I attended the Westminster Media Forum on the future of radio last week, intending to sit at the back and let others do the hard work. However, the forum was held just two days after the Global/GMG announcement, and therefore many of the planned speakers from local commercial radio had suddenly decided to "go walkabout." As I signed in the organisers asked me if I would step in and talk on one of the prepared topics, "The challenges facing local radio."
You know me - I will speak at the opening on an envelope, so I was happy to step in, and thought you'd like to read my comments below. I've edited them slighlty to make the written text read as eloquently as my brain thought the words coming out of my mouth actually sounded, and to remove the non-jokes which appeared funny in my mind as I said them, but as usual looked pretty lame on the page!
The challenges facing local radio
Phil Riley, Chief Executive, Orion Media
Good morning. I’m a late substitute, as Jimmy said. I think the people who were supposed to be here speaking are now locked in panelled rooms with anti-trust lawyers and economists, and if Clive Dickens is right in his prediction of earleir, they will be there for the next 2 or 3 years. So, I do hope they enjoy that.
So what’s the challenge for local commercial radio? Well I think we could probably start with the comments that the Governor of the Bank of England, Mervyn King, expressed yesterday, that we were only half way through a 10 year recession. If you want a challenge, that’s the challenge. Thank God I’ve got none of my personal wealth tied up in the industry. Oh no, shit… right.
Orion Media is a private equity backed investment company which bought a chain of radio stations from Global Radio the last time they dealt with the OFT / Competition Commission 3 years ago and they were forced to divest. We had a 3 year plan when we started, and 3 years on we’ve still got a 3 year plan! In fact I sat with my finance director yesterday and said, just go into the plan that we put to the private equity firm before we bought these radio licences, about how much national revenue would have grown by 2012, and let’s compare it to where we actually are in 2012. He has gone away to do the work, I haven’t got the numbers with me, but I guess that gap between where we thought it was going to be and where it is, is quite significant.
So, if you want the large challenge for a purely commercially funded local radio organisation such as ours or any of the other local groups, it’s struggling and managing to make ends meet in very, very difficult economic circumstances, and one of the problems of that, of course, is if you can’t see a return to the sunlit uplands of double digit growth on an annual basis then it makes planning for the future very difficult. If the some of the graphs that Sean or Tabitha showed were right, then the real plan for the future ought to be to manage 1 or 2% per annum declining revenue. That makes planning extremely challenging.
I think the second challenge that the local radio industry faces is the rise of the national radio brands, and by here I’m talking about Heart, Capital, Smooth, Kiss and others, because in many markets where there were 3, 4, 5 local radio stations, what you now have is essentially a single local station and either a regional or a national brand or a number of them competing. And there are some big challenges there because a national brand can afford better marketing in terms of being able to spread the cost of marketing and advertising production across a wider range, and being able to buy media much more effectively because they are a national brand. So you are up against competitors who are really trying to steal your audience. Potentially arguably the programming quality is better on some of the national brands, certainly Ashley famously said there aren’t 37 good mid morning presenters in the UK commercial radio. Whether that’s true or not, it’s certainly true to say that if you have got the pick of the crop to populate large segments of your output, you are going to deliver a level of quality and consistency in your output which local stations might find difficult to challenge.
A related challenge with the rise of these national brands is, of course, in national sales. For local radio stations there’s normally a mixed ecology, with some of our revenue coming from national advertisers, and some coming from local advertisers. Clearly if there are now easier ways for national advertisers to buy their way into living rooms in Birmingham or Manchester or Glasgow or whatever, then it might mean that the local station’s share of national revenue potentially is in a period of decline.
So three huge challenges there for local radio to face.
In addition, people this morning have mentioned local television, which lots of people are concerned about. Certainly from an industry lobbying perspective, I think we are right to say we are concerned about it, we think it’s the answer to a problem no one thought existed, and I think at its worst it has the potential to destabilise the local ecology of the radio marketplace. My concern about local television isn’t that it will be a success, because I don’t genuinely think it will be, my concern is that it will be a failure that won’t get killed off any time soon, and the problem about having a failing player in a local market ecology is there will be a race to the bottom. These guys, if they are in a difficult situation, will become increasingly desparate and will start to discount their prices for airtime in order to try and capture some share of the market. Now that eventually will feed through to the whole of the local broadcast marketplace, and I do think there’s a real concern there.
I think the final challenge I would pick out is online, and the potential growth of online and digital media into the local marketplace, as opposed to the national marketplace. I think when you look at some of those earleir graphs and you see the 30% online share, you do ask, where’s all that revenue come from? Probably most of that initially has come from a shift of national marketing, but increasingly there is concern that perhaps online activity will seep into the local marketplace and local advertisers will find digital and online increasingly part of their marketing mix, again putting downward pressure on the ability of local radio stations to take local advertising.
So those are the challenges - how do you respond? Well I think there are a number of answers.
The first response to the 10 year recession is to become more efficient and I think you have seen commercial radio in general across the piece become far more efficient in how it manages itself over the past few years, whether it’s networking mid morning presenters or local stations finding new and innovative ways to do things, we are certainly a very, very efficient industry, and in part we have been helped by some of the changes in regulation that we have seen through the Digital Economy Bill. We are pushing for more relaxation of regulation because we clearly are going to need to become even more efficient as we go forward.
In terms of competing against the rise of these national radio brands, I think the right way to respond is to sell the benefits of localness, and it’s interesting because I think one of the things that we are seeing in the Midlands is that as our competitors increasingly become national in their output and their outlook and where most of their programming comes from, it does provide us with an increased opportunity to go to local advertisers and say, we are the alternative, we are the place where you can talk locally, 24/7, we’re certainly the place where if you want to do sponsorship and promotional activity, you can do it with us and you can do it with us in a very flexible way. It’s very difficult for national brands like Heart and Capital and Smooth etc. to do local sponsorship, local promotions, because so much of their output is networked and is coming from London, so there’s a great opportunity there for local radio stations to be closer to local advertisers.
With local TV I’ve said I don’t genuinely think it’s a competitor, I think there’s a risk there that it destabilises the market. One thing that I think we will look at as these licenses get awarded, certainly in our market, is whether there’s any opportunity to collaborate with local TV. Certainly I’ve had a stream of people who are intent on launching local TV in Birmingham come through our offices and talk to us about sharing news and programming etc. I think when we know who has won that licence and what they are intending to do, there may very well be a conversation about a collaboration. I’m not expecting it to transform our fortunes as a provider of content, but there may be a way there in which we can offset some of the damage that local TV might do.
I think my biggest and strongest message in terms of how to respond is that we, as local radio operators, need to be more aggressive with marketing our own content. We need to grow our own audiences at the expense of the national networks and I think there is an opportunity for us to do better at challenging stations which are increasingly seen as coming from London, and offering an alternative, which works for both listeners and advertisers. Certainly our own audience growth over the three years that we’ve been running Orion is testament to that.
We’ve heard talk this morning about new advertising formats and I think that’s true of radio, whether it’s national or local, we need to be innovative. No one really has talked too much this morning about branded content/brand integration, but I think branded content is a great way of extending even further our ability to relate to advertisers and involve them in our programming in a way which is transparent and fair, but adds value for them and adds value for us. I think branded content is a clear way in which we can do more, and certainly at a local level, offering branded content to local advertisers is a very powerful win-win for both clients and stations.
Finally I think the other way that we need to compete and rise to the challenge is by using our own digital involvement, via the use of social media and our digital channels to augment what we are doing. Radio stations are more than just a signal on an FM platform, we are now the interaction between the presenters and their listeners on Twitter, on Facebook, we are the station inviting its audience to come in to its website to interact on our online platforms. All of those different ways in which we interact with our listeners can provide us with a way of benefiting in the future. As one stat, for example, our total Orion radio audience as measured by RAJAR, is 1.3 million listeners a week, but during the course of June, when measured across Twitter, Facebook, online, and all the other social media that we are on, 700,000 of those listeners also interacted in one way or another with us. That’s a very significant percentage of our overall audience that we are talking to in channels other than our FM and DAB platform, and that, I think, gives us a great way of trying to compete and generate new listening and new interactions and new revenue opportunities going forward.