Radio companies seek record gains

Radio networks are making a play for music sales by launching record label spin-offs. But does the labels sector have much to offer?

The fact that EMAP Radio is starting its own record label (MW August 5) is evidence that radio networks are now seeking new areas to develop into, as years of high revenue growth begin to plateau.

EMAP launches its as yet unnamed label’s first single, Mucho Mambo, by a four-piece dance outfit called Shaft, on August 31.

The project is led by EMAP Radio business director for music Adam Turner (pictured). The company refuses to comment further on the project. However, last week Turner said: “This is not a deal designed to fight other record companies. We are trying to find synergies in this business.”

EMAP Radio is not alone in its search for synergies. GWR-owned Classic FM began its label, The Full Works, in 1994; while Capital Radio and Golden Rose Communications-owned Jazz FM both launched labels two years later.

Observers agree that diversification stems from the slowing down of advertising revenues.

Figures from the Radio Advertising Bureau, the Radio Authority and the Advertising Association chart the recent cooling of this sector. In June 1996 the industry turned in revenues of £292m, which rose to £328m in June 1997. In June 1998 this leapt to £389m and in June this year it was £434m. But many observers wonder how long this kind of growth can continue.

BMP OMD director of radio Jonathan Gillespie says: “Radio stations are turning into public companies that are worthy of note. And like most companies they have no intention of putting all their eggs into one basket.”

Zenith Media’s director of radio Yvonne Scullion adds: “A lot of these radio brands are now quite mature. The stations believe this can leverage them into music as a way of finding additional revenue streams.”

Jazz FM chief executive Richard Wheatly sums up the radio stations’ viewpoint. He says: “Jazz FM is not in the radio business. We want to dominate the jazz market in the UK – be that in records, radio or live events.”

At first sight it may seem strange that radio networks are pouring into the record business, which has seen scant growth over the past few years. Last year the record business was worth £1.1bn, in 1997 £1.05bn, in 1996 £1.07bn and in 1995 £1.02bn, according to figures from the British Phonographic Industry.

This does not look promising. However, growth in the music industry is not uniform. Areas such as dance and teenage pop outperform the rest of the market.

This is a gap in the market EMAP Radio believes it has spotted. Its Magic and particularly its Kiss stations have a long heritage of dance music. The company hopes to extend the dance compilation albums it puts its name to into a full-blown label.

Jazz FM is an example of a radio group successfully nibbling share at the edges of the recording industry. The group has launched three record labels – Jazz FM Records, Onion, and Hed Kandi – which have released a mixture of 30 compilation and original albums. Sources inside the company say that this now accounts for a third of the group’s £3.2m turnover.

Wheatly comments: “Releasing albums with original material carries more risk, but the great thing about it is that you own the copyright and you own all the margins the recording makes.

“It earns more money than licensing tracks from other record companies,” he adds.

However, this view is not shared by every radio brand. Capital Radio operates in the highly competitive mass pop market. Its label, Wildstar, has produced top 20 hits for acts like Conner Reeves and Lutrica McNeal. However, marketing a pop act – which includes expenses like producing a video and securing PR and airplay time – can cost anything from £500,000 to £1m.

Capital Radio programme director Richard Park admits that the network does not have this kind of money. The group can play its own songs endlessly on the stations it owns around the country to promote them. However, rival networks give Capital-backed artists as little airplay as they can get away with.

Park admits: “I am forming the opinion that other stations don’t seem very keen to play our artists.”

While Jazz FM’s labels have returned profits for each year of operation, Park says that Wildstar will do no more than break even this year.

Radio networks also believe that as Internet and other means of electronic sales become more important, so will their brands.

Classic FM managing director Roger Lewis says: “Radio stations have brands and record companies for the most part don’t. This will be important as customers try to navigate their way around the enormous amount of music available to them electronically. Radio stations have always existed in a virtual world, so this sets us in a good position for what is coming.”

Although radio stations say they are not in competition with record companies, this is not the case. Networks are preparing their stations to take a slice of music sales in areas where the brand loyalty they have built can give them the credibility to launch labels.

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