Westminster Media Forum – Keynote speech

Most of you are fully aware of the proposals and suggestions that Ofcom has put forward in its Future of Radio consultation, which closes on 29 June, but I just wanted to give you all a reminder of the key elements of that consultation which I hope will help to frame this morning’s debate.

We all know that the commercial radio industry has been facing tough conditions over the past couple of years and recent results, such as GCap’s last week, serve to confirm that. Radio advertising has stalled as advertisers switch to the internet and other media. While there are encouraging signs from some groups, with Chrysalis predicting double digit growth for later this year and TLRC anticipating its May results will show the highest monthly revenues for two years, things remain tough. 40% of stations lose money and the smallest stations are suffering the most. The bigger groups are still profitable but much less so than they were.

At the same time digital platforms are taking an increasing share of listening. In our consultation we reported that 14% of listening is via digital platforms. Some estimates suggest that figure may now be up to 20%. In ten years time, we predict that figure could be as high as 90%. That brings challenges to existing analogue stations in terms of increased competition and makes things particularly hard for those stations not broadcasting on digital platforms.

Those two trends suggest that the existing pattern and number of local analogue stations may not be sustainable in the long term.

The question is whether there are things that Ofcom can do in terms of reducing regulation that would ensure that local services continue to survive and thrive and to be able to provide local programming in the interests of citizens and consumers. In some cases that may mean accepting reduced localness provision rather than having no localness provision at all.

We have come up with a number of proposals for easing the burden on radio stations but as background to considering those proposals it is important to note three things:

First, the majority of commercial stations in this country have been licensed to be local stations – that was a deliberate act of policy by Government which has been reinforced by successive Acts of Parliament. And of course it was the basis on which every existing local station applied for and won its licence. Indeed it was only in 2003 that Parliament strengthened its desire for local radio by imposing a new duty on Ofcom to ensure that local stations broadcast an appropriate amount of local material with a suitable proportion of it locally made. Parliament also required Ofcom to publish guidance as to what localness means. That guidance is something we consulted on and subsequently published. Ofcom’s role is to look after the interests of consumers and citizens. That means ensuring that local programming is provided, as well as local news which is important in terms of supporting local democracy for listeners both as consumers and citizens. We take our duties regarding local programming very seriously.

Secondly, while radio group owners may argue that the provision of local programming is key to their success, it will always be in their interests to do more networking if they are allowed – even if audiences fall when they reduce localness, that loss of revenues is more than offset by a decrease in costs so overall profits are up – and at end of day these are commercial businesses usually driven by shareholder pressure and the need to maximise shareholder returns.

Thirdly, it is important to stress that regulation is only one element in the mix – the success or otherwise of a station depends on so many things - good management, creativity, investment in marketing and a good sales force. Regulation is only one element in the mix and probably not the most important, but relaxing regulation in some areas may help and we will do what we can.

So the new framework we have developed aims to take account of the transition to digital and the challenges faced; to be proportionate, consistent across different broadcast platforms (as far as makes sense) and targeted at cases where action is needed; and to allow Ofcom to secure public policy objectives, which not only relate to localness but also require us to ensure there is a wide range of radio services, catering for different tastes and interests.

There is still a lot of uncertainty about the future, but we firmly expect DAB to form the backbone of radio provision in 10-15 years time. We see the landscape then consisting of a strong BBC and a wide range of commercial and community stations:

National commercial stations offering a wide range of programmes to cater for different tastes and interests – The main role for the regulator there will be to ensure that a reasonable diversity of national stations is maintained.

Local stations of city or county size in every part of the country. The main role of the regulator as regards those stations will be to secure the provision of local programming, locally made .

Smaller local stations may survive, we welcome that, and will be required to provide some local programming but there will be no guarantee of a station of this size in every part of UK or of the continued existence of such smaller stations where they exist today.

Finally, we hope to see a wide range of Community radio stations, a vailable to any community that wants and can sustain a station. These stations will be operated on a not for profit basis and will be required to provide social gain.

And so to the specific proposals:

The first main proposal relates to content regulation.

Formats are the way we ensure we meet our statutory duty to ensure diversity of services and are key in licence award decisions. DAB Formats are fairly brief, consisting of just a couple of lines outlining the service. Analogue Formats on the other hand can be extremely detailed. To take an example, the Format of Splash FM in Worthing has a character of service which requires it to be “a locally-focused music and information station for Worthing and the immediately surrounding area.” The detail of its Format goes on to require speech to make up at least 20% of its output including travel news, weather / tidal reports whats-ons, a community notice-board, a recruitment feature, a weekly crime prevention feature, seasonal tourist information, hourly local news bulletins between 6.30 am and 6pm with an extended 10 minute local bulletin in drive-time. Its music must consist of popular hits from the last four decades, although a slight bias towards music from the last two decades is permitted, but current and recent chart music must not account for more than 20% of total music output during daytime.

Of course the station may want to do all of those things anyway. The question is whether they should be required to by regulation. While the majority of listening is to analogue radio, it may not be appropriate to remove these obligations yet, but as digital listening grows, and the average listener has many more stations to choose from, this sort of detailed regulation appears anachronistic. So we propose to simplify Formats to remove much of the detail.

On localness, many of the smallest stations have the highest local programming obligations. Splash FM for example has to produce 24 hours a day of local programming on weekdays and 18 hours a day at weekends, for a population of just 113,000 people.

As I said earlier, some people argue that stations should be allowed to decide for themselves how much local output to produce and that they would “do localness” anyway but we believe that Ofcom would be failing in its duties if it was not to protect local programming in the interests of citizens and consumers. Evidence from elsewhere suggests that when such requirements are removed, localness disappears.

Some people also argue that local material need not be locally made or that local news and traffic bulletins are sufficient to ensure localness. We do not accept this and neither does the audience based on our research. We found that listeners to local stations were looking for good presenters who could demonstrate a good sense of humour and genuine interest and involvement in the local area. T here was a strong preference for local presenters over national presenters on local radio. Focus group participants talked about local accents and genuine knowledge about an area adding authenticity and sincerity. Audiences tell us that local presenters are a key element of localness and a good way of providing an ‘emotional connection’.

Nevertheless the local programming obligations on some stations, particularly the smaller ones, which tend to have the greatest obligations, may be too high so we have considered how far to reduce those localness obligations.

Our research suggests that listeners expect their local stations to be local at breakfast time and to a lesser extent drive-time, while a significantly smaller number expect local programming in the evening and overnight.

So our proposals are that the smallest stations should have to be local for at least four hours a day, medium sized stations for eight hours a day weekdays and four hours a day at weekends, while the largest stations should be local for 13 hours a day weekdays and six at weekends. Localness should include some peak-time requirements.

For AM stations, we are suggesting four hours a day of localness may be the right minimum requirement – no matter what the size of the station. We suggested this level because although we recognise that AM listening is declining generally, in some parts of the UK, a local AM service is all there is and in other areas, AM local stations remain very popular, particularly in Scotland. We need to arrive at the right balance of regulation for these stations.

So, taken together these proposals would mean that Splash FM’s Format would simply become “a locally-focused music and information station for Worthing and the immediately surrounding area”. Its requirements to produce local programmes would be reduced from 24 hours a day to just eight hours a day during daytime weekdays with at least four of those hours in peak-time and four hours a day in daytime at weekends. Of course, it would be free to do more if it wished.

For a larger station like TFM in Teesside, its Format would become simply “A contemporary and chart music and information station for 15-44 year olds on Teesside” while its local hours requirement would be reduced from 16 hours a day to 13 hours, allowing it to do carry some network programming in daytime but outside peak.

We have suggested that these changes should be brought in when digital listening accounts for 33% of all listening, but we are open to other suggestions.

Ofcom has specifically allocated spectrum to provide local digital stations in every part of the UK . Our proposal concerning localness on digital stations appears to have caused some confusion. Let me clarify. We have suggested that Government may wish to change the legislation to allow Ofcom to look across analogue and digital platforms when considering localness, rather than look only at analogue stations as now. The aim of this suggestion is not to require any new local programming on DAB beyond what is already provided (most of which is a simulcast of analogue stations), but simply to ensure that, if and when analogue radio gets switched off, there is a way to protect the provision of local stations like BRMB or Radio City in a digital world. It is nothing more than that.

The second major proposal relates to the ownership rules for radio.

The ownership rules are governed by legislation and any change to the rules would require a change to the legislation. That is a matter for Government and Parliament to consider when the time is right. We concur with Parliament’s view that plurality of provision of local radio remains important. But as digital listening increases, separate analogue and digital rules may no longer make sense. We suggest that the existing separate points rules for analogue station ownership and the digital station ownership rules are too complex and too restrictive and that they should be replaced by a combined, simplified system based on local DAB areas. Similarly we suggest that the multiplex ownership rules could be simplified and that cross-media ownership rules should be platform neutral as far as radio is concerned.

The third and fourth major proposals regard the migration to digital radio.

Ofcom believes that digital radio is the future for the vast majority of radio listening and that the cornerstone of that digital listening will be DAB. We want to encourage the growth of DAB, as it offers a number of benefits to listeners in terms of choice, portability and sound quality, as reported by listeners themselves in Ofcom’s research. DAB take-up is now growing and we want to encourage that further. That is why we have advertised a second national commercial DAB multiplex which we will award in July and which we hope will help to give DAB a further boost. This will bring in new stations and new marketing effort to help support all of the hard work and investment that has already gone into growing DAB, led in the commercial sector by GCap and Ralph Bernard’s personal commitment.

We know that the spectrum currently used by analogue radio could be used for other things – even if one of those things is a different set of analogue stations. It would be fantastic if we had a clear view of the future and could announce now that we knew when the vast majority of listening would be on digital and we could switch-off much of analogue radio. Unfortunately life isn’t that simple.

Digital radio is still only in a minority of homes and is not fitted as standard in most cars; coverage is not yet complete – particularly for local stations. Listening to digital, while growing rapidly is still significantly less than analogue radio.

But we do need to act now to allow us the flexibility to do something different with the analogue spectrum when the time is right. The main obstacles to that concern the licensing process which ties up spectrum for considerable lengths of time on a rolling licence by licence basis. There is little flexibility under the current legislation to change that and any change is obviously a matter for Government and Parliament to consider as they see fit, but we suggest that the licensing regime should be changed to remove automatic licence renewals for analogue stations also offering a DAB service, and that all existing licences be extended indefinitely but have a termination clause written into them.

In addition we argue that Ofcom should have the flexibility to licence any new stations in a platform and technology neutral way to allow the development of technologies like DRM which could be an important complement to DAB in allowing full digital radio coverage.

We also suggest that reviews of both AM and FM should be carried out which would consider fully the case for analogue switch off and the dates for such an outcome. Those reviews would need to take into account a whole range of factors and undertake a full cost-benefit analysis. It may be that in advance of those reviews

there are things we can all work on together – regulator, broadcasters, and government – to determine the sorts of things that would need to be taken into account in such a review.

The final proposal relates to community radio.

I do not propose to go into the detail of our proposals now, as that is not what today’s debate is about, but I should just register that we believe that community radio will be an important new force in radio; that we believe it should remain not for profit and be based upon the provision of social gain; but that we believe some of the regulation around community radio, in terms of the selection criteria and funding and ownership requirements should be relaxed.

So, to sum up, we believe that, taken together, our proposals do mean a dramatic reduction in the level of regulation across the analogue commercial radio sector as a whole, with the greatest benefits accruing to those who arguably need the most help at the smallest end of the scale. We also believe we need to start preparing now for the potential of freeing up analogue spectrum and we look forward to working with you all to begin that debate.

Peter Davies

Westminster Media Forum – Keynote speech

Further information

Help

Keep up-to-date