You may not have heard of Pitcher’s Theory of Inverse American Radio Audience Proportion – or Tiarap for short (short for tiara-poom-diay). It is simply this: The more letters there are in the name of an American radio station, the fewer will be the listeners to whom it is broadcasting. Thus, TNR broadcasts to 12 million, while YMR-TJBQ will have an audience of three, one of whom is deaf.
One of the delights of the American radio market – indeed, of American media – is its fragmentation. Small radio stations serve local communities and towns, often with large audiences by British standards. National broadcasters and large radio groups cannot provide the regional detail and, in any event, can co-exist easily enough since they are offering patently different services.
The story is different in the UK. There are fruitful economies of scale that can be made by lumping local radio interests together in a single corporate entity and, let’s face it, the country isn’t big enough for a diverse range of local and regional radio interests to prosper. Or so it is said.
As the Commercial Radio Convention meets this week in London, conventional wisdom has it that there is little prospective corporate growth to be found in commercial radio. The market is facing the so-called zero-sum game. With the AM and FM wavebands all but full, so the argument goes, the publicly listed commercial radio majors – Capital Radio, EMAP and GWR – have exhausted the domestic market and must look elsewhere for earnings growth.
I believe there are growth opportunities at the tightly targeted, local end of the market, more of which in a moment. And I believe the majors are not in anything like the earnings hole that their detractors would have us believe they are.
Take GWR, the Swindon-based local radio group. There are those who would point to GWR’s “invasion” of eastern Europe as a sign that British radio conglomerates must look to foreign markets to survive. GWR plans a collaboration with the BBC World Service (assuming there still is such a thing) that will secure a licence for nine news and talk radio stations in Poland. GWR would have an initial one-third stake in the co-venture and the BBC believes such deals are very much the way of the future.
That may be so, but it does not necessarily mean the domestic UK game is over. For one thing, there will be ailing radio stations to which the majors will still be able to bring their clout. Classic FM, for example, is a success story in terms of audience figures, but it can’t make money – it posted a near-2m loss last month (admittedly largely due to ill-starred overseas ventures). GWR is taking control of Classic FM, by buying Time Warner’s stake, and will doubtless bring greater financial controls to bear.
For another thing, the UK commercial radio majors have been ripping out overheads for purposes of enhancing financial performance. With little prospect of another advertising recession in the medium-term, there has to be room for some organic growth in revenues, now that they are lean and mean fighting machines.
But where the really exciting growth opportunities lie is in the market for tightly targeted, niche radio stations, providing the sort of local service that would prove too cumbersome and costly for the current majors. Those majors will claim that they can preserve local identity, but it simply does not make economic sense for them to run a fragmented and discrete network of small community and town stations.
The result, to my mind, will be the emergence of a new sort of radio business specialising in proliferating niche markets, serving towns or parts of towns. They will not carry the overhead weight of the majors, precisely because they will not be going for the huge pan-metropolitan licences (which the majors control anyhow).
When EMAP acquired Newcastle-based Metro Radio last year, the incumbent management team quit to form The Radio Partnership (TRP). The four directors know a thing or two about building major regional radio groups. Metro started as a single radio operation in Newcastle and grew to a public listing and the operation of ten licences in the North-east and Yorkshire. EMAP paid some 100m for the company.
While that is typical of EMAP’s growth strategy, it is significant that TRP is aiming for niche or local markets and, apart from residual interests bought from EMAP, has acquired eight stations in as many months in locations as diverse as Swansea, Stoke and Bradford.
It used to be said of building societies that their market would develop into one dominated by two or three majors, with a plethora of local outlets and nothing in between. But financial services do not require a local culture. Radio broadcasting does, and that market model – the majors, plus a proliferation of niche operators – is where the growth will emerge.
We might even see some of the operators of these new niche radio networks seek public listings. And that could put an end to talk of zero-sum games.