Stagnating ad revenues, uncertainty over ownership structures and the failure of digital radio to live up to its promise was hardly the ideal warm-up for a recession. However, for all its recent knockbacks, radio is ending 2008 with a spring in its step. The question is why.
Of greatest note is the fact that a protracted era of ownership uncertainty is over, for the moment. Three high-profile takeover deals, involving GCap, Emap and Virgin Radio, have brought in investment and generated an air of optimism.
GCap was the result of a £711m merger between industry heavyweights GWR and Capital in 2004. But by the time the deal emerged from regulatory quarantine, most of the expected benefits had evaporated. So when Global Radio snapped up GCap in April 2008 there was a collective sigh of relief, despite the bargain-basement price-tag of £375m.
In the short term, the merger meant more upheaval, since GCap was required by Ofcom to sell off some stations. However, the benefits are two-fold, according to MediaCom head of radio Stacey Pratt. First, Global is a privately owned company, which means it is less exposed to the vagaries of shareholders. Second, it brings power brands such as Heart, Capital and Galaxy under one roof.
A few years ago, agencies and advertisers would have cried foul at a company controlling 40% of the radio ad market. But in the current climate, the priority is to compete robustly against BBC Radio and get the industry's digital strategy back on track. Global, it is hoped, can drive this dual agenda.
Another big change has been German media company Bauer's acquisition of Emap's radio and magazine assets (the former valued at £422m in a £1.14bn deal). Like Global, Bauer is privately owned. This, says Emap's broadcast sales director, Karen Stacey, means there is a long-term commitment. 'PLCs have more of a tendency to make knee-jerk reactions. But Bauer's vision is all about investing in people, brands and the product itself.'
Bauer, adds Stacey, has been investing in its radio networks, repackaging its sales offering to agencies and allowing flagship brands such as Kiss and Magic to operate with autonomy. 'More than anything, it has placed an emphasis on our local offering, Big City Network. Our belief is that localness is what makes us distinctive and will be a major part of our growth.'
The third big adrenalin-boosting deal was Virgin Radio being snapped up by Times Group of India for £53m. The beauty of this deal is that TGI has deep pockets, is located in a growth economy and has committed £15m investment to marketing and programming its station, now renamed Absolute Radio.
The recent shake-up, coupled with Ofcom's decision to relax content rules on local networks, has led to a mini-revival. Listening figures from Rajar show that the commercial sector caught up slightly (to 43.1% in Q3 from 42.4% in Q2) with the BBC (down from Q2's 55.5% to 54.9% in Q3) between July and September 2008 (see panel). This gave companies something to shout about. Global experienced improvements across its business, and was particularly pleased with Capital Radio's comeback. Johnny Vaughan's Breakfast Show regained the number one slot in London with an average weekly audience of 862,000, according to Rajars for the third quarter.
Bauer, with 12.47m people tuning into its stations every week, described its own figures as its 'largest audience ever'. Investments in national digital radio station Q paid off; it posted a 19% jump in reach (up to 330,000 indie fans a week). A marketing campaign for Kiss 100 gave the station its highest share for five years, leading Kiss managing director Steve Parkinson to state that 'young people are not leaving radio'.
The big question now is whether commercial radio can convert these audience rises into hard cash: but the recession means we may not know for a while. In September, the sector posted a 10% year-on-year drop in second quarter revenues to £134.2m. At the time, Simon Redican, managing director of the Radio Advertising Bureau (RAB), predicted a Q3 bounceback, attributing the Q2 drop to radio's flexibility, which makes it vulnerable to a short-term cash crunch.
The industry now has four arguments to persuade advertisers to spend on the medium. The first is investment in programming. Absolute chief operating officer Clive Dickens' desire, for instance, is to diversify his station's playlist so that it is 'deeper, wider and less repetitious'.
Pratt believes there is further evidence of serious programming intent by the new owners, even in the face of a downturn. 'Station launches such as NME, Jazz FM and Q show that the imminent recession isn't dampening all new ventures,' she says. 'Guardian Media Group committed £1m to the Smooth network and brought in Chris Tarrant on Saturdays. The big groups recognise that investing in content is key in growing audience.'
Vizeum creative solutions director Zo‘ Schmid agrees. 'The big story recently has been commercial radio's performance versus the BBC. The sector knows that programming investment is the key to winning that and I think there has been a capital injection and fresh thinking as a result of the new players,' she explains.
The second argument, says Schmid, is that radio is a good bet in tough times because it is complementary and cost-efficient. 'There has been research that shows 10% of a TV budget deployed onto radio can uplift ad awareness by 15%. A similar effect takes place when money is shifted from print and online,' she adds. 'If there's a challenge, it's demonstrating that TV money is better redeployed to radio than out-of-home or online.'
The third argument is that radio is more flexible than mainstream TV when it comes to branded-content solutions. Stacey says it is easier for advertisers to integrate their message into programming and that her company has seen a 45% uplift in such revenues as a result.
Lastly, there is radio's claim to be a key channel on emerging digital media. This is not just because radio is complementary to going online but also because young audiences like to see radio brands along-side digital downloads on MP3 and mobile platforms.
There is also, Dickens reminds us, the fact that radio is free. 'There are no 79p downloads, and no credit-card information to hand out online,' he says.
The problem for commercial radio, however, is not digital platforms, but the fact that uptake of digital audio broadcasting (DAB) is growing slowly.
With a few exceptions, such as national station Planet Rock (up 16% year on year in the third quarter of 2008 to 633,000 listeners a week), audiences are sticking to existing stations rather than sampling new ones. As for DAB, the switch-off of analogue broadcasts cannot come too soon.
Sluggish growth, combined with the downturn, creates a dilemma about where radio should allocate its investment, according to Pratt. Private ownership or not, 'radio is under pressure to deliver, like any other medium', she says. 'So, long-term strategies may take a hit in favour of short-term survival.'
Proof of this came last month when Channel 4 scrapped its planned entry into the national digital radio market (via 4 Digital group). Explaining that decision, C4 chief executive Andy Duncan told a House of Commons select committee that it is 'highly unlikely' that any new national commercial digital stations will launch in the next year or two.
Despite this, the decision made by the RAB's members to invest £3m in areas such as bespoke research and creative consultations was a clear sign of intent.
'If you can stay at the top of your game when people are spending less, you
will come out of the recession strongest,' says Stacey.
A new era for commercial radio
LONDON - It has been a difficult time for the sector, with sluggish revenues, and DAB making faltering progress. However, the arrival of owners with long-term goals has brought cautious optimism.
Stagnating ad revenues, uncertainty over ownership structures and the failure of digital radio to live up to its promise was hardly the ideal warm-up for a recession. However, for all its recent knockbacks, radio is ending 2008 with a spring in its step. The question is why.
Of greatest note is the fact that a protracted era of ownership uncertainty is over, for the moment. Three high-profile takeover deals, involving GCap, Emap and Virgin Radio, have brought in investment and generated an air of optimism.
GCap was the result of a £711m merger between industry heavyweights GWR and Capital in 2004. But by the time the deal emerged from regulatory quarantine, most of the expected benefits had evaporated. So when Global Radio snapped up GCap in April 2008 there was a collective sigh of relief, despite the bargain-basement price-tag of £375m.
In the short term, the merger meant more upheaval, since GCap was required by Ofcom to sell off some stations. However, the benefits are two-fold, according to MediaCom head of radio Stacey Pratt. First, Global is a privately owned company, which means it is less exposed to the vagaries of shareholders. Second, it brings power brands such as Heart, Capital and Galaxy under one roof.
A few years ago, agencies and advertisers would have cried foul at a company controlling 40% of the radio ad market. But in the current climate, the priority is to compete robustly against BBC Radio and get the industry's digital strategy back on track. Global, it is hoped, can drive this dual agenda.
Another big change has been German media company Bauer's acquisition of Emap's radio and magazine assets (the former valued at £422m in a £1.14bn deal). Like Global, Bauer is privately owned. This, says Emap's broadcast sales director, Karen Stacey, means there is a long-term commitment. 'PLCs have more of a tendency to make knee-jerk reactions. But Bauer's vision is all about investing in people, brands and the product itself.'
Bauer, adds Stacey, has been investing in its radio networks, repackaging its sales offering to agencies and allowing flagship brands such as Kiss and Magic to operate with autonomy. 'More than anything, it has placed an emphasis on our local offering, Big City Network. Our belief is that localness is what makes us distinctive and will be a major part of our growth.'
The third big adrenalin-boosting deal was Virgin Radio being snapped up by Times Group of India for £53m. The beauty of this deal is that TGI has deep pockets, is located in a growth economy and has committed £15m investment to marketing and programming its station, now renamed Absolute Radio.
The recent shake-up, coupled with Ofcom's decision to relax content rules on local networks, has led to a mini-revival. Listening figures from Rajar show that the commercial sector caught up slightly (to 43.1% in Q3 from 42.4% in Q2) with the BBC (down from Q2's 55.5% to 54.9% in Q3) between July and September 2008 (see panel). This gave companies something to shout about. Global experienced improvements across its business, and was particularly pleased with Capital Radio's comeback. Johnny Vaughan's Breakfast Show regained the number one slot in London with an average weekly audience of 862,000, according to Rajars for the third quarter.
Bauer, with 12.47m people tuning into its stations every week, described its own figures as its 'largest audience ever'. Investments in national digital radio station Q paid off; it posted a 19% jump in reach (up to 330,000 indie fans a week). A marketing campaign for Kiss 100 gave the station its highest share for five years, leading Kiss managing director Steve Parkinson to state that 'young people are not leaving radio'.
The big question now is whether commercial radio can convert these audience rises into hard cash: but the recession means we may not know for a while. In September, the sector posted a 10% year-on-year drop in second quarter revenues to £134.2m. At the time, Simon Redican, managing director of the Radio Advertising Bureau (RAB), predicted a Q3 bounceback, attributing the Q2 drop to radio's flexibility, which makes it vulnerable to a short-term cash crunch.
The industry now has four arguments to persuade advertisers to spend on the medium. The first is investment in programming. Absolute chief operating officer Clive Dickens' desire, for instance, is to diversify his station's playlist so that it is 'deeper, wider and less repetitious'.
Pratt believes there is further evidence of serious programming intent by the new owners, even in the face of a downturn. 'Station launches such as NME, Jazz FM and Q show that the imminent recession isn't dampening all new ventures,' she says. 'Guardian Media Group committed £1m to the Smooth network and brought in Chris Tarrant on Saturdays. The big groups recognise that investing in content is key in growing audience.'
Vizeum creative solutions director Zo‘ Schmid agrees. 'The big story recently has been commercial radio's performance versus the BBC. The sector knows that programming investment is the key to winning that and I think there has been a capital injection and fresh thinking as a result of the new players,' she explains.
The second argument, says Schmid, is that radio is a good bet in tough times because it is complementary and cost-efficient. 'There has been research that shows 10% of a TV budget deployed onto radio can uplift ad awareness by 15%. A similar effect takes place when money is shifted from print and online,' she adds. 'If there's a challenge, it's demonstrating that TV money is better redeployed to radio than out-of-home or online.'
The third argument is that radio is more flexible than mainstream TV when it comes to branded-content solutions. Stacey says it is easier for advertisers to integrate their message into programming and that her company has seen a 45% uplift in such revenues as a result.
Lastly, there is radio's claim to be a key channel on emerging digital media. This is not just because radio is complementary to going online but also because young audiences like to see radio brands along-side digital downloads on MP3 and mobile platforms.
There is also, Dickens reminds us, the fact that radio is free. 'There are no 79p downloads, and no credit-card information to hand out online,' he says.
The problem for commercial radio, however, is not digital platforms, but the fact that uptake of digital audio broadcasting (DAB) is growing slowly.
With a few exceptions, such as national station Planet Rock (up 16% year on year in the third quarter of 2008 to 633,000 listeners a week), audiences are sticking to existing stations rather than sampling new ones. As for DAB, the switch-off of analogue broadcasts cannot come too soon.
Sluggish growth, combined with the downturn, creates a dilemma about where radio should allocate its investment, according to Pratt. Private ownership or not, 'radio is under pressure to deliver, like any other medium', she says. 'So, long-term strategies may take a hit in favour of short-term survival.'
Proof of this came last month when Channel 4 scrapped its planned entry into the national digital radio market (via 4 Digital group). Explaining that decision, C4 chief executive Andy Duncan told a House of Commons select committee that it is 'highly unlikely' that any new national commercial digital stations will launch in the next year or two.
Despite this, the decision made by the RAB's members to invest £3m in areas such as bespoke research and creative consultations was a clear sign of intent.
'If you can stay at the top of your game when people are spending less, you will come out of the recession strongest,' says Stacey.