Saturday, 22 August 2009

Paying for DAB radio carriage: god only knows

Premier Christian Radio, the London AM station, is planning to broadcast on the national DAB platform from 21 September 2009. In an e-mail to listeners, its chief executive Peter Kerridge explained:

“Beginning in September, we will start to incur the cost to transmit on this digital platform - £650,000 per annum - which is an expense that is over and above our current operating costs. The only way the £650,000 in transmission costs will be covered is through the generosity of friends like you. It is fantastic that God has moved in such an amazing way to provide Premier this national digital licence! Now may you and I be found faithful as we steward this new resource for His glory and for the advancement of His Kingdom!"

DAB carriage remains a costly business. Digital One, the owner of the sole national commercial DAB multiplex, fixes the carriage costs for content providers such as Premier Christian Radio. If £650,000 seems like a lot of money for broadcast on a platform that reaches 33% of adults in the UK and accounts for only 13.1% of radio listening [RAJAR Q1 2009], understand that this is a bargain compared to the expensive contracts some content providers had signed previously. In January 2009, Digital One responded to the government’s Digital Britain initiative by cutting its prices. Acting chief executive Glyn Jones
said:

“We’re turning the ideas set out in the Digital Radio Working Group’s report into actions. That includes looking hard at how Digital One can offer lower carriage costs. In turn we’re expecting that stakeholders involved in the Working Group, and other companies with the ambition to launch new national radio stations in 2009, will step up and engage with a view to adding compelling new choice for consumers. We’re expecting that prices will initially be set below Digital One’s 2008 rate card. One reason for that is to help provide an incentive for people to invest in high quality services. But, over time, companies providing new services will be expected to contribute to the costs of a transmitter roll-out plan which was something also identified by the DRWG as important.”

Digital One’s January 2009 press release was ambitiously headlined ‘New National Radio Stations To Launch In 2009’. Seven months later, what stations have stepped forward to take advantage of the Digital One offer? Government-funded BFBS Radio started DAB simulcasting on 20 April 2009, following a three-month trial in 2008. Amazing Radio launched on DAB in June 2009 for a six-month trial period, playing unsigned artists from its music web site. Also in June 2009, Fun Kids, which is normally on DAB only in London, launched a fourteen-week trial simulcast on national DAB. Neither BFBS nor Amazing Radio are participating in RAJAR radio audience research, so it is impossible to know how much listening these services are attracting on the DAB platform.

Have we seen any major media players step forward and put a new mass market radio service on the national DAB platform? Not yet. Why? Because, even at the knockdown rate of £650,000 per annum, it still proves impossible to make a profit from offering radio content on DAB. The table below offers very rough estimates of what digital stations measured in RAJAR (and carried on a mix of broadcast platforms including DAB and digital TV) should and might be earning in revenues. The second column lists the total hours presently listened to each digital station. The third column uses the average commercial radio sector yield (how much revenue was generated from how much radio listening in 2008) to estimate, in theory, what these stations’ revenues should be.


However, the ‘Commercial Radio: The Drive To Digital’ report commissioned from Ingenious Consulting by RadioCentre in January 2009 told us that:

“Incremental revenue from DAB-only stations is negligible at ~£130k per ‘bespoke’ station …”

The list above comprises the 14 digital radio stations that subscribe to RAJAR. Not all of these stations broadcast on DAB (Smash Hits Radio is only on digital TV), not all of them are national (Yorkshire Radio is only on the Yorkshire DAB multiplex, for example), but let us be generous and assume that each station earns revenues of £130,000 per annum. In total, these stations combined would generate £1.82m per annum of revenue. This is substantially less than the £29.7m revenues that would be expected to be generated from them attracting 22.7m hours per week of listening.

The final column in the table estimates how much revenue each station might be earning from the £1.82m total, if revenues were proportionate to hours listened. I must stress again that this only a rough estimate – none of these stations, nor Ofcom, publishes the actual revenues of digital radio stations. What these estimates demonstrate is that, if Planet Rock were (like Premier Christian Radio) paying £650,000 per annum for its carriage on the national DAB multiplex (the financial
details of its “long-term” deal with Digital One were not made public), the station is still nowhere near breaking even, not even after ten years on-air.

The Ingenious Consulting report found that DAB-only stations are spending £25m per annum on operating expenses. The above table shows that, if these stations were attracting revenues proportionate to the listening they presently enjoy, collectively they would then be profitable (£29m revenues minus £25m operating expenses). But, in fact, their revenues are presently less than £2m. The Ingenious Consulting report concluded that, as a result, the “annual negative cash flow impact of DAB” on the commercial radio sector is around £27m per annum.

This £27m annual loss attributable to digital radio stations represents around 5% of commercial radio’s revenues, a significant impact on an industry which is only marginally profitable overall at present. The nub of the problem is this: digital radio stations presently account for 5.3% of listening to commercial radio, but digital radio stations attract only 0.3% of commercial radio revenues. Here is a massive economic disconnect that requires much more than a mere increase in productivity or some kind of performance improvement. Doubling or even tripling these stations’ revenues would barely dent the problem.

Maybe DAB is simply not a platform where the traditional commercial radio model can be made to work – the old model of ‘give away free content, pay for it by attracting advertisers to buy on-air spots’. Maybe DAB is not a medium from which traditional UK commercial broadcasters can generate profits from offering content, as they had anticipated in the 1990s. Commercial broadcasters are pushing no commercial product other than their on-air brand (and some music downloads, concert tickets and click-through purchases). Instead, perhaps DAB can only be made to work as a marketing tool to assist companies selling (non-radio) products. So, for example, it would make sense for Universal Music to have a DAB radio station to expose directly to the public the CDs/videos/movies they are currently selling. It would make sense for Amazon to have a DAB radio station to promote all the consumer products it is selling. Then, the £650,000 carriage cost could be considered an additional ‘marketing expense’ for these companies’ core business, rather than a direct operating expense that had to be recouped ON-AIR.

The other possibility is for DAB to be used predominantly by organisations whose objective is something other than breaking even financially. In January 2008, I had
written:

“Worryingly, this sudden flowering of ethnic, religious and publicly-funded radio stations on the DAB platform echoes the fate of the ‘AM’ waveband in the 1990s, at a time when the radio industry and the regulator had become convinced that audiences were deserting that platform for the improved audio quality offered by the ‘FM’ waveband. By 2002, declining audiences of ‘AM’ stations had persuaded the regulator to suggest that the platform be used in future “for better serving minority, disadvantaged or currently excluded audience groups, whether defined by their interests, demographics or ethnicity”. The ‘DAB’ platform of 2008, particularly in London, is already starting to resemble the ‘AM’ platform of 1998, suggesting that ‘DAB’ might have already been written off by the sector as a means to reach the ‘mass market’ audiences that national advertisers desire from the medium.”

This trend towards non-commercial content has developed further since then. The national DAB platform has added BFBS Radio (government-funded) and now Premier Christian Radio (religious), but no new permanent digital radio stations operating on a commercial model. Local DAB multiplexes have added Traffic Radio (government-funded), Colourful Radio (ethnic) and UCB (religious). Interestingly, UCB has taken two channels on each of the regional MXR DAB multiplexes, giving it a substantial amount of DAB spectrum. But there have also been ethnic DAB radio casualties since my earlier report – Islam Radio in Bradford closed its DAB service in December 2008, and India’s Zee Radio closed its London DAB service in April 2009. Even for ethnic broadcasters locked out of analogue radio, DAB can prove a struggle.

Premier Christian Radio’s Peter Kerridge hit the DAB nail on the head when Media Week
reported:

“Kerridge said Premier Media’s funding meant it was in a better position than other media organisations, as the ‘ad-funded model is smashed’ …..”

The available financial data confirms that, certainly for the DAB platform, an ad-funded model simply is not viable at present. To make DAB work for your content, you need government funding, direct listener financial support, a sugar daddy, or some kind of god smiling benevolently down upon you.

5 comments:

Steve Green said...

It'll be possible to see what Digital One's new pricing structure will be once Premier launches by dividing the £650k by the bit rate that Premier uses to get the price per kbps. Then you can work out how much it costs for 64 kbps mono stations and 128 kbps stereo stations and so on.

Grant Goddard said...

From today's Irish Independent:

"There are just 20,000 DAB radio sets in Irish households and most fully commercial radio stations see little commercial sense in it."

http://www.independent.ie/opinion/analysis/same-old-voices-and-choices-as-rte-plays-it-safe-1867221.html

Grant Goddard said...

A comment by Amazing Radio about the viability of its recently launched DAB station:

"We need more download sales. They’ve grown significantly, but there’s still not enough people buying tracks. This doesn’t just reduce the income for Amazing artists, it also makes it harder for us to keep going, without having to take advertising (or maybe even at all). Radio licences are expensive things. You can’t pay for them on fresh air. It’s very early days still, and the momentum is great, but I really hope we see sustained increases in the nex tfew months so we can keep this going after the pilot, and keep it innovative. I hate the idea of Ad breaks every 20 minutes; I rerfuse to contemplate stopping altogether after 6 months."

http://amazingradio.co.uk/blog/2-down-4-to-go

Grant Goddard said...

I have just been alerted to Richard Eyre's article in this week's Media Week entitled "Listeners don't want DAB and there's no business model for it" which concludes:

"A decade in, DAB accounts for 13% of all listening, with a gently dwindling 66% still locked on to analogue radio. Such clear consumer preference should define the shape of the industry - not the policy preferences of governments or media companies. In Europe, Germany and Spain have pulled back from DAB using words like "obsolete" and "no business model"."

http://www.mediaweek.co.uk/news/927698/Listeners-dont-want-DAB-theres-no-business-model/

Grant Goddard said...

Article in Irish Independent headlined "Players polls apart on digital radio" (excerpt):

LESS than a year after RTE began going it alone with digital radio, the national broadcaster is extending the hand of friendship to the commercial players.

RTE Radio boss Clare Duignan, who took the top job after the commercials had already left the digital playing field, says the absence of commercial stations on RTE's digital service is a "big issue".

"We've begun to talk to the Independent Broadcasters of Ireland (IBI) and we're very much hopeful that over the next couple of months we'll be able to work something out," she says.

"DAB (digital radio) is one of those areas where we really need to work together as an industry."

But while Duignan is enthusiastic about the immediate prospects of commercials returning to RTE's DAB platform, IBI boss Willie O'Reilly, who also runs Today FM, seems less enthused.

The commercials wouldn't be interested in rejoining DAB "at the moment", he says, because "the return on investment looks poor".

http://www.independent.ie/business/media/players-polls-apart-on-digital-radio-1870840.html