'The UK Commercial Radio Industry' by Tom Andrews, Henry Devereux, Grant Goddard

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A presentation that analyses the UK commercial radio industry, written by Tom Andrews, Henry Devereux, Grant Goddard in July 2003 for The London Institute M.A. Media Management course.

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'The UK Commercial Radio Industry' by Tom Andrews, Henry Devereux, Grant Goddard

  1. 1. UK Commercial Radio Industry UNIT 1.2 MEDIA MARKETING & CONTENT Media Industry Analysis Tom Andrews, Henry Devereux, Grant Goddard July 2003
  2. 2. UK COMMERCIAL RADIO INDUSTRY ANALYSIS 1. Political 2. Economic 3. Social 4. Technological * Footnote Source: Source 1
  3. 3. POLITICAL FORCES • The Communications Bill • The existing regulatory environment • The political environment * Footnote Source: Source 2
  4. 4. RADIO IS CURRENTLY HIGHLY REGULATED Summary of existing radio legislation contained in 1990 and 1996 Broadcasting Acts • Points system restricts ownership of local commercial stations by one owner to maximum 15% of national radio revenue • Cross-ownership of radio stations, ITV licences and newspapers is restricted • No cross-ownership between national commercial radio licences • Foreign (non-European Union) ownership of radio restricted to maximum 30% stake • Analogue (AM and FM) radio licences run for 8 years • No community radio • Regulated by the Radio Authority * Footnote Source: Source 3
  5. 5. THE INDUSTRY IS EXPECTED TO MOVE TO A DEREGULATED MODEL Summary of proposed regulation from the current (2003) Communications Bill • Minimum 2 owners of local commercial radio stations allowed in a local market of at least 3 local stations; Smaller markets - no limit • Stronger cross-ownership restrictions across TV, radio & newspapers • Cross-ownership of national commercial radio licences allowed • Removal of foreign ownership restrictions • Analogue (AM and FM) radio licences run for 12 years • Community radio introduced on permanent basis • Regulated by new convergent regulator Ofcom * Footnote Source: Source 4
  6. 6. OFCOM WILL BRING ABOUT SUBSTANTIAL CHANGES IN APPROACH TO THE RADIO SECTOR Radio Authority remit Ofcom remit Development of radio medium has been Development of radio medium is market-driven industry-driven • Licences awarded to competing applicants on "beauty contest" basis • No ongoing obligation on local radio stations to:  Broadcast local programming  Employ local people  Train staff  Place studios in transmission region • No audience research commissioned; no responsibility to consult stakeholders * Footnote "Light touch" Source: Source • regime • Licences awarded to competing applicants according to market evaluation & business plans • Ofcom requires local radio stations to:  Broadcast local programming  Employ local people  Train staff  Locate studios in transmission area • Ongoing audience research; Requirement to consult stakeholders on policy issues • “Super-regulator" of converged media industries 5
  7. 7. THE MEDIA IS VERY CLOSE TO THE HEARTS OF POLITICIANS! Political priorities affect speed of development of radio medium • Regulatory ethos affects industry viability • Increasing commercialisation of the BBC has a big impact on commercial radio industry (BBC is exempt from much of Ofcom’s remit) • Innovation and take-up of digital radio delivery affected by outcome of recently announced DCMS enquiry • Next general election could change course of media policies * Footnote Source: Source 6
  8. 8. UK COMMERCIAL RADIO INDUSTRY ANALYSIS 1. Political 2. Economic 3. Social 4. Technological * Footnote Source: Source 7
  9. 9. RADIO INDUSTRY VALUE CHAIN Spectrum / licensing Who Government / regulator License holder Radio station Example Radio Authority* Capital Radio Function Award licences to broadcast Programming Marketing Transmission Audience Revenue Demographics Advertisers Tower, satellite, cable TV 16-24 males Unilever ntl, Astra, Telewest Platform for Advertising Distributes sales station either advertising sales terrestrially, from satellite or though fibre / Radio is a B2B coaxial cable business * Radio Communications Agency shares some of the regulatory burden with the RA * Footnote Source: Source 8
  10. 10. RADIO REPRESENTS 4% OF UK DISPLAY ADVERTISING 2001 100% = £ Billion Other* Television 9% Radio 4% Directories Business & Professional Consumer Magazine 16% 7% 9% 22% National Newspapers 6% 27% Regional Newspapers * Other includes Internet, Outdoor, Transport and Cinema * Footnote Source: Advertising Association Yearbook 2002 Source: Source 9
  11. 11. RADIO IS VERY POPULAR WITH FMCG* AVERTISERS Major Advertiser Product Categories Radio % of all advertising Total Display Advertising % of all advertising Media & ent 14 Retail 14 Motors 8 9 13 Business 11 11 7 8 Gov., Soc., Pol. Finance 7 Household Equ. 4 7 3 6 Travel Food 14 5 3 Other * moving * Fast Footnote consumer goods Source: Source Source: Nielson Media Research 6 17 34 10
  12. 12. RADIO ADVERTISING IS VOLATILE Year-on-year growth % 30 25 20 15 10 GDP 5 20 02 20 00 19 98 19 96 19 94 19 92 19 90 19 88 19 86 19 84 19 80 -5 19 82 0 -10 Radio -15 -20 * Footnote Source: Office of National Statistics, Advertising Association Yearbook 2002 Source: Source 11
  13. 13. LONG TERM RADIO ADVERTISING FORECASTS ARE BULLISH Year-on-year change % constant 1995 prices 10 5 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 0 -5 GDP Radio -10 -15 * Footnote Source: Analysis Source: Source of Advertising Association Long Term Advertising Forecasts 2002 12
  14. 14. M&A IN RADIO SECTOR Price (£m) Price/Sales 18.0 4.8 25.5 8.0 2.0 146.0 105.5 225.0 21.4 42.0 5.3 24.7 18.3 15.9 25.0 20.9 5.8 6.5 13.4 13.2 4.3 4.6 4.8 5.6 3.5 2.8 3.5 4.5 6.9 6.9 3.9 Date Target Acquirer Nov 2001 Jun 2001 Jun 2001 Mar 2001 Mar 2001 Jun 2000 Apr 2000 Jan 2000 Oct 1999 Jul 1999 Jun 1999 Oct 1998 May 1998 May 1998 Feb 1998 Jan 1998 Wave 105 Peak 107 Scot FM Bucks/Sun FM Lite FM DMGT Radio Border Radio Ginger Radio Independent R R Partnership Plymouth Sound Talk Radio Red Dragon Xfm Melody FM Essex Radio Scottish Radio Holdings Forever Guardian Media Group Radio Investments Forward Media GWR Capital Radio Scottish Media Group The Wireless Group The Wireless Group GWR The Wireless Group Capital Radio Capital Radio EMAP DMGT * Footnote Source: KPMG Source: Source 13
  15. 15. UK COMMERCIAL RADIO INDUSTRY ANALYSIS 1. Political 2. Economic 3. Social 4. Technological * Footnote Source: Source 14
  16. 16. WE HAVE ANALYSED THREE SOCIAL FORCES 1. Radio listening 2. Radio’s position in leisure activity 3. Radio demographics * Footnote Source: Source 15
  17. 17. WE HAVE ANALYSED THREE SOCIAL FORCES 1. Radio listening - Time spent listening to radio increasing - Commercial radio listening in decline - Local and national commercial radio listening in slow decline 2. Radio’s position in leisure activity 3. Radio demographics * Footnote Source: Source 16
  18. 18. RADIO LISTENING IS INCREASING Average weekly hours of listening and viewing 30 TV 25 Radio 20 15 10 5 19 92 19 Q4 93 19 Q3 94 19 Q2 95 19 Q1 95 19 Q4 96 19 Q3 97 19 Q2 98 19 Q1 98 19 Q4 99 20 Q3 00 20 Q2 01 20 Q1 01 20 Q4 02 Q 3 0 * Footnote Source: Analysis of BARB and RAJAR figures to Q1 2003 Source: Source 17
  19. 19. THE BBC RETAINS A STRONG POSITION Audience Share % 70 60 50 40 BBC Commercial 30 20 10 19 92 19 Q4 93 19 Q3 94 19 Q2 95 19 Q1 95 19 Q4 96 19 Q3 97 19 Q2 98 19 Q1 98 19 Q4 99 20 Q3 00 20 Q2 01 20 Q1 01 20 Q4 02 Q 3 0 * Footnote Source: Analysis of RAJAR figures to Q1 2003 Source: Source 18
  20. 20. BOTH LOCAL AND NATIONAL COMMERCIAL RADIO ARE LOSING SHARE Audience share % 60 50 BBC nat 40 Local comm 30 20 10 Nat comm 19 92 19 Q4 93 19 Q3 94 19 Q2 95 19 Q1 95 19 Q4 96 19 Q3 97 19 Q2 98 19 Q1 98 19 Q4 99 20 Q3 00 20 Q2 01 20 Q1 01 20 Q4 02 Q 3 0 BBC local * Footnote Source: Analysis of RAJAR figures to Q1 2003 Source: Source 19
  21. 21. WE HAVE ANALYSED THREE SOCIAL FORCES 1. Radio listening 2. Radio’s position in leisure activity - Increasing competition for leisure time - Radio benefits as secondary medium/background activity - Radio benefits as portable medium - Radio benefits as solitary experience - Radio benefits from simultaneous media usage - Radio benefits from close relationship with listener - Penetration of radio receivers is nearly 100% - Marginal cost of listening to radio to consumer is low/zero 3. Radio demographics * Footnote Source: Source 20
  22. 22. TOTAL MEDIA CONSUMPTION IS INCREASING Average minutes per week 3500 3000 Total media 2500 2000 1500 1000 TV Radio 500 Online 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 0 * Footnote Source: Screen Digest Source: Source 21
  23. 23. RADIO BENEFITS FROM BEING A SECONDARY MEDIUM % share of media consumption by day part Magazines Newspapers TV 4.5 0.9 5.7 3.1 0.8 1.2 14.6 0 5.4 1.9 8.4 3.4 15.6 29.8 22.7 2.5 22.5 5.8 5.7 4.8 4.4 4.6 6.9 4.5 1.3 3.5 5.6 4 2.8 1.1 9.9 31.1 35.3 29.5 72.4 58.2 41.1 Radio 48.2 37.9 After Lunch Lunch Morning * Footnote Source: Source Breakfast Source: RAB Radio Days 3 Pre Breakfast 12.7 7.8 Late evening 53.6 74.3 Early evening 63.3 5.8 7.5 0.8 12.8 During night Internet 22
  24. 24. RADIO IS A PORTABLE MEDIUM 41 % people listening to radio at work 35 32 27 34 31 36 30 29 25 22 19 Adults 16-24 25-34 35-44 45+ 27 24 ABC1 C2DE * Footnote Source: RAB Source: Source Radio Days 2, Radio Days 3 23
  25. 25. RADIO LISTENING CAN BE SOLITARY Radio listening in home % 92 Total home 65 Kitchen 63 Living room 53 Bedroom 20 Garden Bathroom 14 * Footnote Source: RAB Source: Source Radio Days 3 24
  26. 26. RADIO CAN BE CONSUMED WITH OTHER MEDIA Radio listening accompanied by other media consumption % 38 36 13 8 Reading Reading Whilst on newspapers magazines internet Watching TV * Footnote Source: RAB Source: Source Radio Days 3 25
  27. 27. RADIO ENJOYS A CLOSE RELATIONSHIP WITH THE LISTENER Listener interaction with radio station % 22 Any activity Gone to concert / road show 15 Called a phone in 13 Sent in a dedication 7 Visited radio website 5 Called station info line Visited station 3 2 * Footnote Source: RAB Source: Source Radio Days 3 26
  28. 28. WE HAVE ANALYSED THREE SOCIAL FORCES 1. Radio listening 2. Radio’s position in leisure activity 3. Radio demographics – – – – Radio stations target specific demographics Radio stations target ethnic minorities Radio stations adopt more specialised formats Young people use commercial radio more than BBC radio * Footnote Source: Source 27
  29. 29. RADIO STATIONS ARE WELL SEGMENTED Age and social class map Younger Younger Xfm Kiss 100 Virgin Choice Heart 95.8 106.2 Capital FM Sunrise Magic Premier Jazz FM Capital TalkSPORT Gold LBC 97.3 More upma Up market Classic FM * Footnote Source: RAB Source: Source analysis of BARB / RAJAR data March 2003 28
  30. 30. AND INCREASINGLY TARGETING ETHNIC GROUPS * Footnote Source: Source 29
  31. 31. AND SEGMENT THEIR BRANDS * Footnote Source: Source 30
  32. 32. YOUNG PEOPLE USE COMMERCIAL MORE THAN BBC RADIO * Footnote Source: RAB Source: Source analysis of RAJAR data 3 months ending in June 1999 31
  33. 33. UK RADIO INDUSTRY ANALYSIS 1. Political 2. Economic 3. Social 4. Technological * Footnote Source: Source 32
  34. 34. DAB IS EXPECTED TO CONTINUE TO GROW Cumulative digital radio sets sold 1,000,000 500,000 20 99 15,000 30,000 00 01 85,000 02 F03 F04 * Footnote Source: Digital Radio Development Bureau Source: Source 33
  35. 35. TECHNOLOGICAL FORCES New platforms for radio listening • Digital audio broadcasting (DAB) • Television - satellite - cable - digital terrestrial television (DTT) • Mobile phones • Internet Increase in number of radio stations • Specialist stations • Additional information embedded in broadcast stream • Greater geographical coverage * Footnote Source: Source 34
  36. 36. SUMMARY POSITIVES 1. New technology offers more platforms to content providers 2. New regulatory environment 3. Overall radio audiences are healthy 4. Radio advertising tends to recover faster than other sectors NEGATIVES 1. Commercial radio audiences are vulnerable to competition from BBC 2. National commercial radio overall has not proven to be a success 3. New regulatory environment likely to see further consolidation * Footnote Source: Source 35
  37. 37. APPENDIX * Footnote Source: Source 36
  38. 38. COMMERCIAL RADIO IS HIGHLY FRAGMENTED 1990 license number is made up, you need to get aud share… Radio Audience Share % UK Local Radio Licenses Label 5 67 10 Label 4 10 45 45 BBC Label 3 15 30 20 20 Label 2 90 94 98 02 * Footnote Source: No Source: Source bleedin clue gov 37
  39. 39. RADIO INDUSTRY VALUE CHAIN Spectrum / licensing Who Example Function License owner Transmission Government / regulator Radio Authority* Radio station Tower, satellite, Demographics cable TV 16-24 males ntl, Astra, Telewest Award licenses to broadcast Sales advertising Distributes and sponsorship station either terrestrially, from on basis of audience space or though fiber / COAX Programming cable Capital Radio Audience Consumer goods companies find it hard to reach this segment * Footnote Source: Source 38

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