RADIO: TUNING INTO CHANGE

Radio is feeling good thanks to increased listening figures, a rise in ad revenue and the industry effect of the Communications Bill to look forward to.

The radio industry must be feeling quietly pleased with itself at the moment. The sector can boast of improving its share of listening and reach according to last month's Rajar figures, while advertising has increased its revenue by 2.5 per cent year on year in 2002 to £562.8 million.It's not a bad position to be in, particularly against the troubled fortunes of other media over the past couple of years.

There is optimism about factors such as the Communications Bill promoting stronger competition within the market, the success of sponsorship and promotions continuing to plump up revenue growth and the arrival of digital radio.

The Communications Bill could dramatically alter the landscape of radio if it allows just two different owners plus a BBC station in any one region.

This would enable a single owner to have a 55 per cent share of a local market. The market is expected to start consolidating once the Bill is passed until there could be just three major players. There are mixed feelings about whether changes will take place as soon as the Bill goes through, but many think that new blood could be injected into radio.

Richard Jacobs, MediaCom's head of radio, says: "Although Clear Channel has a small stake in the UK radio market, it has a massive stake in other entertainment interests. It would be odd, given the relaxation of the ownership rules, if it didn't have some kind of interest in the radio market."

However, Jonathan Gillespie, OMD UK's head of radio, believes that weak share prices will prevent the major players from being too bullish in their initial ambitions. "None of the major groups are perfectly dressed for the dance. We are more likely to see station trade-offs, joint ventures such as the Vibe 101 deal (where GWR and SRH hold equal equity) and the reinforcement of branded network strategies."

Industry observers believe that Capital and Emap will make acquisition moves, while smaller players such as the Daily Mail & General Trust and Guardian Media Group could decide to extend their market share. However, one recent event is curbing estimates on how relaxed the rules will initially be. The recent referral of GWR's acquisition of the Galaxy 101 dance station to the competition watchdog sent shockwaves through the industry.

One area that radio is expected to continue to benefit from is the growth of advertising revenue. According to recent Radio Advertising Bureau figures, a substantial 14.8 per cent increase in radio sponsorship has helped to boost its revenues with high-profile deals for clients such as Kellogg and Woolworth's helping to swell coffers. In the final quarter of last year, advertising revenue grew by a healthy 4.2 per cent year on year, marking its fourth consecutive quarterly rise.

And agencies think this growth will continue. Gillespie says: "We envisage growth in adspend share in 2003. This will almost wholly be driven by sponsorship and promotions, an area where the medium's flexibility and willingness to blend commercial messages in editorial space give it an advantage over other traditional media, such as TV."

Linda Smith, the commercial director of Capital Radio Group, believes that improving creative output will help ensure continued growth in advertising revenue. "The thing that will keep radio growing over the next 18 months is getting to grips with creative output, which, frankly, hasn't been good enough."

Recent headlines outline the industry's struggle with its current audience measurement system Rajar. Last month Kelvin MacKenzie, the chairman and chief executive of The Wireless Group, announced the commissioning of a rival three-year survey to Rajar, using the electronic wristwatch system Radiocontrol. The radio industry in general acknowledges that Rajar will need to revise its current audience measurement system when its contract comes up for renewal in 2004. Rajar is testing technologies that could replace paper-based diaries.

Senior industry figures believe a hybrid system is likely to exist at first, and some are hopeful that in the future there will be a real revolution in the way audiences are measured. Phil Riley, the chief executive of Chrysalis Radio, says: "My gut reaction is that we will end up with a hybrid system where an electronic one and a diary are side by side, and are integrated into a single measurement unit. We would welcome a joint measurement system which would give both TV and radio listening data. It would be fantastic to be able to plan cross-media campaigns with that information."

One factor which may drive the industry in the medium term towards a more revolutionary approach is the cost implication of electronic measuring.

Justin Sampson, the RAB's managing director, says: "The reality is we may not be able to afford to go on to electronic metering. Radio pays two-and-a-half times more than any other medium on measurement."

Revolution is certainly set to come in the shape of digital radio, although it is only in the last few months that this has shown any real sign of coming to life. Priced at around £99, sales of digital radios more than doubled over Christmas with 75,000 being sold, bringing the total number of sets sold to around 135,000. MindShare's head of radio Howard Bareham predicts 300,000 sets will have been sold by the end of 2003. With digital TV and the internet both broadcasting digital radio stations, there is a growing awareness of the technology, but there are other crucial factors which will enable it to become a true mass medium. Price and appearance will be one, as Jacobs points out. "As soon as the price comes down even further to around £30 or £40 a box it will take off. I'm head of radio, and there's no way I'm going to buy one for £99. They look appalling too."

It will become mass-market when it is fully integrated into other products, according to Riley. "When it's perceived to be free to the consumer, it will be mass- market. When you can buy a Nokia phone, a car or a stereo system with it."

Digital radio's audiences are not yet large enough to go knocking on advertisers' doors and with just one digital station, One Word, signed up to Rajar, there is not a lot of hard evidence to sell to advertisers. But the feeling is that 18 months to two years from now advertisers may be offered a new premium audience from early adopters of the medium.

This year is likely to be crucial for radio. Changes in ownership, technology and measurement all point towards an industry set for a radical makeover.

RADIO'S 20 BIGGEST SPENDERS

Rank Advertiser Moving Annual Moving Annual % change

Total Jan 03, Total Jan 02, year on

pounds pounds year

1 COI Communications 19,880,180 22,593,837 -12.0

2 Sainsbury's 9,090,689 2,846,502 219.4

3 BT 8,819,184 10,137,530 -13.0

4 News International 8,695,860 4,437,878 95.9

5 Vodafone 7,048,078 6,679,046 5.5

6 Telewest Communications 5,916,719 2,261,541 161.6

7 Procter & Gamble 5,250,759 3,728,888 40.8

8 Ford 4,468,973 2,338,151 91.1

9 Toyota 4,438,056 4,665,294 -4.9

10 Renault 3,831,640 3,840,674 -0.2

11 MG Rover 3,763,763 5,025,696 -25.1

12 T-Mobile 3,737,032 3,067,368 21.8

13 Nestle 3,531,634 2,761,503 27.9

14 Coldseal 3,503,859 4,201,734 -16.6

15 Orange 3,422,126 2,215,098 54.5

16 O2 3,328,207 3,759,159 -11.5

17 Lever Faberge Home Care 2,872,598 2,262,047 27.0

18 Volkswagen 2,795,276 2,200,413 27.0

19 Department for Transport 2,788,826 1,934,643 44.2

20 PepsiCo 2,751,184 3,630,067 -24.2

Source: RAB.

THE UK'S BIGGEST RADIO GROUPS

Capital Radio Group

Capital FM, Xfm, Century Chrysalis

Heart FM, Galaxy, LBC 97.3

Emap

Magic, Kiss 100, Big City Network

Guardian Media Group

Real Radio, Jazz FM

GWR

Classic FM, The Mix Network, Vibe

Radio Investments

Vale FM, Swan FM, Spire FM

Scottish Media Group

Virgin Radio

Scottish Radio Holdings

Clyde, Downtown, Wave 105 FM

UBC Media

Classic Gold, Breeze

UKRD

Star, Pirate, Soul City

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