Joint Committee on The Draft Communications Bill Minutes of Evidence

Memorandum submitted by Capital Radio plc


  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"[10]. 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.

Other points

  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 multiplexes.

  1.8  Capital supports the creation of OFCOM. However, we do not support a separate Radio Bureau within OFCOM—radio 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; and

    —  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 BBC".

  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; and

    —  any person may own licences with a point value of up to 45 per cent of a total included in this calculation.

The Effect of the Proposals

  3.3  The proposals would create a very difficult commercial environment local commercial radio. They risk regulator-inspired gridlock—preventing 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 stations—Capital 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 listeners—rather than replicating established formats which would only cannibalise their existing audiences.

  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 specific regulations.

  3.8  The following table highlights the inconsistencies between radio and television:
National Television Local Radio
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 law—but 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) for radio.

The Capital Alternative

  3.10  Capital Radio believes that radio ownership—like television—should 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 ownership—thereby 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.

Foreign Ownership

  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 WTO talks.

Digital ownership

  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.

Access Radio

  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 choice." iii

  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 Parliament—and 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 lead—rather than contribute to—the 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.

Content Boardvii

  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 OFCOM—although 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" regulation—this 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 OFCOM—Radio

  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.

Consumer Panel

  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.

Analogue/Digital Licensing

  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 period—so that analogue benefits from the "digital dividend".

Spectrum Pricing

  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.

May 2002


  i.   RAJAR Quarterly Summary of Radio Listening—Period Ending September 2001.

  ii.   RAJAR Quarterly Summary of Radio Listening—Period Ending March 2002.

  iii.   Report to the DCMS on Future Funding of the BBC, July 1999.

  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 1999.

  vii.   Evidence from the BSC to the Joint Committee, 23 May 2002.

  viii.   Evidence from the BSC to the Joint Committee, 23 May 2002.

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