It’s been some morning in uk radio. The news that Chris Evans is departing BBC R2, the UKs biggest radio station by some margin, for the digital-only Virgin Radio really has sent shock waves through the broadcasting establishment.
Others including Matt Deegan and John Myers have looked at the implications for Evans himself, and R2.
If I may, let me just focus my thoughts on my area of expertise - the financial implications for News UK/Wireless Group with this huge and risky play.
I have no inside knowledge of Chris’s offer from Virgin, but let me guess at £3m p.a.. He was on nearly £2m at the BBC before being asked to take a cut recently, and will certainly have wanted, in making this move, to have proved his commercial value.
Let’s also assume a one-off £10m to launch and promote the show in a significant, credible fashion across the U.K., on top of guaranteed cross-promotion on News UK titles.
Let's also assume this is a 5 year play.
I’ll also assume generic ongoing production and marketing will add up to £2m p.a. over the five years
Add in another £1m p.a. to hire two or three additional big names for the station - Chris followed by people no one's heard of won't work (X is a good example, where the signing of Moyles was well backed up through the day).
So £6m p.a. additional investment for 5 years - that’s £30m.
This means in total a £40m investment including that large launch campaign.
[And this is on top of TX costs of c £1m p.a. and other backroom costs (such as sales, which I'll get to in a minute)]
You’d want your station to be worth £100m-£120m in 5 years to justify that. Normally risky ventures need to demonstrate at least a 3 x money return for investors - and I doubt News UK will have vastly different metrics.
That would mean sustainable profits of £8m-£10m will be needed by that point.
Given ongoing costs of £6m-£7m, that means you need revenues of £20m or so.
That £20m would be offset by 10% royalties, and, say 15% in terms of sales costs, so you'd be left with £15m. Take off the £7m in costs and you are left with an £8m profit on £20m sales. That's a very healthy 40% profit margin - normally an excellent return for a radio brand.
So £20m in revenues just about gets you to a profit which can justify the investment.
That £20m is about 5% of total uk national radio advertising (or it will be in 5 or so years time).
So you’ll need around 5% of Commercial Radio audiences to achieve that. Normally I'd argue you'd need more, because the big battalions from Global and Bauer (Heart, Kiss, Capital, City Network) will take an unfair share - but even though News/Wireless are some way behind Global and Bauer at No. 3, Chris himself will command an offsetting premium - so 5% is a good benchmark.
That’s 25m hours - which is roughly 4m listeners listening for 6 hours per week.
I think Chris will get his listeners to stick with him, so 6 hours a week is more than possible. BBC 6 Music gets 10, and X network gets 8 - but they are in a less competitive bit of the market for music, whereas Virgin with Chris will clearly be mainstream, going up against Heart, Magic, Smooth, Capital, Kiss and their digital offshoots, and they all cluster around 5-6 hours per listener per week.
4m listeners though, with no FM presence, just DAB and online.
The best digital-only station today is BBC 6 Music, which has just over 2.4m. The best digital-only commercial station, Kisstory, has 2m. X network, which is a bit of a Hybrid, gets 1.7m, but a chunk of them are on FM in London and Manchester. Another hybrid, Absolute Radio (the main AM/DAB brand, which is also on FM in London and the Midlands) gets 2.5m.
But I'd think if anyone can break through this middling 2-2.5m listeners onto the ground occupied by the major hybrid FM/DAB networks, Chris can. Particularly if he's backed by a big, sustained marketing campaign (and lots of cross-promotion in The Sun etc).
So the numbers can be made to work - but it's undoubtedly the biggest pure-play brand development gamble taken in UK radio since the original nationals (Classic, Talk and Virgin (sic)) launched 25 years ago.
It'll be great to watch it play out.