- Bennett, Coleman & Company Limited (BCCL), India's largest media conglomerate, acquired Virgin Radio from Scottish Media Group for £53.2 million. - As part of the acquisition, BCCL will re-launch the station under a new name and with a £15 million marketing budget later in 2008, as they did not acquire the rights to continue using the Virgin brand name. - While Virgin Radio broadcasts nationally on AM radio, its audience is heavily skewed towards London, where it also broadcasts on FM radio. The acquisition value is largely due to the London-wide FM license, which BCCL intends to use to build a successful classic rock station in London.

1. VIRGIN RADIO: NEW OWNER, NEW
NAME, NEW BEGINNING
GRANT GODDARD
10 June 2008

2. ExecutiveSummary
Virgin Radio, the national commercial radio station owned by Scottish Media
Group (SMG), has been sold to Bennett, Coleman & Company Limited
(BCCL) for £53.2 million cash. This transaction represents the first overseas
acquisition of India’s largest media conglomerate and, conversely, it is the first
example of a UK terrestrial broadcaster to be purchased by an Indian based
group. Amongst a myriad of media holdings developed over the company’s
170-year history, BCCL is a successful owner of local commercial radio
stations in 32 cities in India, a broadcast market that was only opened to the
private sector in 2000.
The transaction does not include the licence from Richard Branson’s Virgin
Group to continue using the Virgin brand name, so the station will be re-
launched with a new name and a marketing budget of £15 million later in
2008. BCCL has contracted UK radio consultancy and investment company
Absolute Radio to manage the station, and three of the latter’s directors will
assume senior management positions in the acquired operation. The Virgin
Radio name will then disappear from the UK airwaves, though there are
reports that Branson might launch a new station of that name on digital
platforms.
Although it is primarily a national radio station broadcasting on the AM
platform, Virgin Radio’s audience is already significantly skewed towards
London (where the station is additionally available on the FM platform) and
skewed towards listening on digital platforms (DAB, internet and digital TV).
Because the AM platform’s popularity for radio listening is receding, we
believe that the value of this £53.2 million transaction is largely to be found in
the London-wide FM licence that is part of the acquired assets. The present
Virgin Radio is not one of the most popular commercial radio stations in
London, but a successful turnaround strategy could increase the value of the
London FM licence alone to beyond £50 million.
Although Virgin Radio is BCCL’s first acquisition outside of India, it is likely to
be followed by others in time, particularly if the group implements its plans for
an Initial Public Offering with a listing on the New York Stock Exchange.
Despite being little known outside its homeland at present, BCCL could soon
become a considerable player in the international media marketplace, having
already demonstrated its ability to monetise the available technologies and
platforms in the Indian market.

3. Background
SMG has announced the sale of its only radio asset, Virgin Radio, to the
Times of India Group, a wholly owned subsidiary of BCCL, for £53.2 million
cash. This effectively closes one of the sector’s most protracted divestments.
In April 2007, SMG had initially announced that Virgin Radio would be sold via
an Initial Public Offering, but tightening credit markets quickly forced a
strategy re-think. By September 2007, SMG admitted that instead it was
seeking a trade buyer for Virgin Radio and negotiations with several parties,
most notably UTV (owner of national radio station TalkSport), ensued.
At the root of SMG’s problem selling Virgin Radio was the fact that the group’s
previous management team had vastly overpaid for the station in 2000 when it
acquired Chris Evans’ Ginger Media Group (which also included a TV
production business) for £225 million. In its 2006 accounts, SMG’s new
management team initially wrote down the net book value of Virgin Radio from
£163.8 million to £105 million and then, by the end of 2007, further to £55.8
million which it said would “reflect the current market value”.1
SMG expects the net proceeds of the disposal to be £50.7 million, of which
£15 million will be used to pay bank loans, £4 million will be paid into SMG’s
pension fund, £1.7 million will be retained, and £30 million or approximately
3.15 pence per share (before tax) will be distributed to shareholders.2 Rob
Woodward, SMG Chief Executive, said that “£53.2 million represents a sound
price for Virgin Radio and a good deal for SMG shareholders”.3 The only non-
core asset that remains for SMG to divest is cinema advertising contractor
Pearl & Dean, which has similarly been up for sale for more than a year.
Virgin Radio
Since its launch in 1993 as one of the UK’s three national commercial radio
stations, Virgin Radio has suffered a chequered history of poor management
decisions and unfocused strategies under three consecutive owners (see
Virgin Radio: a pig in a poke [2007-40]). The station’s audience peaked in
1994 with a 3.9% share of radio listening, but has fallen substantially since
then. Its present 1.4% listening share is the lowest of the three analogue
national commercial stations (the others are Classic FM and TalkSport) and
only slightly above that of the BBC’s least listened to national analogue
network, Radio Three (0.9%).4
Table 1
UK radio networks ranked by national listening share

4. [Source: RAJAR Q1 2008]
Part of Virgin Radio’s problem is that its licence requires it to broadcast on the
AM waveband, an increasingly old-fashioned platform whose popularity is
diminishing and whose ‘lo-fi’ sound is unsuitable for music stations. Ofcom
has forecast that “[by] around 2012, listening to AM stations in total across the
BBC and commercial sectors will probably be down to 2.7% of all radio
listening,” according to Peter Davies, the regulator’s Director of Radio.5
SMG had tried to liberate Virgin Radio from the handicap of its AM platform by
pursuing an innovative online strategy for the station, and by launching digital-
only brand extensions (Virgin Groove and Virgin Radio Classic Rock in 2000;
Virgin Radio Xtreme in 2005) on the DAB platform. Whilst the online strategy
proved spectacularly successful internationally (Arbitron had ranked Virgin
Radio as the second most listened to internet station in the US in 2003), it has
proven harder to enthuse UK audiences.6 Virgin Groove was closed in
January 2008, while the remaining two spin-offs each currently attracts less
than a 0.1% share of total UK radio listening.7
In its results for 2007, SMG noted that Virgin Radio is “performing strongly
with 87% increase in profit” which it attributed to “strong revenue growth and
lower AM licence fees”.8 SMG successfully increased Virgin Radio’s revenues
by 11% in 2007 year-on-year (while the sector was up 3% overall), despite
total hours listened to all Virgin Radio brands having fallen by 2% over the
same period. Sponsorship and promotion income, as opposed to ‘spot’
advertising, has had a greater significance for Virgin Radio, where it accounts
for 25% of revenues, than for the radio sector as a whole (17%), thus reducing
the business’ reliance on traditional audience metrics. Online revenues were
up 70% year-on-year in 2007 but still only contributed £2 million to 2007’s total
revenues of £24.0 million.9
Table 2

5. Financial performance of Virgin Radio brands under SMG ownership
[Source: SMG accounts, RAJAR. Note: Virgin Radio acquired by SMG on 14th March
2000]
The station’s cost base is benefiting from Ofcom’s announcement in 2006 that
the Virgin Radio licence fee was to be reduced by around £2 million per
annum from May 2008.10 SMG had amortised the new Ofcom terms from July
2006 onwards, so that 2007 was the first year to show its full impact. Thus,
the £2 million year-on-year increase in operating profit in 2007 is the same as
the £2 million reduction in Ofcom’s licence fee.
One of the main reasons for the licence fee reduction was that the AM
spectrum for which it is levied is becoming less valuable as listeners migrate
to digital platforms.11 Virgin Radio has long emphasised the extent of its
listening accumulated on platforms other than the AM analogue channel for
which it pays Ofcom the licence fee (whereas its digital platforms require
minimal licence fees). Nationally, SMG claimed in June 2007 that 18% of
listening to Virgin Radio was contributed by digital platforms (compared to the
then 12% sector average) while, more recently, it has claimed that digital
listening outside of London has risen to 38%.12 This infers that 65% of hours
listened to the Virgin Radio brands do not currently derive from its AM
platform.
Table 3
Listening to Virgin Radio brands

6. [Source: RAJAR Q1 2008, Enders Analysis estimates]
Not only is Virgin Radio’s listening skewed significantly away from its main
analogue AM platform, but listening is also skewed heavily towards London.
After the station had launched nationally in 1993, its then owner (Richard
Branson’s Virgin Group) complained to the regulator that the AM signal
suffered relatively poor reception quality within London. Virgin Radio was
awarded an additional London-wide FM licence that launched in 1995, with
the proviso that it broadcast a London service distinct from its national AM
station. Subsequently, this requirement has been reduced to 10 hours per day
(on weekdays) of unique output.13 Precisely half of the listening to Virgin
Radio now derives from the London market, a significant increase from nine
years ago (when it was 31%), and a far greater London skew than the UK’s
other national radio stations.14
Table 4
Percentage of listening to national analogue radio stations derived from
the London market
[Source: RAJAR]
So what has motivated BCCL’s purchase of Virgin Radio? Essentially the
greater part of the price it has paid is for the London-wide FM station, one of
only eight such commercial radio licences that serve the capital’s adult
population of 10.8 million adults, a substantial proportion of the total UK
market of 50.3 million adults. The challenge for BCCL is to move Virgin Radio
up the rankings from eleventh place in London (with a 3.3% share of listening)
and closer to the commercial sector’s leaders – Global Radio’s Heart FM and
Bauer Radio’s Magic FM (both with a 5.8% share). If this level of success can
be achieved, the London-wide FM radio station alone is likely to be valued in
excess of £50 million (the last such individual station transaction was Capital
Radio Group’s acquisition of Xfm in 1998 for £16 million).15
Table 5
Radio stations ranked by share of listening (%) in London market

7. [Source: RAJAR Q1 2008, Enders Analysis estimates. Note: estimated acquisition
price assumes 3.0x revenues]
In BCCL’s favour is Ofcom’s recent significant policy change to simplify local
licensees’ content requirements. The London Virgin Radio station is now
required only to offer a “rock-orientated station combining new music with
classic album tracks” for 25 to 44 year old Londoners, a far less onerous
format than the previous requirement to ensure that between 20% and 40% of
its output comprised of each of three sub-genres: classic rock, contemporary
rock and soft rock.16 The London market does not presently support a
predominantly classic rock commercial radio station on the FM platform,
despite the fact that more than 30% of UK compact disc sales fall into the
‘rock’ genre.17 The closest competitor is GCap Media’s Xfm brand, whose
audience is more youthful as its licence requires its music content to be
“modern rock with attitude”. Besides, Xfm has suffered significant audience
losses in London over the last year as a result of radical daytime programme
changes (see GCap Media – the end of the road [2008-01e]).18
The potential for BCCL to build a successful and profitable FM station in
London is far more significant than the potential of the national AM licence it
has also acquired. Although the AM licence extends Virgin Radio’s reach to
the remaining 39.5 million of the UK population outside of London, the
approximate £1 million per annum AM transmission cost contributes a
significant amount to the group’s £19.7 million cost base. In practice, Virgin
Radio only succeeds in reaching 1.3 million adults per week outside London,
making their acquisition cost very high for the business.19 Because it is the FM
platform that is likely to continue as the dominant broadcast radio platform for
the foreseeable future, one successful FM station in London alone could
prove a much more profitable asset than a national music station on the AM
platform.
Virgin Radio’s current AM licence expires in 2012, and it would be no surprise
if BCCL passed up the opportunity to bid when Ofcom re-advertises this
licence in 2011 and awards it to the highest bidder, particularly as the licence
will expire again in 2015. By 2012, if the DAB platform has gathered sufficient
momentum with listeners and advertisers, it would deliver an audience outside
London far more cost effectively than would the AM platform. At present, it is

8. the simulcast of the national Virgin Radio AM service that is carried on the
Digital One national DAB multiplex whereas, in the future, it would be more
efficient to simulcast nationally the content of the London FM station, making
the AM licence expendable.
The ‘Virgin Radio’ brand
As part of the acquisition, BCCL has elected to cease licensing the Virgin
Radio brand from Richard Branson’s Virgin Group and will instead launch
under a new name in autumn 2008 with a marketing spend of £15 million.20
Clive Dickens, Programme & Operations Director of Absolute Radio, which
has been contracted by BCCL to manage the new station, explained: “We are
going to create a brand new brand. In the digital age, a lot of iconic brands
and products that have flourished in the last five or ten years are new
creations”.21 This replacement of the Virgin Radio name is a strategy that we
had advocated two years ago (see UTV and SMG merger could revive
commercial radio sector [2006-e42]). The brand remains encumbered with
its historic ‘heyday’ when Chris Evans presented the breakfast show, and
qualitative research has demonstrated that the Virgin name no longer enjoys
the nexus with ‘cutting edge’ content that it used to amongst the younger
demographics (see Virgin Radio: a pig in a poke [2007-40]).
It has been reported that the Virgin Group, which had owned the station from
its launch in 1993 until 1997, might now be interested in launching a ‘new’
Virgin Radio in the UK on digital platforms. However, the market for rock
music formatted radio stations has become increasingly active. In June 2008,
GCap Media sold its eight-year old Planet Rock digital station (which had
been earmarked for closure) to entrepreneur Malcolm Bluemel for an
undisclosed sum. On 2nd June 2008, Bauer Radio re-launched its Q Radio
brand with live presenters replacing the ‘jukebox’ music format that had
prevailed since 2003. And Guardian Media Group’s new Rock Radio brand
launched initially on analogue in Glasgow in January 2007, added the
Manchester market in May 2008, and is also available in Northeast England
on the DAB platform. The challenge that Branson would face is that digital
platforms have not yet developed sufficient momentum to prove profitable for
a standalone digital radio station, so that he would have to anticipate a
sustained period of operating losses.
Bennett,Coleman & Company Limited
India’s largest media conglomerate, BCCL, started life as the bi-weekly
Bombay Times newspaper in 1838 and acquired its corporate name from
Thomas Bennett, who became its first professional editor in 1892, and his
production manager FM Coleman. The company is still based in its
magnificent Victorian offices opposite the railway terminus in Mumbai and its
flagship publication, The Times of India, remains the largest selling English
language broadsheet in the world (reported circulation 8.1 million).

9. Amongst its diverse business interests, BCCL successfully bid for and won
seven of India’s first commercial radio licences auctioned by the government
in 2000, which it launched the following year under the brand name Radio
Mirchi (Hindi for ‘chilli’). It now owns local FM stations in 32 Indian cities that
attract more than 40 million listeners and, according to the Chief Executive of
BCCL subsidiary Times Infotainment Media Limited, AP Parigi, the company
“had been looking for geographical expansion for the last four years”.22
Vineet Jain, BCCL Managing Director, said that its purchase of Virgin Radio
was “a significant step for BCCL, a first for us or any other home-grown media
company” as it “sets the agenda for the Times Group and defines our key
strategic priorities – to aggressively grow in India and cherry-pick assets and
brands around the world”.23 He explained: “In today’s world, the limitations of
geography have become irrelevant. Our strength lays in attracting audiences
and monetising them. It doesn’t matter which part of the world they come
from”.24 BCCL had a net worth of US$800 million on 31 July 2007 and
Standard & Poor’s Indian research subsidiary Crisil gave the company’s debt
an AAA rating in May 2008, citing its “robust financial risk profile and sound
operating efficiencies”.25
Although the Virgin Radio deal is “peanuts in the world of cross-border
mergers and acquisitions”, as one commentator noted, it holds significance as
BCCL’s first foreign acquisition and “could signal a wave of [deals] from
emerging markets”.26 BCCL is reported to be considering an Initial Public
Offering and an internal valuation of US$30 billion (30x revenues or 100x
operating profits) has been suggested, with a possible listing on the New York
Stock Exchange that would open up further opportunities abroad.27
Absolute Radio
Absolute Radio is a radio consultancy and investment company launched in
2001 by former Capital Radio Head of International Development Donnach
O’Driscoll and former Capital Radio Group Head of Programmes Clive
Dickens. It acquired poorly performing Liverpool station Juice FM from
troubled Forever Broadcasting plc in September 2003 for £3.1 million,
improved the station’s ratings and revenues, and sold it to UTV two years later
(in a transaction that valued the station at the same price).28
In June 2006, Absolute acquired loss-making Oxford station Passion FM from
Milestone Group for £300,000, just four months prior to Absolute being
awarded a new FM radio licence for the Oxford market by Ofcom, a station it
launched as JACK fm in October 2007.29 Absolute has re-branded Passion
FM as Oxford’s FM 107.9, though this has not yet lifted the station from its
ninth place ranking in the market (13,400 weekly reach, 1.5% share) to the
vicinity of the commercial sector’s leading station, GCap’s Fox FM (58,100
weekly reach, 15.7% share).30
Absolute has been working with BCCL for the last four years to identify an
appropriately priced radio investment in Europe that it would manage on the

10. Indian company’s behalf.31 Once the deal is completed, O’Driscoll will become
Virgin Radio’s Chief Executive, Dickens will be appointed the station’s Chief
Operating Officer, and Absolute’s Finance Director Adrian Robinson will
assume the same role at Virgin.32 While Absolute likes to paint itself as a radio
turnaround specialist, the task of rebranding and repositioning a national radio
station with a fifteen-year track record of underachievement will require
considerable tenacity and substantial financial resources.
Conclusion
It is our opinion that the BCCL acquisition of Virgin Radio, like H Bauer’s
acquisition of EMAP Radio in 2007, provides an opportunity for the UK
commercial radio sector to receive a welcome dose of investment, expertise
and enthusiasm from a successful overseas media business. BCCL negotiator
AP Parigi, who had spent six weeks in London forging the deal with SMG,
explained that “we want to be energetic participants in [UK commercial
radio’s] renaissance”.33 Despite the gloom that has attached itself to the UK
commercial radio sector in recent years, Parigi believes that “radio is an
integral part of the English way of life” and that “there is no question of it just
fading away”.34
BCCL’s success with its Radio Mirchi brand in India is often accredited to the
investment it makes in market research. The network’s Chief Programming
Officer Tapas Sen explained: "We arrive at a conclusion through market
research and focus group studies. We are strong on market genetic coding".35
BCCL has committed to spending £15 million marketing the replacement for
Virgin Radio, and says it will maintain the station’s rock music format. A move
towards focusing on consumers’ preferences is a policy that we have long
advocated for Virgin Radio and could greatly improve the station’s content.
Virgin Radio’s national AM licence is likely to prove less and less valuable to
BCCL as radio audiences continue to migrate away from the AM waveband
and from the analogue platform in general. However, the London-wide FM
licence BCCL has also acquired as part of the deal is a potentially valuable
asset that alone could justify the £53.2 million price, if the new owner can
transform it into a successful classic rock music radio station that meets the
needs of listeners and advertisers in the capital.
On a wider canvas, this acquisition is likely to be merely the opening shot of
BCCL’s international forays. The company’s AP Parigi said: “Now is a great
time to be entering the UK market and the opportunity to acquire a valuable
radio asset couldn’t have come at a better time”.36 BCCL’s presence is likely
to make the coming months particularly interesting, not only for the UK radio
sector, but for the wider media sector in which this Indian giant is actively
seeking further acquisitions.
[First published by Enders Analysis as report 2008-54.]

11. © 2008 Grant Goddard
Published by Radio Books
http://www.radiobooks.org
http://www.grantgoddard.co.uk
1 Scottish Media Group. ‘SMG Prelim Results 2007 – A Transformational Year’, press release,
3 April 2008, p.19.
2 Scottish Media Group. ‘Proposed Disposal of Virgin Radio to TIML for cash consideration at
completion of £53.2m’, press release, 30 May 2008.
3 Scottish Media Group. ‘Proposed Disposal of Virgin Radio to TIML for cash consideration at
completion of £53.2m’, press release, 30 May 2008.
4 RAJAR. Q1 2008.
5 Peter Davies, Ofcom Director of Radio & Convergent Media. ‘Future of Radio’ stakeholder
event, London, 17 April 2007.
6 Arbitron. ‘Two Classical Stations Rank Within The Top Ten Internet Stations In Arbitron’s
Internet Broadcast Ratings’, press release, 8 May 2003.
7 RAJAR. Q1 2008.
8 Scottish Media Group. ‘SMG Prelim Results 2007 – A Transformational Year’, press release,
3 April 2008, pp.1 & 4.
9 Scottish Media Group. Analyst presentation, London, 3 April 2008.
10 Scottish Media Group. ‘SMG Response to Proposed National Radio Licence Terms’, press
release, 4 July 2006.
11 Ofcom. ‘Independent National Radio licence extensions – Review of financial terms’, 4 July
2006, p.4.
12 Scottish Media Group. ‘100-Day Business Review’, press release, 27 June 2007.
Scottish Media Group. Analyst presentation, London, 3 April 2008.
13 Ofcom. ‘Commercial Radio Station Format: Virgin FM’, AL 173-1, agreed February 2008,
http://www.ofcom.org.uk/static/radiolicensing/formats/al173-1.doc
14 RAJAR. Q1 2008.
15 RAJAR. Q1 2008.
16 Ofcom. ‘Virgin FM Commercial Radio Station Format’, March 2006 & February 2008,
http://www.ofcom.org.uk/static/radiolicensing/formats/al173-1.doc
17 BPI based on Official UK Charts Company data. Rock genre contributed 36.2% of UK
album sales in 2005.
18 Ofcom. ‘Xfm London Commercial Radio Station Format’, February 2008,
http://www.ofcom.org.uk/static/radiolicensing/formats/al196-1.doc
19 RAJAR. Q1 2008. Virgin Radio adult (15+) weekly reach: UK = 2.466 million; London =
1.148 million.
20 Katie Allen. ‘SMG sells Virgin Radio for £53m’, The Guardian, 31 May 2008.
21 John Plunkett. ‘Virgin Radio: Clive Dickens looks to station’s 2001 heyday’, The Guardian,
2 June 2008.
22 Shuchi Bansal. ‘”We’ve entered mainstream media abroad”’, The Business Standard, India,
2 June 2008.
23 Sudeshna Sen. ‘Hard rock Times at Leicester Square’, The Economic Times, India, 2 June
2008.
24 ‘Vineet Jain on Virgin acquisition’, Times Now, India, 3 June 2008. video interview at:
http://www.timesnow.tv/frmVideoDialog.aspx?VName=NV9264.wmv
25 Heather Timmons. ‘Bennett Coleman buys Virgin Radio in Britain’, International Herald
Tribune, 2 June 2008.
26 Brian Baxter. ‘Indian M&A: Virgin Radio Deal a Sign of Things to Come?’, The American
Lawyer, 5 June 2008.
27 Shuchi Bansal. ‘TOI publisher plans IPO’, The Business Standard, India, 12 May 2008.
28 Absolute Radio. ‘Absolute Radio UK aquires [sic] radio station of the year in £3.1million
deal’, press release, 26 September 2003.
29 Milestone Group. ‘Disposal of Passion 107.9 fm’, press release, 8 June 2006.
30 RAJAR Q1 2008 in Oxford’s FM 107.9 Total Survey Area of 212,700 adults.
31 Ben Fenton. ‘New owners look to radio’s renaissance’, Financial Times, 5 June 2008.
32 Emma Barnett. ‘Absolute decides to ditch Virgin brand’, Media Week, 3 June 2008.

12. 33 Ben Fenton. ‘New owners look to radio’s renaissance’, Financial Times, 5 June 2008.
34 Ben Fenton. ‘New owners look to radio’s renaissance’, Financial Times, 5 June 2008.
35 Shuchi Bansal. ‘What’s in a name in radio biz? Plenty’, rediff.com, 3 June 2008.
36 Scottish Media Group. ‘Proposed Disposal of Virgin Radio to TIML for cash consideration at
completion of £53.2m’, press release, 30 May 2008.