More Related Content More from Grant Goddard (20) 'UK Commercial Radio's Reliance On Advertising Revenues From Public Sector Makes It Extremely Vulnerable To Tory Party Budget Cut Plans' by Grant Goddard1. UK COMMERCIAL RADIO'S
RELIANCE ON ADVERTISING
REVENUES FROM PUBLIC
SECTOR MAKE IT EXTREMELY
VULNERABLE TO TORY PARTY
BUDGET CUT PLANS
by
GRANT GODDARD
www.grantgoddard.co.uk
May 2010
2. The UK radio industry divides into two main sectors: BBC radio and commercial radio. BBC
radio is funded by the Licence Fee, whereas commercial radio is funded by advertising and
sponsorship. Each adult (aged 15+) pays around £13 per annum for BBC radio via the
household Licence Fee. What is not so obvious is that each adult also contributes financially to
commercial radio by around £2 per annum via their taxes, which are then used by government
and public bodies to buy advertising time on commercial radio stations.
Commercial radio’s largest advertiser is neither BT (ranked second), nor Sky TV (third),
Specsavers (fourth) or Unilever (fifth). It is the Central Office of Information [COI], the
government’s marketing and communications arm, which spent £58m on radio advertising
(25% of its budget) on UK commercial radio in the 12 months to February 2010. To illustrate
just how significant the COI has become to the revenue base of commercial radio, it now
spends twice as much on radio advertising as the aforementioned BT, Sky TV, Specsavers
and Unilever added together. In 1999, COI expenditure had accounted for only 2% of
commercial radio revenues whereas, by 2009, it was 10%.
public sector radio advertising expenditure
0
25,000,000
50,000,000
75,000,000
100,000,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
0
2
4
6
8
10
12
14
16
18
radio advertising (£/annum) [left axis] % of total radio advertising [right axis]
The COI’s financial support of commercial radio is not the whole story. Additionally, other
public bodies such as local authorities, health authorities and development corporations also
spend money on radio advertising. In 2009, the public sector in aggregate spent £88m with
commercial radio, 18% of sector revenues [see graph]. The growth over the last decade has
been enormous – in 1999, public sector spend was only £17m or 4% of commercial radio
revenues.
This massive increase in public expenditure on commercial radio advertising during the last
decade creates three issues:
The commercial radio sector has become more dependent on the continuing input of public
funds: public bodies now spend more on commercial radio than the car industry, or
retailers, or the finance sector
It becomes harder for commercial radio to argue about the public funding of BBC radio,
when the commercial radio sector itself has become increasingly reliant upon public funds
Governments change, government budgets change, government policies change, making
this revenue stream more unreliable for commercial radio in the long term than commercial
advertising.
The issue with revenue reliability is particularly pertinent now. The Conservative Party pledged
in its manifesto to reduce advertising expenditure by government departments, if elected. The
planned cuts would be significant, 40% of the COI 2008/9 budget of £540m, according to one
press report.
UK Commercial Radio's Reliance On Advertising Revenues From Public Sector Make It Extremely Vulnerable To Tory
Party Budget Cut Plans page 2
©2010 Grant Goddard
3. UK Commercial Radio's Reliance On Advertising Revenues From Public Sector Make It Extremely Vulnerable To Tory
Party Budget Cut Plans page 3
©2010 Grant Goddard
This policy is nothing new. In 2008, Conservative Shadow Chancellor George Osborne
promised at the Party Conference that he would more than half the COI budget from £391m to
£163m. In 2005, then Conservative Shadow Chancellor Oliver Letwin promised to cut the COI
advertising and marketing budget by more than half from £308m to £108m.
For commercial radio, the impact of such cuts would prove disastrous in the wake of its recent
structural and cyclical revenue declines. A 50% budget cut to COI expenditure on radio would
lose commercial radio £26m to £29m per annum, 6% of total sector revenues. A 50% budget
cut to all public sector expenditure on radio would lose commercial radio £44m to £48m per
annum, 9% of total sector revenues.
In 2009, commercial radio revenues were down 10% year-on-year. A year earlier, commercial
radio revenues had been down 6% year-on-year. A further 9% cut to sector revenues would
reduce them to the level they were ten years ago. Already, once prices are adjusted for
inflation, commercial radio revenues are at their lowest annual level since 1997 in real terms.
Commercial radio’s growing reliance on national advertisers, of which government advertising
is now the most significant part, has increased the sector’s economic vulnerability. In 1993,
local advertisers had still constituted the majority of commercial sector revenues. By 2009,
local advertising was down to 29% of total revenues.
Furthermore, if a government were to return to the post-War COI policy of using public
broadcasters to air its Public Service Announcements, rather than paying commercial rates for
airtime, up to 18% of commercial radio revenues would disappear at a stroke.
It must be a major concern, in these times of inevitable government budget cuts (whichever
political party is in power), that the commercial radio sector’s reliance on public funds has
never been so great.
[First published by Grant Goddard: Radio Blog as 'UK Commercial Radio's Growing Reliance On Public Sector Funds',
5 May 2010.]
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