The Future of Radio The next phase Statement and further consultation Publication date: 22 November 2007 Closing date for responses: 21 December 2007 The Future of Radio: The Next Phase Contents Section Page Foreword 3 1 Executive summary 5 2 Introduction 12 3 Commercial radio content regulation 20 4 Commercial radio ownership rules 49 5 Achieving flexibility in licensing and the use of spectrum 67 6 Community radio 78 Annex Page 1 Responding to this consultation 100 2 Ofcom’s consultation principles 102 3 Consultation response cover sheet 103 4 Consultation questions 105 5 Impact assessment 108 6 Localness research 124 7 Consultation responses 125 2 The Future of Radio: The Next Phase Foreword Over the last three years radio has occupied two parallel universes. One universe consists of the experience of millions of listeners for whom things have seldom been better. In terms of choice, listeners not only have more than 300 FM and AM commercial radio stations, a diverse suite of services from the BBC and a range of new community services. Many can also access at least 25 radio services through digital terrestrial television and satellite users can choose from over 90 stations. Through DAB, listeners in the majority of UK cities have access to over 35 digital stations. You can pause and rewind live radio programmes; you can discover more information about radio programmes through text and data services. UK broadband subscribers, now over 50% of the population, also have access to thousands of stations across the world. The BBC’s i- Player and the RadioCentrePlayer position radio at the centre of on-demand developments in the media sector. And the quality of programming is strong too, as radio continues to fulfil important public purposes, illustrated by radio’s importance to communities caught up in floods across the UK this summer. So from the listener’s perspective, the picture is bright in terms of choice, range, quality of programming and innovation, right across the UK. But there is another universe. This is the one occupied by those directly involved in running commercial radio stations, where financial pressures have been making it harder to provide those things that the audience expects. Commercial radio revenues have been declining for several years. While there are some signs of recovery in recent months, the decline in revenues may partly be structural as advertisers move to new media. Competition from the wide choice of stations on digital platforms and from the calls other media place on listeners’ time is fragmenting audiences. These two factors together could mean that the business models of many local commercial radio stations, particularly the smaller ones, cease to be viable. At the same time, the partial migration of radio to digital has increased transmission costs, generating a debate about whether, like television, we should set a date for radio to abandon analogue broadcasting. These are serious issues and that is why, in April this year, Ofcom published a consultation entitled The Future of Radio. We recognised the need to try to pull the disparate strands of the radio debate together into an over-arching narrative; but we also recognised the risk of over-simplifying a set of issues which do not easily lend themselves to crisp, over-arching solutions. Ofcom’s basic stance, however, is very clear. Our job is to interpret and apply the detailed statutory framework which Parliament has created for radio, much of it only four years old, and to advise Government where we see a case for adjustment. It is, of course, up to Government and Parliament whether and when to change this legal framework again. The current framework is designed to ensure that commercial radio in the UK serves diverse tastes and interests; that it meets the needs of local audiences and that it is protected by ownership rules from the kind of excessive concentration which would jeopardise the plurality of voice which audiences value highly. In the 2003 Communications Act, Ofcom was also given the responsibility to expand the scope of radio. We have done this by licensing a 3 The Future of Radio: The Next Phase network of community radio stations across the UK – 149 so far. We have also licensed a second national DAB radio multiplex, which was awarded to 4 Digital Group, led by Channel 4 in July this year, and further local DAB multiplexes. For this statutory framework to be successful, however, commercial radio also needs to thrive as a business. So, in thinking about the application of the legal framework, and its possible modification, Ofcom must balance the goals set by Parliament, and the passions of listeners, against the changing commercial circumstances of the industry. When we propose change, it must be change which makes sense from a commercial perspective, as well as from the listener’s perspective. Achieving this balance requires Ofcom to make judgments about the likely further development of digital radio. In The Future of Radio consultation document we argued that while it is not yet time to consider establishing a date for a switch-off of analogue radio, we need to think about providing the flexibility for such an outcome. This remains a subject of the utmost importance, but it is also one which requires the direct involvement of Government, as well as Ofcom, broadcasters, manufacturers, consumers and other stakeholders. So we are delighted that James Purnell, Secretary of State for Culture, Media and Sport, has recently announced the formation of a new Digital Radio Working Group, to carry forward this discussion. Ofcom will play a leading role in the group’s work, which we expect to be the focus for further work on the conditions which would need to be achieved before digital platforms could become the predominant means of delivering radio. There are, however, some specific issues which need not await resolution of the big digital question, and it is on these that this document focuses. Some of these changes are substantial, others more detailed. All go in the direction of reducing regulation – some will say too fast, others not fast enough. But it is our view that this is the pace justified by the evidence, and by our overriding responsibility to listeners. The digital debate has been brought forward and is about to begin - now is not the time to tear up the analogue rulebook. The immediate issues we tackle here fall under four headings: commercial radio content regulation; commercial radio ownership rules, other radio spectrum issues and rules specifically applying to community radio. The tensions between the parallel world perceptions of UK radio mean that there will continue to be a vigorous debate about the issues addressed in this document. Ofcom is confident that radio will remain a highly valued part of the UK communications spectrum and we remain committed to playing our part in shaping this important industry’s future. Ed Richards David Currie Chief Executive Chairman 4 The Future of Radio: The Next Phase Section 1 1 Executive summary 1.1 In April this year Ofcom published its consultation on The Future of Radio. This consultation was based on our understanding of the challenges faced by commercial radio, which has seen competition increasing both from digital radio and from other media and what we believe may be a structural shift in the advertising market in favour of new media to the detriment of traditional radio. 1.2 We recognised that the way analogue commercial radio is regulated may need to change in the light of this changing competitive situation and so we considered the content and ownership regulation of commercial radio. The review of the ownership rules is a statutory review required by the Secretary of State. 1.3 We also considered how, if radio is to become primarily a digitally-delivered medium, we could achieve the flexibility to free up analogue radio spectrum when the time is right. 1.4 Finally we considered the rules around the newly emerging community radio sector, in response to a request from the Secretary of State for a review two years after the first station launch. 1.5 This Executive Summary captures the main proposals set out in this document, along with a brief account of the context for each decision. 1.6 Our thinking is based on our long-term aims to see a radio market which delivers a wide range of innovative UK-wide commercial stations providing plurality of provision in all major genres, a wide range and diversity of local and regional commercial services catering for local tastes and interests and a community service for every community that wants one and where suitable frequencies are available. We want to see these provided alongside a strong, independent BBC and all supported by multimedia services where viable: on-demand, downloads, archive, text and graphical information and available where and when audiences want, on devices which offer real consumer benefits. 1.7 In pursuing these aims, Ofcom will apply the statutory framework for radio regulation established by Parliament, whilst recognising that this can only be satisfactorily delivered if there is a thriving radio industry. 1.8 In recent months, we have made further progress towards our aims, by licensing a second national DAB digital radio multiplex to 4 Digital Group, led by Channel 4, which will offer a wide range of national services to complement those already offered by Digital One and the BBC, and a number of additional local DAB multiplexes. We have also licensed over 140 community radio stations in the past three years. 1.9 This report focuses on each of the areas we consulted on in April 2007.