Reality Meets The Cost Of Doing Business

Michael Hedges October 19, 2010 Follow on Twitter

No business stays in business when the cost of doing business exceeds what the customers will pay. Accounting tricks notwithstanding, bottom line management is the norm. But unlike in the restaurant business, media operators can’t eat their mistakes.

As he is wont to do, UK media analyst Grant Goddard has come forward with details enlightening the program expenditure of UK radio broadcasters. (See Goddard’s blog post here) His point is that UK commercial radio broadcasters – pound for pound – aren’t even in the same league as BBC radio. On average the hourly content expenditure (2008/2009) for UK commercial radio channels (£27) was about 2% that of BBC radio channels (£1,255). It’s no small wonder that more than half all UK radio listening is to the dozen or so BBC channels against the 300 available commercial radio channels.

The amounts, at first blush, are staggering. At BBC Radio 4, the news and information national channel, average hourly content expenditure approaches £10,000. That’s television land. News and information is absolutely the most expensive program to produce, one reason commercial broadcasters – with interesting exceptions – avoid it like the plague. Another reason is the pain of managing all those jurnos.

Licensing rules in the UK being what they are, only three commercial channels are nationally licensed. The biggest in terms of audience is Global Radio’s Classic FM, essentially a niche format music channel playing classical music excerpts. (“Just the hooks, man”) For many listeners it’s the easy listening channel of choice. Program costs are low, advertising pours in, it makes a small fortune. The other nationally licensed commercial channels – TalkSport and Absolute Radio (formerly Virgin Radio) – have small but reasonably consistent market shares. The rest of UK commercial radio is – legally – local and regional. With the exception of the marginally performing BBC Local channels, all BBC radio has national coverage, even its digital channels.

For years commercial radio operators in the UK have pined for the chance at the audience shares of BBC Radio 1 and Radio 2. Accountants eyes have glazed over thinking about the revenue potential of nationally distributed commercial hit music and adult contemporary channels. In their hearts of steel, the only difference between BBC Radio 1 and whatever it is they might produce is the question of distribution. Of course, they’d get that per hour content expense down to £27.

Recently, UK media regulator OFCOM (Office for Communication) relaxed rules under pressure from commercial broadcasters allowing quasi-national channels of similarly branded regional channels. Commercial broadcasters contend, with some justification, the advertising market for local and regional media is weak and getting weaker. Quasi-national channels, even with limited provisions for local content, would allow broadcasting companies to take advantage of the all important economies of scale.

Some UK broadcasters are likely aware of the result of similar program consolidation across the Atlantic. It has been a disaster. One US media analyst surmised that the 10,000 or so American radio channels fit into roughly a dozen program schemes, many not more than jukeboxes and no local content. (“We don’t call it Cheap Channel for nothing”) Without a note of irony, most American radio broadcasters blame anything other than their miserable, bland programming for the lack of audience and advertiser interest.

Across Europe, in survey after survey, radio listening has grown, if slightly, and grown most for stations and channels throwing the most resources into program content. Many of these channels are in the public sector where there is a tradition of providing high cost services. Commercial radio operators have, likewise, invested in high value programming and reaped the reward of the marketplace. RTL is the leading national channel in France again and again. Europe 1, owned by Lagardere, has seen market share growth in France while low value music channels have suffered.  On the local level, RTL Group’s Radio Hamburg (Germany) is a high value performer with commensurate revenue performance. There are others.

Even as competing with the BBC, as Grant Goddard points out, is useless, UK commercial broadcasters are dismissive of selective or local programming. They are following in the footsteps of their American cousins who watched in horror as the iPod, iTunes and everything else internet-borne sunk the business model to which they had become so richly attached. Consumers, in their infinite wisdom, are attracted to high value media.

When BBC General Director Mark Thompson proposed axing alternative music channel 6Music, with distribution limited to the alternative DAB platform, its fans remembered which channel they were listening to, which was duly noted in the spring RAJAR audience survey. The market share for 6Music, tiny still, rose dramatically and Mr. Thompson changed his mind. It was noteworthy momentum for the DAB platform but also raised the question if similar niche programs might be opportunities for commercial radio broadcasters. According to Grant Goddard’s figures, the hourly program expenditure at 6Music is 25 times greater than the average of all UK commercial radio.

Commercial broadcasters – not limited to the UK – whinging about difficulty competing with content-rich public broadcasters are turning increasingly to politicians for relief. If, they say, the public broadcasters are shrunk – perhaps to that £27 level – then the playing field would be sufficiently leveled and they might make a whole lot of money. Politicians, of course, will be expecting something in return. But, then, the investors might be just as happy with a national chain of taco stands.

See also in ftm Knowledge

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