Analysis of the new 'R.A.D.I.O.' strategy for growth launched by the United Kingdom trade association for commercial radio broadcasters and its likely failure due to the industry's declining audiences/revenues as a result of poor management decisions, written by Grant Goddard for Enders Analysis in March 2007.

1. COMMERCIAL RADIO: GROWTH
AMBITIONS QUASHED BY
ECONOMIC REALITIES
GRANT GODDARD
March 2007

2. • Commercial radio trade association launches new R.A.D.I.O. plan to
achieve 20% revenue growth, increased share of listening and
migration to digital platforms by 2011
• Radio groups implement further cutbacks and increased
centralisation to combat shrinking audiences and revenues
• In our view, commercial radio requires more than a marketing plan
and cost cutbacks – a renaissance of creativity and inward
investment are needed for radio to compete more effectively with the
increasing diversity of personalised audio content available online
Following an uninspiring performance last year (2006 revenues down 5% and
Q4 2006 revenues down 10% year-on-year), the commercial radio sector
desperately needed to start 2007 with some encouraging news. At the end of
January, the industry’s renamed trade association, the RadioCentre,
organised a one-day conference called ‘RadioActive’ that announced a three-
year strategy built around the acronym ‘R.A.D.I.O.’ which is designed “to lead
our industry’s return to growth”. The targets that commercial radio aspires to
achieve are: industry revenues to surpass £700 million by 2011 (from £581
million in 2006); share of listening to grow to 48% by 2011 (from 43.2% in Q4
2006); and listening via digital platforms to reach 50% by 2011 (from 16% in
2006). As part of this industry strategy to put radio “at the heart of
convergence”, the Radio Advertising Bureau is launching a trade campaign in
March called ‘Radio 3.0’ that will explain to agencies and advertisers how the
medium “is evolving structurally in the digital age” (‘Radio 2.0’ apparently
accompanied the introduction of television).
On the same day that radio executives were toasting their three-year master
plan, Ofcom released its forecast for total radio listening that predicts a fall
from 55 billion hours in 2006 to 53 billion hours by 2011. Ominously, Ofcom
also foresees “increasing substitution from non-internet radio to internet
radio”, with terrestrial radio listening down 8% to 49 billion hours by 2011.
Additionally, as part of its market impact assessment of the BBC’s proposed
iPlayer, Ofcom predicted that time spent listening to podcast downloads of
BBC radio shows will triple by 2011 to 600 million hours, even if only speech
content is offered. When podcasts of BBC music shows are eventually added
to the iPlayer menu (once the BBC concludes negotiation of the appropriate
rights, and if a further Public Value Test proves successful), Ofcom foresees a
“significant negative impact” on the commercial radio sector. In our opinion,
these forecasts put additional pressures on commercial radio, which has been
considerably slower than the BBC to develop on-demand delivery or
personalised radio content.
The following week, publication of RAJAR audience data for Q4 2006
revealed only a marginal improvement in commercial radio’s share of listening
from 42.8% to 43.2% year-on-year, with the remainder accounted for by the
BBC. Set against this trend, the industry’s target share of 48% by 2011 would
seem to be particularly challenging, given that audience attrition of
commercial radio by BBC radio has been almost relentless since 1998, and

3. the last time the commercial sector scored 48% was 1999. Equally
disappointing was the news that commercial radio’s share of listening within
its ‘heartland audience’ of 15 to 44 years olds had fallen from 54.3% to 53.8%
year-on-year, raising the question as to how much longer this key
demographic for advertisers will remain the commercial sector’s final bastion
of superiority over the BBC. The only ray of sunshine was that, despite
Ofcom’s gloomy outlook, total radio listening in 2006 fell by less than 1% year-
on-year, demonstrating the medium’s remarkable resilience so far against the
onslaught of online and offline audio alternatives.
Within days of the RAJAR results, two company announcements further
eclipsed the RadioCentre’s optimistic strategy for industry growth. Chrysalis
Radio, the sector’s third largest player, revealed that Q4 2006 revenues were
down 10% year-on-year, though it still remains confident that full-year 2007
revenues will be flat year-on-year. It initiated a strategic review of its radio
holdings that could ultimately result in their sale. Two days later, EMAP, the
sector’s second largest player, issued its third profit warning within a year and
admitted that “market conditions have been weaker than anticipated” and that
radio’s operating performance in 2007/08 “is likely to be below market
expectations”. Chrysalis and EMAP own the two competing youth radio
brands – Galaxy and Kiss respectively – both of whose revenues are suffering
erosion from the migration of advertising online. At the same time, younger
listeners are slowly drifting away from commercial radio, not yet in a torrent,
but nevertheless in sufficient numbers, in our opinion, to make the long-term
prognosis for youth radio brands quite grim, unless these stations find ways to
successfully reinvent themselves for the on-demand, personalised
experiences so many consumers now expect.
One such provider of customised online music, London-based last.fm, was
singled out disparagingly at the RadioActive conference by RadioCentre CEO
Andrew Harrison in his keynote speech. He cited The Financial Times’
description of last.fm as “the fast-growing online social music site” and argued
that its 300,000 unique users per month were “less than 1% of commercial
radio’s more than 40 million listeners this month”. This attempt to compare a
single, online radio business with the entire UK commercial radio industry
seems ill-advised, particularly given that two-thirds of commercial stations in
the UK attract fewer than 300,000 listeners per week. While the content
broadcast by the UK’s 300 terrestrial commercial stations seems to be
increasingly homogenous, each of last.fm’s 300,000 users has personally
created at least one distinct station to match their particular music tastes. With
such huge volumes of diverse content now available online from the likes of
last.fm, commercial radio (more than ever) needs to ensure that its own output
matches more precisely what consumers want, if it is to maintain their loyalty.
In his speech, Harrison’s main proposal for content was that the commercial
sector needs to be “seriously investing in programming and attracting big-
name talent”, as well as “innovating with new programming ideas to win back
listeners”. In our opinion, the fact that such policies need re-stating simply
highlights how far commercial radio has diverged from putting creative activity
at the heart of its business. EMAP is one radio group which should have learnt

4. the lesson that replacing local content with centralised formats only seems to
lose you listeners and, hence, revenues. The company has witnessed its
share of radio listening tumble over the last seven years from 20.2% to 14.2%
at its ‘Big City’ stations, and from 6.0% to 4.5% at its ‘Magic’ stations, with
unprecedented losses in share at its most profitable heritage stations –
Liverpool’s Radio City down from 20.0% to 14.0%, Manchester’s Key 103
down from 13.7% to 8.4%, and Newcastle’s Metro Radio down from 24.4% to
13.0% (Q4 1999 vs. Q4 2006).
EMAP’s response this January to the economic challenges facing its radio
division was to cut jobs and centralise some functions at its stations in
Scotland and Northern Ireland. Our opinion is that such efficiencies could
adversely impact the audiences and revenues of operations that had
remained largely unscathed since EMAP acquired them from Scottish Radio
Holdings in 2005. The problems faced by EMAP are ones that currently
resonate throughout the commercial radio sector. Falling audiences and
declining revenues are too often responded to with knee-jerk budget cuts and
increasingly networked content, actions that directly impact the consumer
appeal of what is designed to be an intrinsically local product, and which
simply exacerbate the audience/revenue falls in the medium term. Such
solutions tend to produce a vortex of decline from which it is difficult to
escape. Much more than television, radio is a medium that relies upon user
loyalty and trust, making each lost listener incredibly hard to tempt back.
In the cold light of these economic realities facing the commercial radio sector,
the 2011 industry targets set by the RadioCentre appear to be extremely
challenging. In our opinion, the sector desperately needs a sudden
renaissance of creativity, combined with an influx of inward investment, or it
could be doomed to bequeath a substantial part of its listenership and
revenues to ‘new’ media. Much hope rests upon the second national
commercial digital multiplex to stimulate the sector from 2008/09 onwards,
though too much faith should not be placed in new digital start-ups alone, as
old-fashioned analogue radio will continue to dominate the market for some
time. The bleak future facing existing players was well articulated by the
RadioCentre’s Andrew Harrison last October, when he warned: “It’s up to us
as an industry, whether we are the BBC or commercial radio, to make sure
that we capture that share of listened-to content, because, if we don’t,
somebody else will. Then, iTunes will end up being the biggest radio player in
the world, or Google or somebody else, because they have all recognised that
(audio) content is going to be around forever. The question is: who captures
the delivery of it and who provides the content?” In our opinion, as long as
much of the commercial radio industry continues to see its business as ‘radio’,
rather than ‘content’, Harrison’s prophecy will inevitably come true.
[First published by Enders Analysis as report 2007-17e.]
© 2007 Grant Goddard
Published by Radio Books

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