Tag: Digital Economy Bill

Local government unhappy about digital radio switchover

The Local Government Association, representing 424 local government authorities in England and Wales, is backing a campaign to lobby the government to re-think its proposal for digital radio switchover.

“I’m urging the Government not to confirm the 2015 switchover date from analogue to digital radio until proposals have been properly rural proofed,” said Peter Phillips, Liberal Democrat councillor for Bishop’s Castle in Shropshire. “The proposed switchover will also have significant carbon footprint implications, as DAB radios consume more power than transistor sets. Waste authorities will be affected in having to dispose of analogue radio sets.”

Phillips presented a report to a September 2009 board meeting of the Local Government Association, at which he “raised a number of important issues for both the Association and Local Authorities to consider in preparing for any switchover to digital radio”, according to the minutes.

The Association is reported to be contacting the government, Ofcom and Digital Radio UK to express its concerns about the proposal in the Digital Economy Bill for digital radio switchover.

Digital radio switchover: amendment to ‘consider the needs’ of listeners and small stations

Clause 30 of the government’s Digital Economy Bill sets out the process for determining the date for radio ‘digital switchover’:

97A: Date for digital switchover
(1) The Secretary of State may give notice to OFCOM nominating a date for
digital switchover for the post-commencement services specified or
described in the notice.
(2) When nominating a date, or considering whether to nominate a date,
the Secretary of State must have regard to any report submitted by
OFCOM or the BBC under section 67(1)(b) of the Broadcasting Act 1996
(review of digital radio broadcasting).

An amendment has been tabled by Lord Howard of Rising and Lord de Mauley which would require the government additionally to consider:

• the needs of local and community radio stations
• the needs of analogue listeners

as well as any reports submitted by Ofcom and the BBC. This amendment will be considered, along with many others not concerned with radio, when the Bill is debated by a House of Lords committee on 6 January 2010.

Although this amendment does not suggest a specific mechanism for canvassing the opinions of listeners or local radio stations, it nevertheless acknowledges implicitly that the consumer and small commercial/community radio stations need to have a voice in the process. It is about time.

From its earliest formulation, the proposal for radio broadcasting to be switched from FM/AM to DAB seemed to have been intended to create:
• a ‘walled garden’ under the control of the UK’s largest commercial radio owners and the BBC who, between them and transmission provider Arqiva, not only own the entire DAB infrastructure but also act as ‘gatekeeper’, deciding which station has access to the platform.
• a ‘walled garden’ on DAB that would hopefully stop consumers listening to content not produced or approved by the BBC or the largest commercial radio companies, such as online radio (most of which originates or is owned overseas), pirate radio, community radio and small independent stations.

Massive consolidation in commercial radio since then has resulted in a more divided industry than ever, in which the biggest commercial players are eager to ‘nationalise’ or ‘regionalise’ what had been licensed as local radio stations, whereas most of the smaller commercial and community owners want to keep local radio as local as they can.

There is no longer likely to be a single organisation that can embrace the full range of stakeholders in the radio sector. Even government agencies such as Ofcom and DCMS seem wilfully to be ignoring the wider picture, as if seduced by notions that ‘DAB must happen’, ‘bigger must be better’, ‘Britain must lead the way’ and ‘consumers don’t know what’s good for them’.

Inevitably, it will end in tears. You can pass all the laws you want but, if you cannot get the consumer interested in DAB, it will fail. And, to date, the consumer seems largely disinterested and could not care less that manufacturers of DAB radios are mostly British (though they manufacture outside the UK) or whether they listen to British radio content.

Ofcom’s most recent market research shows the stark reality: 64% of households say they are unlikely to buy a DAB radio in the next 12 months, and a further 20% say they don’t know.

You ignore consumer opinion at your peril.

Radio in the Digital Economy Bill: House of Lords Second Reading

Digital Economy Bill
2 Dec 2009 @ 1539
Second Reading, House of Lords [excerpts]

The First Secretary of State, Secretary of State for Business, Innovation and Skills and Lord President of the Council (Lord Mandelson):
We have also set out our vision for the future of digital radio, which will see the country shift to digital, when transmission coverage and audience numbers are wide enough, by the end of 2015.

The Lord Bishop of Manchester:
The switchover to digital radio may produce more problems than expected. Of course there is much to welcome in the creation of platforms for new content to meet the needs of specialist audiences. I think, for example, of Premier Christian Radio’s recent acquisition of a national DAB licence. However, there may be much to be concerned about over the plan to cut off national stations and many local services as early as 2015. While the Government have indicated that that will not be finalised until digital services account for 50 per cent of all radio listening and can reach 90 per cent of the population, it is also clear that without an early deadline, sufficient pressure may not build on radio manufacturers and retailers to shift to selling DAB sets only for cars as well as homes. The radio switchover again underlines the risk of creating another two-tier system where significant swathes of the country could lose their favourite national stations from the FM dial, including the BBC stations they pay for through the licence fee. Surely that cannot be right.
What government support will there be for the switchover to digital radio, which is likely to be not only more problematic but, generally, more expensive across the population than the TV switchover has been? Will the Minister accept that over-rushing towards analogue switch-off will not allow proper time for the Government, this House and the other place to think through the unintended consequences? Is there anything that the Government can learn from the German Government’s experience and their postponements of switchover plans?
….. On voluntary supported broadcasting, do the Government intend to keep some of the analogue spectrum going, for example, for hospital radio?
This country must, of course, embrace the opportunities offered by a digital economy, but the advantages must be shared by the widest possible number of citizens. Some, if not all, of the unintended consequences that could unfairly disadvantage people might be avoided by not being trapped in too rigid a timetable. If that happens, I fear that this country will not benefit from the best rewards that a digital economy offers.

Lord Carter of Barnes:
Secondly, in the critical areas of investment, infrastructure, spectrum liberalisation and the digitalisation and deregulation of sound radio, it provides a framework for innovation, development and investment.

Baroness Howe of Idlicote:
My Lords, when the noble Lord, Lord Carter of Barnes, introduced Digital Britain a little while ago we all recognised that things were beginning to happen and there were some very welcome realisations, for example, on the need to move forward with digital radio…….
I welcome those parts of the Bill which incorporate the Digital Britain promise to speed up delivery of a fully operational DAB digital radio platform. I spend a lot of time in cars and have had hearing difficulties since the arrival of my first child, so it is a real pleasure to enjoy the quality and clarity of digital sound, especially when listening to music-whether it is Radio 3 or Classic FM, both of which are excellent stations. The plank for Ofcom to be able either to terminate analogue licences without consent, subject to a minimum two years’ notice, or where appropriate to extend analogue licences up to and beyond switchover, on condition that digital services are also provided, will no doubt help to build in the much-needed flexibility to enable radio switchover. I very much hope and have confidence in the plans that have been outlined that it will happen by 2015. It is important that it does.

Lord Roberts of Llandudno
Today, I looked at the figures for radio listeners in Wales who have ever listened to digital audio broadcasting. I shall not go through the whole list, but in Cardiff, it was 27 per cent, while in the valleys, it was only 4 per cent. That is the difference. The most needy areas will not have the opportunity to benefit from these new high-tech developments. There is a pressing need for an extension of broadband, not least because of the commitment already made by the Government that fibre optic broadband should be prioritised in “notspots”, where other technologies have also failed.

Lord Clement-Jones:
I move on again, to independent radio services. We broadly welcome the provisions for digital switchover. Of course, full switchover will only happen on a specified date if certain criteria for uptake are met, and the only way that one will get further adoption is by setting a firm date. I hope that the Minister will confirm that we are currently working off a 2015 date, but there are concerns among smaller radio stations that the digital multiplex regions that have been defined are too large. Small, local stations will be broadcast across the whole of a large region covered by a multiplex, and may be expected to pay a rental reflecting that. That would be unfair on some of those small stations. Many of them are arguing for DAB Plus, a technology which would be, I believe, much more in tune with their requirements. I would be grateful to hear what the Minister says in that respect.

Lord Howard of Rising:
While we on these Benches support the switch from analogue to digital radio, it is a sensitive area. It would be good if the Government could give some assurances of what criteria will be used to decide when will be the appropriate time for the changeover. Will the Government be guided by the criteria set out in the Digital Britain White Paper, referred to by the right reverend Prelate the Bishop of Manchester? If so, we remain unconvinced that the 2015 target date is realistic and worry that millions of listeners and hundreds of local stations will be disadvantaged.
There are many for whom the digital switchover will cause problems: the elderly or the lonely, who may have had a wireless for many years which has become almost a companion; the blind person who will not be able to work the digital radio because the instructions are on a screen that they will not be able to see. I hope that the Secretary of State can reassure the House that proper care and attention will be paid to the needs of those who will encounter difficulties with the transition.

Lord Davies of Oldham:
The right reverend Prelate the Bishop of Manchester indicated the issues that arise with the digital switchover. I emphasise that we will not make the switchover for radio until there is already 90 per cent coverage in the United Kingdom and until 50 per cent of hours of radio are listened to via digital stations. We have criteria before we actually make the move. This follows on from points about the switch from analogue to digital television. I take on board his point that it is important that any changes that are made benefit people and do not shock them with a possible loss of services and extra cost. That point has to be addressed.

[next stage: House of Lords Committee, 6 January 2010]

DAB radio UK sales: 10m in 10 years is “an incredible achievement”?

The Digital Radio Development Bureau [DRDB] published a press release yesterday trumpeting the “incredible achievement” that 10 million DAB receivers had been sold to date in the UK which, it said, “proves that digital radio is here to stay”. The press release was notable not for what it said, but for what it omitted.

Ten million radios sounds like a big number until you realise that this has been achieved over more than a decade of DAB product sales in the UK. There are 51.3 million adults (aged 15+) in the UK. So, averaged over the decade, roughly one out of every fifty adults bought a DAB radio each year. Not so impressive.

Revisit the DRDB’s own forecasts for DAB receiver sales. In 2004, it forecast 13.15m DAB radios would be sold by year-end 2008 (the reality was 8.53m). In 2005, it forecast 19.96m to be sold by year-end 2009. In 2006, it forecast 17.2m sold by year-end 2009. In 2007, it was too embarrassed to revise its year-end 2009 forecast (but even its year-end 2008 forecast of 9.16m was overstated, as the reality was 8.53m). In 2008 and 2009, understandably, the DRDB did not publish its forecasts. The DRDB forecasts of the very consumer market in which it is specialising have consistently been shown to be wildly inaccurate.

The DRDB press release also claimed that “for the past three years, sales of digital radio sets have remained solid”. ‘Solid’ is an interesting choice of word to describe the present situation of declining sales. Sales in Q2 2009 were the lowest in two years and were down 6% year-on-year. Sales in the previous two quarters, Q1 2009 and Q4 2008, were also down 1% and 10% respectively year-on-year. Three consecutive quarters of negative sales growth can hardly be described as ‘solid’.

As the graph above shows, the rot set in at the end of 2005, when year-on-year DAB radio sales growth fell from triple to double digit figures. Both 2006 and 2007 included quarters of single digit growth. Now, in 2009, growth has been negative all the way. This is no temporary blip caused by the recession. The writing was already on the wall by 2006 – the DAB party is over. Now we are merely waiting for the last few guests to leave.

The other remarkable statement in the DRDB press release is its satisfaction that sales of “all categories of analogue radio showed significant decline”. As I have pointed out previously (see graph below), sales of radio receivers generally are in long-term decline in the UK. Is this a fact that a stakeholder within the radio broadcast industry should be crowing about? It’s like two passengers on the Titanic fighting over which has the bigger cabin – does it really matter if the whole ship is slowly going down?

It should be pointed out that the DRDB data excludes sales of mobile phones, despite the fact that the majority of current models sold in the UK include FM radios, whilst not one model includes a DAB radio. More than 30m mobile phones were sold in the UK in 2008, which puts the 2m DAB radios sold in stark perspective (see recent blog entry).

Also, it should be pointed out that the vast majority of what the DRDB calls ‘DAB radios’ on sale in the UK also incorporate analogue FM. It is increasingly difficult to find a DAB-only radio to purchase in UK shops. This renders the DRDB’s proclaimed digital versus analogue victory completely hollow. For every ‘DAB radio’ sold that the DRDB hopes will automatically lead us to some kind of digital heaven, in probably 90%+ of purchases, yet another FM radio is also being added to the millions already in UK households (see recent blog entry).

Finally, recall that 8m analogue radios (without DAB) are still being sold annually in the UK. Now add to that the 30m mobile phones purchased, most of which include FM radio. Then compare it with the “incredible achievement” of 2m DAB radios sold per year, most of which include analogue radio anyway. The future of radio is looking less and less like a DAB world. Rather, analogue radios are probably multiplying faster in the UK marketplace than they have ever done, thanks to mobile phone manufacturers. This is good news for radio, bad news for investors in DAB.

These facts might not conveniently fit the DRDB ‘story’. But they are the facts.

DAB radio: the customer is always wrong?

Politicians, government, civil servants, regulators. We pay their wages. They work for us, don’t they? So why does the voice of the consumer, the citizen, the customer so often seem to be ignored or become lost when the government makes new policies or passes new legislation. DAB radio seems to be a case in point.

The government had convened the Digital Radio Working Group [DRWG] in 2007 to consider:
• what conditions would need to be achieved before digital platforms could become the predominant means of delivering radio?
• what are the current barriers to the growth of digital radio?
• what are the possible remedies to those barriers?

The Group met for a year and published its Final Report six days before Christmas 2008. It had created a number of sub-groups to examine specific aspects of digital radio. One of these, the Consumer Impact Group, submitted its own report to the Working Group in November 2008 to inform its Final Report.

The Consumer Impact Group’s recommendations about DAB radio make sober reading and carry as much gravitas, maybe more, now as when they were written a year ago. To quote directly and extensively from its report:

“The group is concerned that the case for digital [radio] migration has not been made clearly enough from the point of view of the consumer. While it is clear what the rationale is for the radio industry, the group would like to see a compelling argument as to why digital migration is desirable for consumers and what its benefits would be for consumers.”

“The group also considers that the proposed migration criteria of 50% of all listening through digitally enabled devices is too low, and disproportionately affects disadvantaged groups who are less likely to be represented in the first 50% to take up digital radio. The group would therefore like to see the 50% figure analysed in more detail and a stronger case made for it, before it is adopted by the full DRWG, to ensure this is not the case.”

“The group notes that neither the market nor consumers are currently prepared for migration at this stage. Information provided to the group shows that take-up varies from region to region and amongst demographic groups. Therefore, the group recommends that if digital migration proceeds, a help scheme will be essential to assist those where the cost of migration is significantly greater than the benefit. The information provided by the cost benefit analysis for the more vulnerable social groups will be an essential element in considering where and how a help scheme is best delivered.”

“The group believes that further research should be undertaken to examine the extent of ownership and usage of analogue and digital radio particularly amongst disabled people, older people, people whose first language is not English and consumers from low income households. The research must be structured and use appropriate methodology to capture information on those over 65 and those over 75. The findings should be fed into plans to protect the consumer interests, i.e. for a help scheme, for effective labelling, for information and education campaigns and for the development of easy-to use products.”

“The group urges caution with migration to digital radio should the uptake amongst older people, disabled people and low-income households be found to be low or should the costs be found to be prohibitive for these groups.”

Commenting on DAB radio take-up and the proposed digital migration criteria, the report said:

“The RadioCentre was asked to present figures, drawn from the existing Rajar and DRDB figures, setting out the current information on the number of DAB sales, household penetration and listening, defined by region, age and social class.”

“The figures, which are annexed to this report at B [but excluded from the published version], show a number of interesting trends. For example sales, penetration and listening to DAB vary across the UK. Generally speaking, listening and awareness of DAB is highest in London and the South East, and the English Midlands. These have been the areas of longest DAB broadcasts and the widest choice of stations.”

“When awareness and penetration are broken down by Socio-Economic Group and age, there does appear to be a divide. The figures show that consumers in lower income groups are considerably less likely to own a DAB set than other social groups. Even when owning a DAB, in some areas weekly listening to DAB by the over 65s is very low at less than 10%.”

“The main conclusions to be drawn from this research is the general low level of ownership and listening by the over 65s compared to other age groups, and the low listening figures for consumers in the lower socio economic groups. This perhaps reflects that financially lower income groups are finding the price of sets a barrier, whilst for older groups, despite having sets, over 65’s may find DAB radio’s less easy to use than analogue sets, or perhaps prefer the traditional use of their analogue sets.”

“Whilst recognising that universal DAB coverage is not achievable, the group considered that after migration, DAB coverage for UK-wide stations and stations for the nations should be equivalent or better than that available for analogue radio at present.”

“The group stressed the importance of encouraging availability and use in cars, and noted that it would be virtually impossible to meet any listening criteria without addressing the issue of take up in cars. The group feels this should be a priority for the full DRWG.”

On the topic of research, the Consumer Impact Group commented:

“More and wider research is required, particularly about the ownership and usage of analogue and digital radio amongst those people with disabilities, people whose first language is not English, older people (both over 65s and over 75s) and those in low income groups. This additional research, when used together with the RadioCentre research and Rajar figures should be used to guide future work in this area, particularly around take-up, equipment features, programming and a help scheme. The group feels that there is an opportunity here to ensure that future work is based on comprehensive and reliable evidence and analysis. The findings should be fed into plans for any help scheme, for effective labelling, for information and education campaigns and for developing easy-to use products. Where it doesn’t already, this research should also take into account ways of listening to digital radio other than through a DAB enabled set, for example via the internet, digital terrestrial and satellite television, which may provide a significant proportion of the growth in the future.”

The Consumer Impact Group’s recommendations included:

• “We believe, that before migration could begin, additional research into radio users who are disabled, older people (both over 65 and over 75) and consumers from low income households is essential, since these people are likely to require particular assistance with migrating to DAB. This research should inform the development of plans for a help scheme, for effective labelling, for information and education campaigns and for developing easy to use products.”
• “In the absence of the finalised cost benefit analysis at this point in time, the group recommends that the cost of converting to digital radio for the average household, as well as the affordability for low income groups should be investigated. In addition, the current take-up amongst older people, disabled people and low-income households needs to be investigated. The group urges extreme caution with migration to digital radio should the uptake in these groups be found to be low or should the costs be considered to be prohibitive by any of these groups, unless an appropriate help scheme is in place.”

Analysis. Research. Cost benefit analysis. Comprehensive and reliable evidence. All were considered to be very important by the Consumer Impact Group.

However, when the 26-page Final Report of the Digital Radio Working Group was published in December 2008, it did not include a single graph, a single numerical table or the results of any commissioned consumer research. Neither were such data attached in appendices.

The Final Report of the Digital Radio Working Group did recommend that “the government should conduct a cost benefit analysis of digital migration”. The government accepted this recommendation. One might think that this would be an urgent imperative, given that proposed legislation on DAB radio in the Digital Economy Bill is about to be debated in Parliament.

Wrong! The government has stated explicitly that it is “committed to a full cost benefit analysis of the Digital Radio Upgrade programme before any Digital Radio Upgrade is set” which would include “the timings and costs to consumers”. But the government has stated that “this is likely to begin in 2011”.

What? The government wants a huge (some would say impossible) commitment from the UK radio sector and from the British public to forge ahead with migration of radio listening to DAB, even though its own full cost benefit analysis of pursuing that policy will not be STARTED until 2011.

Is this not mad? Are our public servants working for us? Does the consumer viewpoint on these issues count for nothing?

FRANCE: digital radio “already dead”?

“Digital terrestrial radio: already dead?” enquired the headline of a French news web site early on Thursday morning 26 November 2009. It proved to be prophetic.

Only hours later, a press release was published by the Bureau de la Radio (a radio trade group comprising the largest commercial radio owners) which effectively hammered another nail into the digital radio coffin in France. It stated: “As it stands, the Bureau de la Radio estimates that the cost of the [digital radio] project is not compatible with the economics of the radio medium and does not allow plans for the launch of digital radio to proceed under positive conditions”.

On Monday 23 November, more than 70 stakeholders from the radio sector had met at the offices of the CSA [France’s media regulator] to discuss digital radio. Afterwards, the CSA had issued a press statement which claimed that, during the meeting, all those present had endorsed the launch of digital terrestrial radio in France. The meeting had decided to establish four working groups to examine: resource planning, the rollout timetable, transmission signals and data content. A further meeting was planned for February 2010.

However, the Bureau de la Radio has now stated its “regret that the question of the [digital radio] economic model is not being addressed centrally” and has called on the CSA to pursue more detailed work on this issue with stakeholders.

Reflecting the seriousness of this announcment, Agence France-Presse headlined its news story “Digital Radio: commercial radio opposes the launch of digital terrestrial radio”.

There are some interesting parallels between developments in France and the situation in the UK, even though we are already ten years further down the digital terrestrial radio road. Just as in France, the UK government (through its DCMS department) and media regulator (Ofcom) have both been insistent that digital terrestrial radio must replace FM/AM radio broadcasting, without seeming to pay sufficient attention to the pre-requisite for an economic model to make it work.

In the UK:
• industry data points to minimal consumer demand for DAB, which I documented two months ago in this blog entry
• industry data points to minimal revenues from digital commercial radio stations, which I documented three months ago in this blog entry
• industry data suggests that the faster the take-up of DAB radio is accelerated, the faster commercial radio will lose more listening share to the BBC, which I documented recently in this blog entry
• the development of DAB has already proven disastrous for the financial health of the UK commercial radio industry.

After ten years of DAB radio development in the UK, precisely the same question needs to be answered here as is being asked in France this week:

Why has nobody published a realistic economic model for digital terrestrial radio which demonstrates convincingly that it is financially worthwhile?

Perhaps because one does not exist?

Digital Economy Bill: radio industry reaction

The Digital Economy Bill was published by the government last Friday. Press headlines about the radio provisions in the Bill included:

Media Week: “Radio Bill creates deep divisions among industry”
Radio Today: “Digital Bill inflames industry”
The Telegraph: “Digital Economy Bill: no date for radio digital switchover”

Below is a selection of initial reactions from stakeholders in the commercial radio sector:

Scott Taunton, Managing Director, UTV Media, said: “What radio really needs is some meaningful deregulation and licensing reform to enable it to thrive and adapt in the multimedia age. The Digital Economy Bill shows that government is out of tune with listeners, who are delighted with the broad choice and accessibility that radio already offers.”

William Rogers, Chief Executive, UKRD and The Local Radio Company, said: “Where is the fairness in a proposal to permit 100 per cent of the BBC’s local radio stations a digital future and deny over 100 local commercial radio stations the same opportunities? The Bill is fundamentally unfair and dishonest and I hope the Peers give it the going over it thoroughly deserves.” He added: “We need to inject some honesty and fairness into this debate. What is honest about suggesting to millions of listeners in the country that they will be delivered a wonderful digital listening future when the results will be to deny them the opportunity to listen to their favourite local radio station?”

Andrew Harrison, Chief Executive of RadioCentre, said: “There was no permanently set date in the Digital Britain report – 2015 was just a target. This is a clever and enabling piece of legislation as it allows the Secretary of State to set a date for switchover without having to create more legislation. Based on annual progress reports from Ofcom and BBC, they can set a date when the circumstances are rights for which at least two years notice must be given”.

Travis Baxter, Managing Director of radio at Bauer, said: “There is always a difference between setting out objectives and actually having government’s support. This piece of legislation has created a mechanism to create a date when consumer demand for digital radio is great enough.”

Two days before the Bill was published, a spokesperson for Digital Radio UK said: “Whilst the target date of 2015 may be ambitious, the consumer-led criteria are achievable for operators who are committed to a digital future. Without an ambitious target date, the alternative is to condemn the industry to an indefinite period of dual transmission, a financial burden that commercial radio cannot continue to bear and that represents a poor use of public funds for the BBC.”

A few weeks earlier, a spokeswoman for Digital Radio UK had said: “The Digital Britain report does not set annual targets and we do not have a specific target to meet in terms of total share beyond the two criteria for upgrade. It has only been a matter of months since the publication of the Digital Britain report and all stakeholders in digital radio have galvanised their activity.”

“There are numerous ways that a graph could plot a path to growth and we anticipate that take-up will accelerate as a result of the excellent foundations we are currently building. There is clearly some way to go but the industry is confident that with the formation of Digital Radio UK, the provisions in the Digital Economy Bill and the collective will of all stakeholders, we will successfully deliver the benefits of digital radio upgrade to listeners.”

Andrew Harrison [AH], Chief Executive, RadioCentre
interviewed on Today, BBC Radio 4, 20 November 2009 @ 0837

Q: Everybody is really worried about this and can’t quite see the point of why we are pushing ahead [with digital switchover], even if it is a target, by 2015.

AH: “Well, I think that why there is a need is fairly straightforward. The truth is that Britain loves its radio services. About 40 million of us tune into the radio every week. But the way we receive our news and entertainment is changing all around us in a digital world. It’s changing in television, it’s changing for films and music and newspapers. So it’s very important that radio, which is at the heart of British daily life, has its own chance to look forward and face the future in a digital sense, rather than being trapped in a sort of analogue environment while the rest of the entertainment world goes digital.”

Q: But we love to hear our radio in decent quality and the problem with digital [DAB] at the moment is it doesn’t work very well in cars, indoors or in rural Britain.

AH: “That’s absolutely right. That’s why we need some time as an industry to roll up our sleeves and improve the coverage for digital and improve the listener experience so that, when we actually get to the stage of contemplating actually switching over services, it will be a service for listeners with more choice and better functionality, but with the transmission quality that would be absolutely imperative.”

Q: And you can guarantee that you can solve the problems that currently exist by 2015?

AH: “Well, the Bill doesn’t set out 2015 as a date. What the Bill sets out is the two key criteria which will be important to set a switchover date. That is that consumers or listeners can hear the service, so that they can get a digital transmission where they can currently get an FM transmission, and that they are actually listening to those services, so one of the criteria will be that over 50% of listening is via digital. Once those two thresholds have been crossed, then I think we’ll be very confident that we can deliver the services fit for a digital age.”

Q: When do you think that those thresholds can be crossed?

AH: “Well, our target is to try to hit the thresholds by the end of 2013 to then start the two-year window to switchover. It remains to be seen whether the industry collectively can work together – that’s the commercial sector, the BBC and Arqiva, our transmission provider – very hard across the next four years to get on with the job.”

[Second Reading of the Digital Economy Bill in the House of Lords on 2 December 2009]

Commercial radio and DAB: turkeys voting for Christmas

Significant players in the UK commercial radio industry, along with Digital Radio UK, the Digital Radio Development Bureau, DCMS and Ofcom are all lobbying for DAB receiver take-up to be accelerated and for consumers to migrate their radio listening to DAB as quickly as possible. However, the industry’s own data suggest that the pursuit of these strategies will simply reduce even further commercial radio’s already declining share of radio listening versus the BBC.

The commercial radio sector’s diminishing success in competing for listeners against the BBC remains one of its most pressing problems. In 1998, commercial radio’s share of listening was 51.1%, but that figure is now down to 42.4% [RAJAR Q2 1998 versus Q3 2009]. Conversely, the BBC’s share has increased from 46.8% to 55.0% over the same period. The long-term decline in commercial radio’s market power looks like this in recent quarters [see graph below]:

However, if we examine listening solely on digital radio platforms, we see that commercial radio is losing listening share much more sharply [see graph below]. In 2007, commercial radio’s share of listening via digital platforms had been above the average for all platforms and so was ‘helping’ the overall fight against the BBC for market share. However, in two of the last three quarters, commercial radio’s share via digital platforms has been lower than for all platforms, and so is now dragging down the sector’s overall market share.

Worse, with each new quarter, radio listening via digital platforms is growing as a proportion of total radio listening, so that the ‘contribution’ of digital platforms to the overall picture is becoming greater. In Q2 2007 (the earliest point on the timescale of these graphs), digital platforms accounted for only 12.9% of total listening. In the latest quarter, that proportion has increased to 21.1%.

Now, if we extract listening via DAB from the total for all digital platforms, we observe two phenomena [see graph below]. Firstly, commercial radio is badly losing the battle for DAB platform usage to the BBC by a ratio of 1:2. Secondly, commercial radio’s performance on the DAB platform is worsening over time. It is the combination of these two trends which is dragging down not only the commercial sector’s share of digital platforms, but also its overall competitive performance against the BBC.

To make matters worse, DAB is the largest element of radio listening via digital platforms (up from 54.4% in Q2 2007 to 62.9% in Q3 2009 of listening via all digital platforms), and the DAB platform’s contribution to total radio listening is similarly growing (up from 7.0% in Q2 2007 to 13.3% in Q3 2009). DAB is the focus of the radio industry’s digital platform marketing campaigns, so the commercial sector’s current poor performance on this platform is disastrous.

The data suggests that, far from the DAB platform helping the commercial radio sector compete more effectively against the BBC, the absolute opposite holds true:
• The average adult with a newly acquired DAB radio uses it for listening in a way that effectively reduces the commercial radio sector’s overall share of listening versus the BBC
• Acceleration of DAB usage will only serve to accelerate the decline in commercial radio’s share of radio listening versus the BBC.

These outcomes are hardly surprising when one considers industry data which show that:
• DAB radios are purchased predominantly by older people (the average age of a DAB radio receiver owner is 46, according to RAJAR)
• Older people listen to BBC radio much more than to commercial radio (BBC radio accounts for 63% of radio listening amongst over-45s, according to RAJAR).

The paradox is that stakeholders in commercial radio continue to push for DAB to be adopted by consumers as quickly as possible, even though the inevitable outcome will be to reduce further the commercial sector’s listening share, handing the BBC even more of a competitive advantage.

So why exactly does the notion continue to be voiced by significant players in commercial radio that the DAB platform is itself the answer to the sector’s present lack of competitiveness with the BBC?

[Data source: RAJAR. 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 per week; listening shares to 0.1%) and the listening apportioned to the BBC and commercial radio sometimes does not sum to the total for a platform. Part 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.]

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.