Examination of Witnesses (Questions 2020
WEDNESDAY 27 FEBRUARY 2008
Mr Andrew Harrison, Mr Mark Story and Mr Daniel Bruce
Let me just start then on what is obviously one of your chief
concerns and that is the current rules on plurality of radio ownership.
Just tell us how they work.
Mr Harrison: The rules are designed to ensure
that in any local area there is provision for the plurality of
two commercial providers plus the BBC in any local area. The way
that then works is there is a points system by area under the
regulation of Ofcom where points are totted up relating to the
coverage area of a radio centre licence, the population that is
therefore served and the relative market share to try to ensure
that you get that plurality of provision.
How are the areas defined?
Mr Harrison: The areas are defined by the licensed
coverage area consistent with the licence award, so with the particular
measured coverage area that is part of the licence award.
Tell me what that actually means in a city like Birmingham or
Manchester. I am out-of-date. How many commercial radio stations
are there in somewhere like Birmingham?
Mr Harrison: In a big city you would have a
large number of radio stations because you would have all of the
national radio stations that would naturally reach Birmingham.
You would automatically receive all of the BBC national services
be that on analogue or digital, which in total is round about
a dozen services, plus you would receive the three national commercial
services, which is Virgin, Talksport and Classic FM. So you would
automatically receive about 13 or 14 national stations. Then within
that local area, in Birmingham specifically, I do not know the
data off the top of my head, there would be another ten or 12
services that would be received just in that metropolitan area.
It depends very much on the size of the population, how many services
have been licensed and, in theory, can the area sustain.
Give me an example of where the BBC plus two local stations would
not be in the same ownership? What kind of area would that be?
Mr Harrison: In principle that is all areas
because that is the current ruling.
You have given me Birmingham which has many, many operators inside
it. It comes down at the other end to just two. That would be
the minimum, would it?
Mr Harrison: That would be the minimum if there
is that many radio stations and generally there is. Generally
there is more than one. I live in York. In York you have clearly
all those national services that we have talked about from both
the BBC and the commercial sector. Then in York itself you would
have the local service, which is BBC Radio York and you would
have a variety of others. In York city itself you can receive
a variety of local stations depending on exactly where your house
sits in terms of coverage. The local station is Minster FM, which
is run by a small commercial radio company called the Local Radio
Company. There are other services that reach into York, for example
Viking FM, which is one of Mark's group of stations, run by Bauer,
which is based in Hull but which would still spill over. You would
typically get a station based in the market town and then, depending
on the coverage areas, that would spill into the town from other
Although you have consolidation of ownership inside the radio
industry, that means that one consolidated owner is competing
with another consolidated owner.
Mr Harrison: That is right, yes.
So it is not that you have a situation where one local business
is dealing with another local business, although that can happen.
The typical thing would be a bigger owner but operating a local
station competing with another bigger owner operating a radio
station. Would that be fair?
Mr Harrison: That would be true. The overall
size of the commercial radio sector is actually relatively small.
The total turnover for the sector is about £600 million across
these 320 stations. So this is a very small sector of the overall
media world. Johnston Press alone, the local newspaper group,
turns over more than all of commercial radio. On average you have
320 stations and £600 million turnover. On average each station
is a small business turning over less than £2 million. Typically
they tend to employ about 10 people locally and they will be run
very much as small self-contained businesses because, even though
they may be part of a bigger holding group, the way the regulation
works on local production and studio location and so on and so
forth means there is not a huge opportunity to consolidate and
aggregate up a lot of the operations. So what you tend to have
is a holding group with a string of small stations but they are
all run as individual small businesses. That is one of the issues
that make the sector very vulnerable because all of these small
businesses are struggling to survive in today's multimedia world.
I guess the other point to observe in this context is that while
there is a degree of consolidation in the sector, the absolute
amount of consolidation and the absolute size of the businesses
are still relatively small. For example, the 320 stations are
consolidated into about 70 groups. We are still talking about
pretty small media businesses. You will all be aware of the current
news and so on in the press about GCap. GCap is the biggest commercial
radio operator; it is about 35% of the market. The current bid
on the table for GCap is around about £300 million. This
is still a small business, particularly in a media context, competing
with the sort of owners that you have running television stations
or press organisations or on-line businesses which are much, much
Q2027 Lord Maxton:
If you take Smooth Radio, which is one of the local ones, that
is owned by the Guardian Media Group who run local newspapers
and I think are involved in television as well, are they not?
It is not quite as straightforward as saying that they are simply
Mr Harrison: That is correct. The only pure
radio company is GCap. Bauer, the number two in the market, has
clearly been sold and broken up, but it did have magazine interests
and so on as well. Yes, they are part of bigger parents. None
of them is owned by the bigger media players in the market and
certainly not by the bigger private companies who have the funds
to invest in the sector in terms that we would all be familiar
with, ie Google, Microsoft, Yahoo, Sky and News Corp. None of
those is in the sector.
Tell us briefly what you would want to do to reform the position
because you obviously feel strongly that it does need reform.
Mr Harrison: The key thing that we feel strongly
about, my Lord Chairman, is that the current rules that require
this two plus one media ownership in a local market is outdated
given the way that we now have to compete for revenues and for
listeners across a multitude of media platforms. We think in any
local market it would be entirely appropriate for that to be one
operator plus the BBC. There is already, as you will all know,
a significant market intervention into commercial radio, it is
much more significant than any other sector of the media industry
because of the huge scale in investment of the BBC. The BBC has
four of the five national FM stations, Radio 1, Radio 2, Radio
3 and Radio 4. The commercial sector has only Classic FM on the
limited FM spectrum. We struggle to compete at a national level
purely on spectrum allocation. At a local level, there is a BBC
local service in each of the local markets as well funded as part
of the overall BBC licence fee. Our belief is that in order to
continue to provide the diversity of output and the valuable services
that we provide to a local community then the ability to consolidate
ownership at that local level a little more would enable us to
get more scale at a local level and therefore secure the profitability
of these small local businesses.
The inevitable impact of what you are saying would be that there
would be a process of consolidation of ownership throughout the
industry, would there not? What would happen is that one company
that owns one station would make a bid for another company and
so it would go on and deals would be done.
Mr Harrison: I guess logically that is right,
yes. At the moment you have 320 stations and 70 owners. You can
imagine a process over time where people would trade and swap
licences and move their businesses with the expectation that you
would end up with clusters of stations that would make it much
easier for these small commercial radio businesses to survive.
In the background to the "Future of Radio" report which
Ofcom has just concluded they estimate 40% of local commercial
radio businesses are unprofitable at the moment. We believe that
is in part due to this fragmentation of ownership, the regulation
that requires small businesses based in local areas without the
ability to consolidate and get some of the structural saving that
we think would make these businesses viable.
Q2030 Lord Grocott:
You described Birmingham and the variety of stations there are
there. Unless I have misunderstood something, there is nothing
in the rules of ownership that would prevent those stations consolidating
under the present rules. They are well in excess of what is required
under the ownership rules, but apparently they are not doing that,
are they? I am slightly baffled by the economics in any case because
there seem to be so many stations. I would love to know what sort
of listening figures they get on these smaller stations. Am I
right in saying that in a sense where there are no constraining
rules of ownership, as in a big city, it does not seem to be the
case that they automatically consolidate?
Mr Harrison: I think that is right. Where there
is a metropolitan area with lots of stations there is an opportunity
for certain of those stations to come under a common ownership.
If that does not happen, our judgment is that is because the market
was naturally working pretty well and pretty effectively. Most
of the major radio groups in commercial radio, for understandable
reasons, will want to have a presence in the major metropolitan
areas. Most of the major groups have a presence in London: Global
Radio has a presence with Heart, GCap with Capital, the Bauer
Group with Magic and Guardian Media Group with Smooth Radio. None
of those groups would want to lose a presence in London. Those
London licences they would consider as valuable. I think there
is a natural dynamic in the market with the way that licensing
works that quite naturally provides for plurality anyway. Our
contention is it is an anachronistic to have set specific rules
for radio that continue to apply in any area this two plus one
ownership regulation when that is not something that affects any
other media sector. In local press or in other sectors there are
the natural tests that apply for market competition and consolidation
from either the competition rules or indeed the Secretary of State's
ability to intervene in cases of special public interest, but
there are no monospecific regulations. I think our contention
is that those regulations that were established in a different
era, when radio spectrum was scarce and there were very few other
sources of news provision, are perhaps somewhat anachronistic
in today's multimedia age.
The other side of the coin is that in the smaller areas you are
going to have local monopolies, are you not?
Mr Harrison: Our contention would be that radio
is not a monopolistic provider of media services or news in those
local areas. There are cross-media ownership rules around securing
plurality. In most local areas now citizens and consumers in those
areas may listen to local radio, may read the local paid for newspaper,
may read the free sheet, may go on to local community websites
or may access the local council website. There is lots of opportunity
for them in the modern age to receive news plus there remains
the BBC as well in every market.
Your two colleagues have been remarkably restrained. I do not
know if they want to add anything to what has been said.
Mr Story: We feel that there is a new dawn here.
We are seeing convergence of the media and the platform is not
as important as it once was, it is becoming less important. We
were discussing this yesterday and saying that the BBC is not
in local newspapers. Last night I had a look in several local
areas at the BBC local radio site versus the local newspaper site
and their news provision was virtually identical. So they may
not be in the same business right now but they are veering towards
that as we get there. The convergence means that regulating radio
in a separate and different way is putting an undue strain on
radio. All of our groups have radio stations, we are the second
largest group in the UK and we have certainly got radio stations
inside our company which are not profitable and, frankly, are
unlikely to be profitable and yet their existence is dependent
on being part of a group which has profitable radio stations.
Could they be profitable if the rule was lifted?
Mr Story: We would want to run those stations
at a certain level. We would want to run them with news and with
content which we thought was valuable to our listeners and to
our advertisers. I guess we could turn them into jukeboxes but
that is not the business that we are in in local radio. The two
drivers of audience for us are a strong sense of locality through
the news and through involvement with the community and personality,
who they want to listen to.
Mr Bruce, is there anything you want to add?
Mr Bruce: Obviously Mark is speaking for the
second largest group in the country. The CN Group owns all but
nine radio stations, the majority of which have broadcast areas
of less than a quarter of a million people. When those radio stations
operated in a standalone environment prior to acquisition by the
CN Group they were operating in very challenging circumstances
indeed and profitability seemed like a distant dream on the horizon.
We have already benefited extensively from the previous relaxations
in ownership rules and being able to own radio stations where
their areas are conjoined in terms of sharing resource and capitalising
that. Ofcom has granted permission to allow us to co-locate a
number of our smaller radio stations in the Midlands which will
save us a considerable amount of money but will also secure the
long-term viability of those local services. Within that there
has to be a degree of self-regulation on the part of the service
provider in terms of the relevance and the distinctiveness of
the local input they would provide under that market.
Q2035 Baroness McIntosh of Hudnall:
You are obviously very keen to loosen up the rules and let the
market do the work as it were. Is there not a danger that if you
do that then the most expensive and difficult bit of providing
content, which is the provision of news, is going to become less
attractive? Can you just tell us how, broadly speaking, the `localness'
of what you provide by way of news is both collected and edited?
How do you get your local news and how do you determine what you
are going to make available to your listeners?
Mr Harrison: Our contention would be that the
amount of news provision and the way that provision is required
to be gathered locally and presented locally is covered within
the format regulation when a licence is granted. So it is nothing
to do with the ownership of the stations. The requirements on
news provision are part of the licence regardless of ownership
and we can talk about how that is then done.
Q2036 Baroness McIntosh of Hudnall:
I think you said that it is difficult for smaller stations to
make the necessary investment. You were talking about the benefits
of larger ownership groupings within which it would be possible
to invest and one of the ways in which that investment might be
directed would be, for instance, towards news gathering and journalism.
It is partly about ownership, is it not?
Mr Harrison: It is. The reason they are related
is as I have said, there is a requirement as part of the regulation
when you are granted the licence as to how much content and so
on you need to produce and where studios need to be based and
so on and so forth. In practice, that has created the current
patchwork that we have of 320 stations covering 320 different
areas across the country. If at the same time you then layer on
top of that licence requirement format requirements separate and
additional rules on ownership you actually end up with an inadvertent
consequence in a lot of local markets where two or three small
stations have quite onerous format requirements on news gathering
and no opportunity to consolidate in ownership terms with their
neighbouring or nearby station. As a result you are building an
awful lot of cost into the business model, studio time, quite
small, tightly defined areas for journalists to do coverage and
so on that we believe could much better serve listeners if you
could create local hubs, if you could create co-location stations
and where we have got examples of that we are beginning to see
the benefits. If you think of today's story about the earthquake
on the east coast, which is a classic example of where local radio
news provision is absolutely at its best, that is a story that
breaks at 1 o'clock in the morning. You need to be a 24-hour local
station to cover it. It is probably after the deadline when most
local press has gone to print for their morning editions, if there
is a morning paper in the area, but in nice time for the local
breakfast shows. The local stations in those areas, be it Lincolnshire
or Humberside or whatever, will have a format in the licence that
requires them to cover the stories and how they might go about
it. The question is how economically viable that is if they also
have different ownership. Would you actually get better coverage
of that story if you had a group that could own the station in
Grimsby and the station in Lincoln and the station in Market Rasen
and be able to cover the story properly with hub resource or do
you get better coverage having different owners in each of those
Q2037 Baroness McIntosh of Hudnall:
If that story was covered from one hub and Market Rasen and Grimsby
and all of those places were served by one single provider, how
easy or difficult would it be for that provider to differentiate
between the impact of that story in Market Rasen and the impact
in Grimsby, and would they care to do so?
Mr Harrison: We have a great example. Maybe
you could talk about Coventry Airport because it is very interesting
in this context where we have got exactly that situation.
Mr Bruce: The news hub concept has evolved by
Ofcom where permissions were granted to companies such as ours
to run a news hub originally and currently maintains the requirement
for professional news gathering resource to be available and dedicated
to each geographical area within the broader hub network. So the
way that we deliver that at the moment is we have a news hub in
Coventry for five radio stations.
How far away is that?
Mr Bruce: From?
From where you are operating.
Mr Bruce: We have a radio station in Coventry
and then we have radio stations in Stratford, Rugby, Banbury and
Tamworth and they are all currently served by these hubs. Perhaps
I could transfer the earthquake point to Coventry for the purposes
of this answer. Each of those individual stations and broadcast
licences has its own professional news gathering journalist, it
is just one person and they work pretty much Monday to Friday,
nine to five and they are responsible for the initial nuts and
bolts of the news gathering process for that particular station.
Then the news bulletins are produced centrally and the editorial
process happens centrally with a team of three editors in the
middle. In answer to the differentiation between content and its
relevance for different audiences, we were discussing an example
from our own hub in the Midlands whereby Coventry Airport came
under quite a lot of scrutiny three or four years ago when it
decided to reintroduce low cost budget flights. Our station in
Coventry and the Coventry city community developed a very positive
approach to this and was very supportive of Coventry Airport's
proposals, but the radio station in Stratford whose broadcast
area pretty much conjoins the Coventry station's broadcast area
at the airport developed a rather anti-Coventry Airport agenda.
Now, because we had the expert news gathering staff in each of
their respective patches they were able to skew their agendas
accordingly to what was happening in local communities. It was
largely to do with the way the civil authorities were responding
to this particular situation. Within that it also allows us to
deliver more impartiality as well. If you had a standalone station
in Coventry that was developing a very pro-Coventry Airport agenda
that would potentially undermine the impartiality of that news
coverage, as would be the case with the Stratford station in developing
an anti-Coventry Airport agenda, but because that content from
both sides of the fence is more widely available, there is more
news covering resource dedicated to that one story, we were able
to skew it accordingly with ensuring that impartiality was delivered
at the same time. There is an awful lot to be said under the news
hub model for maintaining that local `in patch' news gathering
journalist or professional dedicated resource.