Memorandum submitted by Capital Radio
Capital Radio plc thanks the Joint Committee
for this opportunity to submit written evidence on the draft Communications
Bill and would welcome the chance to discuss these issues directly
with the Committee.
1.1 Capital Radio supports the Government's
overall aims: to simplify the regulatory framework; to liberalise
the rules on media ownership; and to ensure that public service
broadcasting thrives. Liberalisation will increase competition,
stimulating investment in content and new services.
1.2 Capital Radio agrees with the Government
that the media can now increasingly be governed by competition
law rather than sector specific, ex-ante regulation.
Local Radio Ownership
1.3 The Government proposes that local radio
acquisitions be subject to strict sector specific regulations
over and above competition law: "in every area with a well
developed choice of commercial radio services . . . there will
be at least three separate owners of local radio services in addition
to the BBC".
This objective will be administered by a complex new local points
system. Capital is opposed to this proposal since it believes
it is discriminatory, unnecessary and counter-productive.
1.4 Capital is concerned that the Government's
proposed new ownership regime is discriminatory because it liberalises
TV ownership whilst imposing new rules on radio. The legislation
would allow (subject to competition law) a single ITV and common
ownership of Channel 5 and ITV, but would make the acquisition
of comparatively tiny radio stations subject to strict new rules.
Since television is a much more pervasive medium, accounting for
43 per cent of the advertising market, compared to radio's 6 per
cent, such inconsistency is unwarranted.
1.5 Capital supports the need for diverse
local content but believes that ownership rules above competition
law are unnecessary in order to achieve that aim. Competition
law coupled with a content based licensing system is capable of
delivering plurality and diversity in radio. The Government has
accepted that content controls are the most effective way of delivering
local content in television. There is no reason whatsoever why
the same logic should not apply to radio. In addition local cross
media rules ensuring three local voices will maintain diversity.
1.6 The proposal is counterproductive because,
far from encouraging diversity in local radio it will actually
undermine it. Investment in local radio will be curtailed as investors
transfer funds to less constrained media properties. And by artificially
fragmenting ownership, the rules will force a multiplicity of
small owners to target the safe middle ground. Only where owners
can develop scale can niche local services flourish.
1.7 Capital does not believe there is a
need for new ownership restrictions on digital radio multiplexes
or new digital radio licences. The Government has already lifted
the restrictions on the ownership of digital terrestrial television
1.8 Capital supports the creation of OFCOM.
However, we do not support a separate Radio Bureau within OFCOMradio
should not be warehoused in an "agency within an agency".
1.9 Capital supports the removal of foreign
ownership rules where there are reciprocal arrangements. Accordingly,
Capital urges the Government to redouble its efforts to seek reciprocal
arrangements, through both the EU and WTO.
2.1 Capital Radio is the UK's leading commercial
radio operator, offering the listener quality radio programming
including music, information, news and sport, across our 20 local
analogue stations. We are the UK's largest commercial investor
in digital radio with 38 digital stations.
2.2 Capital Radio is one of Europe's most
successful commercial radio groups. Since we began broadcasting
in London in 1973, we have demonstrated a consistent track record
in growing our core radio business through long-term investment
and a commitment to developing the medium to its full potential.
In the area of content development, Capital pioneered the provision
of additional programme content by splitting our AM/FM wavebands,
and we are proud of our reputation for finding and developing
some of the best-known broadcasting talent in the sector.
2.3 Key facts:
91 per cent of UK adults listen to
Radio each weeki;
46 per cent of UK adults of this
audience listen to commercial radioii;
Capital operates 20 UK analogue licences,
both local and regional, across London, the South Coast, the Midlands,
Cardiff, the North East, the North West, and Scotland;
Capital has committed to providing
38 programme services across the UK on local digital multiplexes,
as well as one national digital service;
Capital's combined UK listening reach
each week is 8.3 million;
Capital's analogue stations broadcast
to a potential UK audience of around 28.4 million listeners;
Capital Radio Group directly employs
approximately 700 people in its UK radio broadcasting interests;
Capital Radio's stations raised around
£2.7 million last year for local charities.
Local Radio Ownership
3.1 In its recently published media ownership
policy, the Government set out a new structure for the ownership
of independent local radio licences. It said that the national
existing points system would be abolished and a new regime introduced
to ensure that:
" . . . in every area with a well developed
choice of commercial radio services . . . there will be at least
three separate owners of local radio services in addition to the
3.2 However, the administration of this
new formula is to be based on a reheated local point system as
set out in a consultation paper to the Government produced by
the Radio Authority (RA) last summer. Each station in a locality
is assigned a number of points according to its potential (rather
than actual) audience. All the points are then aggregated and
any one owner will be limited to 45 per cent of the total points
available (but this has no reflection of actual audience attributable
to those stations).
3.3 The detail are as follows:
the licence in question (licence
X) is assigned a value of four points;
every other local licence with a
coverage of 75 per cent or more of the adult population served
by licence X is assigned a value of four points also;
every other local licence with coverage
of between 25 per cent and 75 per cent of the adult population
served by licence X is assigned a value of two points;
every other licence with a coverage
of between 5 per cent and 25 per cent of the adult population
served by licence X is assigned a value of one point;
any local licence with coverage of
less than 5 per cent of the adult population served by licence
X is assigning point values;
the aggregate number of points assigned
to the licences counted in these steps is therefore calculated;
any person may own licences with
a point value of up to 45 per cent of a total included in this
The Effect of the Proposals
3.3 The proposals would create a very difficult
commercial environment local commercial radio. They risk regulator-inspired
gridlockpreventing successful commercial operators from
expanding while protecting poor performing operators from competition.
Investment in radio would be curtailed as capital flowed into
other less constrained sectors of the media.
3.4 Nor does diversity in ownership equate
to diversity of output. Consolidation of ownership does not mean
fewer radio stations or radio stations merging their formats.
In fact, small owners are more likely to compete for the same
mass audience, rather than produce a range of different services.
In London, for example, Capital Radio's stationsCapital
FM, Capital Gold and Xfm all target different audiences and there
is relatively little crossover in output. It is in the interests
of larger operators to expand the market by producing a range
of output that appeals to different listenersrather than
replicating established formats which would only cannibalise their
3.5 Organic growth is restricted by spectrum
constraint and the number of analogue licences available to radio
will not keep pace with demand in the medium term. There will
be an adverse effect on the migration to digital. This will take
more time and further Government commitment to analogue switch-off
will be needed.
3.6 The proposed local ownership rules severely
curtail radio companies' ability to grow their businesses. They
will be limited to picking off individual, small-scale commercial
stations bit by bit as they become insolvent or are put up for
sale by their larger owners. With heavily protected markets in
Europe and abroad, the reality is that UK radio will still have
nowhere to go.
3.7 The regime proposed by the Government
is inconsistent across different types of media and risks discriminating
against radio. The Government argues that "consolidation
in the TV industry will benefit consumers and companies alike"
yet proposes to prevent such consolidation in local radio. It
believes that "the competition authorities are best placed
to consider the effects of consolidation within ITV" yet
insists that local radio mergers will be subject to strict sector
3.8 The following table highlights the inconsistencies
between radio and television:
|One company can own:|
The whole of ITV plus Channel 5 plus any number of cable and satellite channels plus up to 20 per cent of the national newspaper market plus digital terrestrial television multiplexes.
|There need to be at least three owners of local commercial radio licences in addition to BBC stations (national and local) and national commercial licences (eg Classic etc).
|One company can own:|
Over 20 per cent of the national newspaper market plus more than 20 per cent of a satellite TV company plus Channel 5.
|No company can control more than 45 per cent of the radio "points" in any local area.
3.9 The proposed regime would allow, for example, a single
ITV (with an average daily audience share of 25 per cent)subject
to competition lawbut prevent mergers within the radio
industry which created an average daily listening share of less
than 15 per cent. Indeed, television controls a far greater share
of the total UK advertising market than radio. Last year radio
accounted for 43 per cent (£3.4 billion) of the total UK
advertising market, compared to 6 per cent (£500 million)
The Capital Alternative
3.10 Capital Radio believes that radio ownershiplike
televisionshould be governed by competition law coupled
with a content-based licensing system and local cross-media ownership
rules rather than sector specific over-regulation. It is illogical
to argue that the ownership of such a powerful media asset as
ITV can be decided by competition law, but that the control of
much smaller local radio stations requires prescriptive regulation.
3.11 A competition law regime coupled with a system of
content-based licensing is as capable of ensuring plurality and
diversity in radio as it is in television:
competition law provides adequate protection against
over-concentration of ownershipthereby maintaining plurality;
content-based licensing will underwrite diversity
in local output;
as with television, primary legislation requires
that radio news be impartial and independent. Tessa Jowell has
said that the Government "will retain and strengthen content
regulations to ensure the quality, impartiality and diversity
of broadcasting services. OFCOM will have the power to investigate
the news and current affairs programming of any local radio service
if it has concerns about accuracy or impartiality";
local cross-media rules will ensure that there
are three "media voices" in any area.
Other Ownership Issues
4.1 Overall, we believe the Government's two aims to
encourage diversity and plurality of ownership can be met through
competition law and content regulation.
Cross Media Ownership
4.2 In the digital world, few media organisations will
be limited to a single platform. We believe that the Government
should not therefore overtly restrict the ability of companies
to own properties in different media. Competition law and content
regulation can deal with ownership regulation, cross-promotion
and plurality issues. In addition they are adaptable to rapidly
changing technological and economic environments.
4.3 However, if the Government chooses to maintain separate
cross-media ownership rules, we support the proposed rules for
national and regional cross-media ownership, and we believe the
proposed "three voices" local ownership rule is the
clearest and fairest way of determining any subsequent mergers
in particular localities.
4.4 In the context of a multi-platform and digitised
world, we accept there can be no justification for restrictions
on foreign ownership of UK media companies where there are reciprocal
arrangements in place. We therefore welcome the removal of the
current foreign ownership restrictions outlined in the draft Communications
Bill but only to the extent that non-EEA countries offer similar
treatment for UK companies. In the interests of fairness and being
able to build Europe-sized UK-based players it is essential that
other countries take a similar approach. Otherwise UK radio companies
will be sitting ducks for foreign media conglomerates. We strongly
urge the Government to redouble its efforts to seek reciprocal
changes in foreign legislation with regard to other countries,
including at the European Union level, and at the next round of
4.5 The proposed legislation needs to provide a framework
so that broadcasters can adapt to the digital challenge. In the
interest of encouraging superior technology, providing increased
choice for listeners and maintaining radio as a competitive part
of the converged marketplace, we believe that the Government needs
to facilitate the transition to digital at the earliest opportunity.
4.6 We do not believe there is a need for new ownership
regulation to be introduced on digital multiplexes or new radio
licences. Unlike analogue technology, there is significantly less
constraint on access to digital platforms and significantly more
digital services. There are already almost double the number of
digital radio services than broadcasting in London compared with
analogue radio services. Clearly diversity needs less protection
in the digital world. The high investment costs associated with
introducing digital services require certainty and again we believe
competition law and format regulation is sufficient.
4.7 Capital Radio, in common with other broadcasters,
is highly sympathetic to the needs of local communities which
we serve in terms of availability of information and news, clarity
of reception, and differing musical and cultural tastes. If the
Government nonetheless determines that there is a need for a third
"not for profit" tier of radio, then funding should
be found from within the public sector, via the existing BBC licence
fee or lottery funds.
4.8 Funding should not come from commercial radio or
advertising. To put this into context, it is perhaps best to differentiate
the radio economy between publicly funded and privately funded
radio operators. In our view, the BBC already has a mandate to
provide publicly funded broadcasting and whilst we understand
the Government wishes to maximise diversity of listener choice,
it should do so based on proven consumer demand.
5.1 The scale of competition provided by the BBC cannot
be ignored when planning for UK media regulatory change. BBC Radio
directly competes with commercial radio for audience. BBC Radio
commands over 50 per cent of UK radio listening (including overlap
with the commercial sector) and shows no sign of diminishing.
In its own response to the previous White Paper, the BBC accepts
that it provides "competition for audiences, but not for
revenues." Yet the BBC clearly indirectly influences commercial
radio's revenues, as audience performance directly drives revenue
generation. The Panel recently chaired by Gavyn Davies on the
future funding of the BBC concluded that "the broadcasting
industry requires a positive force (such as the BBC) to act as
a counterweight to the private concentration of ownership; to
provide a centre of excellence; to be large enough to influence
the market and so to act as the guarantor of quality and wide
5.2 On this basis, we believe that as a general principle,
public service broadcasting in general and the BBC specifically
should be aimed at remedying market failure, rather than seeking
to weaken or eliminate existing players from the market. As the
Chief Executive of the ITC has previously stated, there is a very
real question over whether "the BBC . . . should be setting
standards whilst not foreclosing on commercial suppliers."
iv. We also believe that it is essential that the competition
authorities, particularly OFCOM, rather than the BBC itself, should
have powers to ensure that this principle is followed.
6.1 Capital supports the general principle of a "lighter
touch" approach towards regulation being taken by the Government
in its establishment of OFCOM. However, we believe that the rather
wide range of detailed objectives set out for the regulator, as
stated in the draft Bill, somewhat conflict with this deregulatory
objective. Many of the objectives proposed in the statute are
matters for licence awards or specific regulation, particularly
subjective format controls allowing OFCOM to determine what is
local. We accept that it will be the role of OFCOM to deal with
such matters, but we believe that the draft Bill should make it
clear this should be done in line with general principle, as previously
voiced by the Prime Minister, of "striking down unnecessary
regulation"v and ensuring that "Government must be careful
not to hinder business with excessive regulation"vi.
6.2 In line with the principles outlined by the Government
in the draft Communications Bill, we believe that the OFT should
be the lead body for all matters of changes of ownership. The
OFT should consult OFCOM in such matters (as it does other sectoral
regulators) but should take the final decisions. This principle
has been introduced by the Government in the Enterprise Bill currently
under consideration by Parliamentand it is right that it
should also apply here. Capital believes that it would be inappropriate
for OFCOM to be both a day-to-day regulator and to leadrather
than contribute tothe highly charged process of merger
assessment. In any event, OFCOM will not have powers over mergers
within the print media sector, and it would thus be an anomaly
to give OFCOM regulatory powers in cross-media ownership in some
but not others.
6.3 Capital Radio fully supports the principle of plurality
of voice. As distinct from issues of ownership, we agree that
in this area the key to ensuring different voices is through sector
specific regulation. We welcome the proposals in the Draft Bill
that the BBC should be subject to the quantitative content regulation
by OFCOMalthough we believe that this should be extended
to qualitative regulation. As currently drafted, the Content Board
would have powers greater than the BSC's existing codes, which
in our experience have worked well.
6.4 Although we strongly support content regulation and
effective redress on an individual basis (eg in response to listener
complaints) we do not accept the suggestion that radio companies
will not only agree format issues in licence negotiations, as
at present, but also henceforward be subject to a new day-to-day
format regulation under the guide of the Board's promotion of
"local content and character". Again, rather than "lighter
touch" regulationthis is increasing the burden by
adding to the existing powers of the regulator. We believe this
can be done largely through licence compliance and the market.
6.5 Radio companies have businesses because they meet
a market need. Listeners will switch off if offended. As long
as there is a proper procedure in place for individual complaints
from the public with regard to particular programmes, then we
feel there is no evidence of any need for the regulator to ratchet
up administrative control in this way.
6.6 We are fully in agreement with the BSC that one of
the Content Board's primary duties should be to protect freedom
of expression. This fundamental point is, perhaps, sometimes forgotten
in some of the contributions to the debate for micro-management
of content. We believe this duty should be included on the face
of the Bill.
New powers for OFCOMRadio
6.7 It says in paragraph 8.1.8 of the Policy Document
that OFCOM will be given additional new powers to intervene in
radio licencing and content which were not previously referred
to in any public document. These contradict with the Government's
commitment to "lighter touch" regulation. Furthermore,
rather than create certainty, the scope of these powers is very
wide and generic by definition. They all fall into the subjective
discretion of OFCOM. For example:
the ability of OFCOM to review the onward sale
of local licences to "reduce the risk that new owners move
uniformly towards a middle ground of national taste". This
power will be extended to all licences that change hands. OFCOM
will be able to make licence changes which will "in their
view" ensure that the character, range and quality of the
local service are maintained. This power had been abolished in
the 1996 Broadcasting Act; and
a new duty on OFCOM to promote and protect the
local character of radio. It is extremely difficult for a broadcaster
to understand what this could mean, over and above existing format
controls and requirements for local content.
6.8 We believe that the role of the OFCOM Consumer Panel
and in particular its relationship with the Content Board needs
to be more carefully considered and should be properly defined
within the legislation, for example membership of both bodies
should be prohibited. The Consumer Panel should not be responsible
for the day-to-day handling of listener complaints which, as the
BSC recently indicated with regard to the television sectorviii,
would be an unwieldy system.
7.1 We support the proposal in the Draft Bill to lengthen
the period for local radio licences from eight to 12 years. Income
from analogue radio currently subsidises the investment in digital
and will continue to do so for the foreseeable future. For this
reason, it is essential that analogue services already rolled
over as a quid pro quo for digital services are again rolled
over at the end of the current analogue licence periodso
that analogue benefits from the "digital dividend".
8.1 Capital Radio has submitted a full response to the
Independent Review of Spectrum Management, the conclusions of
which will be incorporated into the Communications Bill itself.
The review could have a fundamental effect on our business. Within
our response we have stated that radio is a highly efficient user
of spectrum and that we believe there are real dangers in applying
a narrow market-based analysis to radio spectrum. Important public
policy and commercial considerations need to be applied against
the Review's final recommendations, especially in relation to
the Band II spectrum for radio.
i. RAJAR Quarterly Summary of Radio ListeningPeriod
Ending September 2001.
ii. RAJAR Quarterly Summary of Radio ListeningPeriod
Ending March 2002.
iii. Report to the DCMS on Future Funding of the BBC,
iv. ITC evidence to the Joint Committee, 23 May 2002.
v. Speech by Tony Blair to Birmingham Chamber of Commerce,
2 February 2001.
vi. Speech by Tony Blair to CBI conference, 11 February
vii. Evidence from the BSC to the Joint Committee, 23
viii. Evidence from the BSC to the Joint Committee,
23 May 2002.
Footnote to come? Back