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Digital Radio In The UK: Progress & Challenges

Grant Goddard
radio specialist
www.grantgoddard.co.uk

EBU Digital Radio Conference June 2009

Grant Goddard

Grant Goddard
30 years’ experience in radio management and consultancy

radio specialist

Strategies for successful radio formats and new radio stations: KISS FM (London), Radio Juventus (Hungary), Radio 7 (Moscow), Radio City (India) Strategies for radio owners and shareholders: EMAP Radio & DMGT (London), Metromedia (US), Star TV (India), BBC World Service Trust (Cambodia) Informing public broadcasting policy: Radio Authority/Ofcom, Competition Commission, Digital Britain Writer/journalist on radio, music & broadcasting industries: 1000+ articles published in trade and consumer magazines

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard

Agenda

radio specialist

UK digital radio overview UK digital radio forecasts UK digital radio challenges

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard
radio specialist

UK digital radio overview

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard

UK digital radio overview
% of adults who claim to own a DAB radio receiver at home
35

radio specialist 32% of UK adults claim to own a DAB radio
27.3 27.3 28.7 29.7 2008Q4 2009Q1

30

20 15.3 15.3 16.0

15 10.5 11.1

5

0 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3

[source: RAJAR] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 5

3.9

4.4

4.5

5.3

8.1

10

9.1

13.6

19.5

20.3

21.7

22.3

25

32.1

Grant Goddard

UK digital radio overview
BBC Radio - hours listened by platform (% of total hours listened)
75.7% 72.8% 80% 67.3% 73.7% 70.1% 68.8% 69.6% 67.9%

radio specialist

60%

20% of listening to BBC radio is via digital platforms
40%

18.3%

15.3%

17.0%

17.4%

17.6%

20.2%

20.8%

12.8%

12.5%

12.8%

12.0%

0% all analogue 2007Q2
[source: RAJAR] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 6

all digital 2007Q4 2008Q1 2008Q2 2008Q3

2007Q3

9.0%

unspecified 2008Q4 2009Q1

9.3%

11.9%

20%

13.4%

13.8%

Grant Goddard

UK digital radio overview
Commercial Radio - hours listened by platform (% of total hours listened)
72.1% 69.6% 72.0% 80% 65.0% 69.2% 68.4%

radio specialist

67.8%

60%

67.5%

20% of listening to commercial radio is via digital platforms
40%

13.8%

16.8%

18.1%

18.4%

18.4%

18.9%

19.0%

19.6%

21.2% 13.6%

9.8%

0% all analogue 2007Q2
[source: RAJAR] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 7

all digital 2007Q4 2008Q1 2008Q2 2008Q3

unspecified 2008Q4 2009Q1

2007Q3

9.6%

12.5%

12.7%

12.9%

20%

13.2%

10,000

2,000

4,000

6,000

8,000

0 2002 Dec 2003 Mar 2003 Jun 2003 Sep 2003 Dec 2004 Mar 2004 Jun 2004 Sep 2004 Dec 2005 Mar 2005 Jun 2005 Sep 2005 Dec 2006 Mar 2006 Jun 2006 Sep 2006 Dec 2007 Mar 2007 Jun 2007 Sep 2007 Dec 2008 Mar 2008 Jun 2008 Sep 2008 Dec 2009 Mar 2034 2715 3053 3340 3648 4444 4826 5125 5488 6452 6942 7,300 7,665 8,528 9,011 1740 1535 1290 780 646 544 433 250 197 158 135

UK digital radio overview

[source: Digital Radio Development Bureau]

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

UK cumulative DAB receiver unit sales (‘000 units) 9 million DAB receivers sold to date in UK radio specialist

Grant Goddard

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Grant Goddard
radio specialist

UK digital radio forecasts

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard

UK digital radio forecast – Digital Radio Development Bureau
DAB receiver penetration (% adults, % households)
55 50 45 40 35 27.3 30 25 16.0 20 11.1 15 10 5 0 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 3.9 4.4 4.5 5.3 8.1 9.1 13.6 19.5 21.7 22.3 27.3 28.7 29.7

radio specialist

DAB receiver penetration close to forecast

15.3

10.5

15.3

20.3

32.1

2010Q3

RAJAR actual (% adults)
[source: RAJAR, Digital Radio Development Bureau] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

DRDB 2007 forecast (% households)

2010Q4

10

Grant Goddard

UK digital radio forecast – Digital Radio Development Bureau
Cumulative DAB receiver unit sales (million at year-end)
25

radio specialist

20

15

10

8.53

DAB receiver sales lower than forecasts
actual 2004 DRDB forecast 2005 DRDB forecast 2006 DRDB forecast 2007 DRDB forecast

5
4.44 2.72

6.45

0

1.29 2004

2005

2006

2007

2008

2009

2010

[source: Digital Radio Development Bureau] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 11

Grant Goddard

UK digital radio forecast - Ofcom
Radio listening via digital platforms (% of radio listening at year-end)
100 90 80

radio specialist

70 60 50 40 30 16.6 11.0 10 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 5.9 12.5 18.3

20

Radio listening via digital much lower than forecast
actual (RAJAR year-end) Ofcom forecast (Novem ber 2006)

[source: RAJAR, Ofcom] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 12

Grant Goddard

UK digital radio forecast - RadioCentre
50% 50%

radio specialist

Commercial radio listening via digital platforms (% of commercial radio listening at year-end)

45%

40%

35%

30%

30%

25%

20% 16% 14% 10% 11% 18% 19%

15%

Commercial radio listening via digital lower than forecast

5% 5% 0% 2004
[source: RAJAR, RadioCentre] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

actual (RAJAR year-end) RadioCentre target (Jan 2007) 2005 2006 2007 2008 2009 2010 2011

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Grant Goddard

UK digital radio forecast – Digital Radio Working Group
Radio listening via digital platforms (% of radio listening at year-end)
55 50 45 40 35 30 25 20 15 11.0 10 5.9 5 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 12.5 16.6 18.3 actual (RAJAR year-end) DRWG aspirational tim etable (Jan 2009) trendline 50

radio specialist

Most recent government forecast of digital listening unlikely to be achieved

2019

[source: RAJAR, Digital Radio Working Group] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 14

2020

Grant Goddard

UK digital radio forecast – Digital Radio Working Group
DAB radio receiver sales (% of total radio receiver sales)
55% 50% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 8% 13% 18% 22% 20%

radio specialist

Most recent government forecast of DAB radio receiver sales unlikely to be achieved

actual (DRDB four-quarter m oving average) DRWG aspirational tim etable (January 2009) trendline 2016 Q1 2017 Q1

[source: Digital Radio Development Bureau, Digital Radio Working Group] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 15

Grant Goddard

Digital radio forecasts – Eureca Research & Deloitte
Eureca Research forecasts: 2004: 40 million DAB radios sold in Europe by 2010, 17.5 million sold in UK by 2010

radio specialist

2006: 145 million DAB radios sold worldwide by 2012, 110 million sold in EMEA (75% of total) by 2012 2009: 70 million DAB radios sold worldwide by 2015, 34 million sold in UK (49% of total) by 2015

Deloitte UK (8 May 2009): In 2009, digital radio set penetration forecast to rise by 2 to 3 % points to maximum 28% by year-end Recession likely to make premium-priced DAB sets increasingly unattractive Few reasons for consumers to upgrade to DAB due to incomplete geographic coverage and limited range of exclusive content UK government proposals unlikely to boost penetration in the short-term Government target of 50% digital listening by 2015 unlikely to be reached A full transition to digital remains a distant prospect “The enduring appeal of analogue radio, combined with the growing power of internet radio, may ultimately lead many consumers to sidestep DAB technology altogether”

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard
radio specialist

UK digital radio challenges

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard

Fragmentation of radio listening
Types of radio listening: Live broadcast radio Time-shifted previously broadcast programmes delivered on-demand (‘listen again’) Time-shifted previously broadcast programmes delivered by download (‘podcasts’) Non-broadcast programmes delivered on-demand (‘streams’) Non-broadcast programmes delivered by download (‘podcasts’) Personalised radio content delivered by internet (Last.fm, Spotify) Radio delivery platforms: Analogue terrestrial broadcast (FM, AM, LW, SW) Digital terrestrial broadcast (DAB, DRM) Digital broadcast via TV (Freeview) Digital broadcast via cable (Virgin Media) Digital broadcast via satellite (Sky, Freesat) Internet (dial-up, broadband) Mobile cellular (3G, GSM)

radio specialist

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Grant Goddard

Access to digital radio
Access to digital radio platforms (% of UK households) Consumer accessibility of digital radio platforms in the UK is relatively high

radio specialist

90 80 70 60 50 40 30 20 10 0
Dial-up

87%
Cable

12

67%

Terrestrial

38

57
Broadband

27%

Satellite

37

27

9

internet
Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

digital TV

DAB radio
19

[Source: Ofcom, Q1 2008, Communications Market Report 2008, p.282, Figure 4.59, 14 August 2008]

Grant Goddard

Challenge #1 – lack of consumer awareness of digital radio
Take-up of digital radio services (% of adults 15+)
100 90 87 83 80 79

radio specialist

60

“This highlights the continued lack of awareness among consumers of ways of accessing digital radio” Ofcom

40 32

39 36

39

20

0 2005 Q2 2006 Q2 2007 Q2 2008 Q2 access to digital TV and/or internet
[source: Ofcom, ‘The Consumer Experience’, p.40, Figure 59, 25 November 2008] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 20

claim ed ow nership of digital radio

Grant Goddard

BBC radio listening by platform
Listening to BBC radio by platform (% of adult 15+ listening) BBC share: DAB = 15% Internet = 2%
digital: DTV, 2.7% digital: internet, 1.9% digital: unspecified, 0.7%

radio specialist

digital: DAB, 14.9%

unspecified, 11.9%

all analogue, 67.9%
Satellite

Dial-up

[source: RAJAR, Q1 2009] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 21

Grant Goddard

Commercial radio listening by platform
Listening to commercial radio by platform (% of adult 15+ listening) Commercial radio share: DAB = 10% Internet = 2%
digital: DTV, 4.2% digital: DAB, 9.9%

radio specialist

digital: internet, 2.2%

digital: unspecified, 3.3%

unspecified, 12.9%

all analogue, 67.5%
Satellite

Dial-up

[source: RAJAR, Q1 2009] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 22

Grant Goddard

Challenge #2 – RAJAR metric is limited to linear radio
The RAJAR metric only measures: Live broadcast radio from UK sources Live simulcasts of broadcast radio from UK sources

radio specialist

The RAJAR metric does not measure: Time-shifted previously broadcast programmes delivered on-demand (‘listen again’) Time-shifted previously broadcast programmes delivered by download (‘podcasts’) Non-broadcast programmes delivered on-demand (‘streams’) Non-broadcast programmes delivered by download (‘podcasts’) Personalised radio content delivered by internet (Last.fm, Spotify)

Outcome: The increasing amount of non-linear, non-broadcast radio listening is not measured within RAJAR

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard

All radio listening by platform
Weekly reach of radio platforms (% of adults 15+)
20

radio specialist

13.5 15.3

This separate annual RAJAR survey (which includes non-linear radio consumption) demonstrates that internet-delivered radio reaches almost as much of the UK population as the DAB platform
15 11.9

10 7.3

0 2002 Q3 2002 Q4 2003 Q1 2003 Q2 2003 Q3 2003 Q4 2004 Q1 2004 Q2 2004 Q3 2004 Q4 2005 Q1 2005 Q2 2005 Q3 2005 Q4 2006 Q1 2006 Q2 2006 Q3 2006 Q4 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1

2.7

internet platform
[source: RAJAR]

3.6

5

DAB platform

9.3

digital TV platform

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

14.0

17.8

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Grant Goddard

Radio receiver ownership
Ownership of analogue radio sets (% of households)
100 10 90 10 80 70 60 50 27 40 30 20 30 10 0 UK None One Tw o rural UK Three Four urban UK 32 30 24 28 22 22 10 10 12 9

radio specialist The average household owns 2.4 analogue radio receivers. 42% own three or more radios

22

Five +

[source: Ofcom Communications Tracking Survey 2007] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 25

Grant Goddard

Challenge #3 – the volume of legacy analogue radios

radio specialist

There is a massive quantity of analogue radios in the UK market: “…. The sheer number of analogue radio receivers currently in use means that FM and AM will be with us for some while yet.” (BBC R&D Annual Review, March 2004) Households own multiple radios: The average UK household owns 2.4 analogue radio receivers (excludes radios in mobile phones) The lifecycle of an analogue radio is long: The lifecycle of an analogue radio is often a decade or longer Analogue radios remain the global standard in audio/mobile/in-car equipment

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard

UK radio receiver sales
UK radio receiver sales – four quarter moving average (‘000 units per annum)

radio specialist

12,000

DAB receivers as percentage of total receiver sales 8% 9% 10% 12% 13% 14% 14% 17% 18% 18% 19% 20% 20% 21% 21% 22% 22%
1,208 1,051 1,407 951 1,493

10,000

1,761

2,125

8,000

10,678

10,611

10,657

10,550

6,000

10,169

9,892

9,495

8,209

8,062

7,978

8,140

8,227

7,854

7,906

8,030

2,000

0 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009

[source: GfK/DRDB]

analogue radio unit sales ('000)

DAB radio unit sales ('000)
27

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

7,284

4,000

7,657

2,070

Only 22% of new radios sold in the UK are DAB. The remaining 78% are analogue

1,566

1,575

2,006

2,114

2,174

1,680

1,734

1,824

2,180

Grant Goddard

Challenge #4 – the declining UK radio receiver market

radio specialist

The market for UK radio receivers is in long-term decline: The DAB platform has not stopped the decline Purchase of traditional radio receivers is being replaced by: Mobile phones that incorporate music players and FM/internet radio Personal audio players that incorporate FM radio New multifunction devices that incorporate ‘radio’ (‘Slacker’ in the US) Televisions that are ‘home entertainment systems’ Connected devices that deliver radio via IP

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard

UK DAB radio receiver sales
Quarterly DAB receiver sales (‘000 units per quarter)
1,000 179 863 162 153 681 750 121 101 510 489 500 382 363 338 119 796 964

radio specialist

200 180 160 140 120 483 100 80 358 366

308

294

245

287

299

60 40

183

250

205

28 34 38 40 5 17 13 4 18 21 20

134

111

102

20 1 -10 -1 0 -20

Year-onyear growth in DAB radio receiver sales has entered negative territory

0 2003 Q2 2003 Q3 2003 Q4 2004 Q1 2004 Q2 2004 Q3 2004 Q4 2005 Q1 2005 Q2 2005 Q3 2005 Q4 2006 Q1 2006 Q2 2006 Q3 2006 Q4 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1

39

53 quarterly DAB receiver sales ('000) [left axis]

year-on-year change (%) [right axis]

[source: Digital Radio Development Bureau] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 29

Grant Goddard

Intention to purchase DAB radios
Intention of purchasing a DAB radio receiver within the next six months (%)

radio specialist All demographics exhibit a low propensity to purchase a DAB radio receiver within the next six months

[source: Ofcom Research Q1 2007, Communications Market Report 2007, p.242, Figure 3.70, 23 August 2007] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 30

Grant Goddard

Challenge #5 – the UK DAB receiver market is slowing

radio specialist

Growth in DAB radio receiver sales is beginning to falter: Growth in DAB receiver purchases may be reaching saturation after a decade The important Q4 showed negative growth for the first time in 2008: DAB radios are a relatively high-price item compared to FM radios If the sales momentum is not continued, the digital radio forecasts will not be attained: Consumer confidence in DAB will be damaged by a slowdown in take-up The low consumer propensity to purchase a DAB radio requires firm, swift action by: Digital radio content providers DAB receiver manufacturers

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Grant Goddard

Mobile phone UK handset data
Availability of radio features within mobile phones

radio specialist

2008 UK market share

no. of current models with FM total radio with internet

% with FM radio

Nokia Samsung Sony Ericsson LG Motorola

43% 21% 18% 7% 5%

97 37 72 40 14

73 18 53 13 9

66 9 27 12

75% 49% 74% 33% 64%

34 million mobile handsets sold in the UK in 2008 (est.) 8 million analogue radios sold in 2008 2 million DAB radios sold in 2008

Nokia is now the biggest manufacturer of analogue radios in the world

[source: Mintel (market share); Grant Goddard, January 2009] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 32

Grant Goddard

Mobile phone radio usage
Usage of features on mobile phones

radio specialist

FM radio usage is low on mobile phones

[source: Ofcom Research Feb-Mar 2008, Communications Market Report 2008, p.119, Figure 2.71, 14 August 2008] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 33

Grant Goddard

Global growth of FM radio in mobile handsets
Global FM-capable handset market

radio specialist 45% of all mobile phones worldwide are forecast to include FM radios by 2011

[source: iSuppli taken from NAB, ‘Study Of The Potential For FM Radio To Be A Universal Feature On Cellular Handsets’, p.21, Exhibit IV, 28 May 2008] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 34

Grant Goddard

Challenge #6 – FM radio dominates the mobile phone market

radio specialist

Listening to music is increasingly a mobile phenomenon: via mobile phones via portable audio players via radios incorporated into other devices Not one single mobile phone in UK market includes DAB radio: The prototype ‘Virgin Lobster’ DAB phone was scrapped Mobile phone manufacturers create products for the global market with global standards: The market for DAB is nowhere near large enough for global production line runs NAB in the US is campaigning for FM radio to be made universal on cell phones sold in the US US broadcasters acknowledge that the mobile phone market is the most efficient way to sustain radio listening

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard

Existing FM coverage

radio specialist

The existing BBC FM transmission system: Building the FM network started in 1955 230 sites cover 99% of the UK population Costs £12.3m per annum for 4 national networks (2007/8) FM signal is very robust using high power transmitters Poor inner city FM reception supplemented by AM simulcasts An independent report concluded that it is the 99.9-103.4 MHz part of FM allocated to commercial radio that is “the least used part of the band”

[source: Deloitte, The BBC’s Efficient And Effective Use Of Spectrum, December 2007] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 36

Grant Goddard

Challenge #7 – existing FM coverage is universal and robust

radio specialist

There are few complaints about existing FM radio coverage FM reception is robust in-home, in-car and outdoor FM transmission costs are economic for small-scale stations FM receivers are cheap and universally included in audio & home entertainment equipment

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard

The value of FM spectrum

radio specialist

There is no alternate use planned for FM radio spectrum The government will find it hard to monetise FM radio spectrum the way it did 3G

Ed Richards, chief executive, Ofcom: “One of the other differences [with TV] is that the value of spectrum to be released by analogue switchoff in television is extremely high….”

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Grant Goddard

Consumer demand for choice in radio content
Average number of stations listened to

radio specialist Two-thirds of the UK population listen regularly to only one or two radio stations

[source: Ofcom Residential Tracker 2007, Nations & Regions Market Communications Report, May 2008] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 39

Grant Goddard

Consumer satisfaction with choice in radio content
Satisfaction with choice of radio stations (% of respondents)

radio specialist

88% of consumers are satisfied with their existing choice of radio stations

[source: Ofcom research Q1 2008, Communications Market Report 2008, p.290, Figure 4.73, 14 August 2008] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 40

Grant Goddard

Challenge #8 – no incentive exists for FM switch-off
There are no alternative uses proposed for FM spectrum

radio specialist

The government is unlikely to benefit financially from selling FM spectrum for non-broadcast uses As long as FM continues to be used for radio broadcasting, FM switch-off or ‘digital switchover’ is unlikely to happen in reality Sufficient choice for most consumers is already offered by existing analogue radio content Ofcom has licensed 201 new, non-profit community radio stations since 2004, the majority of which broadcast on FM There is insufficient space on DAB to accommodate all existing 300 local commercial radio stations DAB multiplexes serve much larger coverage areas than small FM stations DAB can never be a ‘replacement’ technology for FM

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard

DAB radio receiver penetration
DAB radio set penetration by local DAB multiplex area

radio specialist

Penetration levels of DAB receivers are uneven across the UK

[source: RAJAR , Ofcom, Q4 2007] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 42

Grant Goddard

Commercial radio DAB local multiplex rollout
Timetable of Ofcom licence awards for local commercial DAB multiplexes

radio specialist None of these DAB multiplexes have yet launched, some two years after their licensing

market

coverage area (15+ population)

licensing date

Herts, Beds & Bucks DAB Derbyshire DAB Hereford & Worcester DAB Northeast Wales & West Cheshire DAB Northamptonshire DAB Oxfordshire DAB North Yorkshire DAB Gloucestershire DAB Lincolnshire DAB Surrey & Northern Sussex DAB Somerset DAB North Wales DAB Mid & West Wales DAB

1,829,329 846,520 586,300 646,638 504,775 494,390 695,431 460,042 670,376 1,411,122 481,268 311,146 400,065

12 June 2007 5 July 2007 6 September 2007 6 September 2007 11 October 2007 8 November 2007 13 December 2007 22 January 2008 19 February 2008 22 April 2008 21 May 2008 24 June 2008 18 March 2009

[source: Ofcom] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 43

Grant Goddard

Challenge #9 – DAB roll-out timetable is delayed
Consumers are voicing frustration at the delayed rollout of local DAB multiplexes

radio specialist

National DAB marketing campaigns have a negative impact in UK areas without DAB coverage

Existing local multiplexes Existing regional multiplexes Next local multiplexes

Delays impact the availability of both BBC and commercial local stations which share multiplexes Consumer confidence in the DAB platform affected

Sample explanation from website of MuxCo DAB multiplex operator: We’ve had a number of emails here at MuxCo HQ asking about the launch dates of our multiplexes. Some of these have been spurred on by some updates on BBC local radio station websites, for example from our friends at BBC Radio Gloucester: “The new Gloucestershire “multiplex” will be on air by early 2009. The operator’s timetable has changed slightly due to technical refinements that are being made to frequency planning across the UK”. Now, what exactly does that mean? Well, actually there are two issues that are causing our multiplex launch dates to move. The first is our negotiations with our transmitter operator and the second, as alluded to above, are some ongoing industry discussions.

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard

Challenge #10 – no common DAB geographical coverage
Geographical coverage of DAB multiplexes

radio specialist Uneven coverage of UK by BBC and commercial DAB multiplexes

[source: Ofcom, Nations & Regions Communications Market Report 2008, May 2008] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 45

Grant Goddard

Challenge #11 – poor quality DAB reception
There are several aspects of poor DAB reception: DAB transmitter power outputs are too low Poor DAB reception in built-up areas Poor DAB reception in-home (notably ground floors and basements) DAB transmitters are mostly located outside cities Why?

radio specialist

DAB transmission was implemented to optimise in-car reception with an externally mounted aerial

Grae Allen at TechCon conference (July 2006): “…. [the] Wiesbaden 1995 [radio conference] and all the other DAB planning dealt with mobile reception – in-car and portable outdoors. It made assumptions about aerial heights being just above ground level and, to provide good service to 99% of locations, the conclusion was that it required 58dbųV per metre to maintain that quality of service, and it made some assumptions about the performance of receivers and aerials.” Digital Radio Working Group Final Report (December 2008): “…. It is important that the robustness of the coverage, in those areas of the country already technically covered by its transmitters, of the national commercial multiplex is improved as quickly as possible”. “…. action is needed to improve the quality and robustness of the existing local multiplexes’ coverage”.
Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 46

Grant Goddard

DAB owners’ reasons for DAB purchase
Factors that persuaded buyer to purchase DAB radio over analogue radio
0%
To receive new digital stations Better sound quality Improved reception of existing stations Easy to tune Text and information (DLS text, EPG) Value for money Product design New radio functions (e.g. pause/rewind) Other Preferred brand now available

radio specialist

10%

20%

30%

40% 75% 74% 74%

50%

60%

70%

80%

53% 25% 25% 18% 12% 5% 3%

The main motivation for DAB receiver purchase is to access exclusively digital content

[source: DRDB online survey, October 2007 taken from presentation by Paul Brown, DRDB, ‘The success of DAB in Europe is hugely important to DRDB and DAB Digital Radio in the UK’, 2008] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 47

Commercial digital-only radio stations
Listening to commercial digital-only radio stations
6 5.5 5.5 5.1

Only 5% of Grant Goddard commercial radio listening is to radio specialist exclusively digital content
50% 5.2 4.7 4.6

5

5.0

4.0

3.9

3.4

3.5

3.6

4 3.0 3.2

36% 33% 30% 28% 26% 27% 24% 23% 20% 30%

2.1

2.1

2.3

2.7

3 2.1

3.0

3.3

2

0 2003Q1 2003Q2 2003Q3 2003Q4 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1

0.6

1

Only 23% of commercial listening via digital platforms is to exclusively digital content

1.9

4.5

40%

10%

0.7

0%

[source: RAJAR]

listening to commercial digital-only radio stations as % of all commercial radio listening [left axis] listening to commercial digital-only radio stations as % of digital listening to commercial radio [right axis]
48

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

Grant Goddard

BBC digital-only radio stations
Listening to BBC digital-only radio stations
4

Only 3% of BBC radio specialist radio listening is to exclusively digital content
40%

3.2

2.6

2.7

2.8

3 2.5 2.4

2.9 2.6 17% 15% 14% 2008Q3 2008Q4 2009Q1

30%

2 1.6 1.7 1.6 1.5 1.4

2.2

22% 19% 16% 16% 16%

20%

1.1

1.2

1.1

1.2

0.7

2003Q1 0.0

0

2003Q2 0.0

0.6

0.7

0.8

1

Only 14% of BBC listening via digital platforms is to exclusively digital content
2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2

0.9

10%

0% 2003Q3 2003Q4 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2

[source: RAJAR]

listening to BBC digital-only radio stations as % of all BBC radio listening [left axis] listening to BBC digital-only radio stations as % of digital listening to BBC radio [right axis]
49

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Grant Goddard

Listening to digital-only radio stations
Adult listening (15+) to digital radio stations (‘000 hours per week)
45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2003Q1 2003Q2 2003Q3 2003Q4 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2

radio specialist

Listening to digitalonly radio stations is already levelling out

2008Q3

2008Q4

TOTAL (com m ercial + BBC)
[source: RAJAR] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

COMMERCIAL RADIO

BBC RADIO

2009Q1
50

Grant Goddard

Listening to digital vs. analogue stations
Adult listening (15+) to national digital and analogue stations
station RAJAR Q4 2008 % share of total radio listening peak halfhour audience station RAJAR Q4 2008 % share of total radio listening

radio specialist

peak halfhour audience

DIGITAL STATIONS BBC7 Planet Rock The Hits BBC 6 Music Smash Hits Radio BBC 1Xtra BBC Asian Network BBC Five Live Sports Extra Mojo Radio Heat Chill The Arrow Absolute Radio Classic Rock Q NME Radio Absolute Radio Xtreme TOTAL
[source: RAJAR]

0.53 0.48 0.45 0.31 0.25 0.25 0.20 0.14 0.12 0.12 0.10 0.10 0.09 0.07 0.04 0.03 3.28

68,000 89,000 94,000 69,000 42,000 36,000 29,000 175,000 31,000 20,000 21,000 15,000 14,000 14,000 8,000 8,000

ANALOGUE STATIONS BBC Radio 2 BBC Radio 4 BBC Radio 1 BBC Radio Five Live Classic FM TalkSport BBC Radio 3 Absolute Radio

15.8 12.4 10.1 4.8 4.0 1.8 1.3 1.2

3,068,000 2,693,000 2,260,000 1,001,000 625,000 244,000 175,000 184,000

Digital radio stations are not attracting significant audiences

TOTAL

51.4

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard

Challenge #12 – digital radio content is not proving attractive

radio specialist

Digital content is not successfully driving consumers to purchase DAB radio receivers Less than 20% of listening via digital platforms is to exclusively digital content Most DAB radio users are still listening primarily to stations available on analogue DAB is in danger of being merely a supplement to FM/AM listening

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard

DAB station choice
Indicative availability of DAB digital radio services

radio specialist

Consumer choice of digital radio stations is considerably narrower outside of London

[source: Ofcom taken from presentation by Peter Davies, Ofcom, ‘Digital Radio – The View From The UK’, 10 April 2008] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 53

Grant Goddard

Challenge #13 – DAB content choice is largely illusory

radio specialist

London is unique in being served by two national DAB multiplexes and 3 local DAB multiplexes However, of the 50 services available on DAB in London: 23 are simulcasts of analogue services available in London 2 are simulcasts of analogue services available outside London 7 stations serve ethnic audiences 2 stations are religious 1 is part-time for children 1 is ‘birdsong’ That leaves 14 exclusively digital stations: 9 are commercial (5 play rock music) 5 are non-commercial (including Traffic News and BFBS)

Outside London, choice of content on the DAB platform is much more limited

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard

Number of DAB-only radio stations available
Number of DAB-only radio stations available
60

radio specialist

50 50

40 40 38

The number of digital radio stations available on the DAB platform is declining

30

20

10

0 2006
[source: Ofcom, The Consumer Experience, p.55, Table 5.1, 25 November 2008] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 55

2007

2008

Grant Goddard

National digital radio stations
National digital radio stations
launched

radio specialist
station digital platforms national DAB RAJAR Q1 2009

NATIONAL DIGITAL-ONLY RADIO STATIONS
group

local DAB

Freeview

2002 2002 2003 1999 2003 2002 2002 2008 2002 2003 2003 2005 2004 2008 2005 2001 2005 2003 2003 2006 2000 2000 2000 1999 2002 2000 2000 2000 2000 2000
[source: RAJAR]

BBC BBC Bauer Bauer BBC BBC BBC Bauer Bauer Global TIML TIML Global Folder

BBC7 BBC 6 Music The Hits Planet Rock Smash Hits Radio BBC 1Xtra BBC Asian Network Jazz FM BBC Five Live Sports Extra Heat Q Chill Absolute Radio Classic Rock NME Radio Absolute Radio Xtreme The Arrow Fun Radio Mojo Radio Yarr Radio TheJazz Capital Life Oneword Radio Virgin Radio Groove Core Capital Disney 3C PrimeTime Radio The Storm Talkmoney ITN News

internet

FreeSat

% share of total radio listening

% adult weekly reach

0.5 0.4 0.4 0.4 0.3 0.3 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.0

1.9 1.3 2.6 1.3 2.0 1.2 0.8 0.8 1.3 0.8 0.6 0.4 0.4 0.4 0.1

closed 2008 closed 2008 closed 2008 closed 2008 closed 2008 closed 2008 closed 2008 closed 2007 closed 2007 closed 2006 closed 2006 closed 2003 closed 2002

Many commercial digital radio stations have closed

TOTAL % SHARE OF ALL RADIO LISTENING

3.4
56

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

Grant Goddard

Challenge #14 – exclusive digital radio content is shrinking
Digital radio has entered a vicious circle: DAB requires a compelling consumer proposition Exclusive content could drive consumer purchase of DAB hardware Audiences to digital radio are too low for owners to monetise Digital radio stations are closing The consumer proposition of DAB becomes less compelling

radio specialist

After 10 years of the DAB platform in the UK, not a single digital radio station has yet generated an operating profit: Digital One national DAB multiplex – majority stake sold for £? to Arqiva in April 2009 Planet Rock – aims to be profitable by Xmas 2009, sold for £? in June 2008 Jazz FM - £733,000 operating loss (6 months), sold for £1 in April 2009 Zee Radio – announced closure (London DAB) in April 2009 Focal Radio - announced closure (Stafford DAB) in May 2009 Bauer Radio – moved Q Radio from London to Birmingham and moved Heat Radio from London to Manchester with redundancies in March 2009 Bauer Radio - removed 5 stations (Kerrang!, The Hits, Q, Heat, Smash Hits) from Sky platform in May 2009

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Grant Goddard

Challenge #15 – DAB carriage costs are too high
Carriage on the Digital One national DAB multiplex costs ~£1m per annum There is only one non-simulcast service presently carried on Digital One: Planet Rock (674,000 listeners per week from potential 50 million) There is sufficient spectrum for at least seven national services The present commercial radio sector strategy is to consider simulcasting two existing local analogue services on DAB nationally – a London talk station and a London music station There are no plans within the commercial radio sector to launch further new national digital-only radio stations Increasingly, DAB spectrum is being used to broadcast publicly funded specialist radio projects (Traffic Radio, BFBS), religious stations and stations targeting ethnic minorities
Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

radio specialist

58

Grant Goddard

Location of radio listening
Hours listened to radio by location (% of total)

radio specialist

36% of radio listening takes place outside the home

other 1% in-car 20%

at w ork or outdoors 16%

in-hom e 63%

[source: RAJAR taken from Ofcom, Communications Market Report, p.289, 14 August 2008] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 59

Grant Goddard

Challenge #16 – minimal DAB listening out-of-home
DAB reception on the move is poor compared to FM

radio specialist

Present DAB coverage extends to population areas, but sometimes not the roads between them There is not a single mobile phone on sale in the UK that includes DAB radio In-car DAB radios are still rare: Out of 2.4m new vehicles registered in the UK in 2007, only 20,000 buyers chose to install a DAB radio Out of 34m cars on the road in the UK, it is estimated that between 170,000 to 200,000 have DAB radios fitted Even if manufacturers agree to include DAB radios in new cars, the timescale is X to Y years to implement on their production lines There are very few models of personal audio player available in the UK that include DAB radio (more include FM)

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Grant Goddard

Challenge #17 – legacy DAB receivers cannot be upgraded

radio specialist

The overwhelming majority of the 9m DAB radio receivers sold in the UK to date: have no facility to upgrade their software cannot be updated for new audio codecs will not receive DAB stations if used in European countries using other DAB standards cannot receive stations encoded with ‘DAB+’ This makes it almost impossible for the UK transmission system to be upgraded from ‘DAB’ to ‘DAB+’: until the legacy DAB receivers’ lifecycle has expired until all broadcasters can switch simultaneously from ‘DAB’ to ‘DAB+’ (simulcasting is too expensive and uses too much spectrum) This keeps the UK wedded to a DAB standard (mp2) that was invented in the 1980s and which no longer represents efficient use of spectrum

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Grant Goddard

Listening to BBC digital stations
% share of listening on each platform
3

radio specialist

2.5

Digital TV and the internet are the most significant platforms for BBC digital stations
2.3 2.1 2.0

2.6 2.5

2 1.8

1.1 1 0.9 0.8 0.8 0.8

0 1Xtra DAB 5 Live Sports Extra digital TV 6 Music BBC 7 internet

[source: RAJAR 2007 Q2 taken from presentation by Andrew Caspari, BBC, 14 June 2007] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 62

Grant Goddard

DAB ownership
DAB awareness and ownership (% of each demographic)

radio specialist

The average age of a DAB receiver owner is 46 years

[source: RAJAR 2008 Q4, taken from presentation ‘UK digital radio overview’ by John Ousby, BBC, 19 March 2009] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 63

Grant Goddard

DAB ownership
Age profile of DAB receiver ownership (% of total owners)

radio specialist

27%
to Oct 07

24% 20%

Only 18% of DAB receiver owners are aged under 35

13% 9% 5% 0%
14 and under 15-24 25-34 35-44 45-54 55-64 65+

[source: TGI & DRDB online survey, October 2007 taken from presentation by Paul Brown, DRDB, ‘The success of DAB in Europe is hugely important to DRDB and DAB Digital Radio in the UK’, 2008] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 64

Grant Goddard

Challenge #18 – DAB radio has limited appeal to young people

radio specialist

DAB radio receivers are mostly traditional standalone radios with: Appeal to older demographics as ‘kitchen’ radios Limited appeal to younger demographics who desire compact, portable devices Digital radio stations attract considerable amounts of listening via: Internet platform Digital TV platform Young people are more likely to access digital radio content via: Time-shifted ‘listen again’ Downloaded ‘podcasts’ Online simulcasts

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Grant Goddard

Challenge #19 – DAB/FM combo receivers are the norm
Number of electronics models incorporating radio available from UK retailers (excludes in-car and mobile phone hardware)

radio specialist

radio platforms FM and/or AM FM + DAB DAB DAB + FM + internet DAB + internet internet internet + FM

Argos 113 56 2 4 1 3 1

Currys 48 55 9 4 0 2 2

Comet 59 43 10 2 0 0 2

Most DAB radios sold now in the UK are in fact DAB/FM combination models

Issues: Are RAJAR respondents using DAB/FM combo receivers certain whether they are listening to a station via the FM or DAB platform? How can FM ever be switched off when so many new DAB/FM combo receivers are being sold?
[source: Grant Goddard, company retail websites, 10 Feb 2009] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 66

Grant Goddard

The cost of DAB to the UK radio industry
Estimated cumulative expenditure on DAB (£m)
600

radio specialist

500

Estimated cost of DAB to date in UK is more than £500m

400

300

200

100

0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 comm ercial radio DAB cum ulative expenditure (est. £m )
[source: Grant Goddard estimates] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 67

BBC cum ulative DAB expenditure (est. £m )

Grant Goddard

The profitability of UK commercial radio
Ad revenue £0.7B Share of total ad spend 2004-2008 7.0 7.0%

radio specialist

A recent internal report commissioned by RadioCentre, the commercial radio trade body, found that: “current estimates suggest the [commercial radio] industry as a whole is now loss-making.”
0.6 £0.64B 6.5

It noted that:

£0.61B

“the larger [radio] groups are marginally profitable£0.60B before interest payments are taken into 0.6 6.0 account (these payments are very substantial in some instances); all of the smaller groups are either £0.58B £0.58B marginally profitable or loss-making.”

0.6

5.5

0.5
20 06 20 04 20 05 20 07 3 20 08

5.0

[source: Ingenious Consulting. Commercial Radio: The Drive to Digital, January 2009, p.2.] ] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 68

M AT

Q

Grant Goddard

Challenge #20 – DAB investment is proving too costly

radio specialist

Ten years of simulcasting (FM + DAB; AM + DAB) has diverted shrinking operating profits from analogue radio into a platform (DAB) that has yet to show any financial return Commercial radio estimates that the cost of ‘fixing’ the technical deficiencies of the commercial DAB platform will be an additional £10m to £15m per annum The BBC estimates the cost of DAB transmitter rollout in order to equal the current FM coverage: Presently covers 86% of the population 96 transmitters, costing £6m per annum To cover 99% of the population requires 1000 transmitters, costing £40m per annum The regulatory regime requires most local commercial radio stations to simulcast on DAB (or lose their licence) Radioscape, a UK company launched in 1996 to manufacture DAB modules was placed into Administration on 30 April 2009 citing: “severe financial constraints on the Consumer [DAB] Receivers business resulting from both pricing pressure and volume decline”.

[source: Ingenious Consulting, ‘Commercial Radio: The Drive to Digital’, January 2009, p.21] ] Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009 69

Grant Goddard

Challenge #21 – Digital switchover is unlikely to happen

radio specialist

After a year of deliberations, the government Digital Radio Working Group decided in December 2008 that digital switchover for radio in the UK should take place in approximately 2017 Ten years of simulcasting on FM and DAB (and AM and DAB) is unlikely to end, continuing to absorb huge expenditure The BBC is unlikely to unilaterally discontinue FM/AM broadcasts because its Charter requires it to offer universal coverage of its broadcast services in return for public funding by the Licence Fee Commercial radio is unlikely to unilaterally discontinue FM/AM broadcasts because the resulting fall in listening would directly impact revenues There is insufficient spectrum (and the cost is too great) for many small local commercial FM stations to switch to DAB The comparative cost per listener is considerably higher for DAB than for FM/AM, offering no incentive for station owners to migrate

Digital Radio In The UK: Progress & Challenges © Grant Goddard: June 2009

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Grant Goddard

Endpiece – DAB: ‘build it and they will come’

radio specialist

“The mistake [with DAB in the UK] by broadcasters was in not understanding that ‘build it and they will come’ is no longer practical in this integrated technological age”.
Quentin Howard, President, World DMB Forum, ‘DAB Digital Radio – A Recipe For Success’, EBU Technical Review, July 2005

“The opportunity to simultaneously control the means of digital distribution, and the gateway to it, proved irresistible. After a ‘land grab’, the [UK] radio groups filled the digital spectrum with their own digital stations, expecting listeners to flock to channels that initially offered little more than back-toback music. ‘Build it and they will come’ was the maxim. But the crowds never came, and now the radio companies are gatekeepers to fields that are almost barren”.
Grant Goddard, ‘Digital Radio Switchover’ analyst report, October 2007

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Grant Goddard

Endpiece – DAB: protectionism

radio specialist

“Whereas the internet radio platform opens up the UK radio market to competition from unregulated content produced in all parts of the globe, DAB ensures that we listen to carefully regulated content produced in the UK, and that we listen on uniquely expensive DAB radios made by UK manufacturers for our relatively small UK market”.
Grant Goddard, ‘In The Ditch With DAB Radio’, The Register, 29 December 2008

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Grant Goddard
radio specialist

contact Grant Goddard:

www.grantgoddard.co.uk

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