Digital Explosion

November 15 1999 was a milestone for commercial digital radio, it was the date it launched in the UK. One year on, London alone has launched 38 digital radio stations, 11 of which are news stations; the BBC has just announced another five digital services, and Capital Radio is the proud owner of a substantial number of local digital licences and the first three multiplexes – in London, Manchester and Birmingham.

Investment in digital radio by broadcasters and marketers to date has been remarkable by any standards, but there are no guarantees that digital radio will succeed as a medium. Unlike digital TV, the Government has implemented no guidelines for digital radio or switch-off dates for analogue, there is no revenue from the medium as yet and digital radio sets have been so expensive as to be virtually prohibitive. Can digital radio really live up to the hype and convince consumers of its qualities?

Piers Skinner, marketing director at the Radio Advertising Bureau (RAB), the marketing arm of commercial radio, says: “Digital radio was always expected to start slowly, and in that sense there has been no disappointment.

“There is no massive rush to change commercial radio at the moment because it’s very successful – there’s still no shortage of bidders for terrestrial licences. However, you can’t ignore technology and it’s only a matter of time before digital becomes a reality.”

Quentin Howard, chief executive of Digital One, the company responsible for the only national commercial multiplex in the UK, and the organisation which is playing a significant part in marketing digital radio, agrees.”Like any new idea, piece of technology or business, digital radio will take time to get off the ground,” he says. “We are the first country to have an established digital radio market, and being first at anything is territory for the brave. Only two years ago, even the larger radio groups were sceptical about digital radio, but not any more. Everyone is saying that it’s hard work – the last time broadcasters had to worry about radio hardware was in 1922 when radio first launched.”

Capital Radio director of strategy and development Sally Oldham believes the digital revolution is proceeding as fast as the system will allow. “You can’t rush something this big. Until June this year there was no national digital output and now we have a platform for broadcasting digital radio. From this month, a new multiplex will come into operation on average every six weeks, and this has given broadcasters the incentive to put power behind digital,” she says.

Although most people agree there are benefits to digital, some would argue that with Internet radio becoming more popular, the timing of its arrival is less than perfect. “When digital radio was created, I don’t think the Internet, new media, and the speed with which it has been realised, was taken into account,” says Simon Beales, managing director of promotions specialists Minds Eye. “Ultimately the future of content is choice. It’s very much about modes and moods. Over the next five years people will become their own programme directors, and will decide for themselves what they want to see and hear.

“Most radio groups went into digital because they were encouraged to do so by government, which tells you how many commercials you need a minute and what your format should be. Internet radio isn’t regulated, and I believe this is why it will overtake digital radio. With Internet radio you can incorporate sponsorship, programming and branding, you can have however many commercials you want – you’re not restricted in the same way. Digital radio just doesn’t offer the choice of Internet radio.”

But Howard argues that digital has distinct advantages over Internet radio that will ultimately see it winning the battle. “People over-hype Internet radio,” he claims. “It will form part of people’s listening as it’s an alternative way of delivering content, but you can’t take your computer into the shower, and you’re going to need a very long piece of telephone wire in your car. The practicalities just don’t work.

“There are also real issues about the network blocking up – the Internet has lots of bottlenecks, and if everyone listened to the radio on the Internet the whole thing would fall over. The cost difference is also substantial. If, for example, everyone listened to Terry Wogan for an hour on the Internet it would cost about £40m in telephone charges. I can deliver it digitally to any number of people for £75 a hour.”

Although digital radio claims to be the cheaper option, it still has to be paid for, especially as it has limited revenue at present and will need to recoup at some point; and, unlike television, subscription is not an option. “The only way that we as an industry can get our money back is through advertisers,” says Howard. “First we have to create critical mass in the digital radio market, and only then will we have an advertising proposition. For advertisers, digital radio is a project for tomorrow, not today. It is a tremendous opportunity for them, however.”

So getting advertisers to sign up then is essential. As a result, the incentives for advertisers must be versatile. The largest bonus appears to be its text capabilities, where an ad will not only be heard, but telephone numbers, website addresses and other basic details will be sent to the listeners’ radio in text form to be used immediately or stored for later use. There are also plans to show pictures and even transmit websites over the radio in the future. The immediate problem is that none of this can happen yet.

“There will be good data services by the middle of next year – we’ll have something to talk about by then,” says Paul Brown, chief executive of the Commercial Radio Company Association. “Advertising will have no impact at all until we have enough listeners. Once we have those, the advertisers should be on board by 2003.”

Unlike computer technology, digital technology has been around for a long time, and as such it won’t go out of date – it is a stable technology for which obsolescence is not an issue. Digital evangelists are putting a lot of their faith into manufacturers building technology that can incorporate digital radio.

“The digital industry is looking to car manufacturers, Aiwa, Sony and mobile phone operators to make the product and drive digital development. Mobile phone companies especially tend to be quick to respond to demand,” says Skinner. “The industry needs to get to a point of at least 90 per cent ownership before they can switch off analogue. At present the digital chip is quite large, but by mid-decade there will be a palm pilot that, as well as your organiser, is a phone, a radio, a TV; and it will all be driven by satellite broadband.”

The other real problem that has threatened digital radio’s future is price. Until recently, a digital radio would set you back a cool four figures – a price barrier that left the average unpretentious plastic cheapie in the kitchen in a position of impregnable strength. “The reason people love radio is because you can get your £5 transistor and access is free,” says Beales. “People aren’t too worried about the quality because it’s about accessibility. I genuinely don’t know whether people’s consumer habits are such that they will replace all seven or so radios in their house with digital, just to get a better sound.”

Howard believes that Imagination Technology’s digital radio, which has just come onto the market at £299, is the beginning of the change that will make it accessible to most markets. “The fact is, six months ago you couldn’t get a digital radio for less than £600 and now they are half that,” he says. “We also know from discussions with manufacturers that the price will continue to drop, maybe by as much as 50 per cent a year.”

So, if digital radio becomes affordable to the consumer, irresistible to the advertiser and lucrative for the manufacturer, it may only be a matter of time before analogue becomes a thing of the past. In order for this to happen, much educating, notably by Digital One and broadcasters, has to be achieved, and the Government may need to take a risk and propose similar guidelines to those being implemented in TV.

“One year on, there’s been a lot of work and commitment to making digital a reality, both financially and educationally,” says Capital Radio’s Oldham. “We’re not looking for a deadline from the Government, but we do need clear guidelines as to when and how a switch-over from analogue could be achieved. The radio industry as a whole will continue to work to make digital happen, but we need help, both from the Government and from retailers, to ensure its success.”