Monday, 26 November 2007

Decline of commercial radio?

From FT: an article about the possible decline of commercial radio in the UK

Radio eyes gold at end of digital spectrum
By Ben Fenton
Published: November 26 2007 02:00

Is there anything that commercial radio can do to arrest its decline?

That must be the question crackling around the airwaves this week as the industry tries to digest two momentous events: the departure of Ralph Bernard as chief executive of GCap, the UK’s biggest radio company, and the release of Ofcom’s latest report on the future of the medium.

It is not that commercial radio has died but it needs a revival: the share prices of GCap, UTV and SMG, the three largest players not already privately held or about to be so, were all heading towards a flatline.

An argument could be made that commercial radio is seeing the glimmers of a new dawn.

Mr Bernard represented the first rays of commercial radio back in the 1970s, when its freshness threatened to hamstring the behemoth BBC.

Today, when the might of the UK’s state-funded broadcaster actually plays a large part in crippling its commercial rivals, many industry observers believed that only when the sun set on Mr Bernard’s era could a new day begin.

The breakfast-time of that new era is supposed to be consolidation of disparate radio stations, a second wave following the mergers of 2003-04 that formed companies such as GCap.

Its morning will be taken up with the exploitation of digital possibilities, especially radio on the internet and mobile telephones.

In the minds of younger radio executives, this will be followed by a gloriously long lunch and a snooze into a golden drive-time.

To many, the ideal world ahead would begin with all major radio assets being in private hands, safe from market vicissitudes. Phil Riley, former chief executive of Chrysalis Radio and currently heading a bid by Vitruvian and VSS to buy the radio assets of the number two player, Emap, is one of them. “The decisions that need to be taken to make this industry strong enough to resist the BBC would be taken so much better by companies that were not thinking about what effect such-and-such a move would have on investors and the share price and more ‘What effect it will have on my business in three years’ time?’,” Mr Riley said.

He shares the view of several bankers interviewed by the Financial Times, who would all like to see two, or at most three, big private players sitting around a table and sharing out stations like a fixed game of poker.

Such an image would of course horrify competition authorities, but there have been signs that Ofcom, which reaffirmed its support for the industry in its document last week, would try to be flexible as possible.

The process of removing stations from the market is already under way: Emap, which has market share of 23 per cent, will go private either under Mr Riley's control or that of Global Radio; the latter already owns Chrysalis’s old stations that have 11 per cent; Guardian Media Group – 11 per cent – is privately held.

GCap represents 29 per cent of audience share, but its plunging share price could soon make it an attractive target for private equity – some bankers believe it would already have gone if not for the fact that Daily Mail & General Trust owns 15 per cent of the shares and has been Mr Bernard's strongest backer. UTV at 7 per cent of market share, SMG at 3.4 per cent and a large group of minnows make up the remainder.

However, analysts doubt whether consolidation is the spark to revive radio.

In a recent note, Grant Goddard of Enders Analysis said: “Shareholder value will not be unlocked by merely re-arranging the pieces on the Monopoly board.

“Regardless of the potential for consolidation, what the commercial radio industry still desperately requires is a forward-looking strategy for the digital age, based around investment in content and competitive tactics, rather than market power.”

Mr Goddard said there was no evidence that the first wave of consolidation, which produced Emap and GCap, had diversified content or provided more effective competition to the BBC, although it had sparked cost-cutting that would be hard to replicate in a second wave. Competing with the BBC is the key role of commercial radio from Ofcom’s perspective and it too, along with James Purnell, the culture secretary, has urged the sector to address itself to the digital future.

Some might think that the creation last week of a government working party to encourage the development of digital radio was the strongest sign yet to coffin-makers to reach for their tools.

The fact is that the digital future, as represented by DAB radio, is slower to arrive than in television. Analogue radios in cars, the tsunami of internet entertainment development, a 22 per cent take-up of DAB technology, compared with 85 per cent for digital television: these are factors suggesting that the gold at the end of the digital radio rainbow, like the prospect of a new dawn for the industry, threatens to be false.

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