GCap’s New Strategy

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GCap’s Chief Executive Fru Hazlitt announced today GCap’s new strategy. You can read the full document here.

There’s been lots of discussion about it and as with all of these things there’s lots of uncertainty about what’s been actually said. I’m going to run through what I see as the salient points and some things that might happen, however just like anyone else these are just my thoughts.

Firstly the saddest thing is that as there’s been some business closures it means that some people will lose their jobs. The people who work on the digital operations are some of the hardest working people. The nature of the stations mean that there’s never been huge amounts of resources to support what they do and I think the high quality nature of both Planet Rock and theJazz are a testament to their hard work.

Oddly, out of all of commercial radio, these people are used to multi-platform and multi-skilling and are definitely the kinds of people that the industry needs to grow.

The other thing it’s important to realise is that the most of the announcements are predicated on happening at the end of the financial year – ie 31st March. The elephant in the room is that Global Radio are likely to launch a second bid to buy GCap. If they are successful most of what’s been proposed (except perhaps the D1 sale) could still be reversed.

DAB Digital Radio

As predicted some of the biggest announcements concern DAB Digital Radio. Firstly Digital One is being sold (for a nominal sum) to the other partner, the transmitter operator Arqiva and the second, shuttering digital stations theJazz and Planet Rock. The two issues are really inter-connected. D1 make’s money as a landlord, selling space to other people. At the moment, other than Virgin Radio and talkSPORT they’re only selling space to themselves. If they then take themselves out of the equation then the cupboard looks pretty bare. As most of the costs go to Arqiva for the transmission network – then you might as well sell and leave it all with Arqiva.

However, the big question is whether GCap/Digital One could have done a better job at selling the space. In Frus announcement she says:

Whilst last summer it may have been assumed that this capacity could be filled, there is now little demand and with the launch of D2, a surfeit of supply, so we do not believe that this is possible.

I’m aware of a number of people that would like to go on Digital One who are very well funded. However, the system that D1 have in place is punative from the start and does not encourage or reward successful digital radio stations. D2 (and the spare capacity they have) definitley effects D1, however the proof will be in what new owner Arqiva does. If they can fill the space then it raises more questions for GCap.

By the way, this year, with the stations it had on/Movio made Digital One £5.1m – £3.2m of which would of flowed back to GCap.

Planet Rock has some quite high talent costs. It felt that it needed well-placed ‘big names’ alongisde more typical fare to ensure that it did well. Even when you then add in it’s transmission costs, the station still costs signficiantly less than any of the new BBC national digital radio networks. It’s also had a good showing in RAJAR with 563k listeners and 3.14m hours (which makes it a similar size to something like Key 103). Unfortunately, at the moment, you really need a 1m listeners to make a big enough bang in the advertising markets. Within a couple of years I think Planet Rock might well have reached these heights, but once again there’s a lot of cash needed to be spent to get them there.

theJazz had a bit of a different structure. By being embeded within Classic FM the operational model is more robust and having a strong figurehead like Darren Henley has helped drive it forward. Launching with an audience in the mid 300k is a great result. Once again though it doesn’t have the bulk to be able to argue for more revenue.

It is important to recognise that neither of these stations has had any money spent on them in marketing. Just turning them on and hoping for the best is not the way to get people to listen. These were both new brands that needed their stories telling. It is not DAB or DTV’s fault the station’s aren’t successful – it is GCap management’s fault they haven’t been able to sell them to enough listeners. Now why they haven’t done that – that’s a whole different story with recourse to Ofcom, the BBC, shareholders, mergers and much more.

With regards other DAB stuff – they’ve committed that their analogue stations will still simulcast on DAB. They suggest that it’s only because of transmission contracts and licence roll-overs. It’s of course nothing to do with the fact that their local multiplexes generate profits and that signficant numbers of listeners consume the stations over DAB. 2CR in Bournemouth, for example, has nearly 30% of listeners tuning into the station on DAB and nearly 20% of its hours coming from DAB listening.

I think they are very much hedging their bets. It is useful to make some big DAB announcements but keep their fingers in some pies too. As Nick Piggott their Head of Creative Technology says:

No DAB transmitters are being switched off, nobody will lose any coverage they have now. DigitalOne is still on-air, and wholly owned by Arqiva, who provide the transmission infrastructure. Local DAB licences continue to be advertised and won, and Channel 4 are still committed to launching a second national multiplex. GCap’s local radio services (under the “One Network” brand) continue to be simulcast on FM and DAB. GCap will be lobbying for AM radio to be turned off.
The justification for pulling back on DAB is “we do not believe that – with its current cost structure and infrastructure – [it] is an economically viable platform.” (my emphasis). The issue with DAB in the UK is the cost of the unique way in which infrastructure has been built, licenced and funded (which I have commented on in the past), not the principle of the technology.

FM and Broadband

GCap Media will become a leaner and more dynamic company focused on maximising the revenue and profit potential of five key brands on FM and broadband, the platforms that we believe consumers want and which offer the greatest growth opportunities.

FM, obviously, works very nicely and lots of people listen on it. It would also be mad to say ‘this internet thing has no chance’. So therefore Fru is surely right? Personally, I think it’s all about timing. The digital platforms (and I use that in the broadest sense) complement FM because FM can’t really grow and provide the choice that listeners now demand. Unfortunately there are a number of digital platforms that you can broadcast on – DAB (national, regional and local), Cable, Satellite, Freeview and the Internet. All of these cost money to broadcast on – so you have to pick the right platforms. The internet is relatively inexpensive whilst DAB is more expensive (£1m for national £120k for regional, £70k for local (ish)). Satellite will probably cost you about 70K plus the price of an EPG number. On these economics it’s easy to dismiss DAB as too expensive. The problem is when you look at the hours each of these generate. Hours listened to is what turns into cash for commercial radio, so you need to look to the platforms that will generate these hours. Additionally you have to look at possible growth as well, so you’re on the right platform at the right time.

Digital Television and the Internet have phenomenal market penetration with broadband especially massively dominating internet take-up – triple the takeup of DAB. In some ways it’s amazing that internet/DTV stations aren’t doing better than they are. They should be streets ahead of DAB, but for whatever reason they’re not. This is not to say that they won’t grow the amount of listening they generate – but at the moment it’s looking quite low and RAJAR’s showing that isn’t changing.

As a GCap example, lets take XFM. It’s a younger brand and slightly more upmarket than normal ILR. It should have high internet listening and respectable DTV as well. It’s also one of the brands that Fru’s highlighted as being a broadband opportunity. So lets look at its current listening:

FM: Reach – 848k, Hours – 4,332: That’s 71% of XFM’s Hours
DAB: Reach – 165k, Hours – 639: That’s 10% of XFM’s Hours
DTV: Reach – 52k, Hours – 79: That’s 1% of XFM’s Hours
Internet: Reach – 53k, Hours – 192: That’s 3% of XFM’s Hours
Don’t Know: Reach – 152k, Hours – 865: That’s 14% of XFM’s Hours

Now the first thing that strikes me is how high ‘don’t know’ is. There are lots of theories about how to attribute those hours (I forsee an FM/DAb split), but lets ignore them for the moment. The second thing I see is how small DTV is – I thought that would be higher. The third thing I see is that DAB is delivering for XFM 10% of it’s hours – matching the national average. What’s then noticeable is how small the internet figures are.

If you think broadband listening is going to increase I think (based on the fact broadband penetration is so high) that it’s a bit of a gamble to think that’s where your listening is going to come from. If I was to launch a ‘digital’ station, I think pinning hope on the net alone, today, wouldn’t be what I wanted to do.

There are some other upsides to operating on the internet though, you can do more listener transactions and imagery around players and such. Perhaps their strategy is going to be less about the numbers and how mich you can get per listener. Still seems a bit shaky to me.


Even though XFM is a potenital broadband opportunity they’ve decided that they don’t need the FM stations in Wales, Scotland and South Wales declaring that they lose £800k. I’d be interested to see how much of that £800k stems from the launch of South Wales. The first year costs for any station – building, marketing etc – are going to be very high, a new station also means the income will be very low, so it’s likely that all that loss (and maybe more) could be attributable to one station. Let alone the fact that Manchester’s barely hit three years of operation.

XFM, out of everything, probably does have the most broadband potential, it seems very odd therfore to get rid of stations that are in growth and speak to the audience you want to convert. And actually £800k isn’t really that much in the grand scheme of things. In fact having three FM stations purely as ‘marketing’ for the broadband service will seem sensible.

One Network

I found the references to the One Network quite interesting:

We propose to continue moves to harmonise our stations into a coherent national buy for advertisers. At the same time we will change the business model of The One Network to reduce stations’ dependency on central services… We are now further reorganising our regional structure to concentrate resources on the eight stations that so far this year have accounted for over 50% of the aggregate profits and audiences on The One Network.

To me this means that the Bristol ‘network’ centre is probably under threat, but at the same time it makes the networked shows that save a lot of money. Whilst the ‘top 8’ stations will probably be given more freedom to do their own thing, it also suggests that the other 30-odd stations will find themselves facing more cuts (which makes it hard to reconcile the ‘reducing dependency on central services’ line). I hope that the solution isn’t that One Net stations will have to fend for themselves for things like production/contesting and reduce their head count. I can’t physically see how that’s possible at many of the sites.

According to the numbers provided they’re going to save £1.3m from non-plc ‘central services’ personnel costs and a further 1.8m of operational costs. They’re also wanting to save £1.3m from the One Network’s personnel costs and a further 200k ops costs – probably not a great sign.

Gold is also going to see about £600k of personnel costs and another £200k of operating costs cut. That’s quite a signficant scaling back.

All in all it’s a strange announcement and one that’s sort of ‘on hold’ until Global make their offer. It’s not positive news for DAB but it’s not really that negative. At the end of the day GCap accounts for 12.8% of radio listening (huh – DAB on its own nearly beats that!) so does not really affect that many listeners.

I also think with 4DG, MuxCo, Bauer and BBC DAB’s actually going to go into a new, more positive direction. When ITV Digital decided that DTV wasn’t for them, the Freeview DTT2.0 replacement built on the momentum and sets that were already in the market. I think we’re about to see something similar for DAB. If GCap continue to exist will they rue the 11th of Feb?

What Fru Does Next

On Monday morning, GCap Chief Exec Fru Hazlitt is going to announce to the City her strategic plans for the company. She’s somewhat under pressure as she’s got Global Radio knocking on the door looking to take over the company. So, what’s going to happen?

I think one of the key things that she’s got to demonstrate is that she’s different to the last boss – Ralph Bernard – and that the company needs to move in a very different direction. She’ll also have to play the crowd somewhat, the crowd being the City, and tell them things that they want to hear. These things might not be completely sensible or things that the company would ideally do. However, it’s in a tight spot, so needs to make a positive splash. So, what will Fru do?

DAB Digital Radio

Firstly she has to make some big DAB announcements. DAB was a Ralph thing and it costs quite a bit of money, money the City would like returned to them in profits. It’s a very short sighted view, especially as DAB now accounts for 10% of all radio listening and pretty much every other radio firm is behind it. However, needs must. Therefore I think we’ll see her sell GCap’s 63% share of Digital One. The key thing this does is remove the pressure of having to fill the capacity on the multiplex. It will also allow her to shut down either Planet Rock or theJazz or maybe even both of them. Whilst both these stations are building decent audiences they probably cost the firm £3m to £4m in total to operate.

Selling D1 and shutting down services will end up being earnings enhancing and it’ll bring in a nice pot of cash for the group.

The local multiplex network isn’t such a cash drain for the group, but it’s likely that Chill will be sacrificed in places where they can being in some more money from third party service providers. This will leave GCap with FM, Gold and XFM in most local areas and (probably still) Choice on the regional multiplexes.

Cost Savings

With Dirk, Steve and Ralph off to pastures new, she’ll have already made a saving of around £1.5m, however I think we’ll end up seeing more management cuts around the group. This coupled with rising revenues will improve profitability. I don’t think we’ll hear any firm announcements of any daytime networking due to the new Ofcom rules, but we will probably hear her allude to synergies which will be able to made in the near future.


I’m not sure what news of station sell-offs we’l hear. If she was brave she’d sell off something like Classic FM. It’s a very mature product as is its audience. It might be better off with GMG sitting alongside Smooth. However, with the markets the way there are at the moment I don’t think you would be able to get the money it’s probably worth. So it will stay. Probably similar for XFM.

We might see some announcements of the periphery of the One Network being flogged off, but again i’m not sure if the market can support that many stations being ‘up for sale’ so even if it does the price won’t be that high.

New Directions

By slimming down digital (and perhaps a bit of analogue) the main message will be that GCap doesn’t see that much growth in ‘radio’. It therefore will have to re-focus back to the internet. They’ll probably announce, again, that they’re putting more money into things like XFM and Choice online and they might even buy some internet sites, perhaps music ones, but definitely something that sits nicely alongside the remaining businesses.

Money-wise they’ll probably split the cash they make from savings and sales between investment (as above) and an extra shareholder dividend. This will be an attempt to undermine the cash offer from Global and will hopefully suggest to shareholders that in the medium term they’ll make more money sticking with GCap than selling out.


* Who’ll buy Digital One? I think in the frame could be the current other shareholder – Arqiva, newly rejuvenated and big brand owner Bauer or maybe even Channel 4 – that way perhaps they don’t need to launch a 2nd national multiplex.
* If it’s Bauer – maybe there’s some swaps for Kerrang West Mids too.
* More stories about DAB Digital Radio being doomed – once more ignoring all the facts about take-up and listening
* What will Global do? I think they’ll plough on by offering a £2.30ish bid for shares. It’ll be interesting to see whether GCap shareholders want to go on another new journey with another new GCap boss.
* Staff morale will not be very good – telling a load of radio people that the future’s the internet won’t be very motivating.

GCap’s £100m Gamble

Interesting reports in the Telegraph today, that GCap ‘spurned’ (good newspaper term) Global Radio’s £300m offer to buy the company. GCap’s currently worth £200m, so the £300m would have been a 50% premium to the closing share price.

You can understand that GCap wants to give new Chief Exec Fru Hazlitt a bit of a time to, you know, do her new job, but the amounts offered create an interesting quandry. If Global had only offered a premium of 30% you could see it being easily rebuffed as there’s a chance for organic share price growth to that amount, but will GCap be able to manage 50% growth on their own?

Radio’s still going through a tough time and needs to invest in new products to drive future growth – which means no short term gain for the shareholders. If I was a GCap shareholder that came in at £1.20/share, i’d think my best chance of making a few bob was through a sale. Indeed, as a GCap shareholder who came in at about £2.50 (oh, those heady days), i’d be happy to minimise my losses as i’m under no illusion that it’ll ever get back to those heights. However, as with GWR before it, one of the key shareholders in GCap is DMGT. They are kings of long-term thinking, but should they be persuaded to think ‘sale’, a transaction may be quite speedy.

Whilst all of this seems like more bad news for GCap, it’s also pretty bad news for Global Radio as they really are “all dressed up with no where to go” (good quote, Paul Easton). Their whole reason for existing was to buy up and consolidate the industry, it’s the promise that got them all that cash to spend originally. Now, GMG’s stations aren’t going anywhere, EMAP has a new buyer in Bauer (though no one’s exactly sure what their plan is), UTV have no need to sell, CanWest are still in build-out phase, and UKRD/TLRC/Tindle are all a bit too small. Which could mean that it is in fact Global that’ll be on the block for a sale.