Home > Consultations > Consultation Documents > The Future of Radio > The future of FM and AM services and

Executive Summary

1.1 Last year, following consultation, Ofcom published a report called Radio – Preparing for the future. That report set out Ofcom’s view on the public purposes of radio and a strategic framework for the future regulation of the industry. Alongside these we also published an outline of what we thought a healthy radio market in the UK would look like. We stated our ambition to encourage a market-driven approach aimed at delivering a wide range of innovative UK-wide commercial stations, a wide range and diversity of local and regional commercial services, and community services for every community that wants one, all supported by multimedia services where viable. These services should be provided alongside a strong independent BBC.

1.2 Since we published that report, there has been much coverage in the press of the problems faced by commercial radio - from the financial situation of GCap to the first instance of a local commercial radio licence (the one for Stroud) being revoked at the licensee's request.

1.3 Some people may argue that these problems are due to cyclical factors and that the industry will recover in the next advertising upturn. But we believe the changes happening in the radio industry may be more structural and may need to be addressed in the interests of listeners.

1.4 The radio market is now facing a number of challenges:

1.4.1 Competition from other technologies is growing – although localness on radio remains important to many listeners. Overall listening hours have been robust; but while listening to national commercial radio stations is up, listening to local commercial radio is down. And across all sectors, the number of young adults who listen to radio is falling as they consume media in new ways, through social networking on the internet or by downloading music and listening to iPods and other similar devices. Nevertheless over half of the population still listens to local commercial radio every week and Ofcom’s research for Radio – Preparing for the future suggested that people still value the local information that such stations provide.

1.4.2 Radio advertising is stalling as advertisers switch to internet advertising. Despite overall listening remaining constant, radio advertising growth has stalled both in absolute terms and as a share of all display advertising. We believe this is being driven partly by a process of structural adjustment in favour of new media. Rapid growth in radio advertising revenue up to 2000 has given way to decline in real revenue and static or declining share of the advertising market - commercial radio revenues fell by 7.8% (£44m) year-on-year to Q1 2006. This is against an overall display advertising market that has, in real terms, been declining since Q1 2005. Meanwhile internet advertising has grown rapidly over the last five years. In 2004, internet advertising overtook radio advertising and is forecast to become the third largest advertising sector (behind regional newspapers and TV) in 2007. Forecasts suggest this trend is likely to continue, putting huge pressure on the commercial radio sector – and in particular on local stations – although the radio industry may be able to access some new sources of revenue to offset the loss of spot advertising to some extent.

1.4.3 Digital radio is taking an increasing share of radio listening putting greater pressure on local analogue stations. Listening to radio on digital platforms has been growing. As of June 2006, 16% of all commercial radio listening was via digital platforms: based on current trends, we forecast that this will grow to around 90% in ten years time. Ofcom has specifically allocated more spectrum to DAB to facilitate the provision of more local and national radio choice for every part of the UK. The Digital Radio Development Bureau (DRDB) forecasts that by 2010 half of all households will have DAB; digital radio via television will be ubiquitous by 2012 and broadband internet take-up is growing rapidly allowing people to listen to streamed radio services from all over the world. Satellite radio may also be launched in the UK in the next few years and other platforms may emerge offering yet more choice and bringing more competition. The pattern of local licensing which has been built-up over a number of years may have been sustainable in a steady state world, but as new platforms emerge the financial pressures on smaller stations in particular are growing. While many analogue stations also broadcast digitally, there is more competition for them on digital platforms, and there is a real threat to the survival of those (particularly smaller) stations not carried on digital platforms.

1.5 Some people may go on to argue that even if all of this is true and the changes are structural, nothing more need be done. Digital radio listening is growing, new technologies and consumption patterns will supplant FM and AM radio listening - this is driven by consumer choice. There are new opportunities for businesses to engage with consumers; existing players can choose to be part of this new world or to carry on with their existing business models. Market forces will prevail and provide the best outcome for consumers. They will point to the fact that, unlike television, where alternative uses for the analogue spectrum have driven digital switchover, there is no groundswell of demand for FM and AM frequencies to be given up for other things and argue that analogue radio services should be left simply to take their chances under the existing regulations.

1.6 However, we believe that there are two main reasons why we might want to consider further action now:

1.6.1 The regulatory burden on analogue local commercial radio may be unsustainable – UK analogue commercial radio was established by Parliament primarily as a local radio system. It would have been possible to use the spectrum differently to provide an alternative policy outcome with a greater number of national services and far fewer local services. The cost to the industry of following the local model arguably has been high, but may have been outweighed by the public benefits it delivered. As competition from other platforms develops, there is a question as to whether this model is sustainable. The regulation of analogue local commercial radio, based around Formats to ensure diversity, localness requirements and ownership rules to ensure plurality was designed for an analogue world. The principles behind these three planks of regulation, as set out by Parliament, and the public purposes of radio may still remain valid today, but the way in which they are implemented may be in need of a radical overhaul if they are still to deliver their aims. The regulation of analogue radio is more restrictive than that of DAB digital radio, which is in turn more restrictive than digital radio on other platforms. If digital listening comes to predominate over the next few years, the current analogue radio regulatory regime may no longer be appropriate or sustainable, and the extent to which local commercial radio should provide the desired public purposes and the way in which we regulate to achieve these policy goals may need to change in the interests of listeners.

1.6.2 The flexibility to free-up spectrum - The existing analogue (FM and AM) licences are about to start coming up for re-advertisement in a rolling process that will last for many years. Under the current regulatory regime, set out in the legislation, new licences could tie-up the spectrum for up to another 24 years.

New technologies mean that there are other potential uses for the VHF Band II spectrum currently occupied by FM radio (such as mobile TV, more digital radio or data services). FM radio re-uses a limited number of frequencies in a patchwork across the UK to deliver around 300 local BBC and commercial services and five UK-wide networks. Any alternative uses for those frequencies would require large chunks of that spectrum to be freed-up simultaneously – something a rolling re-licensing process does not allow for. We have no immediate plans to switch off FM radio and would not do so without fully considering the impact on consumers, but in the long-term other services may make more efficient use of the spectrum used by existing FM radio services and may provide a better consumer outcome. This could mean an end to the broadcasting on FM of those commercial and BBC services which are also available on digital. On the other hand it may be that even in the long term the best use of VHF Band II spectrum will remain FM radio, perhaps with a different mix of services from today, such as more community services. We simply do not yet know what the best use for this spectrum might be in ten years time, but we need to start thinking now about how to give ourselves future flexibility to do different things when the time is right.

There are also other uses for the Medium Wave spectrum currently occupied by AM radio (in particular for DRM digital radio). For technical reasons, the need for frequencies to be freed-up simultaneously is not so great for Medium Wave and it may be possible to switch-off some AM services and re-use the spectrum for other things earlier than it is for FM services. Again, the costs and benefits would be taken into account before a decision was taken.

1.7 In addition, Ofcom has a statutory duty to carry out a review of the new community radio sector next year. This review will cover the licensing, funding and ownership rules surrounding community radio, but it will also cover the relationship between small commercial services and community services, with the aim of ensuring the best outcome for listeners.

1.8 In April this year we began a series of debates about the future of radio regulation with key stakeholders in the industry – the large and small radio groups, the Radiocentre, the CMA and individual community stations. We have been analysing the market and developing our own ideas and some further ideas have come out of those debates with stakeholders, but before we produce any proposals for consultation, we want to widen the debate to include those whose voices have not yet been heard.

What we would like from you

1.9 This report does not set out any proposals on what changes should be made and we are not looking for your detailed thoughts at this stage about potential changes.

1.10 But we have identified areas that we think might be considered for changes. In particular, we believe that it may be appropriate to look at the role of Formats and localness provisions in analogue local commercial radio, the radio ownership rules, the rules around community radio and the options for achieving flexibility in the future to use the spectrum currently used for analogue radio in different ways.

1.11 So we would like to know whether you agree with Ofcom that the issues faced by the broadcast radio industry, either those set out in this discussion document or others that you may wish to raise, warrant further consideration and the development of proposals to ensure that listeners’ interests are protected over the coming years.

1.12 If it is decided, following full consideration of any responses received to this discussion document, that some further action is required, we will then aim to develop a range of proposals for consultation, some of which we may be able to implement under the current legislation, but some of which may have to wait for new legislation.

1.13 For the time being, however, we welcome your thoughts on the matters addressed in this document. Details of how to respond are in Annex 1.

The full document is available below

• The Future of Radio [pdf]
  Full Print Version

Back to top