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 classicfm.com
and koko.com 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
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 clearthe 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 centa 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 radioa vital part of its community
but, let it be recognised, largely composed of stations focussed
on popular musichas 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
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 BillFurther 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
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"
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
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 investmentsonce
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.
CLASSIC FM CONSUMER
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 planreports of the Panel's
meetings will appear on the classicfm.com website and an annual
summary of their activities will feature in future GWR Group Annual
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 coveragean 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 waywe
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
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.