Analysis of the 'service licences' introduced to regulate the formats of BBC radio stations, alongside the regulation of UK commercial radio station formats by Ofcom, written by Grant Goddard in February 2005 for The Radio Magazine.

1. RADIO FORMAT REGULATION:
HAIL THE GUYS IN SUITS WITH
CHARTS
by
GRANT GODDARD
www.grantgoddard.co.uk
February 2005

2. The newly created Governance Unit at the BBC has the challenging task over
the coming months of writing “service licences” for each of the Corporation’s
broadcast operations. Acting on behalf of the BBC Governors, the Unit will
then analyse and monitor each channel’s output to ensure that it remains
within the terms of its particular licence and that it performs satisfactorily
against an agreed set of objectives. If this sounds like an in-house mini-Ofcom,
then that is exactly what the BBC is creating in the run-up to Charter renewal,
as the Governors and management unite to resist calls for the BBC to be
brought under Ofcom’s full regulatory powers. In its effort to convince us of its
public accountability, BBC stations will inevitably be swamped by “guys in suits
with charts and pages of numbers,” as broadcaster Garrison Keillor described
the “influx of commercial people” he witnessed at US public radio.
In addition to having to define its national analogue and digital services, the
BBC is faced with the daunting task of creating licences for each of its forty
local radio stations. The task is made harder because it would be difficult to
apply a template across the whole forty, when stations serve audiences as
diverse as BBC London’s multi-ethnic catchment area of ten million, and BBC
Radio Guernsey’s fifty thousand rural island dwellers. Each licence will need to
incorporate a requirement to satisfy “localism”, reflecting factors such as the
ethnic mix, demographic characteristics, occupations, poverty levels and
interests of the population within each station’s catchment area. These
indicators are the bedrock of what makes one area of the country different
from another, and what should make “local radio” a complementary alternative
to national services in a given area.
Any notion that such strict licensing of its own services is merely a publicity
stunt was dispelled by BBC chairman Michael Grade’s recent comment that
channel controllers could be fired for not delivering on the obligations
contained in their service licence. The precise shape of these licences has not
yet been revealed, but each is expected to run to several pages and include
specific quantifiable targets rather than the kind of woolly statements that have
previously appeared in the BBC Annual Report. To achieve these objectives,
the BBC has hired a team of analysts and advisers, many from outside the
BBC, to staff the Governance Unit.
The commercial radio lobby has long been arguing the case for just such
“service licences” to be imposed upon the BBC. Commercial stations claim that
the ability of the BBC to launch new radio services and adjust the format of
existing stations without recourse to a regulator has given them a competitive
advantage over the commercial sector, whose station formats are prescribed
and regulated by Ofcom. Now that the BBC is committed to regulating the
formats of existing services through “service licences”, and regulating the
launch of new services through a “public value test”, its sudden enthusiasm for
self-regulation creates a glaring paradox. If the BBC follows through its
intentions, its radio stations’ formats will become considerably more tightly
regulated than those of commercial stations.
In its early days, commercial radio had been closely regulated by the
Independent Broadcasting Authority, which required franchisees to complete
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©2005 Grant Goddard
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3. and submit large volumes of paperwork during the 1970s and 1980s. There
was no need to regulate station formats because each area had only one
commercial station (except London, which had two). In the 1990s, its
successor The Radio Authority started to licence additional stations in each
market and required each competing station to adopt a different “promise of
performance” that outlined its format. But the Authority’s avowed strategy of
“light touch” regulation meant that it executed no active programme of
monitoring or analysing station outputs. As the Competition Commission noted
with a degree of surprise, “in ensuring compliance with station formats and its
codes, the Radio Authority adopts a more reactive than proactive approach.”
While the BBC’s “service licences” will run to several pages, most commercial
stations’ equivalent “formats” barely fill one page, and are notorious for their
imprecise language and lack of analytical content. This has created a raft of
anomalies that put the whole ethos of format regulation into question. As
London’s jazz fans are acutely aware, Jazz FM has never played
predominantly jazz music for the last decade, simply because its licence has
never required it to play only jazz. Fans of Tony Bennett might be surprised to
learn that London’s Magic FM is licensed as an “easy listening” station.
Birmingham’s black population might be astonished to learn that Galaxy FM is
not a dance music station, but is licensed “primarily for listeners of African or
Afro-Caribbean origin.”
Critics of The Radio Authority accused it of interpreting “light touch” regulation
as “wilful ignorance,” and of deliberately not tackling thorny issues such as
effective format regulation with its licensees. A bemused Competition
Commission admitted that it “received conflicting evidence on how strictly such
formats were applied” by the Radio Authority. Lacking an ongoing programme
of economic analysis or content analysis of station outputs, the Authority
stumbled along without any of the “guys in suits with charts and pages of
numbers” that a modern-day regulator requires. Because the Authority viewed
format regulation as a legally required adjunct to the licensing process, rather
than as a necessary economic function to maximise public utility, Ofcom has
inherited a regime where too many competing stations have been allowed to
move too close to each other’s format.
On each occasion the Authority bowed to pressure from an individual station
lobbying to make its format more “mainstream”, it failed to understand that
every decision reduced the long-term profitability of the industry as a whole,
and the total benefit consumers derive from it. This is one of the underlying
reasons why listening to commercial radio has fallen so substantially in recent
years. The stations themselves bear no blame for this outcome, because any
owner will want to maximise the return to shareholders by targeting its product
at the largest number of consumers. It is the responsibility of the regulator to
recognise that it owes its very existence to society’s collective need to balance
economic expedience with public benefit in a market where broadcast
frequencies are finite and limited.
Every new recruit to radio regulation should be made to study and take a test
on a 28-page essay written by American economist Peter Steiner with the
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4. scary title “Program Patterns And Preferences, And The Workability Of
Competition In Radio Broadcasting.” Despite having been presented to a
conference in 1951, Steiner’s paper has not devalued with time. It explains
precisely the behaviour of radio stations all wanting to stake out the same
middle ground in a common market where their number is limited. Re-reading
this essay now is a wake-up call to understanding why our existing system of
format regulation has proved unsuccessful in correcting market failures.
Empirical evidence abounds as to the nature of these format market failures. In
one randomly selected week, Music Control data shows that London stations
Capital FM and Kiss FM shared the same most played record and half of each
other’s most twenty played songs. In the same week, in Manchester, the
identical song was the most played record on both Key 103 and Galaxy 102,
while half of the twenty most-played songs on Key 103 also featured in Galaxy
102’s fifty most played songs. In the same week, in Birmingham, the four mostplayed songs on Galaxy 102.2 were amongst the twenty most played songs on
BRMB, while nine of the twenty most played songs on BRMB were also in
Heart 100.7’s twenty most played songs. Comparison of data four years apart
shows some stations moving considerably closer to each other’s music format
over time.
Correction of these market failures requires that Ofcom start a process of
revising the fundamental components of the “format” licences it has inherited
from the Radio Authority. The emphasis must be switched to the measurement
of delivered outputs and the tight definition of a target audience that interlocks
each station with its commercial competitors, rather than simple prescription of
how many rock songs are to be played in a breakfast show. It is essential that
new, more detailed format documents provide stations with the flexibility to
adjust their programming to changing consumer tastes, but also be specific
enough to ensure that commercial competitors in a market differentiate their
content sufficiently to extend the choice available to citizen-consumers. There
will inevitably be resistance from stations to any change of their “format” (even
at re-licensing time), but Ofcom’s intention should not be to change a station’s
format, rather to define it in more precise terminology that befits a 21st century
regulator.
Alongside this re-definition of “formats”, Ofcom should apply considerably more
analysis on an ongoing basis to station outputs, both to ensure compliance
and to better understand market forces. Like the BBC, Ofcom might require a
team of smart suits and clipboards armed with the analytical skills that the
Radio Authority never acquired. In the US, economic theories such as Peter
Alexander’s work on measuring product variety and Joel Waldfogel’s work
analysing radio programming variety are already de rigueur tools of the
Federal Communications Commission.
Now that the BBC has accepted the need for regulation of its services (even if
this is self-regulation), the spotlight must switch back to the commercial radio
sector to keep up its part of the bargain. If the playing field is meant to be level,
commercial radio “service licences” should be as rigorous as the BBC’s. This is
not regulation merely for regulation’s sake. In an imperfect market such as
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5. broadcasting, regulatory intervention is a necessary fact. If you ignore the
economics, you experience market failure in the long run. This is a large part of
the reason why local commercial radio’s market share has fallen to its lowest
level since 1993, despite a doubling of the number of stations.
[First published in 'The Radio Magazine', #677, 30 March 2005, pp.10-11]
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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