Last week was not a good one for commercial radio. It started with radio owners queuing up to spill their gloomy news on advertising decline to the City, and ended with the release of the latest quarterly Rajar figures, which showed commercial radio losing audience share to the BBC.
Chrysalis, GWR and Capital Radio all reported year-on-year advertising declines of 3%-4% in the last quarter of 2004. However, this could have been worse if their advertising revenues had not been boosted by better conditions in certain local markets.
Scottish Radio Holdings, with a 5% hike, and Emap, up 3%, bucked the trend, but the unanimous view is that advertisers are not spending as much as they could.
A 7% decline in advertising at Classic FM, the UK's leading national commercial station, despite a 12% gain in the last quarter of the previous year, showed how challenging the market has become.
Having voiced their woes, radio owners then went on to admit that they did not know why there was a decline in advertising. Chrysalis put part of the blame on its poor Rajar figures in the third quarter of 2004. Otherwise, euphemisms such as 'volatility,' 'inconsistency' and 'poor visibility' were used.
'Odd' is the word Phil Riley, chief executive of Chrysalis, chooses to describe the market. 'Advertising has been yo-yoing, up 4%-5% one month and then down by the same percentage the next,' he says. Swings caused by big advertisers moving in and out of radio are not unusual, but the extent of the current volatility is difficult to explain, he adds.
'Some of it may be due to the implementation of Contract Rights Renewal in the TV market, reducing TV price inflation, with some advertisers switching budget back into TV and out of second-tier media,' says Riley.
Television toll
Jonathan Gillespie, a director of media-buying giant OPera, supports this view, adding that Procter & Gamble and the COI both pulled big radio campaigns in the run-up to Christmas.
'The big FMCG advertisers have a quite arbitrary commitment to radio. For them, radio remains a relatively unproven medium compared with TV, so trading conditions in the TV market will always have an impact,' says Gillespie.
It is not just the resurgence of TV that is affecting radio. Some budgets are being moved out of radio into the more buoyant outdoor market, according to Steve Parker, UK buying director at Starcom Motive, who predicts that several big magazine launches in the next few months will present radio with further challenges.
Accordingly, he says, companies that can offer radio as part of cross-media packages are more likely to prosper. These include Emap, Scottish Media Group and Capital Radio, which partners with IPC and Viacom in the RSVP trading alliance.
Another factor contributing to the recent advertising volatility is the short-term nature of radio trading. The ability to book radio advertising late, seen as an advantage, can be a negative for radio, as clients are able to pull campaigns out of the medium more easily.
The fourth quarter Rajar figures are unlikely to help. They indicate that radio owners are as unable to control their destiny when it comes to drawing in listeners as they are in growing advertising.
Results for the highly contested London market showed that big investments in presenters, marketing and programme formats are not guaranteed to increase audiences.
Heart 106.2 FM, which ran a £1m rebranding campaign in the quarter, was rewarded with a loss of 189,000 listeners, while 95.8 Capital FM, which spent even more, shed 129,000 listeners.
Magic 105.4, which at £750,000 spent the least and made the fewest changes to its brand proposition, added 12,000 listeners, overtaking Heart to claim second place. Magic is now breathing down Capital's neck, taking a 6.1% listening share, compared with Capital's 6.2%. Its strategy of focusing on a young-at-heart 40-plus market, leaving Capital and Heart to do battle over the 30-somethings, is paying dividends.
Concentrated effort
In fairness to Capital, its marketing effort focused solely on building the profile of breakfast presenter, Johnny Vaughan, and his show gained 83,000 listeners in the quarter. Meanwhile, Heart is hoping to see rewards from its branding campaign in the longer term.
Capital and Heart are sticking with their existing marketing strategies, and both are intensifying their marketing efforts with TV ads breaking next month.
There are predictions that radio is set to rebound from its recent advertising malaise. Capital Radio suffered declines of 8% and 5% in October and November, but December and January were flat months, which Capital claims is evidence of an improving trend. Emap is equally bullish. In a note to analysts last week, it said trading in January and February was 'good'.
The optimism has some backing from media buyers. Gillespie confirms that OPera clients, including the COI, are returning to radio in the first quarter of 2005.
Having endured a traumatic week, radio owners are hopeful that all the bad news is out. It is unlikely to stay quiet for long. The completion of the Capital Radio/GWR merger in May, and the prospect of further mergers, will make 2005 an interesting year for radio.
DATA FILE - KEY LONDON STATIONS
Station Listening share % Weekly reach %
Q4 04 Q3 04 Q4 03 Q4 04 Q3 04 Q4 03
95.8 Capital FM 6.2 7.2 7.8 20.0 21.0 22.0
Magic 105.4 FM 6.1 4.8 4.5 15.0 15.0 13.0
Heart 106.2 5.3 5.4 7.0 16.0 17.0 18.0
BBC Radio 1 FM 4.3 5.1 3.6 14.0 14.0 12.0
Kiss 100 FM 3.9 4.5 4.0 14.0 15.0 13.0
Virgin 105.8 FM 2.9 2.6 1.8 8.0 8.0 8.0
Capital Gold London 2.3 1.7 2.1 7.0 7.0 10.0
Source: Rajar
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