Radio is two inter-locking zero-sum games

The first is audience. 90% of the UK’s population listen to the radio each week for 1billion hours in total. This is an amazing figure, something we should be more proud of, but also recognise that it’s something that’s unlikely to go up. It is difficult to actually cram any more radio into people’s ears.

The second is revenue. All UK radio revenue has been around £600m for the last 8 years and that’s unlikely to massively change anytime soon.

There has always been the hope that if you grow your audience at the expense of the BBC then you will be growing the commercial radio industry’s share of the advertising market. This theory, however, is somewhat unproven. However, if you win audience at the expense of other commercial radio stations you can at least get some of ‘their’ money to add to your own. At the same time you can try and get better at selling. What has been proven is that you don’t necessarily need to increase your audience to increase your revenue you’ve just got be better at striking a deal.

It is no great surprise then to see where we are.

Now the problem with the theory outlined above is not that it’s necessarily right, it’s just that it’s difficult to disprove.

And it means that there’s no great surprise in seeing what GCap did last week. If you missed it… GCap announced some changes to their One Network of 40-odd radio stations. They have decided to network the 10am to 1pm show and to replace/relaunch the network shows from 7pm to 1am. Across the weekends they’ll now just be one daily four hour local show, the rest will take the network.

Whilst mainly expected, what they have announced is actually quite a big change to lots of radio stations. The bigger news is that Graham Torrington, a man who has presented Late Night Love for up to 13 years on some radio stations has been axed. Sadly, he’s been axed in the traditional radio way, that of being told “sorry mate, that was your last show”. The reason you do it that way is so that the presenter won’t have a DLT-ish rant about changes happening that he’s not pleased with, which is all well and good, but this is someone who’s probably been on air for a longer period of time than all the DJs at each of the stations that he broadcasts to. Surely a positive goodbye week, introducing the new show, playing best of’s etc would help pass the baton rather than hundreds of thousands of regular listeners thinking ‘where did he go?’. You wouldn’t expect Terry Wogan to disappear off Radio 2 and no-one to ever mention him again.

The other view is of course, actually it doesn’t matter, it’s only wallpaper after all, fickle listeners will soon forget him anyway. My response to that would be that if you have a station where listeners care so little about what’s between the records then you have far bigger problems than you can possibly imagine.

The other bigger change is the introduction of a new network daytime show. There were always going to be two options for this slot, do you go ‘big name’ trying to poach a Scott Mills or hire a Jimmy Carr or do you go for an traditional presenter who fits neatly with the radio stations. In the end they went for the latter, Capital’s excellent Phillipa Collins. There are pros and cons to both approaches and we’ll see how Phillipa gets on over the coming months.

As I’ve talked about before, the biggest impact daytime networking will have is on local sales. The networking of mid-morning and most of the weekend has a potentially devastating effect on local S&P. The disaster scenario is a series of knock on effects. If sales teams don’t have the inventory to sell they won’t be able to hit their targets, if they can’t hit their targets they don’t get their bonuses and if they don’t get their bonuses they’ll leave. If they leave then it hits the relationships with local advertisers for spots and then the yield goes down. At the point the stations’ profitability is reduced is the point when there’s a call for more cost savings and then the cycle continues.

Now what’s interesting about heritage ILR stations across the UK is that they’re actually very profitable with probably most 400K+ TSAs making a profit of six to seven figures. The problem for larger groups is that money is eaten away by ‘group costs’ – the infrastructure that supports the stations like finance, corporate, online, national sales, HR, IT etc. It’s a delicate balance though, part of the reason the stations do so well is because they don’t have to worry about these services.

So, what’s the strategy? It’s a bit early to say for sure and I don’t think we’ve really got into what the Global boys want to do, I think we’re still in quite a bit of GCap’s legacy plans at the moment. However, it would be hard to dispute that it looks like a centralistation play with the station’s job to deliver highly locally breakfast and drive shows and to ensure the networked stuff has the right quality of local drop in’s to keep local sales on the road.

The net result is likely to be a small to moderate decline in audience figures across the board, a hope for reduced costs, but better revenue performance and thus greater profit. Well, if you buy into the zero sum game theory.

However, the UK radio industry is changing and the traditional zero-sum game is about to be beaten about the head by some new players, who couldn’t really give a damn about how the old world works.

Enter stage left, new entrant number one. Well, Cilla, they’ve been the plucky young under dog not afraid to be naughty and say rude words, whilst growing their appeal with the young. Asked to describe themselves they said they were itchy and not afraid to challenge the status quo, whilst still asking for a £150m government hand-out, ladies and gentleman please welcome the company unafraid of their Big Brother, it’s Channel 4.

Now, Channel 4’s radio ambitions have taken a bit of a knock recently as they reassess their timings with regard to the new national multiplex. With Digital One a bit empty, I’m sure it’s prompted some thinking back at C4 HQ. However, I think it’s important to distinguish between their platform ambitions and their radio content ambitions. Looking at the radio side they’ve announced that they’re still pushing forward with the first of their proposed three launches, E4 Radio, likely to launch before the end of the year.

They’ve also been quietly busy building up the team who will across their radio stations and it’s not a bad bunch. As well as having Bob Shennan (a previous 5 Live Controller) run the lot, you’ve got one of his colleagues, Michael Hill managing operations, an ex Radio 1 Head of Music and former Head of A&R at EMI looking after music and an ex-Radio 1 Head of Online looking after new media. These are not the decisions of someone merely playing at the edges. Their next step, which I believe is imminent, is the hiring a significant number of operational people.

Now, this, I think, is where it gets interesting.

Other than perhaps online, all radio has really seen is cuts over the last few years and chatting to people, they’ve tended to be happy about having a radio job rather than quibbling too loudly about money, resources and opportunities. The introduction of C4 is going to change that a bit. They’re going to be hiring a significant amount of new people themselves, let alone the commissions that they’ve promised to production houses too. The demand for these jobs will be high and C4 will pretty much have the pick of candidates for these roles.

The danger for the legacy operators will be that they could lose a lot of their better people simultaneously. They’re also going to face the launch of a TV-supported Radio 1-style station to hoover up any of those last remaining commercial 15 to 24s. Xfm, Kerrang, Galaxy, Kiss and the lower end of ILR beware.

How they build their content and commercialisation will also be very different. Straight away they have a base of TV content to build on. This will mean radio programmes based on brands that the audience are already aware of with high value talent who have to do the radio to get the TV gigs. At the same time as well as going after traditional radio revenue they will also be targeting a greater share of existing TV/online campaigns to try and prise some more money out of the ITV/multi-channel bucket and into the C4 coffers. Never mind radio share deals, they’ll be after a smaller share of a much bigger pie. If commercial radio was worried about the BBC’s cross-media talent deals, just wait for C4’s cross-talent-brand and platform deals all commercialised in a way that’s getting not only traditional radio, but other platforms’ share too.

The other interesting one is what happens at One Golden Square with, what’s currently, Virgin Radio. To recap – they get a national AM/DAB licence, London FM licence, two London digital stations, successful website and popular overseas streaming but they have to lose the name. But – they’re going to be spending £15m to build a new brand.

As James describes, losing the brand isn’t really too bad a deal (providing Virgin doesn’t re-launch Virgin Radio the next day).

Virgin already punches above its weight from a radio sales perspective and significantly from an online perspective and there’s now money in the bank to spend and grow. It also seems from noises coming out of the company that they want to be a truly multi-platform music brand rather than just a radio group. Does this mean that they’re scared of competing with the biggest boys or that it’s more profitable to play in a different part of entertainment’s Venn diagram?

Oddly, I think the next stage of the radio game is going to be about competing, across all platforms, concentrating on what you’re good at – what your key strengths are. I think this is especially interesting for people with ILR stations, traditionally they’ve owned a variety of positions from ‘pop music’ and ‘best mix of music’ to ‘local’ and ‘traffic and travel’. With an onslaught from other organisations they’ve probably got to fix themselves on one particular area and deliver, across multiple platforms, to the areas that they cover.

Perhaps commercial radio will have to look outside of its two inter-locking zero-sum games to see its future growth.

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