Community Radio’s impact on the viability of small Commercial Radio licence holders

This Thursday just past the long awaited DCMS announcement on the outcomes from the recent consultation on funding arrangements for UK community radio stations was made. One of the eagerly awaited outcomes was relaxing the restrictions on commercial income that community radio stations can make.

The DCMS say

Under the current rules in the Community Radio Order 2004, most community radio stations can only raise 50 per cent of their income from commercial sources, with 19 stations not allowed to make any money from advertising at all as they compete in the same market as small commercial radio stations. … Under the planned changes, all community radio stations will all be able to raise at least £15,000 in income from commercial sources before any limits kick in.

Naturally Commercial Radio’s trade body ‘Radio Centre’ were less than impressed Siobhan Kenny, Chief Executive of Radio Centre said in a press statement:

 “This is a disappointing outcome and will be a real cause for concern for small commercial radio stations where margins are already squeezed.”

The Radio Centre’s reply is totally expected. They represent a group of commercial businesses. Any change of legislation with a possible negative impact on the revenues of their members would obviously not be welcomed.

If all 200 odd Community Radio stations went out and sold their extra £15k allowance then whatever size of the commercial radio company I was I’d be taking notice that around a third of a million pounds of my sectors income could be redirected to community radio.

Now that’s taking the view that this extra community radio income is coming from commercial radio’s ‘slice of the total advertising pie’ and not from local press or on-line’s ‘slice’. There is also a case to be made that these extra community radio advertising sales may serve to increase the size of the pie, by bring on board small businesses who previously didn’t make a media spend.

At the end of the day it’s all relative.

Currently community radio licence holders whose service area overlaps with a small commercial radio service are restricted from taking any on air advertising or sponsorship. One such example is Tudno FM in Llandudno, North Wales. What is their possible impact on the local small commercial radio station? Their local analogue commercial radio licence, formally known as “Marcher Coast”, is now part of the shared North Wales ‘Heart’ service which then changed to be a ‘Capital’ service.

A breakdown of sales for each licence area is not public, but the company accounts for licence holder ‘Marcher Radio Group Limited’ (a subsidiary of Global Radio) in year ending 2012 report a turnover of £2.7 million. Llandudno Community Radio Limited, licence holder of Tudno, turnover at the same time was £29 thousand.

In the intervening years Marcher Radio Group’s turnover has increased to 3.4 million last financial year. The community radio group started filing abbreviated accounts, so I haven’t got turnover figures for following years, but can assume that they have broadly remained the same in line with sector averages as reported by Ofcom.

So for each community radio station in Marcher Radio Group`s patch (I can think of at least four off the top of my head), under the new 15k rule could mean that they could loose up to 0.5% of their revenue per community station next year. But in the past two years they have actually increased their revenue by 25%. Having said that last year was the first year since 2005 that Marcher Radio Group didn’t make a loss.

I’d wager that Marcher Radio Group’s renewed success will be down to being part of a big group and would be reasonable to assume having a “better” sales operation.

Community radios impact in North Wales can only be extremely minor on the finances of commercial radio at this scale. I can’t realistically see any North Wales community station being able to bring in hundreds of thousands of increased advertising sales, especially as it still needs to be ‘match funded’ with income from other sources to some degree.

Is the impact likely to be more significant somewhere else in the case of a small independent standalone commercial radio service overlapping with a community station? That’ll be one for another day to try and crunch some numbers.

This is a revised version of a contribution I made to the CMA email discussion list.