Will GCap survive without DAB?

When Fru Hazlitt took over as chief executive of GCap Media eight weeks ago, it immediately became clear that she would have to grab shareholder attention by being ruthless and bold.

The cost-cutting strategy she announced this week includes the sale of its 63% stake in eight-year-old digital multiplex Digital One, the closure of digital-only stations theJazz and Planet Rock, the scaling back of Xfm to a London-only station and the reduction of investment in the Gold Network, and the end of the two-ads-per-break policy.

So far Hazlitt’s “defence document” has received an uncertain response from both the industry and analysts, as everyone holds their breath for the shareholders’ reaction. Global Radio, which approached the company in December with a 190p-per-share offer, has been told by the Takeover Panel to make an offer by March 5 or it will have to wait for six months.

The news saw the radio operator’s share price close five and half pence lower at 184.25p, indicating, one insider points out, that the City believes a bid would be successful. However, as Marketing Week went to press, it had risen to 185.75p.

All about costs

Hazlitt’s target of increasing full-year operating profit margins to 12%-14% in the year ending March 2009, and to 17%-19% in the year to March 2010 have been welcomed by analysts. Paul Bates, analyst at Charles Stanley Securities, says/ “The margin has been the elephant in the room for GCap for some time.

“It never did itself any favours by going along on a single digit margin. It was necessary to address that first and really make a difference to P&L. If Hazlitt gets to the interims in November and is on course for double digit margins, then she may be able to bring some investment in.”

There have been criticisms, notably from Global, that Hazlitt’s plan is all about cost cutting and little about growth. But Phil Riley, former chief executive of Chrysalis Radio, says: “If she had presented a strategy that was about growth, she wouldn’t have been believed.”

Hazlitt’s plan to effectively pull out of digital radio has grabbed the most headlines, and has split the industry. Its commercial rivals, the BBC and digital radio newcomer Channel 4, which won the second digital multiplex last summer, have all been forced to reinforce their commitment to the digital audio broadcasting (DAB) platform.

Hazlitt says that the platform is “not economically viable” for GCap, because the slow take-up has not justified the investment it has made so far or would have to make in the future. Radio industry insiders agree that GCap was “overly exposed” in DAB but some argue that it failed to aggressively sell its digital stations or think innovatively about different models.

GCap will now focus on five key brands – Capital 95.8, Classic FM, Choice FM, Xfm and The One Network – and this will be supported on FM and broadband, which Hazlitt believes is the new platform radio listeners are most interested in. In May last year, it announced that it was planning to invest £2.5m over the next year in developing its digital offering. This week’s announcement has added nothing to the budget.

Taking a calculated risk

There is also little in the way of detail on plans for any of the core brands. Paul Jackson, managing director for Capital 95.8, is now taking control of Xfm and Choice but says it is too early to comment on the stations. It is not clear if the “revolutionary” Xu policy, which saw presenters dropped from Xfm London’s daytime schedule in favour of user-generated playlists, will be scrapped.

One senior radio industry figure describes Hazlitt’s plans as a “calculated risk”. He adds: “It is a complete reversal of [former chief executive] Ralph Bernard’s strategy, which supported digital, national brand expansion and the two-ad policy. Her view is clearly different to his.”

But Bernard is understood to have the unswerving support of GCap’s major shareholder Daily Mail & General Trust since the early days of GWR Group. The question for Hazlitt now is whether she has done enough to command the same luxury.