UTV RADIO SUBMISSION TO DIGITAL BRITAIN

Executive Summary

As one of the UK’s major commercial radio groups, UTV plays a leading role in efforts to ensure the ongoing success of the wider commercial radio sector. We were involved in providing input into the Digital Radio Working Group and are supportive of industry-wide moves to develop a body which will plan and deliver a ‘Drive to Digital’. This response to the Digital Britain Interim Report is designed to complement these wider discussions by highlighting points of specific importance to UTV. It should be read alongside the response which RadioCentre is submitting on behalf of commercial radio as a whole.

Like the government, UTV recognises that there are a number of obstacles to the development of commercial radio in the digital age, which include DAB coverage, receiver and in-car take-up issues. To these three barriers we would add a fourth: an overly rigid legislative and regulatory environment.

We outline some specific matters of relevance to UTV that the government should consider as it tackles these barriers. In particular:
-    The continuing popularity and commercial value of AM services;
-    The slow growth in the availability of DAB receivers in cars;
-    The challenging economics for local radio;
-    The absence of a clear pathway to digital for certain local stations;
-    The inability of operators of national DAB services to sell regional advertising; and
-    The inherently high transmission costs associated with DAB networks.

We commit to contributing to industry-wide efforts to tackle each of these issues, but also seek government support for the following measures:
-    Local and national AM services should migrate to DAB once take-up and coverage issues have been addressed, and no earlier than the equivalent migration of FM services;
-    The regulatory and legal framework for local commercial radio should be liberalised;
-    DAB migration pathways should be created for local stations which do not have them;
-    Commercial radio stations should be freed to take risks in developing new content; and
-    The coverage and configuration of DAB multiplexes should be determined by market-based principles allied with assistance from the BBC and Ofcom.

About UTV Radio

UTV’s broad range of UK radio interests makes us an important player in Digital Britain.  UTV holds one of the three national analogue ‘INR’ licences (for talkSPORT), owns 16 local licences and has shareholdings in eight DAB multiplexes. We operate in each of the four nations of the UK and have committed significant investment to the success of each of our radio businesses, which we distribute via AM, FM, DAB, DTV and online platforms. In the long-term, we believe that the future of radio is digital and are at the leading edge of developments in digital radio services.

UTV’s national radio service, talkSPORT, is the UK’s only national commercial speech radio station, providing important plurality within UK radio and the wider media landscape. talkSPORT has demonstrated year-on-year audience growth in each of the last five years and now reaches 2.5 million listeners a week . UTV is implementing a successful 360 degree strategy to develop the talkSPORT brand across multiple platforms, launching the innovative talkSPORT online Magazine in 2008 alongside an enhanced web site with improved online listening facilities. talkSPORT’s radio service is also carried on Sky, Freeview, Virgin Media, DAB, and the internet, and is soon to launch on the emerging FreeSat platform. It has previously taken part in European and UK trials of DRM (Digital Radio Mondial) and was available on the now defunct Worldspace satellite platform.

UTV’s local stations are listened to by a total of 1.3 million weekly listeners and provide a significant volume of local news and information each week . Each of our stations also plays a key role at the heart of its community, offering substantial support for local events and initiatives. 96.4 The Wave in Swansea won praise from South Wales police in 2008 for raising awareness amongst listeners about the dangers and societal costs of drugs use, whilst 107.6 Juice FM won accolades at the 2008 Arqiva Commercial Radio Awards for best news output and technical innovation (the latter for its user-generated video portal for young people in Liverpool).

In common with other operators, UTV is exposed to the high relative fixed costs associated with running commercial radio services []. In the last year, UTV has taken proactive steps to close or dispose of underperforming stations (specifically talk 107, Imagine FM and Wave 102). We are investing in developing each of our remaining licences and are actively seeking solutions to safeguard the long-term viability of those stations which are less well positioned to cope with the current downturn.

UTV welcomes the Interim Digital Britain report as an important and timely intervention ahead of changes to the legislative and regulatory framework for UK commercial radio. We share each of the five objectives for Digital Britain. In particular, we welcome the report’s twin focus on delivering digital networks which are fit for purpose alongside a dynamic investment climate for UK content.

The barriers to the development of UK commercial radio in the digital age

As one of the UK’s major commercial radio groups, UTV plays a leading role in efforts to ensure the ongoing success of the wider commercial radio sector. We were involved in providing industry input into the Digital Radio Working Group and are supportive of industry-wide moves to develop a body which will plan and deliver a ‘Drive to Digital’. This response to the Digital Britain Interim Report is designed to complement these wider discussions by highlighting points of specific importance to UTV. It should be read alongside the response which RadioCentre is submitting on behalf of the commercial radio sector as a whole.

Like the government, UTV recognises that there are a number of obstacles to the development of commercial radio in the digital age, which include DAB coverage, receiver and in-car take-up issues. To these three barriers we would add a fourth: an overly rigid legislative and regulatory environment. Taken together, these barriers restrict the ability of commercial broadcasters to innovate and invest in creating a strong consumer proposition on DAB and other platforms.

UTV’s broad range of radio interests means that we have a close understanding of some of the specific issues that the government should bear in mind as it tackles DAB growth. These issues are a key influence on the proposals which follow in the latter part of this submission. They can be summarised as follows:

-    The continuing popularity of AM services. AM currently accounts for 79% of all listening to talkSPORT, and 75% of listening to BBC Radio Five Live. AM is also the primary listening platform for four of our local radio services (Valleys Radio, Swansea Sound, Pulse 2 and Signal 2), which attract around 200,000 listeners for a total of 1.7million listening hours each week . In all, there are around 33 BBC and 77 commercial radio services available on AM, in addition to community and student radio stations.
-    The slow growth in the availability of DAB receivers in cars . In-car listening accounts for a high proportion of overall radio listening, and is particularly important for the national speech services talkSPORT and BBC Radio Five Live. In-car listening currently accounts for around 26% of talkSPORT listening and 20% for Radio Five Live listening compared with 19% for the industry as a whole .
-    The challenging economics for local radio. Declines in advertising have heightened the commercial challenges facing the operators of local commercial radio licences. In the last year UTV has had to close one station (talk 107) and dispose a further two (Imagine FM and Wave 102) as a direct result of these pressures. We are currently working closely with Ofcom and other partners in an attempt to safeguard the future of Valleys Radio.
-    The absence of a clear pathway to digital for certain local stations. UTV operates a number of stations which, despite their relative size, lack a local DAB multiplex providing coverage equivalent to their existing Measured Coverage Area (MCA). Affected stations include Wire in Warrington, Wish in Wigan and St. Helens, Tower in Bolton, Peak in Chesterfield and Valleys in South East Wales.
-    The inability of operators of national DAB services to sell regional advertising. The Digital One national DAB network is currently designed in such a way as to prevent the stations it carries – talkSPORT, Classic FM, Absolute Radio and Planet Rock – from distributing advertising via regional macros. This is a result of the decision to design the national DAB multiplex as a single frequency network. The effect of this has been to restrict the value of national DAB carriage to service providers.
-    The inherently high transmission costs associated with DAB networks. As a service provider, UTV is familiar with the costs which are sometimes associated with securing carriage on a given platform. As a multiplex operator, we are aware that a key reason why DAB networks are often expensive is that the technical characteristics of DAB require the use of more transmitters, set at higher power levels, than analogue broadcast technologies. This additional cost is only defrayed if there is sufficient demand for carriage from service providers, and it is likely to remain a key barrier for entry in many markets until the penetration of DAB receivers improves.

Commercial radio’s responsibilities to shape its own future

Although UTV acknowledges the scale of the challenge which these barriers present for commercial radio, we also recognise that much of the responsibility for tackling these issues lies with the commercial radio industry itself, in partnership with government, Ofcom and the BBC. With that in mind, UTV is ready and willing to contribute to industry-wide efforts to secure commercial radio’s position within Digital Britain. We recognise and embrace our responsibilities to both our listeners and our shareholders to invest in our future, even as we confront the immediate issues we face as participants in an advertising-dependent sector.

It is with this desire for constructive two-way engagement with government, Ofcom and other radio stakeholders that we present a number of specific proposals, below, which are designed to tackle the barriers to commercial radio’s development in the digital age. Each is consistent with plans presented by the industry as a whole and reflects the nuanced issues of relevance to UTV which we have outlined above.

Local and national AM services should migrate to DAB once take-up and coverage issues have been addressed, and no earlier than the equivalent migration of FM services

As we have already noted, AM continues to be valued as an important radio platform by listeners. This is evident in the current performance of two of the UK’s most successful and highest profile radio stations, talkSPORT and Radio Five Live, which attract 2.5 and 6.0 million listeners respectively each week. Indeed talkSPORT is now the second most listened to commercial radio station in the UK, and the most listened to of any commercial station amongst the key 15-34 year old audience .

AM is also particularly important as a source of in-car listening for speech services, given the minimal contribution made by digital platforms (principally DAB) in reaching listeners on the move. As previously highlighted, talkSPORT and Radio Five Live generate disproportionately high levels of listening from motorists. This highlights both the demand for speech radio amongst this group of listeners, and the ongoing suitability of the AM platform in enabling this demand to be met.

As a result of these factors, and with reference to DAB growth trends and in-car receiver penetration projections, UTV has previously estimated that the business case for suspending AM broadcasting in favour of DAB distribution is unlikely to arise until at least 2017.

We therefore propose that AM services should continue to be transmitted in their current form until a common DAB migration date for BBC and commercial radio AM and FM services. In the event that a staged migration of services is agreed, we propose that local and national AM services should migrate to DAB no earlier than the equivalent FM services. The early migration of national FM services could even assist in tackling multiplex planning issues (outlined below), by freeing up VHF Band II spectrum which could be redeployed to help improve DAB networks. This potential for reuse does not apply to the spectrum currently allocated to AM services.

The regulatory and legal framework for local commercial radio should be liberalised

UTV welcomes the government’s recognition that the cost burden which regulation places on local radio operators may be unsustainable. We are fully engaged with the review being undertaken by John Myers and believe that this should recommend affording stations greater flexibility to co-locate licences at shared premises within a given region or nation. We also support stations gaining increased freedom to share programming.

Operational matters such as the location of studios and hours of bespoke programming are naturally regulated through a commercial assessment of where the balance lies between investing in securing a local audience and ensuring that the cost of doing so is met through the sale of advertising and sponsorship. Against a backdrop of unprecedented declines in UK advertising, there is a pressing need for stations to be afforded the freedom to identify where that balance lies in their respective markets.

A further significant area of regulation within local radio is the current media ownership regime. We believe that the current regime is overly complex and fails to reflect a sufficiently broad cross-media definition of local markets. The effect of this is to act as a disincentive to co-ownership of local media press, radio, TV and online titles, creating inefficiencies in how local media operators deploy their fixed costs and acting as a disincentive on new investment in content and networks.

As such, UTV plans to engage fully with the Office of Fair Trading (OFT) review of local media ownership. We propose the removal of all radio-specific ownership regulation (including restrictions on ownership of DAB multiplexes) and a relaxation of the competition authorities’ approach to defining relevant markets for the purpose of local media mergers.

DAB migration pathways should be created for local stations which do not have them

As outlined above, UTV operates a number of stations which, despite their relative size, lack a corresponding local DAB multiplex providing coverage equivalent to their existing Measured Coverage Area (MCA). Affected stations include Wire in Warrington, Wish in Wigan and St. Helens, Tower in Bolton, Peak in Chesterfield and Valleys in South East Wales.

We propose that the Government should work with Ofcom to find digital solutions for services that would like them. This will ensure that commercial radio’s ‘drive to digital’ plan is not prejudicial to smaller stations without an existing DAB migration pathway. We suggest that this aspiration could be realised by reconfiguring existing DAB multiplexes or licensing new ones and we suggest that Ofcom should consider this as it reviews the multiplex framework (see below).

Commercial radio stations should be freed to take risks in developing new content

UTV is committed to distributing compelling content via national broadcast and non-broadcast platforms, including DAB. We plan to pursue opportunities to extend our current investment in such services once the economic environment is more favourable, having had to delay the launch of talkRADIO following the decision by Channel 4 to withdraw from digital radio and from its involvement in 4 Digital Group. UTV is also committed to providing on-air marketing and other public support for DAB, principally through its marketing for talkSPORT and support for cross-industry marketing initiatives.

The government can help to foster and extend investment of this kind by implementing the steps that we have proposed both here and in cross-industry representations.

In addition, the government should seek to create a more balanced playing field in the level of regulation governing content on different platforms (particularly radio, TV, press and the internet). Radio is currently subject to significantly more restrictions on the content of its output than other media, despite evidence that listeners recognise the need for regulation to avoid restricting creativity. In Ofcom’s most recent Media Literacy report, radio secured the highest level of agreement of any medium that it should be “free to be expressive and creative” (77%). Ofcom also found that only 12% of consumers have concerns about what is on the radio, compared with 63% for the internet and 55% for television .

Tackling these imbalances will help to deliver an environment which is more conducive to investment in UK broadcast content. With this in mind, we plan to work closely with Ofcom in the coming year as it reviews the Broadcasting Code, exploring opportunities for measured and proportionate relaxations to existing code rules. We urge the government to provide appropriate legislative flexibility and statutory encouragements to support in this work.

The coverage and configuration of DAB multiplexes should be determined by market-based principles allied with assistance from the BBC and Ofcom

UTV believes that broadcaster-ownership of DAB multiplexes is good for the radio industry as a whole. Broadcaster-ownership ensures aligned objectives between operators and service providers in matters such as coverage and signal strength and gives the industry control over its own distribution.

UTV’s ownership of local and regional DAB multiplexes in London, Aberdeen, Central Scotland, Swansea, Bradford & Huddersfield and Stoke-on-Trent has led to an increase in the diversity of services available to listeners in each of these markets. The fact that we offer our own local services on our multiplexes makes an important contribution to their overall viability. Yet UTV also has a clear commitment to enabling new entrants to gain carriage on DAB, so allowing a diversity of services other than our own. We have also carefully managed the costs associated with multiplex management, enabling us to invest in coverage as far as it is commercially feasible to do so. In February 2009 we announced an extension to the coverage provided by the London II multiplex.

Market-based approaches are likely to enable continued improvements to multiplex coverage as receiver penetration improves. However, it is clear that public intervention will also be required to ensure that DAB multiplexes are available in the right locations and with suitable levels of coverage and signal strength as to enable migration of services from AM and FM to occur.

Firstly, we agree with RadioCentre that public funding via the BBC will be needed to enable multiplex coverage and signal strength to be extended to FM-equivalent levels, particularly in areas where it would not otherwise be commercially feasible for further investments to be made.

Secondly, we propose that the government should delay implementation of Administered Incentive Pricing (AIP) for DAB multiplexes until such time as migration to DAB has been completed and a further assessment can be made of the appropriateness of a levy on DAB spectrum holdings. This will ensure that the ability of multiplex operators to maintain or extend investment in transmitting digital radio services is not undermined.

Thirdly, Ofcom needs flexibility to amend licensing and frequency plans for multiplexes to reflect market needs as it develops and implements a DAB migration plan in partnership with the industry. This will require changes to legislation to allow the regulator greater discretion in the scope and remit of licences. It will also require Ofcom to have access to spectrum and frequencies which are suitable and reserved for DAB use. We support calls for the currently defunct ‘D2’ frequency to be retained for DAB and urge Ofcom and the government to investigate additional sources of frequencies for DAB use. This will assist with replanning work such as our proposal above that Digital One be reengineered to support regionalisation.

12 March, 2009