More Related Content Similar to 'GCap Media plc: The Titanic Of The UK Commercial Radio Sector' [incomplete draft] by Grant Goddard (20) More from Grant Goddard (13) 'GCap Media plc: The Titanic Of The UK Commercial Radio Sector' [incomplete draft] by Grant Goddard1. GCAP MEDIA PLC: THE TITANIC
OF THE U.K. COMMERCIAL
RADIO SECTOR
[incomplete draft]
by
GRANT GODDARD
www.grantgoddard.co.uk
February 2008
2. INCOMPLETE DRAFT REPORT
EXECUTIVE SUMMARY
The new GCap strategy faces three overarching challenges:
1.
Write offs
Hidden in the detail of Hazlittâs strategy document is the caveat that âthe
figures contained in this statement exclude the effect of the initiatives and any
intangible write-downs, goodwill impairment, or profit or losses on disposalâ.1 In
other words, the promised full-year profit improvement of ÂŁ12.3 million does
not take into account any balance sheet adjustments that might accompany
the closures of theJazz, Planet Rock, Xfm Scotland, Xfm South Wales and Xfm
Manchester.2 In our opinion, these adjustments could prove significant and
might easily dwarf the promised savings.
GCap has often seemed reluctant to write down the valuations of its licences
until forced to by disposal or closures. For example, it was not until it sold its
two Century Radio stations to Guardian Media Group in October 2006 for ÂŁ60
million that GCap wrote down their book values by ÂŁ11.5 million.3 The longterm declining audiences and revenues of the majority of its licences (analysed
in more detail below) lead us to believe that GCapâs balance sheet remains
considerably overvalued, with the net book value of its intangible assets and
goodwill most recently valued at ÂŁ402.4 million on 30 September 2007.4
GCap (and its predecessors GWR and Capital Radio) had paid high prices to
acquire radio licences, often based on their scarcity, rather than these
businessesâ ability to generate profits for their owners:
ï· Xfm Scotland alone was acquired for ÂŁ33.7 million in 2000
ï· Planet Rock was valued at ÂŁ6.4 million in 2006 when GCap took control,
ï· the greater part of the âGold Networkâ (which is not earmarked for
immediate closure) was valued at ÂŁ4.9 million in 2007.
The closure or sale of these radio licences, however necessary to reduce
continuing losses, is also likely to demonstrate how much shareholder value
has been destroyed by GCap and its forerunnersâ willingness to participate in a
radio licence âland grabâ until now.
2.
Listening in decline
Also missing from the new strategy document is acknowledgement that
audiences and revenues of GCapâs key brands on analogue platforms are
continuing to fall, even after the group has implemented a series of earlier
strategies designed to stop the rot. Instead, the presentation talked about how
âthe âOne Networkâ enjoy[s] long-term local loyaltiesâ, despite the audiences of
1
GCap Media. Strategy Presentation, 11 February 2008. p.7.
GCap said it will attempt to sell the three analogue Xfm licences by 28 March 2008, though there is doubt whether a
bidder will wish to acquire an operation losing ÂŁ0.8 million per annum when, in the absence of a buyer, Ofcom would
be likely to re-advertise these licences.
3
GCap Media. Preliminary Results to 31 March 2007, 30 May 2007, p.20, para 3a.
4
GCap Media. Interim Results to 30 September 2007, 23 November 2007, p.18.
2
GCap Media plc: The Titanic Of The U.K. Commercial Radio Sector [incomplete draft]
©2008 Grant Goddard
page 2
3. INCOMPLETE DRAFT REPORT
many of its key local stations being in decline.5 The strategy similarly talked
about GCapâs âaim to grow [Xfm Londonâs] audienceâ without mentioning that
the station has lost substantial listening in the last year.6
Table 1: GCap Media brands â hours listened per week (â000)
Q3 2005
Total GCap Media
Q3 2006
141,091
135,916
-3.6
-3.7
65,477
59,196
-10.9
-9.6
14,219
13,202
-15.5
146,337
Q3 2007
-7.2
44,524
43,819
% change year-on-year
The One Network
73,510
% change year-on-year
GCap Gold Network
16,837
% change year-on-year
Classic FM
44,069
% change year-on-year
1.0
Like-for-like basis in 2005 and 2006 excludes Century Network
7
[source: RAJAR]
-1.6
Although listening to its national station Classic FM has remained stable,
listening to GCapâs âOne Networkâ and âGold Networkâ continue to fall at rates
that do not appear to have been improved by the groupâs recent strategies
(see Table 1). Our opinion is that Hazlittâs promised full-year profit
improvement of ÂŁ12.3 million could be entirely negated by continuing loses in
audiences that will inevitably lead to diminishing revenues.
Table 2: GCap Media revenues
total revenues
broadcast brands
multiplexes
other
ÂŁm like-forÂŁm like-forÂŁm actual
like
% change ÂŁm actual
like
% change ÂŁm actual % change ÂŁm actual % change
2004/5
2005/6
2006/7
252.3
220.2
200.1
207.3
193.0
-12.7
-6.9
232.5
199.4
175.5
186.5
168.4
-14.2
-9.7
8.7
10.9
14.9
25.3
36.7
11.1
9.9
9.7
-10.8
-2.0
[source: GCap Media accounts]
Broadcast revenues continue to be the groupâs most important source of
income, comprising almost 90% of GCapâs total revenues (see Table 2).
GCapâs like-for-like broadcast revenues fell by 9.7% between year ended 31
March 2006 and year ended 31 March 2007, a reduction of ÂŁ18.1 million.8 This
was accompanied by a 3.6% reduction in total hours listened to GCap stations
on a like-for-like basis (see Table 1).9
In its most recent results, GCapâs broadcast revenues increased by 3.8% yearon-year for the half-year ended 30 September 2007, although Finance Director
Wendy Pallott admitted this growth was achieved âagainst some relatively easy
comparativesâ.10 However, in the long term, continuing declines in audiences
for GCapâs main brands are likely to further erode its broadcast revenues.
The real danger is that these continuing declines in hours listened could have
a greater impact on GCapâs long-term profitability than any cost-cutting
5
GCap Media. Strategy Presentation, 11 February 2008. p.3.
GCap Media. Strategy Presentation, 11 February 2008. p.5.
7
Q3 2007 has been used throughout as the most recent audience data, due to RAJARâs withdrawal of the Q4 2007
data.
8
GCap Media, Preliminary Results to 31 March 2007, 30 May 2007, p.8.
9
RAJAR, Q3 2005 vs Q3 2006.
10
GCap Media. Interim Results to 30 September 2007, 23 November 2007, p.9.
6
GCap Media plc: The Titanic Of The U.K. Commercial Radio Sector [incomplete draft]
©2008 Grant Goddard
page 3
4. INCOMPLETE DRAFT REPORT
exercises. Radio advertising is a relatively low-cost commodity that commands
a remarkably steady unit price (cost per thousand impressions) for its
customers. As a result, it proves almost impossible to force through price rises
if not accompanied by offering advertisers some kind of material benefit. Put
simply, declining audiences will inevitably lead to declining revenues, making it
imperative that GCap adopts radical and effective strategies to tackle the
problems with the consumer appeal of its stationsâ content.
Although the new strategy outlined by Hazlitt is projected to deliver a ÂŁ12.3
million improvement in full-year profits, it would only require a reduction in likefor-like broadcast revenues by 7% year-on-year to totally negate the impact of
her measures.11
3.
Advertising recession
ï·
ï·
ï·
decline in consumption
macro situation
earnings expectations lowered
11
GCap Media. Strategy Presentation, 11 February 2008. p.1.
GCap Media plc: The Titanic Of The U.K. Commercial Radio Sector [incomplete draft]
©2008 Grant Goddard
page 4
5. INCOMPLETE DRAFT REPORT
GCAPâS CONTINUING OPERATIONS
Hazlittâs strategy focuses âon maximising the revenue and profit potential of
five key brands on FM and broadbandâ which she states are the platforms
âconsumers want and which offer the greatest growth potentialsâ.12 These are:
the âOne Networkâ, Capital Radio, Xfm and Choice FM in London and national
station Classic FM. Additionally, Hazlitt has labelled GCapâs âGold Networkâ as
a âtransitional brandâ in which investment will be âscaled backâ pending
possible closure in four to six years time.13 Each of these continuing operations
is examined in turn.
1.
THE âGOLD NETWORKâ
Ten months after spending ÂŁ3.95 million on the buy-out of 18 âGold Networkâ
stations, GCap now says it is only prevented from closing the whole network
by the fact that its âAM transmission contracts run until between 2012 and
2016,â making âimmediate exit from AM not an optionâ.14 In April 2007, GCap
had acquired the 80% stake it did not already own in 18 âClassic Goldâ stations
from UBC Media for ÂŁ3.95 million cash, a deal which valued these stations at
ÂŁ4.94 million. In July 2007, GCap merged them with its existing âCapital Goldâ
network of similarly formatted âoldiesâ stations to create the 25-station âGold
Networkâ. Ralph Bernard, then GCap Chief Executive, had said: âClassic Gold
is an integral part of our advertising proposition. Acquiring these stations will
enable us to create a single classic hits network with the potential to become a
fast-growing national brand as audiences increasingly migrate to digital
platformsâ.15
Table 3: Total Hours Listened to GCap Mediaâs âGold Networkâ (â000 hours per week on
like-for-like basis)
25,000
20,000
15,000
10,000
5,000
0
2000Q3
2001Q3
2002Q3
2003Q3
2004Q3
2005Q3
2006Q3
2007Q3
[source: RAJAR]
While its competitors have made considerable headway with radio stations that
similarly play âoldiesâ using the âFMâ waveband and digital TV (Bauerâs âMagicâ,
12
GCap Media. Strategy Presentation, 11 February 2008. p.1.
GCap Media. Strategy Presentation, 11 February 2008. p.4.
14
GCap Media. Strategy Presentation, 11 February 2008. p.3.
15
GCap Media. Acquisition of Classic Gold radio licences to create Classic Hits network, press release, 25 April 2007.
13
GCap Media plc: The Titanic Of The U.K. Commercial Radio Sector [incomplete draft]
©2008 Grant Goddard
page 5
6. INCOMPLETE DRAFT REPORT
Global Radioâs âHeartâ and GMGâs âSmoothâ), GCapâs âGold Networkâ has been
held back by only being available on the lower quality âAMâ waveband and on
âDABâ. Audiences have fallen precipitously in recent years (see Table 3) and
there is no reason to believe that revenues have not followed this trend.
Table 4: GCap Mediaâs âGold Networkâ â performances of the eight most listened to
stations
hours listened per week
('000)
station
Q3 2000
Gold London
Gold South East Wales
Gold Bristol/Bath/Wiltshire
Gold Norfolk/Suffolk
Gold Manchester
Gold Kent
Gold Hampshire
Gold Essex
6,648
1,194
1,647
1,258
420
634
841
872
Q3 2007
2,921
857
784
704
649
502
406
326
% change
local
in hours
market
listened
ranking
Q3 2000 - Q3
Q3
Q3 2007 2000 2007
-56
-28
-52
-44
55
-21
-52
-63
13
6
6
8
16
8
8
n/a
16
8
9
11
15
11
10
16
[source: RAJAR]
GCapâs re-branding of the 25 stations in 2007 has not halted their continuing
decline (see Table 4). Within days of its latest strategy announcement, GCap
shut down the marketing and public relations departments of the âGold
Networkâ, a sure sign that the operation will be âdramatically scaled downâ until
closure at some point in the future.16
GCap also announced a new policy to be âlobbying vociferously for AM switchoffâ which would seem to be at odds with its conviction that âDABâ will not
become a future platform.17 There are several national radio brands â Scottish
Media Groupâs Virgin Radio, UTVâs TalkSport and the BBCâs Five Live â which
broadcast in analogue only on the âAMâ waveband, and who are wholly
dependent on the rapid take-up of digital radio in order to close their AM
transmissions. GCapâs disavowal of âDABâ will make these stationsâ continuing
reliance on âAMâ greater than ever, which will make the switch-off of âAMâ even
less likely.
2.
THE âONE NETWORKâ
GCapâs new strategy that âFM is the backbone of the radio industryâ reflects
the fact that its âheritageâ stations (âFMâ stations mostly opened in the 1970s to
serve metropolitan areas) are âthe source of the majority of our revenueâ.18 Its
strategy document says it âwill continue to develop programming and
advertising initiatives to leverage our FM audience of 15 million listenersâŠâ19
However, this figure is misleading and only serves to draw attention to the loss
of listeners that GCap has suffered since its creation in 2005.
16
Tristan OâCarroll. GCap wields jobs axe at Gold Radio, Media Week, 15 February 2008.
GCap Media. Strategy Presentation, 11 February 2008. p.3.
18
GCap Media. Strategy Presentation, 11 February 2008. p.2.
19
GCap Media. Strategy Presentation, 11 February 2008. p.2.
17
GCap Media plc: The Titanic Of The U.K. Commercial Radio Sector [incomplete draft]
©2008 Grant Goddard
page 6
7. INCOMPLETE DRAFT REPORT
Table 5: GCap Media absolute reach (â000 adults per week like-for-like)
Q3 2005
Total GCap Media
The One Network
Classic FM
The Gold Network
Xfm
Choice
Century (discontinued)
16,600
8,110
5,842
2,019
760
605
1,574
Q3 2006
Q3 2007
16,366
7,429
5,898
1,796
1,133
592
1,618
15,265
7,172
5,844
1,499
1,181
784
-
[source: RAJAR]
NB: âTotal GCap Mediaâ excludes âCenturyâ network in 2005 & 2006
Whilst GCap Mediaâs stations, in total, achieve 15.3 million listeners per week,
not all of this listening is on the FM platform. The âOne Networkâ (on âFMâ) has
7.2 million listeners per week, but appears to be losing audience at an
alarming rate of approximately 0.5 million per annum (see table 5). Our
previous reports have highlighted the substantial losses of listeners and
listening suffered by the âOne Networkâ (GCap Media â the end of the road
[Enders Analysis 2008-01e] and UK Commercial Radio Consolidation
[Enders Analysis 2007-88]) since the millennium.
Table 6: Total Hours Listened to GCap Mediaâs âOne Networkâ (â000 hours per week on
like-for-like basis)
120,000
100,000
80,000
60,000
40,000
20,000
0
2000Q3
2001Q3
2002Q3
2003Q3
2004Q3
2005Q3
2006Q3
2007Q3
[source: RAJAR]
GCapâs new strategy for the âOne Networkâ seeks to âharmonise [our] stations
into a coherent national buy for advertisers,â supported by âa customer-facing
campaign focusing on the strength of the network and the value of the
brandâ.20 However, nowhere does that strategy acknowledge, let alone
address, the fact that the âstrength of the networkâ is slipping through GCapâs
hands as listeners desert its stations in quantity (see Table 6). It is worthwhile
reiterating our analysis that, in 2000, âOne Networkâ stations now owned by
GCap had been ranked first (by listening share) in 12 local markets, whereas
today not a single one of those stations is the leader in its local market (see
GCap Media â the end of the road [Enders Analysis 2008-01e]).
20
GCap Media. Strategy Presentation, 11 February 2008, p.5.
GCap Media plc: The Titanic Of The U.K. Commercial Radio Sector [incomplete draft]
©2008 Grant Goddard
page 7
8. INCOMPLETE DRAFT REPORT
Table 7: GCap Mediaâs âOne Networkâ â eight most listened to stations
station
hours listened per week
('000)
Q3 2000
95.8 Capital Radio
GWR
Essex FM
Invicta FM
Southern FM
96 Trent FM
96.4 BRMB
Beacon FM
25,037
4,842
4,370
5,720
4,886
3,949
6,705
3,282
Q3 2007
10,144
4,385
3,843
3,371
2,822
2,479
2,291
2,179
% change
local
in hours
market
listened
ranking
Q3 2000 - Q3
Q3
Q3 2007 2000 2007
-59
-9
-12
-41
-42
-37
-66
-34
2
1
1
1
1
1
1
3
7
2
2
3
3
3
8
5
[source: RAJAR]
The significance of the âOne Networkâ to GCapâs future prosperity cannot be
understated. This network alone generates 60% of GCapâs revenues and,
within that, eight of the 41 stations account for more than 50% of the networkâs
aggregate profits and audiences.21 However, six of the eight most listened to
stations in the âOne Networkâ have suffered substantial losses of listening since
2000 and must also be suffering declining revenues (see Table 7). Hazlitt
insists that all 41 stations in the network are currently making an operating
profit, despite the significant audience losses.22 These issues remain
unaddressed in the new GCap strategy.
Instead, the strategy focuses on recent activity that has homogenised the
stationâs logos and on-air jingles across the network, little more than windowdressing that would seem to have little direct impact on the central issue of
declining listenership. Prior to his recent departure, GCap Group Operations
Director Steve Orchard had referred to the âOne Networkâ as âa big and
powerful networkâ which ranked as âthe ninth biggest economy in the worldâ.23
Orchard was keen to stress that GCap was âgetting more efficient in our
conversion of listening hours to pounds, improving by just over 2% this yearâ,
but such increased efficiencies ignore the fundamental problem with the âOne
Networkâ which is: listeners and listening has been in decline for years and
show no signs of reversal.24
Furthermore, Hazlettâs strategy for the âOne Networkâ notes that, in the second
half of 2007, GCap ânetworked a number of high quality showsâ.25 Last
November, Steve Orchard had cited GCapâs âdetailed [consumer] research
over the last 12 monthsâ that identified âan increasing desire to have some
network stardust integral to the scheduleâ. He argued that, âin order to
compete more effectively with the BBC networks [for listeners], we need to
offer up quality which is of a national standardâ.26 It proves difficult to reconcile
GCapâs research with the results of Ofcomâs market research which found that
âthe replacement of local [radio] presenters with a high-profile networked
21
GCap Media. Preliminary Results for the 12 months to 31 March 2007, 30 May 2007, p.8.
GCap Media. Strategy Presentation, 11 February 2008. p.5.
22
GCap Media. Strategy Presentation, 11 February 2008.
23
GCap Media. Interim Results presentation, 23 November 2007.
24
GCap Media. Interim Results presentation, 23 November 2007.
25
GCap Media. Strategy Presentation, 11 February 2008. p.5.
26
GCap Media. Interim Results presentation, 23 November 2007.
GCap Media plc: The Titanic Of The U.K. Commercial Radio Sector [incomplete draft]
©2008 Grant Goddard
page 8
9. INCOMPLETE DRAFT REPORT
presenter was also largely rejected [by consumers] on the grounds that highprofile presenters are already accessible on syndicated commercial or BBC
national services âŠâ.27
GCapâs plans for the âOne Networkâ would appear to involve a reduction in onair local content outside of peak hours, following Ofcomâs recent relaxation of
networking restrictions.28 Such a change would, in our opinion, only be likely to
exacerbate the recent losses in listening even further. If Hazlitt acknowledges
that the âFMâ platform and GCapâs âOne Networkâ are the âbackboneâ of the
radio industry, then additional investment would seem necessary in content
(not merely celebrity presenters) that will attract listeners away from the BBC.
Even former GCap Chief Executive Ralph Bernard recognised this when he
said he expressed hope that, one day, the commercial radio sector would be
able to compete more powerfully against the BBC by producing
âprogrammesâ.29 Although GCap espouses the concept of âhigh quality
programming to compete effectively with the BBCâ, it has consistently failed to
follow through with substantial investment in original content that could stem
audience outflows.30
3.
CAPITAL 95.8 FM
Londonâs Capital FM is the flagship station of the âOne Networkâ and accounts
for 12% of GCapâs revenues. Its dramatic fall from grace has epitomised
GCapâs seeming inability to implement long-term strategies at its stations that
will maintain the interest of listeners (and therefore advertisers).
Table 8: Total Hours Listened to GCap Mediaâs Capital FM (â000 hours per week)
30,000
20,000
10,000
0
2000Q3
2001Q3
2002Q3
2003Q3
2004Q3
2005Q3
2006Q3
2007Q3
[source: RAJAR]
Hazlittâs decision to rescind the policy of limited advertising inventory on the
station was long overdue. Capital FMâs declining audiences had been wrongly
attributed by station management to listener fatigue with on-air
advertisements, rather than listener dissatisfaction with the stationâs content.
27
Ofcom/Essential Research. The Future of Radio: Localness, London, 22 November 2007. p.5, para.1.24.
Ofcom. The Future of Radio: Statement, London, 7 February 2008.
29
Raymond Snoddy. Raymond Snoddy on media: Pod people will decide radioâs future, Marketing, 17 August 2005.
30
GCap Media. Response from GCap Media plc to Ofcom âFuture of Radioâ consultation, part two, [undated], p.1.
28
GCap Media plc: The Titanic Of The U.K. Commercial Radio Sector [incomplete draft]
©2008 Grant Goddard
page 9
10. INCOMPLETE DRAFT REPORT
Hazlitt estimates that a return to nine minutes per hour of inventory will
generate ÂŁ1.8 million marginal profit in 2008/9 and ÂŁ3.6 million in 2009/10.31
Although she asserts that âdemand for advertising space on Capital currently
outstrip supplyâ, our concerns are the same as those for the entire âOne
Networkâ â that the outflow of listening may not yet have been arrested.32
The central plank of the new Capital FM programming policy appears to be
âimproved music sweeps with ten songs in a row every hour between 10am
and 5pmâ.33 This is the same strategy that Paul Jackson, Managing Director of
GCapâs London brands, implemented during his previous tenure at Virgin
Radio, where that station too marketed itself using the slogan âThe Home of
Ten Great Songs In A Rowâ. Our opinion is that the strategy did not succeed in
uplifting Virgin Radioâs listening figures, and is similarly unlikely to impact
Capital FM either. This strategy originated in the competitive US radio market
long before the birth of the mp3 player, and where at-work radio listening is a
much more significant phenomenon. As James Cridland commented last year,
when he was Virgin Radioâs Director of Digital Media:
âMaybe we have concentrated a little too hard in the past on playing
non-stop music â âhereâs another 10 great songs in a rowâ â which
maybe worked at some point in time in the past, but maybe that isnât
the way that radio should be going and that, actually, we should be
concentrating on the bits that go in between the songs, because
those are the big differentiators between what we are doing and
what people like Felix [Miller, Chief Executive of Last.fm] or my iPod
on âshuffleâ doesâ.34
The appointment of celebrity Denise Van Outen to co-host Capital FMâs
breakfast show has undoubtedly generated significant press interest in the
station and could broaden the appeal of the show. However, we remain
unconvinced that Johnny Vaughan, who has hosted the stationsâ flagship show
since the departure of Chris Tarrant in 2004, will ever recapture the universal
appeal of his predecessor. In April 2007, Vaughan extended his GCap contract
by one year and predicted that âthis will be my last yearâ.35 Vaughanâs
departure would offer GCap a rare opportunity to completely re-evaluate its
breakfast show strategy and implement a new show with more mass appeal.
4.
Xfm LONDON
GCap predecessor Capital Radio had acquired Xfm London in 1998 for ÂŁ16
million, the station having struggled for a year as an independent operation to
attract significant numbers of either listeners or advertisers. Capital hoped to
emulate the success that EMAP had enjoyed with Kiss FM London, after
having acquired it in 1992. Both stations target a youth audience, with Kiss FM
licensed to play âdance musicâ, while Xfm played âindieâ and âmodern rockâ.
31
GCap Media. Strategy Presentation, 11 February 2008. p.5.
GCap Media. Strategy Presentation, 11 February 2008. p.5.
GCap Media. Strategy Presentation, 11 February 2008. p.4.
34
Guardian Changing Media Summit, London, 22 March 2007.
35
Matt Eley. Why Johnny Vaughan has remained a Capital kind of guy, Ham & High, 12 April 2007.
32
33
GCap Media plc: The Titanic Of The U.K. Commercial Radio Sector [incomplete draft]
©2008 Grant Goddard
page 10
11. INCOMPLETE DRAFT REPORT
However, GCap has perpetually found it difficult to grow Xfmâs audience to
anywhere near the level of Kiss FMâs, despite London being acknowledged as
one of the centres of rock music in the world.
Table 9: Total Hours Listened to GCap Mediaâs Xfm London (â000 hours per week)
5,000
2,500
0
2000Q3
2001Q3
2002Q3
2003Q3
2004Q3
2005Q3
2006Q3
2007Q3
[source: RAJAR]
Xfm presently ranks 20th in the London radio market (compared to Kiss FMâs
9th position) and, humiliatingly, attracts less listening than either the BBC World
Service (available only digitally) or BBC Radio Three. Hazlittâs new strategy
promises to âbuild upon the credibility established by Xfm as a new music
authority in FM in Londonâ, though the stationâs performance begs the question
as to how much âcredibilityâ the station must really have amongst its target
audience of 15-34 year olds.
Table 10: Xfm London â average weekday audience (â000)
70
Q3 2006
60
Q3 2007
50
40
30
20
10
23.00-23.30
22.00-22.30
21.00-21.30
20.00-20.30
19.00-19.30
18.00-18.30
17.00-17.30
16.00-16.30
15.00-15.30
14.00-14.30
13.00-13.30
12.00-12.30
11.00-11.30
10.00-10.30
09.00-09.30
08.00-08.30
07.00-07.30
06.00-06.30
0
[source: RAJAR]
Xfmâs poor performance in Q3 2007 can largely be credited to its decision in
May 2007 to replace its DJs with back-to-back music selected by listeners
between 10am and 4pm on weekdays. This policy led to significantly lower
audiences during this important daypart in the following quarter (see Table 10).
GCap Media plc: The Titanic Of The U.K. Commercial Radio Sector [incomplete draft]
©2008 Grant Goddard
page 11
12. INCOMPLETE DRAFT REPORT
Xfm Managing Director Nick Davidson had argued that listeners âare used to
being able to control what they watch or listen to as, these days, people are
inundated with choice.â36 However, our opinion at the time was that broadcast
radio does itself no favours by trying to emulate the personalised music
experiences offered by either the iPod or by Last.fm (see Radio: Last.fm is
not the problem [Enders Analysis 2007-80e]).
Hazlittâs strategy document promised that âin the coming months, a full review
of Xfmâs output will ensure that we have the right on-air and online offeringâ.37
As with both the âOne Networkâ and Capital FM, such a review would seem to
be a necessary prerequisite to any prospect that an increase in revenues can
be achieved from the London marketplace.
5.
CHOICE FM LONDON
GCap predecessor Capital Radio completed its acquisition of Choice FM for
ÂŁ15 million in 2004. Although, at the time, Capitalâs manager Graham Bryce
promised âwe can categorically say we are not going to be like Kiss FMâ, the
purchase was largely motivated by Capitalâs inability to succeed with Xfm in
growing its penetration of the youth market in London dominated by Kiss FM
since 1991.38 Choice FMâs black music format is now remarkably similar to that
of Kiss FM, although the station was originally licensed specifically to serve the
black community in South London.
Table 11: Total Hours Listened to GCap Mediaâs Choice FM London (â000 hours per
week)
5,000
2,500
0
2000Q3
2001Q3
2002Q3
2003Q3
2004Q3
2005Q3
2006Q3
2007Q3
[source: RAJAR]
While listening to Choice FM has shown remarkably positive growth (see Table
11), the stationâs revenues have not grown similarly because, according to
Hazlitt, the station âhas suffered from lack of understanding amongst the
advertising communityâ.39 GCapâs avowed ambition for Choice FM is âto
36
Xfm. Xfm launch Xu â Radio To The Power Of U, press release, [undated]
GCap Media. Strategy Presentation, 11 February 2008. p.5.
38
Jules Grant. Choice FM in programme changes after Capital buyout, Brand Republic, 17 March 2004.
39
GCap Media. Strategy Presentation, 11 February 2008.
37
GCap Media plc: The Titanic Of The U.K. Commercial Radio Sector [incomplete draft]
©2008 Grant Goddard
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13. INCOMPLETE DRAFT REPORT
monetise it more effectively on-air and to grow audiences onlineâ, said
Hazlitt.40
6.
CLASSIC FM
Launched in 1992, Classic FM has proven the most successful of the three
national commercial radio stations and is the only UK commercial radio station
offering a classical music format.
Table 12: Total Hours Listened to GCap Mediaâs Classic FM London (â000 hours per
week)
50,000
40,000
30,000
20,000
10,000
0
2000Q3
2001Q3
2002Q3
2003Q3
2004Q3
2005Q3
2006Q3
2007Q3
[source: RAJAR]
Unlike GCapâs other main brands, listening to Classic FM has remained stable
in the long run (see Table 12) and offers advertisers an attractively up-market
audience, of which 70% are in the ABC1 socio-economic group. Whilst GCap
has problems with other brands losing listening and revenues, Classic FM
continues to make a positive contribution due to the unique appeal of its
content.
7.
LOCAL DAB MULTIPLEXES
In addition to its stake in the national Digital One DAB multiplex, GCap has
stakes in 24 of the UKâs 42 local DAB multiplexes currently in operation. These
comprise:41
ï· 100% stake in Now Digital, owning 12 local multiplexes
ï· 73% stake in Now Digital East Midlands, owning two local multiplexes in
Leicester and Nottingham
ï· 67% stake in South West Digital Radio, owning one local multiplex in
Plymouth
ï· 50% stake in CE Digital, owning three local multiplexes in London,
Birmingham and Manchester
ï· 46% stake in DRG, owing one local multiplex in London
40
41
GCap Media. Strategy Presentation, 11 February 2008.
Digital Radio Development Bureau. Multiplex Operators, January 2008.
GCap Media plc: The Titanic Of The U.K. Commercial Radio Sector [incomplete draft]
©2008 Grant Goddard
page 13
14. INCOMPLETE DRAFT REPORT
ï·
24% stake in MXR, owning regional multiplexes in Northeast England,
Northwest England, South Wales, the West Midlands and Yorkshire
GCap has the greatest exposure to DAB multiplex infrastructure of any UK
radio group, and made a loss of ÂŁ3.7 million on its local DAB multiplexes in the
year ended 31 March 2007.42 Hazlittâs strategy statement is unequivocal in
signalling the groupâs desire to abandon the DAB platform altogether: âDAB,
with its current cost structure and slow consumer response, is not an
economically viable platform for âNew GCapââŠ. In the short term, and without
massive investment and improbable changes to government policy, it is not a
platform on which we can growâ.43
However, GCapâs partners in half of its local DAB multiplexes are Bauer Radio,
Global Radio, Guardian Media Group, UTV and Scottish Media Group, which
makes their divestment a challenge unless the rest of the commercial radio
industry decides to abandon the DAB platform altogether. Hazlitt explained the
situation: âTo be clear, if we had a free hand and were able to terminate our
existing [DAB] transmission contracts, we would do so and we would hand our
DAB multiplex licences back to Ofcomâ.44
GCap is also hamstrung in abandoning local DAB by two further issues. Firstly,
its transmission contracts do not expire until between 2012 and 2016 and have
âlimited break clausesâ that would render GCap liable for fees until their
expiration, regardless of whether it utilises the spectrum or not.45 Secondly,
many of GCapâs FM licences were automatically renewed by the regulator for a
further eight-year period as a result of them being simulcast on the local DAB
multiplex. This was a âcarrotâ incorporated into the Broadcasting Act 1996
designed to encourage radio groups to invest in the then nascent DAB
technology. Hazlitt explained: âWhat this means is that all the top ten âOne
Networkâ stations have been renewed on this basis and, if we withdrew the
DAB services, under current legislation, Ofcom would have to re-advertise our
licences. So, in short, whilst we would like to get out of DAB, we canâtâ.46
The danger is that GCapâs consolidated annual operating loss on DAB local
multiplexes of ÂŁ3.7million could grow considerably if other radio owners were
to follow GCapâs lead and decide that the DAB platform is no longer worth
pursuing. In 2006/07, GCapâs local multiplexes received ÂŁ5.0 million revenues
from content owners for local DAB multiplex spectrum.47 Although part of this
revenue is unlikely to be vulnerable as it accrues from the BBC (which in total
spends ÂŁ3.6 million per annum to lease spectrum on local multiplexes owned
by commercial radio), the remainder is dependent upon other commercial radio
groups persistence with DAB.48 This places GCap in an even more difficult
position, as it can neither abandon local DAB multiplexes, nor mitigate against
increased losses from those local DAB multiplexes in future years.
42
GCap Media. Strategy Presentation, 11 February 2008, p.11.
GCap Media. Strategy Presentation, 11 February 2008.
44
GCap Media. Strategy Presentation, 11 February 2008.
45
GCap Media. Strategy Presentation, 11 February 2008.
46
GCap Media. Strategy Presentation, 11 February 2008.
47
GCap Media. Strategy Presentation, 11 February 2008, p.11.
48
Deloitte & Touche LLP. BBC Trust: The BBCâs Efficient And Effective Use Of Spectrum, December 2007, p.40.
43
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15. INCOMPLETE DRAFT REPORT
Ofcomâs ability to resolve this impasse is restricted by the wording of the
Broadcasting Act 1996, which will not let a local commercial station withdraw
from DAB without the risk of losing its analogue licence in a subsequent
âbeauty paradeâ. Some in the industry have proposed that Ofcom invoke a
âDAB armisticeâ â a six-month period during which stations could withdraw from
DAB without the risk of losing their licence. However, such a policy would
require a legislative amendment, and one âindustry insiderâ commented to the
press that âthere would be an avalanche of licences handed backâ.49
Instead, Hazlitt has suggested that âif DAB is to survive as a platform,
particularly at the local and regional level, it must be on a much lower cost
basis. That means re-planning the [local DAB] networks on the basis of much
more efficient use of spectrum in place of a large number of very small and
economically unviable local multiplexes which exist todayâ.50 GCap is already
talking about these issues to Ofcom, but insists that âit is in the interests of all
parties, including the transmission companies, that these changes happen
sooner rather than laterâ.51
Grant Goddard is a media analyst / radio specialist / radio consultant with thirty years of
experience in the broadcasting industry, having held senior management and consultancy
roles within the commercial media sector in the United Kingdom, Europe and Asia. Details at
http://www.grantgoddard.co.uk
49
Juliette Garside. How radio killed the digital star, The Sunday Telegraph, 17 February 2007.
GCap Media. Strategy Presentation, 11 February 2008.
51
GCap Media. Strategy Presentation, 11 February 2008.
50
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