Home > Media and Analysts > Speeches and Presentations > 2007 > Jul > Radio Festival

10|07|07

Radio Festival, Cambridge - How to face the future

The Parallel Universes of Radio

I am going to start today with a rather stark, perhaps surprising, observation.

It seems to me that over the last three years radio has occupied two parallel universes.

One universe consists of the experience of millions of people, millions of listeners for who things have never been much better:

Choice for listeners has never been greater – through their TVs listeners can access at least 25 radio services, satellite users can choose from over 90 stations.

Through DAB, listeners in the majority of UK cities have access to over 35 digital stations.

Many have the ability to pause and rewind live radio programmes or to discover more information about the programme through text and data services.

UK broadband subscribers, now over 50% of the population, have access to the thousands of stations, to a wide range of podcasts and listen again services.

The i-Player and the RadioCentrePlayer offer personal control over listening, and position radio at the centre of on demand developments in the media sector.

And the quality of programming is strong too.

I confess that this list is going to reveal my own rather eclectic listening preferences; but some highlights of my own would include:

Christian O Connell on Virgin, Melvyn Bragg's In Our Time on the BBC;

Real Radio Wales covering the 40th anniversary of the Aberfan disaster; and

Tony Robinson presenting Classic FM's Friendly Guide to music.

And radio is fulfilling important public purposes, most profoundly illustrated by Alan Johnston's moving remarks last week about a moment during his captivity when he heard the BBC World Service mobilising a campaign to help him and describing the hope and optimism this brought him during the dark and lonely days of his captivity.

So from the listener’s perspective, millions of listeners across the UK, radio is in pretty good shape, doing what it should, providing choice, range, quality programming and innovation across the UK.

But close by, there is a parallel universe, occupied by shareholders, finance directors, sales teams and anyone who is directly involved in running a station, and in that universe is the harsh financial reality of commercial radio today - and even for those in the BBC, the challenges of a tougher than expected licence fee settlement.

These are parallel worlds, but worlds which offer very different experiences - and which provoke very different emotions in all of us, as they coexist today, one alongside the other.

As many of you here today are striving and succeeding in delivering quality services to listeners, you do so in the knowledge that your top line is under enormous pressure and that you face a constant struggle to convert audience appreciation into revenue growth.

So while listeners enjoy unprecedented innovation, exciting new services and diverse content, they do so alongside a commercial radio sector facing possibly the most challenging economic circumstances that any of us remember.

This is a paradox that everyone here today will know and understand.

We are all in one way or another engaged in trying to resolve this paradox.

What I’d like to do this morning is to give you some of our thoughts on the role we can play alongside you in moving radio forward.

I’d like to set out a little later some ambitions for radio and to describe very clearly our current view of how we might move forward together.

But first, let me begin by trying to help understand where we have come from in the last few years and the challenges that we now face.

The Jouney To Today

Firstly, let's remind ourselves that we have not been standing still.

In fact, if we are honest, the contrary is true.

In regulatory terms we have introduced a wide range of changes to respond to the challenges we recognised some three or four years ago.

Ofcom’s creation led to a clear, new strategic approach to radio, covering the whole sector, that sits alongside our strategic approaches to spectrum, to public service broadcasting and to telecommunications.

We have sought to move away from controlling inputs – how programmes are made – to an increasing focus on what the listener hears. We have significantly reduced the burden of commercial radio regulation by:

Allowing groups to create news hubs;

Removing the limits on programme automation and encouraging sensible co-location of local stations;

By adopting a more flexible approach to Format changes; and

Streamlining the licensing of 40 new FM stations, completing the analogue licensing process started in 1973 with the recent award of the South Wales licence to XFM.

We have championed the success of DAB, winning additional spectrum clearance in international negotiation and ring fencing that for DAB to extend the range and diversity of radio services.

Our usual preference for releasing spectrum by market mechanisms is well known, but DAB was unfinished business: a nascent technology and set of services, which, in the listener’s interest, we felt should have room to breathe and develop.

And we have stepped up our activity against illegal broadcasters, recognising the damage they do to licensed broadcasters’ reception and revenues.

Last year, we undertook 1,085 separate enforcement operations against illegal broadcasters;
We raided 226 separate stations;
convictions of illegal broadcasters have risen 24%, compared with three years ago.

In many other areas we have moved forward:

a groundbreaking analysis on market definitions of advertising markets in radio and local press – highly relevant to the scope for future consolidation in the industry:
a wholly new sector in community radio, with over 130 stations licensed of which 66 are already on air; and
re-valuing the three national commercial analogue licences, Classic FM, Talk Radio and Virgin, resulting in a reduction in the combined payments to the exchequer from around £7 million to £1.5 million.

All this work has taken place at a direct cost to the radio sector of £2m a year less than the old Radio Authority cost to run – a saving of some 40%.

I say this not to try and prove that ‘busy’ is somehow good.

Nor to merely try and prove that a lot has already changed in a short space of time – although it has.

Nor indeed to demonstrate the obvious - that radio has in so many ways been in the vanguard of the wave of change now sweeping across the communications sector on a global basis.

Instead, I recount this merely to make another, simple point

That despite all Ofcom’s activity, despite your own development, despite every company’s responses to these challenging times, we know and we recognise with you, that there is much, much more to be done if radio is to thrive in the future.

Where are we today?

So, where are we today and what are the challenges before us?

Firstly, the growth in internet advertising, which has grown from virtually nowhere when Ofcom was formed to nearly two and a half billion pounds a year today.

While listeners are taking advantage of the extra services and technologies that the internet brings, internet advertising is squeezing the traditional radio model, as spending is diverted to online services.

Secondly, audience fragmentation.

UK radio licence holders must now compete with an array of new entrants, often established and successful companies in other sectors:

new services and providers on DAB;
thousands of radio stations who deliver services online; and
new providers such as newspapers launching audio streamed and for downloading.

And of course, this audience fragmentation is sharpened by the general proliferation of alternatives:

multi-channel TV;
mobile phones and gaming;
broadband entertainment such as You Tube, MySpace, Second Life and Facebook….

All these changes have had some significant and unwelcome consequences:

We have seen two FM licences handed back – something which, believe me, is as unwelcome to us as it is to those involved.
Many commercial radio stations are reported to be losing money, particularly the smaller stations.
Overall commercial radio revenue fell by some 5% year-on-year to Q4 2006.

These are very tough circumstances.

Of course, in this context the short term response is always tempting: to cut production budgets and increase networked content to shore up the bottom line.

But it is a mistake when it is at the cost of damage to brands, audiences and therefore to revenues in the longer term.

So we will all need to be both creative and determined if we are to secure a more vibrant and sustainable future.

An Ambition for Radio

Let me set out a few thoughts about the kind of ambition we should have for radio in the future:

First we want to see in availability, in choice, and through innovation the listener continuing to have many routes to radio and radio many routes to the listener.

In part that may just happen as an evolution of market and technology – internet delivered radio is a good example – but in other respects it may need some design or facilitation – Radio on Digital Terrestrial TV, possibly DRM and, of course, DAB are all examples.

Secondly, at national level, we want to see a diverse range of commercial stations alongside the BBC ’s national services, free of excessively detailed format or other regulation and providing high quality, competitive nationwide content.

Thirdly, at local level a profusion of stations with an updated and strictly proportionate regime to achieve the localness and plurality set out by Parliament, focusing on localness rather than a mass of detailed content requirements.

Fourth, an easy-entry community sector providing not for profit but thriving community services for every form of community that wants them.

We want all these services to be, to coin a phrase, energetic, anarchic, inventive. We want listeners to love these services, as they do today.

But we want them to be economically viable at the same time.

The next steps

So, how do we realise that ambition?

Well first, of course, the future of radio is primarily in your hands. But we have a significant role to play and we recognise that.

So let me offer some thoughts on four topics:

the evolution of DAB;
our Future of Radio consultation on the regulatory framework;
the possibility of a digital migration in radio; and
finally how we achieve a regulatory framework for the future.

a) The evolution of DAB

One of the most significant steps in radio is the evolution of digital radio.

We should be proud that the UK has led the way with DAB and I want to pay tribute to GCap and Ralph Bernard, and indeed the BBC and Jenny Abramsky for pioneering DAB and for leading this industry from the front. Their contribution has been enormous and I believe needs to be recognised.

Today there are five million sets in homes and growing.

Other major European countries are now also adopting DAB, with services launching in France next year, and Germany planning to re-launch DAB with new multiplexes and better coverage. DAB will be one of the broadcast services at next year’s Beijing Olympics.

As you know, last Friday we announced the award of the licence for the second National Multiplex to 4DG, who you heard from this morning.

It is customary for Ofcom to publish the reasons why we made the award. That is an important piece of formal process and it will take place in a few days’ time. Let me today give you an overview of our decision.

Firstly, I believe that this award is good news for listeners, for DAB and for the radio industry more widely. It is a tribute to the quality of both bids that I could have made that statement had either won.

In the end we made the award to 4DG but both were exciting, professional and credible.

The award means ten new national radio stations from Channel Four and their partners, plus a national podcast service. The stations are already signed up to the Multiplex, so we know that the service is going to hit the airwaves running.

The range of services is distinctive, in terms of the variety of audiences the stations will serve, including Asian audiences and something even the BBC doesn’t have, a station for children.

These services complement the proposition from Digital One and the BBC ’s services, offering a real enhancement of choice for listeners.

And in the winning bid we saw a persuasive commitment to promotion and to marketing DAB and the digital services which will make a real difference.

What this Award means is that we will shortly have gone from three national commercial analogue stations, to up to 20 digital commercial national stations, alongside local commercial stations and the 10 or so BBC channels.

So this is a milestone for listeners as well as for DAB and for the industry.

b) The Future of Radio

Of course, the growth of digital could trigger a virtuous circle in the regulatory framework, helping to make the case for the progressive liberalisation and deregulation we set out in Future of Radio earlier this year.

Ofcom’s "Future of Radio" consultation closed on 29 June.

We received 140 responses covering the whole range of proposals discussed in the consultation.

What we set out in the Future of Radio was a new approach to modernising the regulation of radio.

We recognised very clearly that, as an ever greater proportion of listening is done on digital platforms, the current regulation of analogue radio becomes increasingly disproportionate.

We have proposed a number of very significant changes, on which we have sought your views:

simplifying analogue Formats to remove much of the detailed requirements and make them similar in style to DAB Formats;
reducing the number of local hours each station is required to produce – with the greatest reduction for the smallest stations which need the most regulatory help;
simplifying the radio ownership rules by measuring them across analogue and digital platforms to allow more consolidation while maintaining plurality of provision; and
preparing for a digital world by providing the flexibility to use the analogue spectrum for different things when the time is right.

Taken in the round, these are major proposals which will affect, and would substantially reduce and simplify the regulatory burden. They would change the face of radio regulation in the UK – not in half measures, not by occasional decisions of the licensing committee, but by a comprehensive updating of the core approach to regulation.

Let me focus on one of the more contentious areas of that consultation - the approach to localness.

In recent weeks, we have seen localness in action; be it the Midlands and North of England covering the floods, or radio in Scotland providing coverage of the terrorist incident at Glasgow Airport.

On a routine basis we have heard local stations providing vital information on transport disruption, or school closures, or providing companionship for local residents whose homes and spirits have been battered by the appalling weather and support for community appeals and action in the aftermath.

But we also know that some have called for a huge relaxation of regulation around localness – indeed its removal altogether.

Others have expressed concern about reducing or removing obligations around regulation, which serve audiences well today.

Well let me share with you some indicative findings from the first deliberative research sessions we held in June and July to understand better the issue of localness:

Nearly all respondents cited local traffic and travel, weather and to a lesser extent news as an indispensable requirement for their daily lives;
Participants perceived radio as the default medium for delivering that key local information; and
They took the view that the quality of information would suffer if it was not made and delivered locally and by people who also live in and understand the local area.

So people seem to continue to want to hear local programming and know that the presenter they are listening to drives down the roads he or she is describing. That he or she knows and understands the local area.

They seem to want a local presence as the bedrock of local content.

So we need to consider this issue and the others raised in the responses carefully.

This will include the issue of the timing of any changes and whether or not a digital listening threshold for change makes sense or not. We are very happy to reflect upon alternative answers to this question.

c) A digital migration in radio

We also recognise that radio today has reached some sort of a threshold.

With the last FM licence now awarded, and DAB licensing set fair, there are some here today that would like to see a specific timescale set for the end of analogue radio now, similar to that in television.

Let me be clear. We do not believe that Government announcing a swift forced march to analogue switch-off in radio today would be in the interests of listeners or industry.

We must recognise the clear differences between radio and television.

In particular that:

DTT television could not achieve universal coverage without analogue switch off.
That there are between 100 and 150 million existing analogue radios, but no similarly affordable equivalent of the set-top box which provides a means of converting TVs for consumers.
And the spectrum released by television switchover is far more valuable in how it can be redeployed for new and innovative services than its radio equivalent.

Against this background, should we even contemplate a transition from analogue to digital in radio?

Well in fact, I believe there are good reasons why we should consider how to move things forward.

Firstly, the cost of dual transmission to the industry is a very real burden.

That is money that could be spent on content to attract and retain listeners.

Secondly, the lack of a shared understanding about the future, which is reducing the incentive of individual groups or stations to make the transition to digital services knowing that others are not necessarily committed to doing the same.

Thirdly, because freeing up analogue spectrum, while not as valuable as TV, would give the opportunity for new services to be developed, including potentially new radio services.

In principle, we are therefore sympathetic to the idea of a joint working group between Ofcom and industry tasked with identifying the key issues that are raised by a transition from analogue to digital in radio.

Such a group would need to be clear about the issues raised and the implications for listeners, industry and manufacturers,

It would need to:

provide robust analysis and research to support proposals for a digital migration;
consider whether there is a sensible way forward that could evolve to meet all interests and concerns; and
try to reach a consensus between all these parties that could form the basis of an assessment to Government in whose hands any final decision clearly rests.

That will not be an easy task, but it is one worth embarking upon.

Cleary, a necessary pre-condition to any road map will be the alignment of the end dates for existing analogue licences.

Without such an alignment we cannot sensibly begin to ask, let alone answer, the questions about what a sensible transition might look like. Without such an alignment we will be condemned to a hotch potch of analogue and digital for decades to come.

We suggested an AM review in 2009 and an FM review in 2012, but that may be too long to wait. We welcome your views.

d) Achieving a regulatory framework for the future

Let me make clear that within the public policy imperatives that Parliament has given us, we want to go as far as we can in creating a regulatory framework that allows the whole sector to flourish.

We have no wish to delay changes that need to be made sooner rather than later.

Of course, some argue that the right regulatory framework now means complete deregulation; or at the very least would like us to go much further, much faster in that direction.

So, let me finish by saying a few words about how we want to take this forward with you – about going further, faster.

Some of the proposals in “The Future of Radio” strain at the limits of today’s primary legislation.

And whilst Ofcom can go some way towards modernising the regulatory regime, the legislative framework is, of course, ultimately a matter for Government.

So you also need to work hard to persuade not just Ofcom but Government and Parliament of the need for change.

And you will only do that with an approach which meets Parliamentarians’ objectives and concerns and not just yours.

But let me be clear, the reason our proposals in the Future of Radio push up against the boundaries of today's primary legislation is simple.

We believe that fundamental reform is needed.

The status quo is dead.

There is only one direction of travel now, and that is towards a reformed, streamlined regulatory approach which secures public purposes but which does so in a way that is sensitive to the changing circumstances of radio and consistent with its economic vitality.

The key question for all of us is how far and how fast we can move to achieve that balanced change.

We are ready to answer that question now – I hope that you are too.

Thank you.