Analysis of the disastrous track record of UK media regulator Ofcom in licensing new local commercial radio stations in the UK, written by Grant Godard in December 2008 for Grant Goddard: Radio Blog.

1. OFCOM'S STRATEGY FOR
LICENSING NEW UK LOCAL
COMMERCIAL RADIO STATIONS:
POURING PETROL ONTO THE
UNPROFITABLE FIRE
by
GRANT GODDARD
www.grantgoddard.co.uk
December 2008

2. The closure of Edinburgh station 'Talk 107' on 23 December almost coincided with the fifth
birthday of Ofcom (on 29 December). Talk 107 was the first commercial radio station to be
licensed by Ofcom, so its failure and subsequent closure could seem symptomatic of Ofcom’s
radio licensing strategy. Over five years, instead of Ofcom playing a significant role in creating
a vibrant, profitable and creative UK commercial radio industry, its licensing decisions have
often exacerbated the problems of a sector already beset with massive structural and financial
challenges.
Ofcom has licensed 39 new commercial radio stations to date, taking the total number of UK
licensed commercial radio stations past the 300 mark. This number, in itself, is a large part of
the problem. These newly licensed stations each add a whole new set of largely fixed costs to
the sector. Even if the average cost of each of these new stations is only £250,000 per annum,
Ofcom’s licensing has increased sector costs by almost £10m per annum (in 2007, Ofcom
estimated the sector’s aggregate costs as £400m).
At the same time, most newly launched commercial radio stations have failed to attract
significant new listening or new revenues to the sector. New stations seem to simply
cannibalise the audiences of existing commercial radio stations (I researched the impact of
introducing the tier of regional commercial stations and found only one station had not
Ofcom's Strategy For Licensing New UK Local Commercial Radio Stations: Pouring Petrol Onto The Unprofitable Fire
page 2
©2008 Grant Goddard

3. Ofcom's Strategy For Licensing New UK Local Commercial Radio Stations: Pouring Petrol Onto The Unprofitable Fire
page 3
©2008 Grant Goddard
cannibalised commercial radio audiences). As a result, the sector’s aggregate costs have
increased whilst its aggregate revenues have not been expanded, and so profit margins are
being squeezed further.
Additionally, the formats of many of the winners in Ofcom’s licensing ‘beauty parade’ were
inevitably destined for commercial failure, with Ofcom seeming to ignore the empirical
evidence. In a market the size of Edinburgh, Talk 107’s talk format could never succeed, given
that the same format has been unable to make an operating profit in the UK’s largest local
market, London, since the end of the 1980s. Similarly, Ofcom’s idea of introducing a local rock
music station in Plymouth would have been a disaster (the station never even launched) given
the miserable audiences for 'Xfm' and 'Virgin Radio'. And the three 'Original' stations licensed
by Ofcom launched with such esoteric music formats that their failure quickly prompted owner
CanWest Global to sell up and quit the UK radio business altogether.
The size of most of the newly licensed stations was insufficient to ever make them profitable.
Ofcom’s own research found that the majority of small stations fail to generate an operating
profit – stations serving under 50,000 adults make an average annual loss of £3,000; stations
serving between 50,000 and 150,000 adults make an average annual loss of £20,000; and
stations serving between 150,000 and 250,000 adults make an average annual profit of
£65,000. Although 63% of commercial radio stations serve areas of less than 250,000 adults,
they collectively generate only 11% of sector revenues.
Knowing the unprofitable economic performance of most small commercial radio stations, it
made no commercial sense for Ofcom to choose to licence 21 of its 39 new stations to
populations of 250,000 or less. All this has done is increased the number of loss-making
commercial radio stations and dragged down the profitability of the entire sector. The roll-call
of stations licensed by Ofcom in its first five years includes:
 'Talk 107' Edinburgh, closed by UTV after 15 months on-air
 'Touch FM' Banbury, up for sale or closure by CN Group after two years on-air
 'Brunel FM' Swindon, sold by The Local Radio Company after 21 months on-air to Laser
Broadcasting, forced into administration four months later, acquired by Southwest Radio
 'Original' Solent, 'Original' Bristol and 'Original' Aberdeen, sold by Canwest Global which
exited its UK radio venture two years after Solent had launched
 'Diamond FM' Plymouth, never launched by Macquarie Bank
 'Southend Radio' Southend, sold by Tindle Radio to Adventure Radio before it launched
 'Sunshine FM' Monmouth, acquired by Murfin Music when Laser Broadcasting forced into
administration after 10 months on-air
 'Xfm' South Wales sold by GCap Media to Town & Country after six months on-air
 'Minster FM' Northallerton, licensed to serve 39,000 adults, annexed to Darlington after
eight months on-air
 'Perth FM' Perth, eventually launched last month, two years after winning its licence from
Ofcom, and ten weeks after owner Mark Page closed 'L107' Lanarkshire
 'The Severn' Shrewsbury and 'The Wyre' Kidderminster, now sharing programmes under
co-owner Midland News Association
 'kmfm' Ashford, now sharing programmes with co-owned KM Radio stations
 [a question mark remains over the control of 'Andover Sound' Andover and whether licence
winner Tindle Radio has sold or reduced its 100% stake between the licence award in July
2006 and the station’s launch in May 2008]
Some of the 39 new local stations licensed by Ofcom are only required to broadcast locally-
produced content for four hours per day on weekdays (the breakfast show), while the majority
are required to broadcast no more than four hours per day of locally-produced content on
weekends.
The question has to be asked.... Are the financial losses incurred by these stations worth the
marginal amounts of local content offered to the populations in the markets they serve, and the
resultant low ratings achieved by most of them?

4. Ofcom's Strategy For Licensing New UK Local Commercial Radio Stations: Pouring Petrol Onto The Unprofitable Fire
page 4
©2008 Grant Goddard
So what is the point of licensing small local radio stations that barely broadcast local content
and are unlikely to break even?
[First published by Grant Goddard: Radio Blog as 'Ofcom's Radio Licensing Strategy – Adding Fuel To The
Unprofitable Fire', 30 December 2008.]
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