From today's Media Guardian - bit long but interesting!

Mike


A poor reception

Digital radios are selling well but the industry has failed to turn a 
profit on the millions that have been poured into new stations. Is DAB 
the Betamax of radio or the sound of the future, asks John Plunkett


It was supposed to be the saviour of commercial radio, but Digital Audio 
Broadcasting, or DAB, has created a schism instead. Its opponents think 
it is an overly expensive technology already overtaken by the web — the 
Betamax of radio. Its followers, many of whom bought new DAB radios at 
Christmas, think it will be the cornerstone of digital radio for a 
generation. Who is right?

Although consumers love their new radios, there seems little doubt that 
the millions invested in DAB have so far failed to pay off. But there is 
disagreement over whether this is simply a timing issue (it's too soon 
to tell); an issue of content (there's nothing good to listen to); or a 
technology issue (why bother when you can download stuff from the web?).

When the first commercial digital radio licence was awarded 10 years 
ago, it promised to give commercial operators a level playing field with 
the BBC, with bountiful spectrum in which to launch new stations in 
crystal clear digital sound. But radio companies are counting the cost 
of millions of pounds of investment with little in the way of returns. 
Now they have begun to take action. Two national digital radio stations, 
GCap Media's Core and UBC Media's Oneword, closed at the end of last 
year. Other radio groups, including Virgin Radio and Global Radio, have 
also begun to scale back their investment.

A further digital retreat could be sounded today when GCap Media chief 
executive Fru Hazlitt announces her plans for the future of the Capital 
and Classic FM parent, following a £313m takeover bid from Charles 
Allen's Global Radio. GCap's digital operations, which cost it around 
£15m a year and include a majority stake in national commercial digital 
radio operator Digital One, could be an obvious candidate for cost-cutting.

On the plus side, sales of DAB radios are booming. A record 550,000 sets 
were sold in December alone, taking the total to nearly 6.5m. Sales by 
the end of this year are forecast to reach 9.1m. The problems come with 
media companies trying to make money out of such sales.

There is also the fact that with 100m analogue radio sets in the UK, 
talk of setting a date for analogue radio switch-off is premature.

"If you took a poll of 30 institutional fund managers most of them own a 
digital radio and they probably love it," says Richard Menzies-Gow, 
media analyst at Dresdner Kleinwort. "But from a financial perspective 
[DAB] has not happened. It has been a cost and they can't monetise it."

Commercial stations are under pressure from the prohibitive cost of 
broadcasting in both analogue and digital. Radio insiders estimate that 
it costs around £1m to broadcast on a national commercial digital 
multiplex. Given the current advertising downturn, analysts expect these 
pressures to increase.

Such are the costs of the new technology that some radio executives 
privately wish they could pull out of DAB altogether. Except it is not 
as easy as that. The big radio players were tempted into digital on the 
promise from Ofcom's predecessor, the Radio Authority, that it would 
automatically roll over their analogue licences in return. If the 
commercial radio groups ditch digital, they face the prospect of losing 
their analogue licences as well.

"We all marched into DAB dreamland on the back of the regulator twisting 
our arm and the assumption that it was going to be the next big thing," 
says one radio executive. "Everyone is too frightened to say it 
publicly, but we would all hand back DAB tomorrow if we could. It has 
been overtaken by new technology." Some in the industry predict that 
internet radio and listening via mobile phones will ultimately be more 
important than DAB. "I am a total believer that radio listening will 
migrate to digital radio, but the way everything is moving it is much 
more likely to move to internet radio than DAB," says Richard Wheatley, 
chief executive of the Local Radio Company, who famously described DAB 
as the "Betamax of radio". The technology is not even de rigueur in all 
cars. Yet Rajar figures for the fourth quarter of last year offered some 
solace to DAB supporters. They showed 9.9% of radio listening via DAB, 
against 3.1% through digital TV and 1.9% through the internet. One in 
five homes have DAB radio whereas broadband take-up is now 51.6%.

If the DAB signal can be problematic, then listening via the web is even 
worse, says Ashley Highfield, the BBC's divisional director, future 
media & technology. "The quality of the [internet protocol] stream is 
often woeful. It frequently buffers, meaning I hear nothing for seconds 
or even minutes on end," Highfield wrote on his BBC blog last week. "By 
contrast the DAB radio just works. Press the button and on it comes: 
excellent quality; reasonable range of choice; no bother."

Highfield clearly lives in part of the country with a robust DAB radio 
signal. Around 88% of the population can receive a signal if they choose 
to, but critics complain it has an alarming tendency to break up and 
disappear altogether, just like Highfield's web stream. The BBC 
technology chief urges manufacturers to increase sets' functionality 
with big on-screen programme guides and a listen-again facility like a 
TV personal video recorder.

Highfield's vision of the future is similar to that offered by UBC Media 
chief executive Simon Cole. Several radio executives compare DAB to the 
closing days of its digital terrestrial forerunner, ITV Digital. Cole 
says we are at a "Freeview moment" where the technology could take off. 
Like ITV Digital, DAB needs a stronger consumer proposition, better 
transmitter coverage and content that would capture the nation's 
imagination.

Too many of the original digital-only stations offered cheap but 
pointless back-to-back music. Wags have said that more listened to 
birdsong broadcast once Oneword had pulled out than the earlier 
programming. The most-listened to channels either have recognisable 
brands such as Bauer's Smash Hits or compelling or niche content such as 
Planet Rock or Gaydar. Yet few of these are making much or any money.

Phil Riley, former Chrysalis Radio chief executive, says companies are 
getting plaudits for pulling out in the City at just the wrong moment. 
"I think commercial radio is in danger of bailing out just as it is 
going to come good." The Freeview analogy can be extended further to the 
launch later this year of the second national commercial digital radio 
multiplex, or platform, run by the Channel 4-led consortium, 4 Digital. 
Andy Duncan, chief executive of C4, was one of the architects of Freeview.

Good health

The multiplex will include three C4-branded stations as well as Closer 
Radio from Bauer (previously Emap), UTV's Talk Radio and Radio Disney. 
But Virgin Radio pulled out of plans to launch a new national women's 
station, Virgin Radio Viva. C4 Radio will bring with it a strong, 
instantly recognisable brand, a virtue which is shared by some of the 
most successful digital-only stations to date.

Not surprisingly 4 Digital Radio chair Nathalie Schwarz is one of the 
technology's greatest champions. "DAB is in really good health," she 
says. "DAB listening has now broken through the 100m hours barrier — it 
is bigger than GCap and bigger than the whole of BBC local radio. Of 
course the medium is still in its infancy. Digital TV went multiplatform 
in 1989 — 10 years ahead of radio — and it has not had a smooth ride. 
Every new platform takes a bit of bedding in." Digital One, which runs 
the existing (and currently only) national commercial digital multiplex 
including GCap's Planet Rock and TheJazz, has not welcomed the new 
C4-backed rival, particularly after the demise of Core and OneWord left 
it with spare capactiy to fill.

Andrew Harrison, chief executive of commercial radio trade body, the 
Radio Centre, has proposed a radical plan in which the services on the 
two national commercial multiplexes would be merged into one, with the 
capacity on a second multiplex farmed out at a later date.

"An immediate rejig to make one network profitable rather than two that 
are unprofitable," is how Harrison describes it.

With further casualities expected in the next 12 months, many in the 
industry are looking to the Digital Radio Working Group, which was 
created by the government to look at ways of promoting digital radio and 
increase the number of people listening to it, to come to the industry's 
rescue. Made up of representatives from Ofcom, the BBC, commercial radio 
and consumer representatives, it met for the first time last month and 
is not expected to deliver a working plan until the end of this year. By 
then, the DAB landscape is expected to look very different indeed.