrestling and Celebrity Love Island.

Drama also suffered as writers and producers were told to stretch hourlong pieces to 90 minutes in order to fill the schedule.

The result was that viewers and advertisers drifted away and by the time Mr Grade arrived ITV was said to be two years behind the BBC in terms of innovation.

His arrival did bring some notable early successes. Advertising revenues were better than expected, mainly due to the Rugby World Cup and Formula 1 last year.

Entertainment remains a big hitter, with The X Factor, Britain's Got Talent - presented by Ant and Dec - and Dancing on Ice pulling in audiences in excess of eight million.

But insiders are painfully aware the formats are now fundamentally old.

In drama, there have been some humiliating failures. Shows such as Echo Beach, Rock Rivals and The Palace have flopped.

Even the much-hyped return of News at Ten with Sir Trevor McDonald has fallen short. Viewing figures are a little over half of the BBC's News at Ten.

The main problem is that ITV makes its money in the main from advertising, which has been hard-hit by the economic downturn.

With a freefalling share price, now is the likely time for a takeover, although most analysts agree that IT V will weather the storm over the next 12 months.

They are less certain about Michael Grade.