This year’s Communications Bill will bring about consolidation within the radio industry, but who will the big winners be? Caroline Parry investigates
Like strutting bantam cocks in the farmyard, eyeing each other with beady orbs, radio groups are circling each other, apparently ready to fly into a flurry of buyouts and mergers. The impetus for this upheaval will be the enactment of the Communications Bill in the autumn.
The first hints of how the Bill will deal with potential consolidation and which players are gearing up for acquisitions are beginning to emerge. Barely a week goes by without two radio groups being linked, and last week it was the turn of Jazz FM owner the Guardian Media Group (GMG), which was tipped to buy Capital Radio Group.
Both groups deny an approach has been made, although GMG does not rule out the possibility of a deal. It is a good geographical fit for the company and the takeover would be unlikely to flounder on competition issues. However, GMG says that it is looking at a number of possibilities, as does Capital Radio and rival groups EMAP, Chrysalis Radio, Scottish Radio Holdings (SHR) and GWR.
The Communications Bill, which will deregulate media ownership, will not be enacted until the end of the year and no one is going to suggest they are prey rather than predator at this stage. Despite the links being made between groups and the numerous expressions of interest, there have been no concrete moves towards consolidation since the Bill was published more than a year ago.
But every radio group is considering its strategic options. One radio industry insider says that continuous speculation and the corporate chest-beating signals plenty is happening behind closed doors.
The groups will also be considering the implications of the recent Competition Commission ruling against allowing GWR, in a joint venture with SHR, to take over Bristol-based station Vibe. The decision was based on the fact that GWR would handle more than 80 per cent of the advertising sales in Bristol, which would reduce competition in the market.
GWR is thought to have pressed ahead with the acquisition of Vibe, then called Galaxy 101, because it is a regional station, spanning as far as Cardiff. The area of contention, Bristol, is just one part of Vibe’s area. One radio buyer also suggests that GWR had gained confidence from Vibe in East Anglia, where it also had a dominant share of the market but was not challenged. GWR has since sold both Vibe stations to SRH.
There has been mixed reactions to the commission’s decision, with some seeing it as an example of what could happen following the introduction of the Bill, which will allow two, rather than the current three broadcasters, plus the BBC, to control a local radio market, albeit on a smaller scale. Others, however, do not think the ruling is as damning as it may have first appeared.
GWR operations director Steve Orchard says that the salient point about the Competition Commission’s report on Vibe was that it highlighted concerns about the impact of ownership on local advertisers. The commission’s concern focused on allowing one media owner to dominate a local advertising market. Its fears were that local advertisers would be squeezed out of the market if concentrated ownership meant price increases.
What is clear from the commission’s decision is that, despite any changes in media ownership laws, the organisation is still going to have the final say on which deals are approved. Consolidation of the industry will proceed as planned, but the decision shows that acquisitions will be vetoed if they lead to the overlapping of a group’s existing interests. This is good news for advertisers, who have been concerned that the Communications Bill does not recognise or protect their interests.
Orchard does not believe that the decision will greatly affect the way the industry’s consolidation will proceed, but it has flagged up a warning to radio groups with major interests in conurbations. He predicts that some radio groups with interests in major conurbations will look into selling off stations or asset swapping as a means of evading the commission.
Consolidation is not expected to begin as soon as the Communications Bill is introduced – other factors, such as the high valuation of radio shares, are making it harder for groups to extract shareholder value out of acquisitions. EMAP Performance chief executive Tim Schoonmaker says that this is not necessarily a bad thing, as radio groups can instead focus on developing their digital radio assets, which will ultimately add more value to their portfolio.
Lorna Tilbian, media analyst at Numis Securities, predicts that there will be two waves of consolidation – the first will be domestic and will take the number of players in the market to about four. The second wave, which she says is much further in the future, will see interest from overseas owners.
All the major UK radio groups have signalled their interest in acquisitions. EMAP has ruled out going on a spending spree in radio during the next year, but it is also understood to have been raising money in the City.
While the wise man counsels silence, it appears the opposite philosophy holds true for radio stations. They will continue posturing and fuelling speculation to hold up their share price and keep rivals off balance before finally making their moves at the end of the year.