Review of Licensing of Radio Services in Ireland - Final Report

Study for the Department of Communication, Marine and Natural Resources
April 2004
Hessel Abbink Spaink (OX Auction Experts)
Phillipa Marks (Indepen)
Ton Meuleman (OX Auction Experts)
Helen Shaw (Athena Media)
Note: All comment about values of stations etc is simply for illustrative purposes and does not purport to be
financial or legal advice of any nature
Final Report
Review of Licensing of Radio Services in Ireland

TABLE OF CONTENTS
INTRODUCTION 1
Approach 2
Structure of the report 3
1. THE IRISH RADIO BROADCASTING MARKET 5
1.1 The changing media landscape after the Broadcasting Act 1988 5
1.2 Market structure 7
1.3 Programme diversity and plurality 9
1.4 Structure of the local radio market in Ireland 11
1.5 Recent experiences with licensing 12
2. MEDIA POLICY 13
2.1 Policy objectives 13
2.2 Interface between policy development and implementation 19
2.3 Digital radio 20
2.4 Summary 24
3. RADIO BROADCASTING ECONOMICS 25
3.1 Impact of source of revenues on radio format 25
3.2 Value and cost drivers in the basic business case of a commercial radio station 27
3.3 Size of the radio advertising markets in Europe (2002) 29
3.4 Government options to benefit from the value of a radio licence 29
3.5 Summary 33
4. LICENSING 35
4.1 More transparency in decision making will improve licensing process 36
4.2 Licence renewal 40
4.3 Appeal mechanisms 41
4.4 Enforcement 44
4.5 Summary 45
5. CONCLUSIONS AND RECOMMENDATIONS 47
5.1 Conclusions 47
5.2 Recommendations 54
ANNEXES
A. INTERNATIONAL SURVEY A-1
A.1 United Kingdom A-1
A.2 The Netherlands A-11
A.3 Belgium (Flanders) A-20
A.4 Denmark A-28
A.5 Norway A-37
A.6 Sweden A-45
A.7 New Zealand A-55
B. THE VALUE OF A RADIO STATION B-1
B.1 Analysis of the FM104 acquisition B-1
B.2 Changing market circumstances due to competition or licence fees B-6
C. LIST OF ORGANISATIONS INTERVIEWED C-1

Introduction
The independent radio market in Ireland has grown into a dynamic and successful sector since it was first
opened in 1988. The independent sector currently has a market share of 56%1 of the adult (+15 years)
radio audience and the estimated turnover for the sector, which employs over 900 people, was €65
million in 2001.
The monopoly of the public broadcaster Radio Telefís Éireann (RTÉ) ended with the adoption of the
1988 Radio and Television Act. The 1988 Act reflected the growing debate over the need for
broadcasting diversity and competition, and allowed the introduction of local and national commercial
players. The Irish radio market post 1988 was marked by rapid change as choice opened up across the
local radio market with the development of a commercial sector and the emergence of community radio.
The Government’s policy decision to bar RTÉ from the local market ensured that new commercial
choices emerged. However, national competition proved more challenging and the first national FM
service to challenge RTÉ Radio, Century Radio, collapsed after two years. Media policy at that stage
was defined as delivering competition to RTÉ rather than extending RTÉ services. In this regard an
advertising cap was placed on RTÉ to limit its advertisement minutes below the commercial stations.
With the growth and development of the independent sector in Ireland, the issue of licensing commercial
radio stations has become more complex and contentious. In two cases, local radio franchisees that did
not succeed in acquiring a licence for the new term, contested the decisions of the Broadcasting
Commission of Ireland (BCI) in Court, though without success. In those regions, as well as in several
others, local communities and local politicians protested against the decisions. Other concerns were
raised in relation to apparent policy changes related to takeovers. Until 2001, media groups could own
up to 27% of the shares of a radio station in order to preserve the local character of a station. This rule
has since been relaxed. In May 2003, The Joint Oireachtas Committee on Broadcasting intervened by
criticising the BCI and by conducting its own review of the licensing system as experienced by (existing)
radio franchisees2.
The context for the current review into radio licensing reflects this background. A strong growing
independent sector has fuelled the debate over issues such as diversity in content (for a more diverse
society), media plurality (to ensure the strength of an informed democracy), and in particular, the ways in
which new media choices, such as increased radio franchises, can, or should play a role in that debate. It
is proposed to review the mechanisms underpinning the licensing and regulation of the broadcast media -
both public and commercial broadcasting - through the creation of a new regulatory body, the
Broadcasting Authority of Ireland (BAI).
The trends for the radio market, and indeed the media landscape, must reflect the anticipated changes in
society. The potential for increased segmentation and alternative choices remains real in the Irish
market, particularly in major urban areas. These choices may be economically provided by existing
players or where the opportunity to develop new business models exists, new business players may enter
the market.
On 14 August 2003 Dermot Ahern T.D., Minister for Communications, Marine and Natural Resources,
announced that a project would be started reviewing radio licensing in Ireland, including an international
survey of best-practice in the area. Several objectives for the project were formulated:
1 JNLR/MRBI Survey 2003.
2 Joint Committee on Communications, Marine and Natural Resources, report No. 5, May 2003.
1
Introduction
- describe current objectives of radio licensing;
- evaluate whether there is a need to revisit these objectives having regard to changes in Irish society
and in broadcasting markets;
- consider existing power of the BCI including power to decide type of services to be provided and
franchise areas.
This report is intended as a first step in a wider review process, which will include public consultation
and the development of new policy with new legislation in mind.
The focus of the review project is on the commercial radio sector and it should result in options for future
policy in Ireland. OX Auction Experts (OX) was awarded the contract for completing the report in early
October and completed the study in March 2003.
The OX team brings together extensive experience in licensing processes and policy approaches in the
“ continental” commercial radio sector (in particular the Netherlands, Denmark and Belgium), the UK
market and the Irish radio sector. The mix of experiences has helped the assessment of the situation in
Ireland in a rather short time.
The Department of Communications, Marine and Natural Resources (DCMNR) specified in its Terms of
Reference (ToR) of the consultancy study “Review of the Licensing of Radio Services in Ireland” that
OX should conduct the following tasks:
a. objectives
- describe the current objectives of radio licensing;
- evaluate whether there is a need to revisit objectives having regard to changes in Irish society
and in broadcasting markets;
- consider existing power of the BCI including power to decide of services to be provided and
franchise areas;
b. process
- describe and evaluate existing processes;
- evaluate existing roles of the Executives of the BCI and the Commission;
- evaluate the need for independent/outside expertise in licensing process;
- explore options for appeals mechanism in relation to licensing decisions;
c. structural
- consider what and who should be licensed;
- consider terms of existing and future licences including duration;
- consider issue of licence roll over;
- consider barriers to market entry;
d. policy interface
- evaluate existing policy interface.
Approach
In view of the short duration of the project, this report heavily relies on the experience in the team.
Furthermore, open literature was used for fact finding. In the first week of November, interviews were
held with stakeholders in order to enhance the understanding of the various interests in the independent
radio market. Finally, various ideas were discussed with the officials of the Department of
Communications, Marine and Natural Resources.
2
Introduction
For the international survey seven countries were selected that seemed most relevant for the review
process:
a. the United Kingdom (strong similarities between British and Irish legal systems);
b. the Netherlands (experiences in 2003 with issuing commercial radio licences);
c. Belgium – Flanders (similar market size);
d. Denmark (similar market size and experience with licensing processes in 2003);
e. Norway (similar market size; rather strict regulatory environment);
f. Sweden (change in assignment procedure: from auction to beauty contest);
g. New Zealand (high level of market liberalisation / application of auctions).
It should be noted that the international comparison is a quick survey and is largely based on desk
research. The market data that are presented in the survey give an idea of the relative position of a
country, but the data should be interpreted cautiously since methods of collecting data and/or aggregating
results differ considerably amongst countries.
Structure of the report
The first chapter of this report presents an overview of recent developments in the Irish radio market in
order to put the study in the right perspective.
The second chapter focuses on media policy and in particular on policy objectives, policy interface and
the need for more explicit policy on the market structure and the impact of digital infrastructures.
In the third chapter, we discuss the relationship between commercial and public radio stations and the
economics of (commercial) radio broadcasting. This chapter includes a review of the discussion on the
value of a radio licence and the policy options for the government to benefit financially from this value.
In the fourth chapter, the current licensing procedures are reviewed and opportunities for improvements,
including the introduction of a non-judicial appeal mechanism, are discussed.
Based on the findings in this study we formulate policy recommendations and options in the last chapter.
In the annexes several issues are discussed in more detail.
Annex A presents the results of an international survey.
Annex B discusses the valuation of a commercial radio station by taking the recent sale of FM104 as an
example.
Finally, the list of organisations that were interviewed for this study can be found in annex C.
3

1. The Irish radio broadcasting market
The Irish media landscape must be placed in the changing context of Ireland’s economy and society.
Since the mid 1990s Ireland has experienced an economic upswing, which from the late 1990s made it
the fastest growing economy in the developed world for several years running. The economic boom
combined with several other social changes such as rising population, increased migration and
employment and the development of a multi-racial society means that the Ireland of 2004 is significantly
different from the Ireland of 1994 and radically different from the Ireland of 1984.
In terms of media, the economic upturn paralleled the growth of the independent radio sector and ensured
capital investment was readily available, from the development of Radio Ireland/Today FM in 1997-98
to the advent of new stations in Dublin and a regional station in 2003. A dynamic Irish economy
certainly encouraged external investment in the Irish radio market, with UTV and Scottish Radio
Holdings in particular investing millions since 2000. Irish entrepreneurs originally launched Radio
Ireland/Today FM and Denis O’Brien’s Capital Two Thousand radio company remains a major player in
the Irish radio market, owning 98FM and controlling Newstalk, the news station in Dublin.
The debate around radio in the late 1980s and through much of the 1990s focused on the development
and growth of the independent sector. Radio Ireland’s shaky birth and rapid transformation into a more
pop-orientated station, Today FM, showed the difficulty of commercial national competition. Since
2001, and the creation of the Broadcasting Commission of Ireland, the focus of public policy has shifted
to the form and style of the developing broadcasting sector in radio and television and the creation of a
policy which ensures diversity of content, real choice for citizens and consumers, and continued quality
of home produced production. The independent sector is now secure, and the sales of stations for over
€ 30 million show the perceived strength of the market.
Socio-economic changes have had an impact on the media landscape. In 1984, the key target post the
breakfast morning news was the mid-morning ‘housewife’ radio programmes like the iconic Gay Byrne
Hour, which at its peak had audiences of over a million a day. Few married women worked outside the
home, while by 1994 labour participation of Irish women had increased considerably. Furthermore, with
increased commuting due to the sharp increases in property and changing lifestyles in the main cities, a
growing target group - commuters - emerged. New audiences, often car and office bound, replaced
housebound audiences, and advertisers chased a wider variety of consumers with increased wealth.
1.1 The changing media landscape after the Broadcasting Act 1988
In Ireland the public broadcasting monopoly of Radio Telefís Éireann (RTÉ) ended with the 1988 Radio
and Television Act and the introduction of local and national commercial competitors. The 1988 Act
reflected the growing debate over the need for broadcasting diversity and competition.
RTÉ traces its radio history back to 1926 when it began broadcasting as RN1, which evolved into Radio
Eireann and is today RTÉ Radio 1, the main news and information station in Ireland. By then RTÉ
Radio had: two full services, Radio 1 and 2FM (a youth music station)3, both broadcasting on FM and
3 Pirate radio stations flourished in the 1980s and prompted RTÉ to fight back with its own music station – Radio 2 – which
was re-branded as 2FM.
5
The Irish broadcasting market
AM4; two FM services sharing a frequency, Radio na Gaeltachta (the Irish language service) and FM3 (a
classical music service); as well as a limited local radio service in Cork city.
In 1999 Lyric FM, a full service classical music and arts station, was launched on the fifth and final
national network. At the same time RTÉ closed its local operation in Cork, ending its only local service,
saying the 1988 Act had excluded it from local broadcasting and that since the Cork operation had been
barred from going beyond its limited operation, in hours and frequency, it was no longer viable. The
1988 Act meant that RTÉ was excluded from providing local services and as such it envisaged that the
new county based local network would be provided by the private, commercially based sector.
RTÉ radio is dual funded by the public broadcasting TV licence fee and by commercial revenue. The
licence fee revenues in 2002 were €114 million, i.e. 45% of the total budget of RTÉ. In the same year,
RTÉ Radio raised €30.4 million in advertisement revenue.
1.1.1 National commercial radio had a difficult start
While local stations flourished between 1989 -1997, taking significant audience share from RTÉ Radio
(particularly the speech based station, Radio 1), the national radio licence has had a difficult and slow
birth. Century Radio, the successful bidder for the national licence, did not launch until 1991 and failed
within two years, despite having attracted significant audiences5. The Irish business backers behind the
venture ran out of funding, or a willingness to fund, before the critical take-off period was realised.
Century Radio’s failure ensured the reluctance of others to take on the national licence and a second
national commercial project, Radio Ireland, did not launch until 1997. Within a year of operating, it too
had failed to reach audience targets and was re-launched as Today FM, which is successfully operating
today as the national commercial station. Scottish Radio Holdings, the Glasgow based media company,
now owns 100% of Today FM.
1.1.2 Regulatory environment
The new legislation brought with it not only new stations, but also a new regulatory environment.
Whereas RTÉ is regulated by the RTÉ Authority, the independent sector is regulated and licensed by the
Broadcasting Commission of Ireland (BCI)6. The role and functions of the BCI are set out in the Radio
and Television Act 1988 and the Broadcasting Act 2001 and can be summarised as licensing, monitoring
and developing the audio-visual industry and providing clear codes and practices for broadcasters.
The Broadcasting Act of 2001 also defined new powers for the BCI to enforce broadcast codes of
practice, which applied to both the independent sector and RTÉ. In 2002, The Forum on Broadcasting,
an ad-hoc governmental appointed body of professional experts brought together to review the industry,
reported back to the Government with a series of recommendations. These have both underscored the
long term future of public broadcasting and created the concept of a new single broadcasting body, the
Broadcasting Authority of Ireland (BAI). The BAI is expected to merge the functions of the BCI and the
regulatory functions of the RTÉ Authority, the non-executive board appointed by the Government to
govern RTÉ. The new legislation is expected to be published in mid to late 2004.
The Commission for Communications Regulation (ComReg) regulates radio spectrum in Ireland. In
addition, media mergers may be referred to the Competition Authority. This new power has been tested
by the recent purchase of FM104 by Scottish Radio Holdings, in that the Competition Authority
4 RTE has announced in March 2004 that from April 2004 it will cease completely to broadcast 2FM on medium wave.
Furthermore, RTÉ has begun broadcasting Radio 1 on long -wave since March 2004.
5 See also: interim report of the Flood Tribunal (2002).
6 Until 2001: Independent Radio and Television Commission (IRTC).
6
The Irish broadcasting market
approved the sale on a conditional basis that forces SRH to sell its small shareholding in Newstalk – the
Dublin speech station7.
1.2 Market structure
In 2003, the independent sector in Irish radio had the following structure:
- Twenty seven commercial stations:
One national service (Today FM);
One regional station (Beat FM) in the southeast of Ireland;
Twenty five local stations;
- Fifteen community stations which are low power limited services run on a community, not-for-profit
basis;
- One ‘special interest’ licence in Dublin (Anna Livia );
- Six hospital stations.
Community radio is an expanding and developing sector. Of the current services they cover a wide
range of interests and groups such as university based radio stations like Wired FM in Limerick or Irish
language services in Cork, Dublin and Donegal. Community radio in Ireland is developed under the
European AMARC community radio concept8 and a community radio station is defined by its ownership,
programming and the community it serves. It must be owned and controlled by a not for profit
organisation and its programming must be based on community access. Community radio stations are
funded from a variety of sources: advertising, programme sponsorship, general fundraising, donations
and grant-aid.
The community sector is beginning to find a common voice and organisation and the BCI has supported
training and development as well as programming content through a small programming fund. The
potential to develop the community sector further is there given the new broadcasting funding Act, 2003,
which allocates 5% of the licence fee annually to a programme fund to be managed by the BCI. The BCI
wishes to expand the community network so that there is a wide national framework of these small niche
stations.
The difference between community and ‘special interest’ could be described as one of reach and
definition in that Anna Livia has a full Dublin licence, with coverage of the city on FM, while
community stations are generally low-power FM stations run by and for defined communities. ‘Special
Interest’ as a category emerged to fill the public sector gaps in the market and Anna Livia has over the
years run a speech and music based Dublin service on a not for profit basis although with limited
audience impact.
A difficulty for the ‘special interest’ and community stations is that while they are permitted to carry
advertisements they are not commercially run stations and their audiences are not audited. This is an
area that is currently being discussed within the BCI given its stated aims to expand and strength the
community radio sector. It is equally important that the concept is kept clearly separate from the
commercial radio sector. A ‘special interest’ licence was issued to a country music station in Dublin
(Country 106.8FM ) some years ago and that station was clearly launched as a business venture with
audited audiences in the JNLR. While that station still has specific commitments to play that genre of
music, it is no longer defined as ‘special interest’ by the BCI given that it is operating as a business.
7 See also section 2.1.3 for a discussion on the issue of (cross-)ownership.
8 See: “BCI Policy on Community Radio Broadcasting”, www.bci.ie/policy_1.html
7
The Irish broadcasting market
Table 1 summarizes the national networks, their formats and popularity in terms of audience share.
Station Format Audience share
RTÉ 1 News/information/music 25%
2FM Pop music 18%
Lyric FM Classical music 1%
Radio na Gaeltachta Irish language <1%
Today FM Music and talk radio 10%
Table 1 - Media landscape national radio (JLNR July 2002-June 2003)
The development of local radio in Ireland has proven quite successful with strong, locally based and
locally owned stations emerging to provide local content and music. In all regions, except Dublin and
Cork, the local franchise has no other local competition although with the development of a regional
radio pilot service, Beat FM in 2002, there is at least in one area the concept of local, regional and
national broadcasting. Only in Dublin and Cork is there competition within the local radio sector and the
Dublin radio market now has six commercial stations with audiences audited by the Joint National
Listenership Research (JNLR); 98 FM, FM104, Newstalk, Spin FM, Lite FM and Country.
Figure 1 shows that local radio is highly popular in Ireland. The figure also demonstrates the success of
other radio stations (including community radio) in areas outside the two largest cities.
0%
20%
40%
60%
80%
100%
National Dublin Cork National excl.
Cork/Dublin
Lyric FM
2 FM
Radio 1
Other (incl. Community)
Today FM
Home Local
Figure 1 - Market share (in terms of listeners) in period July 2002- June 2003 of the major radio stations (source:
JNLR/MRBI)
8
The Irish broadcasting market
Local radio stations vary widely in coverage as is shown in Figure 1. The differences in size have direct
consequences for market shares in terms of turnover. The total market for commercial radio advertising
is estimated to be at a level of €65-70 million in 2002. Within this market, four players (Today FM,
Cork 96FM/103 FM, 98FM and FM104) have a collective market share of over 50% (total turnover of
approx. €35 million). This implies that the market for the other 20 stations (and 14 community stations)
is around €35 million, i.e. an average turnover of €1.7 million/station.
Table 2 - Franchise areas for local commercial radio in 2003
Franchise Area Population 15+ # stations Local stations
less than 100,000
Carlow 37,000 1 CKR FM (may change to KCLR)
Kilkenny 63,000 1 Radio Kilkenny (may change to KCLR)
South Donegal/Sligo/North Leitrim 77,000 1 North West Radio (may change to Ocean FM)
Clare 80,000 1 Clare FM
Waterford 81,000 1 WLR FM
Donegal North 87,000 1 Highland Radio
Wexford 91,000 1 South East Radio
Wicklow 91,000 1 East Coast FM
Mayo 93,000 1 Mid West Radio
between 100,000 and 200,000
Kerry 106,000 1 Radio Kerry
County Tipperary 110,000 1 Tipp FM
Kildare 126,000 1 CKR FM (may change to Kfm)
Limerick 141,000 1 Limerick’s Live 95FM
Laois/Offaly/Westmeath 149,000 1 Midlands 103
Cork City 158,000 2 Cork 96FM, Red FM
Roscommon/Longford/South
Leitrim/Cavan/Monaghan
164,000 2 Shannonside FM, Northern Sound FM
Galway 168,000 1 Galway Bay FM
Louth/Meath 182,000 1 LMFM
Rest of Cork 198,000 2 County Sound 103FM, Red FM
more than 200,000
Dublin City and County 921,000 5 FM 104, Lite FM, 98FM, Newstalk
106FM, Spin 1038
1.3 Programme diversity and plurality
Radio in Ireland is both popular and influential. According to recent audience figures, 86% of the
population over 15 years tuned in every day and the average listening period is over four hours. While
radio listening has declined from a 90% daily rate just two years ago, Irish radio listening habits are
amongst the strongest in the world. In the initial ten-year period following the opening of the radio
market, listenership increased as distinctive local radio stations began to offer something quite different
from the national public broadcaster.
The development of community radio has introduced a layer of radio in a not-for-profit model9. The key
concern for media policy is that deregulation may lead to fewer owners and less diverse content resulting
in more stations offering similar music choices and appealing to the advertisers’ target audience of 20-44
year olds. A key objective of Irish media policy is to define a media mix, which can provide a healthy
competitive marketplace, but which ensures local and public interests are served.
9 The BCI has adopted the AMARC Community Radio Charter for Europe as a statement of the objectives that community
radio should strive to achieve.
9
The Irish broadcasting market
1.3.1 Scope for more services
The commercial viability requirement could restrict the service offering. As is illustrated in Figure 2 the
number of national radio stations in Ireland is on the low side if compared with other countries of the
international survey, though the differences are relatively small. Only in the Netherlands the number of
national networks became considerably higher after the licensing process in 2003: in the Netherlands
listeners have choices of thirteen different national radio stations, at least two regional stations (one
commercial and one public) and a local station. The Dutch case illustrates that there should not be
serious spectrum constraints on increasing diversity10.
In Dublin city and county six local stations are active. However, choice may still seem narrow in
relation to the social diversity within a population of about 1.4 million. Special formats like jazz, rock,
radio for children, a full speech books or sports service or ethnic radio, for example, have not been
offered. It should be noted though that commercial viability consideration may limit such service
offerings at a local level.
In areas outside the main cities, the number of services is even lower. For instance, in Clare there is one
local commercial station and one community station.
In the current situation, local radio is both popular and commercially successful. Some stations attain
audience shares above 50% (a station like Radio Highland gained a market share of 59% in the 2002/3
survey). But while local radio works well in Ireland, there are some concerns. Nine of the franchise
areas cover less than 100,000 people (see also Table 2). In three of the medium size franchise areas two
commercial radio stations have to share a market of less than 200,000 people. The implications of this
situation are discussed in more detail in section 3.2.3.
0
2
4
6
8
10
12
14
IRL NL B UK N S DK NZ
number of stations
Commercial
Public
Figure 2 - Number of national radio stations
10 Obviously geographic conditions (e.g. mountains) may affect spectrum planning. Furthermore, it should be taken into
account that the Netherlands have near direct neighbours that impose limitations on the planning, whereas Ireland only has
one.
10
The Irish broadcasting market
1.3.2 Content requirements
Public service requirements are placed upon the commercial operators in that 20% of content is expected
to be news and current affairs so that each operator must provide news bulletins11. These are often
sourced through the Independent News Network (INN) which provides a news services for the
commercial radio sector. The 20% quota is also made up by any other speech element in the schedule
including sports and phone-in shows.
Other content requirements include a commitment to play 30% Irish music, which stemmed from a
debate over the promotion of the Irish music industry, and to ensure Irish language content. Only the
20% news and current affairs requirement, which is part of the 1988 legislation, has been closely
enforced. The 30% Irish music requirement is usually part of franchise contracts and indeed the BCI is
open to granting exemptions from this rule if it is not feasible with the proposed programme format.
1.3.3 Radio ownership trends and regulation
Since 2001, a company may own 100% of a commercial radio station. This change in the BCI’s
ownership rules came following UTV’s purchase of two radio stations in Cork. UTV challenged the
rule, which only permitted them to own 27% of a station - this was later increased to 60% and, after
further consideration by the BCI, became 100%. The BCI conducted a consultative review of ownership
at this stage and following extensive work brought out its current ownership policy document which
reflects its legal powers under the 1988 Act but which allows a more flexible approach to ownership with
defined market control limits and a case by case approach to cross ownership12.
The Cork sale paved the way for the 100% buy-out of Today FM, the national service by Scottish Radio
Holdings who were shareholders in the company. In turn, it led to a number of radio sales, which saw
UTV further expand its radio network to Limerick and Dublin, with the purchase of Lite FM, while
Scottish Radio Holdings (SRH) added FM104, one of the most popular radio stations in Dublin, to its
portfolio in October 2003.
The BCI ownership rules allow one owner to hold 15-25% of the share capital of all radio stations (see
also section 2.1.3). Cross ownership is monitored by the BCI but regulations are vague and, in effect, the
Competition Authority is responsible for investigating media mergers under the 2002 Competitions Act.
It has no brief with regard to media plurality and so examines each case on a market competition basis.
There may be a need for further consideration of broader cross media ownership regulation.
1.4 Structure of the local radio market in Ireland
The structure of the radio market in Ireland is in many respects different from that of other countries.
The most marked difference, after the high listenership habits, is the local market. In Ireland the 1988
Act prompted the development of a local commercial and community radio sector, which, except for
Dublin, provided a commercially funded sector with clear public interest/service obligations.
In many other countries across the EU, public broadcasting companies were mandated to provide local
and regional programming, thereby ensuring that there was not a strongly defined local radio market for
the commercial sector to exploit. In Ireland, the absence of RTÉ gave the commercial sector a new
market for itself. Clearly defined public service obligations, under the 1988 Act, allowed this, highly
successful, hybrid of commerce and public interest to emerge.
11 Section 9 of the Radio and Television Act, 1988.
12 See also BCI’s Ownership & Control Policy Statement (www.bci.ie/ownpolicy.html).
11
The Irish broadcasting market
1.5 Recent experiences with licensing
The initial radio franchises were awarded licences for a period of seven years, but the renewal process
from 2002-2003 has awarded ten-year licences. While the majority of licences were awarded to existing
licensees, in a number of controversial cases, the BCI decided to award the licence to a competing
company. The BCI has had two legal challenges, but was always successful in defending its decisions.
For example, in one case involving two existing franchises in Kilkenny and Carlow, the BCI took the
decision to merge the two areas and create a wider and more feasible franchise zone. The licence was
instead awarded to a company not currently running either service. The Kilkenny decision, where an
existing and popular, in terms of audience, radio station did not acquire a licence for the new term,
resulted in legal action, which ended in the Supreme Court with a decision in favour of the BCI.
In a second case involving the North-West franchise, the existing company, North West Radio, did not
succeed in acquiring the licence. Instead, the licence was given to a competing bidder, Ocean FM, which
will start a new service. North West is taking legal action and has organised public protests and raised
the issue through local politicians in the Dail. The issue became locally controversial because Ocean
FM, the successful franchise, aims its service at a 25-44 year old audience while North-West Radio
provided a mixed service aimed at a wider and older reach within the local community. North West
Radio had sixty-six percent of the audience, which made it the third most popular local commercial radio
station in the country, and the criteria for the BCI decision did not appear to be well understood by the
local community.
12
2. Media policy
Policy in respect of commercial radio services needs to take account of the role it plays relative to, and
the competition it faces from, public and community stations. Publicly provided, commercial and
community radio services play distinct and largely complementary roles in Ireland. Services provided by
the national public broadcaster RTÉ are intended to provide programmes in the Irish and English
languages that13:
- reflect the cultural diversity of Ireland;
- entertain, inform and educate;
- cater for the community as a whole as well as minority interests;
- include news and current affairs, including coverage of parliamentary proceedings;
- promote innovation and experimentation in broadcasting.
The 25 commercial services are intended to cater for a wide variety of tastes including minority interests.
As discussed in the previous chapter, there is a tension between these objectives and the commercial
interests.
This chapter discusses
- the policy objectives for commercial broadcasting and their relevance in future;
- the interface between radio broadcasting policy development and its implementation;
- some of the policy implications of digital audio broadcasting.
We finish with a summary of our conclusions.
2.1 Policy objectives
The DCMNR strategy statement for 2003-05 sets out the following policy goals for broadcasting14:
- To develop a regulatory framework appropriate to the establishment and maintenance of high quality
Irish radio and television services;
- To ensure continued access to a comprehensive range of programming, in the English and Irish
languages, on a universal and free-to-air basis;
- To oversee the introduction of digital broadcasting in Ireland;
- To ensure that Ireland’s position in relation to the development of European broadcasting policy is
clearly and actively articulated.
Actions proposed by DCMNR to implement these objectives are mainly concerned with TV and RTÉ’s
broadcasting services, however, they do include the development of a policy framework for DAB in
2004.
13 Section 28, Broadcasting Act 2001.
14 See DCMNR website www.dcmnr.ie
13
Media policy
Policy objectives in respect of the commercial sector are given in the Radio and Television Act 1988:15
1. securing the orderly development of sound broadcasting services;
2. allowing for the provision of a diversity of services in an area catering for a wide range of tastes,
including those of minority interests;
3. promoting the provision of quality services, including services in the Irish language;
4. ensuring reasonable plurality of ownership;
5. ensuring effective co-ordination and use of frequencies.
We have been asked to consider whether there is a need to revisit these objectives having regard to
changes in Irish society and broadcasting markets.
The policy objectives are similar to those adopted by all governments included in the international
survey, though few governments specify the policy objectives precisely and much depends on how the
objectives are interpreted in practice. The advent of new digital broadcasting services and the internet as
a potential source of news, information and entertainment has led to a debate about whether existing
regulations continue to be relevant. In the following sections we briefly consider the objectives and their
application in the Irish context. It is our view that the objectives continue to be relevant but there are
issues concerning their detailed implementation.
2.1.1 Orderly development of sound broadcasting services/efficient use of frequencies
The objectives of the orderly development of sound broadcasting, the efficient use of frequencies and
diversity are furthered by the BCI through the adoption of a licensing process aimed at expanding the
range and number of radio services. Since 1999 the BCI has undertaken a programme of licensing
involving both the licensing of existing local services and the licensing of new ones16. The licensing of
existing services has been a major activity and now this has been completed the focus of the BCI’s work
will be on licensing new stations.
ComReg has stated that (with the exception of the Dublin area) at least 25% of the FM spectrum is not
used or is being used inefficiently and we understand that there is vacant AM spectrum17. A critical
review of the planning of the existing broadcasting networks could potentially result in more spectrum
for radio stations18. In any event, consistent with the BCI’s objectives in respect of the orderly
development of the sector, efficient spectrum use and promoting diversity, a long term plan for the future
use of the FM and AM spectrum is required. The plan should make provision for the release of all
vacant spectrum in these bands. This would also be consistent with requirements under the European
Framework Directive to promote efficient use of spectrum. Practical matters (e.g. time taken to appraise
applications for licences) will dictate the pace at which licences can be issued, however, we consider that
the regulator should if possible seek applications for as many licences as possible initially. This has the
advantage that the competitive environment will be made clear to all bidders in advance of the tenders.
Whichever approach is taken to releasing licences, policy on licence areas is to be developed by the BCI
under section 5 of the Radio and Television Act 1988. ComReg specifies the available frequencies (on
behalf of the Minister) and the BCI makes decisions on the number of areas and licences to be issued. In
some of the countries we reviewed the Minister takes a more active role in decisions concerning licence
15 These objectives are derived from Part III of the Radio and Television Act, 1988.
16 See BCI press releases for 17 February 1999 and 18th February 1999, which were followed by calls for expression of
interest in subsequent years and the publication of information concerning the frequencies available.
17 Strategic Management of the Radio Spectrum in Ireland, ODTR 02/43, 2 May 2002. Furthermore, RTÉ announced that
from April 2004 it will cease completely to broadcast 2FM on medium wave; this effectively frees up a national medium
wave frequency.
18 In the Netherlands, a considerable amount of spectrum was freed up in this way.
14
Media policy
areas (e.g. the Netherlands) reflecting the fact that the choice of priorities about which areas should be
allocated spectrum is in part a political. In Ireland, the Minister can give a direction to ComReg
concerning the interpretation of its statutory duties in respect of frequency planning19. Ultimately, such
directions, while not immediately applicable to the BCI, could have implications for the framework
within which the BCI makes its decisions.
When making decisions on licence areas the BCI currently does not publish a statement of its reasons for
choice of particular licence areas, though we assume that decisions are based expressions of interest and
technical factors. Greater transparency could be achieved if the BCI or ComReg developed a strategy
with respect to future licensing policy and regularly published the status of this strategy. This might
involve a regular assessment of the spectrum available for new services and consultation with both
operators and the general public on possible options for use of the spectrum for a mix of local, regional
or national services.
2.1.2 Diversity and quality of services
In Ireland great emphasis is put on diversity in commercial broadcasting. The diversity objective seems
to have two aspects:
a. diversity of formats of the networks (external diversity);
b. diversity of the sources and content of programmes broadcast including content that appeals to local
tastes and minority interests (internal diversity).
In many countries the role of public broadcasting services plays a central role in the provision of
(external) diversity. The formats of the public radio stations show great similarities amongst the
countries studied (Figure 3): generally there is a popular music station, a station for
news/information/talk radio and a station for classical music. In many countries the popular format is
split between a station for a younger audience (hit-radio) and a station for a 30+ age category (popular
music + general interest). Often this package is extended with a station for younger audiences.
If it is believed that the public radio stations already provide sufficient diversity then arguably less
emphasis can be placed on diversity issues in the commercial arena20.
In the Irish context, the absence of local public radio services means that commercial radio has an
important role in increasing diversity of local services although it should be recognised that community
radio stations also help broaden the range of services available. As the BCI is responsible for both
commercial and community radio, it is in a position to take account of the role of both types of services
Type Public Radio Station IRL NL B UK N S DK NZ
News/Information x x x x x x x
Popular Music/Gen. Interest x x x x x
Pop Music (<30 yr) x x x x x x x
Classical/Cultural x x x x x x x x
Local x x x x x x
Special groups x x x
Special formats x x
Figure 3 - Formats offered by public radio stations
19 Section 13, Communications Act 2002.
20 In the Netherlands the government tried in 1993 to assign commercial radio licences on the basis of the added value that the
station would have for the programmes that were offered by the public radio stations. This principle was rejected in court;
the reason being that government should not regard commercial radio as complementary to public radio.
15
Media policy
in meeting diversity and local programming objectives. The provision of a fund for innovative and
quality television and radio programming (comprising 5% of licence fee revenues) could provide a
vehicle to promote further the diversity of services in the commercial sector21.
Most local areas in Ireland have only one commercial local radio service so diversity would appear to
have been met only partially. As discussed above the release of more licences using the currently vacant
spectrum could help address this shortcoming.
In those locations where several licences have or will be awarded diversity is likely to be promoted
through some form of content regulation. Options for doing this include:
- specifying the format of the service to be provided;
- asking bidders to offer services that increase diversity and then writing their commitments (in more
or less detail) into licences.
The international survey shows both approaches are used elsewhere. In the Netherlands22 and the UK the
format of national licences was specified, whereas in all countries formats are not specified for local
licences. The second approach, which is used by the BCI, has the advantage that market participants
may have better information than the regulator and the Minister concerning listener requirements and the
viability of different types of services.
If the second approach is adopted the level of detail concerning programme requirements that should be
written into licence conditions needs to be considered. In the UK, for example, the regulator has moved
away from licences that contain detailed programme commitments to format descriptions. The reasons
for doing this include
- the impracticality and cost of enforcing licence conditions that cannot be monitored for hundreds of
licensees;
- the need to give stations the ability to vary their output, within their given format, in response to
changes in the market (e.g. radio over the internet and other new media) and listener demands.
While this could be accommodated through a process of licence variation for detailed programme
commitments this is time consuming and costly.
These points will apply equally in Ireland and we therefore suggest the BCI should move to putting less
detailed programme commitments in licences.
In respect of the quality of services, the Radio and Television Act, 1988 currently requires all stations to
provide a minimum of 20% of their output as news and information programmes and industry believes
that the BCI expects that 30% of a station’s music output should comprise Irish music23. The BCI needs
to review whether these requirements should apply in future as they have the potential to block the
provision of particular niche formats, because they either increase operators’ costs or reduce their
revenues. For example, for some music formats there may be little good quality Irish output (e.g. jazz or
classical music) in which case the current level of Irish content control is unlikely to be appropriate.
With the introduction of new rules, attention needs to be paid to the position of new stations relative to
incumbents. The introduction of more flexibility could mean that:
21 See the Broadcasting (Funding) Act 2003.
22 Of the nine national licences, five had format restrictions. If fewer licences had been tendered then a free format for all
licences might have been applied.
23 In order to meet the (presumed) format requirements in the beauty contest, bidders generally include 30% Irish music
output in their proposal. This offer is later included in the contract and, hence, gets a legal basis.
16
Media policy
a. new stations have different rules from existing ones. This is appropriate as the newcomer often has
a weaker market position. However, the rule for news and information is part of the Radio and
Television Act and applies to all licensees, so the Act would need to be changed to allow this
requirement to be varied;
b. existing rules get reviewed at the end of existing licence terms;
c. existing rules get changed now. However, this can be problematic in light of the recent award
process: parties may claim that they would have submitted a different bid if they had known that the
rule would be qualified or withdrawn so soon.
Option (a) seems most practical. Option (c) is feasible only if the measure would coincide with other
policy changes like the introduction of more competition at all levels.
2.1.3 Plurality
Many countries are struggling with plurality/media ownership issues. In the US, for example, the FCC
has just completed a review of ownership controls which resulted in no change to caps on local radio
ownership though non-commercial stations are now included (which in effect weakens the caps) and the
definition of a radio market has changed in a way that tightens the caps24. In the UK, national radio
ownership controls have been removed25 and local ownership rules have been liberalised. The role of the
BBC in promoting plurality was recognised when developing these rules.
There is pressure to liberalise ownership controls as consumers have access to an increasing range of
media (local and from elsewhere) and as media companies seek to exploit economies arising from
ownership of a variety of media outlets. It has been argued by some that the media should be treated like
any other industry and so mergers should only be controlled by general competition legislation.
However, there are good reasons to retain media specific ownership controls because of the continued
importance of traditional media (TV, radio and newspapers) as sources of news and information and their
impact on national and local culture and the democratic process26.
In the countries we have reviewed only New Zealand has abandoned specific media ownership controls.
Elsewhere the rules are generally based on political judgements about the number of owners in a market
required to produce a sufficient plurality of viewpoints. These rules are generally written into legislation,
which is to be expected given that the appropriate level of plurality must ultimately be a political
decision.
When considering level of ownership controls in respect of radio the importance of this media relative to
others as a source of news and information should be taken into account. Survey evidence from Ireland
concerning individuals’ most important source of news shows that radio and newspapers are an
important source of local news but that TV is main source of national and international news. In addition
we note that news and current affairs programmes are very popular as is illustrated by the fact that the
information station Radio 1 is the most popular station.
24 Report and Order and Notice of Proposed Rulemaking, 2002 Biennial Regulatory Review – Review of the Commissions
Broadcast Ownership Rules, Released July 2, 2003, FCC 03-127.
25 Ministers may intervene in the case of these mergers on public interest grounds, Intervention in Media Mergers, Draft
Guidance, December 2003, UK Department of Trade and Industry.
26 See for example Media Diversity in Europe, Directorate General of Human Rights, Council of Europe, December 2002.
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Media policy
TV Newspapers RTÉ Radio Other Radio
Local news 18% 41% 4% 35%
National news 72% 10% 10% 5%
International news 76% 8% 8% 4%
Table 3 - Corporate Reputation survey, MRBI, April 2003. Survey respondents were asked about the source of international,
national and local news. Percentages do not add to 100 because of other responses.
2.1.3.1 Policy in Ireland
In 2001 ownership controls were changed so that a company may own 100% of a commercial radio
station and, hence, take over other stations. In order to limit the overall concentration of ownership in
the radio sector, the BCI developed a new policy after extensive consultation. The BCI’s ownership
rules are derived from section 6 in the Radio and Television Act 1988, in particular sections 6(2)(g) and
(h):
(g) the desirability of allowing any person, or group of persons, to have control of, or substantial interests in, an
undue number of sound broadcasting services in respect of which a sound broadcasting contract has been
awarded under this Act;
(h) the desirability of allowing any person, or group of persons, to have control of, or substantial interests in, an
undue amount of the communications media in the area specified in the notice under section 5(5).
The BCI has made these statements more concrete by defining the terms “undue number” and “undue
amount” in its policy statement on Ownership and Control27.
2.1.3.2 Number of sound broadcasting services
One owner may hold up to 25% of the total number of commercial sound broadcasting services licensed
under the Act. For mergers or acquisitions in the 15-25% range, the BCI will take a close look at the
specific situation and decide on a case-by-case basis. There are no policy guidelines as to what may or
may not be acceptable in the 15-25% range.
This rule does not take population coverage or audience size into account, so that a national station is
counted equally with stations serving much smaller areas. This does not seem appropriate if ownership
controls are intended to limit the extent of influence of any given organisation. In addition, the approach
taken would seem at variance with the approach taken to cross media ownership under section 6(2)(h) for
which audience share is seen as relevant. One way of overcoming this would be to move to an audience
or population based measure or to vary the number of licences that can be owned by the size of the
market. We understand from the BCI that it is not possible to include aspects like population coverage in
the evaluation, since section 6(2)(g) only makes mention of the number of services. The number of
licences that may be owned could however vary by size of market. In this regard we note that in the US
operators may own a greater percentage of licences in smaller markets.
Whatever the approach taken the constraints should take account of the fact that RTÉ and community
radio stations also contribute to the plurality of viewpoints offered. Looking to the future it can be
expected that individuals will increasingly listen to radio stations over the internet, satellite and other
new media some of which will come from outside Ireland (see section 2.3.2 below). This will give
audiences alternative sources of news and information particularly in relation to international events and
issues. It is unclear whether sources of local and national news will expand to the same extent (e.g.
through internet only stations) and so whether there will be a case for altering ownership controls. This
should be reviewed from time to time.
27 Ownership and Control Policy Statement, BCI, www.bci.ie/ownpolicy.html
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Media policy
2.1.3.3 Cross media ownership
The BCI has stated that it will use an audience share model for determining the “undue amount” of the
communications media in the area specified, though the way in which audiences across different media
are to be aggregated28 and the benchmark for what might be judged as “undue” are not specified. The
Commission will consider each application on a case-by-case basis. While the Commission gives some
general guidance on the criteria it will apply the absence of any clear quantitative measures is likely to
create some uncertainty for businesses and for the public concerning the level of media control that is
permitted.
There would seem to be a need for clearer guidance in this area. This could be examined by the
Department of Communications, Marine and Natural Resources in conjunction with the Department of
Enterprise, Trade and Employment and the Competition Authority29.
2.2 Interface between policy development and implementation
2.2.1 Organisational Structure
The DCMNR has responsibility for policy development in the broadcasting sector, which is eventually
coded into law. The DCMNR sets the broad policy framework and provides the Cabinet with advice on
the level of the TV licence fee. Implementation of policy is carried out by three bodies:
- the RTÉ Authority, a non-executive board appointed by government to govern the activities of the
public broadcaster RTÉ. The objectives of the Authority are laid down in the Broadcasting Act
2001;
- the BCI which is responsible for regulating the independent commercial and community
broadcasting sectors under the Radio and Television Act 1998 and the Broadcasting Act 2001;
- ComReg which is responsible for managing the broadcasting spectrum, issuing radio frequency
licences and licensing broadcast transmission networks under a number of Acts including the
Telecommunications Act 1996 and the Communications Regulation Act 2002.
In addition, the Competition Authority is responsible for dealing with cases of anti-competitive
behaviour and examining any merger cases which may be expected to raise competition concerns under
the Competition Act 200230.
It is proposed that this division of functions will be changed somewhat with the regulatory functions of
the RTÉ Authority and the BCI being merged under the single broadcasting regulator, the Broadcasting
Authority of Ireland (BAI). In addition the Government will put in place a Charter for RTÉ and RTÉ
will be expected to produce an Annual Statement of Commitments which will specify the outputs RTÉ
will produce (in return for licence fee payments) and will be used by the BAI in its annual review of
RTÉ’s performance31.
Our international survey shows that a majority of countries have a separate bodies regulating commercial
and public sector broadcasters, and undertaking spectrum management and network licensing. In the UK
28 The FCC has developed a diversity index to measure the degree of cross media concentration in local media markets. See
FCC (2003) op. cit.
29 The Competition Authority reviews media mergers on competition grounds while the Department reviews such mergers on
public interest grounds.
30 Statutory Instrument ST no 622 of 2002 specifies that all media mergers regardless of their turnover are subject to Part 3 of
the Competition Act.
31 In 2003 RTÉ published a Statement of Commitments in advance of the Charter. These specify RTÉ’s output in qualitative
and quantitative terms and can be found at www.RTÉ.ie
19
Media policy
spectrum management functions have recently been merged with broadcasting and telecom regulation.
There is also a trend towards greater accountability of public sector broadcasters through contracts
between the broadcaster and government specifying the programme and other outputs that must be
delivered in return for public funding (e.g. New Zealand, Denmark and the UK).
One difference between the countries surveyed concerns the extent of Ministerial involvement in the
sector, particularly in detailed policy development and sometimes in making licence assignment
decisions. The Irish system shows most similarities to the British system, in the sense that detailed
policy development occurs within a rather general legal framework and licensing decisions are delegated
to an independent regulator. One difference is that in the UK detailed ownership controls are set out in
statute rather than being left to the regulator. In other countries one or more Ministries are responsible
for policy development and licensing. This is the case in Belgium, the Netherlands, New Zealand
(though here licensing decisions are decided by auction), Sweden and Denmark. These countries have an
independent authority for the assessment of licence applications and monitoring and enforcement of
licence conditions.
2.2.2 Issues
The Irish approach of delegating to many aspects of policy development to independent organisations
reduces the risk of political interference in media policy. However, there are certain areas where it
would seem appropriate for the Minister to provide policy direction (e.g. plurality). Ownership controls
are in essence a political decision albeit informed by research and we would expect that the Minister
would have a role in either directing the regulator or approving its findings in this regard.
We note that the Department’s Report to the Minister on the Report of the Forum on Broadcasting32
suggested that the Minister proposes to provide for a facility to give policy directions to the regulator on
media matters. If this is implemented in the manner adopted in the telecommunications sector for giving
directions to ComReg then this will provide a transparent means of communicating policy.
2.3 Digital radio
We have been asked to comment on the implications of digital radio for the development of broadcasting
objectives. Digital radio services include services transmitted over digital audio broadcasting (DAB)
networks, the internet and other digital platforms (e.g. cable and satellite). Below we discuss the
development of DAB and digital radio more generally and the implications of these developments for
broadcasting policy in Ireland.
2.3.1 DAB
The introduction of terrestrial digital audio broadcasting is a challenge for future radio broadcasting
policy. DAB services use different radio frequencies from those used for AM and FM radio and so
introduction of DAB could lead to an expansion of the number of radio services. DAB offers certain
advantages compared with analogue radio services, namely interference free reception whilst moving,
higher quality sound and the ability to broadcast data (e.g. text and graphics) as well as sound. However,
it is unclear whether these advantages will be sufficient to encourage consumers to purchase DAB
receivers, which have only recently been supplied at prices less than €150. The business case for DAB is
as yet unproven.
There is currently no legal framework for the provision of DAB services in Ireland and so no services are
provided. In November 1999 RTÉ launched a six service DAB pilot system in Dublin but this has been
32 Department of Communications, Marine and Natural Resources, November 2002.
20
Media policy
discontinued33. In October 2001, the BCI sought views from industry on the size of franchise areas that
would be suitable for DAB services34. It was intended that this information would be used by the ODTR
(now ComReg) as an input to the development of a frequency plan for DAB. Following this in
November 2001 the ODTR issued an information notice proposing technical conditions for DAB35,
however, we are not aware of any further work having been undertaken in this area.
DAB services are operational in many European countries, though most services are provided by public
broadcasters. DAB broadcasters have almost no listeners and so are incurring a considerable cost burden
with no guarantee of future financial success for the service. It is for this reason the commercial sector
has shown little interest in DAB.
The UK market is the most developed commercial DAB market in Europe. In the UK, digital radio
services are being transmitted by commercial radio operators and the BBC to 85% and 70% of the
population, respectively. The number of stations is growing rapidly with roughly a new commercial
multiplex (carrying about 10 stations) being licensed every month meaning that by the end of 2004 there
will be around 400 digital radio stations.
Around 320 digital radio services are currently provided in the UK, of which 154 have digital radio
coverage only and the remainder are simulcast services. The 154 stations with only digital radio
coverage include a mixture of new stations and stations that are broadcast in areas not reached by their
analogue transmissions (e.g. Xfm, a London station, is rebroadcast digitally outside London). Another
way of looking at the supply of services is to abstract from coverage area and to focus on brands. There
are currently 141 brands broadcast digitally – 37 provided by the BBC and 104 by commercial radio –
and 28 of these brands are new.
It is estimated that at the end of 2003 there were 435,000 digital radios in the UK. Rapid growth in the
take-up of digital radios is expected both as a result of falling prices and as affordable units are installed
in new cars, hi-fis and other electronic goods. The Digital Radio Development Bureau forecasts that
there could be around 10m sets by 200836.
The significance of these developments for Ireland is that Irish listeners are able to receive DAB services
as a result of signal spill over from the UK. If these services are thought to be attractive it can be
expected that DAB radios will be purchased by Irish residents visiting the UK. This could lead to
pressure for DAB services to be launched in Ireland.
2.3.2 Alternative infrastructures for digital radio
In terms of digital radio the real breakthrough internationally has been radio on-line. While DAB radio
stations in the UK still have small audiences through DAB radio sets many more listeners are tuning in
through the internet or satellite TV. A recent survey in the UK showed about 15% of adults had listened
to the radio via the web, 21% via the TV and 4% via a mobile phone37. It can be expected that these
numbers will grow as penetration of new media also grows. According to the Radio Advertising Bureau
in the UK this trend has captured a new segment of white-collar daytime listeners, often previously lost
to radio after breakfast news programmes.
33 See www.worlddab.org/cstatus.aspx
34 Broadcasting Commission of Ireland Seeks Expressions of Interest in Local Commercial Radio Services, Press Release 16
October 2001.
35 Digital Audio Broadcasting Technical Conditions, ODTR Documents 01/89 and 01/90, 15 November 2001.
36 See www.rab.co.uk
37 RAJAR data for Q4 2003 reported in “Radio Listening via new technologies”, www.rab.co.uk Listening in the UK via
alternative media appears to be growing rapidly. Comparable data for Q4 2002 are 12% listening over the internet, 15% via
TV and 2% via mobile phones.
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Media policy
One of the new developments in this market is that listeners are not solely tuning into traditional FM/AM
or even DAB services but opting for pre-paid targeted services that provide advertising free listening.
Real Networks, one of the international companies in this field, says there is a growing audience for adfree
paid radio in niche choices. With about 10,000 stations on offer on-line many of the big brand
names, like the BBC, are winning wider international audiences. But in the UK stations which often
have smaller audiences, like Jazz FM, are also doing well online. Arbitron, the radio audience research
company, has identified Virgin Radio (available in the UK on AM and DAB) as the most listened to
commercial station online in the world.
Virgin has now launched niche music channels online like The Groove, Liquid, and Classic Tracks to
augment its main station and build share. Jazz FM has also launched four jazz genre stations – meeting
different needs – called Jazz Uncut. All see the ‘new’ services, which are cheap and built around
automated music boxes, as complementing their traditional businesses, building choice into their offering
and holding their audiences in new settings at home and at work.
In the US where no network can be truly national, online radio has allowed small regional choices to
grow into ‘national’ players. For the radio market the roll out of broadband will ensure that more
audiences, particularly those aged under 35 years, will use their computer to play and select audio and
indeed to create their own individual radio stations by building a selection of different stations over their
listening period. Over the coming decade the significance of the debate over FM spectrum, and
potentially DAB roll-put, is likely to be reduced by these developments.
In Ireland few bespoke ‘new’ genre stations have been developed, although RTÉ did experiment and
develop a traditional Irish music digital online service called Ceolnet some years ago. The potential for
new services may be limited, at this stage, but five years further into the roll-out of DSL and cable
broadband the potential audiences for tailored ‘genre’ services is likely to be significantly expanded.
2.3.3 Implications for broadcasting policy
In this section we comment on the implications of digital radio for the BCI’s objectives in respect of the
development of the sector, diversity and plurality. We identify a number of policy issues that need to be
addressed in respect of the licensing framework for digital radio. Decisions about these issues will need
to be made by government and enabling legislation developed. In order to ensure a co-ordinated
approach to all issues concerning digital radio regardless of the platform over which it is delivered, we
suggest that a dedicated policy unit for digital platforms is established.
2.3.3.1 Development of services
DAB will initially comprise a considerable financial drain on radio broadcasters. This may suggest that
broadcasters will need a financial incentive to adopt DAB. For example, in the UK commercial
broadcasters that simulcast analogue services on DAB have had their analogue licences automatically
renewed. This was initially important in encouraging broadcasters to simulcast on DAB. Similar
policies may need to be considered in Ireland.
The fact that DAB services are unlikely to be profitable for some time also means that there is likely to
be some churn in the programme services provided on any particular multiplex, as service providers find
it uneconomic to continue broadcasting. The licensing framework will need to be sufficiently flexible to
allow this to happen quickly i.e. for new programme services to replace those that withdraw. In the UK
this has been achieved by awarding programme service licences (with an indefinite duration) to
programme services that secure slots on a multiplex.
22
Media policy
The advent of new radio services on satellite and cable raises the issue of whether these services should
be licensed38. This would seem desirable so as to ensure the services comply with the BCI’s codes of
conduct but as the audiences for such services are likely to be very small there seems to be little merit in
applying any additional regulation to these services. At present, there is no legal framework for licensing
cable and satellite radio services in Ireland. We suggest that this issue should be addressed by the
Minister in consultation with the BCI.
2.3.3.2 Diversity
Digital radio potentially expands the number of services that can be supplied (not counting simulcast
services) and so could offer consumers a greater diversity of services. If this is the case in future and
listening of digital radio becomes material then there may be a case for liberalising diversity controls.
Periodic, say five yearly, policy and market reviews could be conducted to assess whether there is a need
to change the regulation.
In the case of DAB the highly uncertain business prospects mean that a more liberal licensing policy,
namely one with less onerous programming requirements, than applies to analogue services may need to
be adopted if commercial broadcasters are to be attracted to invest in the transmission network and
services. This does not mean abandoning diversity and localness criteria in awarding licences for
multiplexes or programme services, but it could mean that detailed obligations concerning the volume of
different types of programming transmitted may not be sustainable.
DAB offers not only the potential for diversity in sound broadcasting but also the potential for innovative
data services. Thus the interpretation of diversity may need to be broadened to include data services (e.g.
weather information and maps, programme related information and advertising related information) in
the context of DAB.
2.3.3.3 Plurality
Digital radio expands the number of radio services and so offers the opportunity to increase plurality of
ownership – particularly for services providing national and international though not local content –and
this could be reinforced through a system of ownership controls.
The uncertain business case for DAB means that only companies with substantial assets are likely to be
able to sustain the required investment in the network and services. This factor will need to be taken into
account when ownership controls on DAB multiplexes and supply of programme services are
formulated.
2.3.3.4 Digital media policy unit
One of the priorities for both the Department and the audio-visual industry is the development of
coherent digital media strategy, which articulates a realistic and viable plan for the development of
terrestrial digital platforms in Ireland. DCMNR confirms in its digital switchover plan of December
200339 its commitment to a national digital strategy within the e-Europe 2005 Action Plan. Yet there are
clear major difficulties and challenges in the realisation of that digital ambition. In particular, the core
issue remains as to what is the financial means of securing either a DTT or DAB network in the Republic
of Ireland and how viable are those digital platforms within the Irish market?
The NERA consultancy report on digital TV40 outlines the lack of a business model behind DTT and
suggests bringing together telephony/internet and using digital terrestrial as a broadband rollout
mechanism. In order to achieve such synergies ComReg, RTÉ, BCI and DCMNR need to be working
38 In this regard we note that the DCMNR has proposed that satellite TV broadcasters should be regulated. “Dermot Ahern
Announces Move to Regulate Satellite Broadcasters, DCMNR press release, 17 July 2003.
39 See also the Broadcasting sections on DCMNR’s website (www.dcmnr.ie).
40 “Options for implementing DTT”, NERA, June 2003.
23
Media policy
closely and collaboratively to ensure the realisation of a working and viable model for broadcasting
digital platforms. We recommend the creation of a digital media policy unit, which is tasked to bring
together the relevant expertise and form a coordinating policy planning unit dealing with digital media,
especially television and radio. The proposed digital media unit would create a unit working across the
state and semi-state sectors tasked to create working models and pilot projects which could then be
legally framed as required. The creation and indeed delivery of digital platforms could then be managed
by such a task force which would, we believe, ensure momentum and success.
2.4 Summary
The main conclusions from this chapter are:
- The existing policy objectives for the commercial radio sector would seem appropriate but changing
market conditions mean there is a continuing need to undertake regular reviews of regulations
implemented to promote these objectives;
- Consistent with the BCI’s objectives in respect of the orderly development of the sector, efficient
spectrum use and promoting diversity, a long term plan for the future use of the FM and AM
spectrum is required. The plan should make provision for the release of all vacant spectrum in these
bands;
- In light of the impracticality of enforcing detailed commitments and the need to give stations some
flexibility to change their output in response to changes in market demand, the BCI should move to
putting less detailed programme commitments in new licences;
- There would seem to be a need for clearer guidance on cross media ownership controls. This could
be done in conjunction with the bodies responsible for regulation of newspaper mergers i.e. the
Department for Enterprise, Trade and Industry and the Competition Authority;
- The other area in which it might be expected that the Minister would have a greater role than at
present concerns ownership controls. The level of such controls is in essence a political decision,
albeit informed by research, and we would expect that the Minister would have a role in either
directing the regulator or approving its findings in this regard;
- Diversity requirements and ownership controls will still be relevant for DAB, however, the policy
framework may need to be different from that for analogue services because of the weaker business
case for DAB services;
- We recommend establishing a policy unit for digital platforms. This policy unit brings together the
expertise of the organisations that are directly involved in the policy development, in particular the
Department, the BCI and ComReg.
The BCI should consider whether there is a need to put in place a licensing framework for satellite and
cable radio services, and how such a framework might work.
24
3. Radio broadcasting economics
As discussed in chapter one, Ireland has opted for a local radio model of commercial stations with public
radio tasks. This model resulted in a flourishing independent radio sector, but it may be questioned to
what extent this model will still work if more competition is introduced or if new stations are introduced
with specific formats.
This chapter focuses on the economics behind radio broadcasting and its possible implications on
listeners, in particular:
- the position of commercial radio stations in relation to public broadcasting;
- the business model of a commercial radio station;
- a comparison of the commercial radio markets in selected EU countries.
The chapter concludes with discussing the issue of the value of a commercial radio licence and the policy
options of the government in this respect.
3.1 Impact of source of revenues on radio format
In financial terms a key difference between public and commercial radio stations is the fact that public
radio stations have access to funding sources other than advertising. In most countries (though not in
Ireland) the public funds make up 60% or more of the budget of public broadcasters (Figure 4).
Advertising is the dominant source of revenues for commercial radio stations, although for some stations
(e.g. in the United Kingdom and Sweden) sponsorship is becoming increasingly important, accounting
for up to 20% of total revenues41. Both sources of revenues depend on the audience share of a station.
By making a format attractive to a large audience the radio station can increase its turnover: the format is
0%
20%
40%
60%
80%
100%
Spain
Ireland
Italy
Portugal
Netherlands
Belgium
Sw itzerland
United
Kingdom
France
Denmark
Germany
Sw eden
Finland
Norw ay
Figure 4 - Percentage of public funds in total revenues for public broadcasting organisations (radio and
TV) in 2000 (source: European Audiovisual Observatory)
41 AER contribution to the Commission’s consultation on sponsorship, 20 December 2002. According to the Guardian of
November 11, 2002, sponsorship and promotions accounted for 12,5% of the annual advertising revenues in the UK.
25
Radio broadcasting economics
a means to an end42. Still, there is a clear synergy between the commercial objectives and the interests of
listeners43.
The special funding structure of public radio stations enables these stations to provide programmes that
serve the needs of special (minority) groups in society, ensuring the quality of programmes and/or
innovations in content and technology. Generally, the operational expenses of public radio networks are
higher than the costs of commercial radio stations as is illustrated in Table 4.
According to the business plans of 98FM and FM104 the total expenses of these stations (including
commercial activities) are at a level of €6-7m. Similar cost levels are found in the Dutch market44. With
the exception of New Zealand, the costs of the public radio networks are clearly above this level.
The costs of providing a specific format can vary considerably. The BBC provided in its annual report
2002/3 an overview of the costs per hour of the different formats (Table 5):
Country
Budget
(Euro mln) Networks
Average costs per
network (Euro mln)
Ireland 53 4 13
Netherlands 86 5 17
United Kingdom 298 5 60
Sweden 209 4 52
New Zealand 15 3 5
Table 4 - Costs of national public radio stations in 2002 (Source: annual reports). Note: UK budget
excludes transmission costs
BBC station
Costs
(€‘000/h)
Audience
share
Cost per %
audience share Format
Radio 1 4,2 7,9% 0,54 Young audience
Radio 2 6,6 15,7% 0,42 MOR
Radio 3 6,3 1,1% 5,71 Classical
Radio 4 17,3 11,8% 1,46 News/talk/information
Radio Five Live 12,4 4,7% 2,64 Talk/sports
Table 5 - Costs per hour of the analogue radio stations of the BBC (source: BBC annual report 2002/3)
The absolute cost levels in the BBC-model are an order of magnitude higher than the hourly costs of
commercial radio stations (approximately €800-1.000) and not very useful for making comparisons.
However, the relative cost levels are very interesting as they demonstrate that more emphasis on
news/information and/or talk radio makes programmes much more expensive. Furthermore, the column
with costs per audience share gives an indication of the costs that are incurred to address one percent of
the total audience.
Commercial radio stations are generally not in a position to cater for relatively expensive formats, unless
these formats attract large and valuable audiences. They will prefer the business model that generates the
highest revenues (audience share) at the lowest costs (e.g. computerised music). If the BBC figures
presented in Table 5 were applicable to a commercial radio station then this station would opt for the
42 This is a general principle that applies to all successful commercial radio stations. However, the “principle” does not imply
that commercial stations would be solely “business/profit driven”. Many stations wish to serve specific demographic
groups and/or broadcast special types of music, even though such formats may be less profitable than others.
43 In a formal sense, advertisers are the clients of commercial radio stations (since they pay the stations), but there
“ willingness to pay” depends on the audience they can address with the programme.
44 Due to the strong competition in the Dutch market, the marketing expenses are approximately Euro 1-2 m higher.
26
Radio broadcasting economics
formats of Radio 1 or 2. Nevertheless, this situation may change if there is more competition in the
market: stations have to differentiate themselves in order to win market share. However, it is not known
how much time such process would take. In order to avoid time-consuming market restructuring
processes, governments introduce format requirements in commercial radio licences.
3.2 Value and cost drivers in the basic business case of a commercial radio station
The business case of a commercial radio station does not differ from any other business with one
exception: the costs do not depend heavily on the market size, unless the programme targets a specific
(geographical) market. Enlarging the size of the network will increase the transmission costs, but this is
a small item relative to the total expense. This characteristic means that profits increase nearly
proportional to the turnover, if a threshold is crossed. As a result, a commercial radio station can become
highly profitable.
In this section, the most important value and cost drivers are discussed.
3.2.1 Value drivers
Key factors determining the market share (in terms of revenues) that a commercial station can achieve
are:
a. audience share of the station;
b. profile of the audience: in many countries advertisers are willing to spend most money on the age
group 15-35. Furthermore, socio-economic factors may matter. For instance advertisers may be
prepared to spend a higher price (per second) if a station is popular in a specific high income group
(e.g. business people under 40);
c. position of the station relative to its competitors. Advertisers are generally inclined to spend their
budgets only on three (sometimes four) stations that have the highest audience shares in a target
group. The public radio stations are part of this ranking process and may belong to the top 3 (or 4),
thus leaving room for only two (three) commercial stations;
d. quality of the marketing and sales department of the station.
Factors (a) and (b) are directly related to the format. Commercial stations will aim for a format that is
popular among a demographic group that can generate high revenues. This depends on the “willingness
to spend” of advertisers. In many countries the age group between 15 and 35 to 40 years is most popular
with advertisers: people in this age category start to earn money and (as it is believed) have not yet
developed a strong brand loyalty. Consequently, commercial radio stations will try to achieve high
audience shares in this category.
Factor (c) provides a reason for differentiation in the market (i.e. more diversity): if all stations target the
same group then only three (or four) stations can survive. This creates new opportunities for formats that
target other socio-demographic groups.
3.2.2 Cost drivers
The cost model for a radio station is normally rather standard. Every station requires transmission
facilities and (production and transmission) studios to perform basic functions. Furthermore, staff is
needed for (at least):
- the production of programmes;
- operating the studios and transmission systems;
- marketing (including market research) and sales;
- administration;
27
Radio broadcasting economics
- general management.
As discussed in section 3.1 the station format has a significant impact on the cost level. Programmes that
require more staff (e.g. for news and information gathering) have higher salary costs and other HRrelated
expenses, such as office space and equipment. The cheapest solution generally is computerised
music.
Only a few cost items have a variable character. These include royalty payments that are often a
percentage of the revenues and the expenses for marketing and sales.
3.2.3 Scale matters
Since the costs of radio stations are to a large extent fixed, profitability will increase if a station can
address more people and increase turnover. For local stations this can be achieved by sharing resources
(in particular: programmes, marketing and sales activities, and general overheads). In many countries,
local stations are allowed to form networks in order to create a sustainable business. In the liberal New
Zealand market, for instance, considerable consolidation took place in the period 1989-1996, resulting in
15 independent operators for 180 licences. Two groupings dominate, having a combined market share of
95%. A similar process was observed in Sweden, where five organisations hold the majority of the 94
licences.
Although it is often observed internationally that smaller commercial stations survive despite a weak
financial position, we believe that a consolidation in the Irish market of local radio stations will (and
perhaps even should) happen. According to the applications submitted to the BCI and statements made
by market players, many local stations operate around a break-even level and can only survive by saving
costs (in particular salaries). Commercial radio stations in smaller franchise areas probably depend
heavily on the enthusiasm of producers and the commitment of employees. The weak financial situation
can easily block gradual improvement of quality (programme innovation) and professionalism of the
station.
In future, it is inevitable that local competition will increase (e.g. by issuing more licences, by the
introduction of regional stations or after a successful introduction of digital radio) so local stations need
to strengthen their position. In view of the diversity policy objective, the situation in which a persisting
vulnerability of local stations impedes the transmission of more services in a region should be avoided.
In order to survive in the long run, the creation of networks (and sharing resources) seems unavoidable
and is even necessary from the perspective of increasing the quality and diversity of programmes in a
franchise area. This does not automatically mean further consolidation in ownership. It could involve
arrangements and partnerships between various stations.
28
Radio broadcasting economics
3.3 Size of the radio advertising markets in Europe (2002)
In Ireland the size of the total radio advertising market in 2002 is estimated to be €95-100m, including
€ 30.5m for RTÉ.
Figure 5 shows some key advertising data for European markets. Some caution is needed in interpreting
the statistics since the national reporting of advertising expenditures is done in different ways and
generally contains a significant error margin45. Still, the data is adequate for giving a general impression
of the position of Irish radio relative to other European states.
The annual expenditures per inhabitant on radio advertising seem to be high in Ireland. This may be
explained by several factors: the long history of radio advertising, the popularity of radio and the high
listening time. In addition, total media spend per inhabitant is relatively high. The European data could
suggest that the Irish market is rather mature and that there will be limited scope for significant future
growth in radio advertising spend46. If this is the case, then issuing more licences for commercial radio
could reduce the profitability of commercial radio stations (the pie will not increase considerably) under
the current conditions. Still, experience in the UK suggests that growth in the number of stations can
stimulate growth in advertising revenues, particularly if this is accompanied by improvements in
audience data and greater accountability in advertising sales.
Country
Total media (€
mln)
Radio
(€ mln)
radio % of
total media
adspend
Population
(mln)
Media
Adspend/
pop (€)
Radio
adspend/
pop (€)
Daily
Listening
Time (min)
Ireland 1.073 97 9,0% 3,84 280 25,3 240
Austria 1.984 156 7,9% 8,14 244 19,2
Belgium 1.964 188 9,6% 10,31 190 18,2 240
Netherlands 3.740 240 6,4% 16,11 232 14,9 184
UK 18.734 779 4,2% 60,08 312 13,0 207
Switzerland 2.807 87 3,1% 7,25 387 12,0
France 9.621 654 6,8% 59,34 162 11,0 189
Spain 5.095 393 7,7% 40,43 126 9,7
Norway 1.393 44 3,1% 4,53 308 9,7 137
Germany 18.567 753 4,1% 82,43 225 9,1
Finland 1.145 44 3,8% 5,20 220 8,5 215
Portugal 1.485 82 5,5% 10,30 144 8,0 200
Sweden 1.747 54 3,1% 8,91 196 6,1 163
Denmark 1.271 30 2,4% 5,36 237 5,6 197
Italy 7.838 319 4,1% 58,02 135 5,5 176
Greece 1.238 42 3,4% 10,60 117 4,0
Figure 5 - Radio advertisement expenditures in selected European countries, ranked by radio ad spend/pop. The
daily listening time figures are from 2002 (sources: national statistics / AER / WARC)
3.4 Government options to benefit from the value of a radio licence
The sums paid recently for the takeover of larger commercial radio stations (e.g. the takeovers of Today
FM and FM104 by Scottish Radio Holdings) created more awareness of the value that radio stations, and
hence the licences, may have. Often restrictions on the supply of licences create a high value. Without
these restrictions the radio market would develop more like any other competitive market.
45 For instance: commercial radio stations have to pay commissions to advertising bureaus. Furthermore, large clients can
receive considerable discounts. The gross market turnover can therefore be considerably higher than the “real turnover”
(the turnover that the stations got paid).
46 In comparison to the US market the European figures are relatively low: in the US radio ad spend is approximately Euro
70/pop and in 2002 was 8,5% of total ad spend.
29
Radio broadcasting economics
In Annex B a valuation of the FM104 sale is presented, based on the financial data that FM104 provided
in its licence application. The analysis shows that the bid of Scottish Radio Holdings is in line with the
(simplified) valuation models. Central to any valuation are the expected future cash flows of the
enterprise. The profitability of a radio station depends on the quality of the organisation, but also on the
licence conditions. In particular, the following factors (related to the licence) can increase the value:
a. larger franchise areas and/or a higher level of affluence in a franchise area;
b. reduction of format requirements and other obligations;
c. longer licence duration;
d. (nearly) automatic licence renewal;
e. less competition;
f. regulatory stability and predictability.
The first two factors were clearly demonstrated in the financial bids that were submitted in the licensing
process in the Netherlands: national licences generated on average bids that were ten times higher than
regional licences. Furthermore, bids for free format licences were considerably higher than the bids for
licences with licence obligations (see also section A.2.5.3 in Annex A). This result is consistent with the
financial models discussed in section 3.2.
The other four factors are primarily related to the predictability of the business case of a commercial
radio station. Longer licence duration and/or a situation in which a station can be very certain that it will
keep its licence after the expiration provide certainty on the continuity of the venture, whereas less
competition will create better guarantees on maintaining turnover levels in the future. Such factors will
increase the value of radio station.
In Ireland the sales of the national station Today FM (in 2001) and FM104 (Dublin area) to Scottish
Radio Holdings generated discussion because of the capital gains that the owners may have realised.
Taking into account the considerations regarding the revenues and costs of commercial radio stations
(section 3.2) deals of this order can be expected for stations that have a revenue level of approximately
Euro 4 million and above, and are less likely to happen in the smaller franchise areas (cf. annex B).
In cases of large deals, people may hold the view that the owner of the company is able to create a high
market value because he received a valuable licence nearly for free from the government. It is then
argued that it would fair for the government (and hence the general public) to benefit from the capital
gain. This feeling is not only encountered in Ireland, but in many other countries, and mechanisms for
retrieving part of the “gain” are frequently discussed and sometimes implemented.
A central difficulty in the discussion is the question of to what extent value is created through
professionalism of the radio station or through the licence. After all, in other business sectors where no
(special) licences are required, successful companies are be able to create high market values, for
instance through innovation and/or creating a strong brand name.
Still, the fact that only a limited number of licences is available and the demand for licences exceeds the
supply creates a scarcity value for a licence. The licensee can benefit from a monopoly(/oligopoly)
profit; this “extra” profit can be translated into a value. However, it is not easy to determine this value
with great accuracy on theoretical grounds since it depends on many factors.
In order to get a share of the benefits that are created by assigning a licence, governments can use several
mechanisms, most notably:
a. Auctions;
b. (Market based though administratively determined) spectrum fees or royalties;
30
Radio broadcasting economics
c. Claw-back arrangements;
d. Combinations of these mechanisms.
At the moment, in Ireland, licences issued for free, and none of the above charges apply.
3.4.1 Auctions
Auctions are primarily a mechanism to assign a licence to the best candidate, i.e. the highest bidder.
However, in a well-designed auction the revenues reflect the economic value of the licence and can
eliminate any discussion on capital gains made by licensees. Auctions (often in combination with
spectrum fees or royalty schemes) are applied in other countries like Denmark, the Netherlands and the
UK (though only for national licences).
In auction processes, bidders are responsible for determining the value of a licence. If bidders act
rationally (as they should, according to economic theory), then they will determine the licence value
based on sound business models47.
Usually, an auction procedure starts with a pre-qualification phase in which applicants have to
demonstrate that they can provide the service according to the requirements defined by the government
or the regulator. In its simplest form the pre-qualification phase relates to the experience and integrity of
applicants, but this phase may be extended with “beauty criteria”, i.e. criteria related to the programme
that the applicant proposes to broadcast (such as the minimum percentage of jazz music, or news or any
other criterion). The “beauty criteria” are defined as threshold values, i.e. minimum or maximum levels
that bidders have to meet48. In this sense the procedure differs from a beauty contest, in which applicants
are ordered from “least preferred” to “most preferred”.
In case of an auction, the government (or regulator) has no role in the valuation of licences (apart from
setting a reserve price). An auction is an economically efficient allocation mechanism in the sense that
licences are assigned to the bidder that assigns the highest value to this licence. If the auction is well
designed, this should coincide with the organisation that will meet market demand best. The revenues
are a side effect, but can be substantial (the recent Dutch assignment procedure generated over €300m).
In the case of money auctions, the excess value may be transferred to the Treasury, but an alternative
could be to create special funds, for instance for subsidising less profitable formats49. In Ireland, such
funding could also be transferred back to the BCI for the development of the sector.
3.4.2 Spectrum levies and royalties
Several countries use market oriented spectrum levies and/or royalties as financial instruments to get a
share of the licence value. For instance, in Belgium and Denmark mixed systems of fixed spectrum
levies and royalty schemes are used (the percentage increasing with turnover and/or market share).
Spectrum fees or royalties will lower the value of the station so that significant capital gains are less
likely to happen. In addition, a sale of a station has no impact on the revenues for the state.
47 However, the UMTS auctions in 2000/1 showed that in the telecom sector irrational bidding occurred (many operators
applied considerable write-offs within a few years after winning a licence). The bidding behaviour may in this case be
explained by inexperience of operators (many of the operators are former state owned companies) and optimism on the
economic development (the New Economy was sometimes believed to follow new economic models).
48 In particular with recent GSM licensing processes some governments tried to combine a beauty contest with a financial bid
creates a problematic situation. This process can not work: one bidder may focus on quality and has less money available
for the financial bid, whereas another bidder takes the opposite route. The government then has to choose between a low
quality programme accompanied by a high bid and a high quality programme that generates less revenues. Whatever
choice the government makes, it can expect a lot of criticism and law suits.
49 Comparable with the creation of a universal service fund in the telecommunication sector.
31
Radio broadcasting economics
In its simplest form, spectrum levies can be used to finance the regulator (“administrative levies”).
These levies are encountered in most countries. The rationale behind administrative levies is that the
market sector that is addressed by the regulator (and that sometimes benefits from the regulatory
activities) should bear the costs, and not the taxpayer.
In Ireland the BCI is not funded by the sector50, but in view of the possible financial gains that the
owners of large franchises are able to make, it seems fair to reintroduce the fees (possibly with a
differentiation related to the revenues of the station). The determination of an administrative levy is
directly related to the costs of the regulatory activities.
Spectrum levies (or royalties) may also include a market-oriented component. In the case of a marketoriented
levy, the government needs to calculate the value upfront in order to be able to defend the
results. This may be a complex task. Furthermore, levies may also impose a barrier to market entry51.
There are no economic grounds for market oriented surcharges, but they can be defended on the basis of
income policy and “fairness” considerations.
In Belgium, the government developed a hybrid system combining levies and royalty payments: radio
stations must pay a minimum annual amount and a percentage of the turnover that is received above a
certain threshold value.
In the Netherlands, a spectrum levy was combined with the financial bid that applicants had to submit.
In this case the levy had a different background: in auction-like procedures it may happen that other
parties decide not to bid and that an incumbent radio station would get a licence at a minimum price52. In
order to get at least a fair share of the value, the Dutch government introduced a special law to ensure
that the state would receive a minimum price for a licence.
3.4.3 Claw-back arrangements
In various newspaper articles53 published after the recent sale of FM 104, the government suggested a
claw-back of the revenues of the sale of stations as a possible mechanism to recoup some of the capital
gain. A detailed description of claw-back was not formulated but claw-back seemed to be defined as an
extra tax on top of the existing capital gains tax. High percentages of 50% and above were mentioned in
the media. We understand that the government is only considering introducing claw-back types of
arrangements for future licences.
The claw-back concept seems attractive from the point of view that it may help to ensure that owners
(/investors) of radio stations make long-term commitments to the public. If they continue their activities
as proposed they can make profits, but if they prefer to make money through the sale of the station, the
claw-back clause will apply.
Nevertheless, we have concerns regarding claw-back procedures:
- Claw-back mechanisms are not used in the context of radio stations in any of the countries in the
survey, though the procedure is occasionally encountered in other sectors, in particular for
innovative (often subsidised) projects or heavily subsidised construction programmes (e.g. housing).
50 BCI’s predecessor, the IRTC, was funded by the sector, but this situation changed with the introduction of the Broadcasting
Act, 2001.
51 Frequently this is also mentioned as a problem with auctions. Still, there is a difference: a levy is a fixed amount, whereas a
bidder in an auction may be lucky and pay a low price.
52 This situation may be the result of collusion, but can also be explained by the small chances that competitors have in
bidding against a strong incumbent (see for instance: P. Klemperer, “How (not) to run auctions: the European 3G Telecom
Auctions”, European Economic Review, 2002 / website: www.paulklemperer.org ).
53 For instance: The Irish Times of November 3, The Independent of November 3.
32
Radio broadcasting economics
The arrangement should prevent speculative behaviour. In the UK a claw-back arrangement was
used in the utility sector54;
- The government’s objectives are not very clear. If the objective were to recoup some of the capital
gain made by the sale of a public resource then it is difficult to understand why this capital gain is
unacceptable only in the case of radio. It would make more sense to introduce general financial
instruments like discussed in the previous section. If the objective is to tie licensees to the long-term
commitments they made to the public then it is questionable whether a financial instrument is
appropriate. First, the licensee was selected in a beauty contest. This procedure should reduce the
risks on the assignment of a licence to a speculator. Secondly, the BCI’s ownership policy could be
equally effective in discouraging speculative behaviour55. A claw-back procedure would add little to
the existing legal framework and its implementation may take away incentives to innovate,
discourage investment and could have unintended (financial) consequences56;
- The introduction of a claw-back would require the design of a rather complex tax-arrangement57.
Obviously, the introduction of a claw-back arrangement would require further study, in particular a
thorough analysis of its potential effects, both positive and negative on the radio market58.
3.5 Summary
The main conclusions from this chapter are:
- The scale of a commercial radio stations is important for its profitability and financial strength. The
costs of a radio station are largely fixed (programme production), whereas advertising revenues are
proportional to the addressable market;
- It is not clear whether the radio advertising market in Ireland still has a large growth potential;
- Local radio stations in smaller franchise areas could strengthen their position by creating networks
and sharing facilities. Consolidation seems unavoidable if local stations are confronted with
stronger competition;
- High values for the radio stations can be expected for the national licences and the licences in the
major urban areas (and optionally for organisations that operate a network of local stations). If the
government believes that the Irish society should also benefit from the value that is created through
the system of licences (that imposes a barrier to competitors to enter the market) then financial
instruments like spectrum fees, royalties and/or auctions should be introduced;
- The introduction of a claw-back arrangement could be considered if the government wants to
introduce an additional instrument to ensure that applicants stick to their promises and do not apply
54 In the UK a windfall tax was levied on privatised utilities. This windfall tax comprised of a one-off tax based on the profits
made by the privatised utility companies in their first four years in the private sector. The tax was based on the idea that the
owners of the privatised utility companies received an unexpectedly high return (windfall return) on their investment in the
first years after the companies were floated on the Stock Exchange and also that the companies were faced a lax regulatory
regime (The Windfall Tax, Lucy Chennells, Fiscal Studies 1997, vol.18, no. 3, pp. 279-291).
55 See Ownership & Control Policy Statement of BCI, chapter 4, section ‘contractual provisions in relation to assignment of
contracts and alterations in the ownership of contractors’.
56 The windfall tax on utilities put off foreign investors in utilities and, in the case of water companies and had the unintended
effect of nearly making Welsh Water bankrupt (BBC News, Wednesday, June 10, 1998).
57 A claw-back arrangement could be introduced as a new tax law. The basis for this new tax could be the sales price of the
station or the capital gain. Capital gain is defined in this study as the difference between the sale and buy price. For the
first sale of a station the buy price should be set at €0. If a ‘regular’ capital gain tax is applicable, the claw-back tax on
capital gain will be on top of this ‘regular’ tax. For a first sale there is no difference in tax revenues between the two
systems. For later sales the ‘capital gain’ system will generate less revenues for the government and less costs for the
sellers of a radio station. As a consequence the threshold for reselling a radio station will be lower than in the case of the
tax system based on the sales price. This could make it easier to attract new investors than in the case of the first system.
58 For instance: if claw back will have (disproportionate) negative effects for the continuity of certain categories of radio
stations (e.g. smaller stations), it could be decided not to introduce this instrument for this category.
33
Radio broadcasting economics
for licences in view of possible capital gains. Nevertheless, a claw-back can be difficult to
implement and we believe that it would be better to introduce general financial instruments to
address the capital gain issue.
34
4. Licensing
Licensing is at the heart of the independent radio policy. The licensing policy seeks to answer to the
following three questions:
(a) What is licensed?
(b) How are licences awarded?
(c) How are licence conditions enforced?
The five steps in the current licensing process are based on the Radio and Television Act 1988 and are
clearly described in the BCI’s recent Submission to the Oireachtas59:
1. Expression of Interest (EoI) phase: market players submit EoI for services they propose to provide;
2. Franchise definition phase: decision by the BCI on the types of services and franchise areas that it
wishes to license (including a review of the technical feasibility of the BCI’s proposals by ComReg);
3. Call for Tenders phase: announcement of the start of the licensing procedure and publication of the
procedures and criteria that will be used for the assignment of licences;
4. Evaluation phase (after the collection of applications): assessment of applications, including: shortlisting,
public hearing and decision making;
5. Completion phase: contract negotiation with “winner” and feedback to unsuccessful applicants.
The BCI’s powers for licence enforcement are defined in section (4) of the Radio and Television Act
1988.
In the licensing process that the BCI conducted from 2002 to 2003, the majority of the licences were
awarded to incumbent radio stations. However, a number of cases in which the BCI decided to award
the licence to a competing company became controversial. In the report of the Forum on Broadcasting of
September 2002, remarks were made (amongst others) on the lack of transparency in the procedure and
the high costs for applicants of preparing their submissions. The Joint Oireachtas Committee on
Broadcasting made similar remarks in May 2003. The Joint Committee particularly focused its
comments on possible licence rollover procedures and supported a simpler procedure for licence rollover
for radio stations that have been successful in the past.
It should be noted that licensing decisions are always very sensitive because of the high stakes and the
publicity that by its nature surrounds these decisions. The stakes are not only related to financial
interests in the case of very profitable commercial radio licences, but also to employment in case of
incumbent radio stations that do not succeed in acquiring a new licence for the new term. In chapter 1
recent examples of disputed BCI decisions have already been discussed.
In view of the sensitive nature of the licensing process special attention needs to be paid to the quality of
the decision making process and the existence of practical procedures for making an appeal against the
regulator’s decisions.
In this chapter we evaluate the current licensing procedures and discuss three important topics in more
detail: licence renewal (roll-over), the introduction of a non-judicial appeal body and enforcement of
licence/contract conditions.
59 “Submission to the Oireachtas Joint Committee on Communications Marine and Natural Resources from the Broadcasting
Commission of Ireland”, 24 September 2003.
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Licensing
4.1 More transparency in decision making will improve licensing process
The licensing process that the BCI initiated in 1999 was associated with public debate and/or legal
disputes in some cases (see also paragraphs 1.1.2 and 1.5). Although the BCI won all court cases,
because it was found to have acted in accordance with the law, we believe that more transparency is key
to improving the decision making process in future. This recommendation applies both to decisions on
franchise areas (what is licensed?) and to the actual assignment of a licence (how is the licence assigned?
– see Figure 6).
• Contract
• Feed back
1.
Expressions
of Interest
Licence
Options
2.
Franchise
Definition
Licence
Conditions
3.
Call for
Tenders
Applications 4.
Evaluation
Winning
Bid
5.
Completion
Whatis licensed? Howis the licence assigned?
Figure 6 - Steps in the current licensing procedure
4.1.1 Determination of the franchise area and type of licence
The BCI determines the franchise area and the type of licence by inviting market players to submit an
expression of interest for a service they would like to offer. The BCI can also decide to merge franchise
areas without entering an expression of interest phase, as happened in the case of the Kilkenny (63,000
adults over 15) and Carlow (37,000 adults over 15) licences: the BCI decided to combine these licences
into one, commercially more viable, licence60.
In most countries studied in the international survey, the government is responsible for making these
decisions. This has the advantage that parliament can influence the process that not only has an impact
on (the) companies, but also on the listeners. The disadvantage of having the decision made at
government level is that lobbyists may have a greater influence, especially in periods before elections.
4.1.1.1 Spectrum allocation strategy needed
The BCI does not appear to have an overall strategy for the future release of the remaining FM and AM
spectrum. Rather it adopts a gradual approach periodically issuing licences for community or
commercial radio services in specific areas. However, in order to give investors greater certainty
concerning future policy, it is important that the BCI/BAI develops in partnership with ComReg,
publishes and consults on its licence allocation strategy. Developing such a strategy would also be
consistent with European legislation that requires efficient spectrum use. Keeping spectrum in reserve
without having a clear allocation policy could successfully be challenged legally.
4.1.1.2 Licence conditions could be reconsidered for new licences
General licence conditions in Ireland regarding issues such as quality of service, efficient spectrum
usage, financial reporting requirements and maximum percentage of time spent on advertising do not
differ considerably from the conditions that are encountered in other countries. However, because an
applicant’s proposal becomes an integral part of the licence, individual licence conditions differ
considerably. Since the proposals include rather detailed issues (such as staffing matters, remuneration
schemes and technical aspects), monitoring compliance becomes a complex task. In order to keep
monitoring effective, the BCI should consider to include only high-level programme commitments in the
licence conditions, similar to the approach of the regulator in the UK (see section 2.1.2).
60 Eventually the licence was awarded to KCLR, a company that did not run a service in either area. The Kilkenny decision -
where an existing and popular radio station was taken off air - resulted in legal action, reaching the Supreme Court with a
final decision in favour of the BCI.
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Licensing
As discussed in paragraph 2.1.1 the government and the BCI should also reconsider the legal requirement
of providing a minimum of 20% news and information if more licences are awarded in a region.
4.1.1.3 Licence duration
Since 1999 the duration of licences has been increased from seven to ten years. This is a relatively long
period, but not exceptional in comparison with other countries (which vary between eight years61
(Netherlands) and twenty years (New Zealand).
The licence period should be chosen based on the time that is needed to recoup the investments that are
needed for setting up the infrastructure and, most important of all, to attain the market recognition that is
required to run the business in a profitable way. As a rule of thumb, four to five years are needed to
establish that position. In this respect the original licence period of seven years seems rather short, so the
ten year period of the new licences appears more appropriate.
4.1.1.4 Decision making on franchise areas and types of stations can be made more transparent
As discussed in paragraphs 2.1.1 and 4.1.1.1, we recommend conducting a spectrum audit in order to
define the available spectrum for radio broadcasting. At the same time the BCI/BAI could start
analysing perceived gaps between market demand and the current service offering by performing listener
surveys in different localities. Furthermore, the development of an economic model of the radio industry
could facilitate decision-making on franchise areas by providing information on the commercial viability
of the new station and possible implications for the business cases of its competitors.
After this exercise, the BCI/BAI will have a view on:
(a) what is available;
(b) what is needed from a listener’s perspective, and;
(c) what options seem viable from an economic perspective.
This view could act as a guideline in the expression of interest (EoI) process. At the start of the EoIphase
the BCI/BAI could publish its view, for instance by indicating the types of services and/or
franchise areas it has in mind. Market players could then respond to these ideas by submitting an EoI;
they may submit ideas that deviate from the guidelines, but they know upfront that they should present a
strong case to convince the BCI/BAI of its merits.
The BCI/BAI would evaluate all submissions and on this basis take a decision on the key licence
conditions: in particular the franchise area, the type of service (e.g. commercial/community), format and
other requirements. In more complex situations it is possible that the BCI/BAI would formulate two or
more options for licences and start a market consultation phase on these options. Eventually the market
consultations would result in a final decision on licence conditions. At the end of the procedure the
BCI/BAI would publish its decision together with all considerations.
BCI/BAI View Policy
Development
Expressions
of Interest
Licence
Options
Market
Consultation
Licence
Conditions
Figure 7 - Proposed procedure for determining franchise areas and licence conditions
61 Shorter durations also occur, e.g. four years in Greece and five years in France.
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Licensing
4.1.2 Assignment procedure
Every assignment procedure can be considered to consist of three basic stages (Figure 8):
In the first stage, applicants are evaluated against a set of minimum criteria that they must meet. This
includes not only requirements related to the procedure itself (like delivering the bid on time at the right
address and submitting all documents etc.), but also more fundamental issues like ownership structure (in
view of plurality requirements) or specific requirements related to the radio station or the format of the
programmes. In all cases the decision has a binary character: the applicant either fulfils the criteria or
not; the applications are not compared as happens in the next stage.
The evaluation of applications can again be decomposed into two tasks (Figure 9):
Candidates meeting
minimum requirements
(e.g. ownership)
Prequalification
Evaluation
of
applications
Winning
bid
Contract
negotiation Contract
Figure 8 - Steps in a licence assignment procedure
Does the applicant
propose a viable
business case for his
service?
Comparison of the bids
Evalution of the
Business Case
To what extent does
the proposed format
contribute to diversity?
Assessment of the
programmes
1. Evaluation of the business case: does the applicant succeed in describing a radio station that has
sufficient resources (in particular: financial and human resources) to produce the programmes that
they plan to offer during the whole licence period;
Figure 9 - Steps in the bid evaluation procedure.
2. Assessment of the programmes that the applicants will offer with respect to diversity and “localness”
objectives.
The first task is typically a technical task that could be performed by sector specialists, such as the
executives of the BCI. A simple scoring mechanism could be used to evaluate the sections in a business
plan and to give an overall score to a plan (e.g.: “insufficient”, “doubtful”, “sufficient” or “good”). In
some countries, applicants must pass a threshold in respect of the business plan before programming
aspects are taken into account.
The second task is more subjective, but a scoring mechanism could still be employed.
The BCI’s current procedures do not use a scoring mechanism and there is no clear distinction between
the two tasks mentioned above. The Board, through an integrated evaluation of the plans, takes all
decisions. To support the decision-making process, the executives make summaries of proposals, but do
not express any preferences or opinions to the Board. The selection process includes several rounds of
discussion in which applications may be rejected. The final decision by the Board is made after a voting
round in the event that two or more applicants remain.
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Licensing
After a decision is made, the BCI informs unsuccessful applicants through a feedback report that
highlights the major deficiencies in their proposals.
4.1.2.1 Assessment of the procedure
Core weaknesses in the current the BCI approach to licensing are a defined lack of predictability and
accountability, which are both related to the absence of a systematic approach to evaluating applications
based on clearly defined evaluation criteria. Indicating the key criteria to be used and their relative
importance in evaluating applications could address this weakness. Some countries use an explicit (i.e.
published) scoring mechanism for evaluating bids (e.g. the Netherlands where the overall scores of
applicants were presented together with a narrative explaining the background of the scoring principles).
This has the advantage of making the process more transparent, and ensuring bidders do not waste
resources preparing redundant material for their bid. At a minimum, we consider that it is important that
the BCI uses a scoring mechanism for internal purposes to ensure that different bids are treated
consistently62. This would help to avoid the current situation in which some applicants believe that they
have been treated unfairly relative to others.
For applicants it is useful to have detailed information on scoring principles, since this information will
help them to focus on issues that are important in the procedure. However, providing too detailed
information may introduce a risk: applications may become very similar since everyone will try to
optimise the score.
A scoring system may help to simplify the current licensing procedure: a close analysis of the important
factors in the scoring methodology could reduce the amount of information that needs to be provided by
applicants. This may reduce the costs of licence application. However, it should be noted that all
countries in the international survey request rather detailed information in their comparative tender
procedures, so the amount of work can be expected to remain considerable.
4.1.2.2 Experience of executives of the BCI could be employed better
A scoring system will make the licensing procedure more transparent and will improve accountability,
but it must also be recognised that judgment is still required in the evaluation of bids. Business plans
contain many assumptions and the BCI/BAI must check whether the plan is credible. The availability of
benchmark figures can be useful in this process63. Furthermore, the professional expertise of the
executives of the BCI could be employed better. The Board of the BCI currently carries the complete
decision-making burden, which places an extraordinary reliance on a voluntary, part-time and largely
unpaid group of people with no particular expertise in the field of commercial radio.
In the scoring approach, the executives could assess all applications and develop a proposal for the
scores, together with the arguments for these scores. The Board could then focus on the accountability
and public interest aspects of the proposal and take a decision.
The level of professionalism in the BCI Board could be further increased by appointing one executive as
a Board member.
4.1.2.3 Auctions versus beauty contests
In order to reduce the subjectivity of the licensing process, an auction could be considered as an
alternative procedure. Beauty contests can be made very transparent and rather objective, but at the end
62 This is the approach adopted in the UK where the Radio Authority uses a scoring mechanism to support the decisionmaking
process. These scores are not published and do not necessarily determine final outcomes but do help ensure
consistency in approach and mean that the Authority must explicitly address trade-offs between financial and programming
criteria when making decisions. In the UK there have been very few challenges to the regulator’s decisions.
63 In the Netherlands tables with reference/benchmark figures were defined at the start of the procedure in order to make the
procedure more objective.
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Licensing
of the procedure, there is always an element of subjectivity. If bids are of comparable quality, then the
decision ends up in a rather grey zone. Due to the sensitivity subjectivity can raise, the Dutch
government introduced a financial bid as a decisive factor in case of tied bids in the beauty contest. In
the beauty contest applications received scores at a rather general level: a business plan was considered
“ insufficient”, “appropriate” or “very good”. Similar scores were used for the programme that the
applicant promised to broadcast. Because of the small number of distinctive levels, tied bids could
occur. In that case the financial bid determined the final outcome (see also paragraph A.2.5.3 in the
Annex A).
An auction procedure (like the one described above) may work well if the values of the licences are
relatively high, i.e. the licences have profitable business cases. In the case of companies that operate
around break-even (like smaller local radio stations) there is no room for a substantial bid, so an auction
could generate random results64.
In Ireland auctions could be considered for the licences in larger franchise areas (above approximately
500,000 people). By defining minimum requirements on formats and other important issues all existing
policy objectives can be met, so a financial bid (a single bid or a bid in a multi-round auction) could
eventually determine the result. Alternatively, it is also possible to make a selection on the basis of the
quality of a bid relative to the competing bids. The advantage of this type of selection process can be
that the money is left in the company, so the licensee has more finance available to invest in quality
improvement and/or innovation. However, the low licence price introduces the risk that the owner can
benefit from a windfall profit if no other financial instruments are in place.
The choice of a beauty contest or an auction is essentially a political decision.
4.2 Licence renewal
With respect to licence renewal (roll-over) the international review does not provide a clear picture: some
countries use the system of automatic licence renewal (Denmark, Sweden, Belgium), while others use a
system of conditional renewal (UK and T-DAB condition). In the recent allocation procedure in the
Netherlands, incumbent players were in the same position as new entrants65.
There is still little international experience with licence roll-over or issuing new licences since the market
for commercial radio has changed considerably in the last decade. The general principle of having
licences of a finite duration is well accepted since it provides an opportunity to periodically review the
situation. For instance, a decision to combine franchise areas (as was the case in Carlow and Kilkenny),
to change format requirements or to make other improvements can be made more easily.
Similar to the procedures that are employed in the UK, a simple (“fast track”) licence renewal procedure
could be employed in the event that the licence of a well-performing radio station (i.e. a station that has
not acted in conflict with its licence conditions and has a sufficient audience share) expires and no
competitor shows interest in the licence.
It should be noted that competition with an incumbent radio station will occur if a competitor has serious
reasons to assume that he can beat the incumbent in the assignment procedure. In case of both a beauty
parade and an auction it is observed that competitors will not waste their resources bidding against a
strong market player. This seemed to have happened in the Dublin area. In practice there is not much
difference between roll over and formal re-licensing for stations that are performing well. For poorly
performing stations the risks are higher, but the question then is whether the listeners are better served by
64 For this reason, it is understandable that the UK applies auctions for the national licences and beauty contests for local and
regional licences. It should be noted though that companies could create a considerable value through consolidation.
65 The rationale behind that system was that an incumbent player, because of his advantageous position with respect to market
knowledge and expertise and by having a brand name, will normally win a licence.
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Licensing
the new radio stations or by the old (that apparently was performing less well). Hence, the conclusion
seems justified that that licences are not renewed automatically, but that simplified procedures should be
considered seriously in the case of well performing stations that are not challenged by competitors. In
this case a parallel requirement will be for the BCI/BAI to change licence conditions easily in a
structured, transparent manner.
4.3 Appeal mechanisms
The limited transparency and accountability of the BCI’s decisions on the allocation of radio broadcast
licences generated several disputes that ended in court. Courts generally only consider the procedure by
which the BCI/BAI’s decision was taken. The introduction of a non-judicial appeal body would create
the possibility that the facts of the decisions taken into account by the BCI/BAI will be taken into
consideration. This change might reduce the number of court cases. We have been asked to explore
options for appeal mechanisms against decisions of the BCI/BAI.
4.3.1 Recent debates on a non-judicial appeal mechanism
In its report the Joint Committee on Communications, Marine and Natural Resources recommended a
non-judicial appeals mechanism that could adjudicate on complaints against the Commission, or against
the decisions of the Commission. According to the Committee this non-judicial mechanism could
consist of one independent eminent person, for example, called upon when needed, with a small
administrative backup as required. This could also serve as a mechanism to ensure greater accountability
for the Commission’s decisions and would assist in addressing the concerns of operators (amongst
others: the inability of the BCI to adequately explain and deal with the inconsistencies and serious doubts
concerning the credibility of the licensing process). To the extent non-judicial processes are quicker than
legal processes, the Committee is of the opinion that adoption of a non-judicial approach could also
reduce the costs of appeals and realizes that this may mean there would be more appeals than at present.
In its response to the Recommendations of the Joint Committee on Communications, Marine and Natural
Resources the BCI indicated that it does not support the introduction of an appeal mechanism and that it
believes that the current system of judicial review is the only realistic and workable appeal process. The
BCI points out that an appeal body, because of the inherent subjectivity in each decision on licensing,
could make a different decision based on the assessment of the same criteria. For this reason, the BCI
considers an appeal body as an extra administrative layer and believes that an appeal mechanism would
not prevent any decisions from being subsequently referred to the courts.
We tend to disagree with the BCI’s view. “Subjectivity” in the context of public governance does not
have the same meaning as in the day-to-day use of the word. In essence, any competent appeal body
should, based on the same procedures and facts, in principle make the same decisions as the BCI/BAI.
Taking decisions on broadcasting matters should not be a matter of personal taste or preferences, but
should be the result of a rational, transparent, accountable, effective and efficient decision making
process that is based on clear rules66. A non-judicial appeal body is an additional layer in the overall
process which is easily accessible and which gives applicants the certainty that the facts are also being
taken into reconsideration. Courts on the other hand only consider the procedure itself. Because of the
high (financial) stakes, in all likelihood, a non-judicial appeal mechanism will not prevent applicants
going to Court. The (financial) stakes are often too high, especially for an incumbent player, not to
appeal. Many court cases were initiated by incumbent players who did not succeed in winning a licence
for a new period (e.g. Norway, The Netherlands). This has also been the case in Ireland. However,
66 The incorporation of a process auditor in this decision making process might guarantee that this process is exactly executed
according to the procedures. This might simplify and speedup an eventual court case. The output of the decision making
process (the decision itself) however is not effected by such incorporation. A non judicial-appeal mechanism guarantees
that all aspects of the decision making process, including the decision itself, are reconsidered.
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Licensing
prevention of court cases should not be considered as a major goal; the primary goal of a non-judicial
appeal mechanism is to ensure that all aspects of the decision are reconsidered and thus provide
applicants with extra legal protection.
4.3.2 Non-judicial administrative appeal mechanisms
In a number of member states of the European Union (i.e. in The Netherlands, France, Germany), a
general non-judicial administrative appeal mechanism against decisions taken by public bodies67, in
some cases including decisions on broadcasting licences, does exist. In Ireland non-judicial
administrative appeal mechanisms against decisions taken by specific bodies exist, for instance in the
field of social security, taxation and aviation. Most recently such a mechanism was introduced in the
telecommunication sector68. It is generally observed that the existence of an independent appeal body
ensures that a public body (regulator) will more carefully scrutinize its decisions. The appeal body acts
as a low threshold ‘safety mechanism’ that can improve the legal position of applicants.
In countries without a non-judicial administrative appeal mechanism against licensing decisions, a
Parliamentary Ombudsman is sometimes suggested as a possible non-judicial appeal mechanism69.
However, a Parliamentary Ombudsman generally only deals with complaints from citizens. A
Parliamentary Ombudsman has a signalling function and has no powers to change a decision of a public
body.
4.3.3 Conditions for a non-judicial appeal mechanism
A non-judicial appeal mechanism can only work properly if the element of subjectivity70 (subjective
elements) in the BCI/BAI’s decision making process is minimised and the transparency and rationality of
this process are maximised71. Some options for an appeal mechanism can be identified. The EU
Framework Directive72 provides the basis for the non-judicial appeal mechanism in telecommunications.
A proper and adequate appeal mechanism needs a firmer and more structural basis than the appeal
mechanism suggested by Joint Committee on Communications, Marine and Natural Resources. An
appeal mechanism for decisions (both on television and radio) taken by the BCI/BAI could better be set
up along the same lines as those of the appeal mechanism for telecommunications. This will imply,
amongst others, that:
67 A detailed description of the administrative appeal mechanism of The Netherlands as well as of all other member states of
the European Union can be found on http://europa.eu.int/scadplus/citizens/en/nl/00192.htm
68 This non-judicial appeal mechanism is implemented in the European Communities (Electronic Communications Networks
and Services) (Framework) Regulations 2003 , particularly in part 2 of these regulations (Statutory Instruments, S.I. No.
307 of 2003).
69 This makes the institute of the Parliamentary Ombudsman unsuited for a non-judicial appeal mechanism. In Norway, a
rejected incumbent (P4) tried to use the Parliamentary Ombudsman as a non-judicial mechanism to adjudicate against the
decision of the Ministry of Culture and Church Affairs to grant the license to a new entrant (Kanal 4). However, the
Parliamentary Ombudsman concluded in the case of this appeal that the Ministry is free to determine the licence allocation
at its own discretion and that he therefore was not able to raise conclusive objections to the Ministry’s resolution to grant
the licence to Kanal 4.
70 This means that the discretionary powers of BCI/BAI have to be clearly defined and limited. The appropriate instrument
for the government to achieve such a situation is a clear and sufficient detailed legal framework complemented by policy
directions.
71 In case of assigning radio broadcasting licences by auctions, the focus of a non judicial appeal mechanism will primarily be
on all aspects of the pre-qualification process.
72 Directive of the European Parliament and the Council on a common regulatory framework for electronic communications
networks and services Directive 2002/21/EC of the European Parliament and of the Council of 7 march 2003 (Framework
Directive). Article 4 of the Framework Directive (Rights to Appeal) sets out the principles for a non-judicial appeal
mechanism.
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Licensing
1. Parties will have the right of appeal against a decision of the BCI/BAI to an independent appeal
body for the BCI/BAI decisions; the members of the appeal body would be appointed by the
Minister for Communications, Marine and Natural Resources and the body would consist of three
persons;
2. The appeal body would be able to consider not only the procedure by which the BCI/ BAI’s decision
was reached, but all aspects of the decision including the facts of the case;
3. The appeal body would take its decisions following a procedure in which both sides (i.c. the
BCI/BAI73 and the appealing party) would be heard; the appeal body would be able to confirm or
annul the BCI/BAI decision in its entirety74;
4. The decisions of the appeal body would be binding and can and would be enforced; the decisions of
the appeal body would be final and conclusive75;
5. The remuneration and allowances for expenses76 of the Appeal Body will be determined by the
Minister of CMNR with the approval of the Minister of Finance77.
In the case that the primary decision remains unchanged, there is a chance that the appealing party will
resign the case. In case of an appeal against the decision of the appeal body to the courts, the case will be
relatively simple and might save time. The proposed appeal mechanism might thus alleviate pressure on
the courts. In cases where (financial) stakes are high, appellants will most probably go to court anyway.
Pending the outcome of any appeal, the primary decision of the BCI/BAI is standing. In the case of
perceived urgency, appellants should have the possibility to request the appeal body for a temporary
suspension of this primary decision.
4.3.4 Options
Any implementation of a non-judicial appeal mechanism will require a sound legal framework in which
the scope, governing processes, roles, functions, tasks, responsibilities, powers, appointment processes,
time limits, the selection of members and the decision making process are well defined and worked out
comprehensively. In the context of this study we restrict ourselves to providing general policy
directions.
4.3.4.1 The power of the appeal body
In principle, there are two options for the decision of an appeal body: either it can confirm or annul a
decision of the BCI/BAI (as is the case in telecommunications) and notify the BCI/BAI of its
73 Including the executives that prepared the decision for the Commission.
74 In telecommunications, the powers of the appeal body are limited to either confirming or annulling the ComReg decision
and do not comprise varying a ComReg decision. The Minister for Communications, Marine and Natural Resources stated
in his report in response to the Public Consultation Process on the EU Electronic Communications Regulatory Package of
24 July 2003, that: “if the Appeal Panel were allowed to vary a ComReg decision, the Panel could effectively be placed in
the position of a regulator itself, which could require the Panel to be involved in regulatory activities beyond its scope. This
is not the intended purpose or function of the appeal panel mechanism”. For the same reasoning this limitation of powers of
the appeal body should also be applied in the field of radio broadcasting.
75 The ‘new’ decision taken by BCI/BAI (in case of annulling by the appeal body) or the ‘original’ decision (in case of
confirming by the appeal body) can only be subject to review by court.
76 Expenses might also include the hiring of external advisors.
77 According to section 14 (2) of the European Communities (Electronic Communications Networks and Services)
(Framework) Regulations 2003 t he Appeal Body may order that part of the costs incurred by the Appeal Body shall be paid
to the Minister of Finance by the appealing party. According to Section 14(4) the expenses of the Appeal Body that are not
covered by third parties may be included in a levy under section 30(1) of the Communications Regulations Act, 2002 (No.
20 of 2002). Both principles should also be applied in the field of radio broadcasting.
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Licensing
conclusion78 in relation to the appeal or it can advise the BCI/BAI to reconsider the decision
accompanied by instructions regarding the “weak points” of the original decision. The BCI/BAI will
then have the choice to follow the advice or not, but should justify its choice.
The first option is a ‘pure’ appeal mechanism. The directions of the appeal body will determine the
‘ new’ decision of the BCI/BAI. The second option is a “softer” version of the appeal procedure since it
leaves the BCI/BAI with more responsibility for its decision-making, while enabling a greater level of
transparency and accountability in the process. This option is closer to the current situation and could be
tried in practice before moving to the more radical approach. In view of the other proposed changes in
radio broadcasting licensing, this evolutionary approach might be a better option.
4.3.4.2 The structure of the appeal body
Since the appeal body has to look at the formal procedure of the decision making process, the quality of
the business plans and the formats that are proposed, we recommend to create a composition that is
similar to the appeal body in the telecom sector: one person with a legal background (e.g. a barrister) and
the others with such commercial, technical, economic, regulatory or financial experiences as the Minister
for Communications, Marine and Natural Resources considers appropriate. Preferably, one or more of
these members should be chosen from existing (or planned) appeal bodies.
The appeal body could be assigned for a longer period (more permanent appeal body) or on an ad hoc
basis (separate bodies for each appeal). The first option has the advantage of creating continuity,
consistency and the building up of expertise and precedent; the latter of having the opportunity to appoint
the most qualified members for a specific case. It is expected that the workload of the appeal body will
be intermittent. By implementing the regulations of the telecommunications sector on the appointment
and removal of members of the appeal body and on the disclosure of interest of members of the appeal
body, independency of the appeal body is guaranteed.
4.4 Enforcement
The system of licence enforcement is defined in section 14 of the Radio and Television Act, 1988. In
particular, in subsection (4)(a) the powers are specified:
(4) Every sound broadcasting contract shall—
( a ) provide that the Commission may, at its discretion, suspend or terminate the contract—
(i) if any false or misleading information was given to the Commission by or on behalf of the sound
broadcasting contractor prior to the making of the contract,
(ii) if the sound broadcasting contractor has, in the opinion of the Commission, committed serious or repeated
breaches of his obligations under the sound broadcasting contract or under this Act;
Since an applicant’s proposal becomes an integral part of its broadcasting contract, the BCI takes an
interest in rather detailed issues concerning business processes (“micro-management”). For instance,
appointments at management level (such as a programme director) need the approval of the BCI. This
means that the BCI’s enforcement activities are very broad in scope. At the same time, it has only two
instruments to enforce the conditions: suspending or terminating the contract. These measures may not
be proportional to the “breach of contract”, if these refer to minor issues. In practice, the BCI also uses
“ warnings” as an additional instrument. Still, with the limited number of (proportional) instruments,
enforcement soon becomes less effective.
78 According to section 13 (Notification of determination by Appeal Panel) of the European Communities (Electronic
Communications Networks and Services) (Framework) Regulations 2003, a determination must set out (a) any findings on
material questions of fact, referring to the evidence or other material on which those findings were based and (b) the
Appeals Panel’s understanding of the applicable law, and (c) the reasoning processes that led that Panel to the conclusions
that it made. This regulation could also be used for broadcasting.
44
Licensing
In comparison to other countries, the BCI enforces the licence conditions (including the business plan)
meticulously. The international trend is to pay attention only to the programmes that are broadcast (the
output), and not to the manner in which the programmes are produced (i.e. the organisation behind it)79.
With a rising number of licences (and licensees), detailed enforcement becomes more complex and
requires more human resources. Furthermore, the introduction of new infrastructures, like DAB or
Internet, will change the business cases. For these reasons many governments prefer to focus on
enforcement of the output.
In other countries regulators can impose fines in addition to the instruments that the BCI can use
(warnings and (ultimately) licence suspension or withdrawal). The introduction of fines by the BCI
appears to be beyond its remit. An alternative procedure that is for instance applied by the French
regulator ART could offer a solution: the BCI could bring a case of breach of contract to the Attorney
General who can then impose an administrative sanction. The extent to which such an approach is
possible and practical under Irish Law would require further legal analysis.
A simpler solution could be the introduction of a system of penalty points. Depending on the severity of
the licence breach, a number of penalty points would be issued. This would be part of the annual review
process. If a station exceeded a certain threshold level then this could result in suspension or withdrawal
of a licence. Furthermore, the penalty points could be linked to the decision on the eligibility of a station
for a fast track procedure at the end of the licence period. For both procedures a change of the
Broadcasting Act is necessary.
4.5 Summary
The main conclusions from this chapter are:
- A spectrum audit to investigate the amount of spectrum that will be issued is highly recommended;
- The BCI could increase the transparency of licensing procedures by publishing the considerations
that lead to a decision. This applies both to decisions on franchise areas and licence requirements
after an EoI phase and to its decision on the licence assignment;
- The development of a policy view on licensing could increase the accountability and transparency of
the BCI’s decisions regarding franchise areas and licence requirements. The policy view could act
as a guideline for the Expression of Interest (EoI) phase as it would clarify the BCI’s preferences. It
would be based on a careful analysis of the amount of available spectrum, listener needs and an
assessment of the economic viability of various options. If the EoI phase results in more than one
option then a market consultation on the options could be introduced as a new step before taking the
final decision;
- The use of an explicit scoring mechanism could reduce the “subjectivity” in the licence assignment
process. A scoring mechanism should at least be introduced for internal decision making by the
BCI, but it would be preferable to inform applicants in advance of the relative weights of elements
in licence bids. This can also help to reduce the costs of preparing a licence application;
- The BCI stresses the inherent subjectivity of a licence assignment process. We agree with the
observation that the process requires an element of professional judgment, but this aspect should not
be overstated. A scoring mechanism can be used to evaluate the credibility of business plans. Only
in case of the evaluation of programming proposals may personal taste influence the decision,
though this subjectivity can be reduced by using information from listener surveys. Alternatively,
the government could consider introducing auctions for the selection of licensees in larger franchise
areas;
79 Only (cross-media) ownership is monitored by regulators because of plurality controls: changes in organisational
shareholding structures need to be reported to the regulatory authority.
45
Licensing
- In the current process, the opinion of the BCI executives, who are generally recognised as sector
specialists, could be used better to support decision making by the Board (and this would also reduce
the Board’s workload). Consideration could be given to detailed evaluation being done by executive
and broad issues only at Board Level. In addition, consideration should be given to appointing at
least one executive to the Board;
- There is no strong case for automatic licence renewal, but simplified procedures should be
considered seriously in the case of well performing stations that are not challenged by competitors (a
fast track procedure); the BCI would need to be able to change licence conditions;
- The introduction of a special, non-judicial appeal body could help to increase the transparency and
accountability of the BCI/BAI decisions. A non-judicial body would not only take the procedure but
also the facts of the decision into account. The appeal body could consist of, say three, independent
experts who are appointed by the Minister. We believe that it would be better to appoint the
members of the appeal body on an ad hoc basis. The powers of the appeal body need to be
determined. The presence of an appeal body will probably give the BCI/BAI a strong incentive to
pay more attention to the transparency and accountability of their decisions;
- The introduction of a system of penalty points could help to make enforcement by the BCI more
effective and transparent. The penalty points could be incorporated in the annual performance
review. If a station exceeded a certain level of penalty points then this could result in licence
suspension or withdrawal. Furthermore, penalty points could be taken into account for a decision on
the eligibility of a licensee for a fast-track procedure at the end of a licence period.
46
5. Conclusions and Recommendations
The Department of Communications, Marine and Natural Resources specified in its Terms of Reference
(ToR) of the consultancy study “Review of the Licensing of Radio Services in Ireland” that OX should
conduct the following tasks
a. objectives
- describe the current objectives of radio licensing;
- evaluate whether there is a need to revisit objectives having regard to changes in Irish society
and in broadcasting markets;
- consider existing power of the BCI including power to decide of services to be provided and
franchise areas;
b. process
- describe and evaluate existing processes;
- evaluate existing roles of the Executives of the BCI and the Commission;
- evaluate the need for independent/outside expertise in licensing process;
- explore options for appeals mechanism in relation to licensing decisions;
c. structural
- consider what and who should be licensed;
- consider terms of existing and future licences including duration;
- consider issue of licence roll over;
- consider barriers to market entry;
d. policy interface
- evaluate existing policy interface.
An issue that gained importance during the study was the value of radio licences. This occurred in
response to the sales of two radio stations within one year of the owner receiving a licence for a new
period of ten years. Individuals were believed to have made large capital gains from publicly owned
resources (i.e. the licences). It was agreed that OX would assess policy options regarding the “excess
value” of a radio broadcasting licence for future licensing processes.
In this chapter, we first summarise our conclusions from the review of the licensing procedure. The
conclusions include the policy options that we identified. The obvious option of no change is not
generally discussed.
Based on the conclusions and options we present our recommendations for policy actions.
5.1 Conclusions
5.1.1 Policy objectives
The policy objectives in respect of the commercial sector are given in the Radio and Television Act
1988:
1. securing the orderly development of sound broadcasting services;
2. allowing for the provision of a diversity of services in an area catering for a wide range of tastes,
including those of minority interests;
3. promoting the provision of quality services, including services in the Irish language;
4. ensuring reasonable plurality of ownership;
5. ensuring effective co-ordination and use of frequencies.
47
Conclusions and Recommendations
These objectives are formulated at a fairly high level and do not differ considerably from objectives
found in other countries (though few governments specify the policy objectives precisely). Since 1988
there have been considerable changes in Irish society and more recently the advent of the Internet and
other new digital media (mobile phones, satellite TV) has expanded consumers choice of
communications services. Nevertheless, we consider that these objectives are still relevant. However, as
discussed below some changes in the way they are implemented may be warranted.
When comparing experience in Ireland with developments in other countries, it can be concluded that the
government and the IRTC/BCI have been successful in developing a vibrant commercial radio market
since 1988. Not only commercial radio stations but also community radio stations have contributed to a
higher level of diversity in the media landscape and have addressed specific needs in Irish society. The
objectives listed above would appear to have been met.
The number of services licensed has increased steadily over time, including national, regional and local
licences, programme content controls have been effective and existing services have been re-licensed.
The issue for this study is how the objectives might best be met going forward, as more stations are
licensed and as digital radio may be introduced.
In the next stage of development of the sector policy issues that we have identified as likely to become
important include:
- The development of a view on the future market structure;
- The creation of more transparent and predictable licensing procedures;
- The implementation of more practical enforcement procedures for the regulator;
- A decision on the use of financial instruments that may be applied to the sector.
The following sections discuss these issues in more detail.
5.1.2 Market structure and regulation
Our market analysis leads to the following conclusions:
- Local commercial stations are generally performing well, however, if additional stations are licensed
in future the competitive position of some smaller stations seems vulnerable unless they can change
the way they operate;
- Growth in the number of stations that consumers may receive is both desirable and inevitable. It is
desirable in that it gives the opportunity to further diversity objectives (in many localities there is
only one local station), assuming new stations are required to broadcast new types of music and
other programming. It is inevitable because there will be demand for additional licences from
industry (as the advertising market grows), the Framework Directive requires that regulators use
spectrum efficiently80 and there is vacant spectrum in both the FM and the AM bands;
- To accommodate growth in the sector and its continued viability, changes in regulation may be
required. In particular changes that reduce the costs of providing services may be required;
- Different programme requirements concerning news and Irish content may be appropriate for new
stations. For example, Irish content requirements may not be feasible for a Jazz station and onerous
news obligations may not be sustainable for such niche stations;
- A liberal attitude to the formation of syndicated networks is needed. By producing general
programmes with local editions (e.g. related to the news), radio stations can achieve considerable
cost reductions.
80 See for example section 8 of the Framework Directive and the related considerations.
48
Conclusions and Recommendations
ComReg noted in 2002 that only 70-75% of the FM spectrum is used. In order to create more choice for
the listeners (including those in smaller cities and rural areas) a assignment of all available spectrum
should be implemented. This process should be done with great care because of the vulnerability of the
smaller market players, but this vulnerability is insufficient as a reason to restrict supply.
The approach taken by the BCI to deciding new franchise areas will have an important bearing on the
future market structure. The BCI last undertook a major consultation on licensing policy in 1999 and
since then has been implementing the conclusions from this consultation. It is our view that the policy
framework needs to be made more robust through the development of a strategic plan for radio industry
development. Currently such a strategic vision is absent and we consider that this is in part because, in
comparison with other countries, the roles of various organisations in policy development is not
sufficiently clear and the legislative framework leads to reactive policy development. Either the Ministry
needs to take a more active role in developing a policy framework or the regulator should take the lead,
eventually seeking approval from the Ministry for their policy proposals. Considering the regulator has
more radio sector expertise we believe that the latter approach will be more practical.
Topics to be addressed in the development of licensing policy are:
1. Assign higher priority to the economics of the broadcasting market or the desired market structure
when policy is developed. This would be assisted by involving economists in the policy team;
2. Develop a plan for the future development of the sector;
3. Initiate a spectrum audit to determine the available spectrum. Based on the audit results franchise
areas and format requirements need to be analysed. In this process economic and diversity-related
aspects need to be taken into account carefully;
4. Develop guidelines for the Expression of Interest phase. In most countries in the international
survey policy for the definition of the franchise areas and licence conditions is the responsibility of
the government, not of the regulator as is the case in practice in Ireland. The approach in Ireland
involves the regulator asking for expressions of interest in providing services both to assist the
frequency planning process undertaken by ComReg and to determine the licences to be tendered.
This has the advantage of using the market information to inform decisions but it has a risk of
“ scattering”: it is for example possible that a new jazz station could be feasible if say at least four
adjacent local licences could be combined into one package. If the five frequencies are licensed at
different times in different groups then it would not be possible to make serious bids for the
individual licences, so the jazz station will probably never take off. Instead, it is likely that five
licences with more popular formats will emerge. If the five frequencies had been combined into one
licence then a new format could have been the result. We believe it is better to work upfront with
some general guidelines/rules of thumb, which are derived from economic models and
considerations of programme diversity, than to rely solely on expressions of interest to inform
licensing policy.
The speed of release of licences will depend on the amount of spectrum that will be released. An
incremental release within an overall plan is probably the best approach, if a clear deadline for the
process is set.
5.1.3 Licensing procedure
We have a number of comments on the BCI’s licensing procedures, which we consider could be
improved. We note that the majority of the recent licence assignments went well (in the sense that they
were not legally challenged). Only in two cases where incumbents did not succeed in acquiring a new
licence were the BCI’s decisions challenged. Furthermore, the process has been criticised by some
members of parliament.
49
Conclusions and Recommendations
We believe that the current decision making process is insufficiently transparent. Our major
observations in this context are:
- The BCI could increase the transparency by publishing the considerations that lead to a decision.
This applies both to decisions on franchise areas and licence requirements after an EoI phase and to
its decision on the licence assignment;
- The use of an explicit scoring mechanism could reduce the “subjectivity” in decisions. In the
telecommunications sector a scoring mechanism was used by ODTR (ComReg) for the assignment
of 3G licences. The Dutch government used a scoring mechanism successfully in the radio
broadcasting sector in 2003. The criteria and their relative importance were published upfront. For
the evaluation itself the government had developed a predefined (but unpublished) scoring method,
which enabled independent experts (supported by external accountants) to evaluate the business
plans;
- In Ireland, the BCI stresses the inherent subjectivity of the assignment process. We believe that this
issue is overstated: the BCI does not make a clear distinction between the rather technical evaluation
of business plans (e.g. did the applicant present a convincing business case in financial/commercial
terms?) and the evaluation of programming proposals. The latter includes an inherent subjectivity,
but in the present process both steps seem to be included in making subjective judgements.
Currently the executives of the BCI support the decision making process by summarizing applications,
developing questions and providing checklists, but they do not express any opinion on business plans.
The opinion of executives, who are generally recognised as sector specialists, could be used better to
support decision making by the Board (and this would also decrease the Board’s workload).
Consideration should be given to appointing at least one executive to the Board. The evaluation could be
carried out in its entirety by the Executive with the Board dealing with broader issues.
5.1.4 Non-judicial appeal body
The introduction of a special, non-judicial appeal mechanism, along the same lines as those of the appeal
mechanism of telecommunications, could help to increase the transparency and accountability of the
BCI/BAI decisions. In contrast to court appeals, a non-judicial body would not only take the procedure
but also the facts of the decision into account. The appeal body could consist of, say three, independent
experts who are appointed by the Minister. The members of the appeal body could be appointed on a
permanent basis or on a case by case basis. We believe that a case by case approach will work better for
licences in view of the required independence. The remuneration and allowances for expenses of the
Appeal Body will be determined by the Minister of CMNR with the approval of the Minister of Finance.
Decision need to be made about the powers of the appeal body: it may have the power to annul a
BCI/BAI decision or it could ask the BCI/BAI to reconsider a decision accompanied by instruction
regarding “weak points”. The BCI/BAI could or could not follow the advice, but should justify its
choice. The presence of an appeals body will probably give the BCI/BAI a strong incentive to pay more
attention to the transparency and accountability of their decisions.
5.1.5 Licence/contract conditions
In addition to general licence conditions, the detailed proposal made by a licensee when bidding for its
licence becomes an integral part of the broadcasting contract. This results in a large number of (stationspecific)
conditions that need to be enforced. These conditions not only include the output (the radio
programme), but also underlying processes for producing this output. For example, an appointment of a
new programme director needs the approval of the BCI. We believe that with an increasing number of
licences, detailed conditions are not practical and the BCI should pay most attention to content
regulation.
50
Conclusions and Recommendations
5.1.5.1 Content requirements
The limited number of commercial radio stations, especially in the smaller franchise areas created a need
to focus on content regulation, such as the rules for minimum amounts of news and information, or Irish
music. These requirements are imposed in general on all commercial stations. With the introduction of
more stations, such rules need to be reviewed and more flexibility can probably be introduced in some
cases.
5.1.5.2 Duration
With the new round of licensing the duration was increased from seven to ten years. This duration is not
exceptional in an international context and gives radio stations sufficient time to recoup their
investments.
5.1.5.3 Enforcement
Effective enforcement of licence/contract conditions is currently hindered by two factors:
1. The high level of detail in the contracts (both input and output) and the fact that the details differ per
contract. Monitoring adherence to detailed programme commitments is not feasible and so the
regulator can only react to complaints in respect of programme output;
2. The lack of adequate instruments. According to the Radio and Television Act, 1988 the BCI has
only licence suspension or withdrawal as sanctions. In addition to these formal sanctions, the BCI
can also give warnings. However, the only real instruments (suspension and withdrawal) are
disproportionate sanctions for minor breaches that may easily occur taking the detailed contract
conditions into account. Hence in practice enforcement is not very effective.
The first problem can be solved by having the BCI only regulate programme outputs rather than the
inputs and the way outputs are produced.
In order to be effective proportionate enforcement measures are required. The BCI cannot impose fines,
though an indirect procedure could be considered: in case of a breach of contract the BCI could bring the
case to the Attorney General who then could impose a fine. A simpler procedure, however, would be the
introduction of a system of penalty points. Above a certain level of penalty points, the BCI may suspend
the licence or withdraw it. The penalty points could be incorporated in the annual performance review,
thus creating a higher level of transparency in the decision-making. Both measures, however, will
require a change in the Law. The BCI will need adequate resources and powers to implement such
enforcement.
5.1.6 Licence roll-over
The general principle of having licences of a finite duration is well accepted internationally since it
provides an opportunity to periodically review the situation. If the licence conditions do not change from
licence period to the next, then the question may arise as to whether the incumbent radio station should
have a right of automatic licence renewal in cases where it operated in compliance with all contract
conditions.
Internationally there is too little experience with this issue to come to sound conclusions. However, it
can be argued that a well performing incumbent radio station (i.e.: not having acted in conflict with
licence conditions and having a sufficient audience share) should follow a fast-track procedure, if the
licence conditions are not changed and no other party expresses interest in the licence during the
expression of interest phase. Such an approach is used in the UK. If important licence conditions (such
as the franchise area and/or the format requirements) change then the normal procedure should be
followed.
51
Conclusions and Recommendations
In practice, it can be expected that the results from the licensing procedure we have just described will
not differ greatly from a renewal in case of a well-performing (strong) incumbent: competitors will not
bother competing with the incumbent station because their chances of “winning” are too low. Only in
cases of doubt may competitors have a chance of winning, but then the question is whether the listeners
are better served by the new radio station or by the incumbent (that possibly did not fulfil the needs of
the listeners or had organisational weaknesses). Therefore, the conclusion seems justified that licences
should not be renewed automatically, but that simplified procedures should be considered seriously in
case of well performing stations that are not challenged by competitors.
5.1.7 Financial aspects of licences
When the number of available licences is less than the demand, the licences have a value to radio
operators. The constraint on competition arising from spectrum (or licence) scarcity or from some
operators having more popular formats than others may introduce monopoly/oligopoly profits for the
licence holders. This is particularly true for licences playing pop music over a large franchise area (i.e.
national licences and licences in the Dublin area).
If there is concern about the large capital gains that could be made by the sale of a radio station and the
government believes that it should get a fair share of these gains then the government should consider the
introduction of auctions, royalty schemes and/or spectrum levies.
Auctions should be regarded primarily as an assignment instrument. By setting clear criteria for
admission to the auction (such as format requirements) it is possible to meet all policy objectives.
Although some auctions generated high revenues, this is not always the case. The Wireless Local Loop
auction in the UK in 2000, for instance, raised small revenues and some licences remained unsold. In
view of the discussion presented above on renewal, it can be expected that revenues will remain low
where there is a successful existing player in the market. A big advantage of an auction is the fact that
the market determines the value in a transparent manner.
This is not the case of market oriented spectrum fees (fixed annual payments) and royalty schemes,
where the government has to set the price. This is often a complex and controversial task. However, an
important advantage of these instruments is that they can be adjusted to market changes. For instance, if
an organisation grows considerably by acquiring more local stations then the levy or royalty can be
adjusted in a predetermined way. Spectrum fees are an annual fixed cost and could have a positive effect
on efficient spectrum use: by increasing the turnover the radio station can reduce the relative importance
of the spectrum fee. Royalties have the advantage that smaller (and often more vulnerable) stations pay
less. However, there are no strong economic arguments for the introduction of such instruments and so
the decision must be made on political grounds.
In the regulatory environment in Ireland attention needs to be paid to legal issues related to a possible
introduction of a market-oriented levy of royalty. In many other countries levies or royalties are directly
linked to the spectrum licence. This would imply that ComReg would receive the money in Ireland.
However, since the levy/royalty is linked to the regulation and development of the radio broadcasting
market, it should be linked to the contract that is issued by the BCI/BAI.
It has been suggested to us that the government might claw-back the gains made by radio station owners
by imposing a special tax on these gains. Claw-back arrangements make sense only if the government
has the objective to ensure that licences that are issued for free will be used for the production of a radio
programme and not for a capital gain. However they risk reducing incentives on station owners to
improve the profitability of their services. This mechanism is not found in the countries studied and may
be difficult to implement because of its legal complexity and the incentives it gives radio station owners
to avoid any visible capital gains.
52
Conclusions and Recommendations
Considering the profitability of the sector, especially in larger franchise areas it seems fair that at least an
administrative spectrum levy is (re)introduced in order to cover the costs of regulating the sector. This
levy can be used to fund and thereby strengthen the regulator. The total revenues of an administrative
levy should equal the budgets that are needed for policy making, licensing, international coordination
and enforcement. This would remove the burden on the taxpayer and should give the regulator a more
certain income. The levy could be based on the revenues of a station.
5.1.8 Digital radio
The introduction of digital platforms (in particular T-DAB) will have consequences for the regulatory
environment. Furthermore, a new legal and regulatory framework is required for the introduction of
digital radio.
The regulatory regime for digital radio may need to be more relaxed than that for analogue radio, with
weaker ownership and programme controls, otherwise it is unlikely that new services will be provided
because of the uncertain business prospects for the service. Furthermore, the digital age may introduce
the need for an integrated regulatory approach that focuses on the service regardless of the platform on
which a service is delivered.
53
Conclusions and Recommendations
5.2 Recommendations
Based on the survey results and the conclusions discussed in the previous section, we identify five key
actions for the policy:
1. Maximise use of spectrum for radio broadcasting;
2. Improve licensing procedures;
3. Focus on effective output enforcement;
4. Clarify objectives of ownership rules;
5. Establish a dedicated policy unit for digital platforms.
Each of the recommendations is elaborated in the sections below. Most of the recommendations require
a change of the Radio and Television Act, 1988 and/or the Broadcasting Act, 2001. These legal aspects
are not discussed here.
5.2.1 Maximise use of spectrum for radio broadcasting
Since a considerable amount of the radio-broadcasting spectrum is not used we recommend to develop an
incremental release of licences within an overall plan.
In order to realise this some other steps need to be taken:
5.2.1.1 Investigate the amount of spectrum available for radio broadcasting
For an overall plan it is key to know the amount of spectrum that is available. Experience in other
countries has shown that often more spectrum can be found by critically reviewing the network planning,
taking into account modern technologies. We therefore recommend that ComReg should perform a
spectrum efficiency audit. Such an audit should take no more than one year to complete.
5.2.1.2 Identify current gaps in the spectrum of radio programmes
For making decisions on formats and franchise areas it would be helpful to investigate the gaps in the
current programme offering as perceived by the general public (and optionally: by advertisers) and
potential providers of new services. This investigation should take both urban and rural areas into
account. The BCI/BAI could initiate such a survey concurrently with the spectrum audit.
5.2.1.3 Determine the franchise areas and format requirements
Based on the results of the audit and the analysis of gaps, a licensing policy should developed for
packaging frequencies into licences. We recommend developing economic models to support this
process.
This policy can act as a rule of thumb or guideline for the subsequent decision making process. In line
with existing procedures, the BCI/BAI can then start an expression of interest (EoI) phase in which it
states at the outset how it will evaluate different EoI’s within the policy context (see Figure 10). The
input from stakeholders (the EoI’s) would be used help to refine the views of the BCI. Depending on the
outcome, the BCI may take a decision based on policy principles and the input from the EoI’s, or decide
• Contract
• Explanation of choice
Guidelines Policy
Development
Expressions
of Interest
Licence
Options
Market
Consultation
Licence
Conditions
Call for
Tenders Applications Evaluation Winning
Bid Completion
Figure 10 - Schematic structure of the licensing phases
54
Conclusions and Recommendations
to develop a number of options that are subsequently reviewed in a market consultation phase. After this
consultation the BCI can then take a well-supported decision. The results of these steps in policy
development should be published.
5.2.2 Improve licensing procedures
In addition to more transparent decision making on the franchise area and format requirements, the
licensing process can be improved by introducing a clear scoring mechanism and publishing weights at
the start of a licensing procedure. It is not necessary to publish all details, but at a high level it should be
clear to applicants how various aspects will be weighed in the evaluation. This should improve the
transparency of the procedure, particularly in respect of the evaluation of business plans.
5.2.2.1 Include one of the Executives of the BCI/BAI in the Board
The BCI/BAI board consists of individuals with different backgrounds and not necessarily with
experience in the radio-broadcasting sector. The presence of a BCI/BAI-executive on the Board would
ensure an adequate level of sector knowledge in the decision making process. Furthermore, most of the
evaluation could carried out by the BCI executives, with the Board dealing with general issues.
5.2.2.2 Fast track mechanisms can be introduced for unchallenged
In case of radio stations with expiring licences, a fast-track procedure should be introduced if:
- the licence conditions regarding the franchise area and/or the format do not change considerably;
- the incumbent licensee has performed satisfactorily at least in the two/three years before expiration;
- no competitors want to challenge the incumbent station (as should be clear from an expression of
interest procedure).
This will lower the licensing costs for the radio station, and possibly also for the regulator.
5.2.2.3 Consider the introduction of auctions for licence assignment
For licences in larger franchise areas (500,000 inhabitants or more) an auction procedure with strict
admission criteria should be considered as an alternative to a selection based on beauty criteria. This
could reduce the element of subjectivity and may generate windfall revenues for the government. Still,
the choice will eventually depend on the policy objectives.
5.2.2.4 Introduce an independent non-judicial appeal body.
The introduction of an appeal mechanism through an independent appeal body could provide more legal
certainty to applicants and stimulate more transparent decision making. As a departure from the
procedure in the telecommunications sector, we recommend that the appeals body does not have the
power to annul a decision, but can ask the BCI/BAI to reconsider a decision accompanied by instructions
related to “weak points”. The appeal body should be appointed by the Minister on an ad hoc basis.
5.2.3 Focus on effective output enforcement
The BCI/BAI should pay more attention to the enforcement of programme requirements rather than
station “inputs”. In order to make enforcement more effective a system of penalty points should be
introduced. If a radio station exceeds a number of penalty points (in a certain time frame) then the
consequences may be suspension or withdrawal of the licence. Furthermore, the penalty points may have
an impact on the use of a fast track procedure in case of licence expiration: if an incumbent exceeds a
certain level of penalty points at the moment of the decision on the new licensing procedure then a fast
track mechanism would not apply. This would increase the costs of the application unduly, so licensees
will most likely try to avoid this situation occurring.
55
Conclusions and Recommendations
5.2.4 Clarify objectives of ownership rules
The 25% ownership rule takes no account of the size of the audience served by the radio station. We
think this should be reconsidered in light of the government’s plurality objectives. A rule that depends
on the size of the licences, audience shares or format requirements should be considered.
In relation to cross-media ownership particular attention needs to be paid to the issue of the number of
independent information sources in an area. Clearer guidance on the interpretation of an “undue amount”
of the communications media in relation to cross-ownership in an area is needed.
Cross-media ownership issues may be an area for further exploration by DCMNR, in association with
other relevant bodies and Departments.
5.2.5 Establish a dedicated policy unit for digital platforms
The introduction of digital broadcasting infrastructures requires expertise from the Department, the BCI
and ComReg because of its many dimensions. In order to accelerate the introduction a special task force
should be established that looks at the introduction of digital radio in Ireland.
56
ANNEXES
A. International Survey
B. Value of Licences
C. List of Organisations Interviewed

A. INTERNATIONAL SURVEY

A.1 United Kingdom
Demographics and financials
Population 59 million
Percentage of population listening weekly 90%
Average radio listening time (hours per week) 22
Public radio number market share
Total +/- 50%(end 2002)
National stations 5
Regional stations 3
Local stations 40
Commercial radio
Total +/- 50%(end 2002)
National stations 3 (2 FM + 1 AM)
Regional stations 260
Local stations (incl. Regional)
Year of introduction 1973
Community radio
Stations
Infrastructure
How many digital radio stations 320 (end 2003)
Incentives for commercial stations to provide DAB programmes One time renewal of FM licence
Financials
Funding type public radio (licence, advertising) Licence
Advertising on public radio stations (Y/N) No
Total advertising spending 2002/2003 in media GBP 3.7 billion
Advertising spending on radio GBP 563 million, GBP 498 million excl. sponsoring
As percentage of total ad spend 6.6%
Regulatory
Relevant legislation Broadcasting Acts 1990 and 1996, Communications
Act 2003
Regulatory bodies
Broadcasting market Ofcom (Radio Authority and Radiocommunications
Agency until December 2003)
Licence allocation Ofcom
Enforcement licence conditions Ofcom
Spectrum management Ofcom, Secretary of State, BBC
Specific policy issues
Political interface with respect to licensing Minister can give directions to Ofcom
Are cross-media ownership controls in place (Y/N) Yes, under Communications Act 2003
Licensing
Assignment procedure national licences (type) Bidding process, with cash bid, contents conditions
and financial sustainability conditions
Assignment procedure local licences (type) Beauty contest
Is non-judicial appeal possible? Yes, to the court
Licence duration 12 years (as of 2004)
Are radio auctions being held in the future (Y/N, when, why not) For national licences only
Are format requirements in place (Y/N) Yes
Are advertising requirements in place (Y/N) Yes, the Advertising Code
Are news services requirements in place (Y/N) Yes, Ofcom
How is compliance of contents requirements tested Initial 6 month licence period
Are licence renewal procedures in place (Y/N) Yes, competitive process + renewal in case of DAB +
if no challenge then automatic
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International Survey
A.1.1 Introduction
A.1.1.1 Overview radio market
The UK radio industry comprises services provided by the BBC, commercial radio operators and a
number of community groups81. Radio is delivered over many different platforms, and 14% of adults
claim to have listened to radio over the Internet in the past year, 20% have listened via the TV and 3%
via a mobile phone82. Radio listening is split roughly half and half between services provided by the
BBC and those provided by commercial radio.
A.1.1.2 Demographics and statistics
The UK has 59 million inhabitants and radio services are popular. Of UK adults, 90% listens to radio
each week and UK adults on average spend about 22 hours/week listening to the radio83.
A.1.2 Public broadcasting market
A.1.2.1 Major radio stations
The BBC provides five national radio services, regional services to Scotland, Ulster and Wales and 40
local stations (see Table 6).
Type Stations Format Market Share Sources of income
2000 2001 2002
National Radio 1 Music aimed at a
young audience
10.0 9.1 8.4 Licence fee funded
Radio 2 MOR 13.6 15.2 15.8 Licence fee funded
Radio 3 Classical 1.2 1.1 1.2 Licence fee funded
Radio 4 News/talk/information 10.8 12.0 11.5 Licence fee funded
Radio 5 live Sports/talk 4.1 4.6 4.7 Licence fee funded
Regional BBC Scotland Licence fee funded
BBC Ulster Licence fee funded
BBC
Wales/Cymru
Licence fee funded
Local 40 stations 12.0 11.3 11.0 All licence fee funded
Table 6: BBC Services
A.1.2.2 Market share
The market share of public radio is roughly given in Table 6. The remaining audience listened to
commercial radio stations.
A.1.2.3 Funding, revenues
All services are licence fee funded, and in 2002/3 the total expenditure on BBC radio amounted to £
318m84.
81 In addition 78 satellite radio services and 13 cable radio services have been licensed on an “on demand” basis by Ofcom.
82 Radio listening data from RAJAR for the first quarter 2003 reported on www.rab.co.uk
83 Source: RAJAR surveys, www.rajar.co.uk
84 BBC Annual Report and Accounts 2002/3.
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International Survey
A.1.2.4 Advertising
There is no advertising on public radio.
A.1.2.5 Contents
The BBC’s services are not licensed; rather they are established under the BBC’s Royal Charter and
Agreement with government85. The BBC’s Board of Governors ensures that the BBC complies with the
requirements of the Charter and the Agreement. In addition, the BBC must prepare annually a statement
of programme policy and a review of its performance against this policy, which is submitted to
Parliament and published in the BBC’s annual report.
A.1.2.6 Control bodies
Under the Communications Act 2003, Ofcom assumes powers to regulate the BBC to the extent that
there is provision for this in the Charter and Agreement and may take on the powers of the Secretary of
State in respect of the Charter and Agreement.
A.1.3 Commercial broadcasting market
A.1.3.1 Year of introduction
Commercial radio services started operations in 1973 with the launch of two services in London, namely
Capital and LBC. The subsequent growth in the number of services is shown in Figure 1186.
Figure 11: Number of Commercial Radio Services 1973-2002
0
2 0
4 0
6 0
8 0
1 0 0
1 2 0
1 4 0
1 6 0
1 8 0
2 0 0
2 2 0
2 4 0
2 6 0
2 8 0
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Y ea r
Number of radio services
N um b e r o f S e rvic e s
85 Under the Agreement the BBC is required to offer 5 national sound broadcasting services, further services in Scotland,
Northern Ireland and Wales, and a number of local services, where the number is agreed with the Secretary of State. Copy
of the Agreement dated the 25th of January 1996 between Her Majesty’s Secretary for National Heritage and the British
Broadcasting Corporation, Cm 3152, HMSO.
86 For a history of commercial radio in the UK see “Independent Radio: the first 25 years”, Meg Carter, Radio Authority,
1998.
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International Survey
A.1.3.2 Major radio stations
Since 1991 the number of commercial radio stations has grown at an average rate of 13 per year as
Ofcom had licensed new local, regional and national stations. Licences were initially assigned to areas
that did not have a local commercial radio station. Once these gaps were filled, Ofcom sought to license
services that would broaden choice covering regions or major metropolitan areas, or would provide a
localised smaller scale service. Three national services were licensed between 1992 and 1995. At the
end of 2002 there were 263 commercial radio stations owned by 72 operators. Table 7 gives an overview
of the main commercial radio stations.
Type Stations Format Market Share % Sources of income
2000 2001 2002
National Classic FM Classical 4.7 4.5 4.7 Advertising & sponsorship
Talksport Sports/talk 1.3 1.6 1.7 Advertising & sponsorship
Virgin (AM
Only)
Contemporary and
rock
1.4 1.1 1.1 Advertising & sponsorship
Local and
regional
260 stations 37.9 36.8 37.9 Advertising & sponsorship
Table 7: Commercial Radio Services
A.1.3.3 Market share
The market share of commercial radio is roughly given in Table 7. The remaining audience listened to
public radio stations.
A.1.3.4 Licence
Spectrum is available for an additional 40 commercial FM radio licensees resulting in a total of about
300 stations. Licences are being awarded in nine areas identified by Ofcom in 2002 and Ofcom has
recently identified 20 possible metropolitan licences and 10 other licences for which spectrum can or is
likely to be found87. Spectrum is available in the AM band. However, there is no current strategy for the
release of this spectrum88. The licensing strategy for both the AM and FM bands will be decided by
Ofcom in the beginning of 2004.
A.1.3.5 Advertising
Advertising revenues, sponsorship and promotions fund the commercial radio stations. The growth in
radio advertising has largely been the result of growth in national advertising89 (Figure 12) and, in the
last 2-3 years, spending on sponsorship and promotions. Since 1992, radio advertising revenues have
grown at 12%, so that by 2002 radio accounted for 6.6% of display advertising revenues. In 2002
revenues (net of production costs) totalled £ 563m of which sponsorship and promotions accounted for
13% of commercial radio revenue. National advertising now accounts for just less than 70% of all radio
advertising revenues, excluding sponsorship and promotions.
87 See Radio Authority announces plans for next phase of local licensing 61/02, 21 May 2002; Radio Authority publishes
statement about future FM availability, 33/03, 4 March 2003.
88 See AM Waveband Strategy published by Radio Authority, 118/02, 1 October 2002.
89 National advertising is advertising placed with a national buying agency.
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International Survey
0
50
100
150
200
250
300
350
400
450
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Revenue (£m)
Local
National
Figure 12: Commercial radio revenue split by market
A.1.4 Community broadcasting market
Community radio services are provided on a small scale. These services are licensed by the Ofcom90 on
a discretionary basis. Licences are issued on either a short term basis (maximum 28 days) for broadcasts
aimed at specific events or for trial broadcasts, or on a long term basis for stations serving a single
location (e.g. a hospital or university campus). A further class of community radio licences, termed
access radio, were awarded in 2002 for a period of one year through a competitive process91. This is a
pilot scheme and licences were awarded to fifteen not-for-profit services aimed at specific
neighbourhoods or communities of interest.
A.1.5 Digital broadcasting market
The BBC and commercial operators currently provide around 320 digital radio services. Of these, 154
have digital radio coverage only and the remainders are simulcast services. There are currently 141
brands broadcast digitally, 37 provided by the BBC and 104 by commercial radio. At present relatively
few people have digital receivers (see Table 8). Rapid growth is anticipated as receiver prices continue
to fall and units are being installed in new cars, hi-fis and other electronic goods. Listening of some
digital radio services is now measured in quarterly listening surveys.
Year Number of units sold
2002 125k
2003 300-500k
2004 1m
Table 8: Current and Forecast Sales of Digital Radios in the UK92
The number of stations is growing rapidly with roughly one new multiplex (carrying about 10 stations)
being licensed every month. This means that by the end of 2004 there will be around 400 digital radio
90 The licences are referred to as Restricted Service Licences.
91 Licences have recently been extended to the end of 2004.
92 Source: Digital Radio Development Bureau.
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International Survey
stations. By the middle of 2004 approximately 85% of the UK population will be covered by BBC and
commercial digital radio services.
A.1.6 Regulation and licensing
A.1.6.1 Regulatory bodies
A.1.6.1.1 Relevant legislation
The statutory provisions that provide the overall policy framework are given in the Broadcasting Acts
1990 and 1996 and the Communications Act 2003.
A.1.6.1.2 Regulatory body
From 2004 on, the functions of The Radio Authority and the Radiocommunications Agency have been
subsumed into Ofcom, the new communications sector regulator. Ofcom develops detailed policy within
the legislatory framework.
A.1.6.1.3 Regulatory body for allocation of licences
Commercial radio services are planned, licensed, regulated and enforced by Ofcom.
A.1.6.1.4 Regulatory body for allocation of licence enforcement
Ofcom is responsible for the licence enforcement.
A.1.6.2 Appeals
Appeals against Ofcom’s decisions can be made to the courts on the grounds of judicial review. Such
appeals have been made from time to time but none have been successful. For example, since 1998 there
have been two applications for judicial review of Ofcom’s decisions (both made by the same party). In
both cases the court decided that Ofcom had acted legally, the application was rejected and leave to
appeal was not granted93.
Arguably the robustness of Ofcom’s decisions is aided by the transparency of its licensing procedures,
the consultation undertaken in reaching decisions and the publication of a statement explaining those
factors that were particularly important to its decisions.
A.1.6.3 Controls
A.1.6.3.1 Ownership Controls
The Communications Act 2003 has introduced liberalisation of controls on radio ownership and these are
described below. Restrictions on ownership by non-EEA persons have been removed, although the
Secretary of State may intervene in media mergers that raise public interest considerations.
Controls that prevent ownership of more than one national commercial radio licence are to be removed
from 2004 on, and local ownership is liberalised to allow an operator to control up to 55% of the points
93 See Radio Authority News Releases 96/99 and 86/98.
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International Survey
in a market94. The latter rule – known as the 2+1 rule – would in theory allow radio markets to be
supplied by two commercial operators plus the BBC.
We note that at the same time as relaxing local ownership control, Ofcom has been given a duty to
safeguard the local character and content of local radio services. This will include the development of a
localness code with the industry.
Detailed policy in respect of digital services is still being developed, but the most recent proposals are
that:
- an operator is not permitted to provide more than 4 local digital sound programme services or 55%
of the services on a given multiplex whichever is the greater; and
- no person is allowed to own more than one local digital multiplex in an area.
Mergers that meet the requirements of the Communications Act may still be scrutinised by the
competition authorities. Mergers have been governed by the terms of the Fair Trading Act 1973,
however, the merger provisions of the Enterprise Act 2002 took effect on June 20, 2003. The two most
significant changes are first, that mergers will no longer be tested against whether they are in the public
interest or not but rather whether or not they lead to a substantial lessening of competition, and second,
merger decisions will be made by the Office of Fair Trading and the Competition Commission rather
than the Secretary of State, save for newspaper and certain ‘public interest’ mergers.
A.1.6.3.2 Cross media controls
Cross media ownership controls concern the ownership of radio stations by newspaper and TV operators.
Under the Communications Act 2003 the following controls apply:
- a regional ITV licence holder, or the controller of more than 50% of the local press in a station’s
coverage area, is limited to 45% of the points in the area in question. This rule ensures there will be
three local media groups in areas where there are three or more radio licences;
- joint ownership of a local radio licence, a regional ITV licence and more than 50% of the newspaper
market in the same area is prohibited.
There are no cross media ownership controls with respect to national radio.
A.1.6.3.3 Enforcement
Ofcom is responsible for the enforcement of the controls under the Communications Act 2003
A.1.6.4 Licensing
A.1.6.4.1 Licensing procedures national and local
Ofcom consults regularly on its strategy with respect to the use of any remaining frequencies. On the
basis of declared expressions of interest and evidence of public demand for services, it draws up a
“ working list” of services in specific geographic areas that may be advertised. The process for awarding
licences starts with the publication of a notice concerning the licence award and an invitation to the
public to comment on the type of radio service required in the area. Non-confidential aspects of
94 If a person owns two or more overlapping licences (where the coverage area of one service reaches at least 50% of the
population in the coverage area of the other), he is prevented from owning a third licence that overlaps with two or more
licences (to form a cluster of 3 or more stations) if doing so will mean he owns more than 55% of the points in the coverage
areas of any of those licences. See the draft statutory instrument Broadcasting, The Media Ownership (Local Radio) Order
2003 for a fuller description of the points system.
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International Survey
applications are made available for public inspection and the public is asked to comment on them95.
During the process of assessing applications, staff of Ofcom asks questions of the applicants and Ofcom
reserves the right to have a face-to face meeting with each of the applicants, but rarely does. After
Ofcom has made its decision it publishes a statement setting out an appraisal of those features that were
of particular significance in reaching its decision.
The procedures for licensing national and local analogue radio services differ somewhat. The key
elements of each approach are shown in Table 9. There are no restrictions on the sale of licences after
they have been awarded, apart from the ownership controls that apply to all licensees. The government
rejected a proposal from Ofcom for a moratorium on sales for a given period after licence award, on the
grounds that this was an undue interference in the market and that experience in France suggested that
such a moratorium would be ineffective96.
95 The Authority has published a description of the steps it goes through when analysing applications, though it stresses that
outcomes are the result of a judgemental process. See Radio Authority Licensing Award Procedures and Strategy for
Independent Local Radio, Radio Authority, January 1999.
96 See para 6.3.14, Consultation on Media Ownership Rules, Department of Culture, Media and Sport, 2001.
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International Survey
National licences Local licences
Format Specified by Ofcom Determined by the bidder
Cash bid Yes No
Other criteria for
awarding licences
Requirements for content
diversity and financial
sustainability have to be met
Tastes and interests of local
community
Whether proposals will
broaden choice
Financial sustainability
Extent of local support for
the application
Basis for licence award Cash bid, though licence
could be awarded to a bidder
other than that with the
highest bid in exceptional
circumstances
Extent to which applicant
fulfils the criteria listed
above.
Licence duration 8 years, increased to 12
years from 2004 onwards
8 years, increased to 12
years from 2004 onwards
Licence renewal Through a competitive
process except where:
- only the incumbent
operator submits an
expression of interest in
the licence, in which case
the licence is awarded to
the incumbent97
- the licensee opts to also
provide a digital radio
service, in which case
one renewal of the
licence is granted
automatically
Through a competitive
process except where:
- only the incumbent
operator submits an
expression of interest in
the licence, in which case
the licence is awarded to
the incumbent
- the licensee opts to also
provide a digital radio
service, in which case
one renewal of the
licence is granted
automatically
Table 9: Approach to Awarding National and Local Radio Licences
A.1.6.4.2 Licensing digital radio
There are three tiers of licences for digital services: national and local digital multiplex licences and
sound programme service licences (issued to those providing a programme service on a digital
multiplex).
Digital multiplex licences are awarded through an open competition based on the following criteria:
- the tastes and interests of those living in the locality;
- the variety of programme services offered;
- the multiplex provider’s business plan;
- the speed and scale of investment in infrastructure and;
- in the case of national licences, investment to stimulate the take-up of digital radio, particularly to
encourage the take-up of receivers.
Programme licences have an indefinite duration and are awarded to those programme services that secure
slots on multiplexes.
97 Assuming it meets ownership and other regulatory requirements.
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International Survey
A.1.6.4.3 Format, advertising and news requirements
Licensing policy provides a statutory framework that requires Ofcom to98:
- Secure provision of a diversity of national services – one service is to consist mainly of spoken
material and another is to provide mainly music which is not pop music;
- Secure provision of a range and diversity of local services;
- Facilitate services which taken as a whole are of high quality;
- Facilitate a wide range of programmes calculated to appeal to a variety of tastes and interests;
- Ensure fair competition in the provision of services.
The winning bidder’s programme commitments are written into its licence and after a period of 6 months
the initial promise is replaced by a mutually agreed programme format that is designed to allow an
appropriate degree of flexibility for the programme service to evolve without altering its fundamental
character. Formats can only be changed if this does not narrow the range of programmes in a locality
and does not fundamentally change the character of the service.
Licensees must comply with Ofcom’s Advertising Code, a code on broadcast standards and various
statutory requirements relating to programming, including a requirement to provide accurate and
impartial news. There is no restriction on the number of advertising minutes per hour.
A.1.6.4.4 Licence period
Licences are awarded for a period of 12 years for both national and local networks. Digital multiplex
licences are awarded for a period of 12 years.
A.1.7 Spectrum management
The management of radio frequencies used by sound broadcasting services is divided between a number
of entities. Until the end of 2003, the Radiocommunications Agency has been responsible for the overall
efficiency of use of the spectrum, its long-term planning, international co-ordination and monitoring and
control of interference and illegal use. The Secretary of State determines the division of spectrum
between the BBC and the commercial sector. The details of assignment and planning of frequencies,
including the location of transmitters and co-ordination of use, is undertaken by the BBC and Ofcom.
98 Section 85 of the Broadcasting Act 1990.
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International Survey
A.2 The Netherlands
Demographics and financials
Population 16.2 million
Percentage of population listening weekly 90.6%
Average radio listening time (hours per week) 21.5
Public radio number market share
Total
National stations 4FM + 1AM 30.4%
Regional stations 14 14.7%
Local stations 300 < 6%
Commercial radio
Total 63%
National stations 9FM + 12AM
Regional +Local stations 26
Local stations 0
Year of introduction 1996 (after temporary assignment in early 90’s)
Community radio
Stations 0
Infrastructure
How many digital radio stations 0 (high cable density)
Incentives for commercial stations to provide DAB programmes
Financials
Funding type public radio (licence, advertising) Public funding + member contribution + magazine
sales
Advertising on public radio stations (Y/N) Yes (revenues to treasury)
Total advertising spending 2002/2003 in media €4.86 billion
Advertising spending on radio €224 million
As percentage of total ad spend 4.6%
Regulatory
Relevant legislation The Media Law
Regulatory bodies
Broadcasting market The parliament (through an independent committee)
Licence allocation The Ministry of Economic Affairs (through an
independent committee)
Enforcement licence conditions Commissariaat voor de Media
Spectrum management Dutch Radio Agency
Specific policy issues
Political interface with respect to licensing
Are cross-media ownership controls in place (Y/N)
Licensing
Assignment procedure national licences (type) Beauty contest (+ financial bid if more winners)
Assignment procedure local licences (type) Beauty contest (+ financial bid if more winners)
Is non-judicial appeal possible?
Licence duration 8 years
Are radio auctions being held in the future (Y/N, when, why not) No, finalised in 2003
Are format requirements in place (Y/N) Yes
Are advertising requirements in place (Y/N) Yes
Are news services requirements in place (Y/N) Yes
How is compliance of contents requirements tested Commisariaat voor de Media
Are licence renewal procedures in place (Y/N) No
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International Survey
A.2.1 Introduction
A.2.1.1 Overview radio market
Radio broadcasting began in 1919 and was initially set up as a commercial activity. The programmes
were general in nature. Soon after radio’s beginnings, special interest groups discovered the medium as
a good platform for disseminating their ideas. This resulted in the establishment of special associations
that represented different groups within Dutch society, in particular: Protestants, Catholics, Socialists and
Liberals. These developments resulted in the following associations:
- 2 associations for (different groups of) protestants: (NCRV and the much smaller VPRO);
- one for Catholics (KRO);
- one Socialist association (VARA);
- one more general association (AVRO).
In 1930, the Ministry allocated two networks to the associations: the first was issued to the religious
groups KRO and NCRV, and the second to VARA together with AVRO and VPRO. At the time this
decision was initiated, the Minister also put an end to all radio advertising.
The introduction of radio and television pirate stations in the sixties had a considerable impact on the
public broadcasting sector. In 1965, a third radio network (“Hilversum 3”) was established for
broadcasting pop music. Advertising on the public broadcasting networks was also (re) introduced in
this period. The first TV commercial was broadcast in 1967, while radio followed a year later.
Furthermore, the character of the broadcasting associations changed. A broadcasting association was no
longer automatically linked to a specific network, but each association would receive time on all
networks in accordance with the number of members of that association. In this way the broadcasting
programmes would reflect the diversity within society. New entrants could obtain a public broadcasting
licence if they could demonstrate that their programmes were an addition to the existing package and/or
that they represented a specific group in the society.
A.2.1.2 Demographics and statistics
In 2002, on average, people (in the age group 10+) listened to 3 hours (184 minutes) of radio per day.
This figure did not vary considerably in the past decade. The lowest value was 170 minutes in 1995 and
the highest value was attained in 2001 (189 minutes). However, in the years preceding 2000, the age
group was slightly different (13+).
In 2001, on average 90,6% of the people listened to the radio during the week. The commercial radio
station Sky Radio had the highest reach (32,5%).
A.2.2 Public broadcasting market
A.2.2.1 Major radio stations
The structure of associations (interest groups, as mentioned in the introduction) forms the basis of the
Dutch public broadcasting system that is in existence today.
In addition to the associations with members, a new body for managing shared broadcasting facilities and
services (NRU) was established in 1947. This body was later combined with the television organisation,
resulting in the establishment of the NOS. The NOS now provides general programmes (such as news or
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International Survey
sports events) and programmes for minority groups. It is also responsible for the coordination of the
activities of all the broadcasting associations99.
The introduction of the pop station “Hilversum 3” in 1965 made clear that the concept of network
profiles had to be changed. In 1978 Hilversum 3 had a market share of 19,2% whereas the original
networks (“Hilversum 1” and “Hilversum 2”) combined had a market share of only 5,1%. The
recognition that the network profile was very important resulted in a policy change and the establishment
of five public broadcasting radio networks with distinguished profiles:
Radio 1 – news
Radio 2 – music and more talk radio
Radio 3 – pop music
Radio 4 – classical music
Radio 5 (747 AM) – programmes for specific groups (such as immigrants, minorities).
In addition to the national public broadcasting organisations each of the country’s 14 provinces and most
of the local councils have their own (public) radio stations (in total there are over 300 local radio stations
for 489 local councils).
A.2.2.2 Market share
The market shares of the public radio stations are shown in Table 10.
Public broadcasting
station
Format Market share
(Oct. 03)
Radio 1 News 8.9%
Radio 2 Music and talk radio 10.1%
Radio 3 Pop music 8.7%
Radio 4 Classical music 1.7%
747 AM/Radio 5 Interest groups 1.0%
14 Regional stations Focused on province 14.7%
± 300 local stations <6%
Table 10: Radio landscape public broadcasting
On a national level, the commercial radio stations have higher market shares than the public radio
stations, whereas on a regional level, the public radio stations are more popular, as shown in Figure 13.
99 Since 1998 the two activities (programme making and management of the public broadcasting sector) were assigned to two
separate organisations: the NPS for the programmes and the NOS for the management of activities. Furthermore, in
addition to the NOS/NPS there are some special interest groups (such as churches, humanistic groups and special education
organisations) with a licence. These organisations differ from the associations in the sense that they don’t have members.
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International Survey
Figure 13: Market shares age group 13+ for January/February (and September/October 2003)100
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1995 1996 1997 1998 1999 2000 2001 2002 2003 Oct
2003
market share
National PBS
Regional PBS
National Commercial
Regional commercial
A.2.2.3 Funding, revenues
Public broadcasting organisations are financed through budgets that are allocated to the NOS after being
approved by the Ministry of Education, Culture and Science. Furthermore, the associations with
members generate additional revenues through membership contributions and the sale of programme
magazines (total contribution is less than 5% of the total budget). The total budget for radio was
approximately €101m in 2001 (€94m in 2000).
A.2.2.4 Advertising
The gross advertisement revenues of the STER were €103m in 2001 (market share: 35,1%); net revenues
are estimated to be approximately 30% lower. The revenues go directly to the treasury, but are
earmarked for use in the (radio) broadcasting sector.
Up to the year 2000, a separate system of licence fees existed, but this was abolished for cost reasons.
Local and provincial stations are financed by commercials and government subsidies.
A.2.3 Commercial broadcasting market
A.2.3.1 Year of introduction
In the Netherlands commercial broadcasting started in the early sixties by pirates that broadcasted their
programmes predominantly from the North Sea (but also from Luxemburg). The pirates played pop
music, which was broadcast, at the time, only to a limited extent by the public radio stations. The pirates
became very successful with young people as their formats met the needs of this generation. The
popularity of the stations facilitated the generation of (substantial) revenues from radio commercials.
Radio Veronica (established in 1960) soon became one of the most popular stations. Shortly thereafter,
competitors entered the market, including Radio Noordzee and Radio Caroline (an initiative of the Irish
Ronan O’Rahilly).
100 Source: PRE/Intomart.
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International Survey
The Dutch government responded to the success of the pirates with the establishment of a pop radio
station (in 1965) and the introduction (as in most jurisdictions) of new legislation against pirate radio
stations in 1974. The close-down of the popular stations caused considerable debate. Many of the
people that used to work for the pirates continued broadcasting activities in different contexts.
A major breakthrough was realised in the eighties when commercial stations entered the market through
cable networks (the Netherlands has a high cable density). European legislation (such as Television
without Borders) stipulated that member states may not block programmes from other member states.
Initially, the commercial stations had their broadcasting facilities in Luxemburg, outside the realm of the
Dutch legal system. When the national government accepted the new situation they were able to start
their business in the Netherlands.
In the early nineties spectrum was awarded on a temporary basis to various stations (often after court
cases). The policy was rather ad hoc, and the result was a variety of licences with a different
demographic coverage. Some commercial radio stations that were successful on the cable networks
could not obtain a licence, whereas others were in a better position. In the first year there was also
considerable political interference in the licence assignment process, and commercial broadcasters felt
that most politicians were primarily protecting the interests of the public radio stations.
In 2000 the Government and Parliament agreed on a plan for the assignment of the commercial radio
licences through an auction. For national broadcasting, eight licences would be available.
At the time that the final decision on the auction had to be made in Parliament (early 2001), the majority
of the incumbent commercial radio stations had initiated a strong campaign against the auction. Their
basic statement was: “listeners will lose their favourite radio station because of the auction”. Parliament
changed its mind and asked an independent committee to investigate alternatives for the procedure in
which the interests of the incumbent stations could be taken better into account. The committee advised
that ten national licences should be allocated instead of eight. Furthermore, incumbent stations should be
entitled to get one roll-over. On the basis of this advice and after a court decision the government
increased the number of national licences from eight to nine: 1 licence for classical music (including
jazz), 1 licence for news radio and 7 licences with no format restrictions. The remaining FM spectrum
was allocated to regional commercial radio (67 licences). For AM radio 12 licences were defined. The
government did not accept the roll-over proposal and announced an auction. The preparation was started
in July 2002. However, in September a new government took office. This government did not accept
the auction as an allocation mechanism and changed it into a hybrid procedure: bids had to qualify in the
first place on the basis of their proposed programme and business plans, but a financial bid would
determine the winner if parties ended at an equal level. Furthermore, additional format requirements
were imposed on three national licences: non-mainstream pop music, “golden oldies” and European or
Dutch music. The original 67 regional licences were bundled into 26 licences that had sufficient
demographic coverage for a commercially feasible operation (more than approx. 250,0000 inhabitants).
No changes were made to the 12 AM licences.
A.2.3.2 Market share
The national commercial radio stations have an estimated market share of 63%. The change in market
shares is shown in Figure 13.
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International Survey
A.2.3.3 Licence
In 1996 the government announced that it planned to issue final licences for commercial radio stations
(i.e. on a non-temporary basis) through an auction. The auction seemed most appropriate since the
demand for frequencies was considerably higher than the amount of spectrum available and the
procedure would minimise government interference. The auction would be the first in the Netherlands.
However, the announcement appeared to be too optimistic. Commercial radio stations claimed that an
artificial scarcity had been created because the public radio stations occupied too much spectrum and
demanded a critical review of the available spectrum. This exercise took a total of three years, because
the parties kept disagreeing on the quality of the planning. The delay was also favouring the two
strongest market players (who had obtained the best frequency packages): Sky Radio and Radio 538
(NewsCorp had majority stakes in both companies101).
A.2.3.4 Advertising
Figure 14: Net media expenditures
Net expenditures on radio advertising include the discounts that are commonly given to advertisers, but
not the 15% commission that advertisement agencies charge. The revenues of the radio stations therefore
are approx. 15% lower than the figures presented in Table 11.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1993 1995 2000 2001 2002
Sundry
Direct mail
Outdoor advertising
Press
Cinema
Television
Radio
1993 1995 2000 2001 2002
Radio 88 111 234 218 224
Television 393 483 731 695 730
Press 1.580 1.840 2.722 2.635 2.462
Other media 747 891 1.388 1.428 1.446
Total 2.808 3.325 5.075 4.976 4.862
Table 11: Net expenditures radio, x m102
101 These stations had in 2000 approximately 50% audience share of the commercial radio market, but 80% market share in
revenues terms.
102 Source: PRE/Intomart.
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International Survey
A.2.4 Digital broadcasting market
Since 1995 the government is discussing the introduction of TDAB, but there seems to be little appetite
from the industry. The high cable density weakens the business case for TDAB in the Netherlands: most
households can receive high quality radio through the cable and the cable offers dozens of radio stations
(including the BBC, Belgium, French and German stations). The added value of TDAB therefore is
limited.
The department is still in the process of policy development in this regard, but has already assigned one
multiplex to the public radio stations.
A.2.5 Regulation and licensing
A.2.5.1 Regulatory bodies
A.2.5.1.1 Relevant legislation
The relevant legislation is laid down in the Media Act.
A.2.5.1.2 Regulatory body
Formally the Ministry of Economic Affairs assigns the licences in close cooperation with the Ministry of
Education, Culture and Science. The Ministry of Culture is responsible for the selection of the
candidates in the beauty parade. Because of the high political sensitivity and the distrust that commercial
radio stations expressed in the objectivity of the Ministry, the actual selection was delegated to an
independent committee. Independent accountants did the evaluation of the business plans.
A.2.5.1.3 Regulatory body for allocation of licences
The Parliament decided that an independent committee would be assigned to select the candidates for the
FM licences. This committee consisted of three persons who had connections to large political parties.
A.2.5.1.4 Regulatory body for licence enforcement
The commitment of the winner of the licence is included in the licence and enforced by the
“ Commissariaat voor de Media”.
A.2.5.2 Controls
A.2.5.2.1 Ownership controls
In order to create plurality it was decided that one organisation could obtain not more than two national
licences: one unformatted and one with a format restriction. Furthermore, it was not permitted to have a
national and a regional licence, or to have a group of regional licences with more than 30% demographic
coverage.
A.2.5.3 Licensing
A.2.5.3.1 Licensing procedures national and regional
All general policy objectives regarding diversity, plurality, programmes for special interest groups etc.
are considered to be part of the public broadcasting domain. In the case of the assignment of commercial
radio licences the government did not explicitly define objectives for the overall allocation process, but
only mentioned that it would pay attention to several matters of interest, including:
- diversity of programmes that will be offered to the public;
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International Survey
- care that bidders offer to take in realising the format;
- confidence that bidders will stick to the programming format;
- good faith and integrity of the bidders;
- plurality of organisations that offer radio broadcasting services.
In addition to the financial bid (which in fact is a promise for an annual payment), bidders for the
national licences also have to pay a market-oriented licence fee. The fee level is determined by the
demographic coverage and format requirements of a licence. For licences with no format restrictions the
fee is more than €5m, for the classical music licence the fee is just above €556 thousand.
The evaluation of the bids was done in a number of steps103:
1. the programme content and the quality of the business plan were scored independently. In the
scoring there were three options: “-” (insufficient), “o” (acceptable), or “+” (good). A score of “-”
on any aspect resulted in a rejection of a proposal. For national licences with no format restrictions,
no score was given for the content.
For content a “+ “ was given to proposals that offered a programme that was considerably better
than the minimum requirements while remaining realistic. The evaluation of the business plan
focussed on three aspects: internal consistency, sense of reality, and financial feasibility. In the
evaluation process special reference tables with benchmarking data were used to assess the data
provided by the bidders. To facilitate the evaluation process all business plans had to comply with a
specific format that was defined at a rather detailed level. A “+” was given to plans that scored
positively on all three aspects and thus gave confidence that the business case would be feasible over
the licence period;
2. the plans were ranked according to their score. In the ranking, priority was given to the programme
aspects: a proposal with a “+” for the programme and a “o” for the business plan was ranked higher
than a proposal with a “o” for the programme and a “+” for the business plan;
3. the licence was awarded to the proposal with the highest score;
4. if two or more proposals obtained the highest score then the financial bid would determine the
winner. Note: the winner would have to pay his bid, whether it is used for the procedure or not;
5. the results of the evaluation were sent to all participants and published on the website (after
eliminating company confidential information).
The licensing procedure started in January 2003 and the first round was completed in May 2003. It
appeared that not all licences could be awarded. Remaining licences were:
- national licence for classical/jazz music;
- three regional licences;
- three AM licences.
In a second round these licences were awarded. The procedure was completed on 18 November 2003.
In total the State collected over €300m of “auction” revenues. These revenues will be paid in equal
annual instalments (? government revenues are approx. €37,5m per annum).
103 In reality, the procedure was slightly more complex because of ownership rules.
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International Survey
Licence type # licences Revenues (€ m) Revs/pop (€)
National FM 9 323.8 3.8
Free format 4 247.5 6.0
Golden oldies 1 36.0 4.0
Dutch/European 1 24.7 2.7
Classical/Jazz 1 8.6 1.1
Special modern 1 4.9 0.5
News 1 2.2 0.2
Regional 26 3.8 0.3
AM 12 2.3 0.03
Table 12
A.2.5.3.2 Format, advertising and news requirements
The Media Law/Act imposes general limitations on the percentage time that may be used for
advertisement: on average less than 15% over the period that the station is broadcasting and peaks may
not contain more than 12 minutes advertisements per hour.
The format requirements in the five specific national licences were stated as minimum requirements, e.g.
“ during the day (7.00-19:00) programmes contain at least 50% classical music (including modern
classical music) or jazz music”. Applicants were invited to propose higher (but realistic) percentages in
their bids.
In a similar manner regional licences have an additional requirement that at least 10 % of the programme
during the day should be specially focussed on the area of the licence.
A.2.5.3.3 Licence period
The duration of all licences is eight years. In principle the licences will not be renewed.
A.2.6 Spectrum management
The spectrum is formally managed by the Dutch Radio Agency (“Agentschap Telecom”), but Nozema —
the broadcasting transmission corporation that originally operated all national broadcasting networks—
used to have a great influence on spectrum management issues. Because of the close relationships
between Nozema and the public broadcasting organisations a competitor could enter the market:
Broadcast Partners. The national commercial and public broadcasting organisations use the services of
these transmission corporations and do not operate their own networks.
The “zerobase exercise” that is described in the previous section resulted in an optimisation of the
planning and it is now believed that nearly all available spectrum is used.
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International Survey
A.3 Belgium (Flanders)
Demographics and financials
Population 6 million
Percentage of population listening weekly 82.3%
Average radio listening time (hours per week) 24.5
Public radio number market share
Total
National stations 5 84.4%
Regional stations 0
Local stations 0
Commercial radio
Total
National stations 2 6.1%
Regional stations 0 (5 licences awarded)
Local stations 275
Year of introduction 1982
Community radio
Stations 0
Infrastructure
How many digital radio stations 1 package channel (4 not used)
Incentives for commercial stations to provide DAB programmes
Financials
Funding type public radio (licence, advertising) Public funding + advertising
Advertising on public radio stations (Y/N) Yes
Total advertising spending 2002/2003 in media €1.1 billion
Advertising spending on radio €114 million
As percentage of total ad spend 10%
Regulatory
Relevant legislation Law on Media
Regulatory bodies
Broadcasting market Minister of Media, advised by Vlaams Commissariaat
voor de Media
Licence allocation Authorisations are assigned by the Flemish
government, licences are provided by Vlaams
Commissariaat voor de Media
Enforcement licence conditions Vlaams Commissariaat voor de Media
Spectrum management Minister of Media in co-operation with Belgisch
Instituut voor Post en Telecommunicatiediensten
Specific policy issues
Political interface with respect to licensing Minister of Media
Are cross-media ownership controls in place (Y/N)
Licensing
Assignment procedure national licences (type) Beauty contest
Assignment procedure local licences (type) Beauty contest
Is non-judicial appeal possible? Yes
Licence duration 9 years
Are radio auctions being held (Y/N, when, why not) No
Are format requirements in place (Y/N) Yes
Are advertising requirements in place (Y/N) Yes
Are news services requirements in place (Y/N) Yes
How is compliance of contents requirements tested Control by Vlaams Commisariaat voor de Media
Are licence renewal procedures in place (Y/N) Yes
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International Survey
A.3.1 Introduction
A.3.1.1 Overview radio market
Belgium was one of the first countries in the world where radio experiments took place. Although
testing already began before the first world war, development was hindered as a result of the war. In the
1920’s a bilingual broadcasting organisation started with the broadcasting of radio programmes. In 1935
this organisation was split into two directorates: one for programmes in Dutch and one for programmes
in French. This evolved to the public broadcasting system that currently exists today: VRT (Flanders)
and RTBF (Walloon). The small German speaking part of Belgium has BRF (which is in fact no more
than a regional broadcaster). 18 May 1960 can be seen as a milestone for the federalisation of the radio
market. From that date on, the law officially recognised the independent broadcasting organisations.
Although there is full authorisation, the federal states must coordinate their frequency plans, but this has
only happened incidentally. The problem is that Flanders and Walloon have never been able to reach
consensus on any plans, which has ultimately lead to poor broadcasting comfort, and many court cases
and complaints.
Radio authorisations
1994 1995 1996 1997 1998 1999 2000 2001 2002
Public radios104 6 6 6 6 6 6 6 6 6
Commercial national radios 0 0 0 0 0 0 0 2 2
Commercial regional radios 0 0 0 0 0 0 0 0 0
Commercial local radios 329 321 323 317 312 313 312 310 303
Cable radios 0 0 0 0 2 5 5 3 4
Table 13: Evolution of radio authorisations for the period 1994-2002105
A.3.1.2 Demographics and statistics
In 2003 the Flemish population of 12 years and older was about 5,100,000. The weekly reach of all
radio stations was 82,3% (population 12+) in the period March-June 2003. The average time that
Flemish people of 12+ listened to the radio per day in the period 2002-2003 is shown in Table 14106.
Period Hours per day
April – June 2002 4.02
September – December 2002 3.58
March – June 2003 3.49
Table 14: Listening figures 12+, 2002-2003
A.3.2 Public broadcasting market
A.3.2.1 Major radio stations
The public Flemish broadcaster is called “Vlaamse Radio en Televisie” (VRT). It has three television
stations and six radio stations. Table 15 gives an overview of the public radio stations:
104 Among these six public radio stations there is one radio station called Radio Vlaanderen Internationaal which broadcasts
worldwide targeting Flemish people living abroad.
104 Source: CIM.
105 Source: WIM.
106 Source: CIM Radio Wave 3.
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International Survey
Type Stations Format Market share in %107 Sources of
income
2000 2001 2002 2002 2003
Scan Scan Scan CIM CIM
Radio 1 News/talk/information/
various music styles
7.5 8.0 7.3 11.5 12.0 Government
contributions /
advertisements108
Radio 2 AC/news of region 32.5 32.0 30.2 35.2 33.6 Government
contributions /
advertisements
Klara Classical 1.5 1.5 1.4 2.5 2.4 Government
contributions /
advertisements
Studio
Brussel
AC 7.5 7.5 6.2 6.3 7.5 Government
contributions /
advertisements
National
Radio
Donna
CHR 35.0 36.0 37.9 29.4 28.9 Government
contributions /
advertisements
Table 15: Overview of public radio market
In addition to the five radio stations in the table shown above, there’s a sixth public radio station called
Radio Vlaanderen Internationaal (RVI), which broadcasts worldwide targeting Flemish people living
abroad.
A.3.2.2 Market share
The market shares of the public radio stations are given in Table 15.
A.3.2.3 Funding, revenues
VRT receives an annual fee from the Flemish government (in 2002 €229.326.000, and is increased by
4% annually). VRT also receives income from radio advertisements and tv sponsoring (income from tv
advertising is not allowed).
A.3.2.4 Advertising
The yearly amount of money VRT is allowed to generate from advertising and sponsoring is limited to a
maximum: 40.9 million euro for radio advertisements and 8,7 million euro for tv sponsoring. This is
determined in the ‘Beheersovereenkomst 2002-2006’ by the Flemish government together with the VRT.
107 Until the year 2002 different survey methods were used by the public radio and commercial broadcasters which lead to
conflicting outcomes of the surveys. In 2002 consensus was reached between the public and commercial broadcasters on a
new neutral survey which is conducted by CIM. In this scheme figures from Radioscan, the survey from the public radio,
are shown for the period 2000-March 2002. From March 2002 on CIM figures are used. Because CIM uses other survey
methods than Radioscan, the figures are not comparable. Source: VRIND 2002.
108 Advertising for public broadcasters is strictly regulated and in the control agreement 2002-2006 with the government a
ceiling regarding advertising revenues is taken in. Therefore advertisements are just a small part from the total revenues for
public radio stations.
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International Survey
A.3.3 Commercial broadcasting market
A.3.3.1 Major radio stations
In 1982, local commercial radio stations were legalised and this meant the end of the monopoly for
public broadcasting. However, despite this change in structure, location stations were still forbidden to
establish networks or alliances. This all changed in 1998, when local broadcasters were permitted to take
part in networks.
In 2001, two national commercial licences were assigned for the first time. Until then, public radio
(VRT) still maintained a monopoly in the national radio market. In light of liberalisation and plurality,
the Minister of Media wanted to offer more choice to listeners. As early as the 1980’s the Minister at the
time had already considered the needs of national commercial radio stations – expecting local stations to
expand to a national level. However due to strict regulations on local radio broadcasting, national
broadcasting never materialised and the government formally allowed the assignment of commercial
national licences in 2001.
A.3.3.2 Market share
Table 16 shows an overview of the commercial radio market.
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International Survey
Type Stations Format Market share in %109 Sources of income
2002 2002 2003
Scan CIM CIM
National 4FM AC 0.4 1.2 1.5 advertisements
Q-Music AC 3.0 3.6 4.6 advertisements
Regional 5110
- - - advertisements
Radio Contact 2.3 2.2 1.9 advertisements
Radio Contact 2 0.6 0.5 0.5 advertisements
Top Radio 1.8 1.0 0.9 advertisements
C-dance - 0.2 0.1 advertisements
RGR FM - - - advertisements
Maeva FM - - - advertisements
Chain/network
stations111
Cool FM - 0.4 0.1 advertisements
Local 275112 - - - advertisements
Table 16: Overview of commercial radio market
A.3.3.3 Licence
In 2002, a new frequency plan was presented regarding commercial regional (per province) and local
radio. Until recently, commercial radio on a regional level did not exist, but in November 2003 five
regional licences were awarded. With regional radio the government is hoping to improve the quality
and liveability of commercial radio by offering more to the listener. In the context of the new frequency
plan, the number of local commercial radio stations is recently reduced from 303 to 275 stations113.
A.3.3.4 Advertising
The media expenditures share of radio in Flanders represents some 10%. In Table 17 the total radio
expenditures for the period 1998-2002 are shown114.
109 Until the year 2002 different survey methods were used by the public radio and commercial broadcasters which lead to
conflicting outcomes of the surveys. In 2002 consensus was reached between the public and commercial broadcasters on a
new neutral survey which is conducted by CIM. In this scheme figures from Radioscan, the survey from the public radio,
are shown for the period Jan-March 2002. From March 2002 on CIM figures are used. Because CIM uses other survey
methods than Radioscan, the figures are not comparable. Source: VRIND 2002.
110 Awarded November 2003; the stations are not broadcasting yet.
111 Chain stations are formed by several local radio stations.
112 This number of local stations include the local stations which are part of a chain station.
113 The new licences are awarded October-December 2003.
114 Source: MediaMark 2000 en MDB 2001.
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International Survey
Year Total of radio
expenditures
1998 €74.900.000
1999 €83.930.000
2000 €99.640.000
2001 €105.380.000
2002 (extrapolation
1st semester)
€ 113.800.000
Table 17: Total radio expenditures in Flanders, 1998-2002
Table 18 shows radio advertising expenditure in 2001 for the main radio stations in Flanders115.
Station Euro
Radio Donna 48,964,311
Radio 2 20,693,632
Radio 1 13,422,505
Studio Brussel 11,630,590
Radio Contact NL 4,774,555
Top Radio 1,524,728
Q-Music 1,261,213
4FM 413,258
Table 18: Radio advertising expenditure 2001
A.3.4 Digital broadcasting market
In Flanders four national and one provincial DAB-channel exist. Each DAB-channel broadcasts a
package of services at the same time: this is termed an ensemble.
At this time only one national DAB-channel is used by VRT who started the DAB broadcasting in 1997.
VRT broadcasts its own six radio stations and several extra services as DAB classic (non-stop classical
music) and 927Life (sports).
A.3.5 Regulation and licensing
A.3.5.1 Regulatory bodies
A.3.5.1.1 Relevant legislation
The legislation is laid down in the Law on Media.
A.3.5.1.2 Regulatory body
The ‘Vlaams Commissariaat voor de Media’ (VCM) was established in 1997. This authority was seen as
a revolution regarding media policy in Belgium. In the first place VCM was established as an
independent entity to function as an objective decision maker in the assignment of radio stations and
licences in Flanders. Before this, any authorisation was in hands of the Flemish government. Besides
the assignment of licences, monitoring and sanctioning became an important task of VCM.
115 Source: CIM MDB.
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International Survey
However, along the assignment of the new national commercial radio licences, criticism arose towards
the VCM and its role as an independent authority. Rumours circulated that 4FM, the winner of one of
the two licences, was given preference in the allocation procedure. The issue was taken to parliament
and it was concluded that the VCM could not perform its two roles of licensing and monitoring well.
Therefore in April 2003 it was decided that the decision making regarding authorisations had to be
brought back to the political level which means that the Flemish government will again be involved in
assignment processes for national, regional and local radio.
The current tasks of VCM are:
- Advising the Flemish government on the assigning of authorisations;
- Provide licences to radio stations who already are acknowledged by the government;
- Provide licences to cable radio stations in Flanders;
- Provide licences to commercial television broadcasters and cable licences;
- Monitoring and sanctioning (N.B. the sanction possibility of VCM to interrupt or withdraw
authorisations of national, regional or local radio stations is liquidated and is given back to the
Flemish government).
A.3.5.1.3 Regulatory body for allocation of licences
VCM will provide the licences; the Flemish government is involved in assignment processes for national,
regional and local radio.
A.3.5.1.4 Regulatory body for licence enforcement
The VCM is responsible for licence enforcement.
A.3.5.2 Licensing
A.3.5.2.1 Licensing procedures national and regional
Licences for commercial national and regional radio are assigned in a beauty contest. Following the
Minister of Media an auction is not applicable for radio because of the carefulness and prudence, which
has to be taken in account. The candidates have to hand in a proposal to VCM in where they present
what their radio stations are offering.
From the second calendar year on the commercial national radio stations have to pay a fixed annual fee
of €150.000, regardless the reached market share. On top of this fixed fee a yearly variable (turnover
related) fee has to be paid when the radio station reaches a market share of more than 10%.
A.3.5.2.2 Format, advertising and news requirements
In a decree eleven general quality criteria are listed e.g. the station has to be independent from political
parties, the programs should not be harmful to public order and the station has to be established as a legal
person.
The following requirements must be fulfilled:
- Format requirements: the commercial radio stations have to broadcast in the Dutch language and
have to bring a diversity of programs (no non-stop music);
- Conditions on the amount of advertisements: no more than 15% of the daily broadcasting time and
no more than 20% of one hour broadcasting;
- Requirements regarding news services: national radio stations have to broadcast at least four
journals per day.
Furthermore by ministerial decision, five additional criteria are determined regarding:
- the concrete fulfilment of the program and broadcasting scheme, in particular diversity;
- media experience;
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International Survey
- financial plan;
- business plan;
- technical (broadcasting)infrastructure.
A.3.5.2.3 Licence period
Local radio licences are issued for nine years. For renewal of the licence, at least six months before the
expiring of the authorisation, a new application for authorisation has to be presented.
A.3.6 Spectrum management
Spectrum in Flanders is relatively scarce and therefore it is essential to manage the radio spectrum
efficiently. The government determines by economical, social and cultural motives how the spectrum
can be efficient divided.
The Flemish government makes the frequency plans, approves them and decides how many national,
regional and local radio licences can be assigned. For the design of the frequency plan the Minister of
Media works closely together with “Belgisch Instituut voor Post- en Telecommunicatiediensten”(BIPT),
division Frequentiebeheer. Based on the frequency plan the government assigns the authorisations and
afterwards the VCM assigns the licences.
The Minister of Media is in charge of formulating media policy. This policy is aimed towards an evenly
and stable qualitative media landscape with attention for the Flemish identity. The policy for 2000-2004
is characterized by liberalisation (fair competition), plurality and professionalisation of the radio
landscape in order to provide a broad offer with high quality. In this context authorisations are assigned
to commercial national and regional radio stations.
Since the decision making role on authorisations for national, regional and local radio is given back to
the Flemish government, politicians again have influence on this process.
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International Survey
A.4 Denmark
Demographics and financials
Population 5.37 million
Percentage of population listening weekly 98%
Average radio listening time (hours per week) 23
Public radio number market share
Total +/ - 60% (end 2001)
National stations 3 (+3 via DAB, +2 via
Internet)
Regional 9
Local stations +/- 100
Commercial radio
Total +/ - 40% (end 2001)
National stations 1
Regional 1
Local stations +/- 150
Year of introduction 1983 local level, June 2003 national level
Community radio
Stations 0
Infrastructure
How many digital radio stations 8
Incentives for commercial stations to provide DAB programmes Licence in combination with national licence.
Financials
Funding type public radio (licence, advertising) Public funding
Advertising on public radio stations (Y/N) No
Total advertising spending 2002/2003 in media €1.3 billion (2001)
Advertising spending on radio €30 million (2001)
As percentage of total ad spend 2.4%
Regulatory
Relevant legislation Danish Radio and Television Broadcasting Act
Regulatory bodies
Broadcasting market Radio and Television Board under Ministry of Culture
Licence allocation Radio and Television Board (for the allocation of local
licences a Local Radio and Television Board is set up)
Enforcement licence conditions Radio and Television Board (programme), National IT and
Telecom Agency (frequency)
Spectrum management National IT and Telecom Agency
Specific policy issues
Political interface with respect to licensing Minister of Culture can give directions to Radio and
Television Board
Are cross-media ownership controls in place (Y/N)
Licensing
Assignment procedure national licences (type) Auction
Assignment procedure local licences (type)
Is non-judicial appeal possible? Yes, for local licences
Licence duration 8 years (national), 5 years (local)
Are radio auctions being held in the future (Y/N, when, why not) Yes, in 2004
Are format requirements in place (Y/N) Yes
Are advertising requirements in place (Y/N) Yes
Are news services requirements in place (Y/N) Yes
How is compliance of contents requirements tested Radio and Television Board under Ministry of Culture
according to Danish Radio and Television Broadcasting Act
Are licence renewal procedures in place (Y/N) National: no decisions have been taken on how frequencies
will be used after expiry of the licensing period. Local: yes
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International Survey
A.4.1 Introduction
A.4.1.1 Overview radio market
A culture of public broadcasting has dominated the Danish radio landscape as a result of recently expired
monopoly rights of Danmarks Radio (DR) on national terrestrial broadcasting.
The Danish radio industry comprises services provided by Danmarks Radio and commercial radio
operators and a number of community groups. The Danish public and commercial radio appear to
coexist in harmony. This may be partially explained by the fact that the public broadcasters are not
competing with commercial stations in the advertising market. However, as competition for audiences
grows, DR is likely to lose market share.
Radio is now delivered over cable, Internet and digital aerial broadcasting (DAB). As cable distribution
in Denmark is limited to 30% of the population, commercial broadcasters tend to be highly regionalized
and focused on urban areas. This has resulted in a highly concentrated market share for Danish public
broadcasters.
A.4.1.2 Demographics and statistics
The Danish population consists of 5,368,854 inhabitants (July 2002 estimate). The most interesting
target groups for advertisers (and hence radio stations) represent 26% (15-34) and 29.5% (25-44) of the
population.
Radio services are popular, with 98% of Danish adults listening to radio each week and Danish adults on
average spending about 23 hours/week listening to the radio116.
Denmark is a well-developed country with both traditional (combined press and public television) and
developing media sectors (commercial radio/television and Internet).
Weekly reach % Adults 18+ Men 12+ Women 12+ Teens 12-17
All TV 89.8 89.1 90.5 80.8
All Radio 98.1 98.5 97.7 97.5
Commercial radio 30.4 33.7 31.5 56.0
Any daily newspaper 85.3 87.3 83.4 67.2
Any magazine 98.8 98.4 99.1 98.8
Table 19: Overview of weekly reach media sectors (in % of total population)117
From the table above, it can be concluded that commercial radio does not reach a comparable share of
the population as their public counterparts and other medium types. This has more to do with a
distribution disadvantage than anything else. Commercial radio is however very popular with teens aged
12-17 (56.0%).
A.4.2 Public broadcasting market
A.4.2.1 Major radio stations
Until recently, DR offered the four main channels on three national networks. The capacity for a fourth
national public radio network has always existed, but the Danish parliament hesitated for a long time in
deciding how this should be allocated. The main issue revolved around whether or not the DR monopoly
116 Source: World Advertising Research Center (WARC), 2003.
117 Source: World Advertising Research Center (WARC), 2003.
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of nation-wide radio broadcasting should be broken by allocating the fourth available frequency to a
private company (similar to P4 in Norway or Radio Nova in Finland), or whether it should be used to
strengthen DR as a public service institution and solve the problem of DR running four channels on three
frequency networks. This deadlock situation was resolved during the negotiations surrounding the
Media Agreement 2001-2004, when a majority of the parties decided to invite tenders for both a fourth
and fifth nation-wide radio channel (the latter reaching only 80% of the population). The proposed
content of the channels was described in a way that made the fourth channel most attractive to DR
(classical and modern music, talk, news and current affairs), while the fifth channel was intended to be
purely commercial, but with an obligation to offer news “comparable to the level of Danmarks Radio”.
Nevertheless, eight private companies entered the competition with DR for the fourth channel. It was not
a great surprise to the public when the new Radio and Television Board under the Ministry of Culture
decided to allocate the fourth channel to Danmarks Radio. The channel, named P4, became a network
consisting of regional stations that broadcast a mix of window programming and regional information
and was launched during spring and summer of 2001.
In 2002, on average, 62% of all radio listeners tuned in to one of the four public radio programmes:
- P1: Music & General Interest (since 1924);
- P2: Music (50%) & News (50%) (since 1951);
- P3: Pop channel (since 1963);
- P4: Regional channel (since 1992).
In addition to these four, DR also offers a classical channel (DR Klassisk), several alternative formats,
which can be received via DAB or Internet, and 9 regional channels.
Local radio is widespread in Denmark, with approximately 250 stations of varying character ranging
from idealistic, non-commercial community radio stations to mainstream commercial stations. Until
1983 public broadcasting had a total monopoly on the local level. Today, nearly 40% of all local radio
stations are public.
A.4.2.2 Market share
In the last decade, Danmarks Radio has seen a gradual erosion of its market dominance. In 1994, DR
maintained a strong market share of 80%; however, in early 2001, this hold was reduced to 62%. This
reduction may be attributed to the fact that weekly reach among the young audience has fallen
considerably for public channels, possibly indicating that DR has developed a serious generation
problem. It appears that younger audiences prefer local commercial radio, while older audience groups
are still loyal to the DR channels. With the recent loss of its national distribution monopoly, it seems
likely that DR’s share will erode even further.
A.4.2.3 Funding, revenues
DR is fully dependent on public funding. In the long term, it can be speculated that this may change the
relationship vis-a-vis commercial competitors.
A.4.2.4 Advertising
There is no advertising on public radio.
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A.4.3 Commercial broadcasting market
A.4.3.1 Year of introduction
In contrast to the situation with television broadcasting118, DR has managed to keep its monopoly on
national terrestrial radio broadcasting till June 2003, when a nation wide network (P5) for commercial
radio was auctioned. In 1983 the introduction of pilot local radio and television services already broke
the total monopoly at the local level.
A.4.3.2 Major radio stations
In June 2003 a nationwide network (P5) and a regional network (P6) were auctioned by the Minister of
Culture. The national network P5 was acquired by Sky Radio. Talpa Radio International has acquired
the regional network; in November, P6 started broadcasting under the name of Radio 100 FM.
Some stations have formed networks of local stations to increase their reach. The majority of these
networks are operated centrally from Copenhagen (e.g. Clear Channel, SBS, NRJ and Sky Radio), but
regional groups also exist (e.g. Radionet, part of the ANR group, operates mainly in the North of
Jutland).
At this time approximately 60% of the local radio stations are commercial stations.Until recently, the
regulations for local radio have been very strict (e.g. that there was no permission to form networks)
thereby protecting national public broadcasting to a great extent. However, these rather strict regulations
for local radio have been a disincentive for investors. Local radio has never been seen as particularly
attractive to established media concerns as a field for investment. Instead, investors have adopted a waitand-
see policy, and have urged both the establishment of a national commercial radio channel and
freedom for local radio stations to form networks.
It appears that recent changes in media policy have lifted some of these strict regulations (see section
‘ New Radio and Television Broadcasting Act’).
A.4.3.3 Market share
Although limited in terrestrial distribution, local radio is fairly popular. On a national level commercial
radio stations have a market share of approximately 30-35%. In some regions local stations have a
market share higher than the DR stations.
As networks of local radio stations dominate the Danish commercial radio market, national ratings
provide a somewhat flawed overview of the popularity of stations in a given market. Popularity varies
from region to region. The fact that public radio has lost nearly 20% of its market share since 1994,
indicates that commercial radio is growing fast.
A.4.3.4 Advertising
The Danish media landscape is dominated in terms of advertising revenue by newspapers (59%),
television (19%) and magazines (15%). Total ad expenditure was €1.270 million in 2001 (a decline of
€ 42,5 million versus 2000). The Danish radio market is very fragmented and negotiable when it comes
to advertising making it very difficult to obtain reliable data.
118 To promote competition, the Danish government set up TV2 in 1988, which is soon to be privatised. One fifth of the
funding for TV2 comes from the licence fee, with the remainder from advertising revenues. Other TV broadcasters include
TV3 and TV Danmark.
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Commercial radio largely depends on advertising revenue. However some stations also have another
source of income: cable operators pay the most popular stations (in 2002: The Voice, Pop FM, Radio 2,
Nyhedsradioen 24/7 and Sky Radio) to be carried on their networks. Based on a 1999 press release from
SBS Broadcasting, the level of this secondary income stream is substantial – $ 2 million per year119.
With only 2.4% of ad spend going into radio (generated solely by commercial stations, as public
broadcasters are not allowed to carry advertising), the medium is relatively underdeveloped. In fact,
advertising spend in Denmark ranks among the lowest in Europe.
Albeit a small medium compared to other main media sectors, Danish radio can offer much revenue
potential in the years to come. In real terms, radio has grown substantially: from €10.5 million in 1990
to €30.2 million in 2001.
With an estimated market potential of €75 to €100 million, radio industry experts expect these revenues
to grow to 6-8% of total advertising expenditure in the coming years120 if commercial broadcasters can
compete on equal or comparable terms with public broadcasting for share of audiences. With the
national or near-national coverage of the recently allocated frequencies (P5 and P6, commercial radio)
reaching such revenue figures should not be a problem.
A.4.4 Digital broadcasting market
Denmark is set to become the first country in Europe with 100% DAB Digital Radio coverage at the end
of 2003121, just one year after public broadcaster Danmarks Radio launched its range of DAB services.
A total of eight DAB Digital Radio programmes are being broadcast including:
- DR Nyheder (news, sport, weather and financial);
- DR Demokrati (political debate);
- DR Plus (speech-based).
In addition, a range of dedicated music programmes from Denmark’s four FM channels are available
covering classical music, rock, jazz, ‘soft’ music and Boogie Skum, aimed at teenagers.
In addition to the programmes mentioned above, the licensees of P5 (Sky Radio) and P6 (Talpa Radio
International) will also have the opportunity to transmit their programme using DAB technology. They
both have a DAB capacity of 256 Kbit/s in the first nationwide DAB block at their disposal.
A.4.5 Regulation and licensing
A.4.5.1 Regulatory bodies
A.4.5.1.1 Relevant legislation
The new Radio and Television Broadcasting Act122 came into force on 1 January 2003123.
In this new Act a new media policy was implemented. The media policy accord included the following
main points relevant to radio broadcasting:
119 This payment is an issue of continuous debate.
120 And thus be more in line with the figures of countries like Belgium, Austria, Spain, Ireland, France and The Netherlands.
These countries all have more than 6% of the total media expenditure spend on radio advertisements. Source: World
Advertising Research Center, 2003.
121 Because Denmark is relatively flat only 33 transmitters are necessary to cover the entire country. Source: World DAB
Forum.
122 Act 1052, dated 17 December 2002.
123 The act was amended again in June 2003 but, as far as we understood, the amendments are not into force yet.
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- terrestrial digital transmission rights ("multiplex") are to be put out to tender according to rules laid
down by the Minister of Culture;
- as of 1 January, the rules on appointment of the Board of Danmarks Radio (DR), were revised and
the Board was appointed in a new way;
- the government will enter into public-service contracts with Danmarks Radio, TV 2/DANMARK
and the regional TV 2 stations, respectively, and such contracts will re-place the existing articles of
association of the stations;
- the existing restrictions on networking as regards local radio and television have been withdrawn124;
- the requirements for carrying out local radio and television activities have been reduced, resulting in
less strict requirements concerning organisation, geography and contents;
- the competence of the Radio and Television Board has been extended to include the entire field of
advertising and sponsorship as well as all players in the market. Moreover, the Board is to supervise
the fulfilment by DR, TV 2/DANMARK and the regional TV 2 stations of the public-service
contracts.
A.4.5.1.2 Regulatory body for allocation of licences
On the basis of the Danish Radio and Television Broadcasting Act125 the Radio and Television Board
shall make decisions concerning licences to provide national and regional programme services by means
of terrestrial analogue broadcasting opportunities, to grant such licences and to supervise the programme
services. Licensing of local radio licences126 takes place on a municipal level.
A.4.5.1.3 Regulatory body for licence enforcement
On a nation and regional level, the Radio and Television Board carries out supervision of licensees' (of
national and regional licences) compliance with the licensing conditions and with the Danish Radio and
Television Broadcasting Act and rules laid down in pursuance thereof. The Board may withdraw a
licence temporarily or permanently if the licensee violates the Act or rules laid down in pursuance
thereof where such a violation is gross or where violations are often repeated. The Board may also
withdraw a licence if the licensee disregards the licensing conditions or has provided incorrect
information at the time that the licence was issued. With respect to local radio licences, the local radio
and television boards have the same powers as the Radio and Television Board.
On a national, regional and local level, the National IT and Telecom Agency supervises compliance with
the conditions of frequency licences and the Radio Frequencies Act and rules laid down in pursuance
thereof. If the Agency detects violations of the provisions of the Radio Frequencies Act or of the
conditions of frequency licences, or if the use of frequencies leads to interference, the Agency may order
remedial measures to be carried out at the licensee's expense, frequency usage to be brought into
compliance with the rules, or apparatus to be shut down. The Agency also has access to monitor the
frequency band and to enter public and private properties without prior court ruling to the extent
necessary to prevent interference and to examine and switch off apparatus. The Agency may withdraw a
licence if the licensee grossly and repeatedly violates the Act or the rules and conditions for licensing
laid down in pursuance thereof. By negotiation with the Minister of Culture the Agency may use
frequency administration methods.
A.4.5.2 Appeals
On a local level, a decision by the local radio and television board (see licensing local level) to reject an
application for a licence may be brought before the Radio and Television Board by the applicant within
four weeks of the notification of the decision.
124 In practice this anti networking rule was not enforced, see section “key commercial market players”.
125 Sections 42 and 45.
126 A licence to provide radio programmes by means of radio equipment within a local area (article 52 of the The Danish Radio
and Television Broadcasting Act).
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A.4.5.3 Licensing
A.4.5.3.1 Licensing procedures national and regional127
When granting licences for programme services, the Board may lay down terms for the programme
services. Licences for programme services by means of terrestrial analogue broadcasting opportunities
shall be granted by the Radio and Television Board following tendering. The Minister of Culture may
lay down detailed rules for tenders. In this connection it may be determined that the Radio and
Television Board shall lay down detailed guidelines as to the auctioneer's powers, ownership issues and
minimum bids, etc. A licence to provide programme services may be subject to the payment of a
concession fee. The minimum amount, calculation basis and payment terms of the concession fee shall
be specified in the tender documents.
In June 2003, the fifth and sixth FM radio channels (P5 and P6) were tendered by means of an open,
simultaneous auction. The rules for this auction were laid down by the Minister of Culture. No
participant was allowed to acquire the licences for both channels128, and Danmarks Radio (DR) was not
allowed to take part in the auction.
The licence for the fifth radio channel is subject to special requirements on public service news
coverage129, and the requirement that Scandinavian music must make up approximately 30% of the music
output130. Programming on the fifth radio channel may not be regionalised131. There are no special
requirements for the programme content of the sixth radio channel. Participants in the auction have bid
for the fixed annual concession fee for the respective channels. In addition to the fixed annual fee, the
licensees also have to pay a variable turnover-related concession fee. The licensee is obliged to pay both
(fixed and variable) concession fees for the whole of the licensing period.
Sky Radio won the fifth channel, Talpa Radio International the sixth. The fixed annual fee for the fifth
channel is €7,2 million, for the sixth €3 million. The variable (turnover related) fee for the fifth channel
constitutes 5% of the portion of the channel's fee calculation basis for the year in question that is above
DKK 100 million up to DKK 150 million, 10% from DKK 150 million up to DKK 200 million, and 15%
from upwards of DKK 200 million.
The variable fee for the sixth channel constitutes 2,5% of the portion of the turnover that is above DKK
25 million up to DKK 50 million, 5% from DKK 50 million up to DKK 100 million, and 10% from
upwards of DKK 100 million. The licences will be valid for a period of eight years.
127 Source: The Radio and Television Board’s auctioning of the fifth and sixth terrestrial FM radio channels, 26 march 2003,
Radio and Television Board.
128 Chapter 8 of the Radio and Television Broadcasting Act: licences for programme services by means of terrestrial analogue
broadcasting opportunities shall be granted by the Radio and Television Board following tendering. The Minister for
Culture may lay down detailed rules for tenders. In this connection it may be determined that the Radio and Television
Board shall lay down detailed guidelines as to the auctioneer's powers, ownership issues and minimum bids, etc.
129 In addition to the requirements of the Danish Radio and Television Broadcasting Act, the public service news coverage
must satisfy the following conditions: 1. At least 1,000 hours of news and current affairs, excluding advertising, must be
broadcast each year. At least two-thirds of the news broadcasts, excluding current affairs, must be between 7:00 and 23:00.
The broadcasts must include news from the whole of Denmark and abroad; 2. At least one hour of current affairs must be
broadcast each day. The hour may be divided into programmes of minimum 15 minutes' duration, excluding advertising.
The current affairs programs must be broadcast between 7:00 and 23:00; 3. The news broadcasts and current affairs
programs should mainly be in Danish.
130 Scandinavian music must make up approx. 30% of the music output of the channel. Scandinavian music is defined in this
context as "records produced in Scandinavia (understood as Denmark, Norway and Sweden)", i.e. records made and issued
in Scandinavia. Records are music issued in mechanical form by a record company on e.g. cassette, vinyl or CD. This does
not include concert recordings that are not issued as records. The Scandinavian proportion of the music output is calculated
as "Scandinavian records as a percentage of the total of records played on the channel measured in minutes".
131 i.e. a given programme or a given advertisement must be broadcast at the same time across the station's coverage area.
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Before any sale, a licensee must inform the Radio and Television Board of the sale of the licence, or of
the company or similar that holds the licence, or of parts of the company. The Board will supervise that
the conditions of the licence continue to be satisfied after the sale. The Board will give notification of
this when the information has been evaluated.
It is anticipated that transmission opportunities on the medium-wave radio broadcasting band will be
auctioned in 2004.
A.4.5.3.2 Licensing procedures local
The council of a municipality sets up a local radio and television board. The majority of the board
consist of representatives of local organisations and local associations. This board can grant a licence for
the provision of programme services by means of radio equipment within the area of the municipality
(programme licence). The use of radio frequencies is subject to a licence granted by the National IT and
Telecom Agency (frequency licence). In most municipalities there is only one frequency available per
municipality. The board has a great degree of freedom in their decision making process on allocation
issues. In this process local considerations play the major role. However the Minister of Culture may
lay down rules concerning the issue and content of licences.
Licences can only be granted to companies, associations, etc. providing radio programme services by
means of radio equipment, and only those having local radio or television services as their primary object
shall be entitled to be granted a programme licence. Licensees are allowed to network with other
licensees unless this is contrary to significant local interests, such to be determined by the local radio and
television board. In principle there is no limitation on the number of programming licences an entity
may acquire.
Where it is not contrary to significant local interests, the local radio and television board shall authorise
that a company, an association, etc. which holds a licence to provide radio programme services may
transfer to terms giving access to networking for the remainder of the period for which the licence is
valid.
Licences shall be granted for a fixed period not exceeding five years. A licence may be renewed on
expiry of the period concerned. A licence shall not lapse if the area covered by the licence, within the
period of its validity, is wholly or partly transferred to another local board than the board which issued
the licence. In connection with the granting of a licence the board may lay down terms for the
programme services, etc. In practice the vast majority of all local licences (approx. 250) are renewed
after every licence expiry.
A.4.5.3.3 Format, advertising and news requirements
At national and regional level, radio advertisements may be scheduled at any time during the programme
service. Advertisements may occupy maximum 15% of the individual licensee's daily broadcasting time,
and maximum 12 minutes per hour. The licence for the fifth radio channel is subject to special
requirements on public service news coverage and the requirement that Scandinavian music must make
up approximately 30% of the music output, whereas there are no special requirements for the programme
content of the sixth radio channel.
A.4.5.3.4 Licence period
Licences are awarded for a period of 8 years for both national and regional stations. Licences are
awarded for a period of 5 years for both national and local stations.
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A.4.6 Spectrum management
Regarding spectrum management the objective is to ensure user access to a wide, varied and inexpensive
range of telecommunications services as well as radio and TV services. The aim is to promote the
efficient use of the overall radio frequency resource through active frequency administration and by
ensuring a clear, objective and non-discriminatory framework for competition in the telecommunications
sector.132
The National IT and Telecom Agency issues licences for the use of frequencies. In addition to the
concession fees, the licensees will have to pay a fee to the Radio and Television Board for
administration, supervision, etc., and a fee to the National IT and Telecom Agency for the respective
frequency licences.
In order to promote efficient use of the spectrum the National IT and Telecom Agency may use the
following management methods:
- require licence holders to change to more spectrally efficient methods of utilization or technologies;
- impose requirements on licence holders restricting the use of radio frequencies;
- redistribute licences already issued;
- withdraw licences already issued.
With respect to use of radio frequencies for radio and TV purposes the Frequency Act states the
following:
- The National IT and Telecom Agency's issue of a licence for radio or TV purposes is subject to the
applicant being authorized to provide programme services under the Radio and Television
Broadcasting Act;
- A licence for radio or TV purposes issued by the National IT and Telecom Agency shall cease if the
licence holder's authorization to provide programme services under the Radio and Television
Broadcasting Act has ceased or has been withdrawn for an indefinite duration;
- As regards licences for radio and TV purposes, the National IT and Telecom Agency may specify
terms based on media policy considerations in addition to the terms mentioned in section 11, subject
to negotiation with the Minister of Culture;
- As regards licences for radio and TV purposes, the National IT and Telecom Agency may use the
aforementioned spectrum management methods for the purpose of meeting media policy
considerations, subject to negotiation with the Minister of Culture.
A.5
132 See the 2002 Frequency Act.
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International Survey
Norway
Demographics and financials
Population 4.55 million
Percentage of population listening weekly 58% (daily)
Average radio listening time (hours per week) 16
Public radio number market share
Total +/ - 46% (33% non-
Norwegian)
National stations 3
Regional stations
Local stations
Commercial radio
Total
National stations 1+1 licence 21%
Regional stations
Local stations >300 14%
Year of introduction 1981
Community radio
Stations
Infrastructure
How many digital radio stations 6
Incentives for commercial stations to provide DAB programmes
Financials
Funding type public radio (licence, advertising) Public funding
Advertising on public radio stations (Y/N) No
Total advertising spending 2002/2003 in media €1.3 billion
Advertising spending on radio €44 million
As percentage of total ad spend 3.4%
Regulatory
Relevant legislation Regulations No 53 Feb 1998, Royal Norwegian
Ministry of Cultural Affairs
Regulatory bodies
Broadcasting market Mass Media Authority under the Ministry of Culture
Licence allocation Mass Media Authority
Enforcement licence conditions Mass Media Authority
Spectrum management
Specific policy issues
Political interface with respect to licensing
Are cross-media ownership controls in place (Y/N) Yes, under the Media Authority Act under control by
the Media Authority
Licensing
Assignment procedure national licences (type) Beauty contest
Assignment procedure local licences (type)
Is non-judicial appeal possible? Yes, under Public Administration Act
Licence duration Local: 5 years
Are radio auctions being held in the future (Y/N, when, why not) No, licensing finalised in 2003
Are format requirements in place (Y/N) Yes (national), sometimes (local)
Are advertising requirements in place (Y/N) Yes
Are news services requirements in place (Y/N)
How is compliance of contents requirements tested Complaints Committee for Broadcasting Programmes
and National Advisory Council
Are licence renewal procedures in place (Y/N)
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A.5.1 Introduction
A.5.1.1 Overview radio market
The Norwegian Broadcasting Corporation (Norsk rikskringkasting - NRK) was established by the
Norwegian parliament in 1933, replacing the four existing private radio companies. The Corporation
was a state monopoly, financed by public licence fees. NRK had only one radio channel until the early
1980s. The second channel was established in 1981, and the third in 1993. A classical music all-day
programme and an all news channel are currently in the experimental stage in parts of the country. The
Sami population has its own radio programmes, broadcast partly on the national programme, and partly
through regional transmitters. The NRK has also been broadcasting to Norwegians abroad for the past
fifty years.
In 1981 the monopoly was broken and independent local broadcasters were introduced. However, many
stations had to shut down due to fierce competition and lack of means. Since 1988 local stations could
carry advertising to fund operations. As of 1991 advertising was allowed in nationwide broadcasting.
This reform made it possible to establish the commercial nationwide radio station P 4 (Radio Hele Norge
P4) in 1993. P 4 rapidly gained a substantial share of radio advertising. The Norwegian radio market is
still under development as a strong commercial sector. It has seen declining radio listening figures since
national radio deregulation began over ten years ago.
The Norwegian parliament, legislation and media bodies emphasise media diversity and freedom of
information. Freedom of information is guaranteed by the Norwegian constitution and public radio and
television operate with minimum government interference. It is the responsibility of the government to
ensure a free market and yet to regulate content significantly, in order to protect the public good.
National radio dominates the market with three public service stations and, by the beginning of 2004,
two national commercial stations. Local radio is fragmented with over 300 commercial and public
stations that provide wide choice and quality, low audiences and some poor business models.
The topography of Norway poses severe technical difficulties in distributing the main radio programme
to the entire population, which is the goal of the Norwegian Broadcasting Corporation. 1158
transmission points (including 48 main transmitters) were needed to achieve 100 per cent coverage for P
1 (Programme 1). The second programme (P 2) reaches 98 per cent of the population by means of 691
transmission points, while the third programme (PeTre) uses 148 transmission points. The transmitter
system technically enables the NRK to divide the country into 17 regional units that can transmit their
programmes locally in time slots on P 1. These local programme time slots cover an average of three
hours a day. The commercial station P4 has 87 FM transmitters, and covers 93 per cent of the
population. Additional broadcasting media are Internet and satellite.
A.5.1.2 Demographics and Statistics
Norway has a population of 4.5 million people and has the highest newspaper readership in the world133,
which makes newspapers a very important medium. Norwegian radio and television broadcast
consumption on the other hand, is behind European averages. Only 58% of the population listened to
radio daily in 2002 compared to 71% in 1991134.
133 UN survey 2003, with 12 people per square kilometre and a 74%-26% urban/rural divide.
134 Statistics Norway, 2003, ‘Norwegian media barometer’ – 1991-2002, reflecting a same base breakdown of radio listening,
audiences and trends over that time period.
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In 2002, Norwegians listened to 87 minutes of radio daily. Despite the declining radio listening figures
over the past years, a Norsk Gallup poll, shows a trend back up with average daily listening of 137
minutes a day135.
A.5.2 Public broadcasting market
A.5.2.1 Major radio stations
Norsk Rikskringkasting (NRK) is the public broadcasting body in Norway, which started broadcasting in
1933. NRK operates three national radio stations, P1, P2 (culture+news station) and PeTre (youth
orientated station), as well as regional radio (Sámi Radio).
A.5.2.2 Market Share
In 2002, the audience listening market shares for the national public stations were 26% for P1, 5% for P2
and 6% for Petre136. The remaining radio audience listened to local and commercial radio and to non-
Norwegian radio services via satellite television. With the introduction of commercial radio, NRK’s P2
and local radio market share declined from 24% and 23% in 1992 to 7% and 13% in 1994. Since 1995,
market shares for the national and local public radio have remained steady, with the exception of Petre,
which has seen its market share decline from 13% in 1995 to 6% in 2002. According to NRK, some
50% of the population listen to some public national and regional radio everyday.
A.5.2.3 Funding, Revenues
A public licence fee funds NRK. Norwegians pay a TV licence fee of 1over 230 euro a year, providing
an annual income of approx 388 million euro137. The NRK is exempt from taxes.
A.5.2.4 Advertising
There is no advertising on public radio.
A.5.2.5 Contents
The responsibility for the editorial contents rests upon the Director General. The Director General was
formerly appointed by the government, but is now appointed by the Board of NRK. A programme
council is also appointed by the government to counsel the Director General on programme policies, but
has no power to instruct him or her.
A.5.2.6 Control bodies
A government-appointed Broadcasting Council shall counsel the authorities on whether the stations that
have a public service liability according to their concession adhere to that in their programme policy.
135 The Norway Post, ‘Radio listening up’, 27/3/2003, Norsk Gallup poll of 2002 which shows higher rates and trends than the
official statistics.
136 Statistics Norway, Culture Statisticsm 2002, radio and television audiences of people 9-79
(www.ssb.no/english/yearbook/tab/t-070230-287.hmtl).
137 Norway is one of the richest countries in Europe due in part to its oil reserves and has one of the highest living standards in
the world with 100% literacy above age 15 and low social problems. The Irish TV licence is now 150 Euro a year but with
RTÉ raising approximately the equivalent from commercial revenue.
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A.5.3 Commercial broadcasting market
A.5.3.1 Year of introduction
In 1993, the first national commercial radio station, P4 (Radio Hele Norge), started operations. P4
targets a audience in the age of 25-45 years.
A.5.3.2 Major radio stations
In the beginning of 2004, the national commercial radio station P4 will be replaced by the new national
commercial radio station Kanal 4. In mid 2003, P4 sought and won the franchise licence for the fifth
national commercial station.
By the end of 1996 a reform reduced the number of licensed local radio stations to 308, sharing 220
transmitter systems. This means that several different stations may have to share one local transmitter
system, by splitting the airtime between them. Approximately 100 local stations are run by various
religious organisations, five by political parties, five by schools, fifteen by other organisations, and five
by ethnic minorities, whereas the remaining 170 have no special focus. Some stations link up for parts of
the day, and a great many local radio stations have subscribed to news services provided by national
companies, among them the NRK.
A.5.3.3 Market Share
The first local commercial radio stations started broadcasting in 1981. The launch of P4 was a big
success, for its market share in 1994 (one year after the introduction) was 18%. In 2002, the market
share of P4 was 21%.
A.5.3.4 Licence
The franchise licence of P4 does not have complete national coverage, but is deemed a national service
as it covers the bulk of the population. Its public service obligations are more relaxed than those for the
Kanal 4 network138. The licence will cost P4 €11 million.
For the local stations, the Mass Media Authority has in some cases regulated for frequency sharing
between commercial and public stations. Its aim has been to have one commercially focused local
station, and the second balancing the needs for diversity and public service output.
A.5.3.5 Advertising
The national commercial radio station is funded solely through advertisement. In 1997, P4 had an
income of NOK 205 million from advertising and profits after taxes of NOK 40 million. Some local
commercial stations operate on a volunteer basis without commercials and rely on church or party
funding. Local radio stations with an idealistic or ideological basis are exempt from taxes.
The radio advertisement market is under-developed compared to other European countries and given the
overall wealth of Norway. The radio advertising market value is €44 million and represents 3.1% of all
advertisement spending.
138 Information assisted by Professor Helge Ostbye, Dept of Media Studies, University of Bergen.
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A.5.3.6 Contents
The Norwegian government demands that programmes from the national commercial broadcasters are in
the public's interest. It should contain a varied menu of programming for large and small audiences,
including minorities like the Sami people, daily news broadcasts, and contribute to the Norwegian
language, identity and culture. In addition, editorial independence from commercial or other interests is
required.
A.5.3.7 Control bodies
A government-appointed Broadcasting Council shall counsel the authorities on whether the stations that
have a public service liability according to their concession adhere to that in their programme policy.
A.5.4 Community broadcasting market
Some local stations have the function of community radio stations and have started after 1981.
Some of these stations operate on a volunteer basis and rely on fundraising, church or party funding.
A.5.5 Digital broadcasting market
A.5.5.1 Year of introduction
Digital radio in Norway is still under development. NRK has been at the forefront of digital radio
experiments since the mid 1990s.
A.5.5.2 Major radio stations
The digital radio services are operated by NRK. NRK broadcasts its existing services P1, P2 Petre and
the two full services, 24 News and 24 Classical. In addition, NRK broadcasts the add-on service mPetre,
which is a youth add on service and a parliamentary the add-on service, which is being provided by its
parliamentary unit. The NRK, became a joint stock company recently, with the state as the sole owner.
The reorganisation was intended to enable the NRK to move more quickly and efficiently when facing
the stiff competition in many fields. The Board of NRK is appointed by the government.
A.5.5.3 National, Regional, Local
According to TELNOR, only 50% of Norway is covered by DAB at present. Local radio is completely
left out of the digital spectrum planning, as it is not considered to be a suitable format for digital
broadcasting.
NRK has been allocated 2/3 of the DAB spectrum in Norway. NRK is now co-operating with the
commercial broadcasters to formulate a strategy before the re-licensing.
A.5.5.4 Funding, Revenues
For NRK, DAB broadcasting is funded from the revenues of the TV licence fee. The business case is
difficult enough for national/regional players but unattractive for small local players due to the high
investment costs of digital broadcasting.
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A.5.6 Regulation and licensing
A.5.6.1 Regulatory bodies
A.5.6.1.1 Relevant legislation
The Ministry of Cultural lays down the broadcasting legislation in the Broadcasting Act of 1998.
A.5.6.1.2 Regulatory body
The Mass Media Authority enforces the Broadcasting Act. The Mass Media Authority is an agency
under the Ministry of Cultural Affairs and is not perceived in Norway as independent but part of the
Ministry. By 2004 all media authorities, the Mass Media Authority, the Media Ownership Authority and
the Film Classification Board, will be ‘merged’ to coordinate mass media regulation in one body and one
location. This will effectively bring all these functions under the umbrella of the Department of Cultural
Affairs and is seen as a move towards greater state management of these issues with the Media
Ownership Authority.
A.5.6.1.3 Regulatory body for allocation of licences
The Mass Media Authority, grants radio and franchise licences on the basis of the applicant’s financial
qualifications and ability to implement the proposed project139. The Ministry appoints a Licensing
Council, which gives the Mass Media Authority advice and recommendations in connection with the
allocation of licences regarding local broadcasting services. In some cases the Mass Media Authority
has regulated for frequency sharing so that a commercial operator could run it during the day for profit,
while a not for profit will meet more social needs in the evening etc. Its aim has been to have one
commercially focused local station, and the second balancing the needs for diversity and public service
output.
A.5.6.1.4 Regulatory body for licence enforcement
The Mass Media Authority has the power to penalise defaulters through fines and a penalty system
relating to breach or offence. The Mass Media Authority can confiscate a broadcasting licence.
A.5.6.2 Appeals
Norway operates under a Freedom of Information Act and therefore all public administrative information
is open to scrutiny upon request and there is a defined appeals mechanism. The formal line of appeal on
the actual award decision, is defined under law through the Public Administration Act.
When P4 lost its national broadcasting licence in 1993, it submitted a complained to the Cabinet and to
the parliamentary Ombudsman but these complaints were rejected. P4 has complained that it was not
clear to them on what basis/criteria it was rejected and that its record as a successful commercial and
popular broadcaster should have counted for more than alleged breaches of the public requirements.
A.5.6.3 Controls
A.5.6.3.1 Ownership controls
In 1999, the Norwegian Government passed new regulations to prevent and control excessive media
ownership concentration140. The Media Ownership Authority was then established specifically to create
139 Regulations No 153 of February 1998, relating to broadcasting, Royal Norwegian Ministry of Cultural Affairs.
140 The Media Authority Act became effective Jan 1 1999 and the Media Ownership Authority became operational from that
date. The purpose of the act is stated as being to ‘prevent a concentration of ownership that might jeopardise a
comprehensive range of media and hence genuine freedom of information’. It is designed to ensure real access to
alternative sources and channels of information, i.e. plurality and diversity of media principle.
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a media ownership regulation process and media ownership database. The Broadcasting Act limits
ownership in private national radio and television to one third of the market. Equal limits are placed on
ownership concentration at the local level no one is allowed to hold more than one third of the total
national local broadcasting market for local radio and television. Consolidation requirements also reflect
the combined interest of parties through family or relationship. The licensee is also required to record
and report the nationality of all shareholders.
A.5.6.3.2 Cross media controls
While Norway operates media ownership controls, it does allow media cross-ownership. In local radio at
least 75% of daily output must consist of programmes made by the licence-holder or by others in the
franchise area. While Norway operates media ownership controls, it does allow media cross-ownership.
A.5.6.3.3 Enforcement
Complaints should be submitted to the Complaints Committee and will be handled in accordance with
the Broadcasting Act. The Ministry appoints the members of the Complaints Committee for
Broadcasting Programmes with one nominee from NRK, one from TV2, Radio Hele Norge and TV
Norge, and one from Association of Local Radio and Local Television Companies. The Mass Media
Authority must be given the name of the editor of every broadcast and that the editorial responsibility
must be given at the beginning and end of the broadcast.
A.5.6.4 Licensing
A.5.6.4.1 Licensing procedures national and local
The broadcasting legislation states the Mass Media Authority, an administrative body under the Ministry
of Culture, grants licences on the basis of the applicant’s financial qualifications and ability to implement
the proposed project141. At the time P4 was awarded its licence - on a beauty contest basis - it was
preferred over the other business competitor because the major owner of the other company was heavily
involved in local broadcasting and this was deemed as too much concentration of ownership. In this
second phase of re-licensing, the Norwegian authority decided on a mix of price and merit in awarding
the licence. While the licence awards system allows for publication of minutes and decisions, it is not
viewed as highly transparent in Norway, largely because of the lack of governmental independence.
A.5.6.4.2 Format, advertising and news requirements
Norway also has strict regulatory control on advertisement content. In Norway advertisements
promoting alcohol and tobacco are prohibited. So is advertising that is not in accordance with the
principle of equality between the sexes, and advertising for certain medicines. The Broadcasting Act
furthermore limits the volume of advertising allowed, and prohibits advertising directed towards
children. Advertisements shall not exceed a total of 15 per cent of the broadcasting company's daily
transmission time. Advertisements shall not exceed a total of more than 20 per cent per hour. It also
controls the content of advertisement barring adverts for weapons, even excluding toy advertisements
and adverts for ‘philosophies of life’ or politics. It is equally strict in its code on children’s
advertisement, barring adverts before or after a children’s programme. It bars news, factual
documentaries or religious programmes from being broken up by advertisement and bans news and
current affairs presenters from being used in advertisement.
The regulations define the broadcast language as mainly Norwegian. No local radio stations have
specific public service requirements but some have public interest formats, not-for-profit structures and
ideals. IN addition, all independent commercial broadcasters are required to transmit messages from the
141 Regulations No 153 of February 1998, relating to broadcasting, Royal Norwegian Ministry of Cultural Affairs.
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Norwegian authorities when they are deemed to be of public importance. Local radio is required to
produce 75% of content locally.
A.5.6.4.3 Licence period
Local radio licences are issued for five years.
A.5.7 Spectrum Management
The Ministry of Cultural Affairs, through the Mass Media Authority, manages the Radio spectrum.
A.6
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Sweden
Demographics and financials
Population 8.94 million
Percentage of population listening weekly 78.4% daily
Average radio listening time (hours per week) 18.8
Public radio number market share
Total 53.5%
National stations 3
Regional stations 0
Local stations 25 (broadcasting on 1
national channel P4)
Commercial radio
Total 31.4%
National stations 0
Regional stations 0
Local stations 94 31.4%
Year of introduction 1993
Community radio
Stations 150 (1200 licences) 2.7%
Infrastructure
Market share terrestrial transmission
Market share broadcast cable, satellite, internet
How many digital radio stations 1 national, 19 regional
Incentives for commercial stations to provide DAB programmes
Financials
Funding type public radio (licence, advertising) Licence
Advertising on public radio stations (Y/N) No
Total advertising spending 2002/2003 in media
Advertising spending on radio €56 million (2001)
As percentage of total ad spend
Regulatory
Relevant legislation Radio and Television Act (July 2001)
Regulatory bodies
Broadcasting market Swedish Radio and Television Authority
Licence allocation Swedish Radio and Television Authority
Enforcement licence conditions Swedish Radio and Television Authority
Spectrum management National Post and Telecom Agency
Specific policy issues
Political interface with respect to licensing
Are cross-media ownership controls in place (Y/N)
Licensing
Assignment procedure national licences (type) N.a. (only public)
Assignment procedure local licences (type) Until July 2001: auction
Since July 2001: licence fee or beauty contest if more
applicants for one licence
Is non-judicial appeal possible? Yes
Licence duration 8 years (In 2000, all licences extended until 2008)
Are radio auctions being held in the future (Y/N, when, why not)
Are format requirements in place (Y/N) Partially
Are advertising requirements in place (Y/N)
Are news services requirements in place (Y/N)
How is compliance of contents requirements tested
Are licence renewal procedures in place (Y/N)
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A.6.1 Introduction
A.6.1.1 Overview radio market
An important feature of Swedish radio is the combination of strong and vital public service radio,
competitive local commercial radio and vital community radio142. On a national level public service
companies Sveriges Radio AB (Swedish Radio) and Sveriges Utbildningsradio AB (the Swedish
Educational Broadcasting Company) have a strong position as the only nationwide programme
companies. Local radio was introduced in 1993 when licences for local commercial radio were first
issued. Today, there are 94 broadcasting licences for local commercial radio. Community radio was
introduced in 1979. Currently, over 1,200 broadcasting licences have been issued to community radio
stations.
As an alternative to terrestrial broadcasting, trials of digital sound radio (DAB) began eight years ago.
However, until now digital radio broadcasts have not gained momentum to any great extent. On the
contrary, web radio has achieved a steadily increasing level of penetration. Many Swedish radio stations
are currently broadcasting via the Internet alongside their ordinary radio broadcasts. In addition to the
traditional radio stations, there are also radio stations that transmit only via the Internet. The fact that
radio is transmitted over the Internet means that people in Sweden can now listen to thousands of foreign
radio stations.
There are several forms of radio in Sweden. The table below shows the radio formats that are broadcast
in accordance with the Radio and Television Act. In the table, the Swedish Radio and TV authority is
abbreviated RTVV.
142 Tidens tusende tungor – Radion i Sverige från 50-tal till 90-tal [The thousand tongues of time - radio in Sweden from the
1950s to the 1990s], Gunnar Hallingberg (2000).
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Form of
broadcast
Distribution Authorisation Body Permitted
financing
Fee to the
government
National and
regional
Terrestrial Licences Government Licence
conditions143
No
Local
commercial
radio
Terrestrial Licences RTVV Advertising
sponsorship
Annual fee
Community
radio
Terrestrial Licences RTVV Advertising
sponsorship
No
Temporary
broadcasts
Terrestrial Licences RTVV Licence
conditions
No
Digital audio
broadcasting
(DAB)
Terrestrial Licences Government Licence
conditions,
advertising
sponsorship
No
Satellite radio Satellite Registration RTVV Advertising
sponsorship
No
Table 20: Sound radio transmissions covered by the Radio and Television Act
A.6.1.2 Demographics and Statistics
The company Radioundersökningar AB (RUAB) measures radio listening in Sweden continuously for
280 days a year, i.e. for 40 weeks. According to RUAB’s Report II/2002, 78.4 percent of the Swedish
population from 9 to 79 years of age listen to the radio on an average day. The survey covers the entire
country, corresponding to 5,926,000 individuals. Listener figures for Sveriges Radio (SR), local
commercial radio and community radio in recent years are set out in the table below.
Radio in total SR
Local commercial radio Community radio
Report II/2002 78,4 53,5 31,4 2,7
Report II/2001 77,4 54,2 31,0 2,3
Report II/2000 80,8 56,2 32,1 2,0
Report II/1999 81,0 57,0 31,8 1,9
Table 21: Listener figures as a percentage (9 - 79 years of age),1999 - 2002144
In RUAB’s report Report II/2002, the listening time is 172 minutes in total for radio during a day (24
hours), Monday to Sunday. This is a reduction of two minutes when compared with the previous period
(174 minutes in Report I/2002). This downward trend continues in the following reports: in Report
I/2003 the listening time is 163 minutes, in Report II/2003 161 minutes.
Over the past seven years, the location where radio is (most frequently) listened to has increasingly
shifted from the home to the car. The proportion that listens to the radio in the car, according to Report
II/2002, is 27 percent on an average day (Monday to Sunday). This is an increase of 6.6 percentage
points compared with Report II/1997. Consequently, radio listening in the home has fallen from 66.3
percent in 1997 to 58 percent in 2002. During the same period, radio listening in the workplace has
remained stable at about 16 to 17 percent145.
143 Sveriges Television AB (the Swedish public service television company) finances its broadcasts from the TV licence and
from sponsorship. The Swedish Educational Broadcasting Company has to finance its broadcasts from the TV licence.
144 Source: www.ruab.se
145 Report II/2002 from RUAB, www.ruab.se 2002-04-06.
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A.6.2 Public broadcasting market
According to the Radio and Television Act, a licence from the government is required in order to
broadcast sound radio programmes over the entire country (nationally). Two radio companies hold such
licences: Sveriges Radio AB (Swedish radio) and Sveriges Utbildningsradio AB (the Swedish
Educational Broadcasting Company). The licences relate to both analogue and digital broadcasts and are
valid until the end of 2005. In 2002 public broadcasters had an audience share of approx. 53%.
A.6.2.1 Major radio stations
Initially, Sveriges Radio AB (SR) was called AB Radiotjänst and started broadcasting in January 1925.
In 1957 the name changed to Sveriges Radio AB, and in 1978 the station was re-organised into a group
comprising four subsidiary companies under the parent company, Sveriges Radio. The radio operations
were split into two companies: Sveriges Riksradio AB and Sveriges Lokalradio AB. In 1992, parliament
decided that the group should be restructured into three independent companies. The two radio
companies Sveriges Riksradio AB and Sveriges Lokalradio AB were combined into a newly formed
company called Sveriges Radio AB. Ownership of the former group was taken over in 1994 by three
newly-formed foundations. In 1997, the three foundations were combined into a single foundation with
one board. The programme companies are independent of the parent foundation, and funds go directly to
the programme companies. The chairperson of Sveriges Radio is appointed by the government whilst
the other board members are appointed by the owner.
Sveriges Utbildningsradio AB (UR) (the Swedish Educational Broadcasting Company) has its origins in
government experimental work to develop radio and television for educational purposes. UR was
formed by transferring this operation to a subsidiary company of Sveriges Radio in 1978. In 1994, UR
became a separate programme company in the public service sphere146. UR is headed by a board made
up of a chairperson and five members. The chairperson is appointed by the government and the
members are appointed by the general meeting of UR. The main task of the foundation is to ensure that
the operations are conducted independently of the state, and of various interest organisations and power
groups in society.
A.6.2.2 Market share
Figure 15 gives an overview of the audience shares of public radio, local commercial radio and
community radio147.
146 Massmedier – press, radio och TV i förvandling [Mass media – press radio and television in transformation], Hadenius &
Weibull (1997) and Utbildningsradion www.ur.se 2002-03-11.
147 Source: www.ruab.se
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Figure 15: Audience shares public, local commercial and community radio, 1996-2003
A.6.2.3 Funding, revenues
For Sveriges Radio AB, the television licence paid by households finances all the operations of the
public service companies. Currently the licence fee is SEK 1,668 (€182) per household per year.
According to a decision of parliament, SR is allocated about 35 percent of the television licence funds
every year, about SEK 1.9 billion (€207 million)148.
UR is financed from the television licence fee paid by all owners of television sets in Sweden. For 2002,
UR has received just over SEK 282 million (€31 million) to run its operations. This is 4.7 percent of the
television licence fee revenue.
A.6.2.4 Advertising
There is no advertising on public radio.
A.6.2.5 Contents
During the first thirty years of radio, only one national channel was on the air: P1. The system of three
national channels was not completed until 1964. Each of the three national radio channels had its own
particular character: P1 was the speech channel, P2 offered a mixture of classical music and educational
and minority programmes, and P3 played light music. Local radio (now P4) broadcasted in “time
windows”; in other words, they borrowed time from P3 for their broadcasts. In 1986, it was decided that
local radio would be given its own channel – P4. The channel reached its full extent in 1989149. When
national radio and local radio were merged into one programme company in 1993, ahead of the launch of
local commercial radio, the channels were re-profiled. P3 became a youth channel. P4 took over P3’s
programmes, which were aimed at older listeners, as well as broadcasting locally. Channels P1 and P2
changed very little.
UR’s task is to make educational programmes that are available to everyone. According to the new
broadcasting licence, which runs from 2002 to 2005, UR must refine and concentrate its work even more
on educational programmes. At the turn of the year 2001/2002, UR’s regional operations were changed.
148 In 2001, SR shared out the SEK 1.9 billion among the various programme areas as follows: Service 3 %, Sport 5 %,
Entertainment 6 %, Culture 11 %, News 23 %, Current affairs 24 % and Music 28 %.
149 Sveriges Radio, www.sr.se and SOU 1999:30.
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UR’s programmes used to be produced and broadcast locally on P4. Radio production now takes place
in seven new districts. The broadcasts have been moved to the national channels P1, P2, P3 and P4.
UR’s programme operations were re-organised on 1 July 2000. Three programme production units
(child, youth and adult) are each responsible for their own range, regardless of whether it is disseminated
by radio, television, the web or printed media150.
A.6.3 Commercial broadcasting market
A.6.3.1 Year of introduction
The commercial broadcasting market in Sweden only exists at the local level. In 1993, the first local
commercial radio licences were issued to the highest bidders in auctions.
A.6.3.2 Major radio stations
At present there are 94 broadcasting licences for local commercial radio distributed over 42 broadcast
areas. It is estimated that about 75% of the population of Sweden can receive local commercial radio.
The local commercial radio sector is represented by Radioutgivareföreningen, RU (the Commercial
Radio Companies Association). RU works to develop good conditions for the running of local
commercial radio operations in Sweden. All local commercial radio companies are organised in RU.
The annual meeting and the board define the competition neutral issues that characterise RU’s agenda
and activity. RU is a member of the Association of European Radios.
A.6.3.3 Market share
In the autumn of 2001, the authority issued 11 new broadcasting licences. In 2003, local commercial
broadcasters had an audience share of 30,8%, see the figure below.
Figure 16: Audience share local commercial broadcasters, 1996-2003
A.6.3.4 Licence
New rules governing local commercial radio came into force on 1 July 2001. The purpose of the new
rules is to encourage diversity and freedom of expression and to strengthen local links with local
commercial radio. As early as the first year of operation of local commercial radio, five groups of
licence holders could be identified. These groups set up various types of networks, with partnerships in
advertising and/or other programmes. The years that followed saw a number of sales and regroupings
between the players, resulting in a structure that has not changed significantly since 1996.
150 Utbildningsradion www.ur.se 2002-03-11.
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During the autumn of 2000, the Radio and Television Authority carried out a survey of the ownership
situation and contractual position of the licence holders ahead of the decision on the extension of the
licences. The Authority found that the ownership structure was stable and that there had been no major
changes. Almost all the stations now form part of various networks based partly on ownership, partly on
coordinated programme operations and/or sales of advertising. Four groupings, Fria Media, Radio RIX,
Mix Megapol and NRJ, operate over large parts of Sweden, while a few companies have concentrated on
the major cities.
A.6.3.5 Advertising
During 2001, the turnover of the entire Swedish radio market was SEK 513 million151
(€56 million)152. This corresponds to a reduction of about 13 percent when compared with 2000 (SEK
596 million or €65 million). In all, the advertising market lost just over 10 percent during 2001.
According to IRM, the anxiety triggered by the terrorist attacks in the USA on September 11, 2001 is the
reason why investment in advertising has fallen153. The slump in the Telecom and IT sector is a further
explanation for this reduction.
A.6.4 Community radio
The term community radio means local sound radio broadcasts for community activities. Community
radio is the radio of local non-profit associations and is intended as a channel of communication for such
organisations. The community radio sector is represented by Sveriges Närradioförbund and Närradions
Riksorganisation. In addition there is KRN (Kristna Radionätet) which is a national organisation for
Christian radio in Sweden. Community radio trials began in April 1979. For the first three years
community radio was transmitted to sixteen places in Sweden. The activity became permanent on 1
January 1986 and the number of licence holders increased continuously until 1988. In recent years the
total number of licence holders has stabilised at about 1210 as of May 2002.
The following legal entities may be granted licences to broadcast community radio:
- local non-profit associations formed to broadcast programmes on community radio or which carry
on other operations in the broadcast area;
- congregations and church associations in the Swedish Church;
- compulsory associations of students in higher education;
- associations of licence holders in one broadcast area for shared community radio purposes, i.e.
community radio associations.
The broadcast area for a community radio licence may not cover more than one town. If there are
exceptional reasons, the Radio and Television Authority may decide on a broadcast area larger than one
town. The largest source of finance is membership subscriptions. Some associations receive local
authority grants. Advertising may also be broadcast on community radio.
A.6.5 Digital broadcasting market
A.6.5.1 Year of introduction
In the summer of 1995 at an international frequency planning meeting, Sweden obtained one national
frequency and 19 regional frequencies. Trial DAB broadcasts began as early as September 1995 in the
Stockholm region. The transmitter network currently reaches 85 percent of Swedish households. During
151 SRR Nytt, April 2002.
152 according to the accumulated quarterly statistics for 2001 produced by the Institute for Advertising and Media Statistics
(IRM).
153 Press release from the Institute for Advertising and Media Statistics (IRM), 2002-11-30.
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2002, however, digital radio could only be heard in the Stockholm, Gothenburg and Malmö conurbations
and in Luleå: reaching about 35 percent of the population of Sweden. The number of DAB receivers
continues to be very small (a few thousand at most).
In November 2001, the government decided on directives for an evaluation of digital radio. The
evaluation dealt with issues relating to technical developments, programming, frequency allocation,
financial aspects and distribution methods for digital sound radio other than DAB. A few of the findings
of the evaluation were that digital radio could bring benefits both for the radio sector and the public, with
greater choice as a result of broadcasts on more channels, and the ability to offer new services and sound
free from interference. Digital radio using DAB technology faces many major challenges, the greatest
being that there are not enough receivers and that they are too expensive.
A.6.5.2 Major radio stations
Sveriges Radio has launched several digital radio channels like P2 Musik, P6, Stockholm International,
the Finnish-language channel Sisuradio, and the teen channel P3 Star. In 2002 Sveriges Radio launched
three new channels: the culture channel SR C, the rock channel SR M and the classical music channel SR
K. Additionally, Sveriges Radio also launched new services like DAB web pages with news, traffic
information, weather, and a programme guide in text and pictures, among other things.
A.6.5.3 Licence
According to the Radio and Television Act, a licence from the government is required in order to
broadcast digital sound radio. Detailed instructions for applying for a licence and so on are given in the
regulation (1995:1020) on digital radio broadcasts. So far, only Sveriges Radio AB and the Swedish
Educational Broadcasting Company have been licensed by the government for digital audio
broadcasting. So far, no licences for private players have been announced.
A.6.6 Regulation and licensing
A.6.6.1 Regulatory bodies
A.6.6.1.1 Relevant legislation
There are rules concerning local commercial radio since 1 July 2001 in the Radio and Television Act,
when the former Local commercial radio Act was suspended by the “Stop Act”. However, some rules of
the Local Commercial Radio Act still apply to those stations that received licences before 1 July 2001.
A.6.6.1.2 Regulatory body
The Swedish Radio and Television Authority is the relevant government authority within the media field.
The Swedish Radio and Television Authority also deals with matters concerning fees for local
commercial radio and terrestrial television financed by advertising. Furthermore, the Authority also has
the task of issuing regulations and supervising television standards. The Swedish Radio and Television
Authority can decide on sanctions if certain rules governing broadcasting activities are not complied
with.
A.6.6.1.3 Regulatory body for allocation of licences
The Authority issues licences for local and community radio broadcasting and for temporary
broadcasting activities, and appoints local cable broadcasting companies. Where licences to transmit
digital terrestrial television and radio are concerned, it is the task of the Authority to advertise free
licences, to process applications and to submit proposals to the Government as to how these licences
should be distributed.
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A.6.6.1.4 Regulatory body for licence enforcement
The Authority is also required to monitor developments in the media field. This means that the
Authority is to gather, compile and publish statistics and other relevant information relating to ownership
and sector structure, technology and economics in the media field.
A.6.6.2 Appeals
Altogether, 16 applicants have appealed against the Authority’s granting of the licences. All the appeals
were rejected by the Stockholm County Court (administrative court).
A.6.6.3 Controls
A.6.6.3.1 Ownership controls
The new rules on local commercial radio make it possible to hold several licences to broadcast local
commercial radio, as long as they do not relate to the same broadcast area. In addition, a uniform
concession fee of SEK 40,000 (€4.372) per year was introduced, as well as minimum requirements for
holders of the new licences to broadcast at least three hours of their own material between 06.00 and
21.00 every day154.
A.6.6.3.2 Enforcement
The Swedish Radio and Television Authority registers those engaging in broadcasting activities
according to the Radio and Television Act and the designation used for their broadcasts. The Authority
registers all those who engage in broadcasting activities for which no licence is required, i.e. those
initially broadcasting by cable or transmitting programmes via satellite or who lease satellite capacity. A
further task of the Authority is to register persons who are legally responsible for cable, community radio
and local commercial radio broadcasts and temporary broadcasts, as well as persons legally responsible
for information from certain databases.
A.6.6.4 Licensing
A.6.6.4.1 Licensing procedures
A licence from the Swedish Radio and TV Authority is required for the broadcasting of local commercial
radio. According to the rules that applied until 1 July 2001, licences would be issued to the highest
bidder at auctions. Auctions were held on five occasions: the first in September 1993, the second in
November of the same year, the third and fourth in March and November 1994 and the fifth in November
1995.
At the first auction, 36 licences relating to northern and central Sweden were sold; at the second, 21
vacant licences for western and southern Sweden were auctioned off; at the third only two licences were
sold, and 22 licences were allocated at the fourth auction in the same year. During the most recent
auction, 13 licences were available but there were buyers for only 11. The total revenues for these
auctions were approximately €24,5 million.
At present there are 94 broadcasting licences for local commercial radio. Ten of the 94 licences are in
Stockholm, five in Gothenburg and two in practically all the other broadcast areas. In December 2000,
the Radio and Television Authority decided to extend the broadcasting licences of the then 83 licence
holders to 31 December 2008. During the new licence period, the stations must pay concession fees of
154 The new rules gave rise to some criticism from existing holders of licences to broadcast local commercial radio. The main
argument was that the new concession fee distorted competition, since it was so much lower than the fees that the licence
holders had undertaken to pay under the former auction system.
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International Survey
between SEK 21,300 (€2328) and SEK 3,050,000 (€333.333)155. The fees are highest in the urban areas.
In total, these licence-holders will have to pay about SEK 120 million (€13.1 million) in fees to the
Radio and TV Authority during 2002.
If there is more than one applicant, the Radio and Television Authority must grant the licence on the
basis of three criteria – undertakings about programme content, technical and financial preconditions156,
and ownership157. The purpose is to encourage diversity and freedom of expression and to strengthen
local links with local commercial radio.
During the autumn of 2001, the Radio and Television Authority issued eleven licences - in accordance
with the new rules - to broadcast local commercial radio. In addition to the ten licences that had been
returned or not issued, a further licence was added in Umeå after consultation with the National Post and
Telecom Agency (PTS). There was great interest in the licences announced on 18 September 2001, and
by the end of the application period the Authority had received 96 applications. There was more than
one applicant in all broadcast areas. After requesting additional information in several cases, the
Authority was in a position to announce its decision on the issue of the new licences on 21 December
2001. The licences came into force on 1 January 2002. They were subject to conditions in accordance
with the undertakings given by the companies in their applications.
A.6.6.4.2 Licence period
Local radio licences are issued for 8 years.
A.6.7 Spectrum management
The National Post and Telecom Agency (PTS) is the official body that oversees the areas of telecom, IT,
radio and postal service. PTS is responsible for the management (including planning) of radio
broadcasting frequencies. Their aim is to ensure that radio frequencies are allocated in such a way that
users derive the greatest possible benefit from them and that optimal use is made of the radio spectrum.
To achieve this aim, PTS works on monitoring developments in the area of radio, announcing regulations
and issuing licences, checking that laws are complied with and providing information to users and the
public.
A.7
155 These fees were determined on the basis of the winning bids of the previous auctions.
156 The applicant must have the financial and technical capacity to carry out long-term quality broadcasting.
157 The Radio and Television Authority strives for many actors on the local market. Only media that have the broadcasting
region in question as their coverage or reception area will be considered. Ownership of radio, television and daily
newspapers, both in print and electronic form, will be taken into account. Ownership that results in an increase in the
number of actors on the market and a high proportion of the programmes that are unique to the programme company are the
objective. Source: Committee report on commercial local radio, SOU 1999:14).
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International Survey
New Zealand
Demographics and financials
Population 3.94 million
Percentage of population listening weekly 85-90%
Average radio listening time (hours per week)
Public radio number market share
Total
National stations 9
Regional 3
Local stations 21
Commercial radio
Total
National stations 0
Regional +Local stations 180
Local stations n.a.
Year of introduction 1989
Community radio
Stations 14
Infrastructure
How many digital radio stations 0
Incentives for commercial stations to provide DAB programmes n.a.
Financials
Funding type public radio (licence, advertising) Public funding + licence + sponsoring
Advertising on public radio stations (Y/N) Yes
Total advertising spending 2002/2003 in media $ 2.0 billion
Advertising spending on radio $203 million
As percentage of total ad spend 10%
Regulatory
Relevant legislation
Regulatory bodies
Broadcasting market Combined Ministries of Economic Development,
Culture and Heritage and Maori Affairs
Licence allocation
Enforcement licence conditions
Spectrum management Ministry of Economic Development
Specific policy issues
Political interface with respect to licensing Minister of Economic Development
Are cross-media ownership controls in place (Y/N) No
Licensing
Assignment procedure national licences (type) Auction
Assignment procedure local licences (type) Auction
Is non-judicial appeal possible?
Licence duration 20 years
Are radio auctions being held in the future (Y/N, when, why not) Currently spectrum is being freed for 4 national and
some regional channels
Are format requirements in place (Y/N) No
Are advertising requirements in place (Y/N) No
Are news services requirements in place (Y/N) No
How is compliance of contents requirements tested N.a.
Are licence renewal procedures in place (Y/N) Yes
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International Survey
A.7.1 Introduction
A.7.1.1 Overview radio market
Radio services in New Zealand are deregulated and very competitive. The largest city Auckland has a
population of around 1m and over 30 radio stations and all other main markets have more than 15
services.
A.7.1.2 Demographics and statistics
New Zealand has 4 million inhabitants of which 85%-90% of individuals over 10 years old listen to the
radio each week.
A.7.2 Public broadcasting market
A.7.2.1 Major radio stations
The structure of the public or non-commercial broadcasting market is as shown in Table 22. The
government has reserved licences for these services, although non-commercial broadcasters may also bid
for frequencies in auctions.
Radio New Zealand, the state-owned and publicly funded broadcaster, operates 3 national services.
Before 1996 it also operated two networks of advertiser financed local services, however these services
have since been privatised.
Maori radio services are supported by the government, primarily to promote the Maori language. The
Christian radio service by contrast is funded primarily by listener subscriptions.
Type Stations Format Sources of income
Nationalstate
owned
National radio News/talk/information Licence fee
Concert FM Classical Licence fee
AM Network Parliament Licence fee
Maori radio 21 local stations and 3
semi-national services
Government funding
Christian 3 national stations Subscription, donations and
advertising
Community 11 access radio, 3
Pacific Island services
and some small
community services
Licence fee, donations, sponsorship
and advertising. One Pacific Island
service is directly funded by
government
Table 22: Non-commercial services
A.7.2.2 Funding, revenues
The funding arrangements for public service broadcasting are unique, in the sense that the licence fee is
administered by a government agency, New Zealand on Air, which allocates funding to television and
radio services. A fixed sum is agreed for a period of time with Radio New Zealand, whereas other radio
broadcasters must bid for funding. In 2002/3 the $NZ22.7m was allocated to Radio New Zealand,
$NZ2.19m to access and Pacific Island Radio and $NZ0.63m to commercial radio programmes.
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International Survey
A.7.2.3 Contents
Commercial radio services are not subject to (positive) content regulation. Public service broadcasting
objectives (e.g. universality, local content, news and information) are achieved through the allocation of
licence fees to the state-owned broadcaster, Radio New Zealand, direct government funding of Maori
services and one Pacific Island service, and the competitive allocation of licence fee revenues to access
radio, Pacific Island services and commercial broadcasters. In addition, the commercial radio sector has
a “voluntary” target of increasing the proportion of New Zealand music played to 20% of airtime by
2005.
A.7.3 Commercial broadcasting market
A.7.3.1 Year of introduction
There has been rapid expansion in the number of radio stations broadcasting since 1989 when the market
was liberalised and when the licensing regime changed from beauty contests to auctions of all available
spectrum158. Between 1989 and 1996 the number of privately owned radio stations increased from 30 to
about 180159.
A.7.3.2 Major radio stations
Most of the main stations are either fully or partially networked, with roughly half the audience listening
to fully networked stations, 30% to partially networked stations and 20 % to local stations. Networking
allows the relatively small New Zealand market to sustain a large number of stations. There are 15
independent commercial radio operators.
A.7.3.3 Market share
Table 23 lists stations that broadcast in Auckland, the largest market with a 10+ population of around
905,000.
158 One of the criteria in the beauty contest was the impact of the service on the incumbent operators. This had the effect of
limiting the expansion of services.
159 The 1996 value is approximate as frequencies rather than stations are licensed. See Broadcasting Policy in New Zealand,
Ministry of Commerce, February 1997.
A-57
International Survey
Share of commercial
radio listening (%)
Format Ownership
NewstalkZB 13.6 News and talkback Major group
Classic Hits 9.2 CHR Major group
Mai FM 8.1 Black Urban Independent
91ZM 6.8 CHR Major group
Easy Listening i98 5.8 Easy listening Major group
More FM 5.6 AC Major group
Solid Gold 5.0 Hits – 50, 60s, 70s Major group
Radio Hauraki 4.2 Classic adult rock Major group
The Rock 4.1 Rock/Classic rock Major group
Radio Pacific 4.1 Talkback and news Major group
Radio Sport 3.9 Sport Major group
The Edge 2.8 Top 40 Major group
95bFM 2.0 New music esp. NZ
music
Independent
George FM 1.8 Urban contemporary Independent
Cool Blue 1.4 Jazz/blues Major group
Channel Z 0.6 Urban/alternative Major group
Others (17 stations) 20.9
Table 23: Auckland Market, April 2003160
Table 24 lists stations that broadcast in Southland, a much smaller market with a 10+ population of about
63,500.
Share of commercial
audience (%)
Format Ownership
The Edge 15.2 Top 40 Major group
Classic Hits 14.9 CHR Major group
The Rock 10.0 Rock/Classic Rock Major group
Foveaux FM 9.1 AC Major group
Newstalk ZB 8.2 News & talkback Major group
Solid Gold 6.2 Hits- 50s, 60s, 70s Major group
ZM 6.1 CHR Major group
Radio Pacific 5.8 Talkback & news Major group
Radio Sport 3.5 Sport Major group
Others (6 stations) 20.9
Table 24: Southland market, October 2002161
A.7.3.4 Advertising
There has also been a consolidation in the sector such that it is now dominated by two groupings which
together account for about 95% of radio advertising revenues and similar fractions of listening162. Radio
advertising revenues totalled $203m in the year to December 2002 (or 13% of advertising revenues)163.
160 Source: www.radios.co.nz, Company information.
161 Source: www.radios.co.nz, Company information.
162 Radio Broadcasting Association, New Zealand.
163 New Zealand Advertising Industry Turnover, reported by the Advertising Standards Authority, www.asa.co.nz
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International Survey
A.7.4 Community broadcasting market
In the case of community access radio, one frequency has been assigned in each of eleven main
population centres and the licence holder is expected to accommodate a variety of community groups
wishing to transmit services. For example, the community radio service in Auckland transmits services
in 40 languages and was initiated by members of the Ethnic Council and the Pacific Islands communities.
To qualify for licence fee funding community services must provide broadcasts that cater for the interests
of women, youth, children, persons with disabilities and minorities in the community. Services must be
not for profit and advertising must comprise less than 50% of revenues.
A.7.5 Digital broadcasting market
There are no plans at present to launch digital radio.
A.7.6 Regulation and licensing
Since 1989 licences for commercial radio services have been auctioned. Services that existed before
1989 had their licences extended in return for a lump sum payment equal to half the sum paid for
licences at auction. All licences have a 20 year duration and because licences start to expire in 2011 the
government has recently announced its policy for licence renewal. This involves offering incumbents a
20 year renewal of their licences subject to the payment of a price that is to reflect the market value of
the rights and will be determined by government. Rights are to be reallocated five years before they
expire. If the price offered is rejected then the licence will be auctioned.
There is no regulation of the content or format of services or of advertising minutes. There are no
controls on media ownership beyond those implied by competition legislation.
Any appeals against licences awarded through auctions must go through the courts.
A.7.7 Spectrum management
Spectrum management functions are undertaken by the Ministry of Economic Development.
Broadcasting policy in respect of use of the spectrum is developed by the Ministry in consultation with
the Ministers for Culture and Heritage and Maori Affairs. Responsibility for broadcasting policy is split
between the three Ministries, with the Ministry of Economic Development responsible for commercial
broadcasting, the Ministry for Culture and Heritage responsible for non-commercial broadcasting and
broadcasting standards and the Ministry of Maori Affairs responsible for Maori broadcasting.
Specific frequencies have been reserved for non-commercial radio services, including 29 AM
frequencies. All other sound broadcasting spectrum is auctioned. All the FM frequencies in the main
population centres have now been allocated, however, the upper part of the FM radio band (100-108
MHz) is at present being cleared of land mobile services. Once this process has been completed there
will be sufficient spectrum to support an additional 4-8 services in most main centres or four national
radio networks and a number of local stations164. Policy with respect to this spectrum has still to be
finalised.
164 Future of the FM Band, Ministry of Economic development, August 2001.
A-59

B. The value of a radio station
On October 24 2003 Scottish Radio Holdings plc (SRH) announced the proposed acquisition of Dublin’s
FM104165 from Capital Radio Productions Limited for the transaction value of €26 million. FM104 is a
radio station broadcasting in Dublin City and County, using the frequency spectrum that was allocated to
FM104 by the Government of Ireland.
The assets of FM104 total the sum of € 3 million, being the current value of the investments in the
company. The acquisition of FM104 shows that using radio frequency spectrum for radio broadcasting
purposes can create substantial value. A radio station that makes efficient use of the radio frequency
spectrum, which is a public good, creates this value. This provides the Government of Ireland with the
opportunity to optimise the value of the available radio frequencies. The Government of Ireland can
realise this by allocating the radio frequency spectrum to the radio operators that create maximum value.
Hence, a careful allocation process will enable the Government of Ireland to optimise the proceeds of the
public good.
In this section, more insight is given in the value of radio frequencies and how this value can be allocated
optimally to the various radio stations.
The acquisition of FM104 by SRH is analysed and it is shown that the acquisition price of € 26 million is
based on financial forecasts and the market value of comparable companies.
B.1 Analysis of the FM104 acquisition
SRH is a major radio operator in the UK and is listed on the London Stock Exchange. Analysts and
shareholders carefully track the financial performance of the company and all the actions that may
impact this performance. The transaction value of the FM104 acquisition is five times the net profit of
SRH, and thus is an important action with potential financial impact. It is therefore justified to assume
that the acquisition has been carefully considered and is expected to improve the financial performance
of SRH in the future. This assumption is further supported by the positive development of the share
price of SRH after the acquisition.
A rough financial analysis of the transaction is performed by making a simplified valuation of FM104
based on the available financial information before the acquisition. Two valuation methods are used,
which are based on assumptions regarding financial forecasts and market information. The outcome of
the valuation is therefore only indicative and to be used for discussion purposes only. The first valuation
method is a peer group valuation, in which financial performance indicators of other companies are
compared to FM104. The second valuation method is a discounted cash flow (DCF) model, in which the
value of FM104 is based on future cash flows from operations.
B.1.1 Peer group valuation
The peer group valuation uses a group of reference companies (peers) to which FM104 is compared.
From these reference companies we determine the financial multiples that represent the value of the
reference company. This can be done only when the value of the reference company is known, i.e. when
it is listed on the stock market. The multiple is a parameter that expresses the value of the company as a
function of financial indicators like turnover, net profit, EBITDA (earnings before interest, taxes,
depreciation and amortisation) and EBIT (earnings before interest and taxes).
165 This deal is still waiting for formal approval by the Competition Authority.
B-1
The value of a radio station
Example
Company X is the reference company that is listed on the stock market and Company Y is the company of which the value is to be determined,
based on the turnover comparison of both companies.
If the turnover of company X is € 100m and the value of the company on the stock market (price) is € 300m, then the turnover multiple is €
300m / € 100m = 3
If the turnover of company Y is € 10m, then the value based on the turnover multiple is 3 * € 10m = € 30m
Essential in a thorough peer group valuation is that the selected peers are comparable to FM104 in terms
of activities, market, size, financials, etc. This requires market research and financial insight into the
companies, which in this phase is outside the scope of this study.
In this peer group valuation the selected companies have similar activities as FM104 and have financial
information readily available. SRH, Entercom (US), GWR Group and Capital Radio have been chosen
as peers. Of FM104, only the turnover and the net profit are publicly known financials. Therefore the
turnover and net profit multiples of the peers are used to determine the value of FM104. This is shown in
the table below.
SRH (Schotland)
Share Price (GBP as of 9/2003) 8.54
# Shares 33.500.000
Market Cap (€ m) 286
Financials (€ m) multiples
Turnover 84.9 3.4
Net profit 7.3 39.2
Entercom Communications (US)
Share Price (USD as of 11/2003) 45
# Shares 51000000
Market Cap (€ m) 2295
Financials (€ m) multiples
Turnover (11/2003) 391 5.9
Net profit 63.6 36.1
GWR Group
Share Price (GBP as of 3/2003) 1.5
# Shares 127000000
Market Cap (€ m) 190.5
Financials (€ m) multiples
Turnover (GBP 3/2003) 127.1 1.5
Net profit -14.8 n.a.
B-2
The value of a radio station
Capital Radio
Share Price (GBP as of 12/2002) 4.75
# Shares 82000000
Market Cap (€ m) 389.5
Financials (€ m) Multiples
Turnover (GBP 12/2002) 120 3.2
Net profit 7.2 54.1
In the analysis, the turnover and net profit multiples of the four peers (two multiples per peer) are
calculated. Then the average and median multiples for turnover and net profit have are calculated. The
average multiple is calculated by adding the multiples of the four companies and dividing it by four. The
median is calculated by sorting the multiples from lowest value to highest value and taking the middle
value. To calculate the value of FM104 the financials of FM104 are multiplied with the respective
multiples. This is shown in the figure above and the table below.
0 5 10 15 20 25 30 35 40
Median
Average
Value (EUR mln)
Turnover Net Profit
Peer Group
Multiple
Peer Group
Multiple
Financials
FM104
Value FM104
based on
Value FM104
based on
Median Average (€ m) Median Average
Turnover 3.3 3.5 7.556 25.0 26.4
Net profit 39.2 43.1 0.779 30.5 33.6
The peer group valuation reveals a valuation range of € 25m to € 33m This value range does not include
a discount or error margin.
B.1.1.1 Conclusions peer group valuation
As mentioned before, essential to a thorough peer group valuation is the selection of peers. The peers in
our valuation are all listed on the stock exchange and larger in size and turnover than FM104. Also,
some of the peers may have additional activities. In addition, the peer group valuation will be more
accurate if the number of peers is larger and if more financial information of FM104 is known (EBITDA,
EBIT). The outcome of this valuation is therefore only indicative and an error margin should be
accounted for.
There is a small spread in the multiples of the selected peer group companies. If this would also be the
case if more peers were selected, then it would make this valuation more accurate. Note that the net
B-3
The value of a radio station
profit multiple is very high and is likely to have a different value if a more thorough peer group valuation
is performed.
Bearing the simplifications of this valuation method in mind, the valuation range of € 25m to € 33m is in
line with the acquisition price of € 26 million, which was paid for FM104.
B.1.2 Discounted Cash Flow valuation
In the DCF valuation, the value of a business is the future expected cash flow discounted at a rate that
reflects the riskiness of the cash flow. The approach is based on the concept that an investment adds
value if it generates return on investment above the return that can be earned on investments of similar
risk. The discount factor is determined by the Weighted Average Cost of Capital (WACC). Analysts
commonly use this method to value companies listed on the stock exchange.
In the DCF model, the cash flows of the companies are forecasted for a number of years using financial
modelling. Based on the cash flows, the value of the company is calculated for the forecast period. In
addition to the forecast period, the terminal value of the company is calculated. The total value of the
company equals the value of the forecast period plus the end value. The financial formulae are
summarized in the box below.
Value (DCF model) = Present value of cash flow during explicit forecast period +
Present value of cash flow after explicit forecast period
Value (DCF model) = DCF Value (forecast period) + End Value
DCF Value (forecast period) = (cash flow in year y) /(1+WACC)^(y-2004) = (cash flow in year y) * Discount factor
y = number of years in future
WACC (discount factor) = long interest + beta * risk premium
Beta = the company’s systematic risk
End Value = cash flow at end of forecast period / (WACC – long term growth)
In the DCF valuation model of FM104 the following rough assumptions have been made:
- The forecast period is set to eight years, until 2011;
- The long interest is set to 5% (source: Bloomberg), beta to 1 and risk premium to 5%, resulting in a
WACC of 10%;
- The long term growth is set to 0%;
- Stable growth of revenues and costs until the year 2011, which covers the licence period;
- No investments after the year 2006;
- The tax rate is set to 13% until the year 2011 (source: McCann FitzGerald Sollicitors);
- Only one scenario is used in the forecast, and an error margin should be introduced. In this
valuation, the error margin is estimated to be 30%.
The next step in the DCF valuation is to forecast the future cash flows of FM104. FM104 has published
preliminary financial forecasts until the year 2007. The radio licence of FM104 is valid for 10 years.
The free cash flow forecast based on the rough assumptions is given in the table below. Note that this
forecast has not been verified.
B-4
The value of a radio station
DCF Valuation FM104
€ (m) 2004 2005 2006 2007 2008 2009 2010 2011
Revenues 7.90 8.30 8.71 9.15 9.61 10.09 10.59 11.12
growth rate 5% 5% 5% 5% 5% 5% 5%
Costs 7.01 7.13 7.37 7.65 8.03 8.43 8.85 9.30
growth rate 2% 3% 4% 5% 5% 5% 5%
Earnings before interest, tax 0.90 1.17 1.35 1.50 1.57 1.65 1.74 1.82
Tax Rate 13% 13% 13% 13% 13% 13% 13% 13%
Operating profit after tax 0.78 1.02 1.17 1.30 1.37 1.44 1.51 1.59
Capital expenditure 0.25 0.25 0.25 0 0 0 0 0
Cash flow 0.53 0.77 0.92 1.30 1.37 1.44 1.51 1.59
growth rate 45% 20% 41% 5% 5% 5% 5%
WACC 10%(long Interest 5% + Beta 1.0 * risk premium 5%)
Discount factor 0.91 0.83 0.75 0.68 0.62 0.56 0.51 0.47
Present value of cash flow 0.48 0.63 0.69 0.89 0.85 0.81 0.78 0.74
Using the formulae above the value of FM104 is calculated to be between € 15 m and € 28 m.
Components (€ m)
WACC 10%
Long term growth 0%
DCF Value (until 2011) 5.9
End Value (after 2011) 16
Total Value 22
Error margin 30%
Value range 15 to 28
B.1.2.1 Conclusions Discounted Cash Flow valuation
As mentioned before, the DCF Valuation is largely based on assumptions of future cash flows and
limited financial information of FM104. The outcome also depends on the assumed growth rates and
possible investments in the future. The growth rates have been chosen in line with comparable
companies. In this DCF valuation, the frequency licence is valid for the full forecast period.
Also note that in a DCF valuation the company value is largely determined by the terminal value, which
in this DCF valuation is the value of the cash flows after the forecasted period of eight years. This makes
the valuation highly dependent on the accuracy of the predicted cash flow at the end of the forecast
period. This means that it is crucial to know what to the licence of FM104 after the current licence
period has elapsed, as this will have a large impact on the terminal value. A growth rate of 0% has been
assumed beyond the forecasted period. For a more thorough valuation it is necessary to forecast the
financials more carefully and preferable discuss them with FM104.
Nevertheless, analysts commonly use this method to value a company and it is very likely this method
has also been used by SRH to determine the acquisition price of FM104.
The DCF valuation range of € 15m to € 28m is in line with the acquisition price of € 26m, which was
paid for FM104.
B-5
The value of a radio station
B.1.3 Overall conclusion valuation
From the outcome of the two valuation methods can be concluded that the price that SRH paid for
FM104 can be explained with the simplified models that are used. This further supports our statement
that the bid on FM104 is well considered and calculated and well received by the shareholders of SRH.
The valuation does not consider any market premiums, which are usually related to a specific market
position or stock market listing. No synergy effects or cost savings that can be realised in an acquisition
or merger have been taken into account. SRH issues new shares to finance 45% of the acquisition, which
is more beneficial to SRH. A pure cash offer would most likely result in a lower bid price.
€ m
SRH price 26
Peer Group Valuation 25 - 33
DCF Valuation 15 - 28
Exploiting the opportunities of the radio spectrum and the licence that allows FM104 to continue
operations in Dublin City and Dublin County, largely generates the Value of FM104. This becomes
clear if we look at the assets of FM104, which are valued at € 3m The investments in the company are
limited and largely financed by the generated turnover of the company. From this we can conclude that a
large part of the value of FM104 is determined by the value of the radio frequency licence.
B.2 Changing market circumstances due to competition or licence fees
The valuation makes it clear that the cash flow (profitability) determines the value of any company, and
not so much the revenues. The revenues are highly dependent on the target audience. A larger the
audience will generate higher revenues. In order to maximise cash flows, it is necessary to minimise the
cost levels. A radio station has to deal with fixed costs (like licence fees, property and equipment costs)
and variable costs (like personnel costs, general costs). This means that if the market situation changes
due to more competition or increase licence costs, the cash flows will decrease and hence the value of the
company will decrease.
In case of more competition, the number of subscribers will decrease, whereas the fixed costs remain
stable. As a result, the cash flow of the company decreases. In case of increase licence costs the
revenues will remain stable and the fixed costs will increase, thus decreasing the cash flow of the
company. Due to the fixed costs associated with the operation of a radio station, small radio stations will
not be as profitable as large radio station, or may not be profitable at all. For a large radio station, the
fixed costs will have less impact on the financial performance.
To illustrate the importance of profitability, a rough valuation is applied to smaller radio stations. The
same Peer Group Valuation as FM104 is used, using the net profit multiple, and the financial information
as forecasted in the business plans for licence acquisitions of the respective companies (source:
www.bci.ie). Note that these business plans may be too optimistic in financial (as the applicant has to
demonstrate commercial viability). Furthermore it seems that the smaller stations can survive because
they pay considerably lower wages than the larger players (i.e. they benefit from the commitment of their
employees)166. If this is the case then it would be highly unlikely that the companies can be sold at the
166 In the licence application of 98FM, for instance, the staff costs for approximately 70 fte are budgeted at Euro 3.2 m,
corresponding to an average salary of approximately Euro 45,000 per employee, which is in line with RTÉ’s average salary.
In Kilkenny KCR has a budget of nearly Euro 625,000 for approximately 25 fte, corresponding to an average salary level of
Euro 25,000. CKR arrives at a similar level: a budget of Euro 510,000 for approximately 20 fte.
B-6
The value of a radio station
calculated prices. Informally, many of the smaller stations revealed that they are hardly profitable. Also
note that this valuation method is very crude and the multiple is very high compared to the multiple for
other companies. A thorough valuation may result a lower price. The valuation reveals the following
indicative values for some of the smaller radio stations.
Station Population 15+
Net profit
forecast (€ m)
Valuation using net profit
multiples of (39-43)
KCLR (2003) 100.000 < 0 0
KFM (2004E) 126.000 < 0 0
Midwest Radio (2003) 93.000 .27 €10m – €11m
Kildare 97 FM (2004) *) 126.000 < 0 0
Wexford (2004) *) 91.000 .17 €6m – €7m
Clare FM (2004) 80.000 <0 0
Tipp FM (2003) 110.000 .055 €2.2m – €2.4m
*) These stations did not obtain their licence. The financials from their published business plans as an indication.
This rough peer group valuation leads to a value of either zero or a few million euros. There are several
explanations for this value range. Firstly, the net profit multiples are unusually high compared to other
listed companies, which makes the suitability of this multiple questionable. Secondly, these small radio
stations are not very well comparable to the large peers. Therefore, a DCF valuation is desirable to
complete the picture. Moreover, because of the limited size and growth opportunities of the small radio
stations, the actual value of the smaller radio station may be lower than estimated above. Hence, if more
competition is allowed and available radio spectrum is shared among more radio stations, the stations
will become less profitable and value may be destroyed.
It is therefore highly likely that a few large radio stations will use the radio spectrum more efficiently and
create more value than a large group of smaller radio stations. In conclusion, the Government of Ireland
should carefully consider the value that will be created by the individual radio stations when allocation
the radio spectrum.
Note that all valuations in this document are purely indicative and for discussion purposes only. A more
accurate valuation would require a more thorough analysis.
B-7

C. List of organisations interviewed
- Broadcasting Commission of Ireland (BCI)
- Merrion Corporate Finance Ltd
- Commission for Communications Regulation (ComReg)
- Scottish Radio Holdings (SRH)
- Institute of Advertising Practitioners in Ireland (IAPI)
- Radio Telefís Éireann (RTÉ)
- Independent Broadcasters Association (Éist)
- Community Radio Forum (Craol)
- Independent Broadcasters of Ireland (IBI)
- UTV
ORGANISATION
C-1