BBC Three could return to broadcast television in some form, four years after the youth-focused channel became online-only in an effort to save costs.

BBC insiders confirmed that discussions had taken place on whether the brand should once again have a presence on traditional television but said no final decision had been taken.

A spokesperson said a report in the Daily Mail that suggested a return was on the cards was “speculation”, but did not rule it out.

Any move to return BBC Three to screens or boost the resources of its commissioning team would likely mean savings need to be made elsewhere at the BBC, with the arts and history channel BBC Four considered a potential candidate for cuts.

BBC Three was taken off air in March 2016. The corporation said the move would save tens of millions of pounds a year, helping it to reduce its spending in line with cuts imposed by the government after 2010.

Much of the channel’s budget was reallocated to fund drama on BBC One, while BBC Three became an online-only commissioning strand in the belief that younger audiences were better reached online.

However, it is struggling among its supposed target market and its audience has flatlined, reaching 8% of 16- to 34-year-old viewers each week.

Gavin and Stacey was an earlier hit for BBC Three bosses. Photograph: Baby Cow/BABY COW

Sharon White, the recently departed boss of the media regulator Ofcom, previously said the broadcast channel was closed “probably a number of years too early”, suggesting the corporation jumped the gun in terms of where younger audiences watch their content.

The view inside the corporation is that BBC Three has produced far more interesting and innovative programmes since it was taken off traditional free-to-air television, where its broadcast audience was often propped up by reruns of EastEnders and the US import Family Guy.

It is now seen as a key incubator of new talent at the BBC, while the growing use of co-productions – where a foreign company, often a US streaming service, shares some of the upfront production outlay – has reduced the cost of making dramas.

The BBC is facing a battle with the government over its future, amid calls for non-payment of the licence fee to be decriminalised. The corporation needs to show it can remain relevant to younger audiences who have drifted away to commercial services such as Netflix. The average viewer of the BBC’s television channels is now in their 60s, while fewer than half of under-35s watch BBC1, BBC2, or BBC4 in a given week.

As a result, the corporation is prioritising extra resources for programmes that appeal to younger, more diverse, and less middle-class audiences.

On Thursday, the BBC director general, Tony Hall, praised the quality of BBC Three’s output, which has won it a reputation for commissioning bold documentaries and hit shows such as Fleabag and This Country. Upcoming drama includes adaptations of Sally Rooney’s novels.

Hall told a conference that taking BBC Three off air “was a brave decision and it seemed absolutely right at the time”. He suggested that an announcement on the channel’s future could be made in the corporation’s annual plan, which is due to be released shortly.

Hall is due to step down in the summer, and any final decision could be made by the new director general.

Despite the long-term structural decline of live television audiences, traditional channels continue to reach millions of viewers every day. Should BBC Three return, it would face opposition from E4 and ITV2. The latter’s Love Island has shown it is possible to convince young audiences to watch traditional broadcast output.

Last year, the BBC cut the length of BBC One’s News at Ten to make way for a dedicated BBC Three showcase slot, in order to ensure the channel’s programming is seen by the maximum number of people.