Broadcasting: Commercial radio fights back

The continued dominance of the BBC, combined with a sluggish advertising market, means that it is now vital for commercial radio to develop innovative revenue models.

'Radio is ahead of many other media when it comes to creating new sources of revenue, but the big thing is the need for commercial stations to focus on simply producing good programming,' says Gillean McLaren, head of radio at MediaVest. 'That has to be a priority. The BBC's ability to attract big names is a factor in its success, but should not be an excuse. Sometimes stations forget that listeners want good-quality programming.'

Commercial stations have been quick to seek revenue streams in areas such as recruitment, online dating, brand sponsorship and engaging competitions, while moving away from traditional ad spots. More specifically, Virgin Radio's new owners, TOI Group and Absolute Radio, have hinted that the station will partner a leading music label to provide a music subscription service. The incoming chief operating officer, Clive Dickens, stated after the recent takeover that the brand will actively seek to make money through a variety of spin-offs.

Commercial radio bosses, then, are fully aware that making money from new platforms is crucial. Agencies believe the prosperous stations will be those that come up with the best ideas and engage better with brand owners to offer them more than just a simple radio ad.

Revenue spin-offs

According to Ross Nestor, head of radio at Mediaedge:cia, commercial stations have already done well to look beyond the traditional ad spot. 'Mixing and matching offers - such as online promotions, competition tie-ups and partnerships with other stations - has given radio advertising a sense of scale it may not otherwise have had,' he says. 'The station is the core product at the heart of radio, but you can sell a lot of other things once you have attracted listeners.'

Nestor adds that the growth in private ownership of commercial stations is changing the way the sector thinks. 'One of the BBC's great strengths has always been its ability to give shows a long period of time to develop, while commercial radio has always been under pressure to deliver short-term results. This could change now,' he says.

Greater freedom

Commercial stations are also likely to benefit if Ofcom further relaxes the rules on local radio content. The RadioCentre has been lobbying the regulator on the subject and wants the requirement to broadcast locally produced content to be no more than three hours a day for small stations and seven for bigger ones (last year Ofcom switched from individual station licence requirements to an across-the-board minimum of 10 hours on weekdays). Any reduction in the quota would allow stations to replace locally made content with syndicated material - seen by many in the sector as vital to commercial success.

Andrew Harrison, chief executive of RadioCentre, claims commercial radio faces great difficulties when trying to compete with the BBC locally. 'In the regions, radio has to be local, and commercial stations are restricted in what they can do in terms of offering syndicated shows. Ofcom has relaxed its rules, but not enough to make a massive difference,' he says.

'We will continue to push the regulator for a greater relaxation of these regulations. Stations should have the freedom to operate as they wish and to market shows in whatever area they choose.'

Some innovations, such as Bauer Publishing Group's formula of translating magazine brands into radio stations (see case study), and the emergence of ad-funded digital formats, have yet to be proven. However, there is a feeling in the sector that this entrepreneurial spirit may give commercial radio the shake-up it needs to challenge the BBC. Perhaps the biggest benefit of private ownership is the greater commercial patience referred to by Nestor. While publicly owned stations are largely at the mercy of shareholders' demands for instant results, once in private hands, they may be given breathing space to develop content and build up their revenue.

Mark Story, Bauer's managing director of national brands, believes that private ownership is crucial to the future success of commercial stations. 'Advertising has been poor in some areas, but commercial radio is working hard to change its advertising models and offer more in return for brand owners' money - that will make a difference,' he says.

So, the commercial radio sector has the potential to give the BBC a long, hard fight, but the stations' private owners, and their advertisers, will need to be patient.

CASE STUDY - BAUER, GCAP AND VIRGIN RADIO

Bauer has spun off a number of radio stations from its magazine brands to help drive external revenue. Heat Radio, Q Radio and Closer Radio are all ad-funded, and Bauer has worked closely with brand owners to offer something different from the traditional ad spot. It also recently expanded its recruitment service throughout the regions.

GCap, meanwhile, has also entered the job recruitment arena and has plans to expand into online motoring, property and personal classified ads.

Virgin Radio's new owners, TOI Group and Absolute Radio, are also expected to invest heavily in money-making spin-offs. A tie-up with a leading music label to launch a music subscription service is expected, as are a rebranding of the group and the launch of digital stations.