Back to the future of radio – the FM band

Help seemed to have arrived for those consumers who are confused by the contradictory messages they are receiving about DAB radio, digital switchover and the future of FM/AM radio. The government created a ‘hot topic’ web page that addresses these issues in the form of a ‘FAQ’. Does it help clarify things?

The government FAQ states:
* “We support 2015 as a target date for digital radio switchover” but, in the next sentence, it says that 2015 is “not the date for digital radio switchover”;
* “FM will not be ‘switched off’ … and will continue for as long as it is needed and viable” but then it fails to explain the reason the government is calling it ‘switchover’;
* “We believe digital radio has the potential to offer far greater choice and content to listeners” but then it asserts that “quite simply the listener is at the heart of this [switchover] process”;
* “11 million DAB sets [have] already [been] sold” but, in the next sentence, it deliberately confuses ‘DAB radio’ with ‘digital radio’ which, it states, “accounts for around a quarter of all radio listening” [DAB accounts for only 16% of all radio listening];
* “Car manufacturers have committed to fit DAB as standard in all new cars by 2013” but it does not explain that only 1% of cars currently have DAB radio;
* “Some parts of the country are not served well by DAB” but it then admits that “switchover can only occur when DAB coverage matches [existing] FM [coverage].”

Well, that makes everything crystal clear now. Switchover is not switchover. 2015 is the date but is not the date. It is the government that is insisting upon digital ‘switchover’ but it is a consumer-led process. Almost no cars have DAB now but, in 2+ years’ time, magically they all will. In parts of the UK, DAB reception is rubbish or non-existent, but ‘switchover’ will not happen until somebody spends even more money to make DAB coverage as good as FM … even though FM is already serving consumers perfectly well.

Sorry, what was the point of DAB?

While the UK government ties itself in increasingly tighter knots trying to explain the unexplainable, and to justify the unjustifiable, most of the rest of the world carries on regardless, inhabiting reality rather than a fictional radio future. In May 2010, a meeting in St Petersburg of the European Conference of Postal & Telecommunications Administrations considered the future usage of the FM radio waveband [which it refers to as ‘Band II’] in Europe. Its report stated:

“Band II is currently the de facto analogue radio broadcasting band, due to its excellent combination of coverage, quality and low cost nature both in terms of current networks available and receivers in the market. It is well suited to local, regional and national programming and has been successfully used for over forty years now. FM receivers are part of our daily lives and millions of them populate our households. FM radios are cheap to manufacture and for the car industry FM still represents the most important medium for audio entertainment.”

Its report concluded that:
* “Band II is heavily used in all European countries;
* For the current situation the FM services are still considered as satisfactory from the point of sound quality but the lack of frequencies hinders further development;
* There are no wide-spread plans or strategies for the introduction of digital broadcasting in Band II;
* No defined final switch-off dates are given so far.”

Two paragraphs in the 28-page report seemed to sum up the present UK situation:

“The FM band’s ability to provide high-quality stereo audio, the extremely high levels of receiver penetration and the relative scarcity of spectrum in the band combine to make this frequency band extremely valuable for broadcasters.”

“As FM in Band II is currently, and for the foreseeable future, the broadcasting system supporting the only viable business model for radio (free-to-air) in most European countries, no universal switch-off date for analogue services in Band II can be considered.”

In the UK, we have just seen how “extremely valuable” FM radio licences still are to their owners. Global Radio was prepared to promise DAB heaven and earth to Lord Carter to ensure that a clause guaranteeing automatic renewal of its national Classic FM licence was inserted into the Digital Economy Act 2010. It got what it wanted and therefore avoided a public auction of this licence. Then, when expected to demonstrate its faith in the DAB platform, Global sold off its majority shareholding in the national DAB licence and all its wholly-owned local DAB licences.

Now the boot is on the other foot. Having succeeded in persuading the government to change primary legislation to let it keep commercial radio’s most valuable FM licence for a further seven years, Global Radio has now had to argue to Ofcom that analogue licences will become almost worthless in radio’s digital future. Why? In order to minimise the future Ofcom fee for its Classic FM licence. The duplicity is breath-taking.

When it last reviewed its fee for the Classic FM licence in 2006, Ofcom reduced the price massively because, it explained, it took

“the view that the growth of digital forms of distribution meant that the value associated with what was considered to be the principal right attached to the licence – the privileged access to scarce analogue spectrum – was in decline.”

In 2006, Ofcom had published a forecast for the growth of digital radio platforms which has since proven to have been wildly over-optimistic. It had predicted that 42% of listening would be digital by year-end 2009, whereas the outcome was 21%. In 2006, as a result of the steep decline it was forecasting in analogue radio’s usage, Ofcom reduced the cost of Classic FM’s licence fee by 95% from £1,000,000 to £50,000 per annum (an additional levy on the station’s revenues was also reduced from 14% to 6% per annum). The losers were UK taxpayers – the licence fees collected by Ofcom are remitted to the Treasury. The winners were Classic FM’s shareholders, who were gifted a cash cow by Ofcom bureaucrats who misunderstood the radio market.

Fast forward to 2010, and Ofcom is undertaking yet another valuation of how much Classic FM (plus the two national AM commercial stations) will pay during the seven years of its new licence, following the expiry of the current one in September 2011. Has Ofcom apologised for getting its sums so badly wrong in 2006? Of course not. Will it make a more realistic go of it this time around? Well, the signs are not good.

In its consultation document on this issue, Ofcom has repeated the same errors it made in other recent publications about the take-up of digital radio. In Figure 1, Ofcom claims that analogue platforms’ share of all radio listening has fallen from 87% in 2007 to 76% in 2010. This is untrue. As noted in my previous blog entry, listening to analogue radio has remained remarkably static over this time period. Ofcom’s graph has completely ignored the existence of ‘unspecified’ platform listening, the volume of which has varied significantly in different surveys. The graph below plots the actual numbers from industry RAJAR data.

Exactly the same issue impacts the accuracy of Figure 3 in the Ofcom consultation, which purports to show that analogue listening to Classic FM fell from 86% to 72% between 2007 and 2010. Once again, this must be factually wrong. Once again, the volume of ‘unspecified’ listening to Classic FM has simply been ignored and the decline of analogue listening to Classic FM has probably been overstated by Ofcom.

Confusingly, the platform data for Classic FM cited in Figure 3 differ from data in a different Ofcom document [Figure 3.34 on page 33 of The Communications Market 2010] which state that, in Q1 2010, 65% of listening to Classic FM was via analogue, 26% was via digital and 9% was unspecified. In Figure 3, the values for the same quarter are stated as 72%, 28% and 0% respectively. It is impossible for both assertions to be correct.

These inaccuracies have the impact of painting a quite different picture of Classic FM’s transition from analogue to digital listening than the market reality. These matters are not academic. They will have a direct and significant impact on the perceived value of the Classic FM licence over the duration of its next seven-year period. Sensible decisions about the value of the station’s licence cannot be made on the basis of factually inaccurate market data published by Ofcom.

Undeniably, Ofcom is between a rock and a hard place:
* An admittance that, in 2006, Ofcom got its digital radio forecast and its sums badly wrong and, as a result, has already lost the Treasury millions of pounds in radio licence fees, would require humility (and humiliation);
* Not admitting that, in 2006, Ofcom got it wrong would necessitate it to now fix the Classic FM licence fee at the same low rate as in 2006, or even lower, denying the Treasury millions more in lost revenue between 2011 and 2018;
* Increasing the cost of Classic FM’s licence fee would be a tacit admittance by Ofcom that its entire DAB ‘future of radio’ policy is simply not becoming reality and that FM spectrum will still remain “extremely valuable for broadcasters”.

In 2006, the low valuation of Classic FM’s licence fee was built upon a top-down bureaucratic strategy which insisted that the UK radio industry was ‘going digital’, whether or not consumers wanted to or not. Now, it is even more evident than it was then that consumers are not taking up DAB radio at a rate that will ever lead to ‘digital switchover’ (whatever that phrase might mean).

However, reading the Ofcom consultation document, it is also evident that the regulator remains wedded to its digital radio policy, however unrealistic:

“We consider that this [Digital Radio] Action Plan is relevant when considering future trends in the amount of digital listening since it represents an ambition on behalf of the industry and Government to increase the amount of digital listening in the next few years.”

In the real world, Classic FM’s owner understands precisely what the international delegations who met in St Petersburg also knew – FM will remain the dominant broadcast platform for radio. Only the UK government and Ofcom seem not to accept this reality, still trying to go their own merry way, while the rest of Europe has already acknowledged at this meeting that:

* The FM band is “extremely valuable for broadcasters”;
* The FM band is “currently, and for the foreseeable future, the broadcasting system supporting the only viable business model for radio (free-to-air) in most European countries”;
* “No universal switch-off date for analogue services in Band II can be considered.”

[thanks to Eivind Engberg]

Digital Economy Act 2010: a smokescreen for backroom radio ‘deal’

On 8 April 2010 at 1732, the Digital Economy Act was given Royal Assent by Parliament. Who exactly will benefit from the radio clauses in the Act? Certainly not the consumer.

“The passing of the Digital Economy Bill into law is great news for receiver manufacturers,” said Frontier Silicon CEO Anthony Sethill. As explained by Electronics Weekly: “Much of the world DAB industry revolves around decoder chips and modules from UK companies, in particular Frontier Silicon. These firms can expect a bonanza as consumers replace FM radios with DAB receivers.” Frontier Silicon says it supplies semi-conductors and modules for 70% of the global DAB receiver market.

Sadly, the Bill/Act was not really about digital radio at all. For the radio sector lobbyists, it was all about securing an automatic licence extension for Global Radio’s Classic FM, the most profitable station in commercial radio, so as to avoid its valuable FM slot being auctioned to allcomers. The payback on this valuable asset alone easily justified spending £100,000s on parliamentary smooching. It was interesting to see one Labour MP acknowledge the true purpose for all this parliamentary lobbying in the House of Commons debate when he congratulated “[Classic FM managing director] Darren Henley for making a cause of the issue.”

The clauses in the Digital Economy Bill on the planned expansion of DAB radio and digital radio switchover were simply promises that Lord Carter had insisted upon as the radio industry’s quid pro quo for government assistance to Global Radio’s most profitable asset. The existence of this ‘deal’ between Lord Carter and Global Radio was confirmed by Digital Radio Working Group chairman Barry Cox in his evidence to the House of Lords:

“Lord Carter did not like to do [the deal] immediately. As I understand, he wanted to get something more back from the radio industry. I think there is a deal in place on renewing these licences, yes.”

However, the quid pro quo promise to develop DAB radio will never come to fruition. Now that Global Radio has got what it wanted, over the coming months, the radio industry’s commitment to continue with DAB will inevitably be rolled back. Every excuse under the sun will be wheeled out – the economy, the expense, the lack of industry profitability (having spent nearly £1billion on DAB to date), consumer resistance, the regulator, the Licence Fee, the government (old and new), the car industry, the French, the mobile phone manufacturers, whatever …….

The reasons that digital radio migration/switchover will never happen are no different now than they were before the Digital Economy Bill was passed into law. For the consumer, who seems increasingly unconvinced about the merits of DAB radio, this legislation changes nothing at all. Those reasons, as itemised in my written submission to the House of Lords in January 2010, are:

* The characteristics of radio make the logistics of switchover a very different proposition to the television medium;
* The robustness of the existing analogue FM radio broadcasting system;
* Shortcomings of the digital broadcast system, ‘Digital Audio Broadcasting’ [DAB], that is intended to replace analogue radio broadcasting in the UK.

More specifically:

1. Existing FM radio coverage is robust with close to universal coverage:
* 50 years’ development and investment has resulted in FM providing robust radio coverage to 98.5% of the UK population.

2. No alternative usage is proposed for FM or AM radio spectrum:
* Ofcom has proposed no alternate purpose for vacated spectrum;
* There is no proposed spectrum auction to benefit the Treasury.

3. FM/AM radio already provides substantial consumer choice:
* Unlike analogue television, consumers are already offered a wide choice of content on analogue radio;
* 14 analogue radio stations are available to the average UK consumer (29 stations in London), according to Ofcom research.

4. FM is a cheaper transmission system for small, local radio stations:
* FM is a cheaper, more efficient broadcast technology for small, local radio stations than DAB;
* A single FM transmitter can serve a coverage area of 10 to 30 miles radius.

5. Consumers are very satisfied with their existing choice of radio:
* 91% of UK consumers are satisfied with the choice of radio stations in their area, according to Ofcom research;
* 69% of UK consumers only listen to one or two different radio stations in an average week, according to Ofcom research.

6. Sales of radio receivers are in overall decline in the UK:
* Consumer sales of traditional radio receivers are in long-term decline in the UK, according to GfK research;
* Consumers are increasingly purchasing integrated media devices (mp3 players, mobile phones, SatNav) that include radio reception.

7. ‘FM’ is the global standard for radio in mobile devices:
* FM radio is the standard broadcast receiver in the global mobile phone market;
* Not one mobile phone is on sale in the UK that incorporates DAB radio.

8. The large volume of analogue radio receivers in UK households will not be quickly replaced:
* Most households have one analogue television to replace, whereas the average household has more than 5 analogue radios;
* The natural replacement cycle for a radio receiver is more than ten years.

9. Lack of consumer awareness of DAB radio:
* Ofcom said the results of its market research “highlights the continued lack of awareness among consumers of ways of accessing digital radio”.

10. Low consumer interest in purchasing DAB radio receivers:
* Only 16% of consumers intend to purchase a DAB radio in the next 12 months, according to Ofcom research;
* 78% of radio receivers purchased by consumers in the UK (8 million units per annum) are analogue (FM/AM) and do not include DAB, according to GfK data.

11. Sales volumes of DAB radio receivers are in decline:
* UK sales volumes of DAB radios have declined year-on-year in three consecutive quarters in 2008/9, according to GfK data.

12. DAB radio offers poorer quality reception than FM radio:
* The DAB transmission network was optimised to be received in-car, rather than in-buildings;
* Consumer DAB reception remains poor in urban areas, in offices, in houses and in basements, compared to FM.

13. No common geographical coverage delivered by DAB multiplexes:
* Consumers may receive only some DAB radio stations, because geographical coverage varies by multiplex owner.

14. Increased content choice for consumers is largely illusory:
* The majority of content available on DAB radio duplicates stations already available on analogue radio.

15. Digital radio content is not proving attractive to consumers:
* Only 5% of commercial radio listening is to digital-only radio stations, according to RAJAR research;
* 74% of commercial radio listening on digital platforms is to existing analogue radio stations, according to RAJAR research.

16. Consumer choice of exclusive digital radio content is shrinking:
* The majority of national commercial digital radio stations have closed due to lack of listening and low revenues;
* After ten years of DAB in the UK, no digital radio station yet generates an operating profit.

17. Minimal DAB radio listening out-of-home:
* Most DAB radio listening is in-home, and DAB is not impacting the 37% of radio listening out-of-home;
* Less than 1% of cars have DAB radios fitted, according to DRWG data.

18. DAB radio has limited appeal to young people:
* Only 18% of DAB radio receiver owners are under the age of 35, according to DRDB data;
* DAB take-up in the youth market is essential to foster usage and loyalty.

19. DAB multiplex roll-out timetable has been delayed:
* New DAB local multiplexes licensed by Ofcom between 2007 and 2009 have yet to launch;
* DAB launch delays undermine consumer confidence.

20. Legacy DAB receivers cannot be upgraded:
* Almost none of the 10 million DAB radio receivers sold in the UK can be upgraded to the newer DAB+ transmission standard;
* Neither can UK receivers be used to receive the digital radio systems implemented in other European countries (notably France).

21. DAB/FM combination radio receivers have become the norm:
* 95% of DAB radio receivers on sale in the UK also incorporate FM radio;
* 9 million FM radios are added annually to the UK consumer stock (plus millions of FM radios in mobile devices), compared to 2 million DAB radios, according to GfK data.

22. DAB carriage costs are too high:
* Carriage costs of the DAB platform remain too costly for content owners to offer new, commercially viable radio services, compared to FM;
* Unused capacity exists on DAB multiplexes, narrowing consumer choice.

23. DAB investment is proving too costly for the radio industry:
* The UK radio industry is estimated to have spent more than £700m on DAB transmission costs and content in the last ten years;
* The UK commercial radio sector is no longer profitable, partly as a result of having diverted its operating profits to DAB.

24. DAB is not a globally implemented standard:
* DAB is not the digital radio transmission standard used in the most commercially significant global markets (notably the United States).

These factors make it unlikely that a complete switchover to DAB digital terrestrial transmission will happen for radio in the UK.

With television, there existed consumer dissatisfaction with the limited choice of content available from the four or five available analogue terrestrial channels. This was evidenced by consumer willingness to pay subscriptions for exclusive content delivered by satellite. Consumer choice has been extended greatly by the Freeview digital terrestrial channels, many of which are available free, and the required hardware is low-cost.

Ofcom research demonstrates that there is little dissatisfaction with the choice of radio content available from analogue terrestrial channels, and there is no evidence of consumer willingness to pay for exclusive radio content. Consequently, the radio industry has proven unable to offer content on DAB of sufficient appeal to persuade consumers to purchase relatively high-cost DAB hardware in anywhere near as substantial numbers as they have purchased Freeview digital television boxes.

Additionally, it has taken far too long to bring DAB radio to the consumer market, and its window of opportunity for mass take-up has probably passed. Technological development of DAB was started in 1981, but the system was not demonstrated publicly in the UK until 1993 and not implemented for the consumer market until 1999. In the meantime, the internet has expanded to offer UK consumers a much wider choice of radio content than is available from DAB.

In this sense, DAB radio can be viewed as an ‘interim’ technology (similar to the VHS videocassette) offering consumers a bridge between a low-tech past and a relatively high-tech future. If DAB radio had been rolled out in the early 1990s, it might have gained sufficient momentum by now to replace FM radio in the UK. However, in the consumer’s eyes, the appeal of DAB now represents a very marginal ‘upgrade’ to FM radio. Whereas, the wealth of radio content that is now available online is proving far more exciting.

The strategic mistake of the UK radio industry in deciding to invest heavily in DAB radio was its inherent belief in the mantra ‘build it and they will come.’ Because the radio industry has habitually offered content delivered to the consumer ‘free’ at the point of consumption, it failed to understand that, to motivate consumers sufficiently to purchase relatively expensive DAB radio hardware would necessitate a high-profile, integrated marketing campaign. Worse, the commercial radio sector believed that compelling digital content could be added ‘later’ to DAB radio, once sufficient listeners had bought the hardware, rather than content being the cornerstone of the sector’s digital offerings from the outset.

In my opinion, the likely outcome is that FM radio (supplemented in the UK by AM and Long Wave) will continue to be the dominant radio broadcast technology. For those consumers who seek more specialised content or time-shifted programmes, the internet will offer them what they require, delivered to a growing range of listening opportunities integrated into all sorts of communication devices. In this way, the future will continue to be FM radio for everyday consumer purposes, with personal consumer choice extended significantly by the internet.

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.

[…]

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.

Radio in the Digital Economy Bill: three more amendments tabled

The following amendments to the Digital Economy Bill will be considered at Committee Stage in the House Of Lords, scheduled for 20 December 2009 and 6, 12 , 18 January 2010.

CLAUSE 30: DIGITAL [RADIO] SWITCHOVER

What does Clause 30 do? According to the government’s Explanatory Notes:

“Clause 30 allows the Secretary of State to give notice to OFCOM of a date by which digital switchover must occur for services specified in the notice. In making a decision to nominate a switchover date, the Secretary of State must take account of any reports by the BBC and OFCOM about the future of analogue broadcasting.
The date for digital switchover is the date after which it will no longer be appropriate for the service in question to be broadcast in analogue form.
The Secretary of State may nominate different switchover dates for different types of radio services and may withdraw a nomination of a switchover date.
After a switchover date has been set, OFCOM are required to vary the licence periods of all licences for the services specified by the Secretary of State so that they end on or before that date. However, OFCOM cannot shorten the duration of a licence so that it would end less than 2 years from the date on which OFCOM give notice of the variation, unless the licence-holder consents.
OFCOM may not vary a licence period so that it ends after the switchover date.”

A.      Lord Clement-Jones and Lord Razzall have proposed an amendment to Clause 30:

Page 33, line 19, at end insert—
“(2A) The Secretary of State may not nominate a date for switchover—
(a) unless it can be established that all local commercial radio stations will have the opportunity to move to digital audio broadcasting,
(b) until the proportion of homes in each of the four nations of the UK able to receive—
(i) national BBC services,
(ii) national commercial radio services,
(iii) local BBC services, and
(iv) local commercial radio radio services [sic],
via digital audio broadcasting is equal to the proportion able to receive them via analogue broadcasting.
(c) until digital audio broadcasting accounts for at least 67 per cent of all radio listening, and
(d) until digital audio broadcasting receivers are installed in 50 per cent of private and commercial vehicles.”

Page 33, leave out line 21 and insert—
“(a) must ensure that all commercial and BBC radio services broadcasting in the UK have the opportunity to switchover on the same date,”

Page 34, line 1, leave out “2” and insert “4”

In (my) plain English, this amendment would prevent the government from announcing a single digital radio switchover date until:
• Listening via DAB accounts for two-thirds of all radio listening
• DAB radios are installed in 50% of cars
• 50% of households in each nation have access to a DAB radio
• All BBC and commercial stations, large and small, have been offered the opportunity to migrate from analogue to DAB.
In practice, none of these criteria could possibly be met within the next decade, which would effectively scupper the notion of a digital switchover date. Additionally, a four-year termination notice period would be inserted into renewed commercial radio licences (instead of the government’s proposed two-year period).

B.      Lord Cotter has proposed a separate amendment to Clause 30:

Page 33, line 33, at end insert—
“97AA Disposal and recycling of domestic analogue radios
(1) Following a decision to give notice to OFCOM under section 97A of a date for digital switchover, the Secretary of State must devise a scheme for the disposal and recycling of domestically owned analogue radios.
(2) The scheme must include provision for a financial incentive for domestic owners of analogue radios to purchase a radio suitable for digital audio broadcasting following disposal and recycling of their analogue radios.
(3) The financial incentive must be based on any profit made from the disposal and recycling of analogue radios and must not be derived from public funds.”

In plain English, consumers will have to be paid something for all those analogue radios they will be expected to no longer use.

CLAUSE 31: RENEWAL OF NATIONAL RADIO LICENCES

What does Clause 31 do? According to the government’s Explanatory Notes:

“Clause 31 allows the further renewal of national analogue licences for a period of up to seven years. All of these licences have already been granted a renewal of 12 years under the powers in section 103A of the Broadcasting Act 1990 (“the 1990 Act”). ……”

Lord Clement-Jones and Lord Razzall have proposed an amendment to Clause 31:

“The above-named Lords give notice of their intention to oppose the Question that Clause 31 stand part of the Bill.”

In plain English, this amendment would delete the proposal in the Bill to automatically renew the three national commercial radio licences for a further seven years. Instead, the licences would have to be auctioned individually to the highest bidder, as required by existing legislation. The greatest impact would be on Classic FM, whose licence would have to be advertised by Ofcom in 2010, if this amendment were passed. Its owner, Global Radio, would be faced with Hobson’s choice – either to bid a significantly higher amount (maybe £10m+ per annum rather than the present £2m+ per annum) to win/retain the licence, thus diminishing its ‘cash cow’ status, or to lose the single most profitable licence in commercial radio. Either option might seriously undermine Global Radio’s ability to trade profitably and to service its debt.