The stewardship saga at ITV PLC (ITV.LN) remained unresolved Friday after discussions with the front-runner for the chief executive position, Tony Ball, were terminated, potentially leaving the company without an executive leader amid the worst advertising slump in its history.

To add to the tumult, the company said Friday that Executive Chairman Michael Grade would step down from his position, relinquishing both his executive and strategic posts, once a new chairman is announced, which could be as early as the next few weeks, a person familiar with the matter said.

The new chairman would be charged with appointing a chief executive, although the pool has shrunk by at least two since the search began.

After the withdrawal in August of HMV group PLC (HMV.LN) boss Simon Fox, the latest casualty is former head of British Sky Broadcasting Group PLC (BSY) Ball, whose shoe-in for the position collapsed Friday.

The company said the negotiations "highlighted a number of substantial differences, including a failure to finally agree contractual arrangements, together with a disagreement over the future chairmanship."

These differences were initially linked to Ball's remuneration demands, which amounted to pay awards worth up to GBP42 million over five years, the person familiar with the matter said.

Still, this had negotiated down to nearer GBP20 million to GBP25 million by early in the week, but the deal finally collapsed over demands by Ball for a veto over the chairmanship candidates, this person said.

Ball wasn't reachable for comment.

The exit of Ball as a candidate for the executiveship disappointed many investors, sending shares down over 5% following the news, although by the close shares were down a more modest 3.5%, or 2 pence, at 44 pence.

Goldman Sachs said in a research note that the news was negative because Ball was the candidate most qualified to undertake further restructuring of the business, and also because it raised concerns over the resistance from the board to restructuring candidates.

ITV has faced a perfect storm of dispersal of its viewers across multiple digital channels, the rise of the Internet as a competitor for its advertising, and the cyclical slump in advertising revenue caused by the recession.

Even though a GBP285 million cost cutting is already in progress, crucially, a new chief executive will need to address the company's structural problems.

Michael Grade's turnaround plan focused on content, including online, but as the advertising slump worsened, production budgets were slashed. ITV was also forced to sell social networking Web site Friends Reunited for GBP150 million less than it paid for it in 2005.

And concerns remain that ITV's core advertiser-funded broadcast model is a busted flush. As Charles Stanley analyst Sam Hart notes, consumers are turning to video-on-demand and personal video recorders that make it easy to skip ads, and ITV may never regain a large part of the advertising revenue lost in the downturn.

Press reports have suggested outgoing Reed Elsevier PLC (REL.LN) Chairman Crispin Davis is a potential candidate for the job, alongside Michael Bishop, a former chairman of Channel 4; and Christopher Bland, former chairman of BT Group PLC (BT.LN).

"The first task of the new chairman will be to appoint a new chief executive," the company said.

Company Web site: www.itvplc.com

-By Kathy Sandler, Dow Jones Newswires; 44-207-842-9293; kathy.sandler@dowjones.com