Written evidence from UTV Media (GB), UKRD Group and The Local Radio Company (FLM 47)

 

Background

1. This is a joint submission to the committee's Inquiry into 'The Future for Local and Regional Media' by UTV Media (GB), UKRD Group and The Local Radio Company (TLRC). The latter was acquired by UKRD in May 2009. We are grateful to the committee for allowing us to make representations after the initial deadline for written evidence had passed.

2. UTV and UKRD / TLRC represent around 12% of all commercial radio revenue and are the third and fourth largest radio groups in the country by number of Ofcom licences held. The 30 radio stations we operate reach 4.5 million listeners a week, and we also hold significant interests in local and regional DAB digital radio multiplexes. Our various analogue and digital licences cover all four nations of the UK and range from talkSPORT - the UK's second largest commercial station - to small stations like Salisbury's Spire FM. Our companies also collectively own the radio sales house First Radio Sales, which currently represents national airtime sales for 118 stations, primarily consisting of local services.

3. Our companies have each recently resigned from the commercial radio industry body RadioCentre in order to articulate our opposition to the Government's 'Digital Upgrade' proposals for radio. These consist of plans to move all large local and national radio stations to DAB at the end of 2015, having achieved certain migration criteria by the end of 2013. Under the plans, it is proposed that over 120 local commercial radio stations will be consigned to an 'ultra-local' tier of community and commercial stations broadcast exclusively via FM.

 

2015 FM/AM switch off is not in the interest of consumers

4. Our primary reason for opposing the Government's proposal to switch-off the AM and FM signals of larger radio stations in 2015 is that it is not in the interests of radio listeners, and will therefore damage the radio industry:

i. The current model is delivering for radio listeners: Radio listening is at an all time high with 90% of the population tuning in every week. This has been driven by the wide range of stations available via conventional FM/AM sets, with listeners choosing between an average of 8 national stations and 6 local stations.[1] Digital platforms including DAB, the internet and digital TV have complemented this choice by catering to niche formats such as religious or minority ethnic programming.

ii. There is limited demand for the new services which DAB migration could deliver: Only 3% of listeners are presently dissatisfied with their choice of radio stations and 69% of consumers only listen to 1-2 stations from the wide range available.[2] The level of consumer interest in the additional data services and interactivity offered via DAB is also much lower than expected. As a result, 79% of all radio listening is still to traditional FM and AM stations, with only 4% of radio listening hours attributed to digital-only stations and DAB receivers accounting for just 22% of UK radio sales.[3]

iii. Upgrading to DAB is expensive for consumers: Studies indicate that there are at least 120m analogue radios in the UK, compared with just 9 million DAB sets.[4] This excludes radios in workplaces and public places. The average price of a new DAB receiver is £85, meaning that the consumer cost of replacing existing analogue sets could be £10 billion. For take up to be widespread, DAB must become available for less than £20 and routinely added to products such as mp3 players. In fact, the cost of DAB receivers is currently rising due to changes in exchange rates.[5]

iv. Consumer take-up is not keeping pace with Digital Britain projections: Due to the cost of upgrading, only 16% of consumers say that they plan to buy a digital radio in the next year,[6] with low DAB sales meaning that digital's share of radio listening is currently 21% and set to miss the 2009 year-end projection of 26% which appeared in the Digital Britain report.[7] DAB represents just 13.3% of all listening, with other digital listening coming from the internet and digital television.

v. The cost of bringing DAB coverage to the same levels as FM is prohibitive: At present, around 18% of listeners to popular stations such as Classic FM could be cut off at switch-off. However, the cost of improving reception to FM standards is estimated to be in the region of £150 million, and neither the BBC nor the larger commercial radio groups have agreed to meet the bill.[8]

vi. In-car availability of digital radio is a major challenge: In-car listening is hugely important to radio, accounting for 20% of all listening.[9] Yet DAB is currently available in less than 1% of UK cars. Even if all new UK cars are fitted with DAB as standard by 2014 as is currently proposed, in-car DAB set penetration is unlikely to exceed 90% until some time after 2020.[10]

vii. The growing international popularity of FM-enabled smart-phones and mp3 players is strengthening FM's position: 45% of mobile phones are expected to have FM radio by 2011 with DAB having been sidelined by global manufacturers such as Apple and Nokia. FM's enduring success is partially due to the lack of global consensus over digital radio standards, with other countries overlooking DAB in favour of technologies such as DAB+, DMB and HD Radio.

viii. AM / FM switch-off will disproportionately disadvantage certain sections of society above others: Consumers in England are 43% more likely to have a DAB radio than those in Scotland, with similar gaps in Northern Ireland, Wales and rural areas.[11] Radio is also a lifeline to vulnerable groups, such as the elderly or partially-sighted communities. These groups may lose out in a switchover process.

ix. AM / FM switch-off will have significant environmental costs: At least 120 million analogue sets may become redundant and require disposal as a result of the 'digital upgrade' plans.

x. Switch-off carries significant costs for the car industry: UK car manufacturers are being forced to invest heavily in DAB car radios - expenditure which will be passed on to motorists.

xi. Migration of larger stations threatens local radio: The plan to leave smaller local radio stations on FM will consign over 120 stations to an 'ultra-local' tier of radio, making them invisible to DAB listeners and threatening their viability. We develop this point under a separate heading below.

xii. There is no 'digital dividend' for taxpayers: Vacated analogue TV spectrum will be auctioned off by the Treasury, generating £billions for the UK taxpayer. However, the best technical use of AM and FM is to broadcast radio. This means there is no 'digital dividend' to offset the cost of the 'digital upgrade' to consumers.

xiii. Loss of national licence auction revenue for taxpayers: As part of the proposed 'digital upgrade', Government is offering Classic FM, Absolute Radio and talkSPORT free licence extensions to take them up to the planned AM / FM switch-off in 2015. This deprives taxpayers of auction revenue due under current legislation and removes the opportunity for new entrants and investment.

 

The impact of the proposed 'digital upgrade' on local radio

5. In the context of this review, we wish to particularly draw the committee's attention to the threat which the Government's proposed 'digital upgrade' plans pose to local radio. As outlined above, over 120 stations currently lack a clear route to DAB transmission and it is therefore suggested that they should remain on FM (or in the case of local AM stations, move to FM) whilst larger stations migrate to DAB.

6. The reason why this group of stations is unable to move to DAB is that the coverage of local and regional DAB multiplexes is based on much larger transmission footprints, tailored to the needs of large local and regional BBC and commercial radio stations. In fact, under the Government's Digital Britain proposals, it is proposed to merge some of these local multiplex areas into single large regions, making them even less well suited to the needs of stations covering smaller towns or rural communities.

7. Forcing 120 smaller local commercial radio stations to remain on FM while larger stations move to DAB will result in these stations becoming the poor relations of larger and more prosperous services participating in the digital revolution. The affected stations will become less prominent amongst DAB listeners and be downgraded in the eyes of advertisers. This will weaken their viability and imperil their long-term sustainability.

8. The fact that 120 local commercial radio stations are unable to participate in the digital migration plan also locks in an infrastructural disadvantage for commercial radio against the BBC, which has the opportunity to migrate 100% of its radio services to digital.

9. This damage to local commercial radio stations should be of significant concern to both listeners and policy-makers, given evidence that such stations often have the strongest links with their local communities. Smaller local radio stations often have deeper commitments to local programming and community action than their larger rivals, since it is only by super-serving their localities that these services can stand out in their local marketplaces. This has seen smaller stations become invaluable lifelines to constituencies across the UK.

10. A good example of this is provided in Annex A, which details the impact of Radio Wave - a UTV Media (GB) station - in Blackpool, Wyre and the Fylde Coast. The station has embedded itself into the heart of its community by demonstrating a long-term commitment to high quality local programming and active participation in local life. 26% of the local population currently tune into Radio Wave every week, demonstrating the direct link between local relevance and listening.[12] However, DAB transmission is currently out of reach to this station. Its best option for digital distribution would be to secure a carriage agreement with the local DAB multiplex for Central Lancashire. However the cost of this platform is out of reach for a comparatively small station like Radio Wave, whilst the coverage offered does not correspond with its current Blackpool and Fylde Coast transmission area.

11. Finally, as well as weakening the positions of smaller local radio stations, the 'Digital Upgrade' proposals could also undermine the provision of local and regional content by larger stations. This is because the Government is proposing to grant concessions to the larger local radio stations moving to DAB allowing them to broadcast regional or national programming in place of existing local content.

 

An alternative vision for the future of radio - with listeners at its heart

12. Rather than being sidelined in a drive to digital tailored to serve the financial interests of some of the large commercial groups, economic data indicates that smaller commercial radio stations should be at the vanguard of efforts to, in the words of the Digital Britain Final Report, "devise a regulatory regime which secures the provision of local content but that equally reflects the economic realities of local media markets". [13] Or in the words of Ofcom, to secure a "sustainable and universal" tier of local radio.[14]

13. The April 2009 'Independent Review of the Rules Governing Local Content on Commercial Radio' conducted by John Myers for DCMS revealed that 80% of smaller local commercial radio stations are loss-making or generate annual profits of less than £100,000.[15] Larger stations generally remain profit-making, despite the recent downturn and migration of local advertising spend to the internet. This finding was reinforced by analysis subsequently obtained by Ofcom from Value Partners, which reveals that many smaller services are either unprofitable or operating at the margins of viability, with the recession having intensified competition for revenue between stations.[16]

14. Given that both Ofcom and Government have identified smaller local radio stations as facing particularly acute economic challenges, we believe that the priority of policy makers should be to reform the operating environment for this group of stations. Efforts to deregulate commercial radio can and must be separated from plans to migrate larger radio stations to DAB-only transmission.

15. Furthermore, rather than pursuing an AM / FM switch-off plan that lacks listener support, radio's future success depends on embracing a multi-platform ecology which provides radio output to listeners on their terms, rather than on those of the operator. This will depend on continued industry investment in multiple platforms, allied with appropriately 'light touch' licensing and regulatory policies from the regulator. For our own part, we plan to maintain our current investment in both analogue and digital radio with a view to realising this vision.

16. There is no doubt that commercial radio faces significant commercial challenges. These have been drawn to the committee's attention in the submissions of Ofcom, RadioCentre and others, and are reflected in the draft provisions of the Digital Economy Bill. However, regulatory and licensing reform for commercial radio is possible without a digital radio switchover plan.

17. The Government's priority for radio should be to free Ofcom to provide our industry with the certainty it so desperately craves regarding its future licensing, regulation and distribution. In turn, the secure operating environment which this creates will allow the debate about the future of radio to be refocused on the needs of the most important stakeholders of all - radio listeners.

 

November 2009


Annex 1: 'Making Waves'
Radio Wave's community impact in Blackpool, Wyre and the Fylde Coast

Radio Wave has established itself as an important force in Blackpool, Wyre and the Fylde Coast, with committed on-air and off-air activity over a number of years placing the station at the heart of community life. Regular weekly activity includes such staples as an Events Diary, which promotes local events on-air every hour, backed up by a comprehensive online guide. But here are just some of the other events and initiatives the station has got involved in recently.

Heroes in the Community Awards

Radio Wave's annual celebration gives local heroes a chance to be awarded for work they have done or for their achievements. The award winners are nominated by members of the community.

Culture and Lifestyle Awards

These recognise businesses across the area that have been nominated for these prestigious awards, with winners chosen by members of the public.

Brian House Children's Hospice

Radio Wave's designated local charity benefits from the continuous support of the station and its staff, both through profile building and special fundraising events

Race for Life

Radio Wave supports this important fixture in the local fundraising calendar with Outside Broadcasts at each event.

Radio Wave Charity Ball

Members of the community recently joined Radio Wave in raising funds for the local children's hospice.

Secret Santa Appeal

Radio Wave works in conjunction with the community to ensure that less fortunate local children do not miss out on the chance of a special gift at Christmas. Listeners are invited to leave gifts at drop off points all over the Fylde Coast.

Create A Christmas Card competition

Radio Wave works with local educational facilities for primary school children to design a Christmas card. The winner gets the card printed and the card is sold within the community with the proceeds going to Brian House.

Creative Media Diploma

Radio Wave has developed close ties with local schools and created opportunities for pupils to learn about how radio is made.

Cycle Blackpool

Radio Wave presenters got closely involved in this campaign to encourage members of the community to cycle all over Blackpool by holding many events throughout the area.

The Hilton Foundation

Radio Wave has forged a close relationship with the local Hilton Hotel to raise funds for deserving causes.

Cool Ride to School

This exciting competition gave an opportunity to one deserving child to win a limo ride to school for them and their friends

Health Week

Radio Wave got together with the local NHS, using its studios as the unusual setting for special one-off clinics which promoted the benefits of regular health assessments.

Easter Egg Appeal

Radio Wave's listeners pulled out all the stops to donate Easter Eggs to children in the community.

Opening of St John's Square

The opening of St John's Square in Blackpool was an important local event, and unsurprisingly Radio Wave was at the heart of the action, with an Outside Broadcast live from the opening.

Illumathon

The Illuminations are a symbol of Blackpool, and this event brightened up life for patients at a local hospice. Radio Wave broadcast live from the midnight walk, with staff also taking part in the fundraising efforts.

10k Fun Run

Radio Wave supported contestants with an Outside Broadcast and live commentating from Radio Wave presenters.



[1] Ofcom, The Communications Market Report, August 2009

[2] Ofcom, The Communications Market Report, August 2009

[3] RAJAR; Ofcom, The Communications Market Report, August 2009

[4] RAJAR / UTV analysis / DRDB

[5] Ofcom, The Communications Market Report, August 2009 / Digital Radio Development Bureau

[6] Ofcom, The Communications Market Report, August 2009

[7] RAJAR

[8] Digital Radio Working Group 2008 / UTV Media analysis

[9] RAJAR

[10] Digital Radio Development Bureau / SMMT / UTV Media analysis

[11] Ofcom, The Communications Market Report, August 2009

[12] RAJAR

[13] BIS / DCMS, 'Digital Britain Final Report', June 2009, page 100-102

[14] Ofcom, 'Radio: the implications of Digital Britain for localness regulation', July 2009, page 4

[15] John Myers, 'Independent Review of the Rules Governing Local Content on Commercial Radio', April 2009, page 34

[16] Ofcom / Value Partners, 'UK Radio: Impact of regulatory relaxations', May 2009