Independent broadcasters say local stations will soon no longer be able to fund news, sport and current affairs content
The Communications Minister says he is prepared to go to the European Commission to have the law changed to allow part of the licence fee be used to fund private broadcasters.
It would support their commitments to public sector broadcasting.
Denis Naughten says he doesn't believe there should be legal barriers to the use of the fee - despite internal advice from his Department.
Independent broadcasters say the industry is at a tipping point where stations will soon no longer be able to fund news, sport and current affairs content.
Their lobby group the Independent Broadcasters of Ireland (IBI) says a large portion of advertising spend is now going to companies like Google and Facebook.
Minister Denis Naughten says he is open to changing the law to allow the partial funding of commercial broadcasters through the licence fee.
But a Department briefing released under the Freedom Of Information act says using the licence fee for commercial entities is categorically not possible and would open the state up to legal action.
It says the move would breach EU State Aid rules.
Minister Naughten acknowledged there may be legal issues, saying "it's one that we need to tackle and challenge.
"And yes there may be issues in relation to state aid rules and it may be an issue we need to bring to the European Commission - but I'm prepared to do that."
The IBI argue their stations deserve some of the licence fee - given the vast amount of time dedicated to public service content.
Speaking at an Oireachtas committee, IBI Chairman John Purcell said the industry is at a tipping point.
Mr Purcell said "while listenership remains robust, the entire business model for traditional media has been completely undermined by the digital revolution".
In a letter also released under the FOI act Mr Purcell accused the Department of Communications of being 'a down town office of RTÉ' and said they had a preoccupation with the State broadcaster.
In response Minister Naughten said he does listen to civil servants in the Department but at the end of the day he'd be the one to make the final decision.
Minister Naughten says there's a need to fund media to ensure there is reliable journalism that people can trust.
He added that the fake news stories that dominated the US election could become prevalent here if commercial media is not supported.