Examination of Witnesses (Questions 2060
- 2079)
WEDNESDAY 27 FEBRUARY 2008
Mr Andrew Harrison, Mr Mark Story and Mr Daniel Bruce
Q2060 Baroness Bonham-Carter of Yarnsbury:
Mr Story, you are Bauer, are you not?
Mr Story: Yes.
Q2061 Baroness Bonham-Carter of Yarnsbury:
The potential GCap merger means that this would create a company
with almost 50% of the market share. Do you feel that is going
too far in this consolidation argument?
Mr Story: Addressing that from a purely business
point of view, that may or may not be worthwhile to do because
if there is a greater concentration of radio stations in one area
you are just taking on new stations in the same area that might
or might not be commercially sensible to do. It was great value
for us as a company to buy Scottish Radio Holdings so that we
could offer all of the north of England and Scotland as one offer
to advertisers. The core thing we tried to get across here is
that freeing the rules on consolidation would allow the industry
a greater flexibility. Interestingly, looking at the last two
major takeovers in the industry, one was our own Emap being taken
over by Bauer, which was previously not an operater at all in
the radio sector in the UK, and the second, the takeover of the
Chrysalis Group by Global, a previously unknown company, probably
some of the people in it are known, but it was a new company which
had come in, there was no further consolidation in those, which
have been the biggest purchases in commercial radio history. It
is not a foregone conclusion that it will all end up in one place,
but I think it needs flexibility so that that could happen. My
view is, in terms of giving better content, it often will be the
way that it actually will help doing that. At some stage there
also has to be a test where you look at each individual case and
say is this in the public interest or not. What is difficult about
these rules is they are almost impossible to understand and they
are absolutely arbitrary.
Q2062 Baroness Bonham-Carter of Yarnsbury:
I understand the argument. I think you are in a way getting to
my concern, which is I understand totally the argument about efficiency
and, having worked in newsrooms, I completely appreciate that.
The problem is diversity. On a trip to America we discovered that
that is a real problem in the radio industry there. The consolidation
means that locality has gone. How do you make sure that the hubs
are not further and further away from where you are actually providing
the news?
Mr Story: We have a huge difference with the
United States in culture. I was talking to somebody who makes
the jingles that go into the news and they said, "I haven't
made one since 1970." Music stations in the US just do not
take news. If you want news you go to a news channel. Will that
happen here? No, it will never happen here because that is not
the mix that people want. They may get stations that do not take
news. News is such a key part of the offer that I really do not
think that will ever happen. In the United States they consolidated
it and had something like 1,500 stations and then they had to
move backwards as they needed to have some diversity. It cannot
be just send the packet, pour it out, add water and that is a
radio station, it has to have some `locality' in it. We passionately
believe in `localness' in our stations.
Q2063 Baroness Bonham-Carter of Yarnsbury:
You support greater consolidation, but you would like to see safeguards
introduced to encourage diversity.
Mr Harrison: Perhaps I may just build on the
question and Mr Story's answer. I think there are two natural
safeguards already in the system. The first is that all stations
have a licence from Ofcom and the format of that licence determines
the sort of output they need to make, the hours of locally made
and produced programming and the hours of "local news".
So even if Global were to acquire GCap it cannot change the formats
of those licences and in order to be operating within the licence
and avoid having the licence revoked it still has to meet those
commitments. So those commitments protect the output regardless
of ownership. I think our second contention on your slightly earlier
question is, if you take that specific merger or acquisition as
a possible example, there is a perfectly sound separate process
that works across industry in terms of the Competition Commission
and competition law and the Secretary of State's right to intervene
anyway that should be entirely sufficient. If it were the case
that Global were to acquire GCap and that 50% market share—I
must remind you, it is a 50% market share of the revenue of the
commercial sector, it is a much less than 20% share of listening
because of the BBC—were judged to give rise to competition
concerns, there is a perfectly normal process available through
the competition authorities to address that. What we do not feel
we need is the additional burden on top which prevents a lot of
this possible consolidation, which we think would be in the interests
of listeners, providing better coverage overall, from ever getting
off the ground.
Q2064 Chairman:
There is one thing I do not quite understand. You have been making
great play of the difficulties of the industry, but we find that
Bauer bought Emap's radio stations for £422 million in February
2008 and in January 2008 Global Radio made a hostile takeover
bid of £300 million for GCap. That sounds a pretty prosperous
industry to me.
Mr Harrison: On the contrary. The GCap share
price three years ago was three times what it is now and the market
capitalisation was triple what it is now. The reason it is a hostile
bid is the value of the company is way down versus where it was
six or seven years ago before the internet revolution and everything
else. The market capitalisation of these companies is weak. The
fact there is a £300 million bid on the table for GCap, which
is far and away the biggest player in the commercial radio sector,
gives you a graphic example of the small size of the sector. £300
million is half the turnover of Johnston Press, is way lower than
the turnover of Trinity Mirror and way lower than the turnover
of Northcliff or DMGT. This is a very small sector.
Q2065 Baroness Bonham-Carter of Yarnsbury:
Mr Story, Bauer is a German media company, is it not? How big
is Bauer?
Mr Story: I think Bauer is the second biggest
publisher of magazines in Europe.
Q2066 Chairman:
What is its market capitalisation or its turnover?
Mr Story: I am not aware.
Mr Harrison: It is privately held.
Q2067 Chairman:
It is a privately held German company?
Mr Story: Yes. The reason during the process
that Emap sold its magazines and its radio, both bought by Bauer—
Q2068 Chairman:
Were you an Emap man?
Mr Story: Yes, I was. The reason it attained
that figure was entirely down to the multiples. An independent
account of this said that Emap radio accounted for something like
80% of the profit in the commercial radio sector. Within our own
company there will be small stations where we do not make any
profit. To defend us against those who think profit may be negative,
for the last 10 years we have won more Sony awards for excellence
in broadcasting every year than any other radio group. They paid
a price for something that was valuable. That is not necessarily
the case for the rest of the commercial radio industry. I think
there is real hardship inside the industry.
Q2069 Chairman:
As a matter of interest, you as an old Emap man—or experienced
perhaps—did Emap ever think of going to Germany and trying
to buy some radio stations there?
Mr Story: Yes, we did. The German market since
the Second World War has been deregulated. It is not possible
for it to be regulated centrally. Each radio station is regulated
by local media and I think we are beginning to see under the Merkel
Government that that is probably going to change. I am only speaking
for myself here. I suspect Bauer may be looking at the opportunities
that existed in Germany and gathering some expertise.
Q2070 Chairman:
How easy would it be for a British company to take over a German
radio station?
Mr Story: Very easy.
Q2071 Chairman:
No barriers?
Mr Story: No. It is a good time to buy because
they are very cheap.
Q2072 Chairman:
What is the history of Global Radio?
Mr Harrison: Global Radio is a privately owned
company owned by three or four investors.
Q2073 Chairman:
Where is it based?
Mr Harrison: It is based in the UK but its backers
are Irish.
Q2074 Chairman:
It is not an Irish owned company?
Mr Harrison: It is held in the UK but its backers
are Irish businessmen.
Q2075 Chairman:
It is another privately owned company?
Mr Story: Yes.
Q2076 Chairman:
These two big players are both privately owned?
Mr Harrison: Both have recently gone from listed
companies to being privately held. Correct.
Q2077 Lord Maxton:
Most of what I call local radio is local advertising. The music
you play is not local bands or groups. Your play lists are not
local. Are you losing that advertising? Everybody is complaining
about advertising moving to the Net in particular. Is that happening?
Mr Story: It is local advertising but in the
bigger conurbations it is national advertising being played to
people in a local context. There is a value for national advertisers
for their national advertising to be heard by people listening
to something from their locality rather than listening to something
national. It is a technical point but that is what makes it successful.
In major conurbations the ratio would probably be about 60 national
advertising and 40 local.
Q2078 Lord Maxton:
How local is it? Local restaurants?
Mr Story: Yes. It depends on how many listeners
the radio station has. You have to buy the whole thing. If you
buy a 30 second commercial, you will buy a package across a number
of stations. For instance, if you are in Manchester, if you are
a fairly small restaurant, you could choose a particular station
where it would not be wasteful for you to advertise there. You
do not want 10,000 people turning up on one night.
Q2079 Lord Maxton:
Are you losing that advertising? Is it more difficult to get?
Mr Harrison: It is more difficult to get. There
is no doubt. If you look at the absolute amount of advertising
we had from local sources in 2000 versus today, that is down slightly.
The relative amount of advertising bought nationally is a higher
percentage than it was. The reason that we are losing that advertising
locally is the increased competition from particularly Internet
sources. Typically, there are three large categories of local
advertising for both local press and local radio: property, recruitment
and motors. Those are three categories that have all migrated
quite successfully, but not exclusively, towards the web. There
is one other structural change that has happened on local advertising
which is some of the core local advertisers for commercial radio
have historically been things like local car dealers and that
sort of thing. As that sector has consolidated, we now have big
holding groups like Pendragon or whatever, and those small local
deals, local station to local car dealer, have been replaced by
regional deals between a regional car dealer and a regional group.
There is some structural change in the mix there as well.
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