The Commercial Radio Companies Association is the trade body for UK commercial radio. It represents commercial radio to Government, the Radio Authority, copyright societies and other organisations concerned with radio. It manages the Radio Advertising Clearance Centre which clears national and special category advertisements prior to broadcast. CRCA also jointly owns Radio Joint Audience Research Ltd (RAJAR) with the BBC.

CRCA members include all national commercial radio stations, as well as most local and regional stations. They account for almost 50 per cent of all the radio listening in the UK and 80 per cent of local listening in the UK. As well as promoting the importance of commercial radio, the CRCA plays an active role in promoting conditions that will enable it to thrive into the future.

The Commercial Radio Companies Association is required by its members to take a close interest in spectrum use and the development of digital radio. It plays an active part in spectrum matters via the Association of European Radios, the EBU and WorldDAB. CRCA’s Chief Executive is Vice President of WorldDAB and Chairman of the UK Digital Radio Forum. CRCA owns 30 percent of the JFMG company. It discusses spectrum issues with the Radio Authority and the Radiocommunications Agency as appropriate. Its engineering consultant is Grae Allan of Scottish Radio Holdings who is also Managing Director of SCORE Digital, a commercial radio digital multiplex owner in Scotland.

The expertise of CRCA members is predominantly in one-to-many broadcasting operations. Nevertheless, their knowledge and activity has grown exponentially over the past two to three years as they have taken advantage of internet content provision, e-commerce and the development of digital radio multiplexes and digital radio audio, text and data services. This brief paper concentrates on the future as it is likely to affect commercial radio operators, the values that they have to offer in that future and how they can be ensured. The relevant areas are the future media environment; digital radio; ownership; spectrum auction and regulation.

Contents

Executive Summary and Conclusions 3

The Future Media Environment 5

Digital Radio 8

Ownership 9

Spectrum Auctions 15

Future Regulation 15

• UK commercial radio operators are beginning both to exploit a presence on the internet and to invest in the platform ownership that DAB terrestrial multiplexes provide.

• CRCA’s proposals for legislative reform take as their premise that Government should seek to protect consumer and citizenship expectations of commercial radio and at the same time, give our sector the economic confidence to compete with new and unregulated media. In order to meet the challenge presented by technological change, commercial radio needs to ensure its pre-eminence as a mobile, universally-available mass medium. It also seeks to capitalise further on its valuable position as a mass activity used by consumers when they are engaged in another activity. We would expect the future regulation of commercial radio to enable us to achieve this.

• The principal requirements that will enable terrestrially transmitted digital radio to prosper are as follows.

1. Low cost receivers available in the market as quickly as possible.
2. The availability of most current analogue radio services in digital form.
3. The availability of new digital radio services.
4. Robust digital terrestrial radio coverage of most of the UK.

• The seven blocks of L Band currently set aside for satellite digital radio should be transferred to be used by digital terrestrial radio.

• Everything should be done to ensure the L Band spectrum that has currently been set aside for digital radio should be made available in 2005 rather than 2007.

• Both single medium ownership rules and cross media ownership rules in the UK should be relaxed. Successful service provision in a converged technological environment requires significant convergence of ownership. A combination of relaxed ownership regulation and light touch content regulation is the best way for Government to manage the process of change in broadcasting markets.

• A combination of de-regulation of commercial radio ownership rules and the maintenance of light touch content regulation will allow growth to enable investment in new services, give our sector the confidence to compete with telecommunications-broadcasters, and protect our listeners from a reduction in choice of services or undue editorial influence.

• Commercial national and digital radio broadcasters should be subject only to normal competition controls. Any operator who owns less than 40 per cent share of listening (including the BBC’s share of listening) should be able to apply for any new licence advertised in that area. Unlike share of revenue, share of listening is immediately available via Rajar.

• Spectrum for broadcasting should not be auctioned. If the rich variety of choice that is available in the UK is to be maintained and improved, the use of spectrum for broadcasting should carry with it an obligation to provide broadcast radio services that are different from other services available within the relevant coverage area.

• CRCA is unconcerned as to whether broadcasting and telecommunications regulation remains housed in separate institutions or whether regulation is converged into a single organisation. However, regulation of radio should be administered by a unique department or organisation, and should not be coupled to regulation of television broadcasting.

• Spectrum allocated by the DTI (as at present) or by the overarching regulator (if the concept of an OFCOM finds favour) should be awarded by the Radio Regulator to both BBC and commercial broadcast radio on the basis of a content remit for the service concerned.

• BBC Radio should be regulated by the Radio Regulator. Only by regulating both BBC Radio and commercial radio together will regulation ensure the widest possible diversity of listening choice, create a level playing field for competition and future investment, and the proper and transparent use of public resources set aside for radio. The continued separation of regulation and legislation for BBC services from its competitors is untenable in a future of media and telecommunications expansion.

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The report "Mapping the Future of Convergence and Spectrum Management" suggests four possible future scenarios. CRCA’s vision of the future is unlikely to be better than that of anyone else. Protagonists whose business interests are best served by a particular scenario will prefer one to another but we suggest that broadband developments, wireless technologies and the internet, either wired or unwired, will all find their place in the digital future. None will be abandoned. Each one has advantages to consumers depending on their interests, requirements and location at the time of use.

It is our view that the forthcoming White Paper should seek to balance protection of consumer expectations of existing mass media with the need to allow regulated traditional media to compete with unregulated ‘communicators’.

We predict that there are three rather than four possible future outcomes as a result of change in broadcasting and communications markets. Legislation should attempt to find the best outcome in the interests of citizens.

1. Universal access. The expansion in new technology leads to consumer choice. A range of communications platforms and an increase in media operators provide plurality and diversity thus delivering Government political, social and cultural objectives. Low-cost, universal access of new services serves to include all citizens in the Information Society.
2. Nothing changes. Citizens more or less watch and listen to the same favourite terrestrial services. They supplement free-to-air broadcasting by subscribing to a few broadcasting services and they use the internet for email and a mixture of e-commerce and social service delivery. However, they expect to receive and pay for favourite content in traditional ways.
3. Dumbing down. Existing terrestrial content is replaced with poor quality content, access to new services is far from universal and domestic content production diminishes.

The Government is charged with producing legislation that can enable the ‘Universal access’ scenario to take shape, whilst also ensuring citizens have access to existing services if ‘Nothing changes’ and protecting citizens and the creative economies from the ‘Dumbing down’ scenario.

In light of these requirements, CRCA’s proposals for legislative reform take as their premise that Government should seek to protect consumer and citizenship expectations of commercial radio and at the same time, give our sector the economic confidence to compete with new and unregulated media.

Radio listening remains a mass activity. Despite the arrival of television and then television-based services such as video recorders, radio has survived and remained a mass activity, albeit not an evening peak-time activity. In recent years it is the impact of internet usage that has had the greatest effect on changing media consumption habits. In one survey, over one-third of respondents spent less time watching television since starting to use the Internet. In contrast, listening to the radio increases with internet usage and is an important complementary activity to it.

Time spent in an average media day

The complexity of choice offered by media expansion may have resulted in an increased demand for local or interest specific media. The internet offers access to an almost infinite resource of information and communication but the information is often pan-national in its content. Subscription television may appeal to niche taste audiences but the ability of some new media to offer content which reflects audiences’ identities and cultures is limited. This criticism is not true of commercial radio. Our stations attract 80 per cent of UK local listening and almost 50 per cent of all listening. They do this by helping listeners to feel part of a geographical or interest community. Community radio creates that community through the public service work stations organise every week; the content and order of stories in news bulletins; and through on-air discussion of issues of local or national concern.

There are two essential differences between now and ten years ago. The first is that digital networks are replacing analogue networks and the second is what is termed the Negroponte switch: this refers to the development whereby broadcasting is delivered via broadband networks and telephony via wireless networks. The result of both differences is increased choice of programme or service for consumers. The sheer volume of choice has made regulation more difficult, as with internet services, and perhaps less necessary, as with subscription services or the increase in services. For example, one could argue that the need for positive content regulation reduces as the number of services catering for different consumer requirements increase. Consumers are served by the range of different services available across a broadcasting sector rather than through diversity of programming on a regulated service. On the other hand, it could be argued, without some form of regulation, operators will fail to offer a range of different services and will begin to mimic each other.

In this increasingly cluttered communications world, UK commercial radio operators are beginning both to exploit a presence on the internet and to invest in the platform ownership that DAB terrestrial multiplexes provide.

In order to meet the challenge presented by technological change, commercial radio needs to ensure its pre-eminence as a mobile, universally-available mass medium. It also seeks to capitalise further on its valuable position as a mass activity used by consumers when they are engaged in another activity. We would expect the future regulation of commercial radio to enable us to achieve this.

Audiences benefit from an environment of choice and diversity. All CRCA’s recommendations regarding ownership and licensing are designed to achieve this.

Listeners have come to expect that a licensed radio service complies with the following requirements:

• that nothing is included in its programmes which offends against good taste or decency or ... is offensive to public feeling
• that any news given (in whatever form) in its programmes is presented with due accuracy and impartiality.

Our listeners have every right to expect their radio services to continue to be worthy of their trust. We see no reason to remove the commitment of commercial radio services to meet these requirements and our proposals regarding content regulation are designed to ensure this.

The Government will wish to seek ways to assist those who would otherwise be ‘information poor’. The Government must therefore consider what media and communications services should be available at low or no charge. CRCA believes that, for the foreseeable future and for the legislative period covered by the forthcoming DTI/DCMS White Paper, radio services will continue to be free-to-air.

UK commercial radio operators are familiar with providing services funded by advertising that are free-to-air. This does not mean that they are set against the concept of subscription radio services in the future. However, they believe that their value as entertainment and information services which are popular and entertaining and encourage social cohesion and benefit UK citizenship will continue to be, in the main, services that are widely available and free to all. This is their prime value as well as the basis of their business.

The principal requirements that will enable terrestrially transmitted digital radio to prosper are as follows.

1. Low cost receivers available in the market as quickly as possible.
2. The availability of most current analogue radio services in digital form.
3. The availability of new digital radio services.
4. Robust digital terrestrial radio coverage of most of the UK.

Receiver manufacturers need to have fresh and exciting digital radio content and robust terrestrial digital radio coverage if they are going to increase the production and reduce the price of sets. The shortfall in digital radio spectrum currently available limits reception to only 75 per cent of the UK population. We believe this is sufficient for the next five years but, thereafter, it will be important to find sufficient new spectrum in Band 3 and L Band to allow the population at large to enjoy digital radio wherever they may happen to be. We regard it as vital, therefore, that the seven blocks of L Band currently set aside for satellite digital radio are transferred to be used by digital terrestrial radio. We also believe that everything should be done to ensure the L Band spectrum that has currently been set aside for digital radio should be made available in 2005 rather than 2007.

Both manufacturers and consumers need to be given clear signals by Government that the future of radio is digital and that most analogue radio broadcasting will cease. We recommend that the Government makes clear statements relating to the UK digital radio timetable as follows:

1. a date by which it wishes to see existing local, regional and national services all offered to listeners in digital form;
2. the circumstances in terms of audience reach, geographical coverage, receiver availability and/or price and any other relevant factors that will need to apply for analogue radio services to be switched off so that the relevant spectrum can be made available to others; and
3. a provisional switch-over date from analogue to digital radio in all metropolitan and regional areas.

Commercial radio companies assume that spectrum currently used for analogue radio broadcasts will be re-used in due course by the Radiocommunications Agency for other purposes.

CRCA believes that both single media ownership rules and cross media ownership rules in the UK should be relaxed. Successful service provision in a converged technological environment requires significant convergence of ownership. The new services envisaged in the report "Mapping the Future of Convergence and Spectrum Management" will be content hungry. Content requires significant investment and the ability to utilize and adapt that content on a variety of platforms and in a variety of ways. This can only occur if the UK commercial broadcasting sector is allowed to build corporate structures that rival those that have been encouraged by the looser ownership regimes in Europe and the United States. At the moment, in the UK only the publicly-funded broadcaster (the BBC) is able to own television, radio and publishing services. Hitherto, a strong BBC competing for audience against the commercial sector has been good for the maintenance of programme standards and we do not seek to reduce these or dismantle the BBC. However, competition in programme excellence only works if both commercial and publicly funded sectors are strong. It will not work if the BBC’s commercial competition is enfeebled by outdated and unnecessary ownership restrictions. The UK’s listeners and viewers will be less well served.

The 1990 Broadcasting Act did much to foster the wealth creation and extension of listener choice for which UK commercial radio has subsequently been responsible. Half of all UK radio listening and 80 per cent of local listening is now claimed by commercial radio services and the share of advertising revenue enjoyed by commercial radio has risen from 2 per cent to 5.5 per cent.

Commercial radio’s track record regarding innovation and new services is good. Non-stop news 24-hours-a-day, jazz, classical, dance, independent rock and a variety of ethnic services have all been pioneered by UK commercial radio. The creation of three national commercial stations, many more local stations and the growth of strong radio station groupings have been major factors in this development.

CRCA proposes that a combination of relaxed ownership regulation and light touch content regulation is the best way for Government to manage the process of change in broadcasting markets. A combination of de-regulation of commercial radio ownership rules and the maintenance of light touch content regulation allows for growth to enable investment in new services, gives our sector the confidence to compete with telecommunications-broadcasters, and protects our listeners from a reduction in choice of services or undue editorial influence.

The current ownership ‘points system’ has served the industry well in the past but fails it now for the following two reasons:

• It does not reflect the actual value or influence of the licences to which it applies. For example, it gives all London-wide stations the same ownership value. All are excellent services fulfilling listener requirements, but all are very different both in share of voice and revenue potential.
• Its cap of 15 per cent of the commercial radio sector is set too low to allow the creation of strong players that are able to succeed in a fiercely competitive market for consumers’ time, or are able to invest in new technology.

Current ownership rules seek to deliver consumer choice and democratic objectives. CRCA believes that the greater number of services a single owner in a single market is able to own increases consumer choice. This is because the owner will strive to maximise his listener base by appealing to different niche audiences within the same area, in the interests of increasing income.

CRCA expects that competition rules will continue to limit the percentage of a market’s income that may be taken by an individual player. In light of the regulation of the market by the Competition Commission, CRCA proposes that as long as there is competition in a market we see no reason to set ownership limits.

We propose that national and digital radio broadcasters should be subject only to normal competition controls. In a local market, we propose that any operator who owns less than 40 per cent share of listening (including the BBC’s share of listening) should be able to apply for any new licence advertised in that area. Unlike share of revenue, share of listening is immediately available in almost all cases via Rajar.

1. Current ownership rules encourage operators to pursue the same audiences

Concentration in local ownership increases choice for listeners while plurality of ownership has the reverse effect. It is a generally accepted economic paradox that the presence of many players in a single market tends to lead to less diversity. We call this the Hotelling effect whereby different suppliers of a product or service will tend to pursue the most lucrative (the mainstream) market thereby deserting niche consumer requirements.

BBC radio services provide proof of the ways by which a number of services in single ownership provides audiences with a range of distinct services. Large companies with many outlets in single markets (like the BBC) do not cannibalise their existing services by chasing the same audiences. Experience in the United States supports the view that format diversity increases as ownership concentrates. Berry and Fogel’s work concludes that relaxations in US radio ownership rules under the 1996 Telecommunications Act led to more concentration of ownership which created an increase in programming variety. ‘Our results at least suggest that the increased concentration has been good for listeners.’ The US market is not a market that can be mapped easily onto the UK commercial radio market, however. The US does not have format regulation and the fact that it manages to provide diversity with ownership consolidation is commendable. We propose that deregulation of ownership rules and the maintenance of format regulation will protect diversity in the UK commercial radio market.

2. Diversity in broadcasting content is desirable

Commercial radio agrees that a plurality of services is essential to enable the creation of services with real cultural value.

1. Society is becoming more variegated and this transformation must be met by broadcasting that is accountable to changing audience tastes.
2. New technological developments further encourage audience expectations that broadcasting can offer something for everyone.
3. Differentiation between broadcasters is required if the creative climate is to encourage innovation. A healthy society relies upon the creation of new ideas so it can absorb the best of innovation and make it popular.
4. Differentiation between broadcasters encourages competition which in turn encourages production of quality programming. It is difficult to regulate for the concept of quality broadcasting because there is no easily definable way of identifying what is a merit good. Quality broadcasting is desirable but it is not known how to define it. Quality cannot be defined by audience figures nor can it be defined by taste. Regulators, therefore, prevented from proscribing what quality broadcasting looks like, can only create the right environment for quality broadcasting to take place.

1. Content regulation vs. ownership regulation on delivering diversity

CRCA proposes the maintenance of format requirements for each licensed radio service. Charged with the responsibility to ensure UK broadcasting delivers choice, innovation and quality to audiences, broadcasting regulation has focused on ownership constraints and the maintenance of ‘the character of the licensed service’ in order to favour new entrants in the media market. We believe that content regulation achieves diversity while ownership restriction does not. Diversity is created in the radio sector by offering listeners a range of services across a horizontal market. Local religious stations compete against local dance music stations which compete against national classical music stations and so on. An increase in diversity requires two factors:

1. an increase in services available to listeners, and
2. the licensing of distinct formats.

The commercial radio market is as diverse as the range of licence formats on offer.

1. National ownership rules do not create diversity in local markets

Ownership rules do nothing to ensure local commercial radio stations are unique. The UK commercial radio sector serves a varied range of tastes and yet it is sometimes accused of homogeneity. Local commercial radio stations may be similar to other local commercial stations operating in adjacent regions, however they are markedly different from their local BBC and local commercial radio competitors and from national radio services. Possibly the only market with similar services is the London commercial radio market which is considered large enough not to suffer any ill effects of duplication. Similarity of services in different target areas does not limit the choice of services available because listeners are usually resident in only one locality.

2. Plurality in broadcasting is desirable

Ownership rules also seek to protect democratic objectives, namely to protect citizens from undue editorial influence. Certainly ownership rules should only be relaxed if there are safeguards in place to ensure that communications operators (whether they be broadcasters or telecommunications network gatekeepers), do not exploit their position as information providers to a political advantage.

We propose there are three mechanisms available to legislators to protect plurality of influence in the commercial radio market:

The regulation of UK commercial radio ownership needs to be relaxed in order to improve commercial radio’s competitiveness. Like other media sectors and its competitors, commercial radio needs to invest in digitisation, internet activities and related media. This requires wealth. A more competitive commercial sector will therefore benefit both its listeners and the wealth and communication infrastructure of the country at large.

Size matters both in programming, marketing and training terms. Large groupings enjoy scale economies that allow the provision of better quality programming. They are able to offer advertisers a more attractive package of advertising opportunities across markets. They are also able to offer more training and employment opportunities with greater scope for investment in human resources. Thus ownership deregulation allows the sector to create radio services that better appeal to listeners and advertisers.

CRCA does not agree that scale economies compromise the local character of local stations or that scale economies lead to heterogeneity between what were once distinct services. Let us take, as an example, news production in a local radio market. Three stations in a local market are owned by one company. In order to maximise profits the company offers three distinct stations targeted at different audience groups, sells advertising space through its national sales house and through one local sales operation, and produces news content by subscribing to a national news wire service and through one local news operation. This single local news operation serves all three stations. We argue that one local news service is able to provide distinct news programming for three distinct stations, in the same way that ITN is able to produce distinct news programmes for ITV, Channel 4 and Channel 5. We also propose that there is no commercial imperative for the company to do otherwise as it aims to maximise profits by targeting different audiences. Furthermore, we contend that the quality of news provided to local listeners will benefit from one news service established to cover the local news for three different audience groups, rather than three news operations designed to cover local news for the same or different audience groups. One local news service will be able to draw on greater investment in IT, recording equipment, management, expertise and training.

With special regard to training and employment opportunities created by consolidation, we do not agree that the creation of larger groups will restrict the opportunities for employment as groups discourage recruitment from rival dominant groups. There is a healthy churn employment rate in the commercial radio sector, as employees often move to different companies in pursuit of promotion. There is no evidence to show that this will diminish as a consequence of ownership deregulation.

As legislative matters stand, there is a danger that the existing outdated regulation will stifle the development of commercial radio. Two major commercial groups have already reached the end of their allowance to grow (EMAP and GWR) while remaining well below the audience share ceilings applied to UK independent television companies.

CRCA does not seek single medium ownership rule protection. Should the Government be concerned about undue influence that might result from cross-media ownership consolidation, then we recommend the sliding scale system recommended by the IPPR in future.radio.uk

IPPR proposes a system whereby the maximum limit within any one media is constant across media industries but decreases for companies that are active in more than one industry in proportion to the number of sectors the company is active in. Shares of consumer attention should be consistent in each sector, including public service broadcasting and share should measure actual rather than potential share. Decisions on the level of the limits should be the Government’s responsibility.

CRCA is against the auctioning of spectrum made available for broadcast use. We believe that if the rich variety of choice that is available in the UK is to be maintained and improved, the use of spectrum for broadcasting carries with it an obligation to provide broadcast radio services that are different from other services available within the relevant coverage area. We believe this can best be achieved by a licensing regime that is based on a licence remit that describes the service to be provided and ensures that the provider of the service adheres to it. This content regulation would not be fair if broadcasting licences were auctioned. In the circumstance of payment for spectrum, we believe that there should be no programme remits. Rather it should be up to the broadcast licensee who has paid to use the spectrum to decide what should be broadcast. We believe payment for spectrum would have a negative effect on the choice of services available to listeners.

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CRCA believes that UK radio should offer listeners as diverse a choice of services as possible, should be fair in its news and current affairs coverage and neither offend nor mislead listeners. We further believe that the spectrum should be allocated to broadcasters on the basis of content remits.

• CRCA is unconcerned as to whether broadcasting and telecommunications regulation remains housed in separate institutions or whether regulation is converged into a single organisation. We propose, however, that regulation of radio should be administered by a unique department or organisation, and should not be coupled to regulation of television broadcasting.

We do not see that regulatory convergence necessitates blurring the distinction between media and telecommunications sectors. Essentially this is because first, radio benefits from separate regulation from television broadcasting and, second, because broadcasting carries a history of regulation and consequently, carries audience expectation and telecommunications sectors do not.

• Spectrum allocated by the Government or by the overarching regulator (if the concept of an OFCOM finds favour) should be awarded by the Radio Regulator to both BBC and commercial broadcast radio on the basis of a content remit for the service concerned. We recommend that licence agreements continue to be tied to format requirements. The regulation of radio services through licence agreements tied to formats works well and we argue that it is differentiation of services through distinct format requirements that creates diversity in radio markets.

• CRCA proposes that BBC Radio should be regulated by the Radio Regulator. We argue that only by regulating both BBC Radio and commercial radio together will regulation ensure the widest possible diversity of listening choice, create a level playing field for competition and future investment, and the proper and transparent use of public resources set aside for radio. We also believe that the continued separation of regulation and legislation for BBC services from its competitors is untenable in a future of media and telecommunications expansion.

• The Radio Regulator will advertise, issue and renew broadcast radio licences.

• The Radio Regulator should provide a means of appeal in the event of listener dissatisfaction, but first allow the industry to seek a proper resolution to any mistake.

• Commercial radio advertising complaints should be handled by the Advertising Standards Authority (ASA) or a body created in-line with the ASA model. We support the Advertising Association’s recommendation that all advertising content regulation is transferred to a self-regulatory structure.