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Radio jam affecting frequency of mergers The Communications Act was
By mobile | January 29, 2008
PEOPLE who follow the radio sector have had to develop David Attenborough like patience over the past couple of years. You sit huddled in the media undergrowth, waiting for these strange beasts to do something interesting. The grass rustles, a twig snaps, and you reach excitedly for your camera. But time and again it all goes quiet and the waiting resumes.
When the Communications Act became law at the end of 2003, the consensus was that it was the start of major changes in radio. Now that the old rule that prevented anyone from controlling over 15-per cent of the commercial audience had been scrapped, it was supposed to mean that radio would follow ITV and the cable industry and consolidate quicker than you could say Tyne Tees Television.
Thirteen months on, most of it is still waiting to happen, with Capital and GWR the only two companies planning to merge. There was more speculation of activity after January 17, which saw the end of the restriction on Emap increasing its 28-per cent stake in Scottish Radio Holdings (SRH) for less than the 930p per share it previously paid.
Conditions for deal-making had already been made more favourable with the Office of Fair Trading (OFT) decision in December not to refer Capital/GWR to the Competition Commission. As Chris Tryhorn of The Guardian wrote on the day: “The second wave of radio consolidation can now officially kick off . . .”
But once more the ball has remained on the touchline.
Emap finance director Gary Hughes reaffirmed his company’s intention to do nothing for the foreseeable future. Other big radio companies like Chrysalis, Guardian Media Group and SMG continue to sit on their hands.
No other media players from outside the EU are moving either.
So what happened to the great radio consolidation of 2004? One problem has been uncertainty, caused by two restrictive decisions in the run-up to the Act which raised doubts about how much consolidation the authorities would allow. In May 2003, the Competition Commission blocked plans by GWR and Chrysalis to merge their Vibe and Galaxy stations in southwest England because it would leave one station with 80-per cent of the radio ad market in Bristol and Bath.
And in December 2003, the old Radio Authority rejected an attempt by the Midland News Association to buy Telford FM for similar reasons. People began to wonder if cold water was being poured on consolidation. Nobody was keen to provide the test case.
“Everybody was waiting to see what would happen with Capital/GWR, ” says one senior industry figure. “Everyone was shocked it went through without being referred to the Competition Commission.
People are revising their targets because clearly it’s going to be easier than some predicted.”
Asecond problem has been share price. The consensus is that stocks across the sector are unattractively high to outside entrants.
Share price is a sticking point to an Emap/SRH tie-up.
The Clydebank company’s shares have remained stubbornly above 900p for most of the past year, and during January it has risen from about 930p to 970p. It is being fuelled both by good results and the constant deal speculation.
As one analyst says: “Emap has said it wants to get a return on capital of at least 9.1-per cent by year three on any acquisition.
If it buys SRH and pays pounds-10 per share, even if you are bullish, you don’t get to the 9.1-per cent. So the price has to come down.”
But last week Capital/GWR said they would merge by May, which some observers suggest should change things. When the merger completes, it will create a radio ad sales superhouse with about 40-per cent of the market - more than twice as much as any other player.
With the discounts and area the new company will be able to offer advertisers, there is a danger that groups like Emap and Chrysalis will lose business.
If Emap were to buy SRH it could add cities like Glasgow, Edinburgh and Belfast to its strong offering in London and the north of England and stay in touch with the competition.
Hughes disagrees that there is any hurry. “I would describe the [Capital/GWR] merger as creating something bigger, but not well- formed from a geographic footprint perspective. . .
“A lot of their offering comes from the Midlands and the south of England. We don’t feel the merger puts us under any significant pressure to do something, ” he says.
Some people believe Emap has also become highly cautious after losing around pounds-650 million in its disastrous acquisition of US publisher Petersen a few years ago. Either way, the message is clearly that only a softening of share price will make a difference.
This means that all eyes are on advertising, since that has a powerful effect on market confidence. After a strong couple of years, there were some signs of change last autumn when many radio companies suffered from advertisers switching money into television and other media.
Recently, the picture has been mixed, with Emap and SRH talking up January sales while other players either report flatness or just “signs of improvement”. However, most analysts believe the radio market’s medium term picture remains strong.
Topics: Radio Communication |
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