'GCap Media plc: The Titanic Of The UK Commercial Radio Sector' [incomplete draft] by Grant Goddard

GCAP MEDIA PLC: THE TITANIC
OF THE U.K. COMMERCIAL
RADIO SECTOR
[incomplete draft]
by
GRANT GODDARD

www.grantgoddard.co.uk
February 2008

INCOMPLETE DRAFT REPORT

EXECUTIVE SUMMARY
The new GCap strategy faces three overarching challenges:
1.

Write offs

Hidden in the detail of Hazlitt’s strategy document is the caveat that “the
figures contained in this statement exclude the effect of the initiatives and any
intangible write-downs, goodwill impairment, or profit or losses on disposal”.1 In
other words, the promised full-year profit improvement of £12.3 million does
not take into account any balance sheet adjustments that might accompany
the closures of theJazz, Planet Rock, Xfm Scotland, Xfm South Wales and Xfm
Manchester.2 In our opinion, these adjustments could prove significant and
might easily dwarf the promised savings.
GCap has often seemed reluctant to write down the valuations of its licences
until forced to by disposal or closures. For example, it was not until it sold its
two Century Radio stations to Guardian Media Group in October 2006 for £60
million that GCap wrote down their book values by £11.5 million.3 The longterm declining audiences and revenues of the majority of its licences (analysed
in more detail below) lead us to believe that GCap’s balance sheet remains
considerably overvalued, with the net book value of its intangible assets and
goodwill most recently valued at £402.4 million on 30 September 2007.4
GCap (and its predecessors GWR and Capital Radio) had paid high prices to
acquire radio licences, often based on their scarcity, rather than these
businesses’ ability to generate profits for their owners:
 Xfm Scotland alone was acquired for £33.7 million in 2000
 Planet Rock was valued at £6.4 million in 2006 when GCap took control,
 the greater part of the ‘Gold Network’ (which is not earmarked for
immediate closure) was valued at £4.9 million in 2007.
The closure or sale of these radio licences, however necessary to reduce
continuing losses, is also likely to demonstrate how much shareholder value
has been destroyed by GCap and its forerunners’ willingness to participate in a
radio licence ‘land grab’ until now.
2.

Listening in decline

Also missing from the new strategy document is acknowledgement that
audiences and revenues of GCap’s key brands on analogue platforms are
continuing to fall, even after the group has implemented a series of earlier
strategies designed to stop the rot. Instead, the presentation talked about how
“the ‘One Network’ enjoy[s] long-term local loyalties”, despite the audiences of
1

GCap Media. Strategy Presentation, 11 February 2008. p.7.
GCap said it will attempt to sell the three analogue Xfm licences by 28 March 2008, though there is doubt whether a
bidder will wish to acquire an operation losing £0.8 million per annum when, in the absence of a buyer, Ofcom would
be likely to re-advertise these licences.
3
GCap Media. Preliminary Results to 31 March 2007, 30 May 2007, p.20, para 3a.
4
GCap Media. Interim Results to 30 September 2007, 23 November 2007, p.18.
2

GCap Media plc: The Titanic Of The U.K. Commercial Radio Sector [incomplete draft]
©2008 Grant Goddard

page 2


many of its key local stations being in decline.5 The strategy similarly talked
about GCap’s “aim to grow [Xfm London’s] audience” without mentioning that
the station has lost substantial listening in the last year.6
Table 1: GCap Media brands – hours listened per week (‘000)
Q3 2005

Total GCap Media

Q3 2006

141,091

135,916

-3.6

-3.7

65,477

59,196

-10.9

-9.6

14,219

13,202

-15.5

146,337

Q3 2007

-7.2

44,524

43,819

% change year-on-year

The One Network

73,510


GCap Gold Network

16,837


Classic FM

44,069

1.0
Like-for-like basis in 2005 and 2006 excludes Century Network
7
[source: RAJAR]

-1.6

Although listening to its national station Classic FM has remained stable,
listening to GCap’s ‘One Network’ and ‘Gold Network’ continue to fall at rates
that do not appear to have been improved by the group’s recent strategies
(see Table 1). Our opinion is that Hazlitt’s promised full-year profit
improvement of £12.3 million could be entirely negated by continuing loses in
audiences that will inevitably lead to diminishing revenues.
Table 2: GCap Media revenues
total revenues

broadcast brands

multiplexes

other

£m like-for£m like-for£m actual
like
% change £m actual
like
% change £m actual % change £m actual % change

2004/5
2005/6
2006/7

252.3
220.2
200.1

207.3
193.0

-12.7
-6.9

232.5
199.4
175.5

186.5
168.4

-14.2
-9.7

8.7
10.9
14.9

25.3
36.7

11.1
9.9
9.7

-10.8
-2.0

[source: GCap Media accounts]

Broadcast revenues continue to be the group’s most important source of
income, comprising almost 90% of GCap’s total revenues (see Table 2).
GCap’s like-for-like broadcast revenues fell by 9.7% between year ended 31
March 2006 and year ended 31 March 2007, a reduction of £18.1 million.8 This
was accompanied by a 3.6% reduction in total hours listened to GCap stations
on a like-for-like basis (see Table 1).9
In its most recent results, GCap’s broadcast revenues increased by 3.8% yearon-year for the half-year ended 30 September 2007, although Finance Director
Wendy Pallott admitted this growth was achieved “against some relatively easy
comparatives”.10 However, in the long term, continuing declines in audiences
for GCap’s main brands are likely to further erode its broadcast revenues.
The real danger is that these continuing declines in hours listened could have
a greater impact on GCap’s long-term profitability than any cost-cutting
5

7
Q3 2007 has been used throughout as the most recent audience data, due to RAJAR’s withdrawal of the Q4 2007
data.
8
GCap Media, Preliminary Results to 31 March 2007, 30 May 2007, p.8.
9
RAJAR, Q3 2005 vs Q3 2006.
10
GCap Media. Interim Results to 30 September 2007, 23 November 2007, p.9.
6


page 3


exercises. Radio advertising is a relatively low-cost commodity that commands
a remarkably steady unit price (cost per thousand impressions) for its
customers. As a result, it proves almost impossible to force through price rises
if not accompanied by offering advertisers some kind of material benefit. Put
simply, declining audiences will inevitably lead to declining revenues, making it
imperative that GCap adopts radical and effective strategies to tackle the
problems with the consumer appeal of its stations’ content.
Although the new strategy outlined by Hazlitt is projected to deliver a £12.3
million improvement in full-year profits, it would only require a reduction in likefor-like broadcast revenues by 7% year-on-year to totally negate the impact of
her measures.11
3.

Advertising recession





decline in consumption
macro situation
earnings expectations lowered

11



page 4


GCAP’S CONTINUING OPERATIONS
Hazlitt’s strategy focuses “on maximising the revenue and profit potential of
five key brands on FM and broadband” which she states are the platforms
“consumers want and which offer the greatest growth potentials”.12 These are:
the ‘One Network’, Capital Radio, Xfm and Choice FM in London and national
station Classic FM. Additionally, Hazlitt has labelled GCap’s ‘Gold Network’ as
a “transitional brand” in which investment will be “scaled back” pending
possible closure in four to six years time.13 Each of these continuing operations
is examined in turn.
1.

THE ‘GOLD NETWORK’

Ten months after spending £3.95 million on the buy-out of 18 ‘Gold Network’
stations, GCap now says it is only prevented from closing the whole network
by the fact that its “AM transmission contracts run until between 2012 and
2016,” making “immediate exit from AM not an option”.14 In April 2007, GCap
had acquired the 80% stake it did not already own in 18 ‘Classic Gold’ stations
from UBC Media for £3.95 million cash, a deal which valued these stations at
£4.94 million. In July 2007, GCap merged them with its existing ‘Capital Gold’
network of similarly formatted ‘oldies’ stations to create the 25-station ‘Gold
Network’. Ralph Bernard, then GCap Chief Executive, had said: “Classic Gold
is an integral part of our advertising proposition. Acquiring these stations will
enable us to create a single classic hits network with the potential to become a
fast-growing national brand as audiences increasingly migrate to digital
platforms”.15
Table 3: Total Hours Listened to GCap Media’s ‘Gold Network’ (‘000 hours per week on
like-for-like basis)
25,000

20,000

15,000

10,000

5,000

0
2000Q3

2001Q3

2002Q3

2003Q3

2004Q3

2005Q3

2006Q3

2007Q3

[source: RAJAR]

While its competitors have made considerable headway with radio stations that
similarly play ‘oldies’ using the ‘FM’ waveband and digital TV (Bauer’s ‘Magic’,
12

14
15
GCap Media. Acquisition of Classic Gold radio licences to create Classic Hits network, press release, 25 April 2007.
13


page 5


Global Radio’s ‘Heart’ and GMG’s ‘Smooth’), GCap’s ‘Gold Network’ has been
held back by only being available on the lower quality ‘AM’ waveband and on
‘DAB’. Audiences have fallen precipitously in recent years (see Table 3) and
there is no reason to believe that revenues have not followed this trend.
Table 4: GCap Media’s ‘Gold Network’ – performances of the eight most listened to
stations
hours listened per week
('000)

station

Q3 2000

Gold London
Gold South East Wales
Gold Bristol/Bath/Wiltshire
Gold Norfolk/Suffolk
Gold Manchester
Gold Kent
Gold Hampshire
Gold Essex

6,648
1,194
1,647
1,258
420
634
841
872

Q3 2007

2,921
857
784
704
649
502
406
326

% change
local
in hours
market
listened
ranking
Q3 2000 - Q3
Q3
Q3 2007 2000 2007

-56
-28
-52
-44
55
-21
-52
-63

13
6
6
8
16
8
8
n/a

16
8
9
11
15
11
10
16

[source: RAJAR]

GCap’s re-branding of the 25 stations in 2007 has not halted their continuing
decline (see Table 4). Within days of its latest strategy announcement, GCap
shut down the marketing and public relations departments of the ‘Gold
Network’, a sure sign that the operation will be “dramatically scaled down” until
closure at some point in the future.16
GCap also announced a new policy to be “lobbying vociferously for AM switchoff” which would seem to be at odds with its conviction that ‘DAB’ will not
become a future platform.17 There are several national radio brands – Scottish
Media Group’s Virgin Radio, UTV’s TalkSport and the BBC’s Five Live – which
broadcast in analogue only on the ‘AM’ waveband, and who are wholly
dependent on the rapid take-up of digital radio in order to close their AM
transmissions. GCap’s disavowal of ‘DAB’ will make these stations’ continuing
reliance on ‘AM’ greater than ever, which will make the switch-off of ‘AM’ even
less likely.
2.

THE ‘ONE NETWORK’

GCap’s new strategy that “FM is the backbone of the radio industry” reflects
the fact that its ‘heritage’ stations (‘FM’ stations mostly opened in the 1970s to
serve metropolitan areas) are “the source of the majority of our revenue”.18 Its
strategy document says it “will continue to develop programming and
advertising initiatives to leverage our FM audience of 15 million listeners…”19
However, this figure is misleading and only serves to draw attention to the loss
of listeners that GCap has suffered since its creation in 2005.

16

Tristan O’Carroll. GCap wields jobs axe at Gold Radio, Media Week, 15 February 2008.
18
19
17


page 6


Table 5: GCap Media absolute reach (‘000 adults per week like-for-like)
Q3 2005

Total GCap Media
The One Network
Classic FM
The Gold Network
Xfm
Choice
Century (discontinued)

16,600
8,110
5,842
2,019
760
605
1,574

Q3 2006

Q3 2007

16,366
7,429
5,898
1,796
1,133
592
1,618

15,265
7,172
5,844
1,499
1,181
784
-

[source: RAJAR]
NB: ‘Total GCap Media’ excludes ‘Century’ network in 2005 & 2006

Whilst GCap Media’s stations, in total, achieve 15.3 million listeners per week,
not all of this listening is on the FM platform. The ‘One Network’ (on ‘FM’) has
7.2 million listeners per week, but appears to be losing audience at an
alarming rate of approximately 0.5 million per annum (see table 5). Our
previous reports have highlighted the substantial losses of listeners and
listening suffered by the ‘One Network’ (GCap Media – the end of the road
[Enders Analysis 2008-01e] and UK Commercial Radio Consolidation
[Enders Analysis 2007-88]) since the millennium.
Table 6: Total Hours Listened to GCap Media’s ‘One Network’ (‘000 hours per week on
like-for-like basis)
120,000

100,000

80,000

60,000

40,000

20,000

0
2000Q3

2001Q3

2002Q3

2003Q3

2004Q3

2005Q3

2006Q3

2007Q3

[source: RAJAR]

GCap’s new strategy for the ‘One Network’ seeks to “harmonise [our] stations
into a coherent national buy for advertisers,” supported by “a customer-facing
campaign focusing on the strength of the network and the value of the
brand”.20 However, nowhere does that strategy acknowledge, let alone
address, the fact that the ‘strength of the network’ is slipping through GCap’s
hands as listeners desert its stations in quantity (see Table 6). It is worthwhile
reiterating our analysis that, in 2000, ‘One Network’ stations now owned by
GCap had been ranked first (by listening share) in 12 local markets, whereas
today not a single one of those stations is the leader in its local market (see
GCap Media – the end of the road [Enders Analysis 2008-01e]).

20

GCap Media. Strategy Presentation, 11 February 2008, p.5.


page 7


Table 7: GCap Media’s ‘One Network’ – eight most listened to stations
station

hours listened per week
('000)
Q3 2000

95.8 Capital Radio
GWR
Essex FM
Invicta FM
Southern FM
96 Trent FM
96.4 BRMB
Beacon FM

25,037
4,842
4,370
5,720
4,886
3,949
6,705
3,282

Q3 2007

10,144
4,385
3,843
3,371
2,822
2,479
2,291
2,179

% change
local
in hours
market
listened
ranking
Q3 2000 - Q3
Q3
Q3 2007 2000 2007

-59
-9
-12
-41
-42
-37
-66
-34

2
1
1
1
1
1
1
3

7
2
2
3
3
3
8
5

[source: RAJAR]

The significance of the ‘One Network’ to GCap’s future prosperity cannot be
understated. This network alone generates 60% of GCap’s revenues and,
within that, eight of the 41 stations account for more than 50% of the network’s
aggregate profits and audiences.21 However, six of the eight most listened to
stations in the ‘One Network’ have suffered substantial losses of listening since
2000 and must also be suffering declining revenues (see Table 7). Hazlitt
insists that all 41 stations in the network are currently making an operating
profit, despite the significant audience losses.22 These issues remain
unaddressed in the new GCap strategy.
Instead, the strategy focuses on recent activity that has homogenised the
station’s logos and on-air jingles across the network, little more than windowdressing that would seem to have little direct impact on the central issue of
declining listenership. Prior to his recent departure, GCap Group Operations
Director Steve Orchard had referred to the ‘One Network’ as “a big and
powerful network” which ranked as “the ninth biggest economy in the world”.23
Orchard was keen to stress that GCap was “getting more efficient in our
conversion of listening hours to pounds, improving by just over 2% this year”,
but such increased efficiencies ignore the fundamental problem with the ‘One
Network’ which is: listeners and listening has been in decline for years and
show no signs of reversal.24
Furthermore, Hazlett’s strategy for the ‘One Network’ notes that, in the second
half of 2007, GCap “networked a number of high quality shows”.25 Last
November, Steve Orchard had cited GCap’s “detailed [consumer] research
over the last 12 months” that identified “an increasing desire to have some
network stardust integral to the schedule”. He argued that, “in order to
compete more effectively with the BBC networks [for listeners], we need to
offer up quality which is of a national standard”.26 It proves difficult to reconcile
GCap’s research with the results of Ofcom’s market research which found that
“the replacement of local [radio] presenters with a high-profile networked
21

GCap Media. Preliminary Results for the 12 months to 31 March 2007, 30 May 2007, p.8.
22
GCap Media. Strategy Presentation, 11 February 2008.
23
GCap Media. Interim Results presentation, 23 November 2007.
24
25
26

page 8


presenter was also largely rejected [by consumers] on the grounds that highprofile presenters are already accessible on syndicated commercial or BBC
national services …”.27
GCap’s plans for the ‘One Network’ would appear to involve a reduction in onair local content outside of peak hours, following Ofcom’s recent relaxation of
networking restrictions.28 Such a change would, in our opinion, only be likely to
exacerbate the recent losses in listening even further. If Hazlitt acknowledges
that the ‘FM’ platform and GCap’s ‘One Network’ are the ‘backbone’ of the
radio industry, then additional investment would seem necessary in content
(not merely celebrity presenters) that will attract listeners away from the BBC.
Even former GCap Chief Executive Ralph Bernard recognised this when he
said he expressed hope that, one day, the commercial radio sector would be
able to compete more powerfully against the BBC by producing
‘programmes’.29 Although GCap espouses the concept of “high quality
programming to compete effectively with the BBC”, it has consistently failed to
follow through with substantial investment in original content that could stem
audience outflows.30
3.

CAPITAL 95.8 FM

London’s Capital FM is the flagship station of the ‘One Network’ and accounts
for 12% of GCap’s revenues. Its dramatic fall from grace has epitomised
GCap’s seeming inability to implement long-term strategies at its stations that
will maintain the interest of listeners (and therefore advertisers).
Table 8: Total Hours Listened to GCap Media’s Capital FM (‘000 hours per week)
30,000

20,000

10,000

0
2000Q3

2001Q3

2002Q3

2003Q3

2004Q3

2005Q3

2006Q3

2007Q3

[source: RAJAR]

Hazlitt’s decision to rescind the policy of limited advertising inventory on the
station was long overdue. Capital FM’s declining audiences had been wrongly
attributed by station management to listener fatigue with on-air
advertisements, rather than listener dissatisfaction with the station’s content.
27

Ofcom/Essential Research. The Future of Radio: Localness, London, 22 November 2007. p.5, para.1.24.
Ofcom. The Future of Radio: Statement, London, 7 February 2008.
29
Raymond Snoddy. Raymond Snoddy on media: Pod people will decide radio’s future, Marketing, 17 August 2005.
30
GCap Media. Response from GCap Media plc to Ofcom ‘Future of Radio’ consultation, part two, [undated], p.1.
28


page 9


Hazlitt estimates that a return to nine minutes per hour of inventory will
generate £1.8 million marginal profit in 2008/9 and £3.6 million in 2009/10.31
Although she asserts that “demand for advertising space on Capital currently
outstrip supply”, our concerns are the same as those for the entire ‘One
Network’ – that the outflow of listening may not yet have been arrested.32
The central plank of the new Capital FM programming policy appears to be
“improved music sweeps with ten songs in a row every hour between 10am
and 5pm”.33 This is the same strategy that Paul Jackson, Managing Director of
GCap’s London brands, implemented during his previous tenure at Virgin
Radio, where that station too marketed itself using the slogan ’The Home of
Ten Great Songs In A Row’. Our opinion is that the strategy did not succeed in
uplifting Virgin Radio’s listening figures, and is similarly unlikely to impact
Capital FM either. This strategy originated in the competitive US radio market
long before the birth of the mp3 player, and where at-work radio listening is a
much more significant phenomenon. As James Cridland commented last year,
when he was Virgin Radio’s Director of Digital Media:
“Maybe we have concentrated a little too hard in the past on playing
non-stop music – ‘here’s another 10 great songs in a row’ – which
maybe worked at some point in time in the past, but maybe that isn’t
the way that radio should be going and that, actually, we should be
concentrating on the bits that go in between the songs, because
those are the big differentiators between what we are doing and
what people like Felix [Miller, Chief Executive of Last.fm] or my iPod
on ‘shuffle’ does”.34
The appointment of celebrity Denise Van Outen to co-host Capital FM’s
breakfast show has undoubtedly generated significant press interest in the
station and could broaden the appeal of the show. However, we remain
unconvinced that Johnny Vaughan, who has hosted the stations’ flagship show
since the departure of Chris Tarrant in 2004, will ever recapture the universal
appeal of his predecessor. In April 2007, Vaughan extended his GCap contract
by one year and predicted that “this will be my last year”.35 Vaughan’s
departure would offer GCap a rare opportunity to completely re-evaluate its
breakfast show strategy and implement a new show with more mass appeal.
4.

Xfm LONDON

GCap predecessor Capital Radio had acquired Xfm London in 1998 for £16
million, the station having struggled for a year as an independent operation to
attract significant numbers of either listeners or advertisers. Capital hoped to
emulate the success that EMAP had enjoyed with Kiss FM London, after
having acquired it in 1992. Both stations target a youth audience, with Kiss FM
licensed to play ‘dance music’, while Xfm played ‘indie’ and ‘modern rock’.
31

34
Guardian Changing Media Summit, London, 22 March 2007.
35
Matt Eley. Why Johnny Vaughan has remained a Capital kind of guy, Ham & High, 12 April 2007.
32
33


page 10


However, GCap has perpetually found it difficult to grow Xfm’s audience to
anywhere near the level of Kiss FM’s, despite London being acknowledged as
one of the centres of rock music in the world.
Table 9: Total Hours Listened to GCap Media’s Xfm London (‘000 hours per week)
5,000

2,500

0
2000Q3

2001Q3

2002Q3

2003Q3

2004Q3

2005Q3

2006Q3

2007Q3

[source: RAJAR]

Xfm presently ranks 20th in the London radio market (compared to Kiss FM’s
9th position) and, humiliatingly, attracts less listening than either the BBC World
Service (available only digitally) or BBC Radio Three. Hazlitt’s new strategy
promises to “build upon the credibility established by Xfm as a new music
authority in FM in London”, though the station’s performance begs the question
as to how much ‘credibility’ the station must really have amongst its target
audience of 15-34 year olds.
Table 10: Xfm London – average weekday audience (‘000)
70
Q3 2006
60

Q3 2007

50
40
30
20
10

23.00-23.30

22.00-22.30

21.00-21.30

20.00-20.30

19.00-19.30

18.00-18.30

17.00-17.30

16.00-16.30

15.00-15.30

14.00-14.30

13.00-13.30

12.00-12.30

11.00-11.30

10.00-10.30

09.00-09.30

08.00-08.30

07.00-07.30

06.00-06.30

0

[source: RAJAR]

Xfm’s poor performance in Q3 2007 can largely be credited to its decision in
May 2007 to replace its DJs with back-to-back music selected by listeners
between 10am and 4pm on weekdays. This policy led to significantly lower
audiences during this important daypart in the following quarter (see Table 10).


page 11


Xfm Managing Director Nick Davidson had argued that listeners “are used to
being able to control what they watch or listen to as, these days, people are
inundated with choice.”36 However, our opinion at the time was that broadcast
radio does itself no favours by trying to emulate the personalised music
experiences offered by either the iPod or by Last.fm (see Radio: Last.fm is
not the problem [Enders Analysis 2007-80e]).
Hazlitt’s strategy document promised that “in the coming months, a full review
of Xfm’s output will ensure that we have the right on-air and online offering”.37
As with both the ‘One Network’ and Capital FM, such a review would seem to
be a necessary prerequisite to any prospect that an increase in revenues can
be achieved from the London marketplace.
5.

CHOICE FM LONDON

GCap predecessor Capital Radio completed its acquisition of Choice FM for
£15 million in 2004. Although, at the time, Capital’s manager Graham Bryce
promised “we can categorically say we are not going to be like Kiss FM”, the
purchase was largely motivated by Capital’s inability to succeed with Xfm in
growing its penetration of the youth market in London dominated by Kiss FM
since 1991.38 Choice FM’s black music format is now remarkably similar to that
of Kiss FM, although the station was originally licensed specifically to serve the
black community in South London.
Table 11: Total Hours Listened to GCap Media’s Choice FM London (‘000 hours per
week)
5,000

2,500

0
2000Q3

2001Q3

2002Q3

2003Q3

2004Q3

2005Q3

2006Q3

2007Q3

[source: RAJAR]

While listening to Choice FM has shown remarkably positive growth (see Table
11), the station’s revenues have not grown similarly because, according to
Hazlitt, the station “has suffered from lack of understanding amongst the
advertising community”.39 GCap’s avowed ambition for Choice FM is “to
36

Xfm. Xfm launch Xu – Radio To The Power Of U, press release, [undated]
38
Jules Grant. Choice FM in programme changes after Capital buyout, Brand Republic, 17 March 2004.
39
37


page 12


monetise it more effectively on-air and to grow audiences online”, said
Hazlitt.40
6.

CLASSIC FM

Launched in 1992, Classic FM has proven the most successful of the three
national commercial radio stations and is the only UK commercial radio station
offering a classical music format.
Table 12: Total Hours Listened to GCap Media’s Classic FM London (‘000 hours per
week)
50,000

40,000

30,000

20,000

10,000

0
2000Q3

2001Q3

2002Q3

2003Q3

2004Q3

2005Q3

2006Q3

2007Q3

[source: RAJAR]

Unlike GCap’s other main brands, listening to Classic FM has remained stable
in the long run (see Table 12) and offers advertisers an attractively up-market
audience, of which 70% are in the ABC1 socio-economic group. Whilst GCap
has problems with other brands losing listening and revenues, Classic FM
continues to make a positive contribution due to the unique appeal of its
content.
7.

LOCAL DAB MULTIPLEXES

In addition to its stake in the national Digital One DAB multiplex, GCap has
stakes in 24 of the UK’s 42 local DAB multiplexes currently in operation. These
comprise:41
 100% stake in Now Digital, owning 12 local multiplexes
 73% stake in Now Digital East Midlands, owning two local multiplexes in
Leicester and Nottingham
 67% stake in South West Digital Radio, owning one local multiplex in
Plymouth
 50% stake in CE Digital, owning three local multiplexes in London,
Birmingham and Manchester
 46% stake in DRG, owing one local multiplex in London
40
41

Digital Radio Development Bureau. Multiplex Operators, January 2008.


page 13




24% stake in MXR, owning regional multiplexes in Northeast England,
Northwest England, South Wales, the West Midlands and Yorkshire

GCap has the greatest exposure to DAB multiplex infrastructure of any UK
radio group, and made a loss of £3.7 million on its local DAB multiplexes in the
year ended 31 March 2007.42 Hazlitt’s strategy statement is unequivocal in
signalling the group’s desire to abandon the DAB platform altogether: “DAB,
with its current cost structure and slow consumer response, is not an
economically viable platform for ‘New GCap’…. In the short term, and without
massive investment and improbable changes to government policy, it is not a
platform on which we can grow”.43
However, GCap’s partners in half of its local DAB multiplexes are Bauer Radio,
Global Radio, Guardian Media Group, UTV and Scottish Media Group, which
makes their divestment a challenge unless the rest of the commercial radio
industry decides to abandon the DAB platform altogether. Hazlitt explained the
situation: “To be clear, if we had a free hand and were able to terminate our
existing [DAB] transmission contracts, we would do so and we would hand our
DAB multiplex licences back to Ofcom”.44
GCap is also hamstrung in abandoning local DAB by two further issues. Firstly,
its transmission contracts do not expire until between 2012 and 2016 and have
“limited break clauses” that would render GCap liable for fees until their
expiration, regardless of whether it utilises the spectrum or not.45 Secondly,
many of GCap’s FM licences were automatically renewed by the regulator for a
further eight-year period as a result of them being simulcast on the local DAB
multiplex. This was a ‘carrot’ incorporated into the Broadcasting Act 1996
designed to encourage radio groups to invest in the then nascent DAB
technology. Hazlitt explained: “What this means is that all the top ten ‘One
Network’ stations have been renewed on this basis and, if we withdrew the
DAB services, under current legislation, Ofcom would have to re-advertise our
licences. So, in short, whilst we would like to get out of DAB, we can’t”.46
The danger is that GCap’s consolidated annual operating loss on DAB local
multiplexes of £3.7million could grow considerably if other radio owners were
to follow GCap’s lead and decide that the DAB platform is no longer worth
pursuing. In 2006/07, GCap’s local multiplexes received £5.0 million revenues
from content owners for local DAB multiplex spectrum.47 Although part of this
revenue is unlikely to be vulnerable as it accrues from the BBC (which in total
spends £3.6 million per annum to lease spectrum on local multiplexes owned
by commercial radio), the remainder is dependent upon other commercial radio
groups persistence with DAB.48 This places GCap in an even more difficult
position, as it can neither abandon local DAB multiplexes, nor mitigate against
increased losses from those local DAB multiplexes in future years.
42

44
45
46
47
48
Deloitte & Touche LLP. BBC Trust: The BBC’s Efficient And Effective Use Of Spectrum, December 2007, p.40.
43


page 14


Ofcom’s ability to resolve this impasse is restricted by the wording of the
Broadcasting Act 1996, which will not let a local commercial station withdraw
from DAB without the risk of losing its analogue licence in a subsequent
‘beauty parade’. Some in the industry have proposed that Ofcom invoke a
‘DAB armistice’ – a six-month period during which stations could withdraw from
DAB without the risk of losing their licence. However, such a policy would
require a legislative amendment, and one ‘industry insider’ commented to the
press that “there would be an avalanche of licences handed back”.49
Instead, Hazlitt has suggested that “if DAB is to survive as a platform,
particularly at the local and regional level, it must be on a much lower cost
basis. That means re-planning the [local DAB] networks on the basis of much
more efficient use of spectrum in place of a large number of very small and
economically unviable local multiplexes which exist today”.50 GCap is already
talking about these issues to Ofcom, but insists that “it is in the interests of all
parties, including the transmission companies, that these changes happen
sooner rather than later”.51

Grant Goddard is a media analyst / radio specialist / radio consultant with thirty years of
experience in the broadcasting industry, having held senior management and consultancy
roles within the commercial media sector in the United Kingdom, Europe and Asia. Details at
http://www.grantgoddard.co.uk

49

Juliette Garside. How radio killed the digital star, The Sunday Telegraph, 17 February 2007.
51
50


page 15

'GCap Media plc: The Titanic Of The UK Commercial Radio Sector' [incomplete draft] by Grant Goddard

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (9)

Similar to 'GCap Media plc: The Titanic Of The UK Commercial Radio Sector' [incomplete draft] by Grant Goddard

Similar to 'GCap Media plc: The Titanic Of The UK Commercial Radio Sector' [incomplete draft] by Grant Goddard (20)

More from Grant Goddard

More from Grant Goddard (14)

Recently uploaded

Recently uploaded (20)

'GCap Media plc: The Titanic Of The UK Commercial Radio Sector' [incomplete draft] by Grant Goddard