The first waves of the digital revolution hit the UK this month. On October 1 Sky Digital launched with a bash for 4,000 people at Battersea Power Station. And last week the Radio Authority, which governs commercial radio, approved the Digital One consortium’s application to run the national commercial multiplex of ten stations.
But if the Sky move can be compared to shock troops storming the country, Digital One’s activity is more like a small beach landing under cover of darkness.
Many in the sector are still trying to work out exactly what the winning of this licence will mean for their industry.
Douglas McArthur, Radio Advertising Bureau managing director, says: “This is an important move, but the effects won’t be felt immediately. Digital radio does not have the consumer benefits that digital TV offers with its sports and movies.”
Digital radio gives the listener three features that they cannot get from their existing 20 analogue set: easier tuning, less interference, and more stations. However, digital radios currently cost between 600 and 800.
One source close to the Radio Authority says: “We all know that the industry is a bit sceptical about the economics of digital radio because of the long-term costs involved. Few people were surprised that there was only one bidder for the licence.”
But Digital One chief executive Quentin Howard says this indifference was all part of his consortium’s plan. He explains: “Our strategy was to frighten the rest of the bidders away. We knew if we got the three national commercial broadcasters on board that would be too strong for other consortia to fight.
“If you didn’t have them, you didn’t have a prayer. At one point we had all three of them, Classic, Virgin and Talk. At the 11th hour Virgin pulled out. But by then we had too strong a bid for anybody to challenge us seriously.”
Digital One is owned by GWR, which has a 57 per cent stake, media company NTL (33 per cent), and Talk Radio (ten per cent). Major radio players like Capital, EMAP and Chrysalis all held talks with Digital, but decided not to join the group. Sally Oldham, Capital Radio managing director, sums up a general view when she says there is more money to be made more quickly in the remaining FM licences the Radio Authority has in its gift.
Digital One, which is due to launch in October 1999, will carry ten channels on its multiplex. These will include all three national commercial stations, as well as new offerings like a rolling news station (provided by ITN), and a sports station (Talk Radio).
Three of the ten stations have yet to find a company to run them: a service specifically targeting women, a dance music station, and an arts channel. Howard claims the interest in these belies waning interest in digital radio. He says 15 companies have approached him about running these stations. Howard will put out a tender document for them next month, and hopes to name station owners early next year. Each owner will pay an annual fee to Digital One for its place on the multiplex.
Making money is thought to be Digital One’s biggest challenge. Despite the fact that most observers think it will be ten years before any of the investors see a return on their money, Digital One’s business plan states it will start to show a profit after only seven years.
Howard sees the cost of the sets as the main barrier to the service. But he thinks prices will plummet: “The sets will follow the progress of the CD player. When they were new in 1984 they cost about 600, but within three years they had dropped to just over 100. That was when sales began to take off.”
The sets will initially be bought by a mixture of early adopters. This group is likely to be made up of music fans, gadget enthusiasts, the PC owners (PCs can be turned into digital radios with a sound card), and new car owners. About 1.3 million cars will be fitted with radios over the next four years, however, Digital One still has to negotiate a deal with a car manufacturer to fit digital radios as standard.
The marketing plans for the station have been left to the GWR-end of the consortium. Apart from Howard, who is GWR’s former technical director, these plans have been developed by group marketing director Natalie Evans, and Jeff Astel, GWR’s listener brand marketer. Digital One has budgeted 4m to market itself over the next four years. In that time, it plans to target almost 8 million early adopters.
Howard says a marketing chief will be appointed in the first quarter of next year. However, the team is already thinking about rebranding Digital One, as well as taking on an advertising agency.
One source close to the marketing team says: “Although the new head of marketing does not come on board for another four to five months, the major marketing decisions cannot wait.”
Howard wonders whether to market the multiplex as a brand or as individual stations. He says: “If this was a totally new service it would make sense to go for umbrella branding. But we will have three established brands – the national stations – as well as seven new stations. We will have to see which approach works best.”
While Digital One builds its audience, Howard will look at every source of revenue, including sponsorship. He explains: “I am conscious of the trouble digital radio may have in getting on media buyers’ lists. They may need more than just spots to buy. We will look into the possibility of sponsoring whole stations.”
Those in the radio industry frequently say that the medium builds a special relationship with the hearts and minds of listeners. It remains to be seen if digital radio will similarly find a way into the public’s affections.