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ANALYST QUESTIONS FOR THE
BOARD OF GCAP MEDIA PLC
by
GRANT GODDARD
www.grantgoddard.co.uk
November 2006
RADIO INDUSTRY ISSUES
In its 'Future Of Radio' consultation published last week, Ofcom noted that:
 “the changes happenin...
1) Capital FM/Capital Radio
The listening share of GCap’s flagship station had fallen by 50% over the previous four
years....
Analyst Questions For The Board Of GCap Media plc Page 4
©2006 Grant Goddard
Why is GCap insistent on launching new brands...
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'Analyst Questions For The Board Of GCap Media plc' by Grant Goddard

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Analyst questions to be addressed to the board of GCap Media plc on the UK commercial radio company's strategy and objectives, written by Grant Goddard in November 2006.

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'Analyst Questions For The Board Of GCap Media plc' by Grant Goddard

  1. 1. ANALYST QUESTIONS FOR THE BOARD OF GCAP MEDIA PLC by GRANT GODDARD www.grantgoddard.co.uk November 2006
  2. 2. RADIO INDUSTRY ISSUES In its 'Future Of Radio' consultation published last week, Ofcom noted that:  “the changes happening in the radio industry may be more structural [than cyclical] and may need to be addressed in the interests of listeners”  “radio advertising is stalling as advertisers switch to internet advertising”  “the number of young adults who listen to radio is falling as they consume media in new ways”  “the current business model for commercial radio – particularly for local stations – may not be sustainable” because of “the decline in its attractiveness to advertisers”  40% of commercial radio stations lose money, and a further 10% make less than £100,000 annual profit. The latest data from the Radio Advertising Revenue shows:  industry revenues to have fallen 7% year-on-year during the last quarter [2004 Q3]. Within that total, national advertising revenues fell by 12% year-on-year. What are your strategies to address each of these issues facing the radio industry? In its 'Review Of Ownership Rules' report published last week, Ofcom suggested that the present ownership rules could be amended to permit further consolidation in the radio sector between the largest groups. Would such a change prove beneficial to GCap’s shareholders, and to the radio industry as a whole? GCAP STRATEGY In the outline of your 'Future Strategy', published a year ago, GCap acknowledged that “our stations have also lost market share” and so announced a range of strategies “to reverse the decline in GCap’s audiences” and “to restore growth in listeners, revenues and profits”. The overall objectives were: 1) “to reinforce the market position of our core analogue stations”. To what extent has this objective been achieved, given that the latest RAJAR audience data show that year-on-year:  Only 11 of the 38 FM stations in your 'One Network' have increased their listening share  Only 2 out of the 7 AM stations in your 'Capital Gold' network have increased their listening share  Your existing 'Xfm' stations in London and Scotland both lost listening share  Your standalone 'Ocean' station lost listening share  Both your analogue networks (One Network, Capital Gold) lost listening share overall? 2) “to reshape our brands and stations into a complementary portfolio addressing the most commercially attractive markets” To what extent has this objective been achieved in the last year? Why did the re- branding of 'Beat 106' to 'Xfm Scotland' result in a fall in listening share from 4.7% to 4.6% year-on-year? 3) “to grow the revenues we generate directly from our listeners, building on our experience at Classic FM” To what extent have non-traditional revenues grown year-on-year and what % of total revenues do they now comprise? Roughly what proportions of these revenues are internet-related, and are mobile-related? In the GCap 'Future Strategy' document, a series of more specific actions were detailed: Analyst Questions For The Board Of GCap Media plc Page 2 ©2006 Grant Goddard
  3. 3. 1) Capital FM/Capital Radio The listening share of GCap’s flagship station had fallen by 50% over the previous four years. This was to be addressed by:  Reduction of advertising minutage  Survey of listeners’ views  Re-format and re-launch of the station. To what extent has each of these issues been addressed to date, and what metrics are available to demonstrate the degree of success achieved? Has the impact of the recent “lipstick” campaign for the station been evaluated, and what were the results? Why did the campaign comprise advertising materials that included neither the FM frequency of the station, nor its logo? When will a turnaround of the station’s audiences and revenues be evident, and what precisely will be the deciding factor in forcing a reversal of fortune in listening, and in revenues? Are the station’s revenues on target to decline by the anticipated £7m year-on-year? What marketing activity for the station is scheduled for 2007? 2) Portfolio The first objective was to “concentrate our resources in the eight geographic regions which are most highly demanded by advertisers and in which we already have a significant presence…. London, the South East, Midlands, the North West, Anglia, Wales & the West, the North East and Scotland.” GCap’s proposed sale of nine analogue stations that fell outside these regions was aborted. Does that mean that this strategy has been abandoned? If so, what strategy has replaced it? How does the recent sale of GCap’s two regional 'Century' stations in the North West and the North East fit with this strategy? Does it not spread the geographical distribution of the remaining GCap stations more thinly across the UK, reducing opportunities for cost efficiencies? Ofcom’s own research confirms that it is far more difficult for small local radio stations to trade profitably, because most costs in radio are fixed costs, many of which are unrelated to station size. Why did GCap choose to sell two of the largest stations in its portfolio, both of which traded profitably? Are more stations sales projected, and how will these improve the remaining portfolio? The second objective was “to develop national brands to attract new audiences.” GCap’s national digital stations (with the exception of “Planet Rock”) are amongst the industry’s poorest performers. Capital Life and Core both attract less than 400,000 hours a week. What is being done to correct the problem? Recently launched digital brands have similarly attracted small audiences:  'Chill' is on 15 local multiplexes but only attracts 124,000 listeners/week  'Capital Disney' is on 5 regional and 5 local multiplexes but only attracts 69,000 adults/week and 135,000 children/week  'Fun Radio' is on 9 local multiplexes but only attracts 45,000 adults and 18,000 children/week. Analyst Questions For The Board Of GCap Media plc Page 3 ©2006 Grant Goddard
  4. 4. Analyst Questions For The Board Of GCap Media plc Page 4 ©2006 Grant Goddard Why is GCap insistent on launching new brands, when it is so evident that its existing brands face critical problems? Does not the announcement in September that GCap will launch a jazz station fly in the face of empirical evidence that jazz is not a profitable format in the UK ('Jazz FM', now renamed 'Smooth FM', has failed to show a single profitable year since its launch in 1990)? Why has the merger of 'Capital Life' and 'Capital Gold', indicated a year ago, not yet happened? What regulatory hurdles are preventing this consolidation? 3) Investment £3.7m was allocated to “investment in marketing and staff at local radio stations”. What precisely was done with these funds and where? Has a cost/benefit analysis been executed and what were the results? OTHER ISSUES Karren Brady Are plans still underway to sign Birmingham City FC CEO Karren Brady to be MD of 'Capital Radio', and why is GCap so keen to hire an executive with no track record of radio station turnarounds? Freeview RAJAR data shows that almost 4% of radio listening takes place via digital TV. Why are no GCap stations available on Freeview, and what plans exist to secure distribution on this platform? Clear Channel Last week, Clear Channel was acquired by two US funds, after having created the largest US radio group through consolidation. Are there any lessons that can be learned from the Clear Channel experience and that are pertinent to the UK market? 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

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