Memorandum submitted by SMG plc (continued)
RADIO
EXECUTIVE SUMMARY
As members of the CRCA, we endorse many of the
points they raise in their submission, but we would like to focus
on six issues, in order of importance.
The role of the radio regulator within OFCOM
We are concerned that radio interests will become
subsumed by those of television and telecoms. There is a need
for a distinct radio regulator within the overarching structure
of OFCOM to ensure radio solutions for radio issues.
The relationship of the BBC to OFCOM
BBC Radio should be regulated on the same basis
as commercial radio with the Governors regulated by OFCOM. The
BBC should be subject to the same format regulation as commercial
radio.
Radio ownership
We believe that competition rules are the most
effective means of ensuring plurality of ownership while allowing
UK media companies to develop. However, should a transitionary
system of ownership regulation be desired, we believe that turnover
is the most effective measure of media market power as detailed
in SMG's Cross-Media Ownership Submission. If there is a desire
to retain radio sector specific regulation to ensure plurality
of ownership, we suggest a transparent numerical formula which
can effectively replace all earlier controls on radio ownership.
Spectrum efficiency
We support all measures to increase the efficient
management of broadcast frequencies especially on FM. We do not
support spectrum pricing as we believe it is incompatible with
format regulation. We support the freeing up of new capacity on
the FM band for commercial radio, particularly for the possibility
of creating wider access to independent national radio.
Digital Radio
We recommend a switchover mechanic to speed
up the process of analogue to digital transfer.
Access Radio
We strongly urge that Access Radio is not commercially
funded, and is subject to the same content regulation as commercial
radio.
1.0 INTRODUCTION
1.0.1 SMG Radio is the radio division of
SMG and was created in 2000 following the acquisition of the Ginger
Media Group by SMG. Virgin Radio formed the largest part of Ginger
Media, with a network predominantly broadcast on 1215am.
1.0.2 Virgin Radio was part of the Virgin
Group until December 1997, when it was merged into a new parent
company called Ginger Media Group, part owned by Virgin, Apax
Venture Capital and Chris Evans, where it sat alongside Evans'
own Ginger Productions and our online company, Ginger Online.
1.0.3 SMG holds a minority stake in Scottish
Radio Holdings, as well as in Switchdigital, the second London
digital multiplex. As part of our interest in Switchdigital, SMG
Radio produces the Groove, a classic soul service. The Groove
is now available both on digital radio and as an Internet audio
stream.
1.0.4 SMG Radio is also part of the DRG
Multiplex Consortium and is applying for regional digital multiplex
licences around the UK. SMG Radio has also just applied for the
analogue FM regional licence for South and West Yorkshire, with
plans for further analogue applications over the next few years.
1.0.5 In addition to Virgin Radio's web
site streaming, SMG Radio is developing new Internet radio brands
and creating commercial joint ventures with third parties to develop
online radio brand extensions. In 1999, Virgin Radio took part
in trials to test the viability of 3G mobile Internet radio broadcasting.
Later this year, in a similar exercise, we will be working with
the world's first commercial 3G network to create a 3G—Digital
Radio hybrid network.
1.0.6 As Virgin Radio, we have a board seat
at both the trade body, CRCA and the Radio Advertising Bureau
and, subject to our detailed submission presented here, we broadly
support the views expressed by these organisations.
1.0.7 The White Paper emphasises the economic
forces of spectrum scarcity and the responsibilities of broadcasters
to make the most efficient use of this resource. Regulation has
traditionally focused on content within broadcasting, but technical
developments have allowed greater access for new entrants, which
is permitting more of an orthodox economic analysis of the sector.
2.0 RADIO REGULATOR'S
ROLE WITHIN
OFCOM
2.0.1 We note the Government's proposal
to create a single regulator in OFCOM and hope that should this
take place it may serve to unite and clarify a series of regulatory
relationships within one body. We believe that communication industries
are fundamentally commercial markets and should ultimately be
the responsibility of one Government department. There is also
the need for special sectoral considerations and content regulation,
as well as regard for taste and decency, all of which should fall
within the overarching powers of OFCOM. (8.6.2 and 8.11.4 The
New Organisational Framework).
2.0.2 We strongly believe there should be
a unique and distinct department within OFCOM, to administer radio
regulation. We support the Radio Authority's belief that "radio
problems should have radio solutions". We are apprehensive
that radio interests will lose out to television and telecoms
whose market power considerably outweigh that of the radio industry.
2.0.3 Regulation for radio should cover
two areas: diversity of content and commercial competition regulation.
The latter of these is covered by competition regulation, which
falls to the OFT and Competition Commission, and our views are
expressed elsewhere in this submission while we feel content regulation
requires a suitably empowered department within OFCOM.
2.0.4 Commercial radio has now grown to
an annual turnover of over half a billion pounds a year, while
in 1990 that figure was £137 million. Radio's share of advertising
spend has grown across the last decade from just over 2 per cent
to nearly 6 per cent, with overall radio listening increasing
from 38 per cent to 46 per cent. In order for this growth to continue
we call for vertical sectoral regulation of radio within OFCOM
and do not believe that convergence necessitates that media and
telecommunications sectors be treated as one overall market in
all matters.
3.0 OFCOM AND
THE BBC
3.0.1 We strongly believe that the BBC should
be subject to independent regulation through OFCOM, and be politically
independent. Regulating the BBC and commercial radio together
would ensure the widest possible diversity of listening choice,
proper and transparent use of public resources and a level playing
field for competition. We also believe that the continual separation
of both regulation and legislation for BBC services with its commercial
competitors is anomalous and untenable.
3.0.2 We support overall relaxation of format
restrictions but would call for basic format restrictions to be
applied fairly to BBC Radio. As a national commercial station
we pay a licence fee and turnover related fees to secure our licence.
The BBC has no current format restrictions and can act in a competitive
manner such as the recent re-positioning of Radio 2. The White
Paper recommends dropping all format restrictions for the three
national commercial stations. Whilst we appreciate the flexibility
to operate in a commercial market, we would recommend that the
current formats remain and instead that the national BBC Radio
services subscribe to broad format restrictions. This would ensure
diversity of service and enable the BBC to focus on its core public
service remit.
4.0 RADIO OWNERSHIP
4.0.1 Should the Government be minded to
retain some form of cross-media ownership regulation, as opposed
to moving to competition rules, we believe such regulation should
follow a transparent assessment of turnover as the most reliable
indicator of market power. We refer to the SMG Cross-Media submission,
which advocates a percentage-based ceiling on market dominance
both overall in the UK and within a given market sector. (4.7
Maintaining Diversity and Plurality).
4.0.2 We believe reforms to the current
radio ownership limits are vital to the future of the radio industry.
We welcome the replacement of the points system with a more effective
and transparent method that combines flexible ownership parameters
with concurrent commercial competition regulation.
4.0.3 In the absence of a comprehensive
cross-media market assessment based on turnover, we consider that
separate sectoral regulation to ensure plurality of ownership
and diversity of editorial voice on a local market level should
be transparent, simple and practical. We understand there is a
desire to retain a mechanism to ensure plurality of ownership.
We broadly support the numerical system proposed by the Radio
Authority and the CRCA but feel strongly that any numerical formula
should take account of all services available to an applicable
marketplace, including BBC, commercial and digital radio.
4.0.4 We believe that the current restrictions
on ownership of more than one national station should be relaxed.
We believe the formal distinction between national and local radio
is unfair, since consumers receive both types of service at the
point of consumption.
5.0 SPECTRUM
MANAGEMENT
5.0.1 We welcome the opportunity to promote
greater efficiency in the use of spectrum by broadcasters, particularly
with regard to FM where this currently helps to promote the widest
access to commercial radio channels. We appreciate the need to
create some form of evaluation of spectrum, but we do not agree
with spectrum pricing since commercial radio already pays spectrum
dues in the form of positive content regulation for local stations
and annual licence payments for national stations. (8.4 The New
Organisational Framework).
5.0.2 Specifically, we are opposed to the
auctioning and trading of spectrum between parties. This could
only exist in an environment where there were no format restrictions.
In this event, diversity of output could not be upheld.
5.0.3 SMG Radio is pleased that the White
Paper endorses "the widest access to commercial radio channels"
and we hope that more opportunities will emerge with new spectrum
licensed for broadcast as well as spare spectrum unlocked by more
efficient management of the FM band.
5.0.4 In view of the requirement for widest
access to commercial radio channels, we are very keen to discover
if there is any mechanic to maintain such access in the light
of external factors. As with many other sectors, consumer preferences
can alter over time. SMG Radio's major asset is currently providing
national radio programming on 1215am, at a time when listening
to music on am radio is declining globally. With such factors
out of the control of licensees, we are keen to safeguard the
widest public access to independent national radio. We feel that
the principle of widest access presents grounds for candidates
to be evaluated when spare spectrum is identified on the FM band.
5.0.5 In section 8.4.2, the White Paper
addresses the independent review of spectrum management announced
in the Pre-Budget Review. SMG Radio strongly endorses a thorough
audit of the radio broadcasting spectrum, particularly a thorough
examination of broadcasting use of Band II (88-108MHz). SMG Radio
hopes that this audit will create new capacity for commercial
broadcasting on the FM band.
6.0 DIGITAL RADIO
6.0.1 SMG Radio is enthusiastic about the
opportunity for digital development of the radio spectrum to permit
a greater diversity of choice and services. We therefore welcome
any form of legislative encouragement for the deployment of digital
radio. (5.11.3 Securing Quality)
6.0.2 We would strongly recommend that the
transfer from analogue to digital would be accompanied by a definite
commitment for analogue switchover. We accept that this transfer
will be slower than with cellular telephones and television owing
to application pricing models.
6.0.3 We appreciate there is concern about
fixing a date for switchover. We would however, urge the Government
to consider a switchover mechanic or a formula for the consideration
of a mechanic when penetration reaches a certain level. This would
convey commitment from the Government and increase enthusiasm
for Digital Radio on the part of consumers and importantly, manufacturers.
7.0 ACCESS RADIO
7.0.1 Access Radio could be a valuable element
in society. SMG Radio welcomes this third tier of radio broadcasting
principally on the basis that it provides an opportunity to satisfy
demand for specialist interests. Access Radio could also provide
a fertile training ground for the next generation of radio professionals
and stars. (4.5 Maintaining Diversity and Plurality).
7.0.2 We are, however, wary of the dangers
of Access Radio becoming a threat to the industry. There should
be a clear separation from any form of commercial funding since
this could become backdoor small scale commercial radio providing
unfair competition for existing small scale commercial radio stations.
7.0.3 If the proposed "access radio
fund" is set up, we believe this fund should not come from
additional payment set upon existing commercial stations. The
fund could come from Lottery grants or be taken from the existing
payments by the three national stations. (4.5.3)
7.0.4 Similarly, we are wary of syndicated
sustaining services or consolidation of Access Radio stations,
which could provide a commercial route into regional radio advertising.
As a national radio station, we welcome fair competition, but
like smaller scale commercial radio operators, we would be wary
of any form of commercial competition, which operated in a different
or subsidised environment.
7.0.5 We feel Access Radio should be subject
to the same regulation as commercial radio with regard to matters
of balance, political impartiality, and programming content.
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