Written evidence submitted by RadioCentre
BACKGROUND
1. RadioCentre is the industry body for
Commercial Radio. Its membership comprises the overwhelming majority
of UK Commercial Radio stations, who fund the organisation. RadioCentre
is governed by a board of eight directors, representing a cross
section of the industry and including all the major Commercial
Radio groups.
2. The role of RadioCentre is to maintain
and build a strong and successful Commercial Radio industry in
terms of both listening hours and revenues. RadioCentre operates
in a number of areas including working with advertisers and their
agencies, representing Commercial Radio companies to Government,
Ofcom, copyright societies and other organisations concerned with
radio. RadioCentre also provides a forum for industry discussion,
is a source of advice to members on all aspects of radio, jointly
owns Radio Joint Audience Research Ltd (RAJAR) with the BBC, and
includes copy clearance services for the industry through the
Radio Advertising Clearance Centre (RACC).
EXECUTIVE SUMMARY
3. RadioCentre's submission to Lord Carter's
Digital Britain project set out Commercial Radio's vision for
a digital future; a vision which encompasses the needs of listeners,
advertisers and industry.
— To deliver the majority share of radio
listening in Digital Britain.
— With three strong tiers of listener choice:
— Strong national brands to compete with
BBC.
— Large local and regional services, on
DAB, to deliver news, information and entertainment to reflect
the tastes of their area.
— Small local and community services in
smaller towns.
— Via new content, innovative programming
and interactivity.
— Which, as a consequence, re-engages advertisers'
passion for radio and grows our revenues, fuelling further investment
in content.
4. This paper therefore considers how Commercial
Radio can contribute to a strong and plural local media ecology
in the context of this digital ambition; and what impediments
need to be removed in order to secure this future.
5. It proposes a number of regulatory and
legislative changes that are informed by the dramatic transformation
in the media landscape. These proposals are shaped by the way
in which Commercial Radio, like television and print media, is
being affected the combined effect of severe economic downturn
and significant structural change in advertiser behaviour.
6. In radio this has been compounded by
an increased dependency on national advertising, by a trend towards
national rather than local radio listening, and by a growth in
the number of local licences leading to an over-supply in the
market.
7. The overall impact on the Commercial
Radio market has been a downturn in revenues and profitability.
8. However, against this background we continue
to believe that radio's ability to connect and communicate with
local audiences in a convenient and complementary way will enable
it to thrive in the digital age. But in order for this to happen,
there must be recognition that the structures and frameworks of
the past are unlikely to be fit for purpose in the future.
9. As a result, the Commercial Radio industry
has called for a number of specific measures which it urges the
Committee to support as the Digital Britain process is carried
forward by Government in the coming months.
— A new method of regulating local radio,
which delivers operational flexibility for stations but ensures
that the content which matters most to listeners is delivered.
— Measures to enable the radio industry
and Ofcom to re-plan the local DAB network, including giving new
powers to Ofcom to merge and extend multiplexes and change frequencies,
and committing public money to support the extension and enhancement
of coverage.
— An extension to all current analogue
radio licences up to digital switchover to ensure greater certainty
and focus on migrating to digital.
— An extension to DAB multiplex licences
to provide security and an incentive for the significant investment
in the new coverage map.
— New OFT rules on local media mergers,
applied equitably across all local media.
— New rules on media ownership to allow
plurality to be assessed across all media rather than within a
single sector like radio.
INTRODUCTION
10. In March 2009 RadioCentre's submission
to Lord Carter's Digital Britain project set out Commercial Radio's
vision for a digital future; a vision which encompasses the needs
of listeners, advertisers and industry.
— To deliver the majority share of radio
listening in Digital Britain.
— With three strong tiers of listener choice:
— Strong national brands to compete with
BBC.
— Large local and regional services, on
DAB, to deliver news, information and entertainment to reflect
the tastes of their area.
— Small local and community services in
smaller towns.
— Via new content, innovative programming
and interactivity.
— Which, as a consequence, re-engages advertisers'
passion for radio and grows our revenues, fuelling further investment
in content.
11. We believe strongly that radio's ability
to connect and communicate will enable it to thrive in the digital
age. But in order for this to happen, it is important to understand
the fundamental changes in the media landscape and the need to
move to a new framework.
A TRANSFORMED LANDSCAPE
12. Reports of traditional media's death
are premature, particularly if the right steps are taken now by
industry, by government and by regulators. Radio, in particular,
has a clear role in a world where people are increasingly busy
but still require relevant information and personal entertainment
delivered in a convenient and complementary way.
13. Yet the industry needs to act decisively
and promptly to modernise itself in order to remain relevant to
listeners and advertisers. That work is already being undertaken
in planning the drive to digital, in partnering with the BBC to
devise interventions that will secure radio's place in the digital
age, in building new business models and in innovating new content.
14. Like television and print media, Commercial
Radio is feeling the combined effects of a severe economic downturn
and significant structural change in advertiser and, to a lesser
extent, consumer behaviour. In particular, the migration of advertiser
revenues to on-line and digital media has had an effect. To put
this in context, in 2003 internet advertising revenue was
comparable to that of radio; by 2007 it was nearly six times
the size of the radio market.[99]
15. In contrast to the behaviour of advertisers,
overall consumer behaviour towards radio has changed positively
(albeit less dramatically). Despite the rise of new media propositions
include online music providers such as Last.fm and Spotify, radio
recently recorded its highest ever reach: 90% of the UK population
listen to the medium every week.[100]
16. Commercial Radio's share of listening
has, however, declined in recent years from a high of 49.2% in
1999 to 41.6%[101]
today. Almost all of this transfer of listening has been from
local Commercial Radio to national BBC radio. This reflects trends
in other sectors with the rise of global brands and a desire from
consumers to interact (principally online) with others who share
their interests, regardless of their location.
17. However, in terms of share of the local
listening market, Commercial Radio continues to perform well,
gaining 76% of all local radio listening and 91% of all local
listening by those aged under 50.[102]
18. At its launch in 1973, Commercial Radio
was established as a local proposition. For thirty years, licences
were awarded to defined geographical areas, with programme formats
and news provision designed to appeal to the locality. Initially
all held in separate ownership, from the start these licences
had strong listener appeal. However, the growth in the number
of licences overseen by three regulators (the IBA, the Radio Authority
and Ofcom) outstripped growth in audience or revenues. (see figures
1, 2 and 3 below)
103
Source: Ofcom
Source: Ofcom, RAJAR,
JICRAR
Source: Ofcom, Radio Advertising
Bureau
19. Commercial Radio's local audiences and
revenues can be seen to have cannibalised themselves as a result
of over-supply in the market. The current economic situation compounds
these challenges with revenues at a five year low: total revenue
for Commercial Radio in Q4 2008 was £116 million;[104]
the lowest quarter since the publication of the Communications
Act in 2003.
20. Research conducted by RadioCentre for
an independent report commissioned by Digital Britain has found
that this downturn in revenues has translated to an extremely
serious position in terms of profitability.
— Currently, half of all Commercial Radio
stations are loss making, with two thirds of all stations (66%)
loss making or only generating profits of less than £100k
per annum.[105]
— 80% of stations serving populations of
<700,000 are loss making or generate profits of <£100,000 per
annum.
— 12% of stations are predicting to lose
more than £250,000 in the current financial year (of
whom more than 80% also lost >£250,000 last year
and of those almost 70% also lost >£250,000k in the previous
financial year).[106]
— Taken together, this data suggests that
the industry as a whole is loss-making.
21. The downturn in revenues and its effect
on profitability may be partly attributable to a growing contradiction:
while the heart of Commercial Radio's output is local, the heart
of the industry's revenue is national. 72% of the sector's revenue
is nationally secured and, within this, the top 50 national
advertisers provide more than half of the industry's revenues.[107]
22. The growth in the dependency on national
revenues for a primarily local medium has evolved over the 35 years
of Commercial Radio's existence and reflects profound social and
media changes. For example, the growth of national retail brands,
the decline of the traditional high street in favour of out of
town retail parks, the loss of local franchises in core sectors
of the local economy like car dealerships or estate agency have
all triggered a trend towards national advertising.
23. This has been accelerated by parallel
media trends (eg small local cinemas evolving to branded city
multi-screens, the loss of regional ITV franchises and the decline
of regional/local press). The rise of the digital economy, of
course, then completes this transition with new technologies facilitating
the emergence of global aggregators and media owners.
24. So a prosperous future for Commercial
Radio must include offering the programming formats and station
coverage that appeal to national advertisers—whether for
stations licensed on a national or a local basis.
25. Add to this the need to invest in DAB,
DTT, on-line and mobile broadcasting to secure a digital future
and competing with an ever-stronger BBC, and it is clear that
the world in which Commercial Radio operates today is transformed
from that into which it was created.
A TRANSFORMED LANDSCAPE
REQUIRES A
TRANSFORMED FRAMEWORK
26. So whilst some suggest that the industry's
future lies in a return to the practices of the past, the evidence
points strongly in the other direction.
27. Self evidently the operational model
which worked for Commercial Radio in the 70s cannot be relied
upon to secure local radio in today's market. When Commercial
Radio was established there was only one local station per area,
and many areas had no provision at all, there were three television
channels, no mobile phones and, of course, no internet. The picture
outlined above could scarcely be more different.
28. So, what might the future hold for local
Commercial Radio, for its place as a provider of local news and
information, as a connector in communities, and as a contributor
to local plurality?
VARIED APPROACHES
29. There is no single blueprint of a Commercial
Radio station in the UK, or even of a Commercial Radio company.
Some stations are independently owned, often by talented enthusiasts
involved in day to day operations, others by large national or
international private or public companies, either operating solely
in radio or across other media. Similarly, radio groups have different
strategies to support listeners—some with national brands
delivered locally, some with stations which only exist in their
locality.
30. These differing strategies do not, however,
undermine the continued delivery of the local news, information
and connectivity which listeners value. Research conducted by
RadioCentre during April 2009 found that: 75% of local stations
broadcast local news for more than 8 hours a day, with 65%
broadcasting local bulletins for 12 or more hours.[108]
A comprehensive audit of the industry carried out in 2008 found
that, on average, each station broadcasts:
— 22 news bulletins every day, each
of which lasts on average three minutes. Almost 70% of these news
bulletins contain local news;
— 17 weather and 12 travel bulletins
each day;
— Five "What's on" bulletins
every day. The average duration of a bulletin is just over a minute,
a 33% increase on 2004;
— 25 charity bulletins every week;
and
— promotes nearly 28 different community
events and organisations every week.
REGULATION OF
LOCAL RADIO
IN THE
21ST CENTURY
31. This data demonstrates that Commercial
Radio is meeting one of its key public policy roles: to provide
compelling local content. However, digital technology presents
opportunities to produce, edit and transmit compelling local content
in new ways. This opportunity to modernise local delivery in light
of the opportunities presented by digital origination has, however,
been stymied by existing legislation and regulation.
32. In the analogue radio era, the provision
of localness was founded on successive regulatory emphasis on
programming inputs as the best proxy then available to secure
local programming outputs. Where the studio is based or how many
hours of programmes are broadcast from a certain town are input
measures designed to secure locally relevant output.
33. But, digital technologies render these
proxies redundant. A Google server in Seattle is able to deliver
locally based search on Indian restaurants in Brighton; a printing
press in Derby can digitally print a newspaper for Plymouth and
a citizen in Glasgow can post a video from his mobile phone of
the airport attack on YouTube for his aunt to see simultaneously
in Australia.
34. So for radio, local content can be made
and produced anywhere. The key in the digital age is to ensure
that content is relevant and engaging for local listeners. We
are moving to a digital age, where listeners in Penzance expect
up-to-date and accurate local traffic news but recognise that
accuracy might be delivered by a GPS satellite in space whereas
in the analogue days it could only be delivered by a traffic observer
standing on the local high street.
35. News hubs, a deregulation already enable
by Ofcom, are a good example of how breaking free from traditional
production techniques can improve the service offered to consumers.
In operating news hubs, stations' news gathering efforts remain
focused within the local area, but bulletins are compiled and
read from a shared central resource. Other examples of new programme
production techniques include networking of well-known presenters
across several stations but inserting station-specific locally-relevant
information; pre-recording custom local information to enable
it to be broadcast even when a station cannot afford to be live;
and using technology to provide tailored information to different
geographical areas simultaneously.
36. In order to enable stations to maximise
the benefits of the digital age, we advocate changing the regulatory
model from input-based regulation for the analogue era to output-based
consumer needs for the digital age. We are therefore working with
Ofcom and Government to devise a new method of regulating local
radio going forward. Our shared objective is to deliver the operational
flexibility stations need, whilst ensuring that the content which
matter most to listeners is delivered.
37. We believe this should include:
— Increased flexibility to co-locate stations
within defined geographical regions;
— The opportunity to merge adjoining stations
where appropriate in order to ensure their ongoing viability;
— A significant reduction in the dependence
on locally-produced hours as a proxy for the delivery of local
content which listeners value most highly;
— A reduced dependence on music output
as a defining characteristic of local Commercial Radio services.
38. A model which delivers these objectives,
and which also dovetails with our digital ambition for radio has
the best opportunity of success for the sector going forward.
39. Just as not all stations take full benefit
of all the regulatory freedoms they currently have, so there is
no reason to expect they will do so in the future. We noted earlier
that a recent survey undertaken had found that 65% of local stations
broadcast hourly local news for 12 or more hours a day; that
survey also found that, even if there was no regulation whatsoever,
only 6% would reduce their local news output to less than 12 hours
a day. It is not regulation that secures the delivery of localness,
but an underlying understanding of how local relevance secures
a viable business.
PLANNING FOR
A DIGITAL
FUTURE
40. Earlier we set out that our vision for
Commercial Radio in a Digital Britain included three strong tiers
of listener choice. In this submission we have focused on the
interventions required to support the second and third elements
of our vision:
— Large local and regional services, on
DAB, to deliver news, information and entertainment to reflect
the tastes of their area.
— Small local and community services in
smaller towns (that are likely to remain on FM at least in the
medium term).
41. For example, the localness deregulation
outlined above will be crucial in ensuring local services are
in good robust shape for migration and so that, while they remain
on analogue, they provide the financial security that radio companies
need in order to invest in migration. In particular, facilitating
mergers of some smaller local services will aid the transition
to the digital world.
42. However, in order to deliver the large
local services on DAB, it will also be necessary to introduce
measures to enable the radio industry and Ofcom to re-plan the
local DAB network. In practice this means re-planning the current
map for local DAB and facilitating a build-out of local DAB networks.
43. At present too many of local DAB multiplexes
are too small to be viable. We have therefore proposed that the
industry and Ofcom will undertake a process to reassess how and
where local multiplexes operate. Ofcom will then need new powers
(to merge and extend multiplexes, and to change frequencies where
necessary) so that results of this process can be implemented.
44. Delivering this new map will require
public money to support build-out and to increase the robustness
of coverage. But the benefit of this will be to ensure that local
DAB reaches FM equivalence, thus enabling switchover to become
a reality for many local services.
45. Once this process is complete it will
also be necessary to provide an extension to DAB multiplex licences
to ensure that multiplex owners have the security that they need.
This is especially important due to the significant investment
that will be required in reconfiguring the technical infrastructure
as a result of re-planning.
46. In addition, radio stations migrating
from analogue-digital simulcast to a digital-only world, require
confidence that analogue licences will continue to generate revenue
until audiences transfer to digital. Operators would be unable
to commit to digital if some of their simulcast brands were to
risk their AM-FM distribution being withdrawn or face re-advertisement
prior to switchover. An extension to all current analogue radio
licences up to switchover is therefore necessary.
47. While these changes will provide particular
benefit to larger local services, many are also important for
the future of smaller local services (those that likely
to remain on FM in the medium term). In particular the rollover
of analogue licences and localness deregulation will enable them
to be in the best possible shape in order to contribute to localness
and plurality in Digital Britain.
PLURALITY
48. As we have noted, Commercial Radio delivers
high levels of local news and information across its local stations
and therefore the industry's very existence makes an important
contribution to plurality at a local level. It is valued highly
by its audiences and is an important local medium. It plays an
essential role in local democracy and accountability, with an
editorial independence that is secured by legislatively-enforced
impartiality requirements.[109]
Perhaps as a result of this importance, the industry tends to
attract a level of regulatory and parliamentary scrutiny disproportionate
to its size and scale, including inappropriately detailed ownership
regulation.
49. There is growing evidence that consumers
rely less on single sources of information and local viewpoint.
Independently research commissioned by RadioCentre[110]
found that half or more of the population are able to access local
news and information from TV (50%), newspapers (53%) or the internet
(58%), as well as radio (79%). As long ago as 2007, it also found
that (88%) thought there were more different places from where
they could get their local news and information than there were
five years ago; this figure likely to be higher today. Less than
half of those surveyed (43%) said that radio provided content
which they could not get elsewhere whereas almost three quarters
(74%) attributed that characteristic to the internet.
50. These findings do not diminish the importance
of radio, but they do provide evidence that indicates it is time
to reconsider the radio-specific rules on the concentration of
ownership. There are two types of separate but related processes
affecting local radio ownership—rules governing local and
regional media mergers (as reviewed recently by the OFT); and
regulations on media ownership, which were created to protect
plurality in a single media sectors and between sectors (to be
reviewed later this year by Ofcom). Both of these rules should
be revised to reflect the transformed media landscape.
— New OFT's rules governing local and
regional media mergers—These rules focus too narrowly
on the impact of mergers within a single-media market and have
been subject of a review by the OFT following the Digital Britain
Interim Report.
A broader interpretation of media markets
is required, which recognises how local media are substituted
for one another and the way this competition keeps prices down
for advertisers in particular.
— New rules on media ownership regulations—The
current regulations[111]
include detailed points systems limiting ownership in order to
protect plurality in single media sectors and across media. This
limits consolidation and enforces artificial separation of media
companies (eg two Commercial Radio stations plus the BBC in local
areas).
Ofcom is reviewing these rules later in the
year and must take the opportunity to remove single sector consolidation
constraints.
51. A consistent approach across both these
areas is also important in order to ensure that Commercial Radio
has the same freedom as other local media (such as local press).
There must be no asymmetry in the rules and their application
at a local level.
52. Retaining the status quo risks more
station closures and a further decline in competition and plurality
in local media, whereas changes to existing rules will enable
radio to compete with its freer new media competitors and provide
real benefits for listeners.
PARTNERSHIPS AND
NEW APPROACHES
53. As we enter the digital age it may be
that there is more that unites than divides the different sectors
within local radio—Commercial, BBC and Community. To that
end, Commercial Radio is developing partnership ideas with BBC
Local Radio and Community Radio.
54. These ideas include pooling audio content,
sharing infrastructure, technology and expertise, informal talent
swaps and hosting joint on-air events. We recognise that each
sector will have an important and distinct role to play for its
different audiences, but our discussions have revealed opportunities
to share costly infrastructure burdens and provide mutual support.
55. Should we decide to pursue our discussions
to a more formal conclusion, we are keen to ensure that any partnership
does not undermine the editorial independence of each sector,
thereby ensuring that, in local radio alone, there are at least
three separate voices contributing to local plurality.
CONCLUSION
56. Radio can and will thrive in this digital
age. However, if Commercial Radio is fully to seize the opportunities
offered by digitisation, regulation that unnecessarily limits
and restricts the industry must be re-shaped.
57. At the local level, commercial stations
will continue to serve their local community with dedication and
passion. In a globalised world, outstanding local output carries
an even higher value. Yet this local output is threatened; the
system under which it is currently produced is no longer viable.
Re-targeted localness regulation, relaxed ownership rules and
partnerships with fellow radio providers will, in totality, advance
the industry's digital ambitions and help secure a healthy and
prosperous local Commercial Radio sector.
May 2009
99 Ofcom, The Communications Market 2008, p 52. Back
100
Rajar Q1 2009. Back
101
Rajar Q1 2009. Back
102
Rajar Q1, 2009. Back
103
Ofcom. The Communications Market 2008, p 244, Figure 4.11. Back
104
RAB. Back
105
Stations generating profits of less than £100,000 per
annum are extremely vulnerable to relatively small downturns in
revenue (less that £2k per week, equivalent to one major
client). Back
106
RadioCentre. Profitability and localness survey of local Commercial
Radio, March 2009. Back
107
Radio Advertising Bureau, 2008, Advanced Radio Revenue Indicator
(ARRI). Back
108
RadioCentre, Profitability and localness survey of local Commercial
Radio, March 2009. Back
109
Section 320, Communications Act 2003. Back
110
The Big Listen Phase 3, Base: 10,375 Commercial Radio Listeners,
Source: You Gov, June 2007. Back
111
The Media Ownership (Local Radio and Appointed News Provider)
Order 2003. Back
| 
