Which way forward for digital radio?
Last year should’ve seen digital radio finally achieve ‘must have’ status amongst the UK’s hordes of consumers. However, the medium now finds itself at a crossroads with a future mired in uncertainty. So where does digital go from here?
Ralph Bernard would be the first to admit that he walked away from radio with a few regrets. The former GCap chief executive, who resigned in December, presided over a company that suffered badly from a botched merger, a disastrous advertising revenue slump and dwindling listener numbers for its flagship Capital Radio brand.
However, Bernard may be most irked by the current state of digital radio. A committed digital radio evangelist, he committed near-heresy at a radio conference during the fag-end of his tenure by admitting that the medium has a decidedly gloomy future.
Revealing that GCap is considering dumping all of its digital stations due to high costs (it costs the company £15 million a year to run its digital operation compared to just £8 million for its analogue stations), Bernard also poured cold water on the launch of Channel 4’s new digital multiplex, often heralded as a saviour to the industry.
"Ofcom, under pressure, awarded another digital multiplex, which could put digital radio back by five to 10 years," he grumbled. "When the delicate ecology of digital radio is threatened by a flooding of capacity like this, it's a dangerous thing."
Industry gloom
So why the gloom from digital radio’s former chief cheerleader? Previously the sexy new technology on the block, digital radio is now in danger of falling into an expensive, little-listened to vacuum.
Eight years since the first mass-market digital radio was launched, the medium accounts for just 15 per cent of listening time, with the rest divvied up between the dominant FM and AM frequencies.
Listening via mobile phones and MP3 players is edging up, while the festive gift-giving period saw the total number of DAB radios sold break through the six million mark.
However, DAB sales throughout the rest of the year remain static, according to Rajar figures, while the proportion of the UK public listening to radio via the internet actually fell by 0.3 per cent to 5.1 per cent in the third quarter of 2007.
“For digital to be a success, consumers need an incentive to buy DAB and that isn’t happening at the moment,” says Amanda Barrett, radio specialist at Universal McCann.
“Quality over quantity is the way forward, we need less stations but of a higher standard. There are issues over funding, but stations need to take a risk with digital radio and be brave enough to take the first step.
“At the moment, digital stations like the Arrow, Life and Chill are simply just existing.”
Some stations are failing in even that minimum requirement. January saw the closure of both Oneword, the speech station formerly backed by Channel 4, and Core, GCap’s chart hit offering.
Both stations were no over-inflated upstarts – Oneword launched in 2000, while Core hit the airwaves a year earlier. Oneword was ultimately sunk by the arrival of BBC7, which covered much the same ground, and Channel 4’s new focus on its upcoming station launches.
However, the disappearance of Core was particularly worrying – if there was demand from advertisers and listeners for digital, would it not have been riding high now, rather than pulling in a mere 122,000 listeners in its last full quarter in 2007?
Virgin Radio provided further evidence of the expensive, low-return nature of running a digital station by ditching its Virgin Radio Groove soul offering last year and pulling its female-focussed Virgin Radio Viva from the Channel 4 multiplex.
Marketing boost
Most within the industry agree that digital needs a shot in the arm. The problems are manifold – the high cost of spreading stations across various digital platforms, the one-dimensional programming, a drop in advertising revenue and a lack of marketing.
The DRDB, the body tasked with championing digital radio take-up, admits that DAB, in particular, “hasn’t quite met” its potential. However, the group insists that it is doing all it can to promote the medium, including collaboration with the BBC, which ran several digital radio TV ads over Christmas and New Year.
“Costs are worrying for broadcasters and if there’s no profit in it, like any industry, they will review their strategy,” says the DRDB’s Mandy Green (pictured). “GCap, for example, has a lot of stations out there and is paying a lot of money for a thinly spread portfolio. It will pick out the ones that work and the ones that don’t. The pot of money is finite, you can’t fund all the stations.
“You have to get proper investment into programming and marketing. We would hope that any savings from scrapping digital stations would go straight back into proven DAB stations.”
“It took five years for one million DAB sets to be sold, but just nine months for the second million to be sold, so the penetration is there,” insists Jonathan Barrowman, head of radio at Initiative.
“There is marketing activity for it on-air, but the problem is that stations have to turn away inventory, and therefore income, to promote DAB.”
Station insiders concede that consumers currently have no real incentive to ditch analogue radios for digital ones. Radio has found migration to digital far more problematic than TV.
“We will get to the point where consumers are forced to change over to digital, but radio will take much longer to do this than TV,” admits Barrowman. “People need to start seeing DAB as just a radio, rather than it being a digital one. Freeview TV is just TV, there isn’t such a distinction between digital and non-digital.
“Stations folding like this is worrying. The likes of Chill and Life aren’t marketed, they just take up space. They would have to grow for advertisers to be interested. GCap hasn’t done enough with its spectrum – Planet Rock and TheJazz are good, but someone else should be given a go.”
Channel 4 and switch-off
The “someone else” is, of course, a reference to Channel 4. The broadcaster is set to launch three national digital stations – Channel 4 Radio, E4 and Pure4 – over the next year, with a myriad of partners, ranging from the NME to UTV, providing bolt-on stations and podcasts.
Bernard’s grumbling of Ofcom’s awarding of the national licence needs to be put into context – Digital One, of which GCap is the leading stakeholder, was allegedly promised that it would be the only UK-wide digital operator, only for Ofcom to go back on its decision.
However, there are concerns over the gobbling up of digital spectrum at a time when many stations are failing to grow their audiences. There are also doubts over how Channel 4 will fund the operation, especially as advertisers have so far been reluctant to put money into digital.
“Advertisers won’t be thinking from 1 June (the launch date of Channel 4 Radio) that they should’ve been putting money into digital radio from day one,” says Howard Bareham, head of radio at MindShare. “There certainly won’t be a huge amount of money at the launch date from advertising.”
It’s hoped that a much-hyped marketing blitz by Channel 4 will counteract any short term closures of other digital stations. Industry executives’ best case scenario is that although poorly-listened stations will drop off, the stronger stations will eventually flourish, aided by Channel 4’s commitment to promoting the medium itself and taking on the BBC.
“Digital radio is similar to Freeview in that it has niche stations much like ITV2, ITV3 and E4,” says Initiative’s Barrowman. “It’s either eat or be eaten – heritage stations are losing share so they have to appeal to niches to maintain share.
“Channel 4 has a massive advantage in this as it can now market itself via TV, as the BBC can already do. It really should be trying to convert BBC listeners. Saying that, the likes of Radio 4 are so entrenched now, Channel 4 will probably have to aim a bit younger in order to attract listeners.”
Channel 4 has moved in recent months to quash criticism that it is not putting serious money or expertise behind its stations. Bob Shennan was poached from his role as head of BBC Radio Five Live before Christmas to oversee the launch of the stations, with former Channel 4 radio chief Nathalie Schwarz promoted to a board position.
The broadcaster has a private target of attracting one million listeners in its first year, a highly ambitious figure for a digital-only station.
The programming is also ambitious. Channel 4 Radio, a speech station, will attempt to take on Radio 4 – with the Today programme, the Archers et al – while E4 will be a youth-focused station much in the mould of Xfm. Whether the stations will grow the digital universe or simply cannibalise the existing audience remains to be seen.
“Channel 4 has a hell of a challenge on its hands, but Bob Shennan is going there which is a great boost for them,” says Mark Friend, controller of multi-platform and interactive at the BBC. “It is going to have to invest carefully, as speech isn’t cheap.
“The commercial sector does have a difficult ad market, but I would question whether there has been investment in the right content until now. Channel 4 will need to invest for the long term, like it would do with other media.”
Regulator Ofcom, which awarded the second national digital multiplex to Channel 4, is keeping its fingers crossed as much as anyone that the new stations achieve the twin goals of growing digital and challenging the BBC.
“We are essentially in a holding position at the moment until Channel 4 arrives on the scene,” admits Peter Davies, director of radio and multimedia at Ofcom. “The recent negative stories are not great, but the overall picture is positive. A lot of work is going on and there is a lot of be excited about.
“We understand the problems and it must be de-motivating for the stations. Digital needs more investment in content and Channel 4 will help kick-start this.”
Another obstacle to digital growth is what’s known as the ‘in-car problem’. The vast majority of the UK’s 33 million cars do not have digital radio, with many new models still favouring analogue over digital radios.
Although the DRDB claims that “more manufacturers than ever” are installing DAB as standard and a “very big deal” with a major car brand is imminent, there is concern that such a large proportion of listening time is still denied a digital presence.
“Car radio technology is so far behind that until they make it standard in new models it will be a big downfall for digital,” says Barrett at Universal McCann. “This is such a big area for advertisers too as people spend so much of their radio listening time in the car, so getting in-car digital in place would be a huge benefit.”
Sources at the car companies point out that cost is an issue – drivers do not want to pay an extra £400 just to get a few more radio stations. Radio is low down the priority list when selling a car and any large-scale installation by manufacturers would need co-operation beyond the UK.
“Cars are part of the penetration problem and we are talking to manufacturers about getting DAB installed as standard,” says Ofcom’s Davies. “We are also talking to regulators across Europe to get some sort of pan-European understanding on the issue, as obviously car manufacturers work across continents rather than just individual countries.”
A switch-off date for analogue would undoubtedly give car manufacturers, consumers and the stations themselves, a shove in the direction of digital. It’s something long campaigned for by Bernard, in order to break the Catch 22 situation whereby stations cannot invest in stations because they are not attracting listeners or advertisers, thereby causing the stations to die from a starvation of cash.
However, with DAB penetration still just 20 per cent, most industry insiders agree that a switch-off date is a long way off. The situation is markedly different to TV, with many people having six or seven radios in their homes that would suddenly become obsolete.
Ofcom isn’t keen on ditching analogue, despite industry pressure. The regulator even refuses to set a penetration target, say of 50 per cent of the population, for a switch-off.
“A switch-off date hasn’t been set due to consumer interest,” states Davies. “While consumers don’t all have digital, it’s hard to set a switch-off date. The working group (a government body set up to analyse digital that will report later this year) will look at whether we even want a switch-off - we could end up with a mixed economy like we do with the AM and FM frequencies.”
With the switch-off avenue closed for the time being, and existing radio groups increasingly cautious over digital spending, an even greater importance is being placed upon the arrival of Channel 4. Whether the broadcaster fulfils its billing as digital radio’s saviour or not could prove critical to the future of the stuttering medium.
