Memorandum submitted by the Commercial
Radio Companies Association
CRCA
The Commercial Radio Companies Association (CRCA)
is the trade body for UK commercial radio. It represents Commercial
Radio to Government, Ofcom, copyright societies and other organisations
concerned with radio. It manages the Radio Advertising Clearance
Centre which clears national and special category advertisements
prior to broadcast. CRCA also jointly owns Radio Joint Audience
Research Ltd (RAJAR) with the BBC and was instrumental in the
formation of the Digital Radio Development Bureau, a company owned
by UK digital radio multiplex owners.
CRCA members include national commercial radio
stations, as well as most commercial local and regional stations.
They account for 45% of all the radio listening in the UK and
around three quarters of local listening. CRCA promotes the importance
of Commercial Radio and plays an active role in promoting conditions
that will enable it to thrive into the future.
EXECUTIVE SUMMARY
CRCA believes that BBC Radio's purpose, funding
and regulation are the principal factors that should be taken
into account when considering whether and how the BBC's Charter
should be renewed.
PURPOSE
— We believe that BBC Radio's different
funding ought to mean that it has a different purpose from that
of commercially funded radio broadcasters. We accept that competition
between the BBC and the commercial sector has value for both sides
and thus listeners in the middle. But we think there is a significant
difference between competition and mere imitation or duplication.
Licences for BBC Radio services should include format descriptions
that require BBC popular music stations to complement rather than
imitate commercial popular music radio services both during peak-time
(0600-1900) and outside it.
REGULATION
— Whatever arrangements are arrived
at for the future regulation and funding of the BBC, they should
be undertaken by an independent regulator able to respond to changing
communications market conditions. If this is not done, the new
arrangements should be for only five years or with a break for
re-examination at five years.
— A BBC Board should be responsible
to the regulatory body for the running of the BBC and the meeting
of the relevant body's licence conditions and codes.
FUNDING
— BBC Radio should continue to be publicly
funded but the decision and its justifications on how much money
should be assigned to BBC Radio should be entirely transparent
and should take into account factors outside the BBC including
the success of, and provisions being made by, commercial radio.
— We do not think BBC Radio should
have access to commercial funds of any kind, including those used
to pay for BBC marketing activities or events whether or not broadcasts
are made from them (eg the sponsorship by Renault of the Radio
2 Proms in the Park). In addition, the BBC should not broadcast
the names of those sponsoring off-air events or things independent
of the BBC (for example, the "RBS Six Nations Championship"
should be merely "The Six Nations Championship" when
mentioned or covered on BBC Radio).
CRCA'S ANSWERS
TO THE
COMMITTEE'S
QUESTIONS
In answering the Committee's questions we have
confined our remarks to radio.
QUESTION 1
What scope and remit should BBC Radio have?
1.1 The shape, size, nature, funding and
regulation of BBC Radio are important to UK Commercial Radio.
Commercial Radio people admire and respect much of BBC Radio's
output. Commercial and BBC Radio frequently co-operate in the
interests of the entire radio industry via the Digital Radio Development
Bureau (DRDB), the Radio Joint Audience Research Company (RAJAR)
and the Radio Academy.
1.2 Commercial Radio seeks greater predictability
and precision of scope in BBC Radio activities; a proper balance
between ratings and the kind of radio programming that is worthy
of public funding; and greater accountability and effectiveness
from BBC Radio's regulatory framework, whatever that may eventually
be.
1.3 We think it is reasonable to expect
BBC Radio to be regulated no more lightly than Commercial Radio
in both content and competition terms. In addition we expect BBC
Radio's funding to respect the principles of the EU state aid
rules.
BBC Radio's size and resources
1.4 BBC Radio is huge. It dominates national
radio in a way that its television services do not dominate terrestrial
television. BBC 1 and BBC 2 face national commercial equivalents
in the form of ITV, Channel 5 and Channel 4. Successful though
the three analogue, commercial national radio stations are, only
one is on FM. Not only are they fewer they are also much newer
than the BBC's core national radio services. National services
inevitably achieve the lion's share of national press attention
and hence Westminster and Whitehall interest.
1.5 Here are the key facts about BBC Radio's
scale.
— It achieves 52% of all UK radio listening;
— owns 70% of available FM broadcast
spectrum;
— has 5 of the available 8 national
analogue radio services;
— has 4 out of the 5 available national
FM radio services;
— owns 6 analogue services and five
digital-only services audible in almost every part of the UK;
— receives around £348,000,000
from the television licence fee for its 54 national, regional
and local analogue and digital radio services;
— employs an average of 200 people
for each one of its services;
— enjoys the cross promotional support
of the two BBC national television channels;
— owns all the services on its own
national digital radio multiplex;
— and provides all its radio services
via all digital platforms including Freeview, the national terrestrial
television multiplex which is controlled by the BBC.
1.6 None of these advantages is available or
applies either to a commercial radio company or to Commercial
Radio taken as a whole. In addition, BBC Radio is increasingly
a vehicle for national commercial sponsors to publicise their
brands and involvement in sporting and other activities.
1.7 Commercial Radio does not seek a weak BBC
Radio but submits that some radical reorganisation is now required.
The notion expressed over recent years in some quarters of "fair"
or "necessary" market distortion in order to ensure
a strong BBC has, we believe, gone too far. It is beginning to
act against the media interests of citizens and consumers by undermining
the competitiveness and creativity of commercial broadcasters.
Weakening that part of UK radio responsible for wealth creation
is not helpful to the UK at large and does not enhance listener
choice.
THE BALANCE
BETWEEN BBC RADIO
AND COMMERCIAL
RADIO
1.8 Commercially funded UK broadcast media are
tightly regulated. The aims of the regulation are admirable: plurality
of ownership and diversity of output. The end result has generally
been regarded as better for citizens than the less regulated commercial
broadcasting industries found elsewhere in the world.
1.9 No other country has a publicly funded
radio broadcaster to match BBC Radio in terms of its freedom of
manoeuvre, size, cultural influence, resource, creativity or funding.
These benefits are often described as key to a national asset
but their protection, maintenance and development have a price.
1.10 Much is made of the value of competition
between the publicly and commercially funded UK media sectors.
There is no doubt that much of BBC Radio's current provision has
been derived from Commercial Radio ideas and Commercial Radio
has benefited from the need to maintain creativity and investment
in order to compete with the BBC (although it is worth noting
that, following 13 years of brisk growth in numbers, Commercial
Radio stations also compete fiercely with each other). However,
the value of setting publicly funded radio services against commercially
funded ones becomes eroded if peak-time output across the services
becomes too similar or if one side begins to dominate too much
through inequality of funding or regulation or if its remit becomes
blurred. Balance is lost if there is too much financial support
and regulatory freedom on one side and too little opportunity
and/or too much regulation on the other.
COMMERCIAL RADIO'S
VALUE
1.11 Commercial Radio is a valuable national
asset and a sounding board for opinion. It offers alternative
voices to the BBC's and reflects life in the UK both at national
and local level. It is especially valued by UK citizens between
18 and 45. The main points to bear in mind about Commercial Radio
are as follows.
— Given the concentration by many of
its services on younger listeners, it achieves a remarkable 45%
share of overall UK radio listening and, less surprisingly, 62%
of all listening by under 35s. Commercial Radio's share of children's
listening is 76%. Local commercial radio has 77% share of all
local radio listening (which itself comprises almost 50% of all
UK radio listening).
— There are over 260 local analogue
radio services which generate local employment for around 8,000
people.
— Over the last completed financial
year alone, it has yielded approximately £30,000,000 in corporation
tax to the exchequer.
— It has been the fastest growing medium
over the last decade and despite falling revenues over the last
difficult three years, has still managed to increase its share
of display advertising expenditure.
— This is because its advertising works
as the Radio Advertising Bureau's website demonstrates (www.rab.co.uk).
— It is a £600 million per annum
business whose income has enabled it to invest in new digital
and analogue services.
— It has invested over £40,000,000
in digital radio infrastructure and content.
— It pioneered charity broadcasts and
auctions and continues to support local charities across the UK
with fund raising and coverage every year.
— Commercial Radio continues to be
innovative. It pioneered sports and general phone-ins, broadcasting
to ethnic minorities, genre specific radio stations, and the mix
of light music with current affairs and information which is now
almost universal. All these initiatives have been imitated one
way or another (and well) by BBC radio: the sincerest form of
flattery.
1.12 Commercial radio stations are vibrant,
creative, closely attuned to the geographical or interest communities
they serve. They are fiercely competitive, innovative and, most
important of all, socially valuable, encouraging participation
or interest in local life. The competitive power of a generously
publicly resourced state broadcaster should not be allowed to
undermine this because of regulatory or competitive advantage
or access to excessive resource.
THE PURPOSE
OF BBC RADIO
1.13 There is no doubting the popularity
of BBC Radio services. However, if the need for publicly funded
radio is accepted, it follows that the need for the necessary
public expenditure must be justified and its allocation must be
transparently handled to meet the clearly defined need.
1.14 A definition of the purpose of publicly
funded radio that should then be met by BBC Radio services is
sorely needed. We shall argue later that this needs to be arrived
at and regulated independently from the BBC. At the moment, BBC
Radio remits are often blurred and the behaviour of BBC Radio
services is sometimes driven, it seems to us, by a desire to maximise
audience share or exclude or price-out competition. This paper
does not recommend a reduction in the number of BBC services but
the scope and remit of the current ones require closer control
than that currently applied and CRCA sees no reason why their
number should be increased.
BLURRED REMITS
Commercial behaviour
1.15 CRCA is concerned by the increasingly
commercial approach being taken by the BBC. We submit that the
appointment within the BBC of so many from the commercial media,
marketing and advertising sectors and the creation of BBC Worldwide
as a company with numerous commercial relationships and a growing
repertoire of businesses, have substantially changed the way in
which some elements of BBC Radio behave.
1.16 BBC Radio's commercial behaviour narrows
the commercial opportunities on which Commercial Radio relies.
Part of BBC Radio's dominance in national event involvement and
coverage flows from its ability to credit the sponsors of off-air
independent events—the "Barclays Premier League"
for example. Thus BBC Radio is offering not only large licence
fee enabled payments for coverage rights that Commercial Radio
is unable to match, but also free commercial exposure on powerful
national services in a comparatively uncluttered programme environment.
BBC coverage has become an important bargaining chip between third
parties and sponsors, thereby disadvantaging commercial broadcasters
who are unable to offer similar "solus" promotion to
sponsors. This came to a head in radio recently with the proposal
that BBC Radio 1 should broadcast the "Coca Cola Chart"
because the list of record sales (which Coca Cola sponsors) is
independent of the BBC's chart broadcast. Pressure from Commercial
Radio has persuaded the BBC to row back from this but, we submit,
the BBC should never have been in this position in the first place.
Exposure of these sponsorships has no economic or other value
to licence fee payers and serves only to provide rights advantages
to BBC Radio and publicly subsidised benefit to advertisers.
1.17 The subvention from the television
licence fee is (and should be) sufficient for BBC Radio services
to meet its obligations. There is no need for BBC marketeers,
frequently recruited from the commercial sector, to arrange major
off-air sponsorships of broadcast events such as Vodafone's involvement
with Radio 1's "One Big Sunday" or Renault's involvement
with "Proms in the Park". Such activities restrict the
revenues available to Commercial Radio and colour the nature of
the events themselves.
1.18 The growing tendency for BBC Radio
to come to exclusive deals with rights owners merits scrutiny.
A recent example would be the four year exclusive radio coverage
rights for the Scottish Premier League secured by BBC Radio Scotland.
Apart from raising the price that other radio broadcasters must
consider paying in the future, exclusive deals lock out competitors.
CRCA does not believe this is a proper purpose for publicly funded
broadcasters to pursue.
Pursuit of audience share
1.19 In addition to developing commercial
relationships with companies which wish to benefit from profile
on BBC Radio services, we think BBC Radio is behaving increasingly
like its Commercial Radio competitors in its broadcast content.
In particular, we think there is a need to regulate independently
the output of the publicly-funded popular music radio stations,
BBC Radios 1 and 2.
1.20 BBC Radio has engaged in a relentless
drive to maximise its audience share, at the expense of commercial
broadcasters. In the BBC's last annual report, the section devoted
to radio opens with a statement about its market share. It has
measured its success, and therefore its value, in terms of audience
share achieved. We believe this is misguided as it misrepresents
BBC Radio's true value (the provision of choice and excellence
irrespective of audience share). The value of BBC Radio must be
determined in more qualitative terms. These are about its core
objectives as a publicly funded broadcaster—its contribution
to the country's social and cultural development, its educational
role, and its influence on national debate and discussion. Its
success should be determined by how well it achieves these objectives
rather than by how much audience share it has won from commercial
broadcasters, particularly if that share has been won by replicating
commercial services. Much of this cannot be quantified or measured,
and it should be for external regulators to determine whether
or not the BBC is achieving these goals. However, some public
service objectives are both quantifiable and measurable. It is
possible, for example, to determine how much of BBC Radio's specialised
music output is played during peak daytime listening hours, or
how much of Radio 1's daytime music output is of British origin.
Only by determining what the BBC's true public service objectives
are, and implementing a method of recording their success against
those objectives, can we move away from the inappropriate situation
of measuring the BBC's achievement by ratings alone.
1.21 BBC Radios 1 and 2 provide both marketing
and talent development devices for the music industry. We recognise
that the UK record industry prizes its relationship with the only
available nationwide FM popular music services and is pleased
that those services are publicly funded. But just like Commercial
Radio, BBC Radios 1 and 2 are principal broadcasters of current,
recent and emerging hit records and the recorded music catalogue
of all major popular music artists. During the 1996 Charter review,
BBC Radio 1 developed and claimed a "public service"
status in the interest of survival. It promised more documentary,
more new, cutting edge music and more live music. Despite this,
however, it continues to behave in the way Commercial Radio does
by seeking ratings by day and reputation by night and at less
popular parts of the weekend. Commercial Radio has to do this
in order to gain the advertising revenue it needs to survive.
The BBC does not and should make available more of the different
fare made possible by different funding during peak hours (0600
to 1900) when more listeners are available to listen.
1.22 The UK's most popular radio station
is now BBC Radio 2. It is well managed and programmed and is home
to the cream of the UK's radio personality presenters. In the
late 90s, in a BBC document obtained by CRCA and sent by CRCA
to DCMS, Radio 2 examined how it might move itself younger to
regain the audience lost to Commercial Radio by BBC Radio 1 following
the 1996 Charter review process. In the ensuing five years, Radio
2 has pursued this strategy, engaged the services of front-line
entertainers popular with adults aged 25 plus and ensured a core
of current and emerging pop hits and the recordings of major pop
music artists throughout peak-time hours. This nationally available,
warm, brightly presented, commercial mix of music without interruption
by advertisements has proved hugely successful. Its audience share
has risen to 16%, double that of Radio 1's. Almost single-handedly
it has trimmed a vital 3% away from commercial radio's share of
all UK listening. In doing so, it has most adversely affected
the fortunes of medium and small scale local commercial radio
stations which have traditionally adopted a similar classic and
current hit/major artist music formula as the glue which cements
their local news, information and audience interaction together.
1.23 At present, the BBC's flexibility and
control over its output is unfettered. It produces "Statements
of Programme Policy" which, after initial approval by the
Secretary of State, are then self-regulated and may be unilaterally
amended at will. Thus, at present, Commercial Radio's principal
competitor has the ability to change its formats to enhance its
position in the market yet Commercial Radio has no equivalent
right with its own stations. Not only can Commercial Radio not
predict how BBC Radio services will change in the future, but
it is also greatly restricted in its ability to respond when they
do so. CRCA believes that BBC Radio should be subject to the same
constraints as Commercial Radio, with externally regulated Formats
ensuring that the BBC honours its commitments, thus enabling non-BBC
radio services to operate in an environment of greater commercial
certainty.
QUESTION 2
How should BBC Radio be funded?
2.1 BBC Radio should continue to be publicly
funded. Public funding should remove commercial considerations
from programme making and provision. This lies at the heart of
the differences between BBC and Commercial Radio and extends audience
choice. It is the source of BBC Radio's freedom (and, we would
argue, duty) to provide output that advertisers would be unlikely
to fund. The licence fee seems to CRCA to be the least bad way
of publicly funding BBC Radio as the process is at arms length
from Government.
2.2 In favouring the retention of the licence
fee, however, CRCA suggests that an independent regulator should
have broad oversight over how the licence fee should be determined
and how efficiently it is managed and spent.
2.3 Between 1998 and 2003, total BBC income
increased by 42.4% but total programme expenditure increased at
a lower rate: by 28.9%. It is sometimes difficult to compare figures
in BBC Annual Reports because accounting categories appear to
differ from one year to the next, but less seems to have been
spent on BBC Radio in 2003 than was spent in 1998, despite the
introduction of digital radio. £436 million was spent on
BBC Radio in 1998 while £348 million was spent in 2003. We
understand there are significant exclusions (eg newsgathering
and copyright fees) from the 2003 figure and we note that, even
so, it is higher than the total of the per-station figures in
the DCMS Charter Review. In the same period, the number of people
employed by the BBC's publicly funded services appears to have
increased by 3,000. This increase has been accompanied by a 22.6%
increase (£148 million) in salary costs for those working
in all BBC publicly funding broadcasting. Taken together, reductions
in programme spend and increases in staff and payroll suggest
to us that the BBC has been investing more on non-programming
staff and activity related to publicly funded services than on
the quality and range of its output.
2.4 We consequently believe that an independent
body should be given the power to determine the level of the BBC
licence fee on an annual basis. This body should have the interests
of the licence fee payers themselves as its first priority. Since
it cannot effectively perform this function without a broader
involvement in the oversight and accountability of the BBC, it
should be the same body that regulates the BBC's activities and
output.
QUESTION 3
How should BBC Radio be governed and/or regulated
and what role should be played by the Office of Communications?
3.1 Our answers to questions 1 and 2 indicate
that better regulation of BBC Radio is needed. We believe that
better regulation should mean independent, external regulation.
It is also needed to deal with other aspects of BBC competitive
behaviour.
3.2 Broadcasters are bound to behave in
an aggressively competitive manner if left to their own devices
irrespective of whether or not they are fulfilling a genuine public
need in so doing. The BBC is so big and self-absorbed that it
sometimes cannot see the damage it inflicts on those involved
in commercially funded, wealth creating broadcasting.
3.3 Here is an example of what we mean.
Oneword Radio is a digital commercial national speech service.
It provides plays, stories and comedy in a different style to
that in which BBC Radio had previously done so. The idea was and
is that Oneword will do for the accessibility of spoken word what
Classic FM has done for the accessibility and popularity of classical
music on radio.
3.4 When it launched in early 2000 its most
energetic shareholders were UBC and Chivers Press. At that point
they each held approximately one third of the company's equity,
the remaining stock being held by the Guardian Media Group and
Heavy Entertainment, both of whom subsequently sold their interests
to the remaining shareholders, leaving Chivers' successor and
UBC as 50% shareholders.
3.5 In July 2001 BBC Worldwide acquired
Chivers Press except for their interest in Oneword which then
passed to Chivers original owners, the Hong Kong based conglomerate
USI Holdings. This initiative not only removed one of Oneword's
most active directors, Chivers' MD Simon Gibbs, it also replaced
an enthusiastic shareholder with one that was decidedly uncertain
about radio investments in general and digital investments in
particular.
3.6 That same year the BBC announced its
intention to launch `Network Z' (which became the national BBC
digital service "BBC Radio 7") with a proposed schedule
that sounded very similar to that being operated by Oneword. In
the event, the only significant difference between BBC 7 and Oneword
appears to be that whilst the bulk of BBC 7's output is BBC produced,
most of Oneword's is licensed in.
3.7 For two years after the departure of
Chivers, UBC sought to encourage USI's faltering belief in the
future potential of Oneword. Sadly this ultimately proved impossible
and in 2003 USI stated their unwillingness to continue the same
level of support for a loss making operation. At the end of last
year the board reluctantly took the decision to drastically reduce
the investment in Oneword whilst a restructuring of the business
was investigated. UBC's intention was to seek to acquire control
of Oneword and then to restructure the financing of the service
and to investigate possible adjustments to the nature of the service.
3.8 It is clear that the current weakness
of Oneword's financial position as compared with its business
plan is principally due to a slower take up of DAB radio sets
than had initially been anticipated. It is equally clear, however,
that the two moves by the BBC have significantly aggravated an
already challenging situation.
3.9 Whilst CRCA totally supports the opportunity
for listeners to have increased access to the BBC's outstanding
audio archive, we do not believe that the creation of a publicly
funded competitive service to Oneword was the only way to achieve
this. It may for instance, have been possible to license such
material for broadcast by Oneword and or other commercially funded
services. At the time of its creation, Oneword sought to serve
a previously unserved market. At its inception there was no reason
to believe that the BBC intended to launch its own service of
all day spoken word entertainment. What has happened is that this
market now splits its listening across two similar programme services
thus diluting the number of hours that Oneword could reasonably
have been expected to attract.
3.10 In simple terms, CRCA is concerned
that because of the way it is funded and constituted, the BBC
is able to move without financial risk, into areas of direct competition
with commercial broadcasting ventures. In this case, it was able
to combine its commercial muscle through BBC Worldwide with its
unjustifiably protective attitude towards its own archive and
launch a publicly funded radio service to the disadvantage of
a commercial radio endeavour.
3.11 In June 2001 UBC made representations
to the DCMS. These were unsuccessful. CRCA feels UBC should have
been able to make its case to an expert, independent, external
regulator.
3.12 The reader might be inclined to wonder
whether the Oneword case might not have been dealt with by competition
authorities. Indeed, the BBC challenged CRCA to take this route
when we sought to raise the matter with them at the time. We believe
that this response was wrong. The generous 1996 Charter Review
settlement allows the BBC's commercial arm to use its profits
to purchase an audio books company. Thus public money was not
being spent so competition powers were only relevant to whether
or not the purchase represented abuse of a dominant position in
the audio book market not to whether it disadvantaged a commercially
funded broadcaster or advantaged a BBC publicly-funded service.
3.13 Having noted why external regulation
of the BBC is needed to create a more equitable regulatory balance
between the publicly funded broadcaster and commercial broadcasters,
we also believe that both the Government and the BBC would benefit
from external, independent regulation of the BBC.
3.14 Because neither BBC management nor
the BBC Governors can provide an external view, the Government
(specifically the DCMS) has been left holding the ring between
the BBC and its commercial competitors. The relationship creates
close links between Government and the BBC which are distrusted
by commercially funded broadcasters and the media in general.
3.15 Perhaps more significantly the current
regulatory arrangements can undermine the BBC. It is difficult
for the BBC to get on with its job while complaint handling is
underway, because it has to deal with the complaint itself and
take the consequences if its handling of the complaint is judged
to be inadequate.
QUESTION 4
Do a 10-year Royal Charter and Agreement with
the Secretary of State, together, provide the most appropriate
regime for BBC Radio?
4.1 Thanks to digitisation, UK broadcasting
is undergoing swift structural and content change. Radio is no
exception. For example, there are now more than 50 terrestrial
digital radio services available in London alone, half of them
digital-only. Whatever arrangements Government imposes on the
BBC will become swiftly out of date. Given the speed of change,
it would be sensible to provide for further reviews at set intervals.
4.2 The BBC's Royal Charter and the self
regulation that goes with it are no longer appropriate. The BBC
is often unaware of the damage it sometimes causes to non-BBC
broadcasters. Independent, transparent regulation would make it
more accountable, lead to fair equality in the way both the commercially
and publicly funded radio sectors are regulated, and enable independent
examination of important issues or complaints. External controls
are now required to ensure that BBC popular music services complement
rather than imitate the commercial radio provision.
4.3 Radio and television services and other
sources of audiovisual entertainment have increased in number
and fragmented hugely over the past decade. This process seems
unlikely to decelerate and whatever arrangement is arrived at
to fund and regulate the BBC from 2006 onwards is unlikely to
be relevant to the communications environment of 2011 much less
2016. Single television (and to an extent single radio) channels
will lose audience share. Viewers and listeners will gather and
purchase their entertainment in a variety of ways from a variety
of sources and providers that will make a universal licence fee
difficult to justify. It follows that the new arrangements should
either be for a short, say five year period only or should be
in the hands of an external regulator with flexibility to change
in line with communication developments.
15 April 2004
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