Presentation outlining significant business and economic market trends within the UK commercial radio broadcasting sector, written by Grant Goddard in February 2007 for Fidelity Investments International.

1. UK COMMERCIAL RADIO
TRENDS
Grant Goddard
radio specialist
www.grantgoddard.co.uk
February 2007

2. Grant Goddard
Agenda

UK commercial radio revenues

UK commercial radio issues

UK commercial radio listening

UK local commercial radio

Digital-only radio stations

UK radio listening by platform

radio specialist
UK commercial radio companies
UK Commercial Radio Trends © Grant Goddard: February 2007
2

3. Grant Goddard
UK commercial radio revenues
radio specialist
COMMERCIAL RADIO REVENUES (£m curre nt price s)
800
Branded Content
700
National A dvertisers
Local A dvertisers
600
500
400
300
200
100
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
0
[Source: Radio Advertising Bureau]
2005 revenues
2006 revenues
Q4 2006 revenues
down 4% year-on-year
down 5% year-on-year
down 10% year-on-year
“Radio advertising has stalled, both in absolute terms and as a share of total advertising. We believe this is
being partly driven by a process of structural adjustment in favour of new media, a trend we believe will
continue, putting huge pressure on the commercial radio sector and, in particular, local stations.”
[Peter Davies, Director of Radio & Multimedia, Ofcom, Jan 2007]
UK Commercial Radio Trends © Grant Goddard: February 2007
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4. Grant Goddard
UK commercial radio advertising forecasts
radio specialist
Radio advertising forecasts
(%)
ZenithOptimedia
forecasts
Dec 2006
Group M
forecasts
Nov 2006
Opera
forecasts
Nov 2006
Radio Centre
Jan 2007
2007
0.9
1.1
-2.0
6.4
2008
1.8
2.5
6.4
2009
1.8
3.0
6.4
 2006 revenues were £581m (RadioCentre estimate)
 OPera forecasts £627m by 2009
 RadioCentre forecasts £700m+ by 2009
Ofcom: “Some people may argue that these problems are due to cyclical factors and that the industry will
recover in the next advertising upturn. But we believe the changes happening in the radio industry may be
more structural and may need to be addressed in the interests of listeners.” [Nov 2006]
GCap Media: “Commercial radio revenues have been impacted in recent years both by fluctuating trends
in overall spend, as well as the growth of internet advertising. These changes are structural and are likely
to continue for the foreseeable future.” [Dec 2006]
UK Commercial Radio Trends © Grant Goddard: February 2007
4

5. Grant Goddard
UK commercial radio issues
radio specialist
Advertising agencies have issues with radio
 “You can’t assume that, because a certain age group has grown up with commercial radio, it will stick with
it. You have to keep your audience by giving them good programming. Younger planner buyers now have a
negative perception of radio – how it’s losing listeners and the audience measurement system is
inadequate.” [Erica Taylor, Group Buying Director, Starcom]
 “It’s a great companion medium. It’s true though that, in that particular context, programming and advertising
quality is more important than ever. Without engagement, radio becomes even easier to ignore.” [Al Young,
Executive Creative Director, St Luke’s]
 “In the last year or so, digital audiences have grown but, as a general rule, sales companies are not pushing
the opportunities.” [Howard Bareham, Managing Partner, Mindshare]
Similar views from within the radio industry
 “Radio has forgotten how to sell itself. Radio has said: ‘Oh my goodness, we have got to be more like the
internet and sell ourselves as a commodity.’ How dull is that?” [Fru Hazlitt, former CEO, Virgin Radio]
 “Radio needs a new lease of life in the hearts and minds of advertisers.” [Ralph Bernard, CEO, GCap
Media]
 “I think the way of selling and buying radio advertising needs to change, in the same way that the internet
had to change the way it sold and bought its medium. Frankly, I do think it’s archaic. All this nonsense that
goes on just to book a radio campaign. It’s a joke. It’s got to be so much easier.” [Fru Hazlitt, former CEO,
Virgin Radio]
UK Commercial Radio Trends © Grant Goddard: February 2007
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6. Grant Goddard
UK commercial radio share of listening
radio specialist
SHARE OF RADIO LISTENING (%)
60
55
50
45
40
ALL BBC RADIO
35
ALL COMMERCIAL
RADIO
2006Q2
2005Q3
2004Q4
2004Q1
2003Q2
2002Q3
2001Q4
2001Q1
2000Q2
1999Q3
1998Q4
1998Q1
1997Q2
1996Q3
1995Q4
1995Q1
1994Q2
1993Q3
1992Q4
30
[Source: RAJAR/Ipsos Media]
Long-term commercial radio audience attrition from the BBC
Growth of commercial radio listening (and revenues) during 1990s was due to a fortuitous combination of
circumstances, rather than to the implementation of competitive strategies:
 The self-destruction of market leader BBC Radio One (share fell from 23% in 1992 to 9% in 1998)
 Launch of UK’s first national commercial stations in 1992, 1993 and 1995
 Huge growth in new local commercial stations licensed
 Launch of the Radio Advertising Bureau in 1992
 Early consolidation in commercial radio industry
UK Commercial Radio Trends © Grant Goddard: February 2007
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7. Grant Goddard
UK commercial radio listening by demographic
radio specialist
Commercial radio’s ‘heartland audience’ under pressure
COMMERCIAL RADIO - SHARE OF LISTENING BY DEMOGRAPHIC (%)
share of listening
15-44
15-24 male
25-34 male
35-44 male
15-24 female
25-34 female
35-44 female
1999Q3 2000Q3 2001Q3 2002Q3 2003Q3 2004Q3 2005Q3 2006Q3
62%
60%
59%
58%
60%
57%
55%
56%
58%
55%
60%
57%
60%
57%
52%
58%
59%
55%
55%
54%
54%
51%
48%
49%
58%
54%
54%
51%
54%
49%
49%
52%
66%
71%
68%
70%
70%
69%
67%
65%
69%
67%
64%
61%
64%
63%
60%
58%
62%
60%
59%
60%
62%
57%
59%
59%
[Source: RAJAR/Ipsos Media]
The industry defines 15 to 44 year olds as the “heartland audience for the commercial sector”, but this
demographic’s share of listening is being eroded by:
 BBC Radio One’s increasing popularity amongst 25 to 34s (male share up from 23% to 27%, female share up
from 17% to 19% between Q3 1999 and Q3 2006)
 BBC Radio Two’s increasing popularity amongst 25 to 34s (male and female shares both up from 4% to 9%
between Q3 1999 and Q3 2006)
 BBC Radio Two’s increasing popularity amongst 34 to 44s (male and female shares both up from 8% to 15%
between Q3 1999 and Q3 2006)
Additionally:
 Hours listened to all radio (BBC and commercial) by 25 to 34s has fallen by 17% (1999Q3 to 2006Q3) mostly
as a result of population changes
UK Commercial Radio Trends © Grant Goddard: February 2007
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8. Grant Goddard
UK commercial radio reach and hours by demographic
radio specialist
Younger demographics drift away from commercial radio
WEEKLY REACH 15-24 year olds (% )
100%
1999Q3
95%
2000Q3
90%
25 to 34 year olds:
 Reach steady for all radio,
but in decline for
commercial radio
 Hours listened in decline
2002Q3
80%
2003Q3
75%
2004Q3
70%
2005Q3
65%
1999Q3
2000Q3
22
2001Q3
20
2002Q3
2003Q3
18
2004Q3
2005Q3
16
2006Q3
2006Q3
60%
14
55%
50%
12
A LL RA DIO
100%
AVERAGE HRS. 15-24 yr olds (hr/w k)
2001Q3
85%
15 to 24 year olds:
 Reach steady for all radio,
but in decline for
commercial radio
 Hours listened in decline
24
COMMERCIA L RA DIO
A LL RA DIO
WEEKLY REACH 25-34 year olds (% )
1999Q3
95%
2000Q3
90%
24
COMMERCIA L RA DIO
AVERAGE HRS. 25-34 yr olds (hr/w k)
1999Q3
2000Q3
22
2001Q3
85%
2002Q3
80%
2003Q3
75%
2004Q3
70%
2005Q3
65%
2001Q3
20
2002Q3
2003Q3
18
2004Q3
2005Q3
16
2006Q3
2006Q3
60%
14
55%
12
50%
A LL RA DIO
COMMERCIA L RA DIO
A LL RA DIO
COMMERCIA L RA DIO
[Source: RAJAR/Ipsos Media]
UK Commercial Radio Trends © Grant Goddard: February 2007
8

9. Grant Goddard
UK local commercial radio
radio specialist
Local radio proving uneconomic
Ofcom: “While local commercial radio may remain popular, the decline in its attractiveness to advertisers may
mean that the current business model for commercial radio – particularly for local stations – may not be
sustainable.” [Nov 2006]
Local radio faces particular challenges:
 Local commercial radio’s hours listened fell by 10% between Q3 1999 and Q3 2006
 Local advertising revenues fell by 15% between 1999 and 2006 (at current prices)
 Half of all local commercial stations lose money or make an annual profit of less than £100,000
 Fixed costs represent 70% of total operational costs for local radio
Balance sheets will increasingly require impairment adjustments to valuations of local radio licences:
 The Local Radio Company wrote down the value of its licences by £16.3m to £19.1m during year ended 30th
September 2006
 GCap Media wrote down the value of its two remaining Century stations by £7.1m before sale for £60m in
October 2006
Local radio licences offered by the regulator relatively recently will increasingly be returned:
 Star FM, Stroud (owned by UKRD) opened 1998, closed September 2006
 River FM, West Lothian (owned by Kingdom Radio Group) opened 2003, closed January 2007
UK Commercial Radio Trends © Grant Goddard: February 2007
9

10. Grant Goddard
Digital-only radio stations
radio specialist
New digital-only radio stations – driving growth on new platforms
TOP DIGITAL-ONLY RADIO STATIONS
local
DAB
national
DAB
Sky
Freeview
Group
BBC W orld Service
The Hits
BBC7
BBC 6 Music
Smash Hits Radio
Planet Rock
BBC Asian Network UK
1Xtra from the BBC
Five Live Sports Extra
Mojo Radio
Virgin Radio Classic Rock
Heat
The Arrow
Chill
Q
BBC
EMAP
BBC
BBC
EMAP
GCap
BBC
BBC
BBC
EMAP
SMG
EMAP
Chrysalis
GCap
EMAP
Hours per
week ('000)
6,275
3,810
3,496
2,514
2,453
2,363
2,333
1,804
1,272
939
937
747
744
720
554
[Source: RAJAR/Ipsos Media, Q4 2006, Asian Network excludes local TSA]
Differing strategies for new digital-only stations:
 BBC: only six brands, all national on DAB, complementary niche content, all on Freeview and Sky
 Commercial radio: 39 brands, mix of national/regional/local, mix of platforms
Too early to determine which player will benefit most from digital radio uptake:
“The BBC has had an unfair share of the analogue spectrum but digital enables the commercial players the
space to compete on a much more equal footing.” [Steve Orchard, operations director, GCap Media]
“I’m sure digital will be a contributory factor as regards audience share, but it is dependent on programming
too.” [Jeremy Found, head of media, COI]
UK Commercial Radio Trends © Grant Goddard: February 2007
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11. Grant Goddard
UK radio listening by platform
radio specialist
DAB is not the only digital platform
RADIO LISTENING BY PLATFORM (% hours)
14%
LIST EN IN G VIA IN T ER N ET
12%
LIST EN IN G VIA T V
LIST EN IN G VIA D A B
10%
8%
6%
4%
2%
2006Q2
2006Q1
2005Q4
2005Q3
2005Q2
2005Q1
2004Q4
0%
[Source: RAJAR/Ipsos Media Platform Survey]







DAB uptake has been the biggest driver of the migration from analogue to digital listening
Digital radio stations available on Freeview (11 BBC, 15 commercial) generate listening equally across all
demographics
Internet listening driven by higher broadband penetration at home and work
Mobile phone listening (via FM and DAB) will increase in importance (8% of population have ever listened
to radio via mobile phone)
55% of adult population have ever accessed digital radio at home (including 16% via DAB, 22% via
internet, 39% via digital TV)
Radio via digital TV has 22% weekly reach
Radio via internet has 12% weekly reach
UK Commercial Radio Trends © Grant Goddard: February 2007
11

12. Grant Goddard
UK commercial radio in numbers
radio specialist
COMMERCIAL RADIO GROUPS
AUDIENCE
share of
commercial
radio listening
(%)
(2006Q4)
GCap Media
EMAP
Guardian Media Group (+Saga)
Chrysalis
UTV
Scottish Media Group
UBC Media
The Local Radio Company
CN Group
UKRD
Lincs FM
Sunrise Radio





FINANCIALS
share of
commercial radio
radio
revenues
revenues (%) (£m)
(2005)
last FY
29%
34%
24%
25%
9% (+2%) 5% (+1%)
11%
12%
7%
4%
4%
2%
2%
5%
2%
3%
1%
2%
1%
2%
1%
1%
1%
1%
210.8
141.0
24.5
65.6
25.1
22.4
4.1
20.2
ANALOGUE
DIGITAL
stake in
regional or
local digital
multiplex
(no.)
stake in
national
analogue:
digital
national
analogue:
multiplex
radio pre-tax stations
local stations digital-only
profits (£m) (no.)
(no.)
stations (no.) (no.)
last FY
-47.9
33.0
1.0
10.2
4.8
4.9
2.2
1
0
0
0
1
1
0
0
0
0
0
0
55
40
10 (+5)
9
18
0
18
28
8
9
7
8
8
6
1 (+0)
2
0
3
0
0
0
0
0
1
1
0
0
0
0
0
0
0
0
0
0
0
27
18
5 (+0)
6
7
4
5
0
0
0
0
0
Top four companies control three-quarters of the market
Limited profitability within industry (local stations suffer from high fixed costs, while national stations underachieve)
GCap Media controls sole national digital multiplex
Top seven companies control access to regional and local digital multiplexes
Smaller groups have no access to digital multiplexes, and limited opportunities to achieve profitability with
analogue licences
UK Commercial Radio Trends © Grant Goddard: February 2007
12

13. Grant Goddard
GCap Media








radio specialist
Main brands: Classic FM, Capital Radio, Xfm, Planet Rock
Group revenues for Oct and Nov 2006 down 13% year-on-year like-for-like
“The current advertising market remains very difficult and visibility poor. We anticipate tough trading
conditions will persist over the next quarter.” [Nov 2006]
Launched “TheJazz” national digital station in Dec 2006
Merger of Capital Gold and Capital Life brands and re-launch due in 2007Q1
Creation of new GCap Interactive department in Feb 2007
Beta testing of interactive online station Mi-Xfm in Jan 2007
Appointment of former Virgin Radio CEO Fru Hazlitt to board
Audiences:
 No sign of recovery at heritage brands Capital Radio (share 4.7% from 11.9% in 1999), Capital Gold AM
(share 1.6% from 4.0% in 1999), BRMB Birmingham (share 7.1% from 17.0% in 1999)
Revenues:
 No indication that reduction of advertising inventory on Capital Radio has increased listening, but has cut
revenues by £6.3m in latest half year
Profitability:
 No sign of recovery, forcing sale of further assets to finance dividends
Outlook:
 GCap’s poor performance will continue and will drag down the rest of the radio sector
UK Commercial Radio Trends © Grant Goddard: February 2007
13

14. Grant Goddard
EMAP Radio






radio specialist
Main brands: Kiss FM, Magic, Kerrang!
Radio revenues for Dec 2006 and Jan 2007 down 10% year-on-year like-for-like
“In consumer media, and radio in particular, recent market conditions have been weaker than anticipated.
As a result, the outcome for the current financial year is likely to be toward the bottom end of market
expectations.” [Feb 2007]
“The only thing which is disappointing to me, and a bit of a surprise to the market, is radio. I really thought
radio would start to see some sort of recovery.” [Tom Moloney, CEO, Feb 2007]
Youth brand Kiss is vulnerable. “Advertising is going online. In 2006, advertisers bought into the lie that
kids don't listen to radio anymore. That they’re only listening to iPods and MySpace. That’s not true, but
these things are driven by sentiment.” [Tom Moloney, CEO, Feb 2007]
Launch of internet music player integrated all EMAP radio brands and makes EMAP the only group to offer
on-demand complete shows (with music) from the last 7 days
Audiences:
 No sign of recovery at heritage brands Big City Network (share 14.2% from 20.2% in 1999), Magic AM
Network (share 4.5% from 9.9% in 1999), Key 103 Manchester (share 8.4% from 20.0% in 1999). New
digital brands show promising growth.
Revenues:
 No promise of revenue growth
Profitability:
 Cuts and redundancies will maintain profitability but possibly damage listener loyalty
Outlook:
 Until new digital brands become profitable, decline of analogue brands will dominate
UK Commercial Radio Trends © Grant Goddard: February 2007
14

15. Grant Goddard
Chrysalis Radio






radio specialist
Main brands: Heart FM, Galaxy
Radio revenues for 2006Q4 down 10% year-on-year
Radio revenues for January 2007 up 5% year-on-year
“We remain confident that we are well positioned to meet the Board’s expectation of flat year-on-year
revenues for Chrysalis Radio in the 2007 financial year as a whole.” [Feb 2007]
Youth brand Galaxy is vulnerable to the migration of advertising to the internet
Heart FM is now the leading commercial radio station in London (share 7.1%)
Audiences:
 All Chrysalis analogue stations are FM, rather than AM which has lost considerable listening
 Heart FM network up (share 9.5% from 7.4% in 1999), Galaxy FM network static (share 7.7%)
Revenues:
 Potential growth on the back of Heart FM success in London
Profitability:
 Cost efficiencies last year put Chrysalis in better position than competitors
Outlook:
 Radio division could be sold off, with EMAP acquiring Galaxy and GMG acquiring Heart
UK Commercial Radio Trends © Grant Goddard: February 2007
15