Tag: commercial radio

Radio in the Digital Economy Bill: the tail wagging the dog

The government’s forthcoming Digital Economy Bill will be the most significant legislation for the UK radio industry since the passage of the Communications Bill in 2002. Published at the end of November 2009, the Digital Economy Bill will propose ‘primary’ legislation that sets out a new regime for the licensing and regulation of commercial radio in all its forms – national analogue stations, local analogue stations and local DAB multiplexes.

The main thrust of the new legislation for commercial radio was contained in the Digital Britain final report published in June 2009. According to the Department of Culture Media & Sport, Lord Carter’s almost year-long consultation was intended to set out “the Government’s strategic vision for ensuring that the UK is at the leading edge of the global digital economy” and would introduce “policies to maximise the social and economic benefits from digital technologies”. Indeed, some of the changes proposed for the radio industry are forward-looking and designed to place the sector in a multimedia future in which it could survive and thrive.

However, some of the recommended changes to existing radio legislation are there only because parts of the commercial radio industry have lobbied for them to be there. At the time, these interested parties might have claimed that such changes would be beneficial to the commercial radio industry as a whole. Increasingly, other parts of that industry have realised that some Digital Britain proposals were lobbied for inclusion only because they suit the interests of a particular player, offering little or no benefit to the wider industry.

Worse, one proposal ties the future of the whole industry to a dangerous poker game with the government which commercial radio is unlikely to win. This is the Digital Britain proposal [page 102, paragraph 44] to automatically extend the existing licenses of the three national commercial radio stations for a further seven years. Why is this proposal there, and what does it have to do with the UK’s digital future? What price is the commercial radio industry being forced to pay for its inclusion?

During the Digital Britain consultation period, Global Radio had lobbied intensively to have the licence of its national analogue station, Classic FM, automatically renewed beyond its 2011 expiry date. In January 2009, I had written:

Classic FM’s licence expires on 30 September 2011 and it cannot be automatically renewed. This is a big problem. Whereas local commercial radio licences are still awarded (and re-awarded) by Ofcom under a ‘beauty contest’ system, national commercial radio licences are not. The system for national commercial radio licences is simple. Sealed bids are placed in envelopes. Ofcom opens the envelopes. The bidder willing to pay the highest price wins the licence. That’s it. This system is enshrined in legislation. Even if Ofcom wants a different system, it cannot change it without legislation.

As Classic FM’s new owner, Global Radio definitely wants a different system that will enable it to hang on to this most valuable asset. Global has been busy bending the ears of anybody and everybody who it might be able to persuade to interpret the broadcasting rules in a way that lets it keep Classic FM after 2011. Even Ofcom has had its lawyers busy examining the legislation to see what flexibility it has to interpret the rules in a way that might maintain the status quo.

Unfortunately, the legislation in the Broadcasting Act 1990 is quite specific:
“[Ofcom] shall, after considering all the cash bids submitted by the applicants for a national licence, award the licence to the applicant who submitted the highest bid.”

The solution for Global Radio was to lobby, lobby and lobby some more for the current legislation detailing the licensing system for national commercial radio to be revoked, changed, amended – whatever needed to be done to ensure that Global could hang on to its valuable Classic FM licence. When Digital Britain was published, it was evident that the phone calls and meetings had paid off handsomely. Lord Carter had listened and offered a solution – a significant change to primary legislation that would allow Global Radio to retain its Classic FM licence for a further seven years, replacing the existing legal requirement that it be re-awarded by Ofcom to the highest bidder in an auction in 2010.

Why exactly is Global Radio so desperate to hang on to Classic FM?

Firstly, Classic FM is a ‘cash cow’ and has always been the most successful of the UK’s three national commercial radio stations launched in the early 1990s. It attracts 40m hours listening per week which, at current sector yields, would earn it around £50m per annum revenues. However, its earning power is further enhanced by the affluence of its audience. Of its hours listened, 66% derive from ABC1 adults, 85% from ‘housewives’, and 68% from adults aged 55+, a target age group that very little commercial radio reaches. As a result, Classic FM is likely to be attracting more than 10% of total UK commercial radio revenues, significant for a single player out of 300 commercial stations. [RAJAR, Q3 2009]

Global Radio overpaid to acquire GCap Media for £375m in 2008. The challenge for Global is that the radio business is dominated by fixed costs. In other words, however many listeners an individual station has within its service area, that station’s costs are relatively static. Many of the stations in Global’s portfolio are medium-sized local operations, whereas Classic FM is a ‘giant’ with national coverage. Its profit margin probably far outstrips every other commercial station in the UK. Classic FM alone probably generates more operating profit than all Global’s other radio stations added together.

Classic FM occupies a unique position in the radio market (the only competitor in the classical music format is BBC Radio Three) and its market power has proven relatively stable over time, with a current listening share of 3.7%, only slightly down from 4.1% a decade ago. By comparison, GCap Media’s prime local radio assets also acquired by Global Radio have lost immense market power over the same period – the market share of London’s Capital FM down from 13.0% to 6.2%, and Birmingham’s BRMB down from 17.1% to 4.8%, for example. Thus, Classic FM is very much a ‘rock’ at a time many local commercial stations occupy a ‘hard place’. [RAJAR, Q3 2009 & Q3 1999]

Global Radio desperately does not want to partake in an auction for the Classic FM licence. It might under-bid and lose. It might over-bid and win. Either outcome would be a disaster, the former losing it the ‘crown jewels’, the latter allowing it to keep the licence but at a price that could lose the station its ‘cash cow’ status. Because there has been no auction of a national commercial radio licence auction since the early 1990s, nobody knows what the winning bid price might be. Worse, in the 1990s, the field had been open only to European Union companies. Legislation since then has opened up the bidding to the global market. Thus, a licence auction would be an extremely dangerous game for Global to play and, if it lost, would force it to write off its entire Classic FM balance sheet valuation only two years after it acquired the station.

Global Radio has a bargain on its hands in the current Classic FM licence. Not only does this one radio station attract more than a tenth of all commercial radio revenues, but its Ofcom-issued broadcast licence costs very little by market standards. The present cost is fixed at £50,000 per annum + 6% of revenues, probably amounting to around £3m per annum, not a huge expense for a station that generates around £50m. Why is the licence fee so little?

It is the regulator (initially the Radio Authority, now Ofcom) that sets the price of the licence, in the first instance according to the amount that the applicant has bid in its licence application to win the right to broadcast. The price of the licence is collected by the regulator but remitted directly to the Treasury in payment for the scarce FM radio spectrum used by the station.

In 1991, when it won the licence at auction, Classic FM had bid £670,000 per annum plus 14% of its revenues. In 1999, the Radio Authority increased this to £1m per annum plus 14% of revenues. However, in 2006, Ofcom reviewed the Classic FM licence payment and slashed it to £50,000 per annum plus only 6% of revenues. As the table below shows (using estimated amounts because the advertising revenues generated by Classic FM are not published), Global Radio purchased Classic FM just at the time when its licence started to cost significantly less than in previous years.

Why did Ofcom decide to reduce the cost of Classic FM’s licence so substantially? Because Ofcom believed that the analogue FM spectrum used by Classic FM would become less and less important with time, as listening via digital platforms, mostly DAB, rapidly replaced FM listening. Ofcom’s own forecast, made in November 2006, anticipated that digital platforms would account for 60% of all radio listening by 2011, the date when Classic FM’s licence expires. Quite how this justified a 95% cut in the licence fee, alongside a 57% cut in the revenue charge, was not explained by Ofcom. Essentially, Ofcom offered Classic FM’s owner the bargain analogue radio licence deal of a lifetime.

Ofcom’s forecast of digital radio listening turned out to be wildly over-optimistic, appearing to be based more on wishful thinking than on available evidence. Whilst Ofcom had forecast that digital platforms would account for 42% of radio listening by year-end 2009, industry data show the present outcome to be 21% for all radio and 20% for commercial radio. [RAJAR Q3 2009]

The inaccurate Ofcom forecast for consumer uptake of digital radio (never subsequently updated publicly) merely confirmed the belief within a large part of the radio industry that digital radio was about to exhibit exponential growth. This Ofcom forecast, accompanied by supporting comments from the regulator (for example, six months later, Ofcom director of radio Peter Davies said: “we are potentially at a Freeview moment with digital radio”), proved significant in misleading stakeholders into believing that the death of analogue radio was just around the corner. The regulator could not have got it more wrong.

Ofcom’s inability to forecast the radio market it regulated has resulted in a loss of millions of pounds of potential commercial radio licence fees for the Treasury, not only from Classic FM, but from the other two national commercial stations whose licence fees were also reduced. By Ofcom’s own estimate, under the previous formula the three stations combined had paid £7m per annum, but were now being charged less than £1.5m per annum. Over the four-year period until the three stations’ licences expire in 2011/2, the total revenue foregone to the Treasury will be around £22m. The Digital Britain proposal to extend these national radio licences for a further seven years, if the present licensing payment scheme is continued, would increase the total potential revenue lost to the Treasury to more than £50m.

Neither RAJAR nor Classic FM release data publicly showing the proportion of the station’s listening derived from digital platforms, but it presently seems unlikely that the station would voluntarily give up using FM for broadcasts after 2011 (when the present licence expires), and probably not even after 2018 (the revised expiry date if Digital Britain’s proposed seven-year licence extension were legislated). Effectively, the Digital Economy Bill would merely enable the largest player in the commercial radio sector not only to hang on to its ‘cash cow’, but to continue paying its present low licence payments to the Treasury for the FM radio spectrum it uses.

The losers from this arrangement are:
• taxpayers who, thanks to Ofcom’s poor forecasting, are now effectively subsidising the FM spectrum used by the commercial radio sector’s single most profitable asset
• the rest of the commercial radio sector who will never be able to match Classic FM’s operating margin because their own costs and revenues are considerably more constrained
• new entrants to the radio sector who wish to bid for the Classic FM licence when it expires in 2011 and are willing to pay a realistic, market price for the licence, but will be denied the opportunity by the government’s offer of an automatic licence renewal.

Politically, the proposals in the Digital Britain final report could not have isolated Classic FM as the sole commercial radio station to have its licence automatically renewed through new legislation. So the renewal proposal was extended not only to all three national commercial stations, but also to all local analogue stations that are broadcasting on the DAB platform. In July 2009, I suggested that this Digital Britain proposal was still iniquitous to the remaining local commercial stations that cannot or will not broadcast on DAB. It appears now that the Digital Economy Bill is likely to extend the proposed licence extension to all analogue commercial radio stations (whether or not they simulcast on DAB).

So every analogue commercial radio station will now be offered an automatic licence extension! Is that not a universal ‘good thing’? Well, no, because there is rarely a ‘free lunch’. Lord Carter was determined to extract a price from the entire commercial radio sector for bowing to persistent demands from Global Radio for new legislation to renew its Classic FM licence. The strings he attached are related to the government’s insistence that the whole radio industry use DAB as its main broadcast platform. This is why two entirely unrelated issues – Classic FM’s licence and DAB consumer uptake – have now become so intertwined in the proposed legislation.

In the seven-year renewal offered to every commercial radio licence, the government proposes to insert a clause that will allow it (via Ofcom) to terminate that licence extension with two years’ notice if the radio industry as a whole (commercial radio and the BBC) does not achieve these goals:
• 50% of radio listening to be via digital platforms by 2013
• DAB transmission infrastructure to be upgraded significantly.

It is a ‘carrot and stick’ approach: ‘We the government will give you all a free licence extension if you collectively promise to make DAB work. But, if we find you do not succeed in making DAB work, we will take your licences (and hence your businesses) away altogether’. The problem here is that the buck has been passed on to a wide and varied constituency of 300 commercial radio stations, many of whom have very little or no control over whether DAB can be turned into a successful delivery platform.

It is the entire commercial radio industry that will be expected to potentially pay the price with its own lives in exchange for changes to primary legislation that allow Global Radio to hang on to its ‘cash cow’ Classic FM licence. What seems even more unfair is that the entire DAB platform is owned and controlled by a mere handful of the largest UK commercial radio companies who, between them (and the BBC and transmission company Arqiva), wield the power to make DAB a success or failure.

If the largest commercial radio owner, Global Radio, had demonstrated incredible confidence in the DAB platform, maybe it might instil confidence in the rest of the radio sector that DAB could be made a consumer success by 2013. However, although Global Radio has regularly talked the DAB talk, it has hardly walked the DAB walk. Global had been the largest owner of commercial DAB infrastructure until, in April 2009, it sold its 63% stake in the national DAB multiplex and its wholly owned group of local DAB multiplexes. At the same time, it has sold or closed all but two of its digital-only radio stations, which exist now only as music jukeboxes.

Of course, for Global Radio, none of the DAB ‘strings’ really matter. It thinks it has got exactly what it wanted in the forthcoming Digital Economy Bill – to keep its valuable Classic FM licence. This is its significant short-term goal and may be the only thing that can keep the group afloat financially. Who knows? If the media ownership rules are relaxed, Global might be able to sell its entire radio business to Murdoch or RTL or MTG before the 2013 date of judgement on DAB is even reached.

For a while, many in the industry had seemingly been happy to line up behind Global Radio, uncertain of their own futures and relatively uninformed on these complex regulatory and legislative issues. But the truth is dawning on many – what is good for Global Radio is not necessarily good for the rest of the commercial radio industry. The future of commercial radio should remain in the collective hands of the industry itself, not be determined by one individual owner. And the issue of radio licence renewals should not have to be linked to the future performance of the DAB platform.

Digital Britain and the Digital Economy Bill offer a rare opportunity to update the regulatory regime for the entire commercial radio sector, rather than merely to offer one company a ‘phone a friend’ millionaire lifeline.

[For the purpose of transparency, I contributed sector analysis to two documents that were part of the Digital Britain process – a pre-consultation overview and the regulation of local radio.]

[Note to the table: the estimated costs of the Classic FM licence fee are simplified. Firstly, the cash amount paid increases annually from £1,000,000 in 1999 to £1,161,000 in 2006 and subsequently, in line with the Retail Price Index. The £50,000 cash payment will similarly be adjusted. Secondly, the revenue percentage paid is applied only to “advertising and sponsorship revenue attributable to national analogue listening hours”, but this data is not published, so 100% of estimated revenues have been assumed to derive from the FM platform.]

DAB radio: "let us get on this horse or get off it"

House of Commons Culture, Media & Sport Committee
“The future for local and regional media”
27 October 2009 in the Thatcher Room, Portcullis House

Andrew Harrison, chief executive, RadioCentre
Travis Baxter, managing director, Bauer Radio
Steve Fountain, head of radio, KM Group

[excerpts]

Mr Tom Watson: Can I ask you about Digital Britain and the Digital Britain Report? Do you think the report gave a good way forward for the commercial sector to journey out of its current troubles?

Mr Baxter: Perhaps I could ask Andrew to give an overview on that and then maybe we can give our respective views?

Mr Harrison: To give an overview, I think the short answer to that is “yes”. One of the fundamental issues the sector faces right now is the appalling cost of dual transmission. Ultimately, right now, this is a small sector and very many of our stations are simultaneously paying for the cost of analogue and digital transmission. That clearly does not make any financial sense. What we advocated for in Digital Britain was a pathway for all stations to end up with a very clear plan of what is the single transmission platform for them. That led, as I said in my opening remarks, to three very complementary tiers of the commercial radio offer. The first tier is a strong national offer on digital to compete with the BBC, and that is critical for the sector because the truth is that the FM spectrum is full. I am sure all of you will know from some of the other conversations we have had before that the BBC dominates the gift of analogue spectrum. It has four national FM stations; we only have one with Classic FM. For the sector to compete and capture its share of national advertising revenue, the ability to have a national digital platform I think is critical. As we then had the conversations with Digital Britain, I think it became very clear to all of us that you cannot just migrate national stations to digital and leave all of the large metropolitan local stations, like City in Liverpool for example or Metro in Newcastle, all the BBC’s local stations, as analogue only. The listeners to those stations will want the functionality, experience and benefits that come with digital. It is then very important that we have a second tier of the large local and regional stations which also migrate to digital. Critically, however, that nevertheless leaves an important third tier, which are the smaller or the rural stations for which either DAB coverage is currently not present – there is just not the transmitter build-out in some of the rural areas – or for which it is likely to be prohibitively expensive going forward. That sector equally needs clarity and that sector being able to stay on FM alongside community radio we feel gives a very balanced ecology where the sector has the most opportunity to compete and the lowest cost base because each station can ultimately choose whether it is on one transmission methodology, i.e. digital, or another, analogue. At the moment, we are in limbo where stations are paying for both but the profitability of the sector is fragile and there is not a plan. So we absolutely welcome the beginnings of that plan, which we recognise is the start of what is going to be a long and difficult journey as stations migrate and decide if their future is on digital only or their future is on analogue. The quicker we can move the industry there, clearly the better for the fragile economics of the sector.

Mr Baxter: Perhaps I can encapsulate some of the things we sent in to the Carter Review. Our business view generally is that the future is digital. There is hardly the need for me to make that clear to you. Our view has been for the last ten years that we will look at all platforms as we develop our business. We have successful radio stations, primarily operating for example off the audio channels on the Freeview digital television system. However, within that we think it is of real value for radio to have a bespoke platform and the one that is available to us that is a bespoke broadcast platform is DAB. It has, however, taken 12 to 13 years of very slow development for that platform to get to its current state. Therefore, our proposition to Carter’s Review was: let us get on this horse or get off it. We think we should get on it and put every possible energy we can over the next view years into getting consensus, direction and pace into the whole process of take-up, like there has not been during the last 12 years. If that can be achieved, it will produce a new resonance for commercial radio as a whole, indeed for the whole of radio. It will help position radio more effectively in the fragmenting media landscape we all have to deal with and give us an opportunity, as Andrew said, of clarifying our investment levels around platforms where currently we are having to pay for two when, in a future where either one is successful, we would only have to pay for one, thereby allowing resource to be put into developing content and other things around our business.

Mr Fountain: KM Group does have a digital platform. It is currently costing us over £100,000 a year and we get absolutely nothing back from it. I think the company at the time, six years ago, took the view that they wanted to be a part of the future. Circumstances since have not really helped them to be able to develop that particular medium. I think we too take the view that we would want to be part of a digital platform going forward, but there are a number of issues that would need to be overcome, not least of all the cost of entry and also in our particular case our DAB coverage and the coverage of our FM stations is not mirrored. We have better coverage right now on our FM platforms than we do on our one single DAB coverage. The problem around the coast, if you take that from Medway right the way round perhaps as far down as Rye, around the Kent coast and just touching into Sussex, is such that DAB does not actually reach into large parts of that coastal area.

Mr Watson: Would DAB+?

Mr Fountain: I could not answer that because I do not actually know.

Mr Harrison: No, there is no difference in terms of the coverage for DAB or DAB+. DAB+ is just a different method of compressing the signal so you can actually get more signal down the pipe, if you like; you tend to get more stations, but it does not actually affect the coverage.

Mr Fountain: You can see that in order for us to extend the coverage of DAB, there is clearly a cost involved, and there is also a conversation to be had between Ofcom and the French communication authorities as well.

Mr Watson: Presumably you are all relatively happy with what is quite a demanding timetable outlined in Digital Britain if your view is that we should just get on with it and do it?

Mr Harrison: I think you have expressed it exactly right. The timetable is demanding. I think it is set deliberately as being demanding. Digital Britain does not set a date for switchover. What it sets are two criteria that it says are axiomatic to be hit before switchover can be contemplated: one on listener levels and one on coverage, both of which we support. The aspiration in Digital Britain is to try and hit those two gates, if you like, by the end of 2013. On what Travis was saying earlier on, we think that is absolutely right, that the industry now works terrifically hard together, alongside the BBC and alongside the Government and the regulator to do our very best to hit those criteria. Once we then hit the criteria, the Digital Britain report identifies that it will probably take a couple of years from the criteria being hit before we could actually contemplate switchover. That is aggressive but we think it is appropriately aggressive against the context of an industry that is clearly struggling financially now, and the vast majority of my members are highlighting the cost of dual transmission as the single biggest cost issue that they face and self-evidently one that could be eliminated the quicker we can get to a decision one way or the other.

Mr Watson: May I ask you a bit of a left field question? You are quite confident that we should move to digital radio quite quickly. How confident are you that consumers will want to make that journey and that they will not migrate to internet, radio or choose to listen to live streaming sites like Spotify?

Mr Harrison: There are two different points there. We are quite confident, as you say, about the movement to digital, but purely because what the Digital Britain Report sets up are consumer-led criteria to drive that change. The criteria are absolutely that we will not move until coverage is built out to match FM. It would be absolutely suicidal for the industry to switch people off who currently listen and enjoy radio services, so it is axiomatic that we have to build coverage out. Secondly, the criterion is that listenership to digital has to be that the majority of all listening has to be to digital before you would contemplate switchover. We are not going to rush into this without being led by the consumer. What we are trying to do, as Travis said earlier, is inject some pace, momentum and energy into the process. If we wait for the natural replacement of sets and the natural progression of DAB – it has taken a long time to get to the listener levels we have right now, we still have all of the BBC’s services for example available on analogue – it is going to be very difficult to kick start the progression. We are very comfortable but we are comfortable because it is led by the consumer. The second part of your question is: are we worried about competing services? We are absolutely. I think there is a whole generation of new entrants into the market – Spotify, Last.fm, Pandora – available on-line, all of which are unregulated and against which we are competing for listeners and for advertising revenue. When you have a small, heavily regulated, constrained local radio sector competing with an unregulated world-wide series of music offerings, that is one of the challenges we have to face. We are, however, absolutely committed to the importance of a broadcast transmission methodology for digital. That is not to say that the internet will not be an important complement to that but our business model is based on a broadcast signal of one signal to a wider audience. There is very little evidence so far that on-line music offerings are in themselves profitable business models. For UK citizens and consumers, for our listeners, we think it is absolutely critical that radio remains free at the point of delivery. That has been one of its great strengths ever since the BBC was founded in the 1920s. Of course at the moment, although as I heard this morning the cost of broadband is potentially down to £6 a month, nevertheless, to access any internet-delivered service, you have to pay an ISP connection. That may change but I suspect we are a long way away from that.

[edit]

Mr Watson: Do you think the car industry is sufficiently prepared for the digital revolution?

Mr Baxter: I think we have had some very encouraging conversations with the motor industry over the last six months. The response to Carter’s work during the beginning of this year has helped galvanise interest in that area quite significantly, so I think there is a very different aura around those discussions than there was 12 months ago.

Mr John Whittingdale, Chairman: Just on the cost of the digital upgrade, what is your best estimate of how much it is going to cost?

Mr Harrison: I was on the working party, the Digital Radio Working Group, that was the forerunner for Digital Britain. That working group identified the cost of build-out, the one-off capital cost, as between £100 million and £150 million. That is quite a spread. The reason for the spread ultimately depends on what degree of coverage build-out you get to from equalling FM to universality and at what signal strength. Of course, you get real diminishing returns as you go to the very rural areas. That is the reason for the spread. There has been a lot of debate about that number. In reality, the way we have tended to look at it is that if you take that spread of £100-£150 million over the 12 year period of a licence, which is typically when a radio station is licensed or a multiplex is licensed, and if you said for round figures it is £120 million, that is £10 million a year for the licence period. I think it was £10 million a year that the Secretary of State quoted for example last week. Funding that we have always felt is actually absolutely critical to the build-out and conversation to Digital Britain. The commercial sector is absolutely happy to pay its way to the extent that the build-out is commercially viable but, after that, there is a clear public policy imperative. If the Government and Parliament decide that it is important to have a dedicated transmission structure for radio, that will be a public policy decision and it will need funding. That said, we believe that funding is very affordable. If you take that £100 million number, we believe that, for example, the BBC would save much more than that over the period of the 12-year licence just on what it will save on FM transmission alone, so there is a straightforward business proposition. Another way to think about the £100 million over a 12-year licence with the current Licence Fee settlement for the BBC at around about £3.5-£3.6 billion a year is that over 12 years that is £43 billion. The £100 million infrastructure cost for DAB radio is less than a quarter of one per cent of what the BBC’s income will likely be over the next 12 years. So it is eminently affordable if there is a public policy decision that it is important to do that build-out.

Chairman: Those two arguments suggest that you are looking for the BBC to pay for this.

Mr Harrison: We have said very clearly and very fairly that we are absolutely happy to pay our fair share in our way to what is commercially viable.

Chairman: What does that mean?

Mr Harrison: That means that we have already put our hands in our pockets substantially to build out coverage on a local and a national basis as far as we judge is affordable. I think realistically, given the state of the sector, the vast majority of the cost going forward, which is primarily designed to meet the BBC’s obligations of universality rather than the commercial sector’s obligations of viability, should rest with the BBC.

Chairman: So whilst RadioCentre is keen to move ahead with the digital upgrade, the economics of your sector at the moment means that you cannot really afford to put any more money into it?

Mr Harrison: We believe that transmission coverage build-out is axiomatic; it is one of the criteria to effect switchover. We cannot afford it but we absolutely believe the BBC can.

Philip Davies: Andrew, on this part can I ask you about how representative your view is of the industry as a whole? It was over this issue it seems more than any other that UTV Radio quit the RadioCentre and said that it felt that it was no longer representing the interests of the wider industry and gave too much power to its biggest member.

Mr Harrison: Yes, UTV did say that. Scott Taunton, the UTV Radio managing director, actually represented the commercial radio industry with me on the Digital Radio Working Group through all the per-work that was done for Digital Britain, and so they have been intimately involved. To be fair to UTV’s position, they have a particular reservation over the date and the timing for digital, but to be fair to the Digital Britain Report, and indeed we await the clauses of any potential Bill because it is not yet written, there has never been a formal switchover date actually agreed. Although, for example, I think Scott in his Guardian article yesterday talked about a 2015 date being farcical, that date has never been set. What have been set are two consumer-led criteria that have to be hit and then a transition period after that before we all migrate. As Travis said earlier, the majority of opinion across the sector, and certainly across my members and representing my board, is that we need now to put our foot on the gas and work hard to deliver the criteria. Inevitably, there is going to be a spectrum of views with different businesses in different places in terms of their own business models as to the urgency or not they see behind that. UTV are absolutely right to have their own position. They are more at the tail end of the timing.

Philip Davies: UTV did not just say that they had a different position to you. They said something a bit more fundamental than that that they felt that you were no longer representing the interests of the wider industry. It was not just as if they had a disagreement. They were indicating that there were others in the sector who shared their view. Do you accept that there are many others or some others in the sector that would share their view?

Mr Harrison: I would absolutely accept that we are a broad church and there is a breadth of opinion. I represent large and small stations, local and national, rural and metropolitan, so there is a breadth of opinion. To give you an example of that, our other major national station member that is on AM is Absolute Radio and they believe that the timing for digital should be sooner rather than later. They already have over 50% of their listening on digital platforms, one way or another, so they would move sooner. I have a number of digital-only stations in membership, stations like Jazz and Planet Rock, which clearly are already digital-only and would like to be in the vanguard. Inevitably, there is a spectrum of opinion and we try our best to reflect the overall views. The truth is that it is very unfortunate that UTV have left membership but we continue to represent the vast majority of the sector and its stations and will continue to try to steer a path, helping Government and helping the regulator through this tension.

Digital Radio Upgrade & the Digital Economy Bill

Westminster eForum Parliamentary Reception
Terrace Pavilion, House of Commons, London
28 October 2009 @ 1600

“The informal discussion that takes place can be expected to cross a range of current policy issues but the chosen theme is digital switchover and DAB.”

JOHN WHITTINGDALE MP, Chairman, House of Commons Culture, Media & Sport Select Committee:

The future of radio is very much a topic under debate. My Select Committee is currently conducting an inquiry into the future of local and regional media, of which radio is an absolutely critical part. So yesterday we were hearing evidence from Andrew Harrison of RadioCentre, Travis Baxter [of Bauer Media] who is here somewhere today, and Steve Fountain from KM Group. And we are very much aware of the pressures on commercial radio and the difficulties faced. But, at the same time, there are opportunities. And when Digital Britain came out, much of it had been trailed in advance, a lot of it quite controversial – things like top-slicing and file-sharing legislation – but the one bit which came as something of a surprise, I think, was the announcement of the date for Digital Radio Upgrade. Certainly, when I saw that in the Report, my immediate reaction was rather like the ‘Yes Minister’ Permanent Secretary who said: “That is a very brave decision, Minister”.

It is going to be challenging. It is slightly controversial. Not everybody in the industry is 100% yet signed up to it. Equally, there is a cost attached and we can have interesting debates about who is going to pick up the bill for it. And there will be quite a task to persuade people. In the same way that we had to work hard to persuade people that analogue switch-off of television was going to be beneficial, I think the task to persuade people in the case of radio is going to be even greater, particularly whilst we still have the overwhelming majority of cars with analogue radios in them. So there are challenges, but equally there are going to be benefits.

We heard yesterday about the costs to radio of having to transmit simultaneously in both analogue and digital and, clearly, that is something which would be reduced if we managed to get switchover. So this is a very important debate and I am keen that, when we come to debate the Digital Economy Bill when it is introduced, we should not overlook radio. There is always a danger that everybody focuses on television and there will be a huge argument about whether or not the BBC should be the exclusive recipient of the Licence Fee, and whether or not we should be trying to stop teenagers in bedrooms file-sharing, but it is important we should also debate radio and, certainly, that is something which I will try and do my best to ensure happens. But I think this afternoon is a good start to that and it is good to see so many people from the industry assembled in one room. So that’s enough from me, just to say welcome to the reception this afternoon …..

PAUL EATON, Head of Radio, Arqiva:

I would like to welcome you all as well on behalf of Arqiva and Digital Radio UK. Arqiva is part of Digital Radio UK, with the BBC and commercial radio, and I am very pleased to be joined today by Andrew Harrison, chief executive of RadioCentre, and Tim Davie, director of Audio & Music at the BBC.

Digital Radio UK has been formed by the radio industry to get the UK ready for the Digital Radio Upgrade. That upgrade is vital because radio faces a stark choice – we can either stay in the analogue world or we can move forward into the digital one. Both need considerable investment from all of the players but only one, digital, can give radio that exciting future that listeners deserve. Digital radio will mean more choice, a better quality listening experience and the kind of interactivity that we can only dream about today.

We all know that the road ahead is a difficult one. We know that the coverage is not good enough yet, we know that we haven’t got digital radio in enough cars, and we know that we need to get converters onto the market to turn analogue radios into digital ones – set-top boxes for radio, if you like. We know that there is new content and new services that need to go digital. So there’s a lot to do. But, in creating Digital Radio UK, the radio industry is demonstrating that it is serious about the digital future and is determined to address the issues and, in doing so, give the digital future that listeners deserve.….

SIMON MAYO, Presenter, BBC Five Live:

I had one of those “blimey, you’re old” moments this morning. I was talking about radio with my son – my eldest son is eighteen – and I asked him what he listened to and what his friends listen to. He thought for a moment and then he said “none of my friends have got a radio”. I thought that was quite an astonishing moment. Now, obviously, he is an unrepresentative sample of one, that is true. They kind of know about radio and they might listen online, and it’s on in the kitchen and they hear it in the car and they have an opinion of [BBC Radio One breakfast presenter] Chris Moyles, but that was it. It occurred to me that, really, radio has got a bit of a fight on its hands, which is where the kit here [points to display of DAB radio receivers] comes in, I think.

My parents’ generation didn’t need to be told that radio was fantastic. My father, if he was here, would talk about listening to Richard Dimbleby and Wynford Vaughan-Thomas and The Goons. The Goons generation didn’t need to be told that radio was great. The 60s generation didn’t need to be told that radio was great – they had the pirates, then they had Radio One. My generation fell asleep listening to the Radio Luxembourg Top 40 on a Tuesday night. It finished at 11 o’clock and that was quite daring – I see a few people nodding. That was quite daring staying up to 11 o’clock, and the fact that is was sponsored by Peter Stuyvesant cigarettes was even more dangerous. But we remembered it and we fell in love with radio, and I think there is a job to be done to make future generations fall in love with radio.

So enter digital. Partly that has to be done by the broadcasters in coming up with exciting new stations filling gaps that don’t exist. BBC7 is wonderful. Everybody will have their own particular favourites. Absolute Classic Rock is really rather good. If you want Supertramp and Led Zeppelin any time of the day, that’s the place to go. Really good stuff. There are some really big gaps that need to be filled, but that’s exciting. Analogue is full, so digital is the place to be.

But the kit is really exciting. If you have a radio when you are listening to a piece of music …. and you’re listening to the radio and an Angelic Upstarts track comes on, you press a button and it sends you an e-mail that tells you that they have reformed, you can buy their records and this is where they are playing. Or someone is listening to ‘Yesterday In Parliament’ and they hear a speech from a parliamentarian that they like, and they think “he’s interesting, she’s interesting”, press a button, you get sent an e-mail and it tells you who it is, how you can contact them – this sounds quite exciting. If you are listening to one of [presenter] Mark Kermode’s film reviews on Five Live, and you like the sound of the film, you press a button, and its sends you an e-mail, you go to your in-box and it’s got an e-mail telling you where that film is on, how you can go to see it, maybe a link to the trailer. All of that kind of information means that radio has got an exciting future, but it just means that we have to go out and explain it a bit more because people might not get it the way they used to.

Hopefully, there is still a role for the humble presenter. So you do a little bit as well. Thank you very much indeed for coming…..

[A Digital Radio UK factsheet entitled “A briefing on the digital radio upgrade” was distributed at the event. Click here to view.]

Digital platforms: commercial radio losing share to BBC

Today’s RAJAR data demonstrates that a gulf is opening up between BBC radio and commercial radio in their ability to attract listening to digital platforms. Over the last year, the BBC is accelerating away from commercial radio in its audience’s usage of DAB, digital television and the internet to listen to live radio programmes. The significance of this growing gulf is reinforced when one remembers that the main RAJAR survey, from which the data below is taken, only measures ‘live’ radio listening and does not incorporate listening to either time-shifted, on-demand radio (‘listen again’) or to downloaded podcasts, both forms in which the BBC offers a much greater volume of content than UK commercial radio.

The danger here is that the BBC is poised to dominate listening on digital radio platforms in the long term, exactly as it already dominates listening on analogue radio platforms. One of the main reasons that the commercial radio sector invested so heavily in digital platforms during the last decade was the opportunity it offered to compete more effectively with the BBC for audiences. In the analogue world, the commercial sector has always argued that the BBC (having been there first) was allocated more and better spectrum for its radio stations. ‘Digital’, particularly DAB, seemed to offer the commercial sector a chance to ‘even the score’ with the BBC. The RAJAR data show that this ambition is not succeeding.

Across all digital platforms aggregated, commercial radio is losing ground, with the latest quarter (Q3 2009) reducing its share of listening to 41%, versus the BBC’s 56% share.

Taking each digital platform in turn, commercial radio’s share of listening on the DAB platform fell to 33% in Q3 2009, compared to the BBC’s 65%. This is not surprising because the age profile of DAB purchasers tends to be older listeners who are statistically more likely to listen to BBC stations. However, it does pose a grave question as to the return that commercial radio can expect from its substantial investment to date in DAB infrastructure, if listening on that platform is dominated so much by the BBC.

The digital TV platform is one that commercial radio has long dominated because of the large amount of spectrum it leased in the early days of Freeview. However, the increasing popularity of digital terrestrial television has already substantially increased the cost of spectrum on Freeview for the radio industry when its contracts come up for renewal. Furthermore, the forthcoming re-ordering of the multiplexes to accommodate HD television and new compression codecs is likely to squeeze commercial radio’s access to Freeview spectrum even more so. Before long, it is likely that the BBC will dominate the digital TV platform, just as it already does on DAB. Presently, the BBC has a 45% share, compared to commercial radio’s 51%.

As might be expected, the BBC’s strong online presence has already put it in the commanding position in terms of its share of listening via the internet platform. The integration of BBC radio into the iPlayer has no doubt helped as well, whereas commercial radio’s offerings are relatively more fractured and less heavily marketed, despite the excellent innovation of the RadioCentre Player. The BBC has a 50% share of listening on the internet platform, compared to commercial radio’s 37%.

The significance of commercial radio’s diminishing share of these three digital platforms is demonstrated when we look at the two sectors’ listening shares achieved on the analogue platform alone. Once one removes the digital platforms from the picture, it is evident that the shares of both the BBC and commercial radio have remained relatively stable in recent years. In other words, it is commercial radio’s declining share of listening on digital platforms that is effectively pulling the sector’s total share of listening (analogue + digital) down, particularly as digital platforms are growing as a proportion of total radio listening (21.1% in Q3 2009).

There is a paradox here. The commercial sector invested heavily in the DAB platform, believing that the new technologies would help it INCREASE its overall share of radio listening versus the BBC. In fact, that investment has recently helped to DIMINISH commercial radio’s overall share of listening. Digital television remains the only platform in which commercial radio dominates, and yet this is the very platform where commercial radio will be forced to cede spectrum and face, once more, losing out to the BBC whose spectrum for radio is guaranteed.

It is important to emphasise that these graphs show only the SHARE of listening on these platforms. The volumes of listening on each of these platforms have demonstrated absolute growth for both commercial radio and for the BBC over the same time period. But, more than any other digital platform, it is significant that the DAB platform is dominated by the BBC which now accounts for almost two-thirds of its usage. Such data is important when making decisions about the potential returns on further investments in DAB infrastructure. Will further investment simply maintain the existing imbalance, or will it really improve commercial radio’s share? Does investment in infrastructure also require parallel investment in new content that will appeal directly to the older age groups who own DAB radios?

Some possible reasons for commercial radio’s diminishing share of listening on digital platforms include:

• Commercial radio’s tendency to invest in DAB infrastructure more significantly than in original digital-only content
• Recent closures of many digital-only radio stations in the commercial sector
• The BBC’s relatively stable resource base, at a time when commercial radio revenues are falling precipitously
• The BBC’s long-held policy to invest simultaneously in multiple platforms, whereas commercial radio has focused on DAB and, to a lesser extent, Freeview
• The BBC’s focus on creating exclusive digital-only content unavailable on the analogue platform
• The BBC’s 360-degree music royalty agreements which allow it to use diverse platforms, whereas commercial radio requires separate (and more restrictive) agreements for time-shifted content and podcasts
• The BBC’s long-term, consistent promotion of content and digital platforms across TV, radio and the internet whereas commercial radio is less willing to cross-promote content or digital platforms that migrate listeners away from its core analogue offerings
• Frequent management changes and ownership changes in some parts of commercial radio, where substantial consolidation has often translated into short-term ‘slash and burn’ rather than ‘invest and build’ policies.

Whatever the reasons, we are not where we were meant to be – that is, we are not where it had been anticipated more than a decade ago commercial radio would be when investment in digital platforms, notably DAB, was expected to produce a beneficial outcome for commercial radio audiences versus the BBC. To put it plainly, the strategy conceived in the 1990’s has not worked. Commercial radio offerings do not dominate digital platforms (yes, they are more numerous, but they do not attract more hours listened than the BBC). DAB has become a largely BBC platform.

So, what can be done? Some of the issues noted above require a more level playing field to be established between commercial radio and the BBC. One such example of a practical solution is the Radio Council plan for a new UK Radio Player that will offer BBC and commercial radio content from a single aggregated access point. Other issues remain mostly in the lap of the gods (revenues, for example). Some issues require the BBC to be less predatory (or more regulated) and for the commercial sector to be more focused on strategic, long-term objectives (such as an online strategy that is more than simulcasting).

There is no single answer to this complex problem, though the commercial radio sector is hobbled by both its present lack of profitability and the regulatory strings that are attached to the majority of its analogue radio licences. What is desperately needed in these difficult times is not minor regulatory tinkering (such as adjusting how many hours of local content a local station is required to broadcast) but a wholesale change in strategy to maintain a commercial radio sector that can thrive in the digital marketplace we now inhabit. Will the imminent Digital Economy Bill prove sufficiently forward-thinking in its radio policy proposals?

[Statistical note: The graphs above to do not sum to 100% because the minimal amount of platform data released by RAJAR is ‘rounded’ (hours listened to 1,000,000; listening shares to 0.1%) and the listening apportioned to the BBC and commercial radio sometimes does not add up to the total for a platform. Some of this shortfall may be accounted for by ‘other’ listening (neither the BBC nor commercial radio) which is not itemised by platform. Data for individual quarters are therefore somewhat inconsistent, though the trend over several quarters is likely to be indicative. Additionally, there is an element of radio listening unattributed to any platform, 12.8% of the total in Q3 2009, but which is roughly equally applicable to BBC radio and commercial radio.]

Culture Secretary speaks about digital radio

The House of Commons Culture, Media & Sport Committee
20 October 2009 @ 1100 in the Thatcher Room, Portcullis House

John Whittingdale MP, Chairman [JW]
Ben Bradshaw MP, Secretary of State, Department for Culture, Media & Sport [BB]

JW: You have announced very ambitious plans to deliver the Digital Radio Upgrade programme by 2015 and have most of the national stations to move off analogue to digital by then. That will require extensive investment in the digital transmission network. What estimate do you have of what it is going to cost to do that?

BB: The current estimate that we are working on is about, I think I’m right in saying, is it £10m per year to build out the DAB multiplexes? Is that the figure that you were interested in?

JW: Actually, the one I’ve heard is rather more than that. Where is that money going to come from?

BB: It will come from a mixture of sources. We expect the BBC to play a significant role in this, commercial radio, and there may be public funds as well.

JW: I think the current state of commercial radio means that their ability to invest any more is almost zero. Do you foresee, therefore, further government investment, maybe from the Licence Fee?

BB: We are not currently intending to spend …. [laughs] That’s one of the things we are not intending to spend a share of the Licence Fee on, but if there is an even bigger underspend in the Digital Switchover Programme than we are currently expecting, who knows, Mr Chairman?

JW: The Digital Switchover Programme appears to be earmarked for quite a large number of purposes.

BB: [laughs] Well, there is quite a significant underspend.

JW: But you are confident that it can be delivered. And what are you going to say to all the people that haven’t bought a new car in the last two years by 2015?

BB: We are working with the motor manufacturers, both to ensure that future new cars do [have DAB radio], but also to ensure that there is this – I can’t remember what it is called – but it is some sort of gadget that you will be able to use in your existing car to make sure that you can pick up digital radio. One of the things we say quite clearly is that we won’t go ahead with this unless, by 2013, certain conditions are reached ie: we have more than 50% digital radio ownership and that [DAB] reception on all of our main roads is not going to be a problem. So we have put conditions down but, at the same time, we felt that it was important to provide market certainty that we specified an end-date by which time this should happen.

[excerpt]

[A further meeting of the Culture, Media & Sport Committee will be held in the same room on Tue 27 October from 1030 to discuss “The future for local and regional media”. Andrew Harrison of RadioCentre, Travis Baxter of Bauer Radio and Steve Fountain of KM Radio will give evidence.]

FRANCE: Digital radio launch postponed to mid-2010

The launch of digital terrestrial radio in France has been postponed from December 2009 to mid-2010. “It will take us, I think, until the middle of next year,” said Rachid Arhab, president of the CSA [France’s broadcast regulator] digital radio working group. “I have learnt not to trust dates.” He continued: “What we had not anticipated was the impact of the credit crunch on advertising revenues, particularly in the radio sector, so the particular speeds of the different stakeholders are unknown.”
Speaking at the Siel-Satis-Radio event in Paris, Arhab switched on France’s first digital terrestrial radio transmitter and said: “The greatest difficulty is knowing if all the radio groups want to migrate to digital radio at the same speed.” “Today, I feel and I know that some of you are telling us ‘we are ready’. We are delighted. A few months ago, this was not the case.” “One must not be scared of analogue radio switch-off. Digital radio will not be a success if it has to co-exist with analogue radio for fifteen to twenty years.”
According to SatMag, at the beginning of November, there will be ‘round table’ meetings at the CSA with all the licensed digital radio operators, the set manufacturers, the transmission providers, and representatives from the Ministry of Culture & Communication and the Ministry of Finance & Industry. The CSA is awaiting two reports: one from Marc Tessier on the economic conditions for the rollout of digital radio and on competition issues; the other by Emmanuel Hamelin on the funding of community radio.
It is reported that licences have been signed, but it will take two months for the multiplex operating companies to be formalised for the launch of digital radio in the first three areas. The composition of the multiplexes has not yet been determined. The time period between which the multiplex contracts are signed and the content providers launch digital stations still needs to be fixed, probably around six months.
Elsewhere at the Paris event, SatMag reported that the issue of the T-DMB digital radio standard adopted in France was back on the table. Its report said:
“Is it right that, in France, we are using a standard that is different from the rest of Europe? Should we not be offering radio receivers that are compatible with DRM+? Alan Mear [of the CSA] says that this is not a taboo subject and will be revisited, but he also agreed with Mathhieu Quetel of SIRTI [the trade body for independent regional and local stations] that it was essential to launch digital radio and not to revisit the question of the adopted standard. Besides, Rachid Arhab agreed yesterday that the DRM+ standard was expensive and of no interest.”
“There was a big surprise from Michel Cacouault of the Bureau de la Radio which represents the main French commercial radio groups. Remember that it was they who said France had to adopt a particular digital radio standard as it was essential to transmit additional data. Today there was a complete turnaround. Michel Cacoualt reminded us that commercial radio had lost around 18% of its revenues in the credit crunch. Now, the owners want to cut their costs and are willing to choose a different standard that is less expensive. Those in the conference room familiar with this issue were amazed. Well yes! The credit crunch does makes you think. The cost of dual transmission [analogue and digital] for a single national network is estimated to be 2 to 4 million Euros [per annum], though what it will actually be we will only know when it happens.”

Digital radio in France: cold feet, no funding, sue the regulator

On 10 September, the French secretary of state responsible for the digital economy, Nathalie Kosciusko-Morzet, organised a seminar “Digital: investing now for tomorrow’s growth”. The objective was to lay out to the 1000 attendees the costs and opportunities necessary to create an integrated digital economy.

On 16 September, Jean-Luc Hees, head of state broadcaster Radio France, addressed the National Assembly’s Committee on Finance & Cultural Affairs. He told them that the broadcaster’s advertising revenues were forecast to decline in 2009 by 20 to 30% year-on-year (advertising comprises 8% of revenue, the remainder from the state). He said that the rollout of digital radio in 2010 would require adding 2m to 3m Euros to the budget.

Hees told the National Assembly: “We now know fairly well the timing of the introduction of digital terrestrial radio, with launches in the coming months in three areas – Paris, Marseille and Nice. …. Our goal is to achieve 95% coverage of France by the end of 2013, according to the CSA’s [France’s media regulator] schedule. …. We must understand that everything has a cost, and the impact on Radio France’s finances means that this house will have to fund dual transmission [analogue and digital] for some time. Analogue transmission presently costs Radio France 80m Euros per annum. The rollout of digital radio will entail additional costs and this is one of the things that require funding in our next budget. I want to emphasise this.”

Amongst commercial radio operators, opinions on digital radio appear increasingly ambivalent. Franck Lanoux, deputy director of NextRadioTV said that digital radio “will not affect 95% of radio listening. It’s hard to identify how digital radio will develop – the receivers do not exist, yet the broadcasters are being asked to make significant investments. Consumers have nothing to listen with.”

The publication mediasactu commented this week that digital radio in France has become ensnared in a quagmire and that reservations amongst commercial broadcasters are becoming stronger:

“After putting all their weight behind persuading the government to adopt the T-DMB standard for digital terrestrial radio in December 2007, which is now nearly two years ago, radio broadcasters, particularly those that are members of GRN [France’s Digital Radio Group] and the Bureau de la Radio [France’s newly created radio trade body comprising the four largest commercial owners], are much more dubious about the real chance of succeeding with the transition to digital radio. Although they were unwavering only a few months ago, now major national radio groups, along with SIRTI [the French broadcasting trade union] and the regional stations, seem determined to thwart digital radio, or at least seriously slow down its development. Angered by the CSA’s decision to only select a handful of new markets to launch digital radio, as well as the costs that will be inherent with dual transmission for several years, not to mention the CSA’s cancellation of applications for 16 of the first 19 areas designated for digital radio, the broadcasters are now showing real reluctance.”

“The [radio] sector, already suffering from its current lack of revenues, is still waiting for the financial aid promised by the government to fund the migration to digital radio. Now, it seems clear that the total cost of the implementation of digital radio will be made greater by the choice of the T-DMB standard by the Ministry of Culture, at the request of GRN, and that the rollout will be much more expensive than it would be for the DAB+ standard. Moreover, according to our sources, the major radio groups are now putting all their weight behind challenging the decision of the CSA about the channel composition of the first multiplexes in order to delay their launch and buy extra time. According to our sources, some have already initiated legal action against the CSA.”

At the government seminar on 10 September, CSA president Michel Boyon reportedly took the opportunity to try to ‘save’ digital radio, suggesting that part of a new significant loan raised by the French government should be allocated to the rollout of digital radio. But, as mediasactu commented:

“The problem is whether public funds can be used to finance the construction of radio networks intended to broadcast commercial stations. Will the public agree to fund not only a digital transmitter network for commercial radio, but also the purchase, at great expense, of receiver hardware that offers a range of stations almost identical to what is already offered on FM?”

Interviewed in Le Figaro, RTL president Christopher Baldelli said:
“The timetable [for digital radio] will be respected if the CSA believes it is right, but migration to digital terrestrial radio is not a matter of principle. It involves a different economic issue than digital television. One impact is higher transmission costs, at approximately 3m Euros per channel, costing us 12m Euros for the whole [RTL] network (RTL, RTL2, Fun Radio, RTL-L’Équipe). The economic difficulty must be taken into account. It is a matter for the radio groups, the CSA and the government. It will take a lot of consultation.”

As mediasactu concludes in its article:
“Overtaken by the internet, mobile phones and MP3 players, does digital terrestrial radio still stand any chance of seducing the general public?”

Funding DAB radio infrastructure upgrade: still 'no'

The Media Show, BBC Radio 4, 2 September 2009 @ 1330

Steve Hewlett interviewed Tim Davie, Director of BBC Audio & Music

We talked at the Radio Festival a few months ago and you talked a lot about DAB. The criteria have been stated now for moving forward to switchover, or before anyone contemplates switching off the analogue FM signal, of 50% of listening and 90%+ of coverage. Do you think that’s realistic by 2015?

I use the word ‘ambitious’ and I mean it. I think it’s tough. It is possible. I think the radio industry to date has shown an incremental path towards digital and, unless you get a big step change, you’ll never get there. And, to be fair, the BBC has driven this harder than anyone.

When we last spoke about it, there was a discussion of £100m or so being needed to pay for the rollout of not the BBC stuff but whatever is necessary for the commercial sector to go digital. At that time, I asked you specifically whether there was any money in your budget identified for that purpose and you said ‘no’. Has anything changed since we last spoke?

It’s another ‘no’. No, nothing has changed and until the plan ….

This is not going to happen, is it?

I think that radio will move to digital, and I think that ….

Will it be DAB?

I think at this point, it will be …. I believe in DAB. I say ‘at this point’ because I think we have hurdles to jump over.

UK Commercial radio revenues Q2 2009

Commercial radio revenue figures for 2009’s second quarter have been published.

Q1 2009 DATA
£119.7m total revenues – lowest since Q3 1999
£34.8m local revenues – lowest since Q1 2001
£60.0m national revenues – lowest since Q1 1998
£24.8m branded content

YEAR-ON-YEAR
Total revenues – down 10.8%
Local revenues – down 6.0%
National revenues – down 16.1%
Branded content – down 3.7%

QUARTER-ON-QUARTER
Total revenues – down 6.9%
Local revenues – down 5.4%
National revenues – down 12.3%
Branded content – up 6.0%


FOUR-QUARTER MOVING AVERAGE DATA
£514.6m total revenues
Down 13.4% year-on-year (last quarter: down 13.1% year-on-year)


Whatever may be going on elsewhere in the economy, it is hard to see any green shoots of recovery in the UK commercial radio …. yet. Total revenues in Q2 2009 fell by 10.8% year-on-year to £119.7m. Initially, this might look mildly positive compared to the 19.5% year-on-year fall experienced last quarter. But remember that the downturn in UK radio first hit in Q2 2008 and had already reduced that quarter’s revenues 10.1% year-on-year. As a result, Q2 revenues in 2009 are now 20% below what they had been two years ago, a decline so significant that it will prove difficult to recapture even when the economy does improve.

National advertisers remain the weak spot for UK commercial radio, with revenues in Q2 2009 down 16.1% year-on-year. But once again, Q2 in 2008 was the start of the downturn and that quarter showed a 15.9% fall year-on-year. National revenues in Q2 2009 are now 29% below what they had been two years ago. It will be a mighty challenge to recoup such losses.

The notion that UK commercial radio is merely experiencing a cyclical blip and will quickly show recovery once the overall economy improves is a great feelgood story, but one that is not supported by the industry’s own data. Long before the ‘credit crunch’ hit us all, UK commercial radio revenues were already showing structural decline, a trend that the current economic cycle has merely exacerbated.

Nothing demonstrates the long-term trend more starkly than a glance at the year-on-year changes to commercial radio’s total revenues in recent quarters. Of the last 20 quarters, only 7 have demonstrated year-on-year revenue growth (one quarter in 2004, one quarter in 2005, one quarter in 2006, three quarters in 2007 and one quarter in 2008). The most recent quarter’s total revenues were 29% below the peak achieved as long ago as Q4 2003. If these comparisons were adjusted for the effects of inflation, the decline would look even more stark.


For the commercial radio industry, business will never be the same again. The ‘goldrush’ 1990s are never going to happen again, at least not without some kind of radio revolution (such as the BBC wilfully destroying Radio Two’s popularity, as they did with Radio One in the early 1990s). As a result, the commercial radio industry will need to change its modus operandi more substantially than ever before, not to thrive, but in order simply to survive. If it doesn’t change, we won’t have much of a commercial radio industry left at all.

The seemingly widely held belief that commercial radio MUST continue to exist in its present form because it is a highly regulated and licensed industry is simply false. If there was one lesson that should have been learnt from the implementation of DAB radio in the UK, it was that ensuring that a small group of commercial interests control a technology and the access to it counts for nothing if there is almost no demand for it. With DAB, radio broadcasting groups got what they wanted – their cartel became the licensed gatekeeper and owner of DAB. But if nobody wants your DAB, you are left being gatekeeper to a field of nothing.

It’s the same with commercial radio. If advertisers and listeners don’t want your product, there is no reason for it to exist, regardless of you waving around your scarce Ofcom licence. Not so long ago, station owners could still foist crappy radio content on the public because listeners were starved of alternatives, but digital audio and the internet have changed that FOREVER. No longer is there any market for second-rate radio. And, in commercial radio, if unwanted or irrelevant content doesn’t attract listeners, it won’t last long.

In this context, the latest Ofcom radio

consultation (“Radio: the implications of Digital Britain for localness regulation”) is a remarkably disappointing document. At a time when commercial radio is at a crossroads in so many senses (profitability, consolidation, platforms, localness, public service, interactivity, CPM, etc), this latest chapter in Ofcom’s many attempts to map out “The Future Of Radio” is no more than tinkering at the edges of existing radio regulation.

What was needed was a full-blown, courageous effort to overhaul the radio regulatory system in order to ensure that commercial radio continues to exist financially and that the diminishing number of licensees genuinely serves the public’s articulated radio needs. Instead, we have an Ofcom consultation that is no more than a grudging reaction to Lord Carter’s Digital Britain proposals, some of which are now adopted as if they were Ofcom’s own, some of which are watered down, and some of which have been ignored altogether.

The reluctance drips from every page. There are 81 uses of the word ‘if’ in this 82-page document. Almost every one of its proposals is tainted with uncertainty – “if and when new legislation is passed” or “if Parliament decides not to take forward”. Rather than seizing the opportunities that arise from the painful ‘crossroads’ when change is an inevitable necessity rather than a nicety, Ofcom seems happy to sit in the back seat and respond “whatever!” to ideas it receives, rather than grabbing at innovation and pushing it forward. It reads very much as if written by nobody who has ever themselves run a commercial business where painful life and death decisions have to be made, sometimes at breakneck speed and often without the aid of a parachute.

Ofcom continues to treat the commercial radio industry like a naughty child who, although 36 years of age now, cannot be trusted with more than a five pound note. Every Ofcom proposal continues to keep its centralised, London-based decision making about local commercial radio firmly within its own control, without trusting licensees to co-regulate in any meaningful way. For example:
· Proposal 1 requires stations to submit a request every occasion they seek a change
· Proposal 2 will lead to “a short consultation upon receipt of such a request”
· Proposal 3 requires stations to submit a request every occasion they seek a change
· Proposal 4 will lead to “a short consultation in most cases”
· Proposal 5 will lead to “short consultations in most cases”.

Only one thing is certain – Ofcom will be drowning in consultations for the foreseeable future. These five proposals alone (out of eight) multiplied by 300 stations plus DAB multiplexes yields a potential 1,000+ new consultations or requests. And yet the document claims that these Ofcom proposals are “broadly deregulatory”.

Sadly, more than anything else, the Ofcom document completely lacks any kind of vision as to what the commercial radio landscape might look like in the future, the antithesis of what the Digital Britain consultation exercise was trying to achieve. This is a missed opportunity for Ofcom. Not just this latest document, but in 2009 when the whole “what is the future of radio?” debate is probably at the most critical point in commercial radio’s history. It appears to many in the industry that Ofcom has simply disengaged from radio. This is a particular irony for an industry that prides itself on its success in one-to-one communication.

It may seem a stupid question……. If Ofcom still sees itself as the party with the skills necessary to make 1,000 potential individual decisions on the future of individual commercial radio stations, how is commercial radio presently in such a sad state of affairs as a result (partly) of previous regulatory decisions? We tend to respect and trust people who can demonstrate a positive track record. Why would I let a doctor operate on me who had killed almost every patient he had ever consulted?

DAB radio European update

NORWAY
The newspaper Aftenposten reported that “sales of DAB receivers are still at a snail’s pace”, with only 61,000 sold in Norway in 2008, compared to eight times that number of analogue receivers sold. Culture Minister Trond Giske said that, if his party wins the election this autumn, “we will present a white paper on DAB in 2010 which, amongst other issues, will discuss whether the government can contribute more actively to promote the digital migration of the radio medium. We now have good experience from the digital migration of television, though the radio medium will take longer and require more preparation. Among other things, there are many more radio receivers to be replaced than there were TV sets, so it is extremely important that this transition occurs at a socially acceptable pace.”

The following day, in an article headlined “Poor Sales Of DAB Radios”, Norway’s Kampanje magazine reported that sales of DAB radios are only 40,000 to 60,000 per annum out of a total 700,000 to 800,000 radios sold annually. Cumulatively, over the last decade, 300,000 to 400,000 DAB radios have been sold out of a total 8,000,000 radio receivers. Synnove Bjoke, managing director of electronics trade organisation Elektronikkbransjen, said: “We believe sales will increase in the years ahead. The day we are given a [FM] switch-off date, we will sell many more DAB radios, but we need a date. There has been uncertainty amongst people, and also in our industry, as to whether we’re ever going to switch off the FM band, and that uncertainty makes people buy regular FM radios.”

SWITZERLAND
Speaking at Swiss Radio Day 2009 held in Zurich last week, Swiss Radio German-language station DRS director Walter Ruegg announced the introduction of DAB broadcasts from 15 October and said that the platform would also be made available to local commercial stations in Switzerland. English-language public station World Radio Switzerland will also be broadcast nationally on DAB from the same date.

IRELAND
RTE Radio boss Clare Duigan told the Irish Independent newspaper that the absence of commercial stations on the DAB platform was a “big issue”. She said: “We’ve begun to talk to the Independent Broadcasters of Ireland [IBI] and we’re very much hopeful that over the next couple of months we’ll be able to work something out. DAB is one of those areas where we really need to work together as an industry.” But IBI boss Willie O’Reilly responded that commercial stations are not interested in rejoining the DAB platform “at the moment” because “the return on investment looks poor”. UTV head of Irish radio Ronan McManamy said that DAB is “not a priority” for UTV in the “current marketplace”.