Sunday, 28 December 2008

UK commercial radio revenues - a shrinking 'pint pot'

The Q3 2008 UK commercial radio revenue data slipped out in mid-December without even a press release and seem to have been largely ignored, so it seems worth a quick note…..

The good news? Q3 2008 revenues of £137.3m were up 2.3% quarter-on-quarter, and both local and national revenues showed increases.

The bad news? This quarter-on-quarter improvement is little comfort, because Q2 2008 had been the worst performing quarter since 2000. Now, Q3 2008 is the worst performing quarter since 2002. Year-on-year, Q3 2008 is down 7.8%. The four-quarter moving average to Q3 2008 is down as little as 1.0% because the first quarter of 2008 and the last quarter of 2007 had shown healthy increases.

The prognosis? The party is well and truly over. The UK commercial radio sector needs to face the fact that its revenues are in long-term decline. As recently as September 2008, RadioCentre chief executive Andrew Harrison
said he was “confident that [Q2 2008 revenue] is only a temporary blip following our previous four successive quarters of growth” and that “the signs are that Q3 2008 is already starting to look brighter”. However, the data demonstrate clearly that neither Q2 nor Q3 are a “temporary blip” or statistical error. Once you adjust the revenue figures for inflation, commercial radio revenues peaked in 2000.

The symptom? Listening to commercial radio is in decline. Aggregate adult hours listened to commercial radio are down more than 4% year-on-year (RAJAR, four-quarter moving average Q3 2008). Unless the radio industry can increase its unit price (no – check Capital FM’s disaster), there is no way to squeeze increased revenues from decreased hours listened. These are the basic rules of business. The fact is that hours listened to commercial radio in 2001 exceeded 507m per week, whereas they were 432m in Q3 2008.

The solution? The issue is not so much commercial radio’s reach (which is relatively steady), as it is commercial radio’s average hours listened. Stations must persuade their listeners to stay tuned for longer. Adult female average hours for commercial radio are falling by 3.7% per annum (RAJAR, four-quarter moving average Q3 2008). The average adult female commercial radio listener consumed 13.2 hours per week in Q3 2008, compared to 15.5 hours per week in 2000.

To increase its aggregate hours listened, commercial radio should benefit from the rising UK population and from the fact that it is offering a ‘free good’ in this Credit Crunch time. Stations are lucky they do not have to persuade listeners to part with increasingly scarce cash, but simply their time. The UK commercial radio sector needs to rise to this challenge, and not be content to excuse itself with further talk of ‘blips’.

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