Strategy document for the corporate development and business plan of a local commercial radio station group in the UK, written by Grant Goddard in December 2005 for the board of Laser Broadcasting Limited.

1. STRATEGY DOCUMENT
SECTION ONE- HOW DID WE GET HERE?
The commercial radio industry has grown dramatically since the first station launched in
1973. The history of the industry can usefully be divided into two chapters:
1. 1 1973 – 1990
At the beginning of this period, local commercial radio stations were opened only in the
UK’s biggest cities and then, in the 1980s, new stations were launched in smaller cities
and in largely rural counties. The regime was characterised by the word “monopoly”, as
only one commercial station was licensed in each location (London was the only
exception, with two stations licensed with very different formats). Each station broadcast
its programmes simultaneously on the AM and FM wavebands, enabling it to reach the
maximum possible audience in its coverage area. Each station’s success depended upon
its ability to attract listeners away from national and local BBC stations, and its ability to
attract advertising to the new radio medium and away from competitors such as the local
press and regional television.
Listening figures to local commercial stations were generally very high. They were new,
exciting and offered something more local and less stuffy than BBC stations. Because
each local station was a separate local company, run by a local Board and financed by
local shareholders, each station cultivated its “localness” to the maximum in order to
attract listeners. London’s Capital Radio was a prime example of the success such a
strategy could have. Using the slogan “in tune with London”, every day the station used
its converted red double-decker bus to visit a different London location, handing out
stickers and leaflets, as well as offering listeners the opportunity to meet presenters and
request songs. These “personal contact” strategies paid enormous dividends and
generated substantial loyalty between listeners and their local station. By the 1980s,
they were supplemented by community outreach projects and charity fundraising
marathons. Capital Radio had a job centre branch and a flat share information service in
its foyer, which became young Londoners’ first means of finding accommodation in the
city.
By the end of the 1980s, local commercial radio was a big success with listeners and had
developed a loyal following across two generations of listeners, giving it substantial
audience figures across a wide variety of ages. Up and down the country were a range of
fiercely individualistic, quirky stations, each with their own name, each with their own
“star” presenters, and each adopting their own idiosyncratic music format. By now, each
had woven itself into the fabric of its community and was as much a part of local life as
the town’s football team or the local bakery chain.
The one aspect of local commercial radio that proved problematic was stations’ inability
to surpass their 2% share of all UK advertising expenditure. This percentage stubbornly
refused to grow, even during times of an advertising boom and radio became known
within the advertising industry as the “2% medium”. It was viewed as an “extra” to be
added to media campaign plans in times of boom, but quickly struck off when the
economy was not so good. As a result, advertising revenues fluctuated enormously
during downturns in the economic cycle and one local station was even forced into
liquidation.
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2. Radio’s main problems in attracting national advertising were:
•
Even all the stations added together did not cover the whole UK;
•
Because each station was independently owned, buying a campaign on all existing
stations was a labour-intensive task;
•
Station advertising rates and packages varied hugely, more dependent upon
stations’ ability to extract such prices from local advertisers than any standard cost
per thousand;
•
Station formats varied as much as their names, so that some stations delivered
considerably older or more female-orientated audiences than others.
Because national advertising was so problematic, the majority of advertising sold on local
commercial stations was derived from local businesses. By the late 1980s, local radio had
proved its effectiveness at marketing local products to local listeners, and a bond had
been forged between local business owners and the local sales teams of stations that was
the economic lifeline of these stations.
At the same time, by the late 1980s, complacency started to infiltrate local radio that
resulted directly from stations’ lack of competition for listeners and lack of competition
for local advertisers. Stations started to work less hard than they used to in order to
please both their audience and their local business community. The government’s
regulator released stations from having to fulfil many of their community obligations.
Instead of seeing that work as an intrinsic part of their loyalty-building strategy, stations
such as Capital Radio closed their Community Department overnight. At the same time,
stations had their eye on merging with nearby stations to increase profitability or
arranging stock market flotations to generate capital for acquisitions. Several stations
diversified into all sorts of businesses from theatres to restaurants, seeing themselves as
“entertainment” rather than purely “radio” companies. In the 1980s, anything that
involved making money seemed a good idea.
For the first time in its history, the late 1980s saw Capital Radio suffering declining
audiences and, like other local commercial stations, it had no idea what to do about the
problem. It had only ever competed against the BBC for audiences and, only then, back
in its very early days. Since then, it had always taken its audience for granted and simply
presumed that listeners would never turn to any other station. All the local stations still
enjoyed a monopoly over commercial radio advertising in their patch. It was something
they felt they had a right to. The 1980s economy was booming. Everyone was getting
rich quick.
1.2 1990 – now
The existing radio stations received their first major shock when the regulator suddenly
licensed a range of “incremental” stations in areas that already had existing local
stations. This was the first time that the so-called “heritage” stations had ever faced
competition from newcomers. For example, in London, Capital Radio lost audience
straight away to Melody Radio (targeting older people), Kiss FM (young people), Jazz FM
(wealthy middle-aged people) and Choice FM (the Afro-Caribbean community). Suddenly,
the audience that Capital had taken for granted for so long was deserting it in droves for
stations that sounded new, fresh, innovative and in touch with London, something that
Capital had done less and less of in recent years.
The second shock came when the regulator licensed three national commercial radio
stations, a full thirty years after local commercial stations had been introduced. The
industry had been arguing for years that it could never break through the 2% barrier (of
all advertising spend) unless businesses and agencies were able to offer clients a proper
“national” opportunity to book a single campaign across the whole UK. New national
commercial stations could offer such a deal and give the existing local radio stations a
chance to share in radio’s enhanced visibility. As a compromise, the new stations were
deliberately introduced in such a way so as not to impact local commercial radio
2

3. audiences too greatly. The national “popular music” station was to be confined to the
poor quality AM waveband, while only a minority-interest music station would be allowed
the coveted national FM slot.
The third shock came when, having seen the success of some achieved by some of the
specialist music stations that were part of the “incremental” experiment, the regulator
decided to roll out a programme of many more new local stations in more areas with
existing “heritage” stations. Thus, the 1990s heralded the biggest and fastest expansion
of radio stations the UK had ever seen, immediately after a period of relatively slow
industry growth in the 1980s. The shock of moving from a stagnant period of
complacency to suddenly being immersed in a highly competitive situation where they
had to fight for both listeners and advertisers proved a wake-up call for many local
stations. What followed still has a considerable impact on the radio landscape of today.
The radio industry underwent a fundamental re-structuring that included:
i. The emergence of radio groups
A limited amount of consolidation had occurred during the 1980s, largely based on
regional geography, whereby groups were formed from the combination of several local
stations in a region (i.e.: Midlands Radio Group, Suffolk Group Radio). As early as 1985,
GWR started a series of acquisitions based on the simple motivation that “big is better”
and the trend continued throughout the 1990s with stations bought and sold for greater
and greater sums of money.
ii. The entry of media groups
Starting in 1990, large cross-media groups such as EMAP, Virgin and Chrysalis bought
their way into the radio industry, acquiring a mix of heritage stations and newly launched
stations. This substantially increased the sale prices of local stations.
iii. National advertising
The launch of the three national radio stations had the desired effect of attracting
national advertisers and agency media buyers to radio for the first time. With local
stations now consolidated into fewer groups, it became easier to buy campaigns through
a single selling point to run on stations across a region or regions. Both the national and
local stations benefited from the influx of national revenues.
iv. Cost cutting
In an industry where costs are mostly fixed costs and revenues are almost infinitely
variable, the GWR group pioneered the strategy of cutting costs to the bone at the many
stations it acquired. According to GWR CEO Ralph Bernard: “It became very evident that
if you don’t have size, you don’t have the ability to do things and you are forever trying
to find the money to fix leaks, literally.” GWR’s policy of implementing economies of scale
across its stations led to the centralisation of many tasks.
v. Local advertising
As stations became incorporated within larger and groups, national advertising became of
more and more importance to their owners. The bedrock of local radio, local advertisers,
soon became serviced by regional rather than local sales teams, until eventually they
were serviced hardly at all from a national sales office. As a result, local advertising
revenues became less and less important to groups that were growing bigger and bigger.
vi. London agencies
With the rise of youth brands in the marketplace, and the evident success of London
youth station Kiss FM in creating a commercial focus for a demographic that had never
before been served by commercial radio, London advertising agencies suddenly wanted
to buy campaigns on stations that delivered 15 to 34 year olds. Faced with both local and
national competition for audiences and revenues for the first time, local heritage stations
suddenly started chasing a younger audience. As a result, the middle-aged audience that
3

4. had been loyal to their local commercial stations for many years started to drift away
(mainly to BBC Radio Two), alienated by stations playing too much dance and rap music.
vii. BBC Radio One
Although the turn of the 1990s had been a scary time for local heritage stations as they
suddenly faced competition in their own areas from competing commercial stations for
the first time, they were all helped immeasurably by the BBC’s decision to change
drastically the programming of its most popular station, Radio One. Until then, this
station had a remarkably large audience of diverse ages that overshadowed local
commercial stations in most regions of the country. As a direct result of the BBC’s bizarre
volte-face, between 1992 and 1994, five million listeners left Radio One and most sought
refuge in local commercial radio. These stations’ audiences suddenly boomed and they
became the most listened to in their markets, without having to change or do anything
different. The BBC had unintentionally saved their backsides.
viii. Lack of investment
With audiences growing hugely because of the demise of BBC Radio One; with revenues
booming because of the ability to sell national advertising on larger and larger groups of
stations; and with stock market values of radio groups buoyed by the industry’s breakout
from its former position as the “2% medium”, group owners were quick to redistribute
their substantial profits to shareholders. After a relatively lean period in the 1980s,
“radio” was suddenly riding on a high in the financial community. Ignoring the fact that
their product had only become popular as a haven of last resort for listeners fleeing
Radio One, group owners invested almost none of their lucky profits back into the
development, improvement or update of their product.
ix. Networked programmes
Instead, station owners sought ways to cut even further the fixed costs of their station
operations. Led by GWR, groups persuaded the regulator to let them network some
programmes from a central production studio, instead of each of their stations producing
all of its own content. In a lengthy process of attrition, bullying a regulatory agency that
lacked any long-term strategic plan for the industry, group owners were allowed piece by
piece to extract the “localness” from their local stations. Local voices, local station
names, local celebrities, local music, local content and local news all became sidetracked
or dispensed with by many group-owned stations.
x. The rise of brands
Led by EMAP, who championed the notion that nationally recognisable brands were
preferable to local identities, many local radio stations were stripped of the very
characteristics that made them “local” in the first place. In an attempt to make their
product controlled, homogenous and universal, the largest radio groups invested
considerable sums in state-of-the-art technology that enables stations up and down the
country to be playing exactly the same record at exactly the same time, appended at the
end of the song by a jingle that says “Coventry” or “Newcastle” as appropriate,
depending upon the station’s location.
xi. Format convergence
Although the listener is now offered a considerably wider choice of commercial radio
stations in most local markets than was the case in the 1980s, the industry is plagued
with competitors who are all trying to move towards the same middle ground. In yet
another process of attrition that the regulator has lost again and again, many stations
have stretched the definition of their prescribed programme formats to (and often
beyond) their limits. This has created a situation where stations that are (by the
regulator’s definition) meant to be complementary are in fact found to be competing for
the same audience demographic and for the same advertisers in the very same market,
by playing exactly the same music. This leads to substantial market “cannibalisation”
whereby competitors merely steal audience from each other, rather than attract listeners
from the biggest competitor, BBC.
4

5. xii. The decline of the music industry
Commercial radio in the UK, modelled on BBC Radio One, has always relied upon the
universal popularity of “popular music” to be the cornerstone of its programmes’ appeal.
Until around 1990, almost everyone in the UK had a common notion of what a “pop hit”
was. But from the time that Radio One refused to play the first “house” record that
reached Number One in the singles chart, it was obvious that such communal
experiences were on their way out. The subsequent rise of “dance” music amongst young
people polarised popular music and led to a substantially fractured music market. Now,
the market for singles is all but dead, CD sales are at an all-time low, and the cult of
“celebrity” has replaced the cult of “pop stars”. Frankly, commercial radio stations have
almost no idea any more what music they should play to attract listeners.
5

6. SECTION TWO-
WHERE ARE WE NOW?
The “success” of local commercial radio stations in the 1990s had been a direct result of
circumstances that were largely outside of the industry’s control (particularly BBC Radio
One’s policy changes). That success has been greatly assisted by the relative failure to
attract audiences of two of the three national commercial radio stations, which has
resulted in these new stations being much less of a threat to local radio audiences than
had been anticipated.
Instead of having to succeed by fighting against increased competition for audiences and
revenues, much of these economic benefits have fallen into the laps of the radio groups.
This has only added to the level of complacency that already existed in radio groups and
the belief that they are eternally successful by default. Unfortunately, they failed to
understand that, just as people’s tastes and interests change as they get older, these
groups’ radio stations similarly needed to adapt to changes going on the marketplace.
Much of local commercial radio still sounds exactly the same as it did five or even ten
years ago.
The
•
•
•
commercial radio industry has shown tremendous growth since 1990:
The number of stations has more than doubled
Advertising revenue has quadrupled
Audiences have grown in the long run
However, in recent years, the industry has shown signs of beginning to stall because of
these factors:
2.1 Revenues
COMMERCIAL RADIO REVENUES
£m VALUE
%
Local
National
S&P
Total
Local
National
S&P
1992
74.0
67.0
-
141.0
53
48
-
1993
91.0
87.3
-
178.3
51
49
-
1994
103.1
117.1
-
220.1
47
53
-
1995
120.7
150.1
-
270.7
45
55
-
1996
136.4
172.3
-
308.8
44
56
-
1997
151.6
202.5
-
354.1
43
57
-
1998
160.3
257.8
-
418.1
38
62
-
1999
153.9
310.5
-
464.4
33
67
-
2000
145.4
388.4
60.8
594.6
25
65
10
2001
142.5
344.3
62.1
549.0
26
63
11
2002
149.1
342.3
71.3
562.7
27
61
13
2003
168.7
359.3
76.0
604.0
28
60
13
2004
est. 2005
183.1
176.9
364.1
353.4
93.7
93.2
641.0
623.5
29
28
57
57
15
15
source: Radio Advertising Bureau
As noted earlier, there has been substantial growth in national advertising revenues over
the last fifteen years, though these peaked in 2000. Local advertising revenues have
continued to grow, but at nowhere near as spectacular a speed. In 1992, local
advertising formed the majority of stations’ incomes. Now it has fallen below 30%.
2005 looks to be a particularly bleak year because both national and local revenues are
expected to fall. If this trend continues into 2006, the danger is that the commercial
radio industry might have already passed its peak performance [see audience data
below].
The Advertising Association published its own revised data in October 2005 that showed
radio revenues to have fallen by 1.5% year-on-year in 2004 at current prices. Although it
6

7. has forecast a 3.4% increase for 2005, that figure is also likely to be revised downwards
in the coming months.
2.2
Audiences
UK - LISTENING SHARE
60.0
50.0
40.0
30.0
20.0
ALL BBC
10.0
ALL
COMMERCIAL
19
93
Q
19 1
93
Q
19 3
94
Q
19 1
94
Q
19 3
95
Q
19 1
95
Q
19 3
96
Q
19 1
96
Q
19 3
97
Q
19 1
97
Q
19 3
98
Q
19 1
98
Q
19 3
99
Q
19 1
99
Q
20 3
00
Q
20 1
00
Q
20 3
01
Q
20 1
01
Q
20 3
02
Q
20 1
02
Q
20 3
03
Q
20 1
03
Q
20 3
04
Q
20 1
04
Q
20 3
05
Q
20 1
05
Q
3
0.0
q uar t er
Benefiting enormously in the early 1990s from the changes at BBC Radio One,
commercial radio’s share of listening leapt from 37% to a peak of 51% in 1998, but has
fallen steadily since then and now stands at 43%. The danger is that commercial radio
may soon fall all the way back to its early-1990s level, despite the launch since then of
three national commercial radio stations and more than 100 local stations.
UK - LISTENING SHARE
50.0
All Local
Commercial
All National
Commercial
40.0
BBC
Local/Regional
30.0
All BBC
Netw ork Radio
20.0
10.0
19
93
Q
19 1
93
Q
19 3
94
Q
19 1
94
Q
19 3
95
19 Q1
95
Q
19 3
96
Q
19 1
96
Q
19 3
97
19 Q1
97
Q
19 3
98
Q
19 1
98
Q
19 3
99
19 Q1
99
Q
20 3
00
Q
20 1
00
20 Q3
01
Q
20 1
01
Q
20 3
02
Q
20 1
02
20 Q3
03
Q
20 1
03
Q
20 3
04
Q
20 1
04
20 Q3
05
Q
20 1
05
Q
3
0.0
q uar t er
Local commercial radio has fared even worse. Its share of listening leapt from 31% to a
peak of 41% in 1998, but has subsequently dropped back to 33%. However something
can be done about it. See Section 3.
2.3
Digital Radio
Although digital radio listening (via new Digital Audio Broadcasting receivers, digital
television or the internet) has been touted as the future of the commercial radio industry,
its performance at attracting listeners to digital radio has so far been considerably less
impressive than that of the BBC. Of the digital-only stations available, the BBC accounts
for six of the top eleven stations, ranked by hours listened [World Service and Asian
Network are additionally available on AM, but only in small parts of the UK, compared to
their national DAB coverage].
7

8. DIGITAL RADIO LISTENING
digital
hours
listened
(000/wk) owner
7562 BBC
3640 EMAP
3091 BBC
2680 BBC
2207 EMAP
1953 Saga
1820 EMAP
1747 GCap
1640 BBC
1442 BBC
1309 BBC
BBC World Service
The Hits
BBC7
1Xtra from the BBC
Smash Hits Radio
PrimeTime Radio
Q
Planet Rock
BBC Asian Network UK
BBC 6 Music
FIVE LIVE SPORTS EXTRA
source: RAJAR 2005Q3
The BBC dominates digital radio listening, despite the commercial radio industry having
far more stations available in this medium. Several small-scale surveys of DAB radio
buyers have found that the most-mentioned station by listeners is BBC7, with a format of
comedy and drama drawn from the BBC archives. So far, commercial radio (with the
honourable exception of EMAP) has failed to capitalise on the audience’s thirst for
stations that offer something different.
A good example of this issue is PrimeTime Radio, a digital-only station ranked sixth in
the above chart. Its audience far exceeds that of Life, Oneword, Planet Rock and Core,
the other national digital-only stations carried on the same multiplex, and it issued a
press release headed “The Most Listened To National Commercial DAB Digital Radio
Station”. In November 2005, the station’s independent owner announced that it will close
shortly because it cannot afford the over priced £1m+ carriage fee it is being charged by
GCap Media (owner of the only digital multiplex and three of the other national digital
stations). Despite being the only such commercial broadcaster (with its sister station
Saga) to target the growing 50+ audience, these listeners will soon be lost and
effectively handed back to the BBC.
2.4 Heritage Stations
Many local heritage stations deserted their traditional audience of many different ages
during the 1990s in pursuit of the 15-34 demographic that London-based advertising
agencies were eager to reach with national advertising campaigns. This left local
commercial radio’s audience skewed considerably towards younger people. However, in
recent years, that same younger audience has been deserting local commercial radio
because of its failure to innovate and keep up with the latest trends. As a result, local
commercial radio is left with a product that has little appeal to an older audience but, at
the same time, is failing to attract the younger audience it was designed for. This is why
local commercial radio is currently having such problems with declining ratings.
SHARE - LOCAL COMMERCIAL RADIO
REACH - LOCAL COMMERCIAL RADIO
60%
90%
1999Q3
1999Q3
80%
2005Q3
2005Q3
50%
70%
40%
60%
50%
30%
40%
20%
30%
20%
10%
10%
0%
0%
15-24
25-34
35-44
45-54
55-64
65+
15-24
25-34
35-44
45-54
55-64
65+
8

9. Because they have painted themselves into a corner by trying to appeal to young people,
local commercial stations have lost the loyalty of older people, who now have switched
listening to the BBC’s stations. Whereas local commercial radio listening is heavily
skewed towards young people, the opposite is true of BBC radio:
80%
70%
BBC RADIO - % SHARE OF UK LISTENING
BBC LOCAL
BBC RADIO 5
BBC RADIO 4
60%
BBC RADIO 3
BBC RADIO 2
50%
BBC RADIO 1
40%
30%
20%
10%
0%
15-24
25-34
35-44
45-54
55-64
65+
BBC local radio, BBC Radio Two and BBC Radio Four all have audiences that are heavily
skewed towards older demographics. With the exception of national commercial station
Classic FM and two stations dedicated to the 50+ age group – Primetime and Saga, as
mentioned earlier – commercial radio has failed to focus upon the opportunities offered
by older audiences.
2.5 Radio Groups
Substantial consolidation within the commercial radio industry has meant that the
business is now dominated by a small number of companies:
% share of
commercial
radio revenue
2005H1
BIG GROUPS
GCap Media
EMAP Radio
MEDIUM GROUPS
Chrysalis Radio
Ulster TV
Guardian Media Group
Scottish Media Group
% share of
commercial
radio
listening
40
26
34.5
22.8
11
7
6
3
93
11.0
7.1
6.0
3.8
85
# national
licences
1
1
1
# local
licences
55
36
8
18
6
1
Each of these groups faces substantial problems with its radio assets, the combined
effect of which is dragging down both revenues and audiences for the whole commercial
radio industry.
GCap Media was formed in 2005 from the merger of GWR Group plc and Capital Radio
plc. In November 2005, it announced a major strategic review because of the severe
problems faced in all its divisions. For the half-year ended September 2005, revenue was
down 11%, operating profit down 27% and pre-tax profit down 28% on a like-for-like
year-on-year basis. Hours listened to its Capital FM network are down 39%, its Mix
network down 14%, its Capital Gold network 48% and its Classic Gold network down
51% on a like-for-like basis compared to five years ago.
9

10. EMAP Radio has managed to maintain its revenues better than GCap because it has had
considerably more success with its digitally delivered stations. For the half-year ended
September 2005, revenues were up 2%, operating margins improved from 19% to 22%
and profit increased by £2m on a like-for-like year-on-year basis. However, local
advertising revenue was down 9% and audiences for the group’s local stations are falling
rapidly. Hours listened to the group’s Big City network of FM stations are down 42%, and
to its Magic network down 11% over the last five years. EMAP has only station –
London’s Magic FM – that has shown any increase in listening over that period.
Of the other groups, Ulster TV this year bought the 17 local radio stations formerly
owned by The Wireless Group, which together had lost 30% of hours listened over the
last five years. And Scottish Media Group owns the national Virgin Radio station that
lost 40% of hours listened over five years.
The poor performance of these market leaders has substantially affected the industry as
a whole in recent years. These groups have seemed completely unable to implement
successful turnaround strategies, mainly because they have never had to compete for
audiences in the past.
2.6 Station Licence Values
Because of the problems that groups, both large and small, continue to face with
declining revenues and declining audiences, a considerable number of local stations have
been put on the market this year: The UKRD Group, which controls 10 stations, has
publicly stated that its assets are up for sale. Milestone Group plc, which owns four local
stations, has recently undertaken a strategic review that has resulted in a policy of asset
sales. GCap Media announced in November 2005 that it would be selling nine local
stations. As a recently published analyst report commented: “The commercial radio
industry has abruptly turned full of sellers rather than buyers” [“UK Commercial Radio”,
Enders Analysis 2005-21].
Until now, local radio stations had sold at high prices because of the scarcity value of the
licence, the expected revenue and profit growth, and the infrequency with which stations
were offered to the market. This sudden surfeit of station sales will reduce the expected
prices to more realistic values, tempered further by the discouraging outlook for future
revenues and profits. This creates opportunities for selective purchases of local
stations at reasonable prices for the first time.
10

11. SECTION 3- THE LASER STRATEGY
This is a very unique time in the commercial radio industry. The current “bear” market
provides significant opportunities for those with substantial industry experience and
market knowledge to identify radio station properties that have significantly underperformed because of the policies outlined above, and to turnaround those businesses to
generate substantial profits.
3.1
Disconnection with local markets
The history of local radio is littered with the carcases of owners of local radio stations
who tried unsuccessfully to turn their little station into a regional station, a quasi-national
station, or something that it was not destined to be. A local radio station licence is just
that – a licence to create a local business, with local connections both to businesses and
audiences. Some owners believe it is something else. Some very recent examples
include:
•
Lanarkshire station Clan FM was purchased by small radio group Kingdom FM in
2004 and failed when re-launched as “107 The Edge” with both its studio and
transmitter moved nearer to Glasgow. It’s newest owner Mark Page explained:
“They weren’t running a local station for Lanarkshire. It was an image-station, a
brand focused on playing new music for Glasgow, even though the signal didn’t
properly cover Glasgow. They made the mistake of trying to take on [Glasgow
heritage station Radio] Clyde” [The Scotsman, 27 November 2005].
•
The programme contractor of the Classic Gold Network applied to Ofcom in
November 2005 to allow its 18 local AM radio stations to broadcast regional
programmes rather than local programmes. Although the network has already lost
51% of hours listened over the last five years, as a greater and greater part of its
programmes have been networked, the owner continues to take more and more
“localness” out of the stations to cut costs even further.
•
In December 2005, the small Carlisle-based radio group, CN Radio, is to launch a
new regional network in the Midlands to replace its existing four stations. During
recent years, the stations have already been homogenised to operate with the
same music playlist, the same slogan, the same imaging, and now the same name.
Programmes are already networked as much as their licences allow. Again, such
actions deliberately remove “localness” from these stations.
As a recent analyst report commented: “Connection to local audiences was historically
the competitive advantage of commercial radio. These connections have however been
frayed by growing uniformity of formats and programming fostered by consolidation.
Maintaining the enthusiasm of local advertisers is vital to the continued revenue profile of
the sector, given the cyclical nature of national advertising” [Enders Analysis 2005-21].
Laser’s prime turnaround strategy is to focus deliberately on re-building those
connections with the locality that have always been essential to the success of local
commercial radio stations. The empirical evidence is overwhelming that this issue is
currently the commercial radio industry’s biggest failing. Not only did heritage stations
achieve much more substantial ratings by adopting an active policy of local engagement
in the 1970s and 1980s but, today as well, the most successful local stations are those
that understand the geographical limitations of the “patch” they are in and choose to
“super-serve” it, without ambitions to become a regional or national station. Examples of
successful, locally-focused stations are still here today, as the latest RAJAR data shows:
11

12. LOCAL STATIONS RANKED BY % SHARE
station
102.5 FM Radio Pembrokeshire
Radio Borders
Island FM 104.7
Manx Radio
West Sound
Channel 103 FM
C.F.M.Radio
Moray Firth Radio
BBC Radio Jersey
BBC Radio Guernsey
BBC Radio Ulster
market
market
size (000)
Pembrokeshire
89
Galashiels
102
Guernsey
50
Isle of Man
64
Ayr
377
Jersey
73
Carlisle
235
Inverness
236
Jersey
73
Guernsey
50
N. Ireland
1363
% share
of
listening
40.5
39.9
39.7
32.3
31.1
30.1
25.7
25.2
23.4
23.2
22.9
Despite some of these stations being located in very small markets (or perhaps, because
of it), they succeed in attracting huge volumes of listening because of the direct
connections they have forged with their audiences locally.
3.2
Local advertising revenues
As noted already, local advertising revenue has been somewhat neglected by existing
group owners who have instead pursued national advertising campaigns sold for them by
London-based advertising agencies. This is evident from the relatively low growth of local
advertising revenue in recent years, and also from the reluctance expressed by many
local businesses about using the local radio medium.
As part of its recent radio licence applications, Laser has commissioned market research
to determine the opinion of local businesses within each licence area regarding their
willingness to use local radio advertising. The results have been consistent across all
parts of the UK, and have demonstrated that stations’ youth-targeted formats often do
not fit comfortably with the products of local businesses; and that many advertisers’
experiences of radio advertising are that they have been neglected by their local station.
In market research in Warwick, one local business said it had advertised on the local
heritage station but had found “it was just too expensive”. The manager reported that
the product “just didn’t fit” the station and that “the type of music they were playing and
the format – our customers wouldn’t have listened and it wouldn’t have hit our clients.”
In market research in Shrewsbury, a local business that had used radio advertising said
the station was “sloppy – just not professional enough”; another said: “At first we had an
excellent rep, then it went downhill”; and another said: “You go and do one ad, then you
don’t hear from them again.”
Laser’s strategy is to build and develop strong relationships with local businesses, to
offer relevant and suitable advertising packages that meet the needs of different types of
customer; and to offer clients the means to measure and evaluate the effectiveness of
campaigns they book on a local radio station. It is essential that the profile of listeners to
a particular station or programme be matched with the customer profile of the
advertiser’s product, in order to maximise the impact of radio advertising. This is the only
way to build repeat business, as opposed to merely stimulating trial campaigns.
The cornerstone of Laser’s commercial strategy is the building of a pro-active sales team
at each station that is sufficiently well trained in radio advertising and conversant with
campaign strategies to be able to develop custom-made solutions for each and every
local business that considers using the radio medium. Only that way will the station
develop a loyal clientele of satisfied advertisers who have seen for themselves the
success that radio advertising can offer.
12

13. 3.3
Audiences
Whereas heritage commercial radio stations have tended to focus upon the youth
demographic, BBC stations derive the majority of their audience from the 50+ age group.
This has created a gap in many markets for a locally focused station that appeals to the
over 40 audience.
200
DISTRIBUTION OF HOURS LISTENED BY AGE [indexed
by population]
LOCAL COM M ERCIAL RADIO
BBC RADIO 2
150
100
50
0
15-24
25-34
35-44
45-54
55-64
65+
While BBC Radio Two achieves substantial shares of listening with older age groups,
conversely it is local commercial radio that succeeds with younger audiences.
Laser’s strategy focuses on the market gap that exists in most local markets for a local
station that serves the 40+ demographic and is complementary to a national service
such as BBC Radio Two. This market is almost completely un-served by existing local
commercial radio stations, despite the fact that it fits so perfectly with the customer base
of most local advertisers.
Again, Laser’s own market research in areas across the UK has identified this gap in the
market from consultations with thousands of potential listeners who all tell us the same
story – why is there no local commercial station for my age group?
3.4
Localness
The notion that a local radio station should, by definition, interact with its own local
community is so obvious that it should barely warrant discussion. However, as has been
documented, it is the breaking of that sacrosanct bond, that had been so carefully
cultured from commercial radio’s beginnings in the 1970s, that has led directly to the
commercial radio industry’s existing problems. The problem is so evident that it may
seem bizarre that radio group managers are not tackling it with appropriate solutions
right now. As has been explained, the current air of complacency that still exists in the
industry has stifled any concerted action to improve the performance of stations.
As a recent analyst report concerning GCap’s current problems commented: “GWR has
succeeded in extracting most of this ‘localness’ out of local radio, and replacing quirky,
individualistic, almost parochial local programmes with a predictable, anodyne quality
that is technically clever but lacking in ‘soul’” [“GCap Interim Results”, Enders Analysis
2005-23].
Sadly, lacking their own perspective on what makes local radio “local”, several other
radio groups have emulated GWR’s lead on this issue and implemented their own similar
strategies. The results for them have, in the long run, been just as unsuccessful as they
are proving now for GCap. While, in the short term, costs can be substantially reduced, it
13

14. only leads in the long run to loss of both audiences and local advertisers. Since
commercial radio’s existence depends upon its ability to sell audiences to advertisers, the
loss of both parts of the equation can spell the end of the business.
There is absolutely no ambiguity that “localness” is a key element in the success of radio
broadcasting. Even in these times of instant global communication via the internet and
mobile communication networks, the radio medium continues to be viewed by consumers
as the most important immediate source of information about what is happening in their
neighbourhood, their town or their region. Radio’s potential listeners remain very clear
about what they want coming out of their radios. It is only the commercial radio stations
that seem unclear about what is required.
Market research published by Ofcom in November 2005 as part of its radio industry
review [“Radio – Preparing For The Future”, Phase 2, Appendix A] confirmed the
importance of “localness” to radio audiences:
“The research found that local radio in particular plays a role both
serving communities and giving communities a sense of identity. In
the focus groups, radio was singled out as the medium that
communities most strongly identify with. It was seen as more local,
and therefore more relevant from a community perspective, than
television, yet still a large scale broadcast medium with more
perceived impact than local press, for example.”
In the research, the word “local” appeared in two of the top four reasons that people
listen to the radio (all radio, not just local radio) across the UK. These results were
consistent across different regions and amongst different age groups. Ofcom concluded:
“Local radio was felt to involve communities in very tangible and
positive ways. The visibility of presenters in the community,
roadshows, and other ways of supporting local events and causes
help to create empathy and trust. Local voices, requests and
competitions and more direct community participation help to
create a sense of ownership. For many, their local radio service is
important and truly valued.”
When participants in the market research were offered the option of more local radio
stations or more national stations, twice as many opted for “local” over “national”. There
was a strong preference for local presenters over national presenters on local radio, and
focus group members felt that local accents and genuine knowledge of an area added
“authenticity” and “sincerity” to a local station.
These results confirm earlier research by Ofcom [“Radio – Preparing For The Future”,
Phase 1, Appendix B] that asked people how interested they were in different
programme elements on local radio stations. The top scoring items were:
o Local news (89% “very interested” or “interested”)
o Local weather (77%)
o Community issues (76%)
o Local travel & traffic information (73%)
o Local events (72%)
Ofcom’s research also found that listeners actively wanted local radio stations to sound
genuinely unique and different:
“There is a strong perception, particularly amongst younger
respondents, that many local radio stations essentially play the
same sort of music constantly, and there is little variety. These
participants are, perhaps understandably, less likely to be well-
14

15. disposed to the idea of local radio – seeing little point in a ‘local’
station indistinguishable from numerous others around the
country.”
Laser’s strategy is to deliver the “localness” within its radio stations that audiences are
demanding so vociferously. These are the very characteristics that still make local radio
so unique within the expanding range of media and leisure opportunities that consumers
face. Although “localness” is an old-fashioned idea that, as has been explained, was
extremely successfully cultivated by local radio stations back in the 1970s and 1980s, all
the current research demonstrates that those notions of an audience wanting a station
that “belongs” to them are just as alive today as ever.
Rather than trying to extract “localism” from its stations as other radio groups have
done, Laser’s strategy is to maximize local input, local programme production, and local
involvement at every opportunity. In order for a local radio station to become part of the
fabric of the community it serves, it is essential that it immerse itself in the interests,
issues and agenda that pre-occupy its listeners. The local station should be a mirror that
reflects the locality in which it is based, with all the quirks, parochialisms and
eccentricities that such a strategy involves. In this way, a local radio station becomes
truly unique, and as individual as the population of any city or town sees themselves
compared to the rest of the country.
3.5 Laser’s Team
To achieve its stated objectives, Laser has assembled a management and adviser team
who have the requisite skills to implement the strategies outlined above. Their detailed
knowledge of the UK radio industry and their hands-on experience of executing
successful launch and turnaround strategies is essential for fulfilling Laser’s prime task of
building successful, locally-focused radio stations in markets across the UK. Laser’s
senior management team includes:
15

16. NIGEL REEVE – Chief Executive – 35 years experience in the radio and press industries
with board level sales and management experience at some of the UK’s largest
commercial radio stations, local and national.
Case study – Classic FM
Background
•
The UK’s first national commercial radio station launch
Responsibilities •
Headhunted for the role of Sales & Marketing Director
Actions
•
Responsible for station’s very successful launch marketing &
sales strategy
•
Sold the biggest sponsorship/airtime package in UK radio
history - £3.6m from Nestle for the 3-year Masterclass project
Results
•
Revenues grew to £17.1m by Year Three, the highest of any UK
station
•
The most successful radio station launch of the 1990s
•
The most successful of the three national commercial stations
from Year One
•
Station sold for £86m in 1996, having been capitalised at £3.6m
at launch
Case study – Invicta FM
Background
•
Large Home Counties local commercial radio station
Responsibilities •
Headhunted for the role of Sales Director & Deputy Managing
Director
•
Promoted to Managing Director
Actions
•
Responsible for station’s very successful turnaround strategy
•
Managed USM floatation in 1989
•
Negotiated merger with Southern Radio
Results
•
Weekly reach increased from 9% to 41% within six years
•
Revenues increased from £250,000 to £4.3m within six years
•
£180k loss turned to £400k profit after first year
•
Company valued at £22m on USM flotation
16

17. STUART LINNELL MBE – Project Director – 35 years experience in the radio industry
with board level programming and management experience at some of the UK’s most
successful local commercial radio stations.
Case study – Mercia FM
Background
•
Large Midlands local commercial radio station
Responsibilities •
Managing Director, Programme Controller, Sports Editor and
daytime presenter during 15 years’ service from station launch
•
Promoted to Deputy Managing Director & Operations Director of
Midlands Radio plc group
Actions
•
Responsible for station’s very successful programming policies
•
Launched station’s charity fundraising strategy
•
Negotiated station’s merger with BRMB Birmingham
•
Managed Midlands station group and Launch Director of new
Derby station
results
•
One of the UK’s most consistently successful local radio stations
•
Multiple Sony Award winner for programming achievements
•
Awarded MBE for services to broadcasting
•
Company valued at £15m on sale to GWR Group
GRANT GODDARD – Project Director – 25 years experience in the radio and music
industries with programming and management experience at senior level in large
stations.
Case study – Kiss FM
Background
•
Responsibilities •
Actions
•
•
•
•
results
•
•
•
•
•
London-based local commercial radio station
General Manager and Programme Director pre- and poststation launch
Recruited, trained & mentored 57 inexperienced staff
Co-ordinated and wrote station’s winning application for UK
radio’s most hotly contested licence
Persuaded EMAP to make first major investment in radio
Co-ordinated all aspects of station’s high-profile launch,
including £1m marketing campaign
Achieved Year One target of 1m listeners/week in first six
months on-air
UK’s first youth-orientated commercial radio station
Developed Kiss FM brand to include magazine, record label &
promotions
Successful & innovative launch campaign won advertising
industry awards
Station revenues now exceed £13m/year
17

18. 3.6 Laser Development
Laser is now looking at a four-pronged strategy to take full advantage of the
opportunities that the industry is resenting. They are:
1. Laser has now identified 5 radio station purchases where there is an opportunity
to purchase the stations at a realistic price and turn them into profitable
businesses. In each case the stations are being run on a shoestring and are
suffering from chronic under investment in the product.
One example is a station in the west midlands, broadcasting to a population of
300,000 adults. Its running costs are £250,000 pa. However the sales team and
presenters are disillusioned and under motivated. With just £50,000 pa invested
in the product and the sales team the station would only have to deliver the
industry average revenue for a station of this size to start making profits in excess
of £200,000 pa.
2. Laser currently has a 25% stake in Fresh Radio based in the Yorkshire Dales. It
believes it could increase this holding to 51% for just £130,000. With the above
management policies this station should be delivering a profit of £150,000 pa
from income of £450,000 pa giving the station a value of over £1.5.
3. The above purchases would boost Laser’s standing in the radio industry. At the
moment the group is outside of the industry trying to get in. In 90% of all Ofcom
licence awards the award has gone to a company that already holds radio
licences. Laser will continue its policy of growing the company through applying
for licences over the next two years and long term looking at digital broadcasting
as well as analogue. Laser will continue to develop its licence bids with 22 groups
currently active across the UK.
4. Running concurrently to the above Laser wants to look for a floatation either as a
new listing or by reversing into a shell company. This will provide the smaller
Laser shareholders with an exit route while also enabling the Laser management
team to take advantage of the new opportunities that will arise out of the industry
consolidation covered in point 3 above. There are many opportunities that Laser
would like to consider in the UK radio market, Europe and South Africa.
3.7 Next Stage
To purchase the above 5 radio stations and increase the holding in Fresh Radio would
cost Laser £3.3 million. Of this £700,000 would be taken as paper in Laser and
£1,320,000 committed from current Laser shareholders. Laser needs to raise a further
£1,280,000 to complete the purchases. However these purchases will deliver a profit of
£800,000 from a turnover of £2.4 million within 18 months of the purchase, rising to
£3.2 million and £1.3 million after 3 years. This will value the stations at a conservative
£12,000,000 million showing a return of 3.64 on the original investment.
The cash flow advantages of the above will supply the funding of Laser licence wins
during this period. Laser is currently working with 22 application projects and is
budgeting on winning 6 of these projects over the next 3 years. These will require £1.1
million of funding but will show a value of £5.5 million over 3 years.
In total Laser is projected to have a value of £17.5 million delivered from investment of
£3.875 million including Laser’s current issued shares (£575,000)
Laser has appointed Eversheds as its legal advisers handling the investment and the
purchase of the radio stations.
18

19. Once the first stage purchase is in place Laser will complete its ambitions to achieve an
AIM listing either through an entry to the market or reversal into an AIM listed shell
company. This will enable Laser to develop the next stage of its development. It has
identified a further 6 station targets that are likely to come onto the market as part of
the sale of stations announced by GCap on 25th November 2005. This will involve the
raising of a further £10 million of investment.
19