The sound of radio silence

f2_120When Channel 4 won the licence for the second national commercial multiplex in July last year, the excitement across the radio industry was palpable.

The widely expected win by 4Digital Group, a consortium that also includes Bauer Media, UTV and Carphone Warehouse, was lauded as a much needed shot in the arm for the commercial radio sector, which had experienced several tough years.

That combined with the then recent acquisition of Chrysalis Radio by newcomer Global Radio, led by former ITV chief executive Charles Allen and radio new boy Ashley Tabor, prompted many to feel that the sector had turned a corner and gained renewed momentum. It led some industry observers, including RadioCentre chief executive Andrew Harrison, to declare that radio was “sexy again” (MW July 2, 2007).

But a year later and not only has 4Digital failed to launch any stations, the industry is now questioning the future of DAB as a platform, and whether a second multiplex should have been awarded at all. Following GCap Media’s decision in February to scale back its investment in Digital One, as part of then chief executive Fru Hazlitt’s plan to ward off Global’s takeover bid, the platform is looking unlikely to be a major money spinner for Channel 4 in the short term.

Jonathan Barrowman, head of radio at Initiative, says: “We all know the rationale behind GCap’s move but it came at a bad time for Channel 4. Suddenly there wasn’t a scarcity of spectrum but an over supply. It has led to negative questions like can DAB work?”

4Digital is now understood to be in talks with Global, which won its bid to takeover GCap, about launching stations on Digital One. One now broadcasts only TalkSport, Virgin Radio and Classic FM. If a deal can be reached, it is thought a station, most likely E4 Radio, could launch next spring. 4Digital declined to comment.

While, in the main, the industry remains supportive of 4Digital and optimistic that it will make a positive difference in the long term, privately there is growing frustration within media agencies and, according to insiders, other radio groups, including some consortium partners, about the slow development and lack of communication.

“It’s a disgrace,” says one media agency insider. “Channel 4 came in knowing what the market was like. They knew the penetration figures [for DAB].”

Another radio industry observer agrees that the industry has every right to feel let down. He explains: “In the year prior to the bid, we all saw [4Digital chairman] Nathalie Schwarz at conferences talking about the problems for commercial radio. She hammered that point. But then, over the horizon the cavalry, Channel 4, was coming.”

Others are more generous about the bid, pointing out that while GCap delivered the biggest blow, the severe downturn in the advertising market has also hampered Channel 4’s plans. Alongside that, Channel 4 has been forced admit that it will have up to a £150m deficit in its budget by 2012. It simply cannot afford the outlay to build the DAB network to get Digital Two off the ground.

“Market conditions have conspired against the strategy they put forward,” says Initiative’s Barrowman. “But if Andy Duncan [C4 chief executive] wants public money to fulfil its public service broadcasting remit, it can’t then spend millions building a DAB network.”

He does concede that “in hindsight the proposals may have been unrealistic” and that the bid underestimated the amount of time it would take to get the right people in place for a launch. So far, C4 has brought in Bob Shennan, the former controller of BBC Radio Five Live, as director of radio, and at the end of August, it confirmed the appointment of Simon Daglish, head of national sales at GCap, as commercial director (MW July 10).

But, says the industry insider, these are not issues that have only just come to light: there were obvious problems in the original proposals. He adds: “There was no substance, it was obvious when the bid went in. It was a good sales pitch but it didn’t deal with reality.”

There are widespread accusations that the consortium told Ofcom what it wanted to hear. The industry insider says that Schwarz, the former director of strategy and development director at GCap, “knew exactly what the problems facing DAB were” and the costs that were involved, even if GCap hadn’t retreated and “even without all of the market conditions”.
He adds: “They did exactly what the existing operators did when they bid for analogue licences: saying that they will break even in three years.”

But while he believes that 4Digital “should have been honest about it being a long-term strategy”, it is not entirely to blame; Ofcom must share the responsibility. Grant Goddard, radio analyst at Enders Analysis agrees. “Ofcom also knew the situation with DAB. I don’t understand why it went ahead with the second multiplex only for the Department of Culture, Media and Sport to call a year-long review into the platform’s future,” he says.

The DCMS is due to report back later this autumn but its remit does not cover the content of stations. It is widely agreed that compelling content is required to wean listeners off FM and on to digital – perhaps the main reason why Channel 4 was so enthusiastically welcomed. Channel 4’s role was to bring the innovative and fresh, if hit-and-miss, approach to TV programming to radio. A senior radio figure says: “If the DCMS is not allowed to look at the biggest factor affecting DAB’s success, its report can only be hypothetical.”

With the reported talks with Digital One ongoing and at least some staff in place, another radio expert believes that 4Digital is showing signs of moving in the right direction. He believes the consortium is “only doing the right thing – we don’t want them to launch half-cocked.”

But if that is the case, it will still be some time before Channel 4 will be in a position to bring its content to radio, or to offer the cross-promotional benefits that should promote the digital radio platform as well as its services.

With digital listening accounting for 17.9% of all radio listening and DAB accounting for 11% of that (Rajar, second quarter figures to June 22), and with the BBC not planning to add to its six digital services, only commercial radio can be the driving force to push DAB forward. But since its launch ten years ago, other platforms and devices for listening have been introduced and are threatening to outstrip it.

“I wonder,” says Goddard, “if in the long term Channel 4 harbours the idea that just owning the spectrum will be valuable.”

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