Media Forum: Is GCap's new strategy wise?

Is cutting advertising on Capital FM a clever revival tactic, Alasdair Reid asks.

We're only guessing, of course, but at Campaign last week we had a suspicion that City investors were trying to tell Ralph Bernard something.

Within minutes of GCap's chief executive releasing a statement detailing his "root and branch" recovery plan, the group's share price was in freefall.

By the end of the day it had fallen by 17 per cent.

Some companies lose the knack of conjuring up good news but Bernard must feel he can't win. Something needed to be done at GCap and, as it has turned out, he must feel he was damned if he did and damned if he didn't.

But the share price wobble will be forgotten, clearly, if Bernard's radical proposals work. First, he has decided to sell off some non-core properties - nine analogue stations in the South West, North West and Wales. For a powerful media owner that has been leading the consolidation trend in its sector, selecting a reverse gear could seem like an admission of defeat.

Most observers say it makes sense, though, especially if the money raised helps to fund more important initiatives.

Second, there's a bit of portfolio management, most notably the rebadging of Beat 106 and The Storm as Xfm stations, which means the brand will now look more like a national network. Also, Capital Gold stations will be merged with the digital Life station to create, again, one national brand.

All of which improves the group's focus - and has met with pretty much wholehearted industry approval. But its most controversial proposal did not. This is its determination to revive the fortunes of its flagship London station, 95.8 Capital FM (now to be rebranded simply as Capital Radio), by cutting its advertising inventory by a mind-boggling 50 per cent. From the second week in December, it will never run more than two ads in a row.

Cutting down on clutter will perhaps please advertisers and audiences alike. It will almost certainly be costly over the short term - loss in revenues is likely to be around £7 million in the year to March 2007 - but over the long term, Bernard hopes, the strategy will be fundamental in helping to revive group fortunes.

Is he right? Steve Huddleston, the head of media at BT, thinks so. He states: "This (cut in advertising inventory) is radical but welcome. Long term, it has to help radio's effectiveness and I just hope they stick with it. We've seen initiatives on TV in the past - for instance, UKTV - which haven't lasted. It has to be pitched in terms of the greater cut-through you are likely to get and, as far as I'm concerned, it's the right thing to do. The medium in general has been suffering and it needed a step-change."

Mike Buckley, the head of radio at ZenithOptimedia, says selling some peripheral stations makes eminent sense because it will allow the group to focus on its core products. And he agrees with Huddleston when it comes to the new advertising model.

He says: "Advertisers will certainly approve of this (advertising proposition), given that London is such a congested market and everyone is talking about the effectiveness of advertising in that environment. Hopefully it will appeal to listeners too. It's very important, though, that they do research to show if it is working because the relevant Rajar figures won't be available until the summer."

Jonathan Barrowman, the head of radio at Initiative, agrees that reduced clutter will give advertisers greater cut-through and advertisers will welcome that prospect. He adds: "There's also clear evidence from Rajar that when you reduce advertising minutage, your audiences improve - and in America it has helped commercial radio fend off a threat from subscription radio, which doesn't carry advertising. So we know the strategy can work. But my view is that this can only be part of the solution and actually they also need to invest more in programming, especially at Capital FM."

Paul Richards, a media analyst at Numis, agrees that the proposal to run less advertising is certainly an interesting one. However, he warns, it seems a rather big gamble. He comments: "This is a very brave move and there's not much doubt that it will go down well with listeners. Advertisers will like it too - they will look forward to having the same spot in the same place but without the clutter. But the focus in the City, as always, is on profitability and you'd have to make bold predictions on audience growth to justify this sort of strategy."

YES - Steve Huddleston, head of media, BT

"Clear Channel has been doing something similar in the US and they have been successful so perhaps the risk isn't as great as you'd think. When you've lost half your audience in five years, as Capital FM has, then the greater risk would be in doing nothing. From an advertiser point of view it has to be seen as a positive thing.

YES - Mike Buckley, head of radio at ZenithOptimedia

"GCap had to do something given what's happened over the past six months. There's a feeling that they have reached rock bottom and that this (reduction in advertising minutage) may well be a way forward. It's good to see a clear vision emerging. The market needs a strong GCap and hopefully this will see its fortunes revive."

MAYBE - Jonathan Barrowman, head of radio, Initiative

"Clutter is certainly an issue from an advertising point of view but it's not just the amount of jingles and ads that has been putting listeners off. Capital is London's heritage station but it has lost its way so there needs to be much more focus on programming. Now there's every opportunity for that to happen."

NO - Paul Richards, media analyst, Numis

"In terms of profitability, you would have to see a dramatic improvement in audiences for Capital Radio to claw back the revenue it loses by running less advertising. It's similar to a newspaper price war. If you cut the price significantly, does that necessarily result in a dramatic increase in circulation?"

- Got a view? E-mail us at campaign@haynet.com.

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