UK commercial radio sector revenues Q1 2011: local advertising hits 10-year low

Data published last week for 2011’s first quarter demonstrate that revenues of the UK commercial radio sector are still struggling to rebound from the previous two years’ ‘credit crunch.’

A large part of the problem is the coalition government’s swingeing cuts to its marketing budget since May 2010, which have afflicted commercial radio advertising much more significantly than other media [see blog]. Additionally, and very worryingly, in Q1 2011, revenues from local advertisers fell to their lowest level for a decade, even at a time when local radio might be thought to be making client gains from the decimation of the local newspaper industry.

As has been suggested here previously [see blog], the strategy of the largest commercial radio owner, Global Radio, to transform its local stations into ‘national’ brands would seem to be a recipe for disaster at a time when:
• the national advertising market for radio is shrinking so rapidly (down 34% in real terms between 2004 and 2010)
• the BBC continues to dominate the national radio marketplace with exceptionally well-funded, ubiquitous brands [see blog]
• Ofcom’s market research points to overwhelming demand from consumers for more local radio rather than more national radio [see chapter 4(d)]
• many local commercial radio offices have been closed just as local newspapers have closed in many local markets.

TOTAL UK COMMERCIAL RADIO REVENUES:
• Q1 2011: £126.9m (£137.9m in Q1 2010)
• Down 8.0% year-on-year
• First year-on-year decrease since Q3 2009

UK COMMERCIAL RADIO NATIONAL REVENUES:
• Q1 2011: £69.2m (£78.6m in Q1 2010)
• Down 12.0% year-on-year
• First year-on-year decrease since Q3 2009

UK COMMERCIAL RADIO LOCAL REVENUES:
• Q1 2011: £33.7m (£35.9m in Q1 2010)
• Down 6.1% year-on-year
• Lowest quarter since Q1 2001

Although the quarter-on-quarter trend during the last three years appears to be relatively flat, once the data is viewed in the longer term, it is apparent that the commercial radio sector has been unable to grow its revenues back to the peak achieved in 2004. Adjusted for inflation, the ‘real’ peak occurred in 2000 and, by 2010, commercial radio total revenues had fallen by 33%.

Following the impact of the ‘credit crunch,’ the subsequent blow to the sector caused by the government’s slashed expenditure on commercial radio advertising from its Central Office of Information [COI] has been catastrophic. COI spend on radio in the twelve months to March 2011 was down 80% year-on-year. In the year to March 2010, the COI had been the radio sector’s biggest advertiser by a factor of eight but, only one year later, it had been diminished to almost par with the second biggest radio spender, Autoglass.

In June 2011, the government confirmed that the COI will be axed altogether, offering no respite to the commercial radio sector. According to The Guardian:
“Instead the government intends to run advertising and marketing activity out of the Cabinet Office, hiring about 20 extra staff to complement existing communications teams.”

With local advertising revenues having hit a decade-low in Q1 2011, and national revenues having fallen 34% in real terms between 2004 and 2010, surely it should be time for commercial radio to ask itself:
• is the current local-station-turned-national-network policy the appropriate strategy for the current advertising market?
• is the current local-station-turned-national-network policy the appropriate strategy to satisfy radio listeners?
• how much longer can the ‘slash and burn’ strategy (as pursued by GWR, then by GCap, now by Global Radio) be applied to the commercial local radio industry before there is simply nothing left to cut?
• how much more shareholder value can be destroyed in commercial radio before revenues fall faster than costs can be cut?

A question I was asked by one senior radio executive last week was: how will all this commercial radio ‘slash and burn’ end? I wish I knew. Of one thing I am certain: it must eventually end in tears once the net book values of dozens of commercial radio licences have to be written down by millions of pounds in the accounts of their owners.

This process has already started tentatively:
• Global Radio valued its licences at £333m on 31 March 2010, after having swallowed a £54m ‘impairment’ write-down in 2008/9
• in 2009/10, the Guardian Media Group suffered an ‘impairment’ of its radio licences by £64m and now values them at £68m
• Times of India looks likely to have to take as little as £20m for Absolute Radio, a national station it had acquired for £53m only three years ago.
We have to anticipate more write-downs like these.

At some point, even millionaires must not enjoy watching as their radio assets are reduced to dust by shrinking audiences/revenues. But what can be done when those same owners have already starved the goose that had once laid the golden local commercial radio egg?

[Historical data from some previous quarters have been revised marginally at source]

Government expenditure cutbacks clobber UK commercial radio

As soon as the coalition government came to power in May 2010, it implemented Conservative Party policy to make substantial cutbacks to the amount of public money spent on government marketing campaigns. Commercial radio was hit the hardest because, more than any other medium, it had become increasingly dependent upon government expenditure on advertising airtime.

In 2010, before the general election, I had predicted [see blog] that the impact of these cutbacks would prove “disastrous” for the commercial radio sector. I had calculated that a 50% cut in total public expenditure on commercial radio advertising would lose the sector £44m to £48m in revenues, equivalent to 9% of total sector revenues.

Interviewed by BBC Radio Four, I was asked if my scenario was not overstating the potential impact on commercial radio. I argued that it was not – the amount spent by the government’s Central Office of Information [COI] on commercial radio dwarfed all other radio advertisers by miles. By February 2010, government expenditure on radio commercials was greater than that of the second, third, fourth and fifth largest advertisers combined.

The Radio Advertising Bureau had put a brave face on the losses from its biggest advertiser. In June 2010, it said: “We are optimistic that radio’s strengths will be recognised as COI budgets come under ever greater scrutiny.” In September 2010, it said it was “working with a wide range of advertisers to bridge the gap” left by public expenditure cuts.

However, the latest data from Nielsen show that the impact upon commercial radio has been even greater than I had forecast. In the year to February 2011, COI expenditure on radio advertising was down 70% year-on-year, much greater than the 50% cut that had been anticipated from previous Conservative Party pronouncements. In total, commercial radio lost £44m per annum from all public expenditure on radio, compared to the previous year.

The worse news was that, as the graph above shows, the fall in COI expenditure has become steeper in recent months. As a result, the impact on the sector in 2011 is likely to be just as severe as it was in 2010. The hard fact is that this is not a temporary cyclical loss for commercial radio – these revenues will not rebound for as long as the coalition government remains in power.

The graph shows clearly that no individual or group of advertisers have been able to substitute entirely for the losses caused by government cutbacks, although some gains were made from clients in 2010 [see blog]. No commercial advertiser spends more than £10m per annum on radio, whereas the COI had spent £58m in the year to March 2010 (but was down to £17m by February 2011). This is simply too big a gap to be filled by a few individual commercial advertisers.

Media Week reported recently that “the more optimistic media owners are hoping the COI’s former spend [on radio] can be clawed back by year’s end.” It is hard to see how that can be realistically achieved, given the scale of the £44m per annum loss from public sources to date, particularly in the face of declining consumer disposable incomes.

In an attempt to offer a positive outlook, Media Week suggested: “But the situation is set to improve. From April [2011] onwards, there will no longer be any comparable year-on-year COI spend left in the system, as purdah [sic] kicked in 2010.”

Perhaps what Media Week was trying to say was that COI expenditure will level off this year once the savage cuts have been in situ for more than a year. Yes, inevitably, but that does not in any way help an industry that has just witnessed £44m per annum of revenues disappear into thin air. Remember that total commercial radio revenues in 2010 were only £523m, already down from £641m in 2004. Now a further huge 8% chunk of income has gone.

Another commentator recently noted optimistically: “The [radio] medium took £523 million in revenue in 2010, up 3.3% year-on-year, and 2011 looks like another positive year of growth, not the inevitable management of decline forecast by some.”

However, once inflation is taken into account, 2010 commercial radio revenues fell in real terms [see blog]. Far from a decline being “forecast by some,” the industry’s own data demonstrate that decline has been occurring since 2004 in real terms, long before the recent cuts to government expenditure. Adjusted for inflation, commercial radio revenues in 2010 were lower than they had been in 1998.

This is not the time for spreading unfounded optimism based on ignorance of the facts. If anything, the impact of government cuts has proven to be more than “disastrous” and will necessitate even more restructuring of the commercial radio sector in the short term. This could include the closure of further unprofitable digital ventures and of sector support agencies whose subscriptions will begin to appear increasingly discretionary when the axe has to fall somewhere.

UK commercial radio revenues underperform the 2010 media market

Marketing magazine’s annual survey of the top 100 advertisers announced some good news:

“More than three-quarters of the UK’s top 100 advertisers increased their adspend in 2010, defying predictions that the year would mark a steep decline in marketing budgets. By channel, the biggest year-on-year increase was in TV advertising, with a 17% rise, according to Nielsen; print, outdoor and cinema spend also rose.”

So, good news for radio too? Marketing continued: “The only medium in which spending fell was radio, falling 6% on 2009 levels.” Oh dear.

Why was radio so badly hit in 2010? Partly because of commercial radio’s greater dependency than other media on public expenditure which, as Marketing explained, was cut drastically in 2010:

“The government’s commitment to slashing public-sector spending was reflected in the 50% year-on-year decline in the COI’s [Central Office of Information] adspend to £105.4m.”

And partly because the volume of commercial radio listening has been in decline for the last decade, and sector revenues are a product of listening:

Encouragingly, 2010 witnessed a 3% year-on-year increase in the total volume of commercial radio listening, the first increase since 2001. However, total radio listening (commercial + BBC) had increased in 2010 by 2%, making commercial radio’s gain only marginally greater than the total market.

As for the other issue of slashed public expenditure on commercial radio, although 2010’s loss of £24m seemed bad [see blog], 2011 could prove to be worse. On Friday, the Cabinet Office recommended the scrapping of the 60-year old Central Office of Information:

“As part of the changes, the COI will be replaced with a new body, the Government Communications Centre, with a wider remit and responsibility for keeping a tight reign on advertising and marketing spend. … The report does not say how much the government might cut from its £1bn annual communications bill, or how much of the £540m spent on everything from TV, radio and posters to sponsorship might be reduced.”

This would prove a further financial blow for commercial radio, since COI expenditure on radio of £30m in 2010 still contributed as much as 11% to the sector’s national advertising revenues, even after having been slashed by the coalition government.

Although Marketing’s (Nielsen) data reported that radio’s national revenues fell by 6% in 2010, the commercial radio sector’s own numbers showed a 6% increase. This discrepancy is puzzling. Nevertheless, analysis of the industry’s dataset tells us:

TOTAL UK COMMERCIAL RADIO REVENUES:
· 2010: £522.6m (£505.5m in 2009)
· Up 3% in absolute terms
· First year-on-year increase since 2007
· Down 1% at constant prices [RPI]

UK COMMERCIAL RADIO NATIONAL REVENUES:
· 2010: £276.2m (£259.4m in 2009)
· Up 6% in absolute terms
· First year-on-year increase since 2007
· Up 2% at constant prices [RPI]

UK COMMERCIAL RADIO LOCAL REVENUES:
· 2010: £144.3m (£144.7m in 2009)
· Down less than 1% in absolute terms
· Lowest value in absolute terms since 2001
· Down 5% at constant prices [RPI]
· Lowest value at constant prices since 1992

This apparent collapse in local advertising revenues would appear to mask a dichotomy that is taking place in the radio sales market. For those stations in small groups or independently owned that rely almost entirely on local revenues, the market for local advertising has already rebounded from the recession. The closure of many local newspapers, the cuts to local council freesheets and the closure of many local radio station offices owned by large radio groups have left these genuinely local stations in an opportune position to hoover up more local advertisers.

On the other hand, local radio stations that have been transformed recently by Global Radio into ‘national brands’ (Heart, Capital) seem to be abandoning their interest in local advertising markets. If I owned a local business in Eastbourne, I would like to know how effective an advertisement would be on the local Heart FM station in my immediate area of Eastbourne & Hastings. This is no longer possible because Global Radio has done away with RAJAR audience data for many local markets. The smallest market that RAJAR can tell me about now is “Sussex,” comprising 1.3m adults – much too big a coverage area for an advert for my one local shop in Eastbourne.

This new strategy seems inconsistent with the Heart FM licence for Eastbourne & Hastings which Ofcom insists is “A LOCALLY ORIENTED CONTEMPORARY AND CHART MUSIC AND INFORMATION STATION…” So, please will Ofcom explain how Heart FM can be a “locally orientated” station if, as a potential advertiser in Eastbourne, I can no longer determine how many people would hear an advertisement broadcast on the station?

RAJAR explained the changes to its data: “Campaigns transferred from Q3 2010 to Q4 2010 will contain the old station definitions and they will be visible Q4, however the data will not be accurate. Please re-plan the campaign using the new regional definitions available in Q4.” In plain English – audience data for local stations have been removed and merged into regional groupings from last quarter.

So, it would seem that the ‘nationalisation’ of the content on Global Radio’s Heart and Capital brands has been accompanied by ‘nationalisation’ of advertising sales. If ever there seemed like a wrong time to be pursuing national advertisers for commercial radio, surely it must be now [see blog]. In real terms, national advertisers spent no more on commercial radio in 2010 than they had in 1997. However, in 1997, there were only 200 commercial radio stations, whereas now there are 300.

I am reminded of a meeting in 2007, just weeks before EMAP was sold, with its chief executive when I asked him if he felt there was anything that the group’s radio division should have done differently. Local advertisers, he told me. We neglected local advertisers in pursuit of the larger amounts we could earn from potential national advertisers. But we turned our backs on previously loyal local advertisers who quickly lost interest in our stations without regular contact from our salespersons.

Here is a lesson to be learnt from the UK’s second largest commercial radio group. Don’t look your local cash cow in the mouth.

Public spending cuts impacted commercial radio 2010 revenues by £24m

Who was UK commercial radio’s biggest advertiser in 2010? British Gas? No, it was second. Autoglass? No, it came third. Volkswagen? No, it was fourth. Unilever? No, it came fifth.

Radio’s biggest advertiser in 2010 was the government (in the guise of the Orwellian-sounding Central Office of Information [COI]). Not only was the government the biggest advertiser on radio, but it was far and away the biggest advertiser by miles. The government’s £30m expenditure on radio in 2010 exceeded the sum total of British Gas, Autoglass, Volkswagen and Unilever.

After the coalition government was formed in May 2010, it immediately executed Conservative Party strategy to cut public expenditure on commercial advertising by 50%. Before the election, I had predicted that this Conservative policy would have a disastrous impact on commercial radio revenues [see May 2010 blog]. It did.

Although the coalition had been in power for little more than seven months by year-end, COI expenditure on radio was quickly slashed from £50m in 2009 to £30m in 2010. Additional (non-COI) public expenditure cuts reduced radio’s revenues by a further £4m in 2010. This £24m total was a significant loss to commercial radio, and represented 9% of national revenues, or 5% of total revenues.

Did radio suffer greater cuts from the COI than other media? Seemingly not. Radio’s share of COI ad spend was 27% in 2010, slightly higher than the previous year. The reason the impact was so great for radio was the sector’s much greater dependency upon public money than competing media (television, the press, billboards).

In June 2010, the Radio Advertising Bureau had said bravely: “We are optimistic that radio’s strengths will be recognised as COI budgets come under ever greater scrutiny.” Evidently, radio strength’s were not.

By September 2010, the Radio Advertising Bureau said that it was “working with a wide range of advertisers to bridge the gap” left by public expenditure cuts. What was the outcome?

There were some impressive gains for radio from other clients in 2010:
· British Gas increased its expenditure on radio from £5m to £9m year-on-year (particularly impressive since it had only spent £2m on radio in 2007)
· Autoglass increased its expenditure on radio from £5m to £9m year-on-year (50% of its ad budget)
· Gocompare.com increased its expenditure on radio from £1m to £5m year-on-year
· More Than increased its expenditure on radio from £2m to £4m year-on-year
· Mars increased its expenditure on radio from £1m to £4m year-on-year
· Asda multiplied its expenditure on radio eight-fold to £3m year-on-year

The problem was that even these gains combined did not match the loss from government spending cuts. The huge challenge the commercial radio industry still faces is its history of increasing dependency upon one very large advertiser.

Additionally, there were other clients that either spent less in 2010, or might in 2011:
· Blockbuster Entertainment was radio’s sixth biggest advertiser in 2010 (spending 50% of its ad budget on radio), but filed for bankruptcy in the US in September 2010
· Sky TV reduced its expenditure on radio to £4m in 2010 from £7m the previous year
· BT reduced its expenditure on radio to £4m in 2010 from £7m the previous year
· Proctor & Gamble reduced its expenditure on radio to £4m in 2010 from £6m the previous year
· Specsavers had been the second biggest spender on radio in 2009, spending £8m, but dropped out of the top 20 in 2010

However, these single-digit losses were dwarfed by the £24m reduction in public expenditure on radio advertising in 2010.

In terms of product sectors, motor vehicles rebounded from the recession and led the field in 2010 with £90m expenditure on radio. The finance sector similarly rebounded to £52m in 2010. On the other hand, the property sector did not rebound and its spending on radio of £8m in 2010 was down 42% compared to two years earlier. Likewise, online retailers spent only £2m on radio in 2010, down 55% from two years earlier.

Public expenditure on radio fell from the number one product sector in 2007, 2008 and 2009 to fourth place in 2010. Inevitably, given that the coalition was only elected mid-2010, the cuts to public expenditure are likely to have as much impact on radio in 2011 as they had in 2010. Neither is there any prospect of these cuts being restored under the present government.

Total radio sector revenues for 2010 are likely to be up slightly year-on-year [see Oct 2010 blog]. This is not something to shout about, given that Q2 and Q3 in 2009 had produced commercial radio’s lowest recorded revenues this millennium. However, it is an achievement in an environment where expenditure by commercial radio’s biggest advertising client fell off a cliff (as the graphs above demonstrate visually).

Unfortunately, in the longer term, unless commercial radio succeeds in improving its performance with listeners, both in absolute terms and in comparison with BBC radio, it cannot expect its revenues to return to levels recorded a decade ago. By 2009, UK commercial radio revenues had fallen by 32% since 2000 in real terms. Radio’s revenues from national advertisers had fallen by 47% during that period. That will be an almost impossible expanse of ground to regain.

[data source: Nielsen Media Research]

UK commercial radio revenues Q3 2010: still no sign of "renewed growth"

2008 had been a bad year for commercial radio revenues, down 6% year-on-year. 2009 was a worse year, when revenues fell a further 10% year-on-year. So how is 2010 shaping up? Radio Advertising Bureau data for Q3 2010 demonstrate that, although revenues are likely to be up marginally for the calendar year, they have yet to regain the substantial losses suffered during those previous two years.

Why? Because commercial radio’s falling revenues are largely the result of structural decline, something that the ‘credit crunch’ of 2008/9 merely exacerbated. Adjusted for the impact of inflation, commercial radio revenues peaked in 2000 and, by 2009, were down 32% in real terms. The single-digit improvements we might see in 2010 will claw back only a tiny part of these enormous losses.


Q3 2010 TOTAL REVENUES
· Up 3.2% year-on-year to £124.1m, but remember that Q3 2009 had been the sector’s second lowest this millennium

In May 2010, the Radio Advertising Bureau had told us that “the [commercial radio] sector has turned a corner and not only halted [revenue] decline, but moved into renewed growth …”

Industry data has yet to validate this assertion. The last two quarters produced the third and fourth lowest revenue totals of the decade, showing that the radio sector is certainly not out of the woods yet. More than anything, the industry’s revenues still seem to be bumping along the bottom. “Renewed growth” is not on the horizon yet.


Q3 2010 NATIONAL REVENUES
· Up 5.0% year-on-year to £62.8m

Q3 2010 LOCAL REVENUES
· Up 3.1% year-on-year to £36.8m

Q3 2010 BRANDED CONTENT REVENUES
· Down 1.2% year-on-year to £24.5m

The revenue data for the long term [see graph above] illustrate clearly the transformation of the commercial radio sector from a healthy growth industry in the 1990s to one that stagnated after 2000, and which has subsequently moved into decline. Whilst revenues from local advertisers have simply stalled in recent years, revenues from national advertisers seem unlikely to ever recover from substantial declines suffered since their peak in 2000. This has necessitated significant restructuring of the commercial radio sector in recent years.

For those larger commercial radio stations that depend upon national advertisers the most, the outlook continues to look bleak. Data from Nielsen estimated that advertising spend by the government’s Central Office of Information [COI] fell by 47% in 2010 year-on-year. COI expenditure has been a greater proportion of commercial radio revenues than of any other medium, making radio particularly vulnerable. In May 2010, I had predicted:

“A 50% budget cut to COI expenditure on radio would lose commercial radio £26m to £29m per annum, 6% of total sector revenues. A 50% budget cut to all public sector expenditure on radio would lose commercial radio £44m to £48m per annum, 9% of total sector revenues.”

Not only have these cuts been realised, but the Cabinet Office is continuing to pursue a plan for the BBC to carry public service messages for free, rather than pay commercial broadcasters for airtime [also predicted here in May 2010]. This could lose commercial radio a further 6% to 9% of revenues.

In 2009, even before these drastic cuts to government expenditure on advertising, commercial radio was attracting only 4% of total display advertising expenditure in the UK, one of the lowest proportions globally [see Ofcom report]. What is UK radio doing so wrong that Ireland, Spain and Australia achieve more than double that amount? And why was that percentage already falling before the COI cuts, demonstrating the radio medium’s comparative lack of appeal to potential advertisers?

There could not be a worse time to be a commercial radio station dependent upon national advertising. Yet now is the precise time when several large commercial radio owners are busy transforming their local and regional stations into national ‘brands.’ As a response to the sector’s structural challenges, this is tantamount to cutting off your nose to spite your face. ‘Localness’ has consistently been shown to be the most important Unique Selling Point of local commercial radio, according to Ofcom research. Throw that localness out the window and all that remains is a music playlist which can be generated by any computer application.

UK commercial radio has always been good at making ‘cheap and cheerful’ local radio, but has been rubbish at making national radio that could compete with the BBC’s incredibly well resourced national networks. The recent decisions of commercial radio owners to switch from production of local radio services with a track record of success to production of ‘national’ ones that have a history of relative failure create massive risks for an industry already in decline.

History tells its own story. The launch of the UK’s first three national commercial radio stations between 1992 and 1995 had much less of an impact on radio listening than had been anticipated. By 1997, Richard Branson had decided to sell Virgin Radio (for £115m) – it was obvious that national commercial radio was not going to be a massive moneyspinner. In 1997, Virgin Radio’s listening share had been 2.6%. Last quarter (Q3 2010), it had fallen to 1.2% (renamed Absolute Radio after another sale in 2008 for £53m), while the combined share of the three national stations was 6.8%. [source: RAJAR]

BBC national networks account for almost half of all radio listening. The only time that their share has not exhibited long-term growth was during the early 1990s, when Radio 1 self-destructed under the management of Matthew Bannister. Since that disaster, the BBC’s national networks have been successfully clawing back listening year-on-year.

The current scenario in which the owners of commercial stations that were licensed to serve local audiences have decided to subvert that purpose to take on the might of the BBC national networks is either brave, or madness, depending upon your viewpoint. What I see is a monolithic BBC that has existed continuously for nearly a century, and then I see three national commercial radio stations that have had a succession of at least three owners each during their almost twenty-year struggle to attract listeners.

National commercial radio. Just why are parts of the commercial radio industry so eager to emulate an idea that has only led to well documented failure?

UK commercial radio: Q2 2010 national revenues down 40% since 2003

It seems like only yesterday that the Radio Advertising Bureau [RAB] was telling us that:

“The [commercial radio] sector has turned a corner and not only halted [revenue] decline, but moved into renewed growth …”

In fact, it was 20 May 2010 and the reason for the RAB’s optimism was the sector’s 2009 revenue performance. Yes, revenues in 2009 were down 10% year-on-year and yes, back in 2008, they had already been down 6% year-on-year. But, as I noted at the time, mere numbers never seem to get in the way of the trumpeting of a “terrific achievement.”

Fourteen days prior to the RAB pronouncement, a general election had ousted the Labour government and introduced a new Conservative/Liberal coalition. The writing was clearly on the wall that tougher times were ahead for the commercial radio sector. At the beginning of May 2010, I had spelled out emphatically the dire implication for commercial radio revenues of an incoming Conservative government:

“The Conservative Party pledged in its manifesto to reduce advertising expenditure by government departments, if elected. The planned cuts would be significant, 40% of the COI 2008/9 budget of £540m, according to one press report. … A 50% budget cut to COI expenditure on radio would lose commercial radio £26m to £29m per annum, 6% of total sector revenues.”

And so it came to pass, even though the Radio Advertising Bureau was still insisting in June 2010:

“We are optimistic that radio’s strengths will be recognised as COI budgets come under ever greater scrutiny.”

But budget cuts of 50% cannot be executed that recognise the radio medium’s strengths. Since May 2010, public funding of commercial radio has fallen sharply from 18% of sector revenues and will not be bouncing back anytime, at least not while the Conservative Party holds the public purse strings. The largest commercial radio owners have been hit the hardest, whilst the smaller local stations (that rely much more on local advertisers) have been little impacted.

As a result, it was no surprise that commercial radio revenue data for Q2 2010 were released quietly without fanfare or further pronouncements about “renewed growth.” The notion that commercial radio revenues had “turned a corner” looks even more hollow now, a mere four months after the Radio Advertising Bureau had uttered those words.


Q2 2010 TOTAL REVENUES
· Up 1.9% year-on-year, but remember that Q2 2009 had been the sector’s most disastrous
· Q2 2010 total revenues are the third lowest this millennium (after Q2 and Q3 in 2009)

Q2 2010 NATIONAL REVENUES
· No change year-on-year, but remember that Q2 2009 revenues were already down 16.1% year-on-year and, before that, Q2 2008 had been down 15.9% year-on-year
· Q2 2010 national revenues are the second lowest this millennium (after Q3 2009)

Q2 2010 LOCAL REVENUES
· Up 1.7% year-on-year, but remember that Q2 2009 was already down 6.0% year-on-year and, before that, Q2 2008 had been down 8.4% year-on-year
· Q2 2010 local revenues are the lowest since Q2 2009 and, before that, Q1 2002

The most frightening facts about the Q2 2010 data are:
· National revenues have fallen 40% since Q4 2003
· National revenues have fallen to a level the sector had attained in 1998 (earlier, if inflation is considered) when there were about eighty fewer commercial radio stations

If Q2 2010 was bad for commercial radio, then the following quarters are likely to be worse, as the impact of government expenditure cuts will have wreaked havoc across complete quarters of commercial radio’s national revenues. The outlook for the commercial radio sector looks anything but “terrific”, though trade body RadioCentre was still peddling eternal optimism in its September 2010 newsletter:

“Whilst revenue for Q1 2010 was up 7.3% year on year, the best performance and highest growth for 2 years, Q2 proved more of a challenge with the election and subsequent cuts in government expenditure. However, the RAB is working with a wide range of advertisers to bridge the gap, and the current outlook for quarter three is that we’ll see a modest growth, even despite COI cutbacks.”

And, after this week’s Radio Advertising Awards (where, ironically, “government departments and campaigns scooped the most awards,” wrote Marketing Week), the RAB was still proclaiming “… the outstanding work which has seen our [commercial radio] sector return to growth …”

Suffice to remind you that Q2 and Q3 in 2009 witnessed the commercial radio sector’s lowest recorded revenues this millennium, so that any year-on-year increase will have been achieved from a base of absolute ‘rock bottom’. To add to the gloom, Minister for the Cabinet (and the government’s Paymaster General) Francis Maude told The Times last week:

“We are looking at whether we should be expecting the BBC — when people are paying their Licence Fee — to carry some public information advertisements. It wouldn’t be a propaganda operation but this is public service broadcasting. The taxpayer might say, ‘Should I be paying out my taxpayer’s money for the Government to pay ITV to carry public information advertisements?’”

So the worse news for commercial radio is that it could be about to lose whatever remaining government advertising has survived, if pubic service announcements are to be switched to BBC Radio. After all, not only would such a policy save the government a further £30m per annum, but BBC Radio reaches 67% of the UK adult population per week, greater than commercial radio’s 64%.

In May 2010, I had predicted that the government could adopt just such a policy:

“If a government were to return to the post-War COI policy of using public broadcasters to air its Public Service Announcements, rather than paying commercial rates for airtime, up to 18% of commercial radio revenues would disappear at a stroke.”

I am sufficiently ancient to remember the intriguing, but rather bizarre, Public Information Films that used to grace BBC television. I also remember the Public Service Announcements that local commercial radio stations were required to broadcast for free when the Independent Broadcasting Authority was the sector regulator. So such a policy would be nothing new and should have been anticipated by the sector.

But what can commercial radio do? The key is the word ‘commercial’. The industry was foolish to have ever considered public expenditure on radio advertisements anything more than an ‘extra’ that was bound to disappear some time at the whim of politicians. That time is now. The same way that the government is mounting a war on ‘benefit scroungers’ who are said to have become too reliant on public handouts, the Conservatives are effectively waging a war against ‘COI scroungers’ – commercial broadcasters whose sales teams knew they could rely on government advertising handouts to meet their revenue targets and earn their bonuses.

How did the industry let itself get into this state? ‘Commercial radio’ was always meant to be ‘commercial’, not publicly funded. In exactly the same way, ‘local commercial radio’ was always meant to be ‘local’. It is the very point at which you begin to lose sight of who you really are that you set off down a rocky road that leads to inevitable oblivion.

Local Commercial Radio, know thyself.

Commercial radio revenues: always look on the bright side of less

Last week’s press release from the Radio Advertising Bureau was ecstatic about the commercial radio sector’s revenues. It told us that, in 2009, radio’s share of total display advertising had increased to 5.9% from 5.8% the previous year. It told us that this was the radio sector’s first growth in share since 2004. It told us that this was “terrific” news:

“To see the first annual share growth for five years, during the worst recession in living memory, is a terrific achievement for the commercial radio sector, and one that is unmatched by any other traditional media. It is a strong signal that the sector has turned a corner and not only halted decline, but moved into renewed growth, and is further evidence that the commercial radio industry’s on-going investment into programming, talent and marketing is paying dividends in both audience and revenue performance.”

I was stunned by this fantastic success story. So stunned that I had to check the industry’s own revenue numbers to make sure I had not been mistaken. A quick look at the figures reminded me of what I had thought I already knew. In 2009, commercial radio revenues had been down 10% year-on-year. That is ‘down’ as in ‘less’, not ‘down’ as in ‘more’. The only reason that radio’s share of all media display advertising increased at all in 2009 was that, whilst radio lost 10% of its revenues, media in aggregate lost 13%. In other words, radio’s performance in 2009 was less worse than the average. This is much like boasting you are top of a school remedial class.

The Radio Advertising Bureau press release tried to position radio’s revenue performance in terms purely of cyclical ‘credit crunch’ factors. In fact, commercial radio’s problems with revenues are largely structural and started in 2005 (see graph), well before the ‘credit crunch’:
• 2009 revenues: down 10% year-on-year
• 2008 revenues: down 6% year-on-year
• 2007 revenues: up 3% year-on-year
• 2006 revenues: down 5% year-on-year
• 2005 revenues: down 4% year-on-year

As a result, radio revenues, which totalled £505.5m in 2009, are now:
• At their lowest level since 1999
• At their lowest level, in real terms, since 1997 (adjusted for inflation)

It is difficult to understand how commercial radio’s largest ever year-on-year revenue decline gives “a strong signal that the sector has turned a corner and not only halted decline, but moved into renewed growth”, as the Radio Advertising Bureau would have it.

It would be great to see the commercial radio sector give a “strong signal” that it has turned a corner, any corner. But sector revenues are falling in the long term because the volume of listening to commercial radio is declining in the long term, having peaked in 2001 (see graph). Less listening inevitably leads to lower revenues.

Worse, not only are commercial radio revenues and listening both going down, but the amount of money the sector is able to generate from each 1,000 hours of radio listening is also going down. In real terms (adjusted for inflation), commercial radio’s ‘revenue yield’ fell to £23 per 1,000 hours in 2009, which is where it had been in 1997 (see graph). This is probably the outcome of fewer radio advertising spots, or lower radio advertising rates, or a combination of both. Reduced yields inevitably lead to lower revenues.

To combat these structural issues, the major challenge for the sector must be to attract more listening to commercial radio. That will require a strategy that is pragmatic and focused on listener needs. Pumping out press releases that try to gloss over the commercial radio sector’s largest ever year-on-year revenue decline with phrases like “terrific achievement” is part of the problem, not part of a solution.