Is Jazz FM’s bid for LNR good news?

Jazz FM turned its fortunes around with strong branding and spin-offs, but taking over LNR will push brand extension to its limit

There aren’t many people who would attribute part of their success to Mohammed Al Fayed, but Jazz FM chief executive Richard Wheatly is one of them.

When he joined the company in 1996 it was desperately strapped for cash and had no direction. At the same time it was trying to support Viva!, – London radio station for women – set up the previous year.

Wheatly had no doubts about selling the station: “It was a flawed idea and the programming wasn’t good enough. We had no money in the bank and couldn’t raise any debt. It was really scary.”

Despite considering closing Viva down, Al Fayed took it off the company’s hands for £4m. Wheatly says: “I couldn’t believe it, it saved the company and gave us time to sort the business out.”

How things change. Wheatly now faces what is potentially the biggest challenge of his career, but this time it is about expansion rather than cost cutting. This month Jazz FM announced “an interest” in London News Radio (LNR), the company that comprises news station ITN News Direct and talk station LBC – valued at between £15m and £20m. Jazz FM faces competition from Scottish Radio Holdings and Chrysalis in the auction bid.

Wheatly won’t discuss the deal, but after spending the past six years developing the Jazz FM brand and launching brand extensions, it seems he is keen to start working on a new project. “My professional interest is in developing brands, and old-brand development is easier than developing new brands,” he says.

Wheatly’s success at Jazz FM is also down to the fact that he loves his work. He listened to the station before being headhunted to join it, has played piano and saxophone for years and loves jazz clubs. And to top it all, he has hosted a Monday late-night jazz show on the station since 1999. Typically, he will do the show and then work until noon.

However, Old Mutual Securities media analyst Simon Lapthorne questions whether Wheatly’s success can be replicated with LNR. He says: “The big problem with LBC is it is speech radio and the BBC does it very well. It is a tall order and it is not where the Jazz FM brand heritage comes from.

He says that although the proposed acquisition will expand the station’s audience, it is not a logical brand extension.

Wheatly says he has succeeded at Jazz FM because he has turned the company from a radio business into what he calls a “music business”. When he arrived he said he wanted to create a strategy of “360 degree brand exploitation” and he has been true to his word. In 1995 the company posted a loss of £3.18m; last year it made its first profit – a modest but significant £134,000 for the year to June 30.

Two record labels have been launched, Jazz FM and Hed Kandi, and a third, Stereo Sushi, will be launched next month. The debut Stereo Sushi album will be the first distributed by Ministry of Sound for Jazz FM, under a distribution deal signed last year.

The labels now account for 60 per cent of Jazz FM’s sales revenue, although the Jazz FM stations in London and the North-west have also increased their combined audience from 780,000 listeners in the third quarter of 1999 to 963,000 in the same period last year.

A live concert business has also been created. However, the company has shied away from opening jazz bars after a pilot bar in Liverpool – in association with Regent Inns – proved a failure. “When there was no live music [on in the bar] it didn’t generate that much interest,” he says.

All the labels have strong branding, the importance of which was hammered into Wheatly during his years at advertising agencies. He worked his way up the ranks of Leo Burnett, eventually becoming chairman, a position he held for ten years.

But whether Wheatly can make LNR financially successful given its present owners – Reuters, ITN and GWR – posted a loss of £1m last year, is a key issue. The obstacles are considerable. For instance, although LNR was granted an eight-year extension to its licence last year, any format changes will have to be approved by the Radio Authority board.

Baird media sports and leisure analyst Lisa Woodfin believes it will test Wheatly’s business skills. “Jazz FM is good at controlling costs and it will have to get rid of dead wood [at LNR]. It will be a difficult process and will take some time,” she says.

But Lapthorne argues there is scope to develop LNR, as it is losing money because it is poorly run. “It’s been a victim of its shareholding structure,” he says. “They [the owners] have had different priorities and it hasn’t had the commitment of all of them.”

Wheatly is also canny when it comes to cutting costs. In 1999 he made a deal with US radio group Clear Channel, which wanted to enter the European market, in a move that he describes as the second turning point after the Al Fayed deal.

Clear Channel took a 34 per cent share in Jazz FM for £3m. In return, Clear Channel took over responsibility for Jazz FM’s 30-strong salesforce, which was costing the company £1m a year. Clear Channel, through its subsidiary More Group, also guarantees Jazz FM three months’ poster site exposure a year.

The deal helped to reduce costs and build the brand in one stroke. If Jazz FM wins the race for LNR, Wheatly will be expected to pull off other deals like this in the future, and put his brand building skills into overdrive.

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