Radio – licensed to make a killing

Almost before the ink had dried on its 25m cheque to buy Melody Radio, EMAP was investigating the prospect of mounting a bid for Atlantic 252 (MW February 26). But to buy the Dublin-based Atlantic will cost EMAP, or any other suitor, between 40m and 100m. Capital Radio and Chrysalis are also believed to be interested.

This wide price range is to do with the expectation of the sellers. Just as importantly, the prices highlight the inflated value that is being placed on radio licences.

The Commercial Radio Companies Association (CRCA) published a report last week calling for a relaxation on ownership rules for commercial radio, lengthening of licence periods and a review of existing regulation. Its demands have been partly fuelled by the rising prices and anger at the way it believes the Radio Authority operates.

CRCA research and communications manager Rochelle Fox says: “Of the last 40 licence awards, not one went to a major radio group. Some people say the Radio Authority favours new applicants to the industry.”

This is strenuously denied by David Vick, deputy chief executive and head of development at the Radio Authority. “Regional licences tend to go to existing players,” says Vick. “The Authority does not have a policy on awarding licences to existing or new players. Licences go to whoever has the best application. We award on merit.”

The Radio Authority has still to award between 25 and 30 additional full eight-year local and regional licences at the rate of about two each month. That will bring the number of commercial stations operating in the UK to almost 200, which makes the values being placed on Melody and Atlantic, even at the height of the advertising market, seem inflated.

In the year to September 1997, Melody Radio reported an operating profit of just 400,000 on a turnover of 3.6m. But for EMAP, its value can be measured in the geographic strength it brings.

Melody is a good fit with EMAP’s youth brand Magic Radio, because it targets 39 to 44-year-olds. Melody is seen as a way for EMAP to develop a “middle-youth” strand for the younger 30-somethings.

Two Magic stations were launched on February 19 to serve the North-east – Magic 1152 and Magic 1170 – adding to those on air serving Leeds, Hull, Sheffield and Liverpool.

“There is potential to develop the Melody brand and how it has changed,” says EMAP Radio chief executive Tim Schoonmaker. “Everyone thinks it’s just Frank Sinatra but it’s got Lighthouse Family and Céline Dion. We will be looking at the branding and the name of the station.

“The combined 2.7 million listeners (1.7 million from Magic and the remainder from Melody) is equivalent to a national station and Melody has the crucial London market which is important to advertisers.” Advertisers will be able to buy airtime across the entire Magic stable once EMAP has standardised the commercial breaks on all the stations.

Atlantic, wholly owned by CLT UFA, is expected to make profits of 1m a year. But its value is multiplied by its off-shore status for existing players such as Capital, which still has the 87m it was going to use to buy Virgin. Atlantic is not covered by the limits on UK radio ownership and not beholden to the Radio Authority.

The upper price limit for Atlantic is based on a feeling that radio stations, such as Virgin and Melody, are being sold for serious money. But on the flip-side, Atlantic is a non-London station with 3 million listeners. When it launched it was the only station in the market to target 15 to 24-year-olds. Now there is competition from Virgin, Galaxy, several regionals, ILR FM and Radio 1, which has a younger profile than before.

“We’ll have a look at it,” says Schoonmaker confirming EMAP’s interest. Atlantic’s broadcasting abilities in the North-west of England make it a direct competitor to some EMAP stations.

CLT also has a controlling interest in Talk Radio and Country. And 19.3 per cent interest in Kingston FM, Xfm (15 per cent) and South-East Radio (20 per cent). The UK side of CLT also includes a stake in Channel 5.

Talk Radio has a national digital license which may be attractive to Capital. There is speculation that Capital may want to use it as a children’s channel. Talk is understood to be renegotiating its licence fee with the Radio Authority, believed to be 3.8m per year, which may have sparked speculation about CLT’s plans.

Industry insiders attribute CLT’s plans to sell its UK radio interests to its partnership with Bertelsmann. The German media giant had its sights set on CLT’s German TV business, as well as its profitable French radio stations when it entered into an alliance in February 1997.

CLT may also be looking for partners for some of its radio holdings. US buyers, who believe the UK radio market is underdeveloped, could be interested but they are barred from taking a controlling interest in the station.

Before Tim Schoonmaker puts away his pen EMAP could have added more radio interests to its empire.

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