Next month, media regulator Ofcom will announce the winner of the licence for the UK's second national digital radio multiplex. As well as putting rival bidders 4 Digital Group and National Grid Wireless out of their misery, the decision heralds the launch of up to 12 national digital stations and the delivery of services such as mobile television channels. The advent of a new multiplex, provisionally scheduled for as early as February 2008, is the next step in digital radio's development, but it raises one crucial question: with only 20% of British adults currently living in DAB households, does the public need more digital radio stations?
The objective, says Nathalie Schwarz, director of radio at Channel 4 and chairman of the 4 Digital Group, is not only to promote innovation in the medium term and drive uptake among the key 15 to 34 age group consumers, but also to knock the BBC off the long-held top spot in radio. "You have the BBC with a 56% market share," she says. "We want to create a genuine public service alternative to the BBC to grab back that share. The BBC had the lion's share of the FM spectrum. In a digital world, that balance will be redressed."
The new multiplex will join two existing digital radio services in the UK. The first is operated by the BBC and carries the broadcaster's digital-only stations. The second is a commercial service called Digital One, 63% owned by radio group GCap, and has been broadcasting since November 1999. Digital One houses eight commercial stations, as well as a data service, known as Movio which brings DAB digital radio and live TV to mobile phones.
Listener reception
While the BBC multiplex and Digital One reach the vast majority of listeners, there is still a disparity between the stations that are available to urban and rural dwellers.
While DAB listeners in cities can typically tune into around 30 stations, approximately 14% of the population has either poor or no reception. In a bid to even this up, Ofcom is planning to extend DAB services this year. As well as opening up a second commercial national multiplex (see box over page), the regulator is also advertising 12 local multiplex licences.
If 4 Digital Group's bid is successful, DAB listeners will find 10 new stations to choose from on their Electronic Programme Guide (EPG). 4 Digital, led by Channel 4 Radio, will have speech stations, a news service, the local FM album format and a number of other children's, female-orientated and Asian services.
In addition, the group will plough £4.5m into general marketing of digital radio in the first three years of the licence, with a further £25m of advertising airtime from 4 Digital backers to support the launch of individual stations.
National Grid Wireless, meanwhile, has lined up GCap's children's service Fun Radio, Radio Luxembourg, Premier Christian Radio and has allowed for two Channel 4 services if they want them as part of its 12-station bid. The company, which was recently acquired by a UK subsidiary of Australia-based Macquarie Bank, has also pledged to spend £14m on a cross-industry marketing partnership with the BBC and Digital One to push the uptake of DAB products and services.
Tony Moretta, general manager of broadcast at National Grid, sees this partnership as the key to digital radio's long-term success. "We believe in following the Freeview model by setting up a body to support our marketing efforts," he says.
"We would get far more cooperation and we would promote digital radio as a whole, rather than just one multiplex."
With up to 12 more digital radio stations and a promotional blitz due to hit the market next year, the news can only be good for the industry and listeners alike. David Muniz, commercial director of digital radio station Gaydar, says: "There will be more availability, stations and fresh blood in the market. For national radio, it's a chance for more variety and there is a need for that."
Although enthusiastic about the potential for increased choice, Muniz believes it could be as illusory, with the upcoming second national commercial multiplex as it was with Digital One. "That was turned over to more of the same," he says. "It was just another platform for what we already have on analogue."
Muniz is not alone in this view. Howard Bareham, investment director for radio at MindShare, believes: "You have to migrate as many people as possible across to digital radio by giving them choice, but some of the digital stations are just jukeboxes with no personality."
It is a view also expressed by Will Harding, group strategy and development director for GCap. "Digital is all about choice and that means you have to be distinctive and very targeted," he says.
"At the launch of DAB, everybody launched lots of stations to see what would work. We are now in a position to see what has and hasn't worked and pick up some lessons."
The main lesson is not to replicate existing services. "If you offer people more of what they've got on analogue, it will fail," says Harding. He points to Gaydar as a case in point. An offshoot of a gay dating website, Gaydar is available on DAB multiplexes in London and Brighton. "It's a strong brand with a very clear target audience," says Harding.
He also cites GCap's own Planet Rock and Chill stations as successes on Digital One. According to the latest figures from radio audience measurement body Rajar, their audiences were respectively up 18% and 40% on the previous quarter. "These are genres of music that are not available on analogue radio," he says. "They pass the Ronseal test. You see the name and you know exactly what it is."
Harding is doubtful whether the bids from 4 Digital Group and National Grid Wireless pass that test. "If you look at the line-ups of the two bids, the stations are virtually identical," he says. "It's clearly the same operators in both."
Harding's view may arguably be coloured by GCap's well-documented resistance to the launch of a second commercial multiplex (see timeline). The group initially feared that a new set of commercial digital radio services would damage the group's long-term investment in DAB.
While he believes the line-ups fail to offer consistent distinctiveness, Harding does see breakthrough potential in a handful of services, conceding: "I can see five good stations in the bids. C4 could do two really good speech radio stations. There is a demand for that on digital. Sky News Radio has resources behind it. It is an existing brand and competition in news provision for the BBC."
He also maintains that Premier Christian Radio on National Grid's bid has potential, "not least because you have an alternative funding model based on subscriptions and donations", and Sunrise Radio, which targets the Asian community, could prompt "people to go and buy a DAB radio just for that".
Biggest impact
To date, consumers have bought about five million DAB receivers. According to the trade body Digital Radio Development Bureau (DRDB), the DAB radio has made its biggest impact in just one room in the house: DAB sets have accounted for 81% of kitchen portable sales in the past year. While encouraging, this figure by no means stands up to comparison with other new devices. The iPod, for example, topped 100 million this year.
The iPod perhaps best demonstrates DAB's main weakness so far. There has been a distinct lack of devices in the market, particularly for cars and the key 15 to 34 age group consumer.
Mandy Green, head of communications at DRDB, says: "The technology for DAB has been around for a long time, but until 2003 the only thing you could buy was a hi-fi stereo. Radio as an industry recognises it needs to move forward. You can't just do a kitchen radio."
Products due to launch later this year should go some way to rectifying this situation. An iPod plug-in and digitally enabled MP4 players, docking stations and mobile phones should all help to raise DAB's profile.
Paul Fairburn, managing director of digital platforms at Chrysalis Radio, believes: "This will be key to radio's continued engagement with younger listeners, who are less likely buy a traditional radio set. Research among people who bought the DAB-enabled mobile phone from Virgin Mobile clearly shows that, while it might be TV functions that attract buyers, radio is a highly valued feature, especially for younger users."
Once more consumers are listening to digital radio, technology will also help to increase the opportunities for advertising.
Earlier this year, GCap Media, Emap, Switch Digital, Virgin Radio and Chrysalis Radio tested digital radios loaded with an application called Sideshow, which allows broadcasters to transmit high-resolution jpeg images on screens as programme data or ads.
Slideshow is due to launch in the autumn this year and the feedback has been positive. Fairburn says: "The Slideshow trials showed that advertisers are interested in using the capabilities of radios featuring better colour screens."
C4's Schwarz is unequivocal about the second commercial multiplex's appeal to advertisers. "It will allow us to create a new national advertising platform," she says. "The key is to provide interesting and compelling services to grab back audiences from the BBC. That will stimulate advertising and bring in some strong brands."
Fairburn agrees: "The second multiplex will be making a noise among advertisers and opening clients up to the possibilities. This can only be a good thing."
He adds that digital radio's ability to deliver targeted audiences should also attract advertisers. "DAB provides more targeting of audiences by taste, and niche stations can do that at a reasonable cost. The new opportunities for advertisers are more stations targeting niche taste groups, visual elements for sponsorship and advertising."
"Digital lends itself to niche markets," DRDB's Green agrees. "You don't have to serve everyone. You can diversify your portfolio and get into niche markets, which is beneficial for advertising."
Mindshare's Bareham adds: "We certainly use digital radio for our clients. Digital radio is more flexible and creative and you can have more integrated campaigns. Most advertisers have embraced it but technology is slightly against radio at the moment. There are a lot of handheld devices that aren't DAB enabled. As they develop you will have more listening opportunities."
Rajar could also help to generate advertising on digital radio when it introduces more detailed listening figures next quarter.
"Revenue will be given a boost when Rajar can reveal the amount of listening by platform," says Fairburn. "We will be able to sell more exclusive DAB airtime."
To achieve greater uptake from both consumers and advertisers, the radio industry ultimately needs to invest in digital radio.
"It's about content and investment," says GCap's Harding. "That drives audiences. Advertisers have to see the industry invest as well. They want to work with brands that carefully target their audience and will invest."
Unless the industry can guarantee quality content, long-term commitment and investment, DAB is in for a rocky ride.
"There's still a long way to go to make the business model work, but it has to happen," says Harding. "If it doesn't, radio doesn't have a digital future."
THE EXISTING MULTIPLEXES
BBC: Carries the broadcaster's digital-only stations 1Xtra, Five Live Sports Extra, 6 Music, BBC 7, and the BBC Asian Network, as well as the BBC's national radio stations Radios 1, 2, 3, 4, Five Live and the BBC World Service
Digital One: a commercial service 63% owned by GCap, broadcasting since 1999 under a renewable 12-year licence. Radio stations include Classic FM, Virgin Radio, TalkSport, Core, Capital Life, Oneword, theJazz and Planet Rock
GUIDE TO THE MULTIPLEX BIDS
National Grid Wireless bid: GCap, the BBC, Digital One, RTL, Premier Christian Radio and Somethin' Else provide content for 12 station line-up. £14m pledged for cross-media marketing push. Launch date set for 29 February 2008
Channel 4 bid: Channel 4 and backers Emap Radio, UTV and Virgin Radio owner SMG plan 10 stations in conjunction with Disney and Sky News Radio. £4.5m for general marketing of digital radio in first three years of licence. Launch date set for July 2008
THE SECOND DIGITAL MULTIPLEX TIME LINE
December 2005: Ofcom announces the award of a second licence for digital radio stations. GCap, the majority stakeholder in the Digital One multiplex, begins an application for a judicial review of Ofcom's decision, claiming that the second licence would break the media regulator's commitment to issuing the "first and only" licence in 1998
30 March 2006: GCap Media decides to drop court action after assurances from Ofcom that none of the stations on the second ensemble would compete with existing stations on Digital One
1 December 2006: Ofcom advertises the licence for second national digital radio multiplex
28 March 2007: National Grid Wireless and 4 Digital Group submit their bids for the multiplex in line with Ofcom's deadline
5 July 2007: Ofcom to announce winner of the bid.