Joint Committee on The Draft Communications Bill Minutes of Evidence

Memorandum submitted by GWR Group plc

  GWR Group is the leading UK commercial radio broadcaster. We operate the national stations Classic FM, Core and Planet Rock, 31 local stations in the UK and the and internet services. GWR is the majority shareholder in Digital One, the sole commercial national digital radio multiplex company, and has interests in 11 digital radio multiplex licences.


  GWR Group is delighted to see a Draft Communications Bill, but disappointed by radio's position as the main upholder of media plurality. It seems unfair that our small industry should be required to maintain at least three owners in any one area, whilst much bigger media such as newspapers and television look likely to consolidate into even bigger companies. GWR supports the principle that there should be three media owners in any locality, but that number should be spread over all the local media, not concentrated in one. We present research which shows that ownership deregulation contributes to increased listener choice, and explain how concerns about the effects of converged ownership on broadcasters' impartiality or local commitment can be allayed by the appointment of local ombudsmen to respond to comments from listeners, viewers and readers.


  A wide range of opinions have been expressed on this subject, and GWR Group welcomes the Draft Communications Bill's generally deregulatory stance, though we would commend it more warmly if this were extended to radio. To assist the committee in its consideration of the future effects of ownership deregulation in radio, we can present academic research collated for the Communications White Paper team in June 2000 which reveals that ownership deregulation can produce increased diversity of output.

  GWR Group has long argued that common ownership of channels reduces overlap and widens listener choice, using the BBC's 5 radio networks as our example.

  Appendix One, "Leaders in Radio", is a collection of research reports dealing with the effect of the 1996 US radio ownership changes on listener choice. This research was cited in the Government's 2001 Ownership Consultation, and its conclusions are clear—the US experience is that owners controlling a number of stations position them so as not to compete with each other and to provide a broad and comprehensive spread of choice for listeners.

  In the research reports, US researchers examine the effect on listener choice of the ownership concentration which has resulted from the 1996 Telecommunications Act, which eased radio ownership rules in the US. The third of the research reports in Appendix 1 is "Mergers, Station Entry, and Programming" by Steven Berry (Yale University) and Joel Waldfogel (Wharton School, University of Pennsylvania). It shows that in the late 1990's the choice of radio formats available to listeners in a typical US city increased by 28 per cent (from 11.5 to 15) as the number of owners decreased by 20 per cent—a demonstration of how ownership convergence benefits listeners. Maintaining plurality of voice is important, but there are still 15 owners to provide that in the typical US city, even after all of the mergers have taken place. These figures show how programming diversity increases as ownership converges.

  The transferability of these conclusions to the UK context has been debated within GWR Group, and we have identified a number of factors which support the case for applying the US research results in the UK:

    —  although the absolute number of commercial stations in UK cities is generally smaller than in the US, factoring in the BBC services evens up the balance. BBC stations participate in the listening market just as vigorously as the commercial ones, and the "orderly distribution of formats" effect takes into account the BBC stations' position in listeners' format choices. Indeed, the presence of the public service BBC services in UK markets further offsets any perceived concerns which may exist about common ownership;

    —  the BBC is itself an example of the "orderly distribution of formats". It is given 6 sets of spectrum allocations per area (including local radio) and arranges its stations so as not to compete with each other. By striving for minimum overlap between stations, the BBC serves the largest net audience and satisfies the maximum number of licence fee payers;

    —  the newest form of licensing, digital radio, gives control of up to 10 formats in one area to one "owner"—the multiplex operator. The 1996 Broadcasting Act charges the multiplex operator with providing a set of services which, in combination, satisfy the maximum number of listeners. This means planning the maximum number of services compatible with the bit-rate limitations of the multiplex (usually 10 services are feasible) and then positioning them for minimum overlap. Attracting one listener with two services is a waste of spectrum, when those two services with proper targeting should serve two distinct listeners.

  Relating these conclusions to a more liberally regulated future, one can see that ownership convergence would result in a greater variety of formats, with "niche" formats being supported by an owner's mainstream stations as a way of providing a comprehensive range of choices to listeners.


  There is much to commend in the Draft Bill's proposals. GWR supports the removal of the outdated UK-wide "Points System" and its replacement by competition law. We also welcome the removal of restrictions on foreign ownership of UK media companies (and hope for reciprocity from abroad) and welcome the opportunity for one owner, subject to competition law, to control more than one national commercial station.

  It is in the regulation of local radio ownership that the Government's deregulatory intentions are not reflected by the Draft Bill's proposals, as outlined in the Policy Guidelines. Competition law is the basis of the UK-wide radio ownership rules, and GWR believes that at local level competition law will also provide the protections required.

  Radio is the only medium to retain single medium local ownership rules. The Draft Bill states that TV and Newspapers are the two most important local media, yet it imposes few restrictions on them. Local commercial radio—a vital part of its community but, let it be recognised, largely composed of stations focussed on popular music—has to navigate a complex local points system which was first proposed over a year ago. Since then, other media have seen ownership regulation roll back, but the radio proposals have not been updated to reflect the overall deregulatory climate.

  Commercial Radio's trade association, CRCA, is developing an elegant system which delivers the objective of three local media owners without the need for a complex "points system", and dispenses with the requirement that radio should maintain three distinct local owners beyond the requirements of competition law. GWR supports the CRCA proposal.

  In the current draft of the Bill's media ownership rules (Draft Communications Bill—Further Provisions, Schedule 14, Part 3), this objective could be achieved by the Secretary of State imposing an order concentrating on the local media ownership factors laid out in paragraph 11 (2) (f) and (g).

  In addition to this mechanic, and providing an additional plurality control, would be one of the draft Bill's "key rules" (Further Provisions, Schedule 14, Part 1) preventing cross ownership of a local ITV service and more than 20 per cent of the local press market.

  Maintaining plurality in local media is important, but the Draft Bill's proposals are too complex and bear most heavily on the smallest of the three media. A system which guarantees three local media owners, and which is simple and easy to operate, would meet the government's objectives of deregulation whilst protecting plurality.


  The Draft Bill's proposals for digital ownership are based on the assumption that the number of multiplexes will remain as currently planned. The proposals are therefore not "future proof" if more spectrum becomes available and more multiplexes are licensed. The current proposal limits companies to owning one local multiplex per area, resulting in two owners in most parts of the country. Modifying this to a requirement that there be two or more owners of local multiplexes in each area will accommodate any future multiplex expansion.

  The proposals for service ownership (the channels which are broadcast on the multiplexes) should integrate with the proposals for analogue radio: hence digital sound programme services should be included in the "three local media owners" principle.


  GWR welcomes the proposal to extend analogue radio licence periods from eight to 12 years. The key medium to long term uncertainty in media businesses is the security of the licence to broadcast. Uncertainty in this area will deter investors from taking a long term view on new developments, especially where new technologies require significant investment before there is any prospect of a return. Much digital radio investment has been underpinned by the expectation of income from existing analogue licences, but the combination of the economic downturn and the slower than expected digital radio take-up gives the industry a problem. Digital radio receivers are only now falling to price levels acceptable to the market, and the BBC has only recently started to promote digital radio as its new digital radio channels are launched on air. Digital TV has had well-publicised problems, and digital radio runs on a longer timescale. Digital radio will not become viable within the original planning horizon, hence analogue revenues must be guaranteed for longer to safeguard the digital investment.

  In both radio and television, revenues from successful analogue licences fund the start-up costs and early years losses of fledgling digital services. In radio, analogue licence renewals have been used to encourage digital radio investments—once a commitment has been made to broadcast a channel on digital radio the analogue licence has been rolled over.

  Analogue revenues will continue to subsidise digital for much longer than was originally thought. It is GWR's view that the roll over of national and local analogue licences should be extended and allowed from the first post-digital term into a second post-digital term, on condition that the analogue licensee negotiates and secures digital carriage for their second post-digital analogue licence term. This will ensure both the success of digital radio and the return on the original investment.

  For national analogue licences, the digital-linked renewal process will include the "shadow bid" process (as carried out when the national licences underwent their first digital-linked renewal) to set the cash bid and percentage of qualifying revenue to be paid in the new licence period. This process, as proposed in the Draft Bill, should take account of the costs of digital investment made by the analogue licensee.


  The Government is concerned to ensure the impartiality of local news services and the local content of local radio output. These important aspects are best judged by consumers locally, and the converged structure of OFCOM offers an opportunity for an integrated approach to these issues.

  Classic FM has pioneered self-regulation in broadcasting with the formation of the Classic FM Consumer Panel and our proposal for a local media Ombudsman. The Classic FM Consumer Panel is chaired by former Culture Secretary Chris Smith MP, and has six members recruited from around the UK by an on-air campaign on Classic FM. The panel meets four times a year to receive the Classic FM annual programme plan and comment on the management's achievement of targets within the plan—reports of the Panel's meetings will appear on the website and an annual summary of their activities will feature in future GWR Group Annual Reports.

  In local areas a system of Ombudsmen could provide a single all-media point of contact for listeners, viewers and readers concerned about local media coverage—an important local representation of the converged structure of OFCOM, perhaps as a development of the ITC's existing regional system.

  If such structures are in place, the content responsibilities of OFCOM can be retained as backstop powers but there should be no need for day to day involvement by OFCOM in issues covered by Consumer Panels and Ombudsmen.


  GWR is concerned that radio might find itself in a "solo silo" within OFCOM. The commercial radio industry does not want to be pigeonholed in this way—we want to be accorded proper status within OFCOM, but this should be achieved by including radio in the integrated structure of OFCOM rather than by locating our interests in a separate ghetto.

  The Radio Authority has said that the industry supports its argument for a distinct radio "stream" within OFCOM. In fact, the industry does not share this view. To clarify the position, before the OFCOM structure was properly mapped out, the industry argued that, if OFCOM were to have a divisional structure, we would wish to see a distinct radio division alongside others for fixed line telephony, mobile communications, television and so on. We did not wish to see radio as a junior partner in a combined "Broadcasting Division".

  Now that it is clear that OFCOM will be functionally based, we are confident that our interests in each of the functions will be properly dealt with in an integrated structure. Indeed, the continued prospect of radio in a solo silo leads us to be seriously concerned that radio will be disadvantaged by being sidelined in this way.

  GWR urges that radio be allowed to participate fully in an integrated OFCOM. Radio needs to be treated equally with other OFCOM sectors, and to give the separate treatment a "radio division" implies would be to shut the door to modern regulation for a significant and growing part of the UK broadcasting ecology.


  The Draft Communications Bill heralds a step-change in regulation for UK media. Commercial radio's history is distinguished by periods of growth in stations and listener choice which arose from the relaxation of regulation in the 1990 Broadcasting Act, and then the 1996 Broadcasting Act. We stand poised for further growth into the digital radio age, but the ownership context must be right. The radio ownership provisions as currently drafted contain the real threat of stalling the next stage of growth. By adopting the proposal for three owners of local media, the Scrutiny Committee will be guaranteeing both the next growth phase of the industry, and the plurality of ownership and diversity of output which will flow from a healthy, vibrant radio industry.

June 2002

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