Media Forum: Should a Capital-GWR merger go ahead?

What are the implications of a merger between Capital and GWR? Should advertisers be worried, Alasdair Reid asks.

The City reckons the proposed merger between Capital and GWR is a pretty decent idea. The fit, the analysts argue, is neat. For instance, it bolts a national station, Classic FM, to the strength of Capital in London, and GWR always lacked a presence in London.

Meanwhile, at a local level, while Capital-GWR will have regional hotspots where the group's stations are relatively dominant, this will not seriously compromise listener choice. The enlarged group will, in theory, be more able to offer all things to all advertisers.

And, of course, the merged company will be able to make in the region of £10 million in savings - principally by "letting staff go" from airtime sales. Other costs can be shared more efficiently, too - marketing, for instance.

All of which is good news, provided you are not an employee whose job is now on the duplicated list. Agencies and advertisers, though, will inevitably focus on the downside, won't they? A merged Capital-GWR would have a large share of the radio advertising market.

Bernard Balderston, the associate media director of Procter & Gamble, which has increased its radio spend massively over the past decade, says some of the figures he has heard do indeed give him cause for concern.

He says: "People have been talking about a 40 per cent share. If that is the ballpark in which the merger would take place, then that would be a matter of interest for advertisers. Anything that increases the concentration of media selling power has to be looked at carefully and the implications have to be thought through. We would like to hear from the regulatory authorities as to how this would fit within current broadcasting regulation."

Radio, though, is a substitutable medium, isn't it? If a media owner abuses its power, then advertisers (especially, surely, relatively new converts such as P&G) can easily walk away. It's never that simple, Balderston responds. "If the substitutability argument were followed to its logical conclusion, then (the regulatory authorities) would have no problems with one company owning the whole medium. That clearly isn't the case. There is a line. What has to be established is where that line is," he maintains.

In the City, apologists for the proposed merger have argued that what is good for television (and ITV in particular) must also be good for radio.

Advertisers tend to respond that the Granada-Carlton merger was only allowed within the framework of a very specific trading remedy.

And, of course, the further worry would be that a Capital-GWR merger would trigger other mergers, leading to a consolidation of the radio medium into three power blocs. Emap has a stake in Scottish Radio Holdings and there has been speculation that Chrysalis and Guardian Media Group would seek to join forces.

Gary Hughes, the finance director of Emap, cannot comment on any of that, but he does point out that in the past radio has suffered because it has actually been more fragmented than other comparable media. He explains: "If you are a media planner or buyer, it has been difficult to book a national radio campaign because no-one can give you a one-stop shop. With fewer players, it will make buyers' lives easier - and they too may be able to operate with fewer heads and a lower cost base. From their point of view, that will not be insignificant."

Some buyers are sympathetic to at least some aspects of the arguments advanced by media owners. For instance, Jonathan Gillespie, the director responsible for radio at OPera, comments: "I think it is important to put the nature of this proposed deal in perspective.

Radio remains a small medium and our view has always been that it needs space to breathe. When the industry was set back by the last Competition Commission ruling regarding Vibe 101 in Bristol (on public interest grounds, GWR was forced to relinquish control of the station it had initially acquired in 2002), the advertising community broadly supported GWR's view that radio was a substitutable medium and, therefore, that it was unable, even if it wanted to, to institute a monopolistic practice."

Tim McCabe, the head of radio at Vizeum, is also confident we'll see an equitable outcome. "The main concern would be about whether it would abuse its position. The new company, for instance, would have the Midlands pretty much sewn up. But I think everyone is pretty sensible about what radio delivers as a medium and what it contributes in the grand scheme of media plans. There is no place for rampant inflation relative to the real world," he concludes.

- "This will have to be looked at very carefully. Radio is not an easily substitutable medium for all advertisers. Those advertisers who use a broad spectrum of media do specific things on radio that are best done there." - Bernard Balderston associate media director, Procter & Gamble

- "Increased investment in programming will mean more effective competition against the BBC, bringing more audience into the commercial sector. More people will be able to listen to commercial messages - and that will be a good thing for advertisers and their agencies." - Gary Hughes finance director, Emap

- "There is absolutely no doubt that if you control the radio market south of the Wash, you are in a position of strength. I think we will keep a watching brief on how this may manifest itself - relaxed on the one hand, wary on the other." - Jonathan Gillespie director, OPera

- "Arguably, these days all media are substitutable. So we would welcome a deal as long as ISBA and our clients feel comfortable with it. I am confident that if called upon, the powers that be (the regulatory authorities) can be trusted to make the right decisions." - Tim McCabe head of radio, Vizeum.