A bright future for UK radio, broadcasters hope it arrives soon

Michael Hedges June 5, 2008

Mood swings among UK broadcasters over the last several months have ranged from depression to reasonable well-being. The bright optimism of the earlier part of the decade is largely gone. UK radio is in a funk.

Commercial broadcasters have faced a growing gap between its’ audience shares and BBC radio. Narrowed to 5.6% in mid-2004 the gap at the end of 2007 was 13%. Local commercial aggregate market share fell to 31.1%, the lowest in years, according to RAJAR (Radio Joint Audience Research) 4th quarter 2007 results. All of this as a troublesome advertising market appeared to move more and more toward new media. (see updated Q1 2008 RAJAR article here)

During the same period UK commercial radio companies consolidated into fewer companies owning more stations. Higher profits expected from economies of scale and a plethora of new digital offerings failed to materialize. Consolidations and mergers will certainly continue through 2008 but also breakups.

The BBC, too, is facing numerous challenges as digital migration is costly, license fee revenue has been capped and some services must relocate from London to Manchester.

UK broadcasters have faced obstacles to growth in recent years, not unlike the challenges felt in other national markets but amplified by contrast with earlier advances. Broadcasters in Europe – and beyond – watch and follow the lead of UK radio. When it appears to stumble, broadcasters take note.

Taking note of broadcasters’ “tensions,” UK media and telecom regulator OFCOM commissioned, produced and reported an analysis of radios’ future. The first Future of Radio report was published in April 2007 with subsequent report on “the next phase” released in November. 

Regulators, OFCOM included, make recommendations to governments for changes in statutory frameworks in the interest of the myriad of stakeholders. Certainly a government agency’s first responsibility is to the taxpayer and OFCOM’s mandate presupposes harmony between broadcasters and those who listen to and use radio services. Recognizing that, the Future of Radio – the next phase report is introduced by referring to “two parallel universes”: listeners finding new and improved broadcast services and broadcasters struggling.

New media usage has expanded, including digital radio (DAB) but not fast enough to satisfy commercial broadcasters and their shareholders. And DAB has become the focus of attention in every discussion of radios’ future…except for advertising. OFCOM’s April 2007 consultation surmised that new media has expanded “to detriment of traditional radio.”

“Over the next five years we expect the continued uptake of digital radio listening as consumers benefit from the increased number of national commercial stations offering a wide range of programmes following the award of the second national multiplex license,” said OFCOM spokesperson Kate Lee summarizing the regulators’ position. “OFCOM firmly expects DAB to form the cornerstone of radio provision in the future and in ten years time we expect the vast majority of radio listening to be on digital platforms.”

Shortly after the beginning of 2008 the Digital radio development board gleefully announced record setting December sales of DAB receivers. The Christmas shopping season added 600,000 digital radio sets to the market. Seemingly, DAB uptake – though slower than earlier predicted – remains strong.

Whatever good news accruing to DAB supporters died in February as a major UK broadcasting company facing a hostile takeover threat announced it was closing two DAB-only channels and putting its stake in a DAB multiplex up for sale. Digital costs were out running digital revenue, said GCap Media Chief Executive Fru Hazlitt. It was not, she said, “an economically viable platform.” Media and financial analysts seized on the news, which followed by a few weeks closings of other DAB-only channels. Rather than point to apparent management issues at GCap Media, analysts fingered DAB as the culprit.

The BBC remained resolutely supportive of DAB as the future of UK radio. "It is important not to confuse GCap's current strategy with success or failure of DAB,” said BBC Audio & Music Director Jenny Abramsky in a statement shortly after the GCap announcement. “DAB is a success story – two million sets were sold in 2007 – and is part of the digital future of radio. More than 22% of UK adults now claim to have DAB at home and it makes up 10% of all radio listening.”

“The BBC,” she emphasized, “has been at the forefront of digital radio for more than ten years and remains fully committed to DAB and the other digital delivery platforms. There's an exciting future for radio. It is central to the lives of huge numbers of people who listen every week.”

“The situation with DAB is so complex now that it is hard to see a way out,” said Grant Goddard of Enders Analysis. “With 6.5 million DAB sets in the market, on the one hand the technology has not developed sufficient momentum, but on the other hand it would cause a public outcry if it was turned off. The more you find out about the present DAB situation, the harder it becomes to see any sensible solution.”

In early March senior UK radio executives were in “crisis talks,” according to the Financial Times and other sources. The secret discussions are said to have heard proposals to migrate the five main BBC radio channels to DAB-only “over along period of time.” Another proposal reportedly involved using government sums left over from digital TV switch-over.

“If you leave it to the market…the switchover to digital radio is going to take a long time,” said one unnamed radio executive to the Financial Times (March 5). “And it is certainly going to be too long from a commercial radio point of view.”

Also in March a report conducted for London law firm Wiggans showed traditional radio the most popular medium in the UK, with 23% of UK households owning a DAB receiver. Social networks drive eyeballs away from TV but not ears from radio. The report mentioned that more than double the households with DAB receivers had access to Wi-Fi networks (53%) and there are over 100 million analogue receivers in the UK, compared to 6.5 million DAB receivers.

Meanwhile, the commercial radio trade association RadioCentre reported 2007 ad revenue up 2.8% over 2006, the first uptick since 2004.

Originally published in Radio World International May 2008 in a slightly different form

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