Media Forum: Will radio be affected by blip?

Is the recent revenue dip worrying for the future of radio, Alasdair Reid asks.

This is a milestone year for commercial radio, not least because it is about to enter a long-awaited consolidation phase. The Capital Radio merger with GWR is first up and, with others in the pipeline, the industry's corporate organogram will look considerably tidier by the end of 2005.

Meanwhile, it will be a year in which we will start to get a real understanding of the impact that digital will have. On the one hand, it could lead to a damaging fragmentation of audiences. On the other, it could help increase the sector's share of dial space (and, therefore, audience) in its perennial battle with the BBC. There is a real land grab opportunity here - and let's not forget that commercial radio's fortunes took a great leap forward the last time its frontiers were extended, with the award of national licences more than a decade ago.

So, exciting times. Strange, then, that the medium's fortunes seem to be at such a low ebb, especially given the fact that other media, especially TV, are experiencing such an upswing. Last week, Chrysalis reported a 3 per cent year-on- year decline in revenues for the period from the beginning of September 2004 to the end of January 2005 and then compounded the gloom with a poor showing in the Rajar results - also released last week.

Emap, it has to be said, continues to be upbeat; but Capital also revealed last week that its revenues for the fourth quarter had declined year on year by 4 per cent. GWR was also downbeat, stating that January revenues would be down 4 per cent on 2004.

What's going on? Phil Riley, the chief executive of Chysalis Radio, argues that commercial radio is merely experiencing a shortlived blip in its upward growth curve. He states: "An upward trend is never completely smooth.

The industry as a whole was up 7 per cent for the first nine months of 2004 - it's just the last quarter (that didn't deliver). In fact, for many companies it was just one weak month. For us it was December but I know that for others it was November. The general feeling is that the first quarter of 2005 is more positive."

He does concede, however, that there has been a mood of uncertainty in the marketplace. "I could see some agencies not completing deals because they feel they don't know who they will be talking to following consolidation, but I think that now the Capital-GWR deal has been given the go-ahead much of that uncertainty will have been removed," he says.

Linda Smith, the commercial director of Capital Radio, agrees. She points out that the underlying trend for commercial radio is still on the up where revenue is concerned. In September, its moving annual revenue total showed a year-on-year increase of 9 per cent. The fourth quarter has flattened that curve but the rolling total still shows a 5 per cent year-on-year growth rate.

She adds: "That's not to say there aren't issues for us to face. There are still a lot of issues surrounding the question of creativity in the medium, for instance. And the BBC is still a challenge. It continues to prove itself more successful in winning and maintaining audiences. Radio is not alone - I think it would also be fair to say that other media had their difficulties last year."

Douglas McArthur, the chief executive of the Radio Advertising Bureau, says the fundamentals are still in place for radio to take a growing share of the UK ad cake. He comments: "Don't forget that in 2004 we reached 7 per cent for the first time. The fourth quarter perhaps didn't meet industry expectations, maybe because it hasn't been as outward looking as it has been in the past. Consolidation was a factor but will become less so now that the Capital-GWR merger has been given clearance by the competition authorities."

All of which sounds plausible. But do buyers themselves see it that way?

Tim McCabe, the head of radio at Vizeum, hopes this blip will serve as a wake-up call. Otherwise, the medium will lose momentum. He explains: "I think there's been a widespread uncertainty about the industry's future direction. It has been through an introspective few months. Consolidation will eventually allow the commercial sector to make the sorts of investments it needs to put it on the front foot again as regards the BBC. But in the interim, no-one really knows which stations will be central to the big companies' long-term growth plans. If they aren't fully committed to certain parts of their business, then you may find advertisers taking the same sort of view."

NO - Linda Smith, commerical director, Capital Radio

"A couple of difficult months coincided with the Rajar business (Kelvin MacKenzie's Wireless Group challenged the validity of the Rajar audience research methodology in an unsuccessful High Court action) and the whole issue of our merger with GWR but I don't think we should let a couple of months' results queer our pitch.

MAYBE - McCabe: "Prior to consolidation there's uncertainty about which stations are central to (the media companies') long term growth. If the companies themselves are not investing in their stations then advertisers won't either. Advertisers still believe radio long term but recently they may have been using it more tactically, more short-term."

NO - Phil Riley, chief executive, Chrysalis Radio

"Given the audience situation, the market is buoyant and well-demanded. The bottom line is that people are still listening to radio and advertisers still have products to sell. Things are not as gloomy as trading statements might suggest."

NO - Linda Smith, commercial director, Capital Radio

"A couple of difficult months coincided with the Wireless Group's High Court action over Rajar's methodology and the whole issue of our merger with GWR, but I don't think we should let a couple of months' results queer our pitch."

NO - Douglas McArthur, chief executive, RAB "We had an open playing field for years. There's now a lot more noise out there, so the same amount of marketing makes less impact. Long term, the picture is optimistic. When TV is strong, we generally get a carry over into radio."

MAYBE - Tim McCabe, head of radio, Vizeum

"Before consolidation there's uncertainty about which stations are central to long-term growth. Advertisers still believe in the medium long term but recently they may have been using it more tactically, more short term."

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