Future for local and regional media - Culture, Media and Sport Committee Contents

Examination of Witnesses (Question Numbers 280-301)


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 sector.

  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 boundaries.

  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 their stations.

  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 area—a small town or whatever—then 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 complain—she only employs a handful of people—that 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 quite aggressive?

  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 clients.

  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 the same.

  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 of employees?

  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 bearing gifts?

  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 on that?

  Mr Harrison: Zero.

  Chairman: That is all we have for you. Thank you very much.

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