Capital faces new wave of opposition

The arrival of new stations is altering the London commercial radio market. After many years of dominance, Capital is now being challenged and may be forced to change its bullish advertising sales stance.

The 15 redundancies announced by Capital Radio last week have to be put into context. Next month the group will create 100 new jobs when it opens the Capital Radio Café in London’s Leicester Square.

The station is on target to take about 55m in advertising revenue this year – up 15 per cent on last year. That success is all the more remarkable because the station has expanded its revenue, when its listening hours – the radio airtime currency – has declined by 20 per cent year on year.

So its redundancies are not, as one senior manager puts it, “a sign that we are on the run”. Instead, claims the company, the redundancies are the inevitable result of a changing market.

The London commercial radio market cannot be compared with any previous time in its history. Just ten years ago, there were only two commercial stations, Capital and LBC. Now there are 21 commercial services in London, and another big FM licence will be awarded next year.

A number of those stations are in less than rosy financial health. Last week, the women’s service Viva! was scrapped and became Liberty Radio. Premier, the Christian service, has had to restructure and look for fresh finance. Jazz FM has had several brand rethinks, and there are a number of other stations in London that are less publicly struggling for listeners and revenue.

The explosion in new services in London has not, however, been simply slicing the audience cake thinner and thinner. Commercial radio’s share of listening has grown from 27 per cent of all listening in London to just over 60 per cent.

The growth in audiences and new services, along with a more professional marketing of the medium, led to the much-publicised growth in ad revenues for the medium: more than 20 per cent annual growth every year for the past three years.

In London, that revenue growth lagged behind audience growth by a couple of years. The fastest period of audience growth was actually between 1989 and 1991.

During these periods of audience and revenue growth Capital made hay while the sun shone. It dominated the London market, with its FM and AM stations taking 25 per cent of all adult listening in the city in 1994. At the end of 1994, the FM service had just under 40,000 listening hours a week to sell to agencies.

However, since that peak, competition for its middle-of-the-road format has come from Heart FM and Virgin FM. At the edges of its mainly youth audience there is also Jazz FM and Kiss 100.

The listening hours for the FM services have now fallen to below 30,000. This is still a dominant position, but clearly the world has changed.

Panmure Gordon media analyst Lorna Tilbian says: “Capital has essentially had the monopoly but that is now eroding. We’ve seen revenue slow down over the summer months.”

Agencies are mixed about the seriousness of the revenue slowdown. The fact that it will come in on its 55m target indicates that something is going right, but it is believed that most of that growth – 38m – came in the first six months of the year.

To achieve that strong performance Capital’s sales team has stayed bullish in face of its listening decline. “It plays hardball and negotiates from a position of strength,” says David Fletcher, head of radio at CIA Medianetwork. “It achieves a premium in the market of at least 30 per cent.”

However, some buyers are now whispering that it is “time to get Capital”. Agencies are looking for other deals in the city to avoid its high prices or to drive premiums down.

Fletcher says: “It is very similar to ITV in that it is losing share to smaller players. It is possible to avoid Capital if you don’t need mass coverage. It is an overstatement to say there has been a huge move away from Capital, instead around the edges people are planning away from it.”

“Capital has always been bullish,” says Simon Ward, head of radio at Leo Burnett. “It hasn’t changed yet, but it will have to change. It will have to move much more towards a sales role rather than just a negotiating role.”

It is this backlash against its hard rate policy, combined with the extra competition, that has changed the market and seemingly made Capital restructure.

Martina King, Capital’s station manager, maintains that the restructure is not about cost-cutting, but for a high-performance stock like Capital its actions look like text-book yield management.

Market growth gives a company successive years of profit increase and when the market slows down, or competition increases, profitability is boosted by savings from overheads.

“Capital’s management is among the best in the business,” says a rival. “Before the likes of Richard Eyre (managing director), David Mansfield (commercial director) and Martina King, the people in radio were often second division. But they got into radio from other areas because they saw the growth that was coming a few years ago. Now they’ve seen the next phase coming and are getting ready for it.”

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