Digital Radio

Exec Report: Digital Radio UK
www.mediatelinsight.co.uk
Digital Radio
Executive Report
Last Updated
December 2009
Digital Radio
Highlights 3
Digital Radio Take-up: Current & Forecasts 4
UK 4
DAB Ownership 5
Digital Radio in the UK: Progress and Challenges 6
DAB Digital Radio: A Global Perspective 8
Digital Radio Listening 9
Digital Radio Listening Via TV 12
Digital Radio Listening Via Internet 12
Current Market Indicators 11
Mobile Radio 11
Looking Forward 13
Digital Migration 14
Contents
Digital Radio
• By the end of Q3 2009, cumulative DAB digital radio sales achieved 9.88 million, with November figures hitting the 10 million mark, according to the ????????????????????????????????????????Digital Radio Development Bureau (DRDB)/GfK.
•?•?•?•?•?•?•?•?•?•?•?•?•?•?•? Digital radio sales have consistently outperformed the overall CE Audio market through 2008 and 2009, despite the recession. Figures from GfK show Q3 2009 year end volume growth for digital radio in Audio systems (up 12%) and car audio (up 60%). ?
•?•?•?•?•?•?•?•?•?•?•?•?•?•?•?•?•? The global market for satellite and terrestrial digital radio, combined, will grow from 12 million unit shipments in 2007, to 55 million unit shipments in 2012.
• 21.1????????????????????????????????????????% of radio listening is via a digital platform (DAB, DTV, internet) with digital listening hours for Q3 2009 totalling 213 million hours per week.
• D DAB is the most popular digital platform choice, ????????????????????????with 13.3% preferring this platform, compared to the 3.6% that listen via their digital televisions and 2.2% via the internet.
Highlights
Digital Radio
UK
The UK has historically been several years ahead of the rest of the world in the roll out and adoption of DAB digital radio. Almost 90% of the country is now covered by digital audio broadcasting (D(DAB)B) with most of these households covered by three or more digital multiplexes.
With the bulk of Christmas sales still to come, the DRDBDRDBDRDBDRDB (D(Digital Radio Development Bureau) reported that cumulative sales of digital radio sets topped ten million at the end of November this year. It took eight years to reach the first five million sales (2007), but the second five million has been achieved in just 30 months (see Table 1).
Digital radio sales have consistently outperformed the overall CE Audio market through 2008 and 2009, despite the recession. Figures from GfKGfKGfK show Q3 2009 year end volume growth for digital radio in Audio systems (up 12%) car audio (up 60%) and Radio recorders – multifunction radios such as those with CD or iPod dock – (up 60%).). In the same year ending period, all categories of analogue radio showed significant declines. For the past three years, sales of digital radio sets have remained solid at around two million per annum and the market is worth around £170 million a year.
DRDB chief executive Tony Moretta said: “This is a significant moment for everyone in the digital radio industry: broadcasters, manufacturers and retailers. Ten million sales is an incredible achievement for any technology, and it proves that digital radio is here to stay. With even greater promotion by radio stations, wider support from the car industry and the further development of the technology through colour screens, wi-fi etc, we expect the growth of digital radio to continue strongly over the next few years to the point where a nationwide digital upgrade can become a reality.”
Digital Radio Take-up: Current & Forecasts
Digital Radio
Figures from the latest Q3 2009 RAJAR release show that household penetration of DAB now stands at 32.3%.
However,not everyone in the industry is celebrating. TalkSport parent UTV Media and its radio chief, Scott Taunton, retorted: “The figures indicate that annual DAB digital radio sales growth has gone into reverse.
“In 2008, 2.2m DAB sets were sold, but in 2009 to date, only 1.3 million sets have been sold. FM radio sales will outnumber DAB three to one in 2009, excluding sales of FM radios within mobile phones, demonstrating the ongoing popularity of analogue receivers.”
T
hese figures clearly don’t include the anticipated Christmas sales rush, which is likely to account for another 500,000 or so sales, but the rate of growth would appear to be on the decline.
DAB digital radio is the only widely available digital platform currently offered in the UK that allows portable reception and is the leading digital radio platform with more listening through DAB than via the internet and TV combined, according to RAJAR.
DAB Ownership
The uptake of digital radio in the UK has increased at a relatively healthy pace over recent years, however, the latest RAJAR figures for Q3 2009 showed ownership dipping slightly from 33% of UK adults in Q2 2009 to 32.3% in Q3 2009 ; see Figure 2.
D
AB sold over two million products in 2008, up 3% year on year with 8.53 million cumulative DAB sales to the end of Q4 2008, according to latest figures from DRDB and GfK. More than one quarter of all money spent on radio sets is now on DAB products, with DAB now commanding a 26% share of all radio sets sold, according to GfK.
One reason for the strong Christmas performance is the increase in range of DAB sets available to purchase. There are now over 350 difffferent products on the market, compared to just 53 at the end of 2003. Another factor is the continued fall in the average price of DAB digital radio sets, with prices now starting below £30.
Says Ian Dickens, DRDB chief executive: “We are starting to see DAB digital radio sales overtake analogue in some categories, particularly the portable/kitchen radio market. The average age of DAB set owners is now below the national average, the male/female split is closing, and repeat purchase is on the increase. DAB digital radio is enjoying healthy growth and moving swiftly toward mass market status.”
DRDB Forecasts
T
he Digital Radio Development Bureau’s five year forecast released in 2005 predicted that by the end of 2009 there would be around 20 million DAB digital radios in UK homes, up from 1.2 million at the end of 2004 – more than a fifteen-fold increase, and equating to a household penetration of 40% by the end of 2009. Reality has clearly fallen somewhat short of this forecast – with 10 million DAB digital radio sets sold by the end of last month.
FIGURE 2
0.0
7.515.022.530.037.5Mar-04Sept-04Mar-05Sept-05Mar-06Sep-06Mar-07Sep-07Mar-08Sep-08Mar-09Sep-09Percentage of UK Adults Who Own a DAB Set At HomeSource: RAJAR, Q3 2009% Adults
Digital Radio
The DRDB have not released any DAB digital radio forecasts since 2007 due to some intangibles such as the Digital Economy Bill and economic downturn which make it hard to predict sales going forward.
Digital Radio In The UK: Progress & Challenges
Many territories are considering public policies that will migrate their radio broadcasting system from analogue (AM and FM) to digital transmission. There are important lessons that can be learnt from the experiences of the United Kingdom, which publicly launched the Digital Audio Broadcasting (DAB) terrestrial platform for radio in 1999.
The UK market is widely regarded as the most advanced market for digital radio in the world, with digital platforms accounting for 20% of all radio listening, and with more than 9 million DAB radio receivers sold to date. Although these figures are impressive, the growth trend has remained stubbornly linear in recent years and now seems unlikely to demonstrate the exponential increases which prove necessary to fulfil a complete consumer migration to digital radio within the anticipated timeframe.
T
he heart of the problem is that DAB radio receivers are not considered a ‘must have’ consumer purchase by significant sections of the UK population, particularly young people. Only 22% of new radios sold in the UK incorporate DAB reception capability, and the majority of DAB radios currently on sale also include FM analogue radio reception. As a result, large numbers of new analogue radios continue to be added to the substantial legacy of old analogue radios already in the UK market.
The prospect of being able to listen to exclusively digital content on the DAB platform is not motivating consumers sufficiently to purchase DAB radio receivers. In fact, the data demonstrate that consumers who have access to digital radio platforms are mostly listening to content which is already available to them on analogue radio, a phenomenon that has led to the closure of many advertising-funded digital-only radio services in the UK market.
Q4 2008 was the first quarter in which the year-on-year growth in volume sales of DAB radio receivers in the UK moved into negative territory, notable because the Christmas gift market still remains the hardware’s main sales opportunity. At the same time, FM radio is becoming an increasingly common feature in ‘smartphones’ and all types of handheld devices, a market which the DAB platform has not yet penetrated. The lack of listening mobility offffered by DAB radio is reinforced by the tiny proportion of the UK’s car stock that is equipped with DAB radio receivers.
Furthermore, the significant investments required to date of the UK radio industry in the DAB platform have helped to reduce the present aggregate profitability of the commercial radio sector to zero. The problem is that DAB radio has achieved a measure of success in the UK, but that success has not been sufficiently large to make the platform a profitable venture, even after a decade. Instead, DAB is continuing to make a substantial financial impact on a commercial radio sector already having to make difficult structural adjustments to address falling listening and declining revenues.
The DAB platform which, a decade ago, had been embraced by UK commercial radio owners as a potential opportunity to profit from the impact of digital media on consumers’ lives, is now seen more as a ‘problem’ and as a balance sheet liability. With complete consumer migration from analogue to digital radio now looking less likely, radio owners are trapped in a situation where they are forced by the regulatory framework to continue to meet the expenses of dual transmission on both analogue and digital platforms without the benefit of an end-date.
The UK experience demonstrates that the challenges inherent in migrating consumers from analogue to digital terrestrial broadcast platforms are much greater than simply making digital radio receivers available within the market and broadcasting some content on the digital radio platform.
Digital Radio
DAB Digital Radio: A Global Perspective
D
igital broadcasts are already available across many parts of Europe but so far only one country – the UK, where ten million people have bought the new receivers — has had widespread consumer adoption. And even here, while the publicly financed BBC network has championed the new technology, some commercial broadcasters have recently backed away from it.
Complicating matters is a battle over competing standards, with the United States, Britain, Japan, France and Australia adopting separate digital radio technologies.
T
ests of France’s proposed digital terrestrial radio system, which were scheduled to start in December, have been postponed, according to reports on 4 December. The move comes amid opposition from several sources – including private radio operators RTRTL, Europe 1, NRJ Group and NextRadioTV – and on the heels of a critical official report presented in November. According to the latter, stations would have to pay 126-188m euros more in annual transmission costs.
“We believe in digital terrestrial radio, but the distribution costs are too high,” Alain Weill from NextRadioTV, owner of RMC and BFM, told AFP. Weill added that the use of a standard other than that chosen – T-DMB (Terrestrial Digital Multimedia Broadcasting) – would reduce costs significantly.
Michel Boyon, head of the broadcasting regulator CSA, said tests were expected to start by the end of 2010, L’Express website reported on 4 December. “If radio does not digitize, it will slowly decline. It can not be the only media to stay out of the digital revolution,” he was quoted as saying during an online debate. “Internet radio is great, but it is totally inadequate in meeting listener demands,” he added.
R
adio news website RadioActu said officials had gone for the wrong digital standard. “One day… the government will understand that the standard [originally developed for] Korean TV is not suitable for digital radio, and it will finally accept the evidence that it must adopt DAB+, like the rest of Europe.”
In Denmark, DAB receiver penetration is around 30% of the population and 25% of people who don’t have DAB sets expect to buy them in the next 12 months. Monthly reach for DAB listening is 40%; but market share is about 10% – which is similar to the UK.
Choice is driving DAB in Denmark: but in Denmark, it’s a difffferent picture from the UK – listeners move from very little choice on analogue to significantly more as a DAB receiver provides 14 DR public service channels (10 new stations), and 3 commercial radio stations.
In the US, digital radio uptake has been much slower than in the UK. US radio stations have previously been unwilling to pay for digital transmitters until more consumers owned digital receivers – but manufacturers were reticent to produce more digital radios until there were more digital broadcasts, according to USA Today.
In addition, the cost of ‘going digital’ is currently substantially higher than receiving satellite radio. The number of satellite radio subscribers is set to reach 35.6 million subscribers by 2010.
However, the future for US digital radio is looking more positive, with more than 250 radio stations already broadcasting in digital and a further 2,500 having made the commitment to upgrade to digital. Research from In-Stat suggests that once table-top units drop below $100 each and are built into cars as standard, adoption of the medium will increase significantly. In-Stat expects the US to have achieved large scale adoption of digital radio in the next two to three years. However, the forecaster anticipates that it will take between 10 and 20 years before all 750 million analogue radios in US homes and cars are replaced by digital. The merger between XM and Sirius has not deterred demand for satellite radio receivers in the US
Consumer confidence is at its weakest point in over a decade; nevertheless the worldwide market for digital radio experienced year-over-year growth of 85% between 2007 and 2008, according to In-Stat. A major factor driving this growth was the progress in digital multimedia broadcast (D(DMB)B) service in Korea and China.
Another primary driver for digital radio market growth was further developments in the HD radio market, such as the introduction of portable HD radio receivers. The global market for satellite and terrestrial digital radio, combined, will grow from 12 million unit shipments in 2007, to 55 million unit shipments in 2012. Additional market drivers include falling receiver prices, an increase in the amount of digital programming, significant boosts in the promotion and advertising of digital radio, and the enhanced functionality of digital radio receivers.
Digital Radio
Digital Radio Listening
T
here are three ways of listening to digital radio in the UK; through DAB digital radio, through digital television (requiring access to digital satellite, digital cable or Freeview) or via the internet using a PC with speakers.
R
AJAR measures radio listening via platform (analogue and digital) and its most recent set of findings were released in Q3 2009, revealing 21.1% of listening is now via a digital platform (DAB, DTV, internet) with digital listening hours for the quarter totalling 213 million hours per week.
Of those listening via digital, the majority chooses DAB digital radio, with 13.3% preferring this platform, compared to the 3.6% that listen via their digital televisions and 2.2% via the internet; see Table 2.
Digital Radio Listening Via TV
D
igital radio listening via DTV has shown strong growth over the last five years. Over 40% of UK adults have ever listened to the radio via the TV, according to RAJAR, up from around 13% five years ago.
Latest figures from RAJAR show that digital listening via DTV totalled 37 million hours during Q3 2009; see Table 3.
Digital Radio Listening Via Internet
The internet is also fuelling consumer interest in radio, with listening to the radio through the internet now a regular occurrence. Digital listening via the internet has a weekly reach of 6.5% of all radio listening.
here has been significant consolidation within the UK radio industry ever since the merger of GWR and Capital Radio to form GCap Plc in 1995, and there has been yet further consolidation among the radio groups.In April 2008, GCap Media accepted a £375 million takeover bid from rival company Global Radio. Global Radio, headed by former ITV chief executive Charles Allen, paid 225p per share, with the conclusion of the deal heralding an end of four months of negotiations. In June 2008, Virgin Radio owners Scottish Media Group confirmed the sale of Virgin Radio to a consortium including The Times of India Group for £53 million. August 2008 saw Bauer Media and Guardian Media Group in talks with GCap and Global Radio over the acquisition of Midlands stations BRMB and Heart 106.
UTV Media, owner of the Northern Ireland ITV franchise and talkSPORTRT, has reported a 19% decline in ad revenues at its TV division and a 15% drop at its radio operation for the first four months of the year. The broadcasting group, which owns more than 20 radio stations across the UK and Ireland, said the group’s total revenue was down by 14% on a like-for-like basis in the four months to the end of April.
However, in a statement, UTV said: “Trading in this period was in line with our expectations and the Group achieved its budgeted operating profit.”
UTV’s revenue in its Radio GB division, which includes talkSPORTRT, was down by 15% based on continuing operations, compared to a market, which the company “believe declined by 18% during the same period”.
Ashley Tabor, Global Radio’s chief executive, expects the radio group to hold its underlying operating profits flat for the 12 months to the end of March.
T
abor said Global, which owns stations including Classic FM and Capital, will report underlying profits of around £31 million despite seeing a 20% downfall in advertising revenues for the same period.
He told the Times the company is forecasting steady year on year underlying operating profits for the 12 month period, even though the UK radio advertising market has fallen by around 15% to 20% year on year. Global only filed accounts for the year ending March 2008 last week, which showed that its revenues were up from £193 million to £200.6 million year on year.
T
he group’s underlying operating profits increased from £13.3 million to £16.1 million on a like-for-like basis, however, the company reported a statutory operating loss of £66.5 million.
G
uardian Media Group’s national newspaper division, Guardian News & Media, is set to report a loss of about £35m for the financial year to the end of March.
G
MG Radio and GMG Property will also report operating losses, according to a report on MediaGuardian.co.uk, while GMG’s regional newspaper division will make an operating profit of less than £1 million, down from £14 million profit in the previous financial year.
Mobile Radio
V
irgin Mobile launched a DAB-IPTV enabled phone service in October 2006, allowing users access to DAB digital radio and mobile TV. Using the Lobster 700 phone, subscribers were able to access up to 50 digital radio stations straight to the handset together with crystal clear sound, through BT’s new Movio service, broadcast via Digital One’s existing national DAB network as well as several mobile TV channels.
However, the service failed to take off and BT announced at the end of 2007 that it was disbanding the BT Movio business and subsequently cancelled its contract with GCap Media, the company which owned the service spectrum.
Reports in the trade press claimed that fewer than 10,000 handsets had been sold by the beginning of 2007,
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Digital Radio
despite a £2.5 million advertising campaign. Virgin Mobile’s chief executive, Alan Gow, said that mobile TV was still in its infancy and sales had been hampered by the fact there is only one handset on offer.
Trials that were held for the BT Movio service in 2005 demonstrated the popularity of DAB mobile radio, as users watched an average of 66 minutes of TV each week but they listened to 90 minutes of radio.
Radio is already an option available on many mobile phones, but mobile DAB digital radio is currently unavailable.
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Digital Radio
Looking Forward
New technology will drive an extra 10% growth in listening hours over the next 5 years. It is anticipated that between 2-4% of these additional listening hours will come from more choice – as digital listeners are able to find a station that fits their taste/needs throughout the day. In addition, better quality sound and ease of tuning should also result in an increase in listening hours.
T
he ubiquity of digital radio – with radio able to capture the ‘3rd space’ as listeners tune in during travel and leisure time – is predicted to add another 3-5% growth in listening hours.
Finally, the control exercised by the listener using digital radio – listeners have the ability to choose when to listen to favourite programmes as well as having access to a ‘back-catalogue’ – is expected to add up to 1% in terms of listening hours.
Currently 13.5% of adults are using their mobile phones to listen to the radio, a slight drop of 0.4% points on Q2 2009; see Figure 2.
For everyone to buy into digital radio there needs to be critical platform mass, critical mass in volumes and thus in price, and possibly even critical mass in content and services. There does not need to be a single ‘killer application’ but there does need to be, as Freeview and digital satellite have shown in television, a sufficient combination of services, technology, simplicity and price or discount to provide a value proposition for the consumer. It is widely believed that digital radio is likely to be able to meet these conditions.
Digital Radio
Digital Migration
T
he Government’s Digital Britain report, published in June 2009, set out policy for digital media and communications services in the UK, and contained a number of proposals of relevance to the radio industry.
T
his Government report has proposed digital migration by 2015 with an upgrade of all national and large local radio services to digital-only formats (DAB radio) by this date. Analogue frequencies will be maintained for the provision of local community and other small local commercial services.
T
wo main criteria will need to be fulfilled to initiate digital migration – firstly when 50% of radio listening is via digital platforms; and secondly, when national DAB coverage is comparable to FM coverage, and when local DAB reaches 90% of the population and all major roads.
T
he Government has proposed that these criteria should be met by the end of 2013 and has recommended new legislation to help increase DAB coverage by allowing existing local multiplexes to extend their coverage into areas currently un-served, while also allowing for multiplexes to merge where appropriate, with the possibility of the regional multiplexes consolidating and extending to form a second national multiplex.
The report also recommended that car manufacturers should aim to install DAB radio sets as standard, with a proposed target date of 2013. Recognising the popularity of radio listening in cars, Lord Carter’s report includes a recommendation that all new car radios sold in the UK by the end of 2013 should be digital, similar to legislation already introduced in France.
Leading car manufacturers in the UK have expressed support in principle for such a recommendation which sets out a clear timetable for the industry to move from analogue to digital. Both Vauxhall and Ford (the manufacturers of 6 of the top 10 bestselling cars in the UK) already offffer DAB as standard on many models, and are thus well prepared to meet the government’s proposed deadline for digital switchover.
V
auxhall’s Group Product Manager, Stuart Harris, says: “As one of the first car manufacturers to fit DAB as standard in certain models, we welcome this next step in the evolution of digital radio in the UK. The certainty of digital switchover provided by the Digital Britain report will enable us to develop our support for DAB still further and we believe we are in a good position to comply with the recommendations for the car industry contained within it.”
T
he DRDB’s chief executive, Tony Moretta says: “The suggested deadline for digital radio to be standard in all new cars by 2013 draws a line under years of uncertainty for the car industry as far as digital radio is concerned. With a clear set of standards now agreed across Europe, manufacturers such as Ford and Vauxhall can confidently and cost effffectively plan their migration from analogue to digital, with all the resultant benefits for their customers.
“The DRDB and the radio industry will continue to work with car manufacturers to ensure a smooth transition from analogue to digital radio over the coming years.”