Capital expansion hits the right note

Capital will face tough competition to launch itself nationwide, but many say its strategy is realistic and that it has scope to buy more stations.

For 26 years, Capital Radio has been synonymous with the sound of London’s suburbs. But the UK’s largest commercial radio group is planning to extend its reach across the country.

Capital, which owns 95.8 Capital FM, Capital Gold, 104.9 Xfm and stations across the South, West and Midlands, is about to achieve a radio presence in every major UK metropolitan area with the &£151m acquisition of Border Television and three Century radio stations plus Sun FM.

Bids will also open for analogue radio licences in the West Midlands and Yorkshire in the autumn. This, combined with the Internet and digital radio, forms the heart of a strategy designed to keep it ahead of rivals GWR, EMAP and Chrysalis.

Although it faces tough competition from GWR and EMAP, Capital has scope to buy a few more stations under the points system which governs radio ownership, whereas GWR and EMAP are close to the limit.

Last week, Capital reported a 19 per cent rise in pre-tax profits to &£21.7m for the six months to the end of March on turnover up 14 per cent, from &£52.1m to &£59.5m.

This growth was fuelled by a 15 per cent year-on-year increase in advertising revenue, with dot-com advertising accounting for nine per cent of the 15 per cent revenue growth.

As TV fragments, radio is reaping the benefits, offering a 414 per cent price advantage compared with TV advertising for adults, being compatible with Net use and reaching sought-after 15- to 34-year-olds, who make up 26 per cent of Capital’s audience.

Capital Radio managing director Sally Oldham says: “Our strategy is to have the right sort of radio stations, not just more of them.”

Oldham says Capital’s strategy for a national presence is three-pronged: through national digital station Life, which launched on January 31; putting Xfm on all of Capital’s local digital multiplexes to create a national network; and owning analogue brands in areas across the UK.

The company owns more digital licences – 20 – than any other radio group and intends to sign up for more as they appear. It has ploughed &£5.5m into its Net division, Capital Interactive, and will invest &£6.9m in Xfm, digital radio and interactive activities over the coming year.

It also plans more music Net sites – for existing radio brands and new online ones – and is interested in supplying content for Net-enabled wireless application protocol (WAP) phones.

Manning Gottlieb Media head of radio Helen Keable says Capital’s Net plans are realistic: “Capital is to offer personalised services to make content relevant to individual users, but it knows this will take six months to a year.

“It is not doing the hard sell, in stark contrast to EMAP’s cross-media packages, which bundle magazines, TV, Net and radio. They push us away from promoting radio as a targeted medium,” says Keable.

MediaCom TMB head of radio Mike Hope-Milne agrees Capital has the edge: “Its strategic business unit is fantastic and is partly responsible for increasing radio revenues so much. It doesn’t ram Capital down your throat but opens your eyes to how radio can be used.”

And radio is Capital’s forté, having learned the dangers of diversification – it wrote off &£10.75m against its profits after selling its restaurant business in September 1999.

Capital’s &£151m takeover of Border Television, pending board approval, will increase audiences by 20 per cent for a price equivalent to ten per cent of Capital’s market capitalisation.

It plans to sell the Border Television business to Granada for &£51m within three years, leaving Capital with three Century radio stations in the North-east and Sun FM in Sunderland – filling Capital’s geographical gaps.

Media buyers say Capital’s timing has been spot on – Century has built successful stations and Chrysalis, which ran the stations’ sales operations, has improved its reputation.

This is reflected in the fact that Century 105 and Century 106 increased their share of listening from 4.6 per cent and 5.2 per cent in the quarter to December 1999 to 5.9 per cent and six per cent respectively in the quarter to the end of March 2000, according to Rajar.

Keable hopes the Century brand is not tampered with: “I hope it doesn’t try to give Century that Capital labelling. Century is in the EMAP stronghold of Metro FM and Key 103, similar to what Capital offers in London. There isn’t room for more of the same. We need as many distinct brands as possible.”

Oldham says: “It is unlikely we would want to do anything which changes the [Century] brand – only enhance it. The brand can move into other areas.”

A WestLB Panmure analyst agrees: “The Border acquisition provides opportunities to develop the growing Century radio brand significantly and Capital’s track record suggests this potential can be fulfilled.”

In October, Capital restructured into London, West and South divisions in anticipation of expansion, but Oldham will not be drawn on the setting up of a new Northern division or on how the stations will be managed within Capital’s structure. “We want to talk to the staff first,” she says.

Century will pit Capital against EMAP for the first time outside London. But MindShare head of radio Howard Bareham believes Capital will rise to the challenge.

He says: “EMAP and Capital are the most progressive and respected radio companies in the market – the competition is good news, it keeps the market fresh for advertisers and listeners. Capital will definitely give EMAP a run for its money.”

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