Examination of Witnesses (Question Numbers
27 OCTOBER 2009
Q280 Mr Watson: Do you think the
car industry is sufficiently prepared for the digital revolution?
Mr Baxter: I think we have had
some very encouraging conversations with the motor industry over
the last six months. The response to Carter's work during the
beginning of this year has helped galvanise interest in that area
quite significantly, so I think there is a very different aura
around those discussions than there was 12 months ago.
Q281 Chairman: Just on the cost of
the digital upgrade, what is your best estimate of how much it
is going to cost?
Mr Harrison: I was on the working
party, the Digital Radio Working Group, that was the forerunner
for Digital Britain. That working group identified the
cost of build-out, the one-off capital cost, as between £100
million and £150 million. That is quite a spread. The reason
for the spread ultimately depends on what degree of coverage build-out
you get to from equalling FM to universality and at what signal
strength. Of course, you get real diminishing returns as you go
to the very rural areas. That is the reason for the spread. There
has been a lot of debate about that number. In reality, the way
we have tended to look at it is that if you take that spread of
£100-£150 million over the 12 year period of a licence,
which is typically when a radio station is licensed or a multiplex
is licensed, and if you said for round figures it is £120
million, that is £10 million a year for the licence period.
I think it was £10 million a year that the Secretary of State
quoted for example last week. Funding that we have always felt
is actually absolutely critical to the build-out and conversation
to Digital Britain. The commercial sector is absolutely
happy to pay its way to the extent that the build-out is commercially
viable but, after that, there is a clear public policy imperative.
If the Government and Parliament decide that it is important to
have a dedicated transmission structure for radio, that will be
a public policy decision and it will need funding. That said,
we believe that funding is very affordable. If you take that £100
million number, we believe that, for example, the BBC would save
much more than that over the period of the 12-year licence just
on what it will save on FM transmission alone, so there is a straightforward
business proposition. Another way to think about the £100
million over a 12-year licence with the current licence fee settlement
for the BBC at around about £3.5-£3.6 billion a year
is that over 12 years that is £43 billion. The £100
million infrastructure cost for DAB radio is less than a quarter
of one per cent of what the BBC's income will likely be over the
next 12 years. So it is eminently affordable if there is a public
policy decision that it is important to do that build-out.
Q282 Chairman: Those two arguments
suggest that you are looking for the BBC to pay for this.
Mr Harrison: We have said very
clearly and very fairly that we are absolutely happy to pay our
fair share in our way to what is commercially viable.
Q283 Chairman: What does that mean?
Mr Harrison: That means that we
have already put our hands in our pockets substantially to build
out coverage on a local and a national basis as far as we judge
is affordable. I think realistically, given the state of the sector,
the vast majority of the cost going forward, which is primarily
designed to meet the BBC's obligations of universality rather
than the commercial sector's obligations of viability, should
rest with the BBC.
Q284 Chairman: So whilst RadioCentre
is keen to move ahead with the digital upgrade, the economics
of your sector at the moment means that you cannot really afford
to put any more money into it?
Mr Harrison: We believe that transmission
coverage build-out is axiomatic; it is one of the criteria to
affect switchover. We cannot afford it but we absolutely believe
the BBC can.
Q285 Philip Davies: Andrew, on this
part can I ask you about how representative your view is of the
industry as a whole? It was over this issue it seems more than
any other that UTV Radio quit the RadioCentre and said that it
felt that it was no longer representing the interests of the wider
industry and gave too much power to its biggest member.
Mr Harrison: Yes, UTV did say
that. Scott Taunton, the UTV Radio managing director, actually
represented the commercial radio industry with me on the Digital
Radio Working Group through all the peer-work that was done for
Digital Britain, and so they have been intimately involved.
To be fair to UTV's position, they have a particular reservation
over the date and the timing for digital, but to be fair to Digital
Britain, and indeed we await the clauses of any potential
Bill because it is not yet written, there has never been a formal
switchover date actually agreed. Although, for example, I think
Scott in his Guardian article yesterday talked about a
2015 date being farcical, that date has never been set. What have
been set are two consumer-led criteria that have to be hit and
then a transition period after that before we all migrate. As
Travis said earlier, the majority of opinion across the sector,
and certainly across my members and representing my board, is
that we need now to put our foot on the gas and work hard to deliver
the criteria. Inevitably, there is going to be a spectrum of views
with different businesses in different places in terms of their
own business models as to the urgency or not they see behind that.
UTV are absolutely right to have their own position. They are
more at the tail end of the timing.
Q286 Philip Davies: UTV did not just
say that they had a different position to you. They said something
a bit more fundamental than that that they felt that you were
no longer representing the interests of the wider industry. It
was not just as if they had a disagreement. They were indicating
that there were others in the sector who shared their view. Do
you accept that there are many others or some others in the sector
that would share their view?
Mr Harrison: I would absolutely
accept that we are a broad church and there is a breadth of opinion.
I represent large and small stations, local and national, rural
and metropolitan, so there is a breadth of opinion. To give you
an example of that, our other major national station member that
is on AM is Absolute Radio and they believe that the timing for
digital should be sooner rather than later. They already have
over 50% of their listening on digital platforms, one way or another,
so they would move sooner. I have a number of digital-only stations
in membership, stations like Jazz and Planet Rock, which clearly
are already digital only and would like to be in the vanguard.
Inevitably, there is a spectrum of opinion and we try our best
to reflect the overall views. The truth is that it is very unfortunate
that UTV have left membership but we continue to represent the
vast majority of the sector and its stations and will continue
to try to steer a path, helping Government and helping the regulator
through this tension.
Q287 Philip Davies: My final question
on this is: do you anticipate anybody else leaving?
Mr Harrison: We will wait to see
what happens and what the clauses in the bill are and then inevitably
people will decide whether or not to support it. I would hope
that would not be the case and that when we see the bill, we will
continue to represent the vast majority of stations.
Q288 Chairman: Can I turn quickly
to the local ownership rules? There are obviously proposals which
Ofcom has been consulting on. Can you say how important it is
to you that changes should be made to those rules?
Mr Harrison: Changes to the local
ownership rules mean another very important deregulation for the
sector. The truth is, as we have submitted on many occasions,
that we have a number of regulations around how we operate. One
of the additional constraints has been around our ability to own
either a collection of radio stations in an area or to share ownership
with newspaper groups or other media outlets. As we compete more
and more with deregulated media competitors, and the BBC locally
has the ability to cross-promote across television and radio and
on-line, it is more and more important in the current environment
that we have the opportunity to partner, to merge or join with
other media where that is appropriate. Do I think there will be
a real rush to do that? In the current economic environment, probably
not, but over time, having that flexibility to operate rather
than it being constrained by primary legislation would be an important
step forward for the sector and ultimately I would hope would
be one of the possible triggers for extra investment into the
Q289 Chairman: Are you aware of any
potential mergers or takeovers which currently are not allowed
under the ownership rules but which might be triggered if they
were to change?
Mr Harrison: No. To be fair, we
felt over the last couple of years that the deals that took place
in the sector, for example with Bauer Media buying Emap or with
Global Radio buying the Chrysalis GCap businesses, that those
deals took place under the current ownership rules, but the truth
is that we will never know whether there was a major cross-media
player out there that never even considered bidding because the
current legislation precluded them from doing so. We would certainly
like to think that what we offer in terms of audience scale, breadth
of advertisers and our news and local coverage would be pretty
attractive to some of the other players who are also in that space,
be it newspaper groups, television groups and so on. We would
like that opportunity over time to compete with other sectors
of the economy where there is more freedom to operate.
Q290 Mr Sanders: What are your views
on the three-tier structure that Ofcom has proposed?
Mr Harrison: The three tiers for
national stations, regional and the smaller ones?
Q291 Mr Sanders: Co-location, regional
stations sharing multiplexes and development of community radio.
Mr Fountain: The conversations
that the KM Group have had with Ofcom over the last two years
have enabled us to carry out a significant amount of co-location.
If we had been geographically placed in another part of the country,
perhaps they would not have been quite as forthcoming as they
have been. Because we are basically broadcasting to one county
geographically, they did not see any particular issues with us
co-locating. In most cases the stations were quite close, within
15 or 20 miles geographically as well. We put three stations into
one building and three stations into another building in Ashford
and we have one out on a limb on the Isle of Thanet. We do not
really have any particular plan to move them. However, when I
did suggest that we may like to consider that, I was told that
that it is probably not a good thing to go forward with that on
the agenda at the moment because it is some distance away from
where we would want to locate it. That idea was then put to bed,
but it was still in the same county, nonetheless. To be fair,
Ofcom have been very helpful as far as the KM Groups is concerned
but I do think it is because of our geographical location much
more than the fact they just happen to like me or like our group.
It is just the fact that all of our stations are very close together;
they are broadcasting to one country; and we do not have county
Q292 Mr Sanders: Your experience
is untypical. I am wondering how realistic it is in other parts
of the country.
Mr Fountain: Evidence suggests
that it is much tougher, there is no doubt about that.
Mr Baxter: I can talk to you briefly
about our position on co-location, which is that so far we have
not really taken much advantage of it. I think technically we
could join together our radio stations Key 103 in Manchester and
Radio City in Liverpool with Warrington but we have chosen not
to do so. They are still based in Manchester and Radio City is
up the 1960s tower in Liverpool. So far, we have taken a view
that having a presence in these large metropolitan markets, which
are a little different from the ones that have just been outlined,
works to our commercial benefit because we are, after all, a business
operating in the community as well as an entertainment and information
provider in the community. I do think that some of the regulations
that we have to work with are a bit anachronistic. We are required
to do a whole range of things which we could probably do more
efficiently. Just as an example, if I chose to say that we were
going to have an improved news-gathering operation across our
network of stations and we were going to place in hubs some of
the news production and presentation, we start to fall into all
sorts of areas of regulatory issues that we need to address. If,
for example, I want to find a fantastic broadcasting talent from
the north-west who I might think fits across three of our stations
in the north-west, I may hit a boundary in terms of regulation.
Fundamentally, as I have said, our business is local. We need
to reflect those areas and be part of the business community,
but where there is an opportunity which still has a relevance
and a resonance to a region, it would be nice to be able to move
and take that opportunity, without having always to go back to
the regulator and have a conversation. I think one of the issues
in that is that it affects how we approach our business from a
cultural perspective. Sometimes, if it is sluggish as a result,
and we are always cross-checking with the regulator, then there
is the opportunity of another business entirely to come across
on the outside of us and snatch some of the opportunity we are
trying to capture. You talked about community radio.
Q293 Mr Sanders: Yes, that is the
third point of the three-tier structure. My fear here, and you
may be able to answer, is that this idea of switching over from
analogue to digital will leave a large number of community radio
stations still on analogue. If there is then no funding for the
upkeep of the analogue transmitter network, what happens to the
community radio stations that are being invested in and starting
up at the moment?
Mr Baxter: The analogue transmission
network consists of a transmitter and a pole in the ground, and
away you go. It can be relatively straightforward. There a lot
of the community stations that are not perhaps as committed. Again
talking about Manchester where we are, we have a huge transmitter
up a giant TV pole in Manchester. It costs us more to broadcast
on FM in Manchester than it does to broadcast on DAB. For a smaller
community station, the inverse can be the case, so a small transmitter
that is based on a high-ish building with a very cheap antenna
on the roof can do the job for the sorts of areas that they serve.
From an infrastructure perspective, from the operator side, that
can be resolved. All the evidence to date is that as these new
receivers are brought in to the market, they actually are going
to be multi-platform. We have seen DAB and FM combined in just
about everything and increasingly you see these WiFi access points
provided within the set. It is a bit like mobile phones; the proprietary
platform, which is the radio set, also has a number of different
access points built into it. So I do not, at this stage, see the
stations that remain on FM being disenfranchised, but your point
is well made because if they are going to stay there, we need
to make sure that there is a means by which people can receive
Mr Harrison: Just building on
the answer that Travis gave, and I think it is a very helpful
question, the cost of maintaining the FM infrastructure, which
is also we estimate about the same as the cost of conversion to
digital, is primarily the cost of building out that national infrastructure.
If, for example, you think of Radio 2 on 88 to 91 FM, that means
you need to have transmitters all over the country capable of
taking a signal between 88 and 91 FM effectively on quite a narrow
piece of bandwidth. We think the migration to digital is going
to free up quite a lot of FM spectrum, both for the smaller commercial
sector stations that want to stay on digital, some of which for
example might be the UTV stations that Philip Davies was speaking
about earlier, or for the community sector. If we can ensure that
those are local stations serving local communities and only need
a mast and a signal strength to serve a relatively small geographical
areaa small town or whateverthen I think we can
have both systems potentially co-existing rather well.
Q294 Janet Anderson: I wonder if
we could turn to the issue of music licences in the workplace?
I was very surprised recently, and I have an equestrian centre
in my constituency in Darwen, and the owner wrote to me to complainshe
only employs a handful of peoplethat she was required to
get a music licence because they wanted to listen to the radio
when they were grooming the horses. I took this up with the Minister
and he confirmed that that was indeed the case. This was something
that was raised with us when we visited Real Radio in Yorkshire.
What are views about that and have you measured the likely impact
on the reach of commercial radio?
Mr Harrison: Our views on this
are very straightforward. We already pay 10% of our revenue to
license music. We pay the record labels, the PPL, and we pay the
artists and composers, the PRS. We already pay once for that broadcast
licence. We think it is incredibly unfair that there is in effect
double taxation on the consumers of our product that they are
then obliged to pay for having the radio on in the workplace.
It would seem a transparent example of iniquitous double taxation.
The evidence we are beginning to pick up is that the rather aggressive
licensing demands that the collecting bodies like the PRS and
the PPL are putting on small shops, offices, hairdressers and
factories are beginning to lead to a flurry of people certainly
writing to us. I probably have 60 or 70 emails from people saying
that they are going to switch off the radio. We are now tracking
RAJAR quite closely, the audience measurement system, to see whether
this is tracking through into a decline in listenership. We are
very worried about it. Encouragingly, there was an important copyright
tribunal case, the results of which were published last week,
between the hospitality sector (pubs, clubs, nightclubs and so
on) and the licensing bodies, which effectively ruled that the
licensing deals that the collection societies had tried to publish
were inappropriate. There has now been a demand that they will
come down and potentially there will be rebates for operatives.
We are looking at that ruling across pubs, clubs and nightclubs
potentially as a template for what might be appropriate across
shops and offices. The principal response has to be that we absolutely
believe in the value of music and that it is right for our business
that we should pay the rights collection bodies, but, having paid
that to broadcast, we do not believe that there should then be
double taxation on the recipients of our products as well.
Mr Fountain: I would add to that
that apart from the occasional annoying advert or song that somebody
does not like or the moving of somebody's favourite talent off
the radio network, the one single thing that I get most complaints
about is the tactics of PRS going into small premises saying that
they need to have a licence. A number of people have said they
are going got have to switch off; others have said that they work
in areas where they may be able to listen on-line through headphones
and stuff like that. It is hard to see that it will not have some
level of impact somewhere.
Q295 Janet Anderson: Are their tactics
Mr Fountain: That is certainly
the feedback that comes to us. It is about: Have you got a licence?
You need one and this is how much it costs. It is pretty direct.
They see themselves as a business collecting the fees for their
Q296 Janet Anderson: So that would
apply even to the extent presumably of a small corner shop with
one person in it?
Mr Fountain: It would be exactly
Mr Baxter: I echo what my colleagues
have said. One of the things we find equally, which I imagine
is similar for others, is, as you would expect, they ring us up
because they think it is the radio station sending someone to
them saying, "Oh, you are listening to our radio station.
We are now going to charge you for the privilege". We seek
to explain that that is not the case, but it is quite difficult
because they are sitting there trying to understand why they have
suddenly been confronted by this charge, this double taxation,
as Andrew said.
Q297 Janet Anderson: Would you remove
that requirement altogether or would you perhaps have a different
requirement according to the size of the workplace or the number
Mr Harrison: I would remove that
requirement altogether. The truth is that we pay, as I have mentioned,
just over 10% of our revenues in copyright, so we are repatriating
over £50 million a year to the rights collection bodies for
the benefit of playing music. That would seem to be a fair amount
to me in return for that. Then penalising the listeners of that
product would seem to be inappropriate. It is not something that
happens across the EU, for example. There are other markets where
that is not considered an appropriate way of dealing with this.
It comes out of the historical copyright on public performance
which we think belongs to a totally different interpretation around
orchestra performance and that sort of thing rather than about
radio stations. It is a loophole that we would like to see closed.
Q298 Chairman: To be clear, you are
only concerned about the requirement on small businesses to pay
a licence for broadcasting the radio, not broadcasting music.
What about if they were playing CDs?
Mr Harrison: With my RadioCentre
hat on, Chairman, yes, I am only concerned about radio. I do not
know what the licensing arrangements are across CDs and so on.
Q299 Chairman: There is a whole other
inquiry here, so we will not pursue that at the moment. I have
one final question. I know that the commercial sector has always
been concerned about the dominance of the BBC in radio. The BBC
is now offering partnership arrangements and is proposing a radio
council. Are you concerned that this might be a case of Greeks
Mr Harrison: The honest answer
is that we are absolutely concerned about Greeks bearing gifts.
We are engaging constructively, as you would expect, with the
BBC and I think there are one or two area where we are working
together very well, not least on the whole transition to digital
and potentially on things like a common on-line player and potentially
how we may be able to look at local news provision and so on.
We are absolutely engaging on the partnership offers. The truth
is that at the moment they are long on rhetoric and short on delivery.
In the meantime, if you think of an operation like Steve's in
Kent, the day-to-day reality is that Kent Messenger Group is competing
with three levels of intervention from the BBC in Kent. There
is a large regional station with BBC London that overspills into
half of Kent; there is BBC Kent, which is county-wide; and there
are then all the national services. You have three levels of intervention.
While partnership is important, and I think there will be increasing
wins that we can take, I am not under any illusions about the
size of the footprint and the relative strength of the BBC in
the market, against which we have to fight for audience day in
and day out.
Mr Fountain: Certainly last year
when BBC Radio 1 brought Madonna to Maidstone, which was quite
something as you can imagine, it was widely reported in our newspapers.
We thought that as the local commercial radio station for Maidstone
we ought to try and make some kind of capital out of it, so we
talked about Madonna coming, we talked about Kent's big gig and
all this kind of thing. I received a phone call from Radio 1's
legal representative saying we had to refer to it as Radio 1's
big gig. I effectively said I was not going to do that. I said,
"You guys are coming to Kent. You have Madonna. Clearly it
is a major story and it will be reflected in our newspapers. You
are getting lots of free publicity about the event in our newspapers.
I think you could at least cut me a bit of slack here and allow
me to talk about this. We are not saying it is KMFM's big gig;
we are just saying it is Kent's big gig", and it certainly
is. To be fair, I did not hear anything more from them because
I was probably nothing more than just an irritating fly, at the
end of the day. For me, it just encapsulated the whole big brother
thing really that you have to put up with sometimes from the BBC.
Q300 Chairman: Andrew, you said that
the partnership had not amounted to anything or not very much.
What specifically are you pressing to get from the BBC?
Mr Harrison: I think a good example
of partnership that would be transformatory would be an agreement
with the BBC in the spirit of partnership that they would not
bid exclusively for sports rights. To me, that is transparently
something where we could work together in partnership for the
benefit of all of radio. At the moment, the reality is that what
happens is that the BBC bids exclusively for sports rights, often
to the exclusion of talkSPORT in England or the Bauer stations
in Scotland for SPL football rights, for example, but they do
not have enough physical capacity to broadcast all the matches
anyway. If you can imagine that most Premiership matches all start
at 3 o'clock on a Saturday, the BBC has one hour led on Radio
5 Live, possibly two with Five Live Sports Extra but that would
be assuming they had no other sports coverage. So it cannot cover
all these matches but it has an exclusive deal that shuts out
the commercial sector, inflates the cost of the rights and effectively
leads to a transfer of public money straight from the licence
fee to the sports governing bodies. It would seem to me a breakthrough
example of partnership to have the situation certainly in radio
where exclusivity for music concerts or for film premiers or for
major sports rights should be negotiated together or some sort
of arrangement worked out in the spirit of partnership so that
we can all cover those events together.
Q301 Chairman: Is there any progress
Mr Harrison: Zero.
Chairman: That is all we have for you.
Thank you very much.