Tag: radio

DAB: the medium of consumer choice?

It appears there may be a factual error in the Digital Britain Interim Report. I assume it was an accidental mistake in drafting. Obviously, a government document would not deliberately misrepresent the facts.

The Interim Report states on page 32:
“Dedicated analogue radio sets are no longer part of the retail mainstream: analogue continues to be used in bundled products (e.g. radio alarms). But, in dedicated radio, DAB has become the medium of consumer choice.”

There are two distinct assertions here:

  • “dedicated analogue radio sets are no longer part of the retail mainstream”
  • “DAB has become the medium of consumer choice”

The second assertion was made by the Interim Report strictly in the context of “dedicated” radio hardware, but the statement was quickly abstracted as a standalone fact. The Guardian wrote that the Report “said DAB had become ‘the medium of consumer choice’”. The Telegraph wrote that “the Report states that DAB digital radio has ‘become the platform of choice’ for radio listening in the UK….” and, in a separate article, said that “Ministers claimed that DAB radio is now ‘the medium of consumer choice’” though it questioned the assertion. Marketing Week wrote that the Report “says DAB has become ‘the medium of consumer choice’ in the UK….” This same assertion was repeated on web sites such as Broadcasting World and Radio-Info.

ASSERTION 1
“dedicated analogue radio sets are no longer part of the retail mainstream”

I have sat through several Powerpoint presentations at radio conferences, both in the UK and overseas, which claimed that analogue radio receivers (AM/FM) have almost disappeared from retail outlets in the UK. The facts tell a very different story.

A survey of electronic consumer goods on sale from the web sites of three of the UK’s most prominent consumer electronics retailers reveals that the analogue radio platform is still alive and well. In fact, at Argos and Comet, electronic goods incorporating the analogue radio platform solus continue to outnumber those with digital platforms.

Interestingly, when DAB radio receivers were first introduced, most models were single-platform (such as the ‘Pure Evoke 1’). This has changed significantly, so that the vast majority of DAB radio receivers presently on sale are dual-platform (mostly DAB + FM). This change provides a significant ‘safety net’ at all levels of the value chain, should the DAB platform fail to develop into a mass medium for radio broadcasting.

For consumers, the incorporation of the FM platform into DAB radios should encourage hardware purchase, removing the perceived risk of platform failure (viz ITV Digital). However, the continued availability of the FM platform in ‘DAB radios’ is likely to impact consumer usage of the DAB platform. If a consumer buys a ‘DAB radio’, but they continue to use the FM platform incorporated within the hardware for part of their radio listening, they are contributing to the DAB platform’s struggle to gain sufficient traction that FM broadcasting can ever be switched off.

Additionally, one wonders how many RAJAR respondents use their ‘DAB radio’ to listen to stations on the incorporated FM platform, but report this listening in their diaries incorrectly as ‘digital’ rather than ‘analogue’. Surely, if I buy a ‘digital radio’ which clearly says ‘digital radio’ on its facia, then all the content I listen to using that radio must be ‘digital radio’? No wonder the marketplace is confused.

Examining the other side of the retail marketplace, in terms of consumer purchases of DAB radios, an appendix attached to the Digital Britain Interim Report demonstrates (page 41) clearly that the vast majority of radios purchased in the UK are not DAB, according to data collected by GfK for the Digital Radio Development Bureau. The graph below updates this same data:

The data show that 79% of radio receivers purchased in the UK during the last twelve months were analogue and did not incorporate the DAB platform. The vast majority of radios sold in the UK continue to be analogue, not DAB, which is why, as demonstrated above, electronics retailers continue to stock so much hardware incorporating analogue radio. In some types of hardware, notably personal media players, the market is still almost entirely dominated by analogue radio (in those models that include radio).

In conclusion, the assertion made in the Digital Britain document that “dedicated analogue radio sets are no longer part of the retail mainstream” seems incorrect.

ASSERTION 2
“DAB has become the medium of consumer choice”

The latest RAJAR radio audience data from Q4 2008 demonstrate that the overwhelming majority of radio listening continues to be consumed via the analogue platform, not via DAB.
In the case of commercial radio, 10% of hours listened are via the DAB platform, whereas 68% of hours listened are via analogue.
For BBC radio, 13% of hours listened are via the DAB platform, whereas 70% of hours are consumed via analogue.

In conclusion, the assertion made in some press coverage that “DAB has become the medium of consumer choice” is incorrect.

SUMMARY

Analogue radio is alive and well in the UK because consumers continue to demand and purchase electronic goods that incorporate the analogue radio platform; and because radio listeners are consuming content predominantly delivered via the analogue platform. These are the facts.

Digital Britain: the devil is in the indefinite article

Commenting last week on the publication of the government’s Digital Britain report, RadioCentre Chief Executive Andrew Harrison said that “the devil will be in the detail”. Absolutely true because, sometimes, a single word can tell you more about the direction that government policy is taking than a weighty tome. In the case of DAB, the wording of the Digital Britain report raised one such question: does the government want the DAB platform to supplement FM/AM radio, or does it want DAB to supplant it?

The Final Report of the Digital Radio Working Group last December had recommended:
“DAB as the primary platform for national, regional and large local stations” [emphasis added].

However, last week’s Interim Report of Digital Britain made a commitment:
“to enabling DAB to be a primary distribution network for radio” [emphasis added].

This may seem like an insignificant detail but, for the radio industry, it certainly is not. If DAB is to be the primary platform, the implication is that if your radio station is not available on the DAB platform, your business will be marginalised. It implies that the FM and AM platforms will be closed down, which would be a disastrous outcome for smaller commercial radio stations who may not be able to afford the cost of DAB transmission and/or who cannot find space on their local multiplex (if that multiplex even exists) [see ‘Committed to its listeners’].

On the other hand, if DAB is to be a primary platform, the implication is that it will be available to consumers as an adjunct to existing FM/AM radio and to IP-delivered content. In this scenario, the ideal radio receiver of the future will be one which, to the user, is ‘platform neutral’ but has capabilities to receive DAB, FM/AM and IP. The user would simply select “Radio 4: live” on the radio’s interface and the radio itself would determine which was the most reliable delivery platform in that location to serve Radio 4 live. Or, the user might select “Radio 4: The Archers” and it would deliver the most recent episode by IP.

Strangely, the subtle difference between “a” and “the” seemed to be ignored by some stakeholders:

Laurence Harrison, director of consumer electronics at Intellect, said:
“This commitment to DAB as the primary distribution network for radio is exactly the sort of strong and decisive leadership we wanted to see from government” [emphasis added]

Frontier Silicon, in its first press release:
“…..welcomed the Government’s commitment to DAB as the primary distribution network for future radio broadcasting in the UK” [emphasis added]

Frontier Silicon, in a second press release:
“…..the Government’s endorsement of the digital migration of radio and commitment to DAB as the primary distribution network for future radio broadcasting” [emphasis added].

The precise wording was also reported badly by some media:

The Guardian’s Media Monkey wrote:
“….DAB radio was the ‘primary distribution network’ for radio….” [emphasis added].

The Sunday Times wrote:
“….DAB digital technology, set to become the ‘primary distribution network’ for radio….” [emphasis added].

The Daily Mail wrote:
“Lord Carter, the Communications Minister, said: ‘We are making a public commitment to DAB as the primary distribution medium’…” [emphasis added].

The Telegraph wrote:
“The Digital Britain report…… gives a firm commitment to digital radio (DAB) as the primary way of listening to content in the future” [emphasis added].

The BBC wrote:
“The culture secretary said digital audio broadcasting (DAB) will become the ‘primary distribution network’…..” [emphasis added].

No wonder the public is confused. The potential implication of the Digital Britain report on areas of the UK where DAB reception is presently non-existent is just starting to be realised. “FM reception in Eden Valley may disappear” said one local Cumbria newspaper headline yesterday. More coverage like this will inevitably follow.

How many civil servants must have scoured the precise wording of the Digital Britain report before it was published? The change of emphasis from “the” to “a” is unlikely to have been accidental. If the DAB platform were to fail (no acceleration in consumer take-up, no increased exclusive content), then the government will find it needs a ‘get out of jail free’ card. The word “a” provides it with the perfect caveat, next month, next year, whenever.

Abbey FM – the tip of an iceberg

Nobody likes to see radio stations close. Nobody likes to see committed radio staff thrown out of their jobs. Nobody likes to see the population of a town deprived of having their own local radio station. Nobody likes to see local businesses of any type disappear.

Abbey FM in Barrow closed at 3pm yesterday after two years on-air, with six full-time staff and six freelancers made redundant. The station was jointly owned by The Local Radio Company [TLRC] (35%), CN Group (30%), and Martyn Rose Ltd. (35%).

Station manager Amanda Bell said yesterday:
“This also means that Barrow will never again have its own radio station. There won’t be another licence issued for Barrow. It was very, very sudden. We had the support and backing of all three shareholders until three weeks ago, when TLRC withdrew their support, which forced the hand of the other shareholders. I was only told of their decision at 12.30pm today. We were doing extremely well and heading towards making profits until July last year and then the economic situation got worse……”

Robin Burgess, CN Group chief executive, said yesterday:
“Abbey started broadcasting in late 2006 but unfortunately has never been profitable. In the present economic climate and, in particular, the effect the recession is having on media revenues, the directors saw no realistic prospect of the station getting into profit in the foreseeable future.”

But can this closure so easily be credited solely to the advertising downturn? Or is its closure a symptom of a much wider issue concerning the licensing of small commercial radio stations in the UK? Both Amanda and Robin mentioned the station’s lack of profitability – what is the real problem?

Abbey FM served an area of only 84,000 adults. It was one of the 21 local commercial radio licences that Ofcom has awarded to date which serve populations of 250,000 or fewer adults. Ofcom’s own research found that local stations serving between 50,000 and 150,000 adults make an average annual loss of £20,000. However, by continuing to licence new stations serving populations as little as 39,000 adults, Ofcom has created even more local stations that are mostly condemned never to make an operating profit. Worse, new stations tend to cannibalise the audiences of existing local commercial stations heard in the same area.

The problem is that, in its radio licensing system, both Ofcom and most of the applicants for its licences embark upon a merry dance together that has little basis in real world radio economics. Ofcom appears to advertise new licences such as Abbey FM’s without any prior analysis of whether the local economy, Barrow in this case, can produce enough new advertising revenues to support a new local station.

Licence applicants submit to Ofcom a business plan (in confidence) and the imperative is almost always to make the figures fit so that the station looks as if it will break even by the end of its third year on-air. This is the greatest stress point for truthfulness. The smaller the station, the less likely it will be (in reality) to break even in Year Three. To make this breakeven work ‘on paper’, the smaller the station, proportionately the greater its projected audience has to be (because radio is largely a fixed cost medium).


Abbey FM acknowledged in its application that “a long-term investment strategy is what is required for this station; there are no short cuts to sustainable profitability”. However, its forecasts for the station’s performance were the outcome of market research which concluded that “66% of all radio listening adults in Barrow would be definitely, very likely or fairly likely to tune in to a new station….” The application then asserted that “a combination of experience and prudence has dictated that we forecast reach of 17% in year 1 rising to 23% by year 3”.

This is voodoo forecasting, where the audience figures are often calculated as the last part of the puzzle to be solved (after profits, revenues and costs), rather than making them the cornerstone of the business plan. This is not intended as a specific criticism of the Abbey FM application. It is an inherent failing of most radio licence applications submitted to Ofcom. The bigger problem is that, if you were to honestly appraise the potential audience of such a small station, the financial forecasts would be unlikely to ever show an operating profit. Put simply, a radio station this small is often not a going concern. Yes, Abbey FM had failed to achieve its targets, but those targets were probably fictional anyway.

However, the merry dance continues because Ofcom exists to licence new stations (even if they are likely to fail), and most radio groups think they exist to win radio licences (even if they are likely to fail). As a consequence, by opening more loss-making stations, the overall profitability of the UK commercial radio sector becomes increasingly eroded, until the profitability of an entire group is weighed down by the number of loss-making stations it is trying to support.

Ofcom often comes close to acknowledging that these small local stations are destined to fail when it explains why it has awarded their licences. For Abbey FM, Ofcom said that:
“…..the committee felt that the backing of three shareholders with, collectively, extensive and current experience of operating smaller radio stations enhanced the likely ability of Abbey FM to maintain its proposed service. The group’s business plan was considered to demonstrate a good understanding of the local market and of the issues that the new station may face, and the ability to save costs through resource-sharing with nearby stations was felt to further enhance the strength of Abbey FM’s financial proposition.”

In other words, this new station will need to be subsidised for an indeterminate number of years by other, profitable stations owned by the same group(s). This is why, almost on every occasion, new small, local stations are awarded by Ofcom to owners that already have radio stations, often in a nearby area. In Abbey FM’s case, CN Group’s station The Bay already enveloped the entire Abbey FM area. Would it not have made more sense for Ofcom to offer the citizens of Barrow a local opt-out of The Bay, so they at least would benefit from some of their own local programming? As it is, they are now left with nothing at all.

So who is to blame? Firstly, Ofcom for having advertised small local licences in the first place which are condemned never to be profitable. A business is not a business unless it covers its costs. Secondly, radio groups who (collectively) have applied for every radio licence advertised by Ofcom. There has not been a single licence, however small, that has not attracted at least one applicant. Thirdly, Ofcom (again) for not having the guts to NOT award a licence to any applicant in an area, where it is plainly obvious that none of the applicants are telling the truth in their business plans and stand almost no chance of ever making a profit. Fourthly, radio groups (again) for seeing each licence win as a way to enhance their balance sheets, regardless of whether those licences can ever be made into profitable businesses.

So the merry dance between radio owners and Ofcom (and its predecessor) has led us to where we are today. Sadly, Abbey FM is merely the first of many local stations that will have to close in 2009. This is not the way it should be. I did not spend the 1970s and 1980s campaigning for MORE local radio stations (ComCom, CRA, etc) to see them close down like this. However, I don’t know of a single, small radio group that is presently not willing to discuss selling some or all of its stations. In my own backyard, there is a local station which is likely to sell soon for £1, or close. Never before have there been so many sellers and yet a complete lack of buyers for local radio.

Abbey FM, RIP. The losers are the citizens of Barrow. The UK radio licensing system has failed them. Why does it appear that no one is willing to step forward and take responsibility (just like the financial sector) for such institutional failures?

Warning! Digital radio objectives may appear closer than they are in reality

By coincidence, the Interim Report of Lord Carter’s Digital Britain team was released on the same day as the latest quarterly RAJAR radio ratings data. The former focused optimistically on the inevitability of the UK replacing its existing analogue radio system with the DAB platform. The Digital Britain report stated:
“We are making a clear statement of Government and policy commitment to enabling DAB to be a primary distribution network for radio” and “we will create a plan for digital migration of radio…….”

This coincidence of timing between Lord Carter and RAJAR offered a perfect PR opportunity for the radio industry to emphasise just how successful its drive towards digital migration has been to date. But where exactly were the stories of dazzling digital radio success?

The RAJAR press release noted that “digital listening hours [are] up 10% year on year” and “DAB ownership [is] up 35% year on year”. The brief RadioCentre press release avoided mentioning digital radio altogether. The BBC press release only mentioned digital radio in the context of its digital-only stations, but nothing specifically about the DAB platform. The Digital Radio Development Bureau [DRDB] press release was headed “Digital listening and hours up” and noted that “radio listening via a digital platform has increased year on year while remaining stable quarter on quarter”. The Bauer Radio press release avoided all mention of the DAB platform. So, not much evidence today of digital radio’s success.

What about the DRDB’s statement that digital platform usage is “stable quarter on quarter”? Only two months ago, DRDB announced the launch of a joint BBC and commercial radio Christmas marketing campaign “aimed at driving sales of DAB radios this season”. Although DAB radio hardware sales in the final quarter of the year had subsequently proven disappointing, might not the campaign have also encouraged some consumers to use the DAB platform more, if they already owned the DAB hardware?

Apparently not. Whilst it is true that the latest RAJAR data show increases in listener usage of digital platforms year-on-year, that growth is nowhere near fast enough to make DAB “a primary distribution network for radio” anytime soon, as Lord Carter has advocated. The Digital Britain report has simply decided to endorse wholesale the earlier proposals contained in the Digital Radio Working Group’s Final Report, as it stated:
“We will create a plan for digital migration of radio, which the Government intends to put in place once….. 50% of radio listening is digital”.

Furthermore, the Report pledged the Government to “work with industry to satisfy the migration criteria by 2015 and, where possible, identify initiatives which could bring forward the migration timetable”.


These are bold words. The RAJAR data shows digital platforms’ share of listening was 18.3% in Q4 2008, down from 18.7% the previous quarter, but up from 16.6% year-on-year. If this last year’s rate of growth is projected and compounded into the future, the 50% criterion would not be attained until 2019. To achieve the desired outcome by 2015, let alone before 2015, would necessitate a remarkable change in radio listening habits, the likes of which have not been witnessed to date.

DAB is presently, by far and away, the most significant platform for digital radio listening (the others are digital TV, the internet and ‘digital’ mobile phone). As a result, Lord Carter’s anticipated increase in digital radio listening is heavily dependent upon consumer purchase of DAB radio receivers, rather than simply a switch from one available technology to another. However, the disappointing sales of DAB hardware last quarter point to sales growth being unlikely to move into positive territory during 2009.
DAB receiver sales in 2008 did not meet the forecast made by the DRDB in 2007, let alone the more optimistic forecasts of previous years. The DRDB did not publish a sales forecast in 2008, but there is little doubt that the growth trend is beginning to look more linear than exponential. DAB receiver uptake is presently the main pre-requisite for growth in digital radio usage and one that is looking increasingly uncertain.

The other essential factor is consumer usage, not just ownership, of DAB radios. If owners continue to listen on their other analogue radios (the average household has six radios) rather than via DAB, it will still take a long time to reach the 50% threshold. It surely must be the exclusive content available on the DAB platform that will promote its usage (though other factors such as DAB’s ease of use and signal strength will play a part). However, 2008 saw a significant reduction in available DAB content, precipitated by GCap Media/Global Radio’s decision to withdraw almost entirely from the DAB content market.

Somewhat surprisingly, given this reduction in available content, the DAB platform’s share of commercial radio listening showed a significant increase last quarter (to 9.9% from 9.2% the previous quarter) but the aggregate usage of digital platforms has stayed remarkably flat during 2008 at around 19%. Put simply, we are not seeing much, if any, growth in digital platform usage for commercial radio. (NB: much of the apparent growth in the graphs above and below derives from re-distribution of earlier ‘unspecified’ respondent data in recent quarters.)
If commercial radio’s success with digital platforms seems ‘stuck’, then the BBC could be in an even worse position. In the last quarter, usage of both the DAB and internet platforms declined, leading to old fashioned analogue radio having accounted for a greater proportion of listening than in the previous quarter (up from 68.8% to 69.6%). This is particularly alarming, given the BBC’s much more extensive cross-promotion of its digital platforms across all media, and given the integration of radio into the BBC iPlayer in 2008. It is true that one quarter’s data alone might only prove to be a statistical aberration, but it is worrying news to arrive on the very day that Lord Carter chose to pin his colours to the ‘radio must be DAB’ mast.
Digital-only stations are not proving to be as attractive to listeners as they need to be in order to drive up usage of digital platforms quickly towards the desired 50% criterion. Year-on-year, hours listened to national digital-only stations are down 7%, yet DAB receiver ownership increased by 35% over the same period, according to RAJAR. In aggregate, 16 national digital-only stations accounted for 33 million hours listening per week last quarter, a drop in the ocean compared to radio’s total 1 billion hours listened per week.

So, the reason it might have been so quiet today on the digital radio PR front is that there really was not much good news from RAJAR to be shouting about, from either the BBC or commercial radio perspective. And the plan laid out in the Digital Britain document, which might look great in theory, still depends upon:

  • increased consumer expenditure on DAB radio hardware
  • increased investment in DAB content
  • increased investment in DAB transmission infrastructure

and thus does not appear to be a plan at all steeped in reality, in a time when discretionary expenditure (personal and corporate) is less forthcoming than ever.

The priority for the radio industry in 2009 must be survival, pure and simple. For commercial radio, it is survival in the worsening struggle against the twin evils of falling listening and declining revenues. For the BBC, it is the struggle to ensure that the commercial radio sector survives. Without a successful commercial radio sector, the BBC’s own radio services could be under threat.

Let us hope that the Final Report for Digital Britain incorporates a greater dose of realism and pragmatism, or unfolding events might easily catch up with it even before its publication.

DAB radio receiver sales suffer negative growth

DAB radio receiver unit sales fell by 10% year-on-year in the final quarter of 2008 in the UK, jeopardising the digital platform’s future as a mass market replacement for analogue radio. This is the first quarter to have recorded negative year-on-year growth since DAB sales records began six years ago. It marks a significant setback for DAB stakeholders who had invested in a six-week marketing campaign during the run-up to Christmas which promoted the DAB platform heavily on BBC and commercial radio.

The Digital Radio Development Bureau, the trade body charged with promoting the DAB platform, issued a press release today stating that the “one ray of sunshine in a gloomy Christmas season for retailers was DAB digital radio”. Its statement failed to mention the negative growth experienced in what is traditionally the most critical quarter of the year for DAB radio sales. Retail data collected by GfK for the DRDB clearly show the declining growth rate of DAB radio sales having started in the second quarter of 2008, a trend that is likely to have been further exacerbated by the ‘credit crunch’.

However, this disastrous sales performance has not prevented those UK companies who are pushing the DAB platform from continuing to talk up the success of their technology. Imagination Technologies, the parent company of the Pure Digital brand of DAB radio receivers, today announced “record export growth for 2008” and that it “had more than tripled overseas sales in the year ending 31 December 2008”. Hossein Yassaie, Chief Executive of Imagination Technologies, said: “Our strong overseas growth is further evidence that DAB digital radio is gaining traction worldwide, and that the transition to digital radio is inevitable.”

However, overseas markets account for only 15% of Pure Digital sales (half-year to end October 2008), so why did Imagination Technologies feel it worthwhile to issue a press release for a relatively insignificant revenue stream? It is probably because Imagination has to convince Lord Carter that the government should back DAB radio technology as part of his recommendations within the forthcoming Digital Britain report. Imagination Technologies has bet the farm on DAB becoming a successful, global technology. If the UK government does not decide to force radio listeners to migrate to DAB technology, Imagination could lose its shirt.

Imagination Technology’s interim results, published six weeks ago, admitted that revenues from its Pure Digital DAB radio receivers were up only 2% year-on-year, a result it attributed to “the downturn” in the UK market, which still accounts for 85% of its global sales. Chief Executive Hossein Yassaie said there had been a “UK slow-down” of DAB radio receiver sales and noted that “the introduction of lower price radios and the onset of the recession meant that the increase of the UK DAB market was less than 5%”. Pure Digital Marketing Director Colin Crawford said this week: “Our [DAB] sales at Christmas were good, though a little bit down on last year.”

Disappointing sales figures seem only to have encouraged the DAB protagonists to push the boundaries of their government lobbying beyond the limits of truthfulness. In its latest annual report, Imagination Technologies claimed that “DAB has reinvigorated the now rapidly growing UK radio market and effectively replaced analogue radio”. The latter statement is untrue. According to industry data, only 21% of radio receivers sold in the UK during the last twelve months were DAB, the remaining 79% being old fashioned analogue. The overwhelming majority of radios in use in the UK remain analogue, and DAB is nowhere near having “effectively replaced” them.Another corporate victim of over-enthusiastic government lobbying for DAB is Frontier Silicon, whose Chief Executive Anthony Sethill was quoted in a company press release issued in December 2008 as saying: “Digital radio is here to stay, with DAB sets outselling analogue models by six to one”. Once again, the industry data demonstrates this statement to be a blatant untruth, and simply part of a desperate campaign by a clutch of inter-connected companies to convince the government that DAB technology is already a ‘success’ in the UK.

Frontier Silicon is a privately owned UK company which describes itself as “the world’s leading supplier of innovative semiconductor, module and software solutions for digital radio and connected audio systems”. Its electronic modules are in 80% of all DAB radios, making it “the number one supplier to the DAB/DAB+ market”. In 2003, Imagination Technologies took a 17% equity stake and £1.25m of loan stock in Frontier Silicon. Imagination has an 80% share of the worldwide market for the intellectual property on DAB chips, which are then incorporated into Frontier Silicon’s modules. However, in 2008, Imagination’s stake in Frontier Silicon had to be written down from £7 million to £3.6 million, likely a result of slowing DAB take-up.

Another of Frontier Silicon’s ten investors is Digital One, the owner of the UK’s only national commercial radio DAB multiplex. Digital One is controlled by Global Radio, the UK’s largest commercial radio group, owner of one national station, dozens of local stations and with stakes in the majority of local DAB multiplexes. For Imagination Technologies, Frontier Silicon, Digital One and Global Radio, a decision by the UK government to implement a forced consumer migration to DAB radio would have a hugely beneficial impact on their financial performances. For Imagination, which reported its first profitable year in 2007/8 (£1.88 million pre-tax profits), it might even turn the company’s forecast 2010/11 pre-tax profit of £11.84 million into a reality.

More than a decade ago, the idea of a few bright sparks in the government’s Department of Trade & Industry was that DAB radio technology could be quickly made a hit in the home market, take-up would then spread globally, and DAB would become a hugely profitable technological export for the UK. This dream continues to be espoused by Intellect, the trade association of the UK technology industry, which told Lord Carter in December 2008:
“The UK is the home of the major chip manufacturer of DAB silicon, as well as two leading receiver manufacturers and, as such, is uniquely positioned to benefit from the potential expansion of DAB not just in the UK, but globally. We believe that this example of high value manufacturing could make a substantial contribution to the UK’s future prosperity………….”

Unfortunately, the dream is not working out as planned. DAB take-up in the UK market has proven laboriously slow and is in danger of being superseded by newer technologies. Worse, overseas markets have shown little interest in DAB. In Europe, only Denmark has a DAB market as developed as the UK’s. Globally, Australia is about to launch DAB but the largest market, the US, has chosen a different digital radio standard. Several countries have experimented with DAB and since abandoned the technology.

With overseas markets looking less likely to prove a source of significant export revenues, the UK technology companies pushing DAB have become increasingly desperate to ensure that their products at least succeed in their home market. Hence, their desperation to persuade the government to force a consumer switchover from FM to DAB. The average household owns six radios, and a government-backed FM switch-off will force all six to be replaced with shiny, new DAB radios. That’s a lot of potential revenue for a select number of UK technology companies.

DAB radio: now you hear it (in-store), now you don't (in-home)

The Digital Radio Development Bureau [DRDB] announced yesterday that, after a one-year trial, Ofcom “has agreed to put in place a permanent licensing regime for all retailers across the country” to install DAB repeaters that will boost the signal in-store. According to DRDB:
“Many electrical retailers suffer from poor analogue and DAB signal strength due to the steel framed infrastructure of the building or their basement location. Installing a DAB repeater on the roof of the store means a signal can be boosted in-store and DAB radios can more easily be demonstrated, thus increasing sales potential.”

Currys owner DSGi’s Trading Manager Amanda Cottrell said:
“We know from experience that demonstrating DAB radio in-store is the best way to show consumers the benefits of more station choice, ease of tuning and clean, digital quality sound. Consumers like to get hands-on with new technology and these DAB repeaters will help us to maximise sales in areas where demonstration was a problem.”

I understand the retail sales floor problem, but am I the only one worried that the solution implemented here might not be quite appropriate? I admit it is a very long time since I studied consumer law (1981, Durham Technical College), but my thinking is that these actions could potentially lead to consumer redress under UK legislation. Have the legal eagles at Ofcom considered this fully?

Under Section 15 of the Sale Of Goods Act 1979, when goods are sold by ‘sample’ (ie: consumer sees in-store demonstration sample of DAB radio receiver, but store supplies consumer with sealed, boxed good), “the goods must correspond to the sample in quality”. The law requires “that the goods will be free from any defect, making their quality unsatisfactory, which would not be apparent on reasonable examination of the sample” [my emphasis].

Under the new ‘repeater’ system, when the consumer examines the in-store sample of the DAB receiver, the receiver will be capable of offering ‘perfect’ reception of DAB radio stations. This is due to the installation of special in-store equipment. A fixed antenna has been installed on the roof of the building, pointed directly to the nearest DAB transmitter mast, and its received signal supplies a relay transmitter (transmitting the same stations) placed on the shop floor adjacent to the DAB radio receiver demonstration area.

When the consumer takes the sealed, boxed DAB radio home, they may open it and find that reception of radio stations on their hardware is not as good as it was in-store. This is because their radio is not receiving the DAB signal from a relay transmitter only metres away from the receiver, as it was in-store. Instead, it is receiving signals from the nearest DAB transmitter, probably miles away, and that signal may or may not penetrate the building in which they are using the radio.

The consumer could theoretically apply to Ofcom to install a relay transmitter in their home, in order to replicate the precise conditions in which the sample DAB receiver was demonstrated in-store. Ofcom’s response to the consumer’s application would certainly be ‘no’. Thus, the in-store ‘sample’ DAB receiver was purposefully demonstrated to the consumer under an artificially created environment that cannot ever be reproduced within the consumer’s home.

This would not be the first time that the marketing of DAB radio in the UK has come under legal scrutiny for potentially misleading consumers. In 2004, Ofcom banned an advertisement broadcast on London station Jazz FM which had claimed falsely that DAB radio offers consumers “CD-quality sound”. In 2005, the Advertising Standards Authority upheld a complaint against DAB multiplex owner Switchdigital for a misleading radio advert which had claimed that DAB radio was “distortion free” and “crystal clear”. In its verdict, the ASA said it had “received no evidence to show that DAB digital radio was superior to analogue radio in terms of audio quality”.

The problems concerning the paucity of DAB reception in some circumstances (basements, steel buildings, built-up areas) have been known to the broadcast industry for a long time. At the 2006 TechCon event, Grae Allen, then manager of digital distribution at EMAP Radio, had explained that “[the] Wiesbaden 1995 [radio conference] and all the other DAB planning dealt with mobile reception – in-car and portable outdoors. It made assumptions about aerial heights being just above ground level and, to provide good service to 99% of locations, the conclusion was that it required 58dbųV per metre to maintain that quality of service, and it made some assumptions about the performance of receivers and aerials.” In practice, he said, “some receivers do not quite live up to expectations – some have lossy aerial systems and suffer from self-noise.” Grae said that 2006’s European Regional Radio Conference “[was] moving DAB to become a truly indoor medium. The new planning model has around 10dbųV higher field strength than was envisaged in the original plan.”

In 2006, BT Movio had been about to launch a mobile TV service using DAB spectrum, and Grae said: “That raises a question. We are seeing increasing numbers of hand-held receivers, such as the BT Movio receiver, that do not have an aerial of any significant size. So, in some areas, we may have to go to higher field strengths to deliver to handhelds indoors. So how are we going to improve the coverage? Unfortunately, the people who fill in RAJAR diaries don’t tend to live in large numbers alongside the sheep in the fields [where DAB transmitters are mostly located]. They live in the cities and the urban sprawl, and that’s where we need to deliver the high field strengths that are required for the types of receivers that are becoming popular, and the level of service that is expected. In the future, as I envisage it, we will see a need to put more and more [transmitter] sites inside the cities in areas where we actually need significant power where people are living and working.”

Mark Thomas, then head of broadcast technical policy at Ofcom, admitted at the 2006 TechCon event that the original DAB power allocations had proven too low: “The Radio Authority had no data of how [DAB] receivers performed, so it had to make some very broad-brush assumptions. More recently, now that we have a lot of receivers in the market and we can see how they behave, an industry group has been working under Ofcom’s chairmanship for the last two years to look into the issue in more detail and come up with some modus operandi for new transmitter sites”. Mark concluded: “The Ofcom approach is that the industry co-operates between commercial operators with each other, and with the BBC, in identifying the sites that will improve field strength of DAB services to consumers and will also avoid the issues surrounding Adjacent Channel Interference. ACI also adds to the investment challenge that all of this spectrum development is building.”

Now zoom forward from 2006 to December 2008 and read the Final Report of the Digital Radio Working Group, which said:
“We believe that action is needed to improve the quality and robustness of the existing [DAB] multiplexes’ coverage. We recognise that such a request has significant financial implications for multiplex operators…”

So, it would appear that, from 2004 onwards (when Mark acknowledges Ofcom was aware of the problem), the UK radio industry has continued to market and sell millions of DAB radios to UK consumers, in the full knowledge that its DAB transmission infrastructure requires a significant upgrade to provide consumers with sufficiently robust DAB radio reception in built-up areas and in homes.

The latest DRDB ‘repeater’ sales initiative merely tackles the symptom of poor DAB reception which has existed for years, and the solution is limited entirely to electronics retailers. What is still missing is a solution to the core problem of the “quality and robustness” of DAB radio reception….. for consumers.

The Digital One DAB radio multiplex – fixing 'market failure'… ten years too late

Digital One is the owner of the UK’s first and only national commercial radio DAB multiplex. If you produce commercial radio content that you wish to make available nationally on the DAB platform, you have to go to Digital One and agree a price and a contract. That price is set by Digital One, not by Ofcom or any other regulatory body. Digital One is the national DAB ‘gatekeeper’ and it decides what commercial radio brands we hear and what we don’t hear on DAB. It would be hard not to consider Digital One’s operation monopolistic.

Furthermore, Digital One is part of a vertically integrated business. Its controlling shareholder is Global Radio (formerly GCap Media, formerly GWR Group), the UK’s largest commercial radio group. In this way, Digital One/Global Radio’s business is an end-to-end operation that includes: generating radio content (‘stations’), some of which are carried on the DAB platform; selling advertising space around that content, some of which is carried on the DAB platform; owning the national DAB platform in the UK; and owning the ‘gatekeeper’ role for other radio content providers wanting access to that national DAB platform. (This ‘gatekeeper’ role was bestowed upon the DAB multiplex owner, rather than Ofcom, by the 1996 Broadcasting Act.)

Does Digital One’s business work in the interests of a competitive broadcasting sector or the listening public? Is this not a case where some kind of intervention by the regulator is appropriate? Within Ofcom’s own definition of ‘market failure in traditional broadcasting’, one of the main six reasons it uses to justify regulatory intervention is where:
“Restricted access to spectrum makes entry impossible on market grounds and, without competition, the ability of the market to deliver the most efficient solution is impaired”.

Ofcom then explains this issue in more detail:
“A tendency towards monopoly/oligopoly. Economies of scope and scale are inherent in broadcasting and will tend to encourage the concentration of ownership in large, often vertically-integrated companies. The result of an unregulated market might therefore be reduced competition, less choice for viewers and either higher prices or lower quality than would be available in a competitive market”.

Is this not exactly what has happened with the national commercial radio DAB platform? Digital One seems to have operated its ‘gatekeeper’ monopoly over the platform in a way that that has reduced competition, offered less choice to listeners, and maintained high carriage prices. The end result? After a decade of operation, there is only one radio station that has elected to contract with Digital One to be carried on its DAB platform of its own volition. There is enough bandwidth on the multiplex for a clutch more national stations, but that capacity remains unused.

Digital One was awarded a 12-year DAB licence in June 1998 to operate the “first and only national commercial digital multiplex licence”. It promised to pay the regulator a licence fee of £10,000 per annum. However, until very recently, if you had approached Digital One and asked the cost of putting a radio station on its multiplex, you would have been expected to pay more than £1 million per annum. Furthermore, if your proposed content competed directly with that of Digital One/Global Radio’s own digital radio stations, carriage might not have been offered, even at that price.

Therefore, it proves somewhat surprising to see today that Digital One issued a press release and published an advertisement inviting “expressions of interest from companies ready to contract and launch digital radio stations in 2009” on its DAB multiplex. It is even more surprising to learn that “capacity is available for mainstream stations, as well as more specialist channels appealing to a diversity of tastes and interests”. And it is shocking to read that “Digital One is reviewing its charges for capacity” and that “it is anticipated that prices will initially be set below Digital One’s 2008 rate card, in order to provide an incentive for approved applicants to invest in high quality services….”

The appropriate time to have published such a ‘call for content’ was June 1998, immediately after Digital One was awarded the DAB multiplex licence by the regulator. Perhaps then the sad story of the DAB platform’s slow development in the UK would have turned out differently. By now, Digital One might have fostered a broad range of audio content on the national DAB platform provided by a variety of producers, creating a ‘compelling consumer proposition’ that could have motivated the public to purchase DAB radios in significant numbers. But, unfortunately, it did not turn out that way and now, after a decade, DAB remains barely off the starting blocks.

Instead, for a decade, Digital One has clung on to the notions that:

  • its monopoly over the DAB infrastructure is valuable in itself, even if the capacity is mostly unused (is a rail network valuable without trains?)
  • its ‘gatekeeper’ role enables it to push its own digital services to listeners, at the expense of competitors and potential competitors
  • high carriage fees for external users will quickly put them out of business
  • listeners will lap up its own controlling shareholder’s content on the DAB platform, however little is invested in its production (one computer + 100 CDs = digital radio station)
  • ‘control’ of a broadcast platform is alone sufficient to create a profitable monopolistic business

It hardly inspires confidence in the Digital One DAB platform that Global Radio’s predecessor, GCap Media, closed three of its own digital-only stations carried on its platform last year, and sold Planet Rock to an entrepreneur with no other radio interests. Neither is it a good advertisement for Digital One that its platform “providing coverage to 90% of the population of Great Britain” only succeeds in securing a peak half-hour audience of 79,000 adults for its last remaining digital-only audio contractor, Planet Rock.

Digital One’s licence for the “first and only national commercial digital multiplex licence” will expire on 14 November 2011. Would I sign a contract with a company that has unashamedly hogged the UK DAB national multiplex for its own selfish ambitions since 1998, but now suddenly wants to offer me capacity on its multiplex, just as its own life is expiring? My attitude would be: so you’ve screwed up almost a decade of your 12-year monopoly and lost everything but your shirt in the process, but now, on your deathbed, you want me to pay you good money for carriage on a platform that you yourself have helped ruin?

Digital One’s announcement today reminds me of those grocery stores that put cans of food in a 10p bargain bin that are not only damaged, but are also only a few days away from their expiry date. You expect me to buy these? I guess we will see if there is somebody out there desperate enough to take the bait. I can think of many radio formats unavailable on AM/FM that should have a national platform in the UK. Would any of them work on DAB? Ten years ago, yes, they might have done. Now, no. The DAB platform has proven to be a failure with consumers, and Digital One has played a very large part in making it so. And yet, Digital One has decided now to advertise its newfound enthusiasm for “enhanced choice, variety and innovation” on its DAB platform.

A case of: too much, too little, too late…….

Shipwrecked on desert island DAB

One important question was sidestepped by the Digital Radio Working Group in its enthusiasm for the DAB platform in the Final Report: if DAB only comes to be adopted in a handful of countries, what are the ‘opportunity costs’ for UK consumers? In other words, if UK consumers are forced by government policy to purchase DAB receivers to replace their analogue radios, what other consumer hardware will they not purchase, either because it does not incorporate DAB radio, or because they have already spent their allocated budget replacing all five or six analogue receivers in their household with DAB radios?

The answer might be provided by the annual International Consumer Electronics Show [CES] taking place this week in Las Vegas, which describes itself as “the world’s largest consumer technology tradeshow” with 2,700 exhibiting companies, 500 expert speakers and 200 conference sessions.

The Digital Radio Working Group had written in its Final Report that:
“…. the DAB standard used in the UK and all three variants will be receivable on [radio] sets which manufacturers will be producing from [2009], so creating a European-wide market for digital radio.”

You might imagine that such innovations in DAB radio hardware would be reflected at this week’s CES event? Apparently not. Only 6 out of the 2,700 exhibiting companies list ‘DAB’ in their descriptions – the UK’s Frontier Silicon (“the leading supplier of audio processors for digital radios powering over 70% of all DAB radio products”); Germany’s Fraunhofer Institute (“audio/video compression technologies”); Taiwan’s Joycell (broadcast antenna manufacturers); China’s Blue Tinum and Shenzhen Baoan Fenda which manufacture DAB/FM/internet radios; and Hong Kong’s Kenwin Industrial which makes plastic injection moulds for electronics products. Additionally, not one of the 200 conference sessions at CES is about DAB. The reality is that, for most of the 130,000 people attending the event, DAB will simply not exist.

But, if you do a search for ‘internet radio’ at CES, you find a list of 393 exhibitors, 320 products and 32 conference sessions. Now compare that with ‘DAB’: 6 exhibitors, 8 products, 0 sessions. Furthermore, the newly formed Internet Media Device Alliance, a group of companies significantly involved in internet radio, will be launching at CES. One of its steering committee members is Anthony Sethill, CEO of Frontier Silicon, who said: “Frontier’s role in the formation of the IMDA affirms our position as the leading supplier of Internet radio connected audio products to the global consumer electronics market.” The significant word there is ‘global’. Despite its current dominance of the largely UK market for DAB, Frontier needs a global market for its product lines…. something that DAB’s limited take-up will never offer it.

So why does the Digital Radio Working Group want to shipwreck UK radio listeners on a desert island of DAB (for accuracy, I should add that you can take your DAB radio to Denmark or Norway and it will work there too)? The answer might be in paragraph 3.10 of its Report, which states:
“We strongly believe that in order for radio to preserve the qualities which make it such a valued part of our everyday lives, and to allow it to build a strong future, it must have a space where it can be the master of its own destiny and have the freedom to take risks” [emphasis added].

If you replace the word ‘radio’ with ‘the BBC and UK commercial radio companies’ and then read this sentence again, it becomes perfectly clear that what the Working Group is advocating is protectionism of the British radio broadcasting industry – protectionism from unregulated radio content delivered from non-UK sources via internet radio. Heaven forbid that we UK residents might prefer listening to Ryan Seacrest over Johnny Vaughan, because the government will seemingly do as much as possible to stop such an outrage happening.

If you think this is a fantastical notion, I suggest you read paragraph 3.9 of the same Report, which is unapologetically ‘patriotic’:
“Radio is an important part of the national discourse and perhaps an even more important voice in local democracy. These principles are the bedrock of radio in the UK and we believe they are something which citizens not only value, but expect”.

The fact is that UK radio, much more than television, offers an easy platform for politicians and their policies to be propagated to mass audiences of voters (viz Radio 4’s Today programme). Incredibly, the Central Office of Information has long been commercial radio’s biggest advertiser! The best way to preserve this cosy relationship is to build a wall around it.

For the mandarins, it might look like a nice walled garden to play in. For us consumers, it has all the hallmarks of a content prison.

Heart disease – turning 'big fish/small pond' into 'big pond/small fish'?

Today has seen Global Radio extend its Heart FM brand to more local markets in England, replacing heritage names such as Chiltern, Hereward and Broadland that seem to have existed for decades. There seem to be at least three different issues involved in these changes:

1. The loss of ‘heritage’ station names. One of radio’s biggest long-term challenges has always been the difficulty users have had finding stations on their analogue radio and identifying them properly. The more crowded the AM/FM wavebands become, the more imperative this ‘finding’ and ‘identifying’ becomes. In the early days of UK commercial radio, most station names did not include their frequencies simply because there was so little choice on the dial. Although the switch to Heart FM does not involve frequency changes, it is bound to cause confusion amongst some listeners that their radio might have tuned to something other than their favourite station. If they then switch the dial, there is the potential to lose their listening to a competitor. Anything that encourages dial twiddling can only be a bad thing.

2. Brand duplication. In markets such as Bedfordshire, Heart FM was already heard across parts of the area from the Londonwide station of the same name. In Dunstable/Luton, Heart FM London attracted a 3.1% share, compared to local station Chiltern FM’s 8.6%. From now on, two Heart FM’s can be heard on different frequencies. How exactly will RAJAR determine if a respondent in Bedfordshire was listening to Heart FM Dunstable or to Heart FM London, particularly at times when they carry the same programmes? For the consumer, is this not reducing the content choice in the market? For Ofcom, is this not wasteful duplication of frequencies, something for which the commercial sector has always been quick to point an accusing finger at the BBC?

3. Networked programming. Heart FM stations will retain local programming on weekdays 0600 to 1000 and 1300 to 1900. The PR script from Global HQ to be used as quotes in the local press runs:
“We have increasingly found our listeners have more than just a local outlook. They read national magazines like Hello and Heat, they watch national TV shows and they surf the net, too. As well as local news and information, listeners are telling us they want more showbiz gossip, more celebrity interviews and a bigger professional sound from their local station. Currently, they have to switch to national stations like Radio 1 and 2 to get this.”
The networked shows on Heart FM are presented by Toby Anstis (1000 to 1300), Matt Wilkinson (1900 to 2200), Simon Beale (2200 to 0100) and Gareth John (0100 to 0600). I am sorry but, when you compare this talent to the name presenters and significant editorial content on Radios One and Two, it pales by comparison.

The problem? Global Radio, just like GCap Media before it, and GWR Group before that, bought a bunch of local commercial radio stations and wanted to turn them into something they are patently not – an almost, kind of, quasi-national station. In the UK, we have local commercial radio stations licensed to serve local populations, and separately we have national commercial radio stations licensed to serve national audiences. They are different. If I were to buy a grocery store in Dunstable, and then I buy a similar store in Luton, and suddenly hang an identical sign on the front of both of them that says “Global Supermarket”, it does not automatically put me in the same league as Tesco, Asda or Sainsbury. Surely, the way a local shop can thrive commercially is by striving to perfectly complement the offerings of the big supermarkets, not by trying to emulate them. As a consumer, if I want Asda, I will go to Asda. If I want Radio Two, I will go to Radio Two, not jumped-up, local-ish, quasi-national Heart FM.

Global Radio’s aspirations ‘to make a station what it is not’ are no different than many previous radio station owners. When Jazz FM won the first specialist music licence in London, its owners tried their hardest to make it anything other than a jazz music station. When EMAP bought KISS FM in London, it wanted it to compete head-on as a pop music station with Capital FM. When EMAP bought Melody Radio in London, it wanted it to be anything other than an easy listening station. A succession of owners of Virgin Radio tried to make it anything other than a straight ahead rock music station. Now that Global Radio has bought Choice FM, it seems to want it to be another KISS FM, rather than a station for black Londoners. I could go on and on…. The wheel is being constantly reinvented day in, day out. Many times, in radio, it turns out square.

Forgive me a short anecdote. Soon after it had opened, I visited the new local commercial radio station for Reading called Radio 210 for a guided tour. I lived only 14 miles away, but I could not pick up the station’s signal because its transmitter covered only the city of Reading. In 1979, the station had a weekly reach of 41% adults and cumed 2.4m hours/week [JICRAR]. Between then and now, the station’s owners lobbied the regulator successively (and successfully) to allow them to extend the station’s area by adding relay transmitters and increasing power outputs. Today, that same station covers most of Berkshire, North Hampshire and as far west as Andover, which is almost 50 miles from Reading (does anyone in Andover feel a connection to faraway Reading?). Today, Radio 210’s weekly reach is 28% and it cumes 1.3m hours/week, even in its much expanded coverage area [RAJAR].

The conclusion. You can become a big fish in a small pond, with a lot of hard work and effort. You can deliberately move to a bigger pond. But you must accept that you will now be a smaller fish….. and the massive risk is that you might never be a big fish ever again….. anywhere, any when.

For the US experience, “Why Local Radio Is No Longer Local” is a very worthwhile (lengthy) read [thanks to Mark Ramsey for the tip].

Ofcom's radio licensing strategy – adding fuel to the unprofitable fire

The closure of Edinburgh station Talk 107 on 23 December almost coincided with the fifth birthday of Ofcom (on 29 December). Talk 107 was the first commercial radio station to be licensed by Ofcom, so its failure and subsequent closure could seem symptomatic of Ofcom’s radio licensing strategy. Over five years, instead of Ofcom playing a significant role in creating a vibrant, profitable and creative UK commercial radio industry, its licensing decisions have often exacerbated the problems of a sector already beset with massive structural and financial challenges.

Ofcom has licensed 39 new commercial radio stations to date, taking the total number of UK licensed commercial radio stations past the 300 mark. This number, in itself, is a large part of the problem. These newly licensed stations each add a whole new set of largely fixed costs to the sector. Even if the average cost of each of these new stations is only £250,000 per annum, Ofcom’s licensing has increased sector costs by almost £10m per annum (in 2007, Ofcom estimated the sector’s aggregate costs as £400m).

At the same time, most newly launched commercial radio stations have failed to attract significant new listening or new revenues to the sector. New stations seem to simply cannibalise the audiences of existing commercial radio stations (I researched the impact of introducing the tier of regional commercial stations and found only one station had not cannibalised commercial radio audiences). As a result, the sector’s aggregate costs have increased whilst its aggregate revenues have not been expanded, and so profit margins are being squeezed further.

Additionally, the formats of many of the winners in Ofcom’s licensing ‘beauty parade’ were inevitably destined for commercial failure, with Ofcom seeming to ignore the empirical evidence. In a market the size of Edinburgh, Talk 107’s talk format could never succeed, given that the same format has been unable to make an operating profit in the UK’s largest local market, London, since the end of the 1980s. Similarly, Ofcom’s idea of introducing a local rock music station in Plymouth would have been a disaster (the station never even launched) given the miserable audiences for Xfm and Virgin Radio. And the three Original stations licensed by Ofcom launched with such esoteric music formats that their failure quickly prompted owner CanWest Global to sell up and quit the UK radio business altogether.

The size of most of the newly licensed stations was insufficient to ever make them profitable. Ofcom’s own research found that the majority of small stations fail to generate an operating profit – stations serving under 50,000 adults make an average annual loss of £3,000; stations serving between 50,000 and 150,000 adults make an average annual loss of £20,000; and stations serving between 150,000 and 250,000 adults make an average annual profit of £65,000. Although 63% of commercial radio stations serve areas of less than 250,000 adults, they collectively generate only 11% of sector revenues.

Knowing the unprofitable economic performance of most small commercial radio stations, it made no commercial sense for Ofcom to choose to licence 21 of its 39 new stations to populations of 250,000 or less. All this has done is increased the number of loss-making commercial radio stations and dragged down the profitability of the entire sector. The roll-call of stations licensed by Ofcom in its first five years includes:

  • Talk 107 Edinburgh, closed by UTV after 15 months on-air
  • Touch FM Banbury, up for sale or closure by CN Group after two years on-air
  • Brunel FM Swindon, sold by The Local Radio Company after 21 months on-air to Laser Broadcasting, forced into administration four months later, acquired by Southwest Radio
  • Original Solent, Original Bristol and Original Aberdeen, sold by Canwest Global which exited its UK radio venture two years after Solent had launched
  • Diamond FM Plymouth, never launched by Macquarie Bank
  • Southend Radio Southend, sold by Tindle Radio to Adventure Radio before it launched
  • Sunshine FM Monmouth, acquired by Murfin Music when Laser Broadcasting forced into administration after 10 months on-air
  • Xfm South Wales sold by GCap Media to Town & Country after six months on-air
  • Minster FM Northallerton, licensed to serve 39,000 adults, annexed to Darlington after eight months on-air
  • Perth FM Perth, eventually launched last month, two years after winning its licence from Ofcom, and ten weeks after owner Mark Page closed L107 Lanarkshire
  • The Severn Shrewsbury and The Wyre Kidderminster, now sharing programmes under co-owner Midland News Association
  • kmfm Ashford, now sharing programmes with co-owned KM Radio stations
  • [a question remains over the control of Andover Sound Andover and whether licence winner Tindle Radio has sold or reduced its 100% stake between the licence award in July 2006 and the station’s launch in May 2008]

Some of the 39 new local stations licensed by Ofcom are only required to broadcast locally-produced content for four hours per day on weekdays (the breakfast show), while the majority are required to broadcast no more than four hours per day of locally-produced content on weekends.

The question has to be asked…. Are the financial losses incurred by these stations worth the marginal amounts of local content offered to the populations in the markets they serve, and the resultant low ratings achieved by most of them?

So what is the point of licensing small local radio stations that barely broadcast local content and are unlikely to break even?