I’ve just appeared on R4s media show to discuss the Global Radio restructuring. The audio is here
Amol didn't ask how much I think Global will save with this move. No one outside the Global boardroom can know for sure, but I'd guess that losing, say, 100 front line programming staff - the estimate that the good folk at RadioToday calculated (many of whom, as breakfast talent, will have been well paid) will save c £5m per annum. Closing 10 offices will probably also save £500,000 per annum each, given there will be some further redundancies there. So another £5m, giving an overall guesstimate of £10m in annual savings.
Amol did ask me one of those jaw dropping questions that only people who have never spent time worrying about their P&L can ask. Why do profitable groups need to make “more” profit? Why can't the status quo continue?
I’d say three things.
First, it’s what all private companies do (media or not) - search out profits. Like killer sharks, businesses need to keep moving forward or they die. The whole of western capitalism is built on the search for profit - remove that and you undermine everything that keeps powering our economic growth as a country.
Second, don’t get fooled that those existing profits can remain forever - there are other media sharks out there - many of them much, much bigger than Global. Newspapers, online aggregators, streamers, podcasters, vloggers - everyone wants a share of our media time, and then their unfair share of the advertising that this media time brings. Many a seemingly invulnerable big company has been brought low in double quick time when the market changes, and media feels more in flux today than it ever has.
Third - you need investment to stay alive, and in the case of these effectively new national radio brands with their new national breakfast shows, that means one thing only - marketing.
A national TV campaign of decent weight (70% cover/280 TVRs - which means 70% of the population would see the ad, on average 4 times (280/70=4)) on ITV will cost around £2m in media costs alone. Add in creative, fees and a bit of support (although external will increasingly come for Global via their OOH network) a decent campaign is probably a £2.5m investment. So, given three brands to promote, an extra £10m in profits soon gets eaten up in a campaign or two for each brand a year. Frighteningly, that may very well not be enough, as I will shortly explain.
Of course the goal is bigger listening numbers. And that's easy to say, and people might be forgiven thinking that if you throw £2.5m at TV advertising your audience is bound to go up - but this is at best a zero sum game, so your marketing spend isn’t just "picking up gold from the pavements".
As an industry, we are not adding new radio listeners every year - each one you gain has to be prized away from another station - in Global’s case almost certainly BBC R1 or R2 - and those guys aren’t going to give their listeners up easily. And in case we’ve forgotten - R1 and R2 have their own TV network to help them fight back. So if Global are headed this way, direct one-on-one combat with the BBC, it's a fight to the death. There's absolutely no point in doing a couple of quick bursts of TV and then sitting back, hoping for the best. You've got to have a five to ten year plan here. And that means big pockets are needed.
Knowing Ashley (Tabor, the ultimate owner of Global) and his ambition, and the drive of those around him, he will have written down somewhere the answer to the question that drives all successful business people - “What does success look like?”
And I think his answer will be “Capital to be bigger in share and reach than R1, and Heart to be bigger in share and reach than R2”.
Now Capital as a network (excluding Capital Xtra) reaches 7.3m listeners (13%) vs 9.4m for R1(17%), so that feels like a closable gap to me with a new, national breakfast show with significant marketing - although R1 with Greg James at breakfast are definitely having a creative resurgence, so it won't be easy.
Heart network (excluding its spin-off brand extensions) is currently on 8.5m listeners (16%) vs R2s 14.9m (27%). That's a significantly bigger gap, and will take longer to close, but nothing is impossible, and R2 itself is perhaps more vulnerable now to challenge than it has been for 15 years or so.
Smooth, at around 5.8m listeners, is perhaps too far back to itself overtake R2, but of course any audience it can draw away will help Heart in its goal of overtaking the BBCs premier radio network. So I'd expect to see Smooth being marketed too, though perhaps not as intensively as Heart.
When we launched Heart 106.2 in London in 1995, no one gave us a hope of catching and overtaking Capital FM in either share or reach. 10 years later, in 2005, we were doing both.
I'm sure Ashley will see this restructuring as a fresh start, 12 years on from his entry into the radio business. He will have a new 10 year time frame very much in mind, and R1 and R2 in his sights. He thinks long term. Very long term. I certainly wouldn't put achieving both of these goals past him.
And where does that leave Bauer? I'll come back to them in Pt II next week
Thursday, 28 February 2019
Wednesday, 13 February 2019
The Big Play
Now the dust has settled (for now at least) on Bauer's remarkable series of deals the week before last, I thought I'd just post a few thoughts on where we and they go from here.
As a former Non-Executive Director of Celador Radio I'm obviously constrained from discussing our deal completely - but I should give a hat-tip in passing to Bauer's Development Director Peter Brimacombe, who I dealt with extensively in the run up to the disposal/acquisition. Having seen everything on his plate, I now know why he was sometimes late in returning my calls!
So, via Celador, Lincs and the Wireless local stations, Bauer have bought another 20m hours or so (some have been subsequently sold off, but with national sales retained) to add to the 156m hours they already had under control. If they are also now selling all of Nation Radio's stations in the national marketplace, that represents around a 15% increase in their nationally traded hours. That's some move in an already heavily consolidated market.
John Myers has blogged on how he sees these developments here, and my good friend Matt Deegan did some tabulations which I have stolen, to show the new, approximate, state of play.
Bauer have closed the hours gap on Global, which for them is a necessary but not sufficient condition to close the revenue gap.
Between them, Global and Bauer did have a little more than 80% of all UK Commercial radio listening before these transactions, and managed to convert this into around 90% of UK commercial radio national revenue - via trading arrangements with agencies which essentially said "we have X% of the listening, so we want "X + another 5%" to "X + another 10%" of your revenue".
Of course in order to get the agencies to agree to these deals, prices have had to be carefully constrained. There hasn't been much price inflation in radio airtime for many years, as these two groups have traded price increases for dominant share deals.
This has meant that up until last week the 20% of the industry outside to two big groups has been forced to share just 10% of the national revenue. Bauer have just bought a little under half of that non-aligned business (the rest is principally Wireless Group's national brands and a very small number of still unaligned local stations). Bauer won't immediately be able to fold those additional hours into their share deals, and if you think about the maths, every extra pound they can persuade agencies to spend on their new acquisitions has to come from somewhere, and if it isn't from the existing locked-down deals with Global (which it won't be, knowing how well structured any Global deals are likely to be), it is difficult to see how it isn't right now a case of "robbing Peter to pay Paul", or should that be "robbing Steve to pay Graham"?
This is why the deals just done are a necessary, but not sufficient, condition for Bauer to improve their revenue share. In order to move the deals they have with agencies, I think they will have to offer more than just the same brands and stations that are on offer now. If nothing happens, agencies will rightly say "what has changed, apart who who holds the shares in the licences?" If the radio pot stays the same size, it's difficult to see the new, enlarged Bauer (but still some way behind Global in terms of listening share) shifting the needle very much at all. And if the point of these deals wasn't to close the gap, and leverage more national money, I'm not sure whether the overall level of return will be there for them.
I do think there will be a real desire, from national agencies, for Bauer to perform some radical surgery on their portfolio of brand offerings if they are going to be able to persuade advertisers to switch revenues. The real opportunity is to grow the radio cake overall by having two equally matched groups offering rival, attractive, national brands to advertisers. At the moment Bauer are (despite their protestations about the size of their Hits network) some way behind in this offering, and as long as Global have the biggest national brands all to themselves I can't see this changing the dynamic.
Classic, Heart, Smooth and Capital are all bigger than Kiss, Magic and Absolute at a national level. If that could be reversed, with Bauer's brands coming out on top (or even in the mix) the resulting rivalry to pitch to national clients for big ad spend budgets and sponsorships could genuinely persuade advertisers to move money out of other media and into radio - and particularly into Bauer's coffers. Although they probably wouldn't agree, I'd suspect Global too would benefit from an increased level of inter-brand rivalry being played out in the dealing rooms of the top London media agencies.
The other big question is where does Wireless Group/NewsUK sit in all this. At just 25m hours they are only 10% of the size of Global, and 15% the size of Bauer. This means that despite TalkSport having a very attractive audience demographic, TalkRadio starting to gain some traction, and Virgin obviously about to benefit significantly from the arrival of Chris Evans, they are arguably too small to really punch their weight on media agency radio schedules.
Bauer aren't sellers, so unless NewsUK want to offer an incredible price I can't see the Bauer assets changing hands. NewsUK aren't sellers either to my knowledge, and if they were you'd have thought Bauer would have bought those assets in this latest set of transactions - which they didn't.
So the only thing left is some form of merger. Probably not of assets - both parties will surely want to retain control of what they own. But national sales? NewsUK wouldn't want to be just "repped" by Bauer, and lose control over their only income stream, but a joint venture, where both parties are protected and jointly share control? Surely there is a deal to be done here to sell all of Bauer and NewsUKs portfolios together in a single company as a counterweight to Global? Then we really would have, in the national sales marketplace, two equally matched groups, both with an attractive bouquet of high profile brands and talent.
That really would be quite exciting for radio, if it comes off.
As a former Non-Executive Director of Celador Radio I'm obviously constrained from discussing our deal completely - but I should give a hat-tip in passing to Bauer's Development Director Peter Brimacombe, who I dealt with extensively in the run up to the disposal/acquisition. Having seen everything on his plate, I now know why he was sometimes late in returning my calls!
So, via Celador, Lincs and the Wireless local stations, Bauer have bought another 20m hours or so (some have been subsequently sold off, but with national sales retained) to add to the 156m hours they already had under control. If they are also now selling all of Nation Radio's stations in the national marketplace, that represents around a 15% increase in their nationally traded hours. That's some move in an already heavily consolidated market.
John Myers has blogged on how he sees these developments here, and my good friend Matt Deegan did some tabulations which I have stolen, to show the new, approximate, state of play.
Bauer have closed the hours gap on Global, which for them is a necessary but not sufficient condition to close the revenue gap.
Between them, Global and Bauer did have a little more than 80% of all UK Commercial radio listening before these transactions, and managed to convert this into around 90% of UK commercial radio national revenue - via trading arrangements with agencies which essentially said "we have X% of the listening, so we want "X + another 5%" to "X + another 10%" of your revenue".
Of course in order to get the agencies to agree to these deals, prices have had to be carefully constrained. There hasn't been much price inflation in radio airtime for many years, as these two groups have traded price increases for dominant share deals.
This has meant that up until last week the 20% of the industry outside to two big groups has been forced to share just 10% of the national revenue. Bauer have just bought a little under half of that non-aligned business (the rest is principally Wireless Group's national brands and a very small number of still unaligned local stations). Bauer won't immediately be able to fold those additional hours into their share deals, and if you think about the maths, every extra pound they can persuade agencies to spend on their new acquisitions has to come from somewhere, and if it isn't from the existing locked-down deals with Global (which it won't be, knowing how well structured any Global deals are likely to be), it is difficult to see how it isn't right now a case of "robbing Peter to pay Paul", or should that be "robbing Steve to pay Graham"?
This is why the deals just done are a necessary, but not sufficient, condition for Bauer to improve their revenue share. In order to move the deals they have with agencies, I think they will have to offer more than just the same brands and stations that are on offer now. If nothing happens, agencies will rightly say "what has changed, apart who who holds the shares in the licences?" If the radio pot stays the same size, it's difficult to see the new, enlarged Bauer (but still some way behind Global in terms of listening share) shifting the needle very much at all. And if the point of these deals wasn't to close the gap, and leverage more national money, I'm not sure whether the overall level of return will be there for them.
I do think there will be a real desire, from national agencies, for Bauer to perform some radical surgery on their portfolio of brand offerings if they are going to be able to persuade advertisers to switch revenues. The real opportunity is to grow the radio cake overall by having two equally matched groups offering rival, attractive, national brands to advertisers. At the moment Bauer are (despite their protestations about the size of their Hits network) some way behind in this offering, and as long as Global have the biggest national brands all to themselves I can't see this changing the dynamic.
Classic, Heart, Smooth and Capital are all bigger than Kiss, Magic and Absolute at a national level. If that could be reversed, with Bauer's brands coming out on top (or even in the mix) the resulting rivalry to pitch to national clients for big ad spend budgets and sponsorships could genuinely persuade advertisers to move money out of other media and into radio - and particularly into Bauer's coffers. Although they probably wouldn't agree, I'd suspect Global too would benefit from an increased level of inter-brand rivalry being played out in the dealing rooms of the top London media agencies.
The other big question is where does Wireless Group/NewsUK sit in all this. At just 25m hours they are only 10% of the size of Global, and 15% the size of Bauer. This means that despite TalkSport having a very attractive audience demographic, TalkRadio starting to gain some traction, and Virgin obviously about to benefit significantly from the arrival of Chris Evans, they are arguably too small to really punch their weight on media agency radio schedules.
Bauer aren't sellers, so unless NewsUK want to offer an incredible price I can't see the Bauer assets changing hands. NewsUK aren't sellers either to my knowledge, and if they were you'd have thought Bauer would have bought those assets in this latest set of transactions - which they didn't.
So the only thing left is some form of merger. Probably not of assets - both parties will surely want to retain control of what they own. But national sales? NewsUK wouldn't want to be just "repped" by Bauer, and lose control over their only income stream, but a joint venture, where both parties are protected and jointly share control? Surely there is a deal to be done here to sell all of Bauer and NewsUKs portfolios together in a single company as a counterweight to Global? Then we really would have, in the national sales marketplace, two equally matched groups, both with an attractive bouquet of high profile brands and talent.
That really would be quite exciting for radio, if it comes off.