UK commercial radio sector revenues Q1 2011: local advertising hits 10-year low

Data published last week for 2011’s first quarter demonstrate that revenues of the UK commercial radio sector are still struggling to rebound from the previous two years’ ‘credit crunch.’

A large part of the problem is the coalition government’s swingeing cuts to its marketing budget since May 2010, which have afflicted commercial radio advertising much more significantly than other media [see my blog]. Additionally, and very worryingly, in Q1 2011, revenues from local advertisers fell to their lowest level for a decade, even at a time when local radio might be thought to be making client gains from the decimation of the local newspaper industry.

As has been suggested here previously [see my blog], the strategy of the largest commercial radio owner, Global Radio, to transform its local stations into ‘national’ brands would seem to be a recipe for disaster at a time when:
• the national advertising market for radio is shrinking so rapidly (down 34% in real terms between 2004 and 2010)
• the BBC continues to dominate the national radio marketplace with exceptionally well-funded, ubiquitous brands [see my blog]
• Ofcom’s market research points to overwhelming demand from consumers for more local radio rather than more national radio [see chapter 4(d)]
• many local commercial radio offices have been closed just as local newspapers have closed in many local markets.

TOTAL UK COMMERCIAL RADIO REVENUES:
• Q1 2011: £126.9m (£137.9m in Q1 2010)
• Down 8.0% year-on-year
• First year-on-year decrease since Q3 2009

UK COMMERCIAL RADIO NATIONAL REVENUES:
• Q1 2011: £69.2m (£78.6m in Q1 2010)
• Down 12.0% year-on-year
• First year-on-year decrease since Q3 2009

UK COMMERCIAL RADIO LOCAL REVENUES:
• Q1 2011: £33.7m (£35.9m in Q1 2010)
• Down 6.1% year-on-year
• Lowest quarter since Q1 2001

Although the quarter-on-quarter trend during the last three years appears to be relatively flat, once the data is viewed in the longer term, it is apparent that the commercial radio sector has been unable to grow its revenues back to the peak achieved in 2004. Adjusted for inflation, the ‘real’ peak occurred in 2000 and, by 2010, commercial radio total revenues had fallen by 33%.

Following the impact of the ‘credit crunch,’ the subsequent blow to the sector caused by the government’s slashed expenditure on commercial radio advertising from its Central Office of Information [COI] has been catastrophic. COI spend on radio in the twelve months to March 2011 was down 80% year-on-year. In the year to March 2010, the COI had been the radio sector’s biggest advertiser by a factor of eight but, only one year later, it had been diminished to almost par with the second biggest radio spender, Autoglass.

In June 2011, the government confirmed that the COI will be axed altogether, offering no respite to the commercial radio sector. According to The Guardian:
“Instead the government intends to run advertising and marketing activity out of the Cabinet Office, hiring about 20 extra staff to complement existing communications teams.”

With local advertising revenues having hit a decade-low in Q1 2011, and national revenues having fallen 34% in real terms between 2004 and 2010, surely it should be time for commercial radio to ask itself:
• is the current local-station-turned-national-network policy the appropriate strategy for the current advertising market?
• is the current local-station-turned-national-network policy the appropriate strategy to satisfy radio listeners?
• how much longer can the ‘slash and burn’ strategy (as pursued by GWR, then by GCap, now by Global Radio) be applied to the commercial local radio industry before there is simply nothing left to cut?
• how much more shareholder value can be destroyed in commercial radio before revenues fall faster than costs can be cut?

A question I was asked by one senior radio executive last week was: how will all this commercial radio ‘slash and burn’ end? I wish I knew. Of one thing I am certain: it must eventually end in tears once the net book values of dozens of commercial radio licences have to be written down by millions of pounds in the accounts of their owners.

This process has already started tentatively:
• Global Radio valued its licences at £333m on 31 March 2010, after having swallowed a £54m ‘impairment’ write-down in 2008/9
• in 2009/10, the Guardian Media Group suffered an ‘impairment’ of its radio licences by £64m and now values them at £68m
• Times of India looks likely to have to take as little as £20m for Absolute Radio, a national station it had acquired for £53m only three years ago.
We have to anticipate more write-downs like these.

At some point, even millionaires must not enjoy watching as their radio assets are reduced to dust by shrinking audiences/revenues. But what can be done when those same owners have already starved the goose that had once laid the golden local commercial radio egg?

[Endnote: Historical data from some previous quarters have been revised marginally at source]

DAB Radio Downgrade: how is ‘90% of FM coverage’ a sensible target for DAB to replace FM?

“Makin’ a good t’ing bad!”

Moving the goalposts. Governments are adept at doing just that to help them achieve their targets or to make figures look better than they really are. Digital radio switchover is no exception. Given the technical and financial impossibility of the task plotted twenty years ago to completely replace analogue radio broadcasting with DAB radio, it has became necessary in recent months for the civil servants and digital radio lobbyists to move the goalposts.

In a blog in April 2011, I had outlined Ofcom’s latest ruse to deliberately plan to make DAB reception worse than existing FM reception for many radio listeners. Nevertheless, Ofcom will still declare this a victory for the technical superiority of the DAB platform.

The latest proposal under consideration is to make coverage of local DAB transmitters equivalent to 90% of existing FM coverage. On the one hand, this represents a belated admission that DAB radio cannot realistically achieve the same robust coverage as FM. On the other, it is a massive kick in the teeth to radio listeners – an attempt to purposefully replace something good (FM) with something worse (DAB). Madness!

A recent presentation by DAB lobbyist organisation Digital Radio UK invoked a new, vague “local digital coverage equivalent to 90%” criterion [see below]:

“90%” of what? The government’s Digital Britain report in June 2009 had fixed the digital radio switchover criteria as:
• “When 50% of listening is to digital; and
• When national DAB coverage is comparable to FM coverage, and local DAB reaches 90% of the population and all major roads.” [emphasis added]

There was never anything in Digital Britain about achieving “90% of existing FM coverage.” It was always “90% of the population.” The goalposts are being moved to make it easier for the government and DAB lobbyists to declare that DAB has achieved the criteria. Despite this outcome making the consumer experience of radio evidently worse.

We were told that one result of the Digital Radio Summit meeting on 31 March 2011 between government, regulator and the radio industry was:

“It is understood that it will cost around £20-30m to extend the local DAB signal to 90% of the FM signal in the UK…”

At a Westminster Media Forum conference on 5 April 2011, the topic of this newly created “90% of FM” criterion was raised by several speakers:

Jimmy Buckland, director of strategy, UTV Media: “There’s a DCMS [Department for Culture, Media & Sport] plan that’s been referred to today that’s currently on the table that would take local multiplexes to just 90% of what FM already delivers, with no commitment on major roads. If that plan’s agreed, it just about gets us to base camp.”

[…]

Neil Midgley, assistant media editor, The Daily Telegraph: “Now the briefing that we were getting last week was somewhere below £30 million for a build out to about 90% of current FM coverage. “

[…]

Daniel Nathan, director, Brighton & Hove Radio: “Just leading on from that, in Jimmy’s slide we saw the figure being an aspiration of ‘90% of the population’ and I was quite disturbed to hear that now that they are kind of moving away from ‘90% of the population’ to ‘90% FM coverage.’ When was that decided and by whom?”

[…]

Jimmy Buckland: “There were two different figures, there was originally a figure which was the criterion, at which point you would make a decision about switchover which was that the Government said that once we had ‘90% population coverage’ and ‘coverage of all major roads,’ you could make a decision and there were a couple of other criteria that go with that. The second figure which was ‘90% coverage of current FM’ for local DAB concerns what would be delivered by a proposal which is currently on the table. So to tie in with the previous point, what that £30 million delivers is a little bit more coverage at the local level, aggregated to 90% on a UK wide basis, so in some local markets it could be comfortably less than 90%, in other markets it could be higher and it doesn’t get you to the universality that you need for switchover.”

So, two questions remain unanswered:
• Who came up with the idea of ‘90% of FM coverage’ to be sneaked in as an easier criterion?
• Why are large parts of the radio industry (including RadioCentre and the BBC) not publicly campaigning against this ridiculous proposal intended to make reception of their radio stations on DAB WORSE for listeners than existing reception on FM?

It is hard not to conclude that the parties involved in this latest wheeze seem happy to treat the UK’s 46,727,000 radio listeners with utter contempt.

Bauer Radio talks the DAB talk, but walks its Magic brand off DAB

Bauer Radio is the second largest commercial radio group in the UK. It publicly supports the government’s plans for DAB radio switchover. Only this month, Paul Keenan, chief executive of Bauer Media, told The Guardian: “What part if any is the BBC going to play on the local DAB level?” He went on to ask:

“Will there be some form of seismic content innovation or intervention that really pulls listeners across [to DAB]?”

Keenan need have looked no further than his own company’s DAB radio strategy to discover a form of “seismic content intervention” that might well result in pushing existing listeners away from DAB, rather than pulling them in. While Keenan was talking to The Guardian, Bauer was busy pulling the plugs on its ‘Magic’ brand from the DAB platform in the following areas:
· Aberdeen
· Ayr
· Birmingham
· Bradford & Huddersfield
· Cambridge
· Dundee & Perth
· Edinburgh
· Glasgow
· Kent
· Northern Ireland
· Norwich
· Peterborough
· Stoke
· Sussex Coast
· Swansea

If you were a loyal listener to Magic in one of these areas, your favourite station simply disappeared from the DAB menu in January 2011 (Magic had 1m out-of-analogue-area listeners per week, contributing 24% of the brand’s total hours listened, according to RAJAR). This change is surprising given that, as recently as May 2008, Bauer Radio decided to add its Magic brand to the DAB platform in the following areas:
· Aberdeen
· Ayr
· Birmingham
· Bradford & Huddersfield
· Cambridge
· Dundee & Perth
· Edinburgh
· Glasgow
· Kent
· Northern Ireland
· Norwich
· Peterborough
· Stoke
· Sussex Coast
· Swansea

In 2008, in most of these areas, Magic had replaced another Bauer brand, ‘Kiss’, which could not have pleased existing Kiss listeners. Now, in 2011, it is the Kiss brand that is replacing the Magic brand in all but three of these areas. Musical chairs, anyone?

In 2009, Bauer had said that it was investing in the “right long-term platforms for the right stations at the right time.” So, in 2008, Kiss was right for DAB whereas, in 2011, now Magic is right?

It is hard to believe that such precipitous content changes inspire consumer confidence in the DAB platform. But, sadly, the DAB platform has never really been about ‘radio’ and ‘listeners’. Loyalty to DAB radio? What’s that? For commercial radio, its pursuit of the DAB platform had been about the exercise of power, the expectation of profit and the promise of automatic renewals for the industry’s most valuable analogue radio licences.

It was also about a much coveted transfer of the power to determine which stations are broadcast to a cartel of commercial DAB multiplex owners, and away from the regulator. This is why station changes on DAB, such as Bauer’s (Kiss to Magic to Kiss) can be executed without a public consultation or impact assessment.* The regulator merely nods its head and makes a quick note in a file. So what role does Ofcom play in ensuring that the DAB radio platform “furthers the interests of citizens and of consumers” as mandated by law? The answer is: absolutely none. We might as well have a scarecrow in charge of digital radio at Ofcom.

The reason that Bauer Radio (with a 25% listening share of commercial radio) made these latest changes to DAB is that it is locked in a war with archrival Global Radio (38%). Neither company has a track record of developing its own successful radio stations from the ground up. Both companies are piled high with acquisitions and mergers of other radio businesses. As a result, the two compete with each other by moving their radio pieces around the chess board, rather than by innovation.

In January 2011, Global Radio extended its ‘Capital’ brand outside London, replacing the former ‘Galaxy’ brand and some local FM stations. Global describes the brand:

“Capital’s target audience of 15-34 year olds are big fans of popular music, they are media savvy and are on trend.”

To compete, Bauer Radio extended its Kiss brand to every available local DAB multiplex (replacing Magic). Bauer describes the brand:

“Kiss evolves around ever changing lifestyles and trends of the UK’s young 15-34 market … Every part of their day revolves around music.”

If, like me, you think that these two brands sound almost identical, understand that this phenomenon is the outcome of long understood business practice in the radio sector. In 1951, American economist Peter Steiner wrote:

“If, as is often suspected, [radio] broadcasters exaggerate the homogeneity of audiences and their preferences for certain program stereotypes, the tendencies towards [programme] duplication will be increased. … The problem, of course, is that a series of competing firms, each striving to maximize its number of listeners, will fail to achieve either the industry or the social good. Here, then, competition is providing a less than desirable result.”

In the UK, this is precisely why we have a regulator for radio broadcasting – to ensure that consumers benefit from a wider choice of content than a free market would provide. However, with its hands tied in DAB policy by the Broadcasting Act 1996, and its laissez-faire ‘do nothing until someone complains about it’ strategy, Ofcom has had no more impact on the DAB station menu than having no regulator at all.

DAB is the Wild West of radio where anything can, and often does, happen. Seemingly, it often happens with little concern for listeners or for those who paid good money for a DAB receiver. Without a sheriff in sight, or a cavalry about to ride over the horizon, the danger is that the public might come to view DAB radio as nothing more than a bunch of cowboys locked in a private war of one-upmanship.

Yet the radio industry wonders why the DAB platform is not stimulating more listening or more receiver sales.

[*NB: There was an Ofcom consultation in November 2010 about a change of format for the Kiss brand, but this did not touch upon Magic being dropped from DAB. Magic continues to be simulcast on DAB in nine areas where it is already available on FM or AM, as a contractual condition of its automatic analogue licence renewals.]

UK commercial radio revenues Q3 2010: still no sign of “renewed growth”

2008 had been a bad year for commercial radio revenues, down 6% year-on-year. 2009 was a worse year, when revenues fell a further 10% year-on-year. So how is 2010 shaping up? Radio Advertising Bureau data for Q3 2010 demonstrate that, although revenues are likely to be up marginally for the calendar year, they have yet to regain the substantial losses suffered during those previous two years.

Why? Because commercial radio’s falling revenues are largely the result of structural decline, something that the ‘credit crunch’ of 2008/9 merely exacerbated. Adjusted for the impact of inflation, commercial radio revenues peaked in 2000 and, by 2009, were down 32% in real terms. The single-digit improvements we might see in 2010 will claw back only a tiny part of these enormous losses.


Q3 2010 TOTAL REVENUES
· Up 3.2% year-on-year to £124.1m, but remember that Q3 2009 had been the sector’s second lowest this millennium

In May 2010, the Radio Advertising Bureau had told us that “the [commercial radio] sector has turned a corner and not only halted [revenue] decline, but moved into renewed growth …”

Industry data has yet to validate this assertion. The last two quarters produced the third and fourth lowest revenue totals of the decade, showing that the radio sector is certainly not out of the woods yet. More than anything, the industry’s revenues still seem to be bumping along the bottom. “Renewed growth” is not on the horizon yet.



Q3 2010 NATIONAL REVENUES
· Up 5.0% year-on-year to £62.8m

Q3 2010 LOCAL REVENUES
· Up 3.1% year-on-year to £36.8m

Q3 2010 BRANDED CONTENT REVENUES
· Down 1.2% year-on-year to £24.5m


The revenue data for the long term [see graph above] illustrate clearly the transformation of the commercial radio sector from a healthy growth industry in the 1990s to one that stagnated after 2000, and which has subsequently moved into decline. Whilst revenues from local advertisers have simply stalled in recent years, revenues from national advertisers seem unlikely to ever recover from substantial declines suffered since their peak in 2000. This has necessitated significant restructuring of the commercial radio sector in recent years.

For those larger commercial radio stations that depend upon national advertisers the most, the outlook continues to look bleak. Data from Nielsen estimated that advertising spend by the government’s Central Office of Information [COI] fell by 47% in 2010 year-on-year. COI expenditure has been a greater proportion of commercial radio revenues than of any other medium, making radio particularly vulnerable. In May 2010, I had predicted:

“A 50% budget cut to COI expenditure on radio would lose commercial radio £26m to £29m per annum, 6% of total sector revenues. A 50% budget cut to all public sector expenditure on radio would lose commercial radio £44m to £48m per annum, 9% of total sector revenues.”

Not only have these cuts been realised, but the Cabinet Office is continuing to pursue a plan for the BBC to carry public service messages for free, rather than pay commercial broadcasters for airtime [also predicted here in May 2010]. This could lose commercial radio a further 6% to 9% of revenues.

In 2009, even before these drastic cuts to government expenditure on advertising, commercial radio was attracting only 4% of total display advertising expenditure in the UK, one of the lowest proportions globally [see Ofcom report]. What is UK radio doing so wrong that Ireland, Spain and Australia achieve more than double that amount? And why was that percentage already falling before the COI cuts, demonstrating the radio medium’s comparative lack of appeal to potential advertisers?

There could not be a worse time to be a commercial radio station dependent upon national advertising. Yet now is the precise time when several large commercial radio owners are busy transforming their local and regional stations into national ‘brands.’ As a response to the sector’s structural challenges, this is tantamount to cutting off your nose to spite your face. ‘Localness’ has consistently been shown to be the most important Unique Selling Point of local commercial radio, according to Ofcom research. Throw that localness out the window and all that remains is a music playlist which can be generated by any computer application.

UK commercial radio has always been good at making ‘cheap and cheerful’ local radio, but has been rubbish at making national radio that could compete with the BBC’s incredibly well resourced national networks. The recent decisions of commercial radio owners to switch from production of local radio services with a track record of success to production of ‘national’ ones that have a history of relative failure create massive risks for an industry already in decline.


History tells its own story. The launch of the UK’s first three national commercial radio stations between 1992 and 1995 had much less of an impact on radio listening than had been anticipated. By 1997, Richard Branson had decided to sell Virgin Radio (for £115m) – it was obvious that national commercial radio was not going to be a massive moneyspinner. In 1997, Virgin Radio’s listening share had been 2.6%. Last quarter (Q3 2010), it had fallen to 1.2% (renamed Absolute Radio after another sale in 2008 for £53m), while the combined share of the three national stations was 6.8%. [source: RAJAR]


BBC national networks account for almost half of all radio listening. The only time that their share has not exhibited long-term growth was during the early 1990s, when Radio 1 self-destructed under the management of Matthew Bannister. Since that disaster, the BBC’s national networks have been successfully clawing back listening year-on-year.

The current scenario in which the owners of commercial stations that were licensed to serve local audiences have decided to subvert that purpose to take on the might of the BBC national networks is either brave, or madness, depending upon your viewpoint. What I see is a monolithic BBC that has existed continuously for nearly a century, and then I see three national commercial radio stations that have had a succession of at least three owners each during their almost twenty-year struggle to attract listeners.

National commercial radio. Just why are parts of the commercial radio industry so eager to emulate an idea that has only led to well documented failure?

Commercial radio local DAB build-out “not the BBC’s responsibility” says BBC Trust chairman

Culture Media & Sport Select Committee, House of Commons
15 December 2010
BBC Annual Report & Accounts 2009-10 [excerpt]

Sir Michael Lyons, Chairman, BBC Trust
Mark Thompson, Director General, BBC

Damian Collins, MP Folkestone & Hythe (Con): Has the [Licence Fee] settlement affected the amount of support you can give to digital radio switchover and the build-out of digital radio in local services within the regions?

Sir Michael Lyons: What you see in yesterday’s announcement is a clear message that the BBC remains committed to DAB and will continue to build out up to FM equivalents. That is clear. It is involved in discussions with the commercial radio industry and Government about local build-out, for which it is not responsible and for which there are not funds currently identified. They were expected to be undertaken by the commercial operators of those Mux [DAB multiplex] licences.

I don’t think I should add very much to that, other than that, clearly, the Government has determined on a switchover date. Whether that can be achieved is, in our view, whether the audience is ready for it to be.

Damian Collins: I suppose whether it can be achieved ought to be linked to the level of coverage as well. The Government has been clear about that, too. In those negotiations you are having with Government and the commercial stations, is the amount of money you have on the table a smaller amount, as a result of the settlement, than it was before?

Mark Thompson: No.

Sir Michael Lyons: It is clearly another one of the pressures that we have to balance in a tighter envelope; that is the important thing.

Mark Thompson: I think it is fair to say that the underlying commitment that we have made and the focus we have on the building out of our own national multiplex, is unchanged by the settlement.

Sir Michael Lyons: Absolutely. It is a reference to local, I think, that I was …

Mark Thompson: Quite. But the BBC’s focus has always been … the issue about local is that we only have in England, and only intend to have, a single BBC local radio station per region. With each local multiplex that has been opened so far, we have taken a place on that multiplex; we decided that we should do that.

I have no reason to believe we would not continue to do that as they are built out. But whereas the national multiplex, obviously, is a way of getting additional BBC services to the public – the digital services – there is no such increase in BBC services that we can offer if you are taking a single station which is analogue and putting it on digital as well. So our focus is on national build-out, and the broad policy and the commitment over time to absolutely keeping pace with the audience, building out nationally, is unchanged by the settlement.

Damian Collins: Your commitment is clear, and you made that again today, but is it going to take longer to get there now, as a consequence of finding some other issues you have to deal with?

Mark Thompson: I don’t think so. If you say something slightly different, which is, “Would some people have liked some level of additional commitment in the settlement?”, perhaps they would, but it is not there.

Damian Collins: But as far as you are concerned, your commitment is the same?

Mark Thompson: It is exactly the same.

Damian Collins: In the document put to us yesterday, you talk about preparing for any potential radio switchover. That does not sound like it is going to happen within the next five years.

Sir Michael Lyons: That is not a judgment for the BBC; that is a judgment for Government. The BBC is very clear that it is doing its bit in these national investments. There remain unresolved issues about where the investment comes from at a local level. That is not the BBC’s responsibility, but we are part of those discussions. And then, very critically, as the Government has conceded, switchover can only take place … I do take your point that audience preparedness will to some extent depend on coverage, but it also depends on choices made about replacement television sets, investment in cars and a whole series of other things, which are not in our gift.

[This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others. Any public use of, or reference to, the contents should make clear that neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.]

Digital Radio UK meets BBC Radio Northampton listeners in a DAB black hole

In October 2007, Ofcom had awarded the DAB local multiplex licence for Northamptonshire to NOWdigital Ltd. and had required “implementation by September 2008” to put it on-air. The multiplex was to carry BBC Radio Northampton along with commercial stations. More than three years after this licence award, the DAB service has still not launched. As a result, BBC Radio Northampton is not yet available on DAB.

NOWdigital Ltd. had been owned by GCap Media, the UK’s largest commercial radio group, which was acquired by Global Radio in 2008. In 2009, NOWdigital Ltd. was sold to Arqiva, the transmission specialist which owns the lion’s share of DAB commercial infrastructure in the UK. In its application for the Northamptonshire licence in 2007, NOWdigital had boasted:

“GCap … has invested more into digital radio than any other UK operator. This investment has driven the industry forward and is helping build radio’s digital future … Having launched and operated multiplexes since 2001, NOWdigital is in an excellent position to successfully launch and operate the Northamptonshire multiplex.”

So what has Ofcom done to make this licensee comply with the stipulation that the Northampton DAB multiplex had to be launched by September 2008? Nothing. Does the commercial radio industry have a masterplan that includes a specific date for the launch of the Northamptonshire DAB multiplex? No. NOWdigital states disingenuously that its on-air date for Northamptonshire is “awaiting launch”.

Northamptonshire is one of 13 local DAB multiplex licences that Ofcom
awarded in 2007 and 2008 that have failed to materialise by their required launch dates. In 2007, Ofcom also awarded a national DAB multiplex licence to a consortium, led by Channel 4 television, that similarly failed to launch (all trace of which has been erased from the Ofcom web site).

Despite three years of broken promises to the people of Northamptonshire by Ofcom, NOWdigital, GCap Media, Global Radio and Arqiva that a local DAB radio multiplex will be launched for their area, they were not excused from this year’s Christmas radio industry campaign to sell more DAB receivers. DAB marketing organisation Digital Radio UK was interviewed by BBC Radio Northampton last week, though it was unable to offer even a vague date when either the local DAB multiplex for Northamptonshire will be launched, or when the signal of the existing DAB national multiplexes will be improved.

Although Digital Radio UK is funded jointly by the BBC, commercial radio and Arqiva, these heavyweight stakeholders could offer nothing more concrete to the people of Northamptonshire than platitudes and more promises about DAB … always in the future tense.


BBC Radio Northampton,
lunchtime show
15 December 2010 @ 1223 [excerpts]

Stuart Linnell, presenter [SL]
Jane Ostler, director of communications, Digital Radio UK [JO]

SL: You said, Jane, that the coverage and the reception is pretty good in most parts of the country. From my experience, and from what I hear people saying, where it’s good, it’s great. Where it’s not so good, it’s blooming awful.

JO: Yes. That is absolutely right, and we know that organisations like the BBC actually have a plan in place to make sure that coverage improves. And that’s not only building more transmitters, but it’s also increasing the power on transmitters, so that you don’t get the drop-out of signal that you will get in some areas. However, we know that when people do have a good signal, they absolutely love digital radio and everything that it brings …

[…]

SL: Rod in Daventry has got a question about the DAB signal in Northampton. It’s not specific to any one radio station, this question, I don’t think. It’s come in on a text. He just says: why is the DAB signal in Northampton so weak?

JO: Yeah, there are variances around the country in the signal. And, as I say, you know, there are plans in place, over the course of the next few years, to improve coverage for national radio stations and local radio stations as well. It’s one of these things that we are used to with other electronic devices like mobile phones and even Freeview signals. You know, there’s a course – an engineering programme – that’s taking place over time that will allow the signal to improve. So, if it is weak at the moment, it will get better.

[…]

JO: We believe that DAB will … is the broadcast backbone for the country. It’s free to air, it’s becoming increasingly available, and the signal is getting better all the time…

[…]

John in Corby [caller]: My question is that I watch this, I’ve been doing radio for sixty years, I’ve watched this very, very carefully, and the thing is that there are some very attractive radios which carry DAB which are available now. I take all the magazines, every magazine that’s related to radio and high fidelity in this country. And the point is this. What the $64,000 question is, dear Stuart, is: when shall DAB radio be available on Radio Northampton? Can the lady guesstimate that? That’s what’s important – all the things that have been broadcast about it – I won’t buy a DAB radio until I can get it in my locality, my local station, which makes commonsense to me.

SL: Okay. We get the point. Jane, do you know the answer to that?

JO: That is a very good question from John because I know that BBC Radio Northampton is not available on a local digital multiplex. Obviously, around the Northampton area, you can get – and Corby, you can get – the national stations but not the local ones. There are plans in place to build local coverage, and that includes BBC services by the time …

John [interrupts]: This is what will be needed and this is what will sell the radio … this is what will sell the radios, in my view. [When] this fine station in this fine county has its own DAB service.

JO: Yeah, we completely support that and we understand that. What’s happening is: there is a plan in place to develop local coverage in time for the digital radio switchover, and these plans are being worked on right now. So I can’t give you an exact date, but it will be over the next few years that local radio will be more available on digital.

SL: Because we must make it clear that John’s question is a valid one, but it’s not just BBC Radio Northampton that’s not on DAB. There are other stations as well who have not yet migrated to that platform.

JO: That’s right. The local stations in your area aren’t available. They are in some, but not in your particular area. But you can, subject to doing a postcode check, you can still get all the national services that are available …

[…]

Peter [caller]: What exactly is going to happen to existing car radios and also hi-fi stereos at home and also alarm clock radios? Is there going to be an adapter?

JO: If I deal with the car question first. That is also a very good question. There are lots of cars, there are lots of lorries and vehicles on the road, and only a small percentage of them today can actually receive digital radio. But you will start to see – and it’s starting already, and over the next few years – an increasing number of adapters coming onto the market, which you can either fit yourself or which you can get fitted by stores such as Halfords, for example. And then that’s with existing vehicles. With new cars, the motor manufacturers who import and make vehicles in the UK have committed that all new cars will have digital radio as standard by the end of the year 2013. So more and more adapters will come onto the market that are available …

SL [interrupts]: Can I just push you on that a little bit, Jane, because I heard – this is going back probably about 18 months now – that one of the largest motor manufacturers in the world, manufacturing two major brands – luxury brands – in this country, had actually withdrawn their DAB digital radios from their cars, as an optional extra even, because they said it just wasn’t working – the technology wasn’t good enough. Have all the manufacturers now signed up?

JO: They have, into the UK, of getting DAB as standard in cars – in new cars – by the end of 2013. And part of this target date that we talked about earlier on has got the motor manufacturers moving, and it’s also got other manufacturers coming up with new devices which you can fit into your existing car alongside your FM radio.

SL: And that really answers Peter’s point that, whether he has got his clock radio, his hi-fi in his lounge or the car radio, there are going to be adapters that will covert them to take DAB as well.

JO: Not, not the alarm clock. No, the alarm clock example is one where … I think, if you did want an alarm clock that had DAB radio built in, you’d have to get a new alarm clock.

SL: Buy a specific one, okay?

JO: Exactly, exactly. They are increasingly available in stores and they are becoming more affordable all the time.

SL: But for the hi-fi and for the car radio, there should be an adaptor at some stage.

JO: The hi-fi is an interesting question actually because obviously you can get digital radio tuners for hi-fi’s now which can plug in as a separate device. Quite often, a radio might be built into something like a large amplifier where the primary use is actually the amplifier rather than the radio. Ultimately, it would be down to the listener. But these devices are becoming available all the time and, if you go into any electrical store, you’ll start to see more digital radio devices.

SL: Okay, does that answer your question, Peter?

Peter: Yes, it does. I just hope that … I think it’s going to be a big sledgehammer to get a DAB adapter to fit in an existing car. There’s not a lot of room underneath dashboards.

JO: That’s absolutely fair. You can get some now which actually fit onto your windscreen and plug in around the dashboard. But soon, towards the end pf next year, when we anticipate that digital radios in cars will double during the course of next year, you will start to see these devices more hidden away in the glove compartment and that sort of thing.

[…]

SL: It’s Mike in Northants who says: digital reception on Radio Five Live for me, he says, was dreadful, so I just switched back to AM and FM and rejected DAB. No more problems.

JO: Right, well that’s … I don’t know precisely where he lives but, obviously, doing a postcode check would tell him whether he should be able to receive a good signal or not. And there are currently … until the transmitter improvements happen, there are other ways of listening to Radio Five Live, for example on the internet, and on digital television platforms as well, in fact. But, as I say, these coverage improvements are happening all the time. He should check his postcode at our web site.

[…]

Graham from Whitehills [caller]: I’m a communications buff so, as soon as DAB came out, I went and bought myself a mains portable one before I found out I couldn’t get Radio Northampton on it. The big, big problem is that it roars through batteries. It uses batteries at twice the rate of anything else I’ve ever owned.

SL: And I had a letter about this from somebody a while ago, Jane, asking why … is digital radio really environmentally friendly, because it uses up so much power?

JO: Yeah, you will find this is absolutely true for older radio sets that, you know, have been bought a few years ago, that they were quite power hungry and used a lot of batteries all the time and many people chose to operate them from the mains. But there’s been a report out in the last few months that government’s done about the battery consumption and the energy consumption of digital radios. And you’ll find that all the main manufacturers now are making really amazing claims about the battery life of the radios, that they will last for, you know, in some cases, hundreds of hours and use less power than an energy efficient lightbulb and that sort of thing. So, as technology progresses, the energy consumption gets better as well. So I’m afraid that some of those older radios do use quite a lot of energy and the new ones don’t.

SL: You need a new one for Christmas, Graham.

Graham: Yeah, eighty quid down the drain, that was. Thank you.

JO [laughs]: You can get them … you can get them from around £25 now, so you needn’t spend that much.

Graham: Yeah, but I paid eighty. Bye.

[…]

SL: Somebody’s asking: why is it that, when you’re listening to DAB, sometimes it can suddenly cut out altogether or just go to an absolutely garbled signal that sounds like it is underwater?

JO: Yeah, that’s … that’s something that happens when you’re on the edges – or on the fringes – of a reception area and, like other digital media, it can also happen during periods of high weather pressure. So you will find that, if you’re on the edges of a reception area, the signal does cut out rather than degrade gently, which is what it does with FM. So, again, as the coverage improves and the signal strength improves, that should stop happening.

Without local commercial radio, switchover to DAB will not happen

I am often asked why I believe that digital radio switchover will never happen in the UK. My answer is always this – the available statistics and data on consumer take-up of DAB radio fail to demonstrate that it will grow sufficiently to become the mass medium for radio broadcasting. I can see nothing in more than a decade of figures to offer an inkling that DAB radio will ever become anything more than a minority interest, compared to FM/AM.

Audience data published by Ofcom in its latest Communications Market report (page 219, Figure 3.34) help us to understand the current roadblock with DAB consumer take-up. Ofcom divulged the proportion of listening to individual stations by platform, data that has not been made public by RAJAR (see graph below).

The information demonstrates that a few stations, notably AM broadcasters BBC Five Live and Absolute Radio, are making significant headway with attracting audiences on digital platforms. However, in order to put these data in a market perspective, it is necessary to understand the relative importance of each of these stations.

The above graph helps put the planned transition from analogue to digital in a proper market perspective. For example, Absolute Radio has made much of the fact that more than 50% of its listening is already attributed to digital platforms. However, in the context of digital radio switchover, its audience is so small that it has little overall impact. The volume of listening to some local London stations is greater than to national Absolute Radio.

The government has stated that it will not consider ‘switchover’ until at least 50% of radio listening is via digital platforms. Digital listening to the ten stations and station types shown in the above graph add up to only 20%, even after ten years of DAB (digital-only stations bring the total to 24%). There is a reason that it will prove an impossible challenge to get this up to the 50% government target.

Around 300 local commercial radio stations account for 31% of all radio listening. Their success in convincing audiences to migrate to digital platforms will be a vitally important part of the aim to achieve the 50% criterion. However, only 15% of local commercial radio listening is attributed to digital platforms, the lowest proportion (along with BBC local radio) of the ten stations/types in the graph. The task to improve this performance from 15% to the 24% national average is likely to prove impossible, let alone to grow it to the 50% criterion.

This is because many stations in the local commercial radio sector cannot and will not ever be available on DAB because:
• The economics of DAB transmission make it too costly
• The unavailability of any local DAB multiplex in some areas
• The unavailability of space for stations on some local DAB multiplexes
• The industry grand plan to amalgamate existing local multiplexes into regional multiplexes makes DAB transmission, for small local radio stations, more irrelevant and more costly.

These issues had been identified by the government in its Digital Britain consultation in June 2009:
• “merging [DAB] multiplexes will reduce the overall capacity available for DAB services, therefore reducing the potential for new services”
• “reduced capacity on local multiplexes might result in some services losing their current carriage on DAB.”

The government’s decision to ignore these outcomes is now coming back to bite it on the bum. Not having a plan to ensure that all local commercial radio stations can be made available on DAB will only ensure that the government’s 50% criterion can never be met.

At the same time, the determination of the largest players in the commercial radio sector to forge ahead with DAB, regardless of these unresolved issues, has created a serious schism between them and the smaller local radio groups and independent local stations who have no digital future. These issues were raised in parliamentary debate of the Digital Economy Act but were ignored and trivialised by the DAB lobbyists.

Some local commercial radio owners are seriously alienated by the way their predicaments have been ignored by large radio groups and their trade organisations – RadioCentre, Digital Radio Development Bureau and Digital Radio UK. One such group owner, UKRD, has taken direct action by running a campaign on-air and on its stations’ websites against the government’s proposed switchover to DAB.

A page entitled ‘Love FM’ on the Wessex FM website says:

“As you probably know Wessex FM proudly broadcasts to this area on the FM frequencies 96 & 97.2, and had been hoping to for many years to come. However, recent developments mean that we may not be able to broadcast in this way for much longer. In fact, the current plan from parliament is to switch off the use of FM for many stations in 2015. That means, soon, you may not be able to listen to us on FM.”

William Rogers, UKRD Group chief executive officer explained:

“We are not prepared to encourage any of our listeners to go and replace their perfectly satisfactory analogue radio set with a DAB one which may not be able to pick up a DAB signal at all and if it can, it may be a signal which may be wholly inadequate. Even worse, the very station that the listener may have heard the [DAB marketing] advertisement on may not be on DAB or even have a DAB future.”

Pam Lawton, managing director of another UKRD-owned station, KL.FM in King’s Lynn, said:

“We are not on DAB at the moment and currently most of the DAB digital platforms have been snapped up. As things stand, West Norfolk does not have a digital platform because there are limitations about how many there can be and there will only be one station that will serve Norfolk. That station will probably be based in Norwich so once the government decides to turn off FM, we will have to switch off for good.”

The paradox is that the radio sector stakeholders who have been pushed aside and ignored by the DAB movers and shakers are some of the very ones who hold the key to enabling digital radio switchover to happen. Unless the huge audience for local commercial radio can be persuaded to migrate its listening to DAB, the 50% criterion cannot be achieved.

At the same time, some stakeholders who are making the most noise about DAB switchover matter the least in the scheme of things. Absolute Radio can trumpet its individual success with digital listening, but it is contributing less than 1% to the 50% criterion that has to be reached, despite being a national station. It is the hundreds of local commercial radio stations that, collectively, matter the most. Yet, many of these have been denied any seat at the DAB table.

As politicians have learnt through the ages, unless you can convince the little guys (the local radio station owners) and the ‘man in the street’ (the radio listener) to endorse your grand scheme, a scheme is all it will remain. Fancy words in boardrooms, lengthy documents from corporate consultants and detailed project management timelines will inevitably come to nothing, without involving and bringing on board the people who really matter.

It is the radio industry data, particularly for local radio, that tell the real story of DAB and why it can never become the mass radio medium for UK consumers. That is why digital radio switchover will not happen.

[all RAJAR data are Q1 2010, as used by Ofcom]

Choice FM R.I.P.: the birth and near death of licensed black music radio in London

31 March 1990 was the memorable day when London‘s first licensed black music station, Choice 96.9 FM, arrived on-air. Until then, the availability of black music on legal radio had been limited to a handful of specialist music shows, even though about half of the singles sales chart was filled with black music. The decision by then regulator the Independent Broadcasting Authority [IBA] to license a London black music station was part of a huge government ‘carrot and stick’ campaign to rid the country of pirate radio. On the one hand, new draconian laws had been introduced that made it a criminal offence even to wear a pirate radio T-shirt or display a pirate radio car sticker. On the other hand, the establishment knew that some kind of olive branch had to be offered to the pirate stations and their large, loyal listenership.

Many pirate stations, having voluntarily closed down in the hope of becoming legitimate, were incensed when the IBA instead selected Choice FM for the new South London FM license. Its backers had no previous experience in the London pirate radio business, but had previously published ‘Root’ magazine for the black community in the 1970s. Although it was impossible for one station to fill the gap left by the many pirates, Choice FM tried very hard to create a format that combined soul and reggae music with news for South London’s black community, which was precisely what its licence required. The station attracted a growing listenership and it brought a significant new audience to commercial radio that had hitherto been ignored by established stations. With Choice FM, the regulator succeeded in fulfilling two aspects of public broadcasting policy: widening the choice of stations available to the public; and filling gaps in the market for content that only pirate radio had supplied until then.

In 2000, Choice FM won a further licence to cover North London with an additional transmitter. For the first time, the station was now properly audible across the whole capital and had access to more listeners and more potential advertising revenues. Its listening doubled and, at its peak in 2006, Choice FM achieved a 2.8% share, placing it ahead of TalkSport and BBC London in the capital. Choice FM had no direct competitor in London, although indirectly some of its music had always overlapped Kiss FM. The station’s future looked rosy.

However, the Choice FM shareholders must have realised just how much their little South London station was worth, at a time when commercial radio licences were being acquired at inflated prices. Already, in 1995, Choice FM shareholders had won a second licence in Birmingham, but had then sold the station in 1998 for £6m to the Chrysalis Radio group, who turned it into another local outlet for its network dance music station Galaxy FM. At a stroke, the black community in Birmingham had lost a station that the regulator had awarded to serve them. Black radio in Birmingham was dead. The die was cast.

The then regulator, the Radio Authority, had rubber-stamped this acquisition, stating that it would not operate against the public interest. The Authority requested some token assurances: at least one Afro-Caribbean member on the station’s board; an academy for training young people, especially from the black community, in radio skills; and market research about the impact of the format change on the black community. None of these made any difference to what came out the loudspeaker. Birmingham’s black community was sold down the river.

Changes in UK media ownership rules were on the horizon that would soon allow commercial radio groups to own many more stations within a local market. As a result, in 2001, the UK’s then largest radio group, Capital Radio plc, acquired 19% of Choice FM’s London station for £3.3m with an option to acquire the rest. In 2003, it bought the remaining 81% for £11.7m in shares, valuing the London station at £14.4m. The Choice FM shareholders had cashed in their chips over a five-year period and had generated £21m from three radio licences. What would happen to Choice FM London now?

Graham Bryce, managing director of Capital Radio’s London rock station Xfm (which Capital had acquired in 1998 for £12.6m), said then:

“Our vision is to build Choice into London’s leading urban music station, becoming the number one choice for young urban Londoners. Longer term, we intend to fully exploit the use of digital technology to build Choice nationally into the UK’s leading urban music station and the number one urban music brand.”

Capital Radio and subsequent owners seemed to want to turn Choice FM into a station that competed directly with Kiss FM (owned by rival EMAP). But they never seemed to understand that Kiss FM was now a ‘dance/pop’ station, whereas Choice FM had always been firmly rooted in the black music tradition of soul, reggae and R&B. Such semantics seemed to be lost on Choice FM’s new owners and on the regulator, but certainly not on Choice FM’s listeners, who had no interest in Kylie Minogue songs.

In 2004, Capital Radio moved Choice FM out of its South London base and into its London headquarters in Leicester Square. The station’s final link with the black community of South London it had been licensed to serve was discarded. In 2005, Capital Radio merged with another radio group, GWR plc, to form GCap Media plc. In March 2008, Global Radio bought GCap Media for £375m. In July 2008, Choice FM managing director Ivor Etienne was suddenly made redundant. One of the station’s former founder shareholders commented:

“I’m disappointed that the new management decided to relieve Ivor Etienne so quickly. My concern is that I hope they will be able to keep the station to serve the community that it was originally licensed for.”

However, from this point forwards, it was obvious that new owner Global Radio had no interest in developing Choice FM as one of its key radio brands. In the most recent quarter, the station’s share of listening fell to an all-time low of 1.1% (since its audience has been measured Londonwide). Sadly, the station is now a shadow of its former self, even though it holds the only black music commercial radio licence in London (BBC digital black music station 1Xtra has failed to dent the London market, with only a 0.3% share).

This week, news emerged from Choice FM that its reggae programmes, which have been broadcast during weekday evenings since the station opened, will be rescheduled to the middle of the night (literally). One of the UK’s foremost reggae DJs, Daddy Ernie, who has presented on Choice FM since its first day, will be relegated to the graveyard hours when nobody is listening. From 2003, after the Capital Radio takeover, reggae songs have been banished from the 0700 to 1900 daytime shows on Choice FM. Now the specialist shows will be removed from evenings, despite London being a world centre for reggae and having more reggae music shops than Jamaica.

Station owner Global Radio responded to criticism of these changes in The Voice newspaper: “Choice [FM] has introduced a summer schedule which sees various changes to the station including the movement of some of our specialist shows.”

Once again, the regulator will roll over obligingly and rubber-stamp these changes. For Global Radio, the endgame must be to transform the standalone Choice FM station into a London outlet for its Galaxy FM network. At present, London-based advertisers and agencies can only listen to Galaxy on DAB or via the internet. A London Galaxy station on FM would bring in more revenue for the brand as a result of more listening hours and its higher profile in the advertising community. It would also provide a direct competitor to Kiss FM London (ironic, because Galaxy FM had been launched in 1990 by an established commercial radio group as an out-of-London imitation of successful, London-only Kiss FM). Global Radio’s argument to persuade the regulator will probably be that Choice FM’s audience has fallen to uneconomic levels. And whose fault was that?

Already, Global Radio’s website tells us that “Choice FM is also included as part of the Galaxy network” which “consists of evolving mainstream music supported by entertaining and relatable presenters.” And yet, according to Ofcom, Choice FM’s licence is still for “a targeted music, news and information service primarily for listeners of African and Afro-Caribbean origin in the Brixton area but with cross-over appeal to other listeners who appreciate urban contemporary black music.” How can both these assertions be true of a single station?

For the black community in London, and for fans of black music, this will be the final straw. Just as happened in Birmingham, the new owner and the regulator will have collectively sold Choice FM’s listeners down the river. Another station that used to broadcast unique content for a unique audience will have been wilfully destroyed in order to make it almost the same as an existing station, playing almost the same content. We have many commercial radio stations, but less and less diversity in the music they play. Radio regulation has failed us.

For Choice FM, the writing was on the wall in 2003 when Capital Radio bought the station and one (unidentified) former DJ commented:

“Choice [FM] was there for a reason [to be a black music station for black people], but that reason changed [since] 13 years ago. That’s why you’ve got over 30 pirate stations in London. If Choice FM kept to the reason why they started, you wouldn’t need all them stations. But Choice has become a commercial marketplace. They’ve sold the station out and they should just say they’ve sold the station out. What’s wrong with that? They have sold the station that was set up for the black community and they know they’ve done the black community wrong. But they’ve made some money and they’ve sold it. Why not let your listeners know?”

For me personally, as a black music fan and having listened to Daddy Ernie for twenty years, I am much saddened. In the 1970s and 80s, I had found little on the radio that interested me musically, so I listened to pirate stations and my own records. During those two decades, I actively campaigned for a wider range of radio stations to be licensed in the UK and, by the 1990s, I had played a direct role in making that expansion of new radio services happen successfully. Where did it get us? Now, years later, I have gone back to listening mostly to pirate radio and my own records (and internet radio). I am sure I am not the only one.

The radio industry and the regulator seem not to understand one important reason why radio listening and revenues have been declining for most of the last decade. They need to examine how, through their decisions, they have consistently sold down the river their station audiences and the very citizens whom their radio licenses were specifically meant to serve. Listeners vote with their ‘off’ buttons when station owners renege on their licence promises and the regulator lets them. Choice FM is sadly just one example.

In 2006, a lone enlightened Ofcom officer, Robert Thelen-Bartholomew, had asked at a radio conference:

“Is there room to bring the content of illegal stations into the fold? One way or another, whether we like it or not, we have a large population out there listening to illegal radio. Why do they listen? We are trying to find out. But, if you listen to the stations, they are producing slightly different content and output [from licensed stations]. Some of it is very high quality. Some of it is very interesting. So, what options are there for bringing some of that content into mainstream radio?”

Seemingly, none. The last FM commercial radio licence the regulator offered in London was more than a decade ago. Last year, when two small South London FM stations (one licensed for a black music format) were closed by their owner, the regulator unilaterally decided not to re-advertise their commercial radio licences (see the story here). A pirate radio station has not been awarded a commercial radio licence by the regulator for two decades.

Why do pirate radio stations still exist? Because, just as in the 1970s and 1980s, there are huge gaps in the market for radio content that – in spite of BBC radio, commercial radio and their regulators – remain unfilled. It is no coincidence that the share of listening to ‘other’ radio stations (i.e. not BBC radio and not commercial radio) in London is near its all-time high at 3.1%.

Farewell, Choice FM. I knew you well for twenty years.

And, irony of ironies, we are in Black Music Month.

[thanks to Sharleen Anderson]

The Digital Economy Bill: let the horse-trading begin, says Shadow Minister

Ed Vaizey MP for Wantage & Didcot
Conservative Party Shadow Minister for Culture
23 March 2010 @ Imperial War Museum North

In today’s radio industry, brands have been shaped more by scarcity of analogue spectrum than necessarily by the market. Brands have been built as much on the frequencies they occupy as much as the characteristics of their content, and commercial revenues have tended to stay limited to local markets.

We very much support the move to digital switchover, both because we believe it is important obviously to upgrade the technology, but because we also think that it will encourage plurality and expand listener choice. We have got to be concerned that people will be ready before any switchover takes place and that there won’t be literally millions of analogue radios which suddenly become redundant. As you know, the government has set a provisional target date of 2015 and we are sceptical about whether that target can actually be met. That is not to say that we are sceptical about digital switchover. We simply think that 2015 might be too ambitious. But we are delighted to see that Ford Ennals is now chief executive of Digital Radio UK, after having steered digital television switchover so successfully, and we hope that all hurdles can be overcome.

We hope that the advent of new digital stations will bring significant new opportunities for independent radio production and it will also free up commercial radio spend. At the moment, as I understand it, the commercial sector spends nearly 10% of its annual revenue on analogue transmission. In the battle for ratings in the new digital world, we would hope that great programming would be at the forefront and that therefore a good proportion of the £40m annual cost of analogue broadcasting will go to independent radio production.

At the moment, the BBC holds four out of the five available national FM licences, and it has the only national digital multiplex. So the aspiration as we move over to digital is as much about making more space for plurality in radio broadcasting as it is about new technology. And if new stations are broadcast, we hope there is plenty of scope for new exciting radio production.

We are also keen obviously not to switch off FM, but to maintain FM as a spectrum particularly for local radio. As you are probably aware, there has been a lot of lobbying during the passage of the Digital Economy Bill about that. I’m pleased to say, as well, that some of the new technology that seems to be coming on-stream, with radios that can switch seamlessly between digital and FM broadcasts, will ensure that there will still be a place for ultra-local FM broadcast stations.

Obviously, many of you will also be interested in what will happen with the Digital Economy Bill as we approach the dissolution of Parliament. My understanding is that the Second Reading will happen on the 6th of April, which I think is also the date that Gordon Brown drives up the Mall to see the Queen to call for the dissolution of Parliament if he wants an election on the 6th of May […] We will have this rather surreal Second Debate in the House of Commons and then we will go straight into what is now called the ‘wash up’ where we horse-trade over the various clauses of the Digital Economy Bill to be passed by the 8th of April. But I can assure you that the deregulation of radio clauses in the Digital Economy Bill have strong cross-party support so, if anything is going to go through, it will be those clauses.

[…]

Q&A

Q: It’s interesting that you touch on digital radio as a platform going forward. Once we find the larger stations, commercial and the BBC, make the switch to digital, and they leave the FM spectrum, do you feel that the majority of listeners will move to digital radio when they vacate their homes, as most cars don’t come with a DAB receiver, so obviously the commercial sector and the BBC are going to be losing listeners because the majority of times listeners tune in to these station is in the car? Furthermore, with DAB, it’s reported and seen by some people in the media/press as being a failed format, competing with new technologies such as DRM. With these changes, do you think that, when people do make the migration to DAB, that smaller stations are going to lose out and that the money from the commercial side is going to be re-invested in programming and we’re not going to lose the quality of the content…

A: Well, I think the problem in the last few years has been a kind of half-way house, so people weren’t really sure what the future of digital radio was going to be, particularly with commercial radios stations that were having to make a double investment which was costing them a lot of money, so we supported the government in making a firm decision that we were going to move over to digital switchover. As I said in my remarks, I think that 2015 might be a bit ambitious.

Your particular point about converting cars to digital radio is, I think, the crucial point. We have got to get to a stage where new cars are fitted – as the French have now mandated, for example – with digital radios and that it gets easy to convert to digital in the car. I think that 2015 is going to be ambitious, but that does not mean that we are sceptical about switchover.

The other point about FM, as against DAB. I think that there will be… There are radios on sale now that switch seamlessly between FM and digital as if you were simply changing channels. I think that, particularly as FM will then be, broadly speaking, a spectrum used by the local radio stations, that won’t be such a problem if you’ve only got a digital radio in your car, as you tend to listen to a local radio station when you’re at home – or you can de-construct that remark. The point you make about whether DAB is the right technology or whether we should be using DAB+, to a certain extent I slightly take the view that we have gone down this road, so let’s leave it. I think the pain of trying to move to DAB+ or beyond will be too much, given how far we’ve come.

Q: I also found it quite interesting that you had the idea that there were going to be more digital-only services. In the past, we have seen digital services such as Capital Life and Core which have come and now gone again because they were not commercially profitable. Do you think that is not going to have an impact when most people make the migration to DAB? Do you think that the local full-scale FM operators are going to suffer?

A: Er, well, er, I hope that they won’t. There will be a distinction between national or big regional radio stations and local stations, and there is already a distinction between local and community which is ultra-local. As I say, we want to put in place a platform that will also enable cross-media ownership at a local level that will enable local media companies to create scale. So, what I hope is that, across the range of media. there will be opportunities for any good radio station that is likely to command a loyal audience – whether that be an ultra-local audience, a regional audience or a national audience – because, in terms of Capital Radio coming and going, I think that was frankly a symptom of that we were in a half-way house about digital. We need to drive digital, which I think is now underway.

[…]

NORWAY: every fifth radio sold is an internet radio, every eleventh is DAB

In Norway, sales of internet radio receivers are booming. During the final quarter of 2009, 22% of radios sold were internet radios, up from only 1% a year earlier, according to Norwegian website Sandnesavisen. By comparison, only 66,000 DAB radios were sold in 2009, 9% of the total 729,000 radios sold during the period, according to data from the Electronics Industry Foundation. Additionally, 200,000 mobile phones were sold in Norway during 2009, none with DAB capability but many with integrated FM radios.

Erik Andersen, information officer for the Electronics Industry Foundation, said: “We estimate that there are somewhere between 12 and 15 million FM radios that are in regular use around the country while, in comparison, only approximately 290,000 DAB radios have been sold in recent years.”

Andersen is not surprised by the rather low DAB radio sales, and finds it problematic that a date for FM band switch-off has not been announced which could be referred to. “We have no desire to mislead customers so, as long as politicians do not give us a switch-off plan, we advise enquiring customers to buy an FM radio,” said Andersen.

Jarle Ruud, acting general manager of Digitalradio Norge, the organisation charged with ensuring a speedy and smooth transition from analogue to digital radio in Norway, said: “This is a classic ‘chicken and egg’ situation, both in terms of sales volumes versus a switch-off date, and the channel selection on DAB.” Just as consumers are hesitating to buy a DAB radio before the government announces a switch-off date, Ruud thinks there are many radio stations that refuse to invest in digital transmission equipment because of the potentially lengthy and costly period of dual distribution.

The sales trend came as no surprise to Øyvind Vasaasen, media manager at NRK (state broadcasting) and chairman of Digitalradio Norge, who said: “This is what we predicted. We have remarked to the authorities that sales appears to have stabilised at around 60,000 DAB radios sold per year, and this is also the result for 2009. It shows that the sales trend is far too slow.”

Geir Friberg is managing director of Norway’s largest local radio group, Jærradiogruppen, which owns more than 20 of the approximately 150 local stations in Norway. He said: “There is really no great difference between FM and DAB. There are too few radio stations that broadcast on DAB today, and listeners cannot hear the difference between FM and DAB.” Friberg believes that adding more FM stations may even be a better policy than DAB.

Per Morten Hoff, general secretary of IKT Norge (Norway’s IT industry interest group), queried the accuracy of the published sales figures: “More and more consumers have eyes for internet radios, and the Norwegian company TT-Micro has alone sold 20,000 web radios. Since these radios can also receive FM, DAB and 13,000 internet stations, they are strangely classified as ‘DAB radios’ in the statistics. This is apparently to show that DAB is not a total failure. The true DAB sales are probably no higher than 40,000 units, and that figure is getting smaller. There is also the riddle that sales of mini-TV’s are included in the sales statistics of DAB radios.”

Jørn Jensen, president of World DMB Forum, responded: “Hoff does not know what he’s talking about. Radio broadcasting on DAB and DAB+, as well as mini-TV’s in DMB, all use DAB technology.”

At the beginning of February 2010, the Norwegian media regulator, Medietilsynet, submitted a 145-page document to the government on the digitisation of radio broadcasting. This is in preparation for a White Paper on digital radio that will be published by the government during 2010. The report was commissioned to map the Norwegian local radio industry’s opinions on the migration to digital radio and how it could be achieved. It collated responses from 55 parties and it concluded:

“The results of the survey reveal that virtually all local radio licensees believe that the digitisation of local radio will have economic consequences for them as businesses. The players fear that a transition will be so costly that only a few of the current licensees will survive digitisation. The consequence may be that ownership diversity disappears and that the market is left with big group operators. Besides mentioning competence-building, information and predictability, the majority of licensees believe that the most important measure the government can contribute to the digitising process is financial support in one form or another.

Local radio licensees who participated in the survey are roughly evenly split down the middle on their view of whether local radio should be digitised or not. Those who are negative to digitisation weigh the economic aspect heavily. When asked what distribution platform they see for themselves as the primary platform for local radio in the future, 52 percent responded analogue broadcasting via the FM band, 33 percent broadcasting via a digital platform such as DAB, DRM, etc and 9 percent broadcasting via the internet……”

“Amongst local radio licensees, 78 percent are negative about a switch-off date for analogue local radio broadcasting. 18 percent are positive about a switch-off date.”

Vigleik Brekke, chairman of the Norwegian Association of Local Radio (NLR) said that there was no economic reason for many of his 150 member stations to migrate to digital transmission. “Closing FM radio will create problems for stations,” he said. “They will not be able to survive.”

Professor Lars Nyre of the University of Bergen’s Institute of Media Studies said he was sceptical about DAB, especially as FM radio seemed to be perfect for listeners.

Asked whether the government’s White Paper will include a switchover date, Norwegian Culture Minister Roger Solheim said: “This is an important issue, and we aim to present the facts in 2010. One of the key questions we want to work with in the White Paper is whether we should fix a switch-off date.” Asked if his predecessor Trond Giske’s policy still held sway that half of Norway’s households should own a digital radio before a switch-off date is announced, Solheim said: “It is certain that digital radio will come, we see that too, in the developments. The question of the timing, and the state’s role in it, we must come back to in the White Paper.”

According to industry data, one in three households in Norway buy a new radio each year. Each household owns between 6 and 7 radios.

Renewal of national commercial radio licences: debated in the House of Lords

House of Lords
8 February 2010 @ 1723
Digital Economy Bill
Committee (7th Day)

Clause 31 : Renewal of national radio licences
Debate on whether Clause 31 should stand part of the Bill.

Lord Clement-Jones: My Lords, before I propose that the clause not stand part, I must apologise. As a result of the way in which the business of the House has been organised today, I shall not be able to be here for about two hours of the Committee’s proceedings. I very much regret that, as many important matters remain to be debated. However, since the business was switched at extremely short notice — I hope that the Whips are whipped for it in some future incarnation —

Lord Davies of Oldham: Oh!

Lord Clement-Jones: I am of course not referring to the noble Lord, Lord Davies. Moving this business from Tuesday to Monday at very short notice is not a happy situation. I therefore hope that Ministers will give full and frank responses as if I were present. I am very grateful to my noble friend Lord Addington, who has kindly agreed to step into the breach when I am not able to put the arguments. I propose that Clause 31 should not stand part. Under this clause, the national analogue radio stations talkSPORT, Classic FM and Absolute Radio are receiving valuable seven-year extensions to their licences. In exchange, the existing licensees have been asked to give their support to an early switchover, with the proposed 2015 date coming much earlier than that recommended by the Government’s 2008 Digital Radio Working Group. However, there is a view among some operators that extensions to these licences are not worth the damage to radio of a digital switchover policy which assumes an unrealistic timetable for digital switchover and which fails to provide solutions that allow all local radio stations to move to digital. They do not accept that as a reasonable quid pro quo for an early switchover. They believe, on the contrary, that the industry’s engagement with the digital radio switchover proposal has been distorted by its interest in licence extensions which are essentially to do with the attractiveness of the current analogue model for radio rather than the proposed digital model. Their view is that Clause 31 will deprive the Government of revenue due from re-auctioning the licences for these national analogue stations. However, the Government have failed to publish an assessment of how much revenue will be lost to the Treasury under this approach. The Government need to justify the advantage of the clause against the background of the following factors: that the sums lost to the Treasury will clearly amount to tens of millions of pounds over the lifetime of the extended licences; and the lack of evidence about whether digital investment by the holders of these licences will continue without the extensions. On the face of it, many are already, contractually or otherwise, committed to digital even without this.

Lord Howard of Rising: My Lords, although I share a number of the noble Lord’s concerns, I do not think that removing the clause would be helpful. It is a facilitating clause that enables the move to switchover at a later date, and it does not set in stone when the switchover will take place or indeed that it must happen. It is more important that the Secretary of State considers a range of issues before nominating a switchover date than that the process in its entirety is stopped. I believe that the level of digital radio listening should be much higher than the Government have suggested. It would also be very much better if the fact that the FM spectrum will remain in use for local and community radio stations was on the face of the Bill. More progress should be made in creating a help scheme and a recycling scheme. We should be focusing on these issues rather than on an attempt to derail the digital switchover process completely.

The Lord Bishop of Manchester: My Lords, I recall that last week the noble Lord, Lord Clement-Jones, and I supported each other’s amendments, but sadly that relationship is about to be broken albeit, I hope, temporarily. To allow the Bill to pass without this clause would pose a real problem for the entire digital radio project. The three commercial stations currently granted national analogue licences cater for a broad range of tastes, from Beethoven and Brahms to Bon Jovi, via the latest soccer score from Bolton Wanderers. Their collective appeal has been vital to encouraging digital take-up by listeners, with around a fifth of their current audiences now listening via a digital platform. To disrupt that migration would be rather unwise. Re-advertising these national licences with just a few years to run before we expect to switch off the service seems to be sending the wrong signal to both the industry and to listeners. It seems to suggest that we are not fully committed to digital as the future, that we doubt whether we will be in a position to switch over the bulk of national stations in seven years, and that we can expend less energy on the steps that are undoubtedly still needed to get listeners to switch to digital, especially through pushing down the cost of DAB radio sets and through getting DAB into more cars as standard. I do not think that any of those things are the right course. If, as I understand it, the message from the legislature to the private sector is to be, “We want you to invest in this new technology, market it to your listeners and encourage them to adopt the new listening platforms”, surely we cannot keep expecting these companies to keep on writing blank cheques. We all appreciate that digital platforms are still in their relatively early days. It has to be remembered that not one digital radio station has yet posted a profit. For their pioneering endeavours, they deserve the stability that this reprieve offers them. One does not often hear pleas for breaks for business from these Benches, but this is a case of tidying up the licensing regime to make it serve the purposes of the digital age.

Lord Eatwell: My Lords, I declare an interest as chair of the consumer panel of Classic FM. This panel is entirely independent of the company. It is devoted to maintaining the standards of Classic FM and the widespread broadcasting of classical music by the independent sector. If this clause does not stand part of the Bill, your Lordships should be aware that the future of Classic FM will be severely compromised because it is a requirement of existing law that the analogue licences are auctioned. As at present conceived, analogue licences do not have a clear format specification. There is not a licence for classical music. There is simply a licence for non-speech, which is the licence held by Classic FM. If these national stations were to be auctioned in the near future, I would be willing to bet the noble Lord who is opposing that Clause 31 shall stand part of the Bill at least a bottle of claret that this licence would be secured by a pop music station, and that Classic FM would disappear. I wonder whether the noble Lord has taken into account that possibility in his proposal.

Lord Young of Norwood Green: My Lords, key to supporting the drive to digital is to encourage and to allow broadcasters to invest in their digital futures. Experience shows that licence renewals, which are linked to the provision of a digital service, are a key incentive. At a time when the Government are asking the industry to contribute to a focused and intense drive towards digital, we believe that it would be wrong to remove this incentive. Clause 31, alongside Clause 32, would allow Ofcom to grant a further renewal period of up to seven years to analogue licence holders who also provide a digital service. Clause 31 relates specifically to the national analogue licences, although the rationale for the decision for extending the renewal is identical for both national and local licences. I do not want to take up too much time because noble Lords who have contributed to this debate have put many of the arguments excellently. The noble Lord, Lord Howard, talked about the necessity to maintain the clause. The right reverend Prelate displayed a very catholic — I hope he does not mind me using the word — taste in music from Beethoven to Bon Jovi, which I liked. In his analysis of the need for Clause 31, he is absolutely right. As he said, we cannot expect companies to carry on writing blank cheques. We need to give them an incentive. My noble friend Lord Eatwell’s analysis of Classic FM was exceedingly apposite. We believe that this clause is essential for the reasons stated by a number of noble Lords. In those circumstances, I support the Motion that this clause stands part of the Bill.

Lord Clement-Jones: My Lords, I thank the Minister for that reply. I also thank other noble Lords for contributing to the debate with some fairly bloodcurdling prospects. However, I do not think that the Minister has answered the question about why these extensions are required. I put this proposal somewhat as a devil’s advocate. By and large, I believe that the majority of the radio industry is behind the scheme as put forward by the Government, but there is a significant minority of interest which is not. That is why I put forward the clause stand part debate. But if I was in their shoes, listening to what the Minister had to say, I would consider that his arguments were entirely circular and that the Government have done this because they needed to and that this was the best way forward. I do not think that any real forensic argument has been put forward by the Minister. I could probably put forward rather better arguments than the Minister has. I certainly could have put my finger on areas where investment is needed, since I have been briefed by some of the major radio players. The Minister has been extremely half-hearted in responding. This is the one bit of this Bill which is the Government’s opportunity to set out their stall in terms of their digital radio policy, other than the amendments we have already dealt with. We had quite a useful debate on our last Committee day, but the Minister has not really answered the questions in a robust way. Certainly, he has not set out the stall for the Government’s policy in terms of the extensions of these national analogue radio stations. We are talking about digital radio switchover. What is it about these extensions that will make those radio stations invest more when they migrate to digital? That is what it is all about. The Minister did not even attempt to talk about the amount of money that the Treasury would forgo. Some estimates have put that as high as £73 million, which is a large amount of money. I do not think that the Minister dealt with that either. The Minister has been extremely disappointing. I do not think that that minority of radio stations will be particularly happy to hear the Minister’s lack of engagement with their arguments. It is almost as if he has taken a view that only a minority of radio stations is concerned, that the bulk of the radio industry is quite happy and that therefore that minority will be overridden without so much as a buy your leave. That is an unfortunate position to be in. This House, above all, is about rational debate and about putting forward the arguments. To be frank, in previous amendments to this clause, the Minister put forward some useful points — he certainly did in response to some of mine — but when I have tried to elicit an overarching policy, he has been lacking and I have been somewhat disappointed.

Clause 31 agreed.
Clause 32 agreed.
Amendment 241B not moved.
Clauses 33 and 34 agreed.

Clause 35 : Local radio multiplex services: frequency and licensed area

Amendment 241C
Moved by Baroness Howe of Idlicote
241C: Clause 35, page 39, line 3, leave out “local”

Baroness Howe of Idlicote: My Lords, this amendment, which relates to the provisions for digital radio, seeks to allow for the efficient use of the radio spectrum and for a potential increase in radio listening choice for the people of Northern Ireland. Although national BBC services are available via digital radio in all four parts of the United Kingdom, the national commercial multiplex is unavailable in Northern Ireland. The reasons for that are historical and technical, and relate to how the same frequencies were used in the Republic of Ireland. The result is that stations, including Absolute Radio, Planet Rock, BFBS radio and Premier Christian Radio, cannot be heard digitally in Northern Ireland. There is some hope that the spectrum position will change. However, as currently worded, even if that spectrum were to become available, Ofcom would not have the powers to allow it to be used by the national commercial multiplex. That is clearly an anomaly and, I suspect, an oversight. It would result in the inefficient use of spectrum and an artificial restriction on the radio-listening choice for some citizens. This amendment seeks to correct the situation and, without obliging, would enable Ofcom to increase the coverage of the national commercial multiplex. Were this to become technically possible, Ofcom would follow the process already proposed for similar expansion of local digital radio or multiplexes using the framework already in the Bill. This amendment, while modest and not contentious, will have benefits for the people of Northern Ireland and clearly will be welcomed by the radio industry, so I hope that the Government will be prepared to accept it. I beg to move.

Lord Young of Norwood Green: My Lords, this amendment would allow Ofcom to vary the frequency or licensed area of national, as well as local, radio multiplex licences. On the face of it, this is not an unreasonable change and would potentially enable the national commercial radio multiplex to extend its coverage to Northern Ireland. However, Clause 35 was structured specifically with reference to local radio multiplexes so as to allow them to merge or be extended in order to close the gaps in local radio multiplex coverage in the UK not currently served by DAB. Simply removing the word “local” from the text may not be the best way to achieve the desired result. Consideration needs to be given to what variation powers Ofcom should have with regard to national multiplex licences and to the basis on which such powers should be exercised. We have some sympathy with what the noble Baroness is trying to achieve and the Government will consider this issue before Report. With that assurance, I hope that the noble Baroness will feel able to withdraw the amendment.

Baroness Howe of Idlicote: My Lords, I am pleased to hear that, even if this amendment is not entirely appropriate according to the Minister, serious consideration is going to be given to how this can be made possible. Under those circumstances, I beg leave to withdraw.

Amendment 241C withdrawn.
Amendments 241D to 241F not moved.
Clause 35 agreed.

Clause 36 : Renewal of radio multiplex licences
Debate on whether Clause 36 should stand part of the Bill.

Lord Clement-Jones: My Lords, Clause 36 deals with the renewal of radio multiplex licences and it inserts a new Section 58A after Section 58 of the Broadcasting Act 1996. The House of Lords Delegated Powers and Regulatory Reform Committee, which we always listen to with some respect, had some interesting words to say about this clause: “It is impossible to tell from the Bill whether the policy is that the licences should or should not be renewable at all, let alone for what period or on what grounds. Indeed, paragraph 56 of the memorandum candidly admits that the relevant policy decision has yet to be made. We draw attention to the skeletal nature of the power in clause 36, to enable the House to examine it further and determine whether it is justifiable in this context”. I am merely a humble hand maiden of this House in tabling this clause stand part debate, and I hope that the Minister can give us further enlightenment.

Lord Young of Norwood Green: I have never had to respond to a hand maiden before in this House. I am still wrestling with that analogy. The Government stated in the Digital Britain White Paper that we would work with the industry to agree a plan to build out the DAB infrastructure to current FM coverage. We recognise the need to limit as much as possible the impact of such build-out on radio stations. One way this can be achieved is to allow multiplex operators to spread the cost of the investment in the new infrastructure by extending the period of their licence. We have suggested that licences could be extended up to 2030. The renewal of multiplex licences as a means to support digital radio was first introduced in the Broadcasting Act 1996. However, these renewal powers only apply to licences which were granted within 10 years of the 1996 Act coming into force. Therefore, there are a number of multiplex licences which are currently not eligible for a renewal. If renewals are to provide a real support to the build-out of DAB coverage to FM levels, they need the flexibility to achieve three objectives: first, to allow the extension of the licence period for those licences which are already eligible for, and in some cases have already been awarded, a renewal under the existing terms; secondly, to allow the renewal to apply to all multiplex licences, including those not currently eligible within the existing provisions; and thirdly, to ensure that any further renewals are awarded with conditions which link them to the progress to digital radio switchover, and more specifically to an agreed build-out plan and timetable. The link to a DAB coverage plan for switchover, which is likely to take a year to agree, is why we believe these powers are most appropriately applied via an affirmative order. I note concerns about the breadth of the order-making powers and I hope that I have satisfied noble Lords that they are justified because of the range of changes needed to implement this policy.

Lord Clement-Jones: I thank the Minister for that brief but — I hope to discover on reading Hansard — informative statement. As somebody who is not fully conversant with the radio multiplex licence variations, that was not the clearest possible answer I could have asked for. I hope that it will make sense on further consideration. It seemed to tell me that the Government need the maximum possible flexibility without having determined exactly which licences require extension. I am not sure that takes us a great deal further than what the House of Lords Delegated Powers and Regulatory Reform Committee said, but perhaps, as I say, on reading Hansard it will all become blindingly obvious.

Clause 36 agreed.
Clause 37 agreed.

Costs/benefits of digital radio switchover: why the government buried the evidence

Digital radio switchover was first mooted in the 1980s and started to gather momentum following the first UK public demonstration of the DAB digital transmission system at the Radio Festival in Birmingham in 1991. New Scientist magazine reported then that DAB radio could be up and running in the UK “by the mid-1990s”. However, it was not until 1999 that DAB radio was launched publicly and DAB radio receivers were made available commercially.

Over this period of decades, it would have been sensible to commission some kind of cost-benefit analysis to assess if there were a potential net benefit to radio listeners, to the radio industry, and to the UK generally of embarking on a plan to convert the whole nation to digital terrestrial radio. If such an analysis was ever published, I must have missed it.

We are now in 2010, an incredible 29 years after research and development first started on DAB radio technology. The issue of digital radio switchover has been the subject of a succession of government initiatives since the end of 2007 (the Digital Radio Working Group, Digital Britain, the Digital Economy Bill). Has the government shared with the public a cost-benefit analysis which demonstrates that the public policy on digital radio pursued over the last 20+ years is somehow worthwhile? No. Does such a cost-benefit analysis exist? Yes. Can we see it? No. Where is it? Apparently, gathering dust on a government or Ofcom shelf.

How do we know this? A parliamentary committee recently delved into these facts during its current investigation into the issues surrounding digital switchover in the television and radio markets (see transcript below). Ofcom has remained remarkably silent on the issue of digital radio switchover in recent years. The regulator’s director of radio, Peter Davies, was last seen speaking publicly about DAB in November 2008 when he admitted that new legislation would be necessary to salvage the DAB platform. A little earlier, in April 2007, Davies had prematurely declared that “we are potentially at a Freeview moment with digital radio.” Three years later, radio’s ‘Freeview moment’ seems as far over the horizon as ever.

The first we knew that the government had commissioned some kind of cost/benefit analysis [CBA] for its proposed digital radio switchover was in November 2009 when the Digital Economy Bill was published. The government’s accompanying Impact Assessment document stated:

“The partial Cost Benefit Analysis conducted by Price Waterhouse Cooper (PWC) for the Digital Radio Working Group, which is available on the DCMS website, suggests the Digital Radio Upgrade could reduce the total transmission costs for the radio industry from £87.9 million to £64 million….”

“First, by supporting greater investment in DAB infrastructure a greater number of consumers will have access to DAB and the quality of reception will improve. Secondly, consumers will benefit from access to a wider range of services, specifically new national stations and functionality, such as pausing and rewinding live radio. Finally, the released analogue spectrum will allow for a greater range of community radio stations, as well as possible non-radio services. The PWC partial CBA for the Digital Radio Working Group suggests the value of these benefits could be in the region of £1.1 billion, over a period from 2009 to 2030…..”

“The significant consumer costs of the Digital Radio Upgrade in the non-voluntary conversion of analogue sets to digital, including the cost of in-car conversion. The PWC report suggested the cost of such conversion to be in the region of £800 million, again over the period from 2009 to 2003.” [typo – “2003” should be “2030”]

Although this document stated that the PWC report was available from the government’s web site, I have searched for three months and still never found it there. Nevertheless, the 91-page report entitled ‘Cost Benefit Analysis of Digital Radio Migration’, prepared for Ofcom by PWC on 6 February 2009, contains a number of very serious reservations that there will be ANY benefit from digital radio switchover, and it states:

“The results suggest that there are relatively few up-sides to the estimates, and several significant downside risks. … To a significant extent, the positive Net Present Value [NPV] of the Cost Benefit Analysis relies on two crucial parameters. The first is the Digital Radio Working Group [DRWG] recommendation that an enlarged regional [DAB] multiplex network should be implemented. Failure to implement would result in a substantial negative NPV. The second critical parameter is the time horizon. The results suggest that there is a very long pay-back from the DRWG policy ‘investment’ – the NPV turns positive after 2026. This result assumes that the existing multiplex licences are extended to 2030, as per the DRWG recommendations. Without the licence extension or any other policy instruments that provide clarity on the long term future of commercial radio, the industry and consumers may fail to see the benefits of digital radio over the longer term. Our analysis suggests that the NPV is negative should either of these two proposals not be implemented.” [emphasis added]

The PWC report explicitly noted for Ofcom the limitations of its analysis, as a result of the lack of consideration it had assigned to external factors. These paragraphs probably explain why the government has been so keen to keep the report away from public scrutiny:

“The scope of this study is limited to the assessment of the DRWG policy. The overall digital radio policy appraisal process would need to take into account other policy options and ‘states of the world’. With this in mind, we highlight three issues in particular:

1.    The impact of recession: We have assumed no change in commercial radio sector structure and health beyond a consensus view of advertising forecasts. As this CBA is conducted for the time period to 2030, short term recessionary impacts may have only a limited impact on the longer term outcome for the industry. On the other hand, the current economic downturn could still affect the short and medium term investments required for marketing or coverage extension, which in turn could delay the desired DRWG policy outcome.

2.    Other policy options: We recognise that to reach a view on this question of how to drive digital radio penetration and listening (which in turn delivers consumers’ and citizens’ objectives) requires a full assessment of the costs and benefits of a number of policy options; this study has examined one, the DRWG policy. This is the only policy assessed in this study and the policy is at an early stage of its development; Government and Ofcom could give consideration to other possible policy options. In addition, we recommend modelling a number of other ‘business-as-usual’ scenarios taking into account different assumptions, and assessing how they affect the CBA of the DRWG policy.

3.    Other digital platforms: This CBA assumes that DAB listening will continue to be the leading platform for digital radio listening. The DRWG has reinforced the view that ‘a radio-specific broadcast platform is an essential part of radio’s future’, and that DAB is the ‘most effective and financially viable way of delivering digital radio’ for the medium to long term. A long term view needs to account for the possibility of technology obsolescence or replacement. At present, there is no consensus view that suggests otherwise. However, there are signs that internet listening may begin to take off if internet radios are more actively promoted and technologies such as WiFi or mobile broadband mature and become universally available. A number of the cost and benefit categories assume an impact from increasing the coverage of DAB (for example, consumer benefits from increased coverage is assumed based upon the incremental benefits to consumers who could not receive digital radio stations). Should these trends continue, or a more structural shift to internet to occur, there would be a smaller benefit from increasing the coverage of DAB; consumers either have alternative access to digital radio even within out-of-coverage areas, or would prefer a non-DAB solution when they receive DAB coverage.” [emphasis added]

In the 12 months since the PWC report was prepared, all three of these assumptions have been undermined by subsequent events:

1.    The health and structure of the commercial radio industry have changed considerably during 2009:
•  Commercial radio’s financial health has been impacted severely by the recession. The sector’s revenues were down 19.5%, 10.8% and 12.5% year-on-year in the first three quarters of 2009. Revenues from national advertisers were down 28.8%, 16.1% and 16.5% respectively
•  In January 2009, an analysis commissioned by RadioCentre found that “the [commercial radio] industry as a whole is now loss making”. Hours listened, revenues and profitability have all fallen further since then
•  At the beginning of 2009, Global Radio was the biggest owner of DAB multiplex infrastructure. Since then, it has disposed of its entire stake in the national DAB multiplex and most of its stakes in local DAB multiplexes to transmission provider Arqiva, demonstrating the radio sector’s inability to generate profits from the DAB platform after 10 years

2.    The policy recommendations for digital radio switchover made by the Digital Radio Working Group have since been amended by the Digital Britain report and the Digital Economy Bill. The recommendations of the Working Group’s Final Report published in December 2008 had included:
•  “Government should agree a set of criteria and timetable for migration to digital”, whereas no criteria or timetable are specified in the Bill
•  “A long term plan should be developed to move all services to digital”, whereas the Bill acknowledges that some local radio stations will never have the opportunity to migrate to digital
•  “The BBC should build out its national [DAB] multiplex across the UK to reach FM comparable levels [of coverage]”, whereas the BBC has acknowledged that such expenditure is constrained by the Licence Fee settlement
•  “The government should consider funding options to enable this important investment [in DAB infrastructure]”, whereas the government has made no financial commitment to the build-out of DAB multiplexes
•  “The government must consider the case for a [import] duty exemption for digital radios”, a proposal that is not mentioned in the Bill
•  “Consumer groups believe that, once an announcement [of digital switchover] is made, no equipment should be sold that does not deliver both DAB and FM”, a proposal that has been dropped

3.    The DAB platform has failed to grow in 2009, as had been forecast by the government, Ofcom and the Digital Radio Development Bureau [DRDB]:
•  Volume sales of DAB radio receivers were down 10%, down 1% and down 6% year-on-year in the three most recent quarters for which data have been released by the DRDB
•  Listening to radio via digital platforms accounted for 20.9% of total radio listening at year-end 2009, compared to the 26% forecast by the government’s Digital Britain report in June 2009 (and compared to the 42% forecast by Ofcom in November 2006)
•  Listening to commercial radio via digital platforms accounted for 19.7% of commercial radio listening at year-end 2009, compared to the target 30% announced by RadioCentre in January 2007
•  Total hours listened to digital-only radio stations at year-end 2009 were at their lowest level since 2007, demonstrating that digital radio content is failing to drive consumer take-up of digital radio
•  Unused capacity on the DAB platform has increasingly been filled during 2009 by non-commercial, government-funded, listener-funded, religious or ethnic radio services, rather than by mainstream, mass appeal stations
•  The commercial radio sector launched no completely new broadcast digital radio stations in 2009 (Absolute Xtreme was replaced by Absolute 80s), and the BBC is expected to announce cuts to its digital radio stations at the end of this month

As a result of these developments during 2009, the minimal, long term benefits from digital radio switchover identified by the PWC report a year ago are likely to have been diminished to the point where there may no longer be any benefit evident at all, even as far into the future as 2030. So how can the government still justify pursuing its policy of digital radio migration? It cannot, which is why it remains so reluctant to engage in an analysis of the facts, the numbers, the data and the evidence, all of which clearly show that this misguided, poorly executed, top-down attempt to switch radio broadcasting in the UK to the DAB platform is likely to become a ‘white elephant’ that has already cost the radio industry getting on for £1 billion.

House of Lords
The Select Committee on Communications
“Digital Switchover Of Television And Radio In The UK”
27 January 2010 [excerpts]

Witnesses:
Mr Stewart Purvis, Partner for Content and Standards, Ofcom
Mr Peter Davies, Director of Radio Policy & Broadcast Licensing, Ofcom
Mr Greg Bensberg, Senior Adviser, Digital Switchover, Ofcom.

Baroness McIntosh of Hudnall: I feel we could get back on to slightly safer territory and the notion of cost and benefit. We understand that you commissioned a report from PWC last year into the costs and benefits of digital switchover in radio, but you didn’t publish it. We know, therefore, what we have learned from the DCMS about what it said. It appears that it found, for example, that the benefits could – and I emphasise the word “could” – outweigh the costs by £437 million after 2026, but that conclusion is hedged about with quite a lot of caveats to do with what would have to happen in order for that good outcome to eventuate, and that if those things didn’t happen, then quite quickly you would get into a position where the costs would outweigh the benefits. Can you tell us a bit about that report? In particular, can you tell us why you haven’t published it? Do you think that, given what it appears to say – I choose my words carefully – about the constraints on potential for benefit, that it should have been available to inform the Government’s digital policy? Can you also tell us about your own impact assessment on radio digital migration, which I believe you have been asked to undertake? Will this include a full cost-benefit analysis? When are you intending to publish it? ….. [edited]

Mr Purvis: There are a lot of questions there. Peter commissioned the piece, so I am going to ask him to talk to them, but let me say that you have talked about informing the Government’s decision and one of the main points of doing this was to help inform the Government’s decision. It was a government decision as to whether this information should be published or not. But, we felt, as part of the ….

Lord Gordon of Strathblane: Sorry, it was your document, though, wasn’t it?

Mr Purvis: No, it was actually a PWC document.

Lord Gordon of Strathblane: It was commissioned by you.

Mr Purvis: Commissioned by us, yes.

Lord Gordon of Strathblane: Surely, it would be your decision to publish.

Mr Davies: We were asked to commission it by the Government. We then commissioned it from PWC with a lot of input from various government departments and then submitted it to the Secretary of State.

Chairman: So you decided not to publish it.

Baroness McIntosh of Hudnall: Who owns it?

Mr Purvis: Whenever you commission a document from an outside source, in a sense the ownership of the detail must lie with the people who actually did the work, but, in a sense, when you commission it, obviously you commission it with a purpose and the purpose was to give it to the Government.

Baroness McIntosh of Hudnall: With respect, that is not necessarily true.

Mr Purvis: No, there are options.

Baroness McIntosh of Hudnall: I have work commissioned from me and it may be, and often is, on the understanding that the ownership of what I produce falls to the person who commissioned it from me.

Mr Purvis: Yes, that’s true, but in terms of the ownership. But in the sense of the responsibility for the detail of the commission, the source of the commission must inevitably take its full share of that. But there are a number of options which apply when these pieces of work are done. On this particular occasion, it was decided in conjunction with the Department that work would be sent to the Department. Perhaps the most important thing is for Peter to respond to your characterisation of the work, but, in a sense, we have not hidden the piece of work. Indeed, I think it is now available to you. Is that right?

Baroness McIntosh of Hudnall: In, as they say, a redacted form.

Chairman: Just to be absolutely clear, the Department asked you to commission the work from PWC. Is that what you are saying?

Mr Purvis: They asked us to commission the work. Did they ask us specifically from PWC?

Mr Davies: Not specifically from PWC.

Chairman: The Department said to Ofcom, “Ofcom, you go and commission this particular work.” Is that the position?

Mr Davies: Yes.

Chairman: You then got the work which then came back to you and then you sent it to the Government and the Government said, “We’re not going to publish this in full.”

Mr Davies: I think they have certainly made it available to various groups. I think consumer groups have had it for some time.

Chairman: Fine. There will be no problem, therefore, in this Committee having the full report.

Mr Davies: I think they have made available the redacted version rather than the full report. The reason for that is some of the numbers in there are commercially sensitive, but there is no reason why the Committee should not have the full report.

Mr Purvis: You certainly have seen the conclusions.

Baroness Howe of Idlicote: I just wonder who has paid for it. Has it come out of your budget?

Mr Davies: Yes.

Baroness Howe of Idlicote: Even more indication of ownership.

Baroness McIntosh of Hudnall: Shall we go back to the questions. We now know why you didn’t publish it. Am I right in thinking that, notwithstanding the fact that you did not publish it, it did influence the Government or is in the process of influencing the Government as far as their policy on digital migration goes?

Mr Davies: I think it is one of the inputs to government thinking, certainly. We were very careful when we sent it to the Secretary of State to make clear what all the caveats were. You are absolutely right, there are a lot of caveats around it. This is a piece of work which is at a very early stage of the process. We were very clear to government that they should not use this as the means of making a decision, but it might help to inform the decision.

Baroness McIntosh of Hudnall: The thing that is slightly troubling – perhaps only to me, but a bit – is that when you see what appears to be evidence that the costs and benefits are, let’s say, finely balanced, or could be, that the drive towards digital migration, one might think, was driven more by the technology than by the needs either of the broadcasters or the consumers. That’s the question that seems to me still to hang in the air. Is this technology-led or is it consumer-led, if we wrap into ‘consumers’ both the people who are the end-users and the people who are using the technology to deliver a service?

Mr Davies: I think that is why there are so many caveats around it, because it needs to be, as you say, consumer-led. So, some of the conditions that would need to be met for the figure to come out positive are that coverage needs to be built out, that the content proposition needs to be right, that a lot of the benefit in there is from additional choice for consumers. That is obviously down to industry to provide. That is not something that either government or Ofcom can do. One of the main caveats was the need to roll out the regional layer [of DAB multiplexes] that we were talking about earlier, to become a new national layer, so providing more choice of mass market stations, if you like. So it is absolutely consumer-driven, but where that leads you, I think it is probably too early to say, and, as you say, it is very finely balanced.

Baroness McIntosh of Hudnall: What about your own impact assessment?

Mr Davies: We haven’t done an impact assessment yet.

Baroness McIntosh of Hudnall: But you have been asked to – correct?

Mr Davies: At some point in the future. I think the Digital Britain report said that we would be asked to do one, but we haven’t been asked to do one yet. Obviously we would need to do that and we would need a much fuller cost-benefit analysis before any final decision was taken.

Baroness McIntosh of Hudnall: So that’s a future thing.