Analysis of the debate advocating the privatisation of BBC radio stations Radio One and Radio Two in the United Kingdom, stimulated by commentaries by former Endemol UK Ltd Chairman Peter Bazalgette and outgoing GCap Media plc Chairman Richard Eyre, written by Grant Goddard for Enders Analysis in June 2008.

1. PRIVATISING RADIOS ONE AND
TWO: HOW TO KILL COMMERCIAL
RADIO WITH KINDNESS
GRANT GODDARD
4 June 2008

2. ExecutiveSummary
The notion of privatising the BBC’s two pop music radio stations, Radio One
and Radio Two, has been revived in 2008 and appears to be gathering
momentum through recent speeches by former Endemol UK Chairman Peter
Bazalgette and outgoing GCap Media Chairman Richard Eyre. Their
arguments are that the BBC will increasingly struggle to maintain such a wide
range of activities now that it is under financial pressure; that Radios One and
Two offer limited public service value; and that these are equivalent to
commercial radio services.
Our opinion is that the privatisation of Radios One and Two, far from
alleviating the current problems of the existing commercial radio players,
would simply provide them with a different, and potentially more lethal, set of
problems. The popularity of Radio One and Radio Two, attracting 11% and
17% shares of all radio listening respectively, is likely to overshadow the
commercial sector’s existing three national stations, whose combined share is
less than either BBC station. Advertisers are likely to switch their campaigns
to a privatised Radio One and/or Radio Two, threatening the viability of the
existing national commercial stations.
The privatisation of Radios One and Two would increase the volume of
commercial hours by 66% at a time when there is already a glut of advertising
inventory caused by the sector’s launch of new digital radio stations during the
last decade. Additionally, sector revenues have been falling in real terms
since 2000, as have audiences for commercial radio content. This is the
opposite situation to the 1990s, when audiences were migrating to
commercial radio from Radio One in huge quantities, and when revenues
were growing.
At the same time, local commercial radio has become increasingly dependent
upon national advertisers, which makes it equally vulnerable to the powerful
attraction of advertising on Radios One and Two. Already, half of the UK’s 300
local commercial radio stations barely break even, so that even a small loss of
advertising clientele is likely to put many of them out of business. Additionally,
they will be impacted by the lower ‘cost per thousand’ the sector is likely to
suffer as a result of the substantial increase in inventory caused by
privatisation.
Undeniably, the market power of Radios One and Two could attract new
advertisers who might not have used the radio medium previously, but total
advertising spend on radio is unlikely to increase by as much as 66%, even
over several years, to accommodate the similar increase in airtime. The new
owner(s) of Radios One and Two will quickly dominate the entire commercial
radio sector, whilst the existing players will increasingly be marginalised and
their livelihoods threatened.

3. Privatising Radio One and Radio Two
Richard Eyre, outgoing Chairman of GCap Media, the UK’s largest
commercial radio group, seized the opportunity provided by the keynote
speech at a radio conference in May 2008 to make a personal plea for the
privatisation of the BBC’s pop music services, Radio One and Radio Two.
Eyre’s argument was that the previous year’s Licence Fee settlement provides
the BBC with increasingly limited resources until 2013 that will necessitate
withdrawal from some areas of activity, particularly those that he believed
conferred little public service value. He suggested that “the Radio Two
audience is extremely generously served elsewhere in the [BBC] output” and
that Radio One listeners are likely to be existing users of BBC digital radio
station 6Music and TV station BBC3.1 “If GCap is worth £375 million,”said
Eyre, “then Radio One and Radio Two must be worth £1 billion”.2
These ideas are hardly new. Roughly once a decade, the notion of privatising
BBC Radio One (and, less frequently, Radio Two) is proposed as a response
to the larger issue about the public funding of the UK broadcasting system. In
the 1980s, it was the Peacock Report; in the 1990s, it was the run-up to the
new BBC Charter. The current debate commenced in February 2008 with a
commentary in the Financial Times by former Endemol UK Chairman Peter
Bazalgette who argued that the “emaciated commercial radio sector” needed
“strong national stations that are attractive to advertisers”.3 The privatisation of
Radios One and Two, he claimed, “would revitalise the commercial radio
sector” and would raise “up to £1 billion”.4 In April 2008, Bazalgette reiterated
these ideas in a speech to the Royal Television Society.5
Our view is that the privatisation of the BBC’s two most popular radio
networks, whilst seeming to offer a ‘quick fix’ solution to structural problems
within the UK broadcasting system, would negatively impact the existing
commercial radio sector to the extent that many stations, and some groups,
would cease trading very quickly. The proposal raises a number of points:
• The argument that Radios One and Two merely duplicate the output of
commercial radio is often made by critics who have not listened of late to
the content of these stations. In the 1980s, such a complaint may have
held more credence but, since then, the two BBC networks have moved
significantly away from back-to-back, playlisted mainstream music, whilst
most of commercial radio has moved in the opposite direction. Even
Richard Eyre described Radio Two’s flagship Jeremy Vine Show as
“extraordinary” and admitted: “I absolutely buy the point that it’s not the
kind of thing that would ever have been tried on commercial radio”.6
• Eyre argued that privatisation of Radios One and Two “would give the
commercial sector what it has forever lacked … national, mainstream
channels available to all, accessible to all”.7 This argument ignores the fact
that commercial radio already has three national stations (one on FM, two
on AM) launched between 1992 and 1995. These stations have a unique
ability to determine their own programme formats, unlike the rest of

4. commercial radio or BBC radio, the result of a regulatory quid pro quo for
the award of their licences on a ‘cash bid’ basis. Thus, these three national
commercial stations have the freedom to target any audience they desire
(one station switched from a news format to sport in 2000, putting it in
competition with BBC Five Live). The only legal restrictions are that the FM
station cannot play “pop music” and that the “greater part” of the content of
one of the other two stations has to comprise “spoken material”, caveats
designed to protect the audiences of local commercial radio stations.8
• An almost linear relationship exists between the total hours listened to
commercial radio and the revenues that listening generates. Sector
revenues have been declining in real terms since 2000 for the simple
reason that commercial radio’s total hours listened have also been in
steady decline since then. Commercial radio’s share of listening (versus
the BBC) has been in continuous decline between 1998 (when it was 51%)
and today (41%).9 During that decade, the commercial sector has
nevertheless failed to develop an effective strategy to compete for BBC
audiences or even to agree a co-ordinated plan of action. As one
commentator noted: “For too many years, the commercial radio sector has
spent most of its time complaining about the BBC’s output and impact”
while “the BBC got on with renewing its stations … and winning over a new
generation of listeners”.10
• Commercial radio benefited immensely, both in terms of audiences and
revenues, from the strategy of then BBC Director General John Birt in
1993 to completely reconfigure Radio One with a new strategy. As a result,
commercial radio’s share of listening shot up from 37% to 50% over the
following three years, almost entirely at the expense of Radio One, whose
share fell from 22% to 11%.11 The disastrous ‘youth’ programme policies
implemented at Radio One alienated its listeners, and helped commercial
radio suddenly became a growth industry, loved by advertisers, the City
and shareholders. Unfortunately, what the sector failed to anticipate was
that eventually the BBC would bite back, a process it started in 1998, and
pursued more aggressively under Birt’s successor Greg Dyke from 2000.
• Buoyed by the commercial sector’s ‘success’ in suddenly gaining half of
Radio One’s audience, the number of analogue commercial radio stations
increased from 126 in 1993 to more than 300 today. These new licences,
mostly serving small towns, were offered by the regulator without prior
economic analysis to determine whether they could be profitable, and
without examining the potential impact on the existing radio market. Every
licence attracted one or more bidders, most of whom forecast break-even
by their third year of operation. In reality, most of these small stations now
lose money and are dragging down the whole sector (in 2006, Ofcom
found that 50% of all commercial radio stations lose money or generate
profit of less than £100,000 per annum).12 The seeds of the sector’s
currently diminished profitability were sown during these years of rising
audiences and revenues between 1993 and 2000.

5. • The commercial sector also suffers from an excess of advertising
inventory, caused partly by the addition of these new, small stations, but
more so from the myriad of digital stations launched on the DAB platform
since 1999 (commercial radio has 34 digital-only brands, compared to the
BBC’s four).13 To date, these stations have attracted minimal audiences
and advertising revenues (see Digital Radio Switchover: somewhere
over the rainbow? [2007-99]). This glut of advertising space has forced
radio owners to sell inventory on their digital stations at a discount of 50%
to 60% from their analogue rates, thus reducing the overall cost per
thousand achieved by commercial radio.14 At the same time, traditional
media, including radio, have lost advertisers to the allure of online
marketing.
• The privatisation of Radios One and Two would further increase
commercial radio’s available inventory at a stroke by 66%, from 424 to 704
million hours per week.15 In the current situation, where a glut of
advertising space already exists, such an increase is likely to prove
impossible to absorb. Admittedly, the availability of commercial spots on
stations as significant as Radios One and Two in reaching consumers
would undoubtedly tempt some new advertisers to use the medium for the
first time, and persuade some existing advertisers to increase their existing
budgets. However, it seems inevitable that the average price of radio
advertising would have to fall in order to accommodate the massive
increase in available airtime.
Table 1
Listening to commercial radio and BBC Radios One and Two
[Source: RAJAR, Q1 2008]
• The profitability of the existing three national commercial stations would be
threatened, as national advertising would migrate to the privatised Radios
One and Two. The listening shares of the three existing national
commercial stations are only 4%, 2% and 1%, whereas the market shares
of Radios One and Two are 11% and 17% respectively.16 Between them,
the two BBC stations reach substantial quantities of all the demographics
that advertisers desire, rendering the relatively small audiences of Virgin
Radio and TalkSport irrelevant to their requirements. Only Classic FM
might survive, as a result of its significantly skewed ABC1 audience.17
• Similarly, the profitability of most of the 300 local commercial stations
would be jeopardised, as their revenues have become increasingly reliant
on national advertisers who would be likely to switch to Radios One and
Two. Only 27% of the commercial sector’s revenues are currently derived

6. from local advertisers (compared to 50% twenty years ago), making the
local radio ecology particularly vulnerable to national competitors.18
• As a result of the privatisation, the existing owners of both local and
national commercial radio stations would be forced to either hand back
many of their licences to Ofcom or would simply go out of business. The
new owner(s) of Radios One and Two would monopolise (or ‘duopolise’)
radio listening in the UK (particularly music radio) and the commercial
sector’s revenues. Within only a few years, it is likely that the choice of
stations available to both listeners and advertisers would be reduced
across the country, leading to a sector dominated by these two
heavyweight national networks.
The last occasion when the privatisation of BBC Radio was proposed publicly
was in 2006, when the European Media Forum argued that the sale of Radios
One and Two for £500 million would “re-balance the radio market and level
the competitive playing field between commercial broadcasters”.19
Commercial radio’s trade body responded by urging the BBC to ensure that
Radios One and Two’s content conformed to the public service remit of its
Charter, rather than sell them off. In 2007, RadioCentre Director of External
Affairs Lisa Kerr told a Select Committee: “Privatisation of Radios One and
Two is not something which the commercial radio industry has ever called for
in the past, but there will be people within the industry who could see that
could be a benefit in the future”.20
Richard Eyre is one of those people. As Chief Executive of Capital Radio plc
between 1991 and 1997, Eyre oversaw the period of the company’s history
when it benefited directly from the BBC’s disastrous losses from Radio One’s
audience. Previously, in the late 1980s, it was evident that Capital Radio’s
programming policies had started to drift, as it began to lose audience for the
first time since its launch in 1973. The BBC inadvertently helped improve the
fortunes of the company, enabling it to expand and diversify, although some of
these efforts were unsuccessful.
In 2000, buoyed by City confidence in the commercial radio sector, the Capital
Radio share price hit an all-time high of £19.38. In 2008, the combined assets
of Capital Radio and GWR Group (merged into GCap Media) were acquired
by Global Radio for only £2.25 per share (see GCap Media: one previous
owner, needs serious attention [2008-32]). Asked how GCap’s value had
diminished so substantially in eight years, Eyre responded: “Its actual
performance has suffered dramatically”.21
Lurking beneath the privatisation arguments of Eyre, Bazalgette et al are
glimpses of underlying envy at the success of Radios One and Two. Eyre
agreed that “Radio One and Radio Two have been extraordinary successes
under BBC management”. Bazalgette admitted that BBC Director of Audio &
Music Jenny Abramsky “has led BBC Radio brilliantly (you could almost say,
too brilliantly)…” After the Radio One debacle of 1993, BBC Radio
management developed a competitive strategy to win back listeners from
commercial radio, which it has doggedly stuck to ever since, helped by the

7. longevity of its senior staff. It could be argued that the BBC has simply
become a victim of its own success. As one newspaper commented recently:
“It is not the BBC’s fault – it has done everything it has been asked to do, is
heavily regulated and operates within the law”.22
This is not to exonerate the BBC totally from blame. In the UK’s duopolistic
radio landscape, it takes two to tango. Of course, the BBC’s task is made
easier because it only has to flex its services, whereas commercial radio has
to flex both its services and its revenues simultaneously. But, if the BBC’s
long-term strategy was to claw back listeners it had lost from Radio One, then
its work is almost done. The BBC’s share of radio listening had been 59% in
1993, fell to a low of 47% in 1998, and has now regained ground to 57%.23 In
1993, Radio One had been the most listened to station in the UK (22% share),
whereas now that plaudit belongs to Radio Two (17%).24 It appears that the
BBC’s determination to target commercial radio’s ‘heartland audience’ of 15 to
44 year olds has been successful to the point where it could endanger the
commercial radio sector’s future (see forthcoming report Commercial radio’s
heartland audience). This should be a matter of great concern to the BBC
Trust.
The final issue is that, even if Radios One and Two were sold, who could
afford the theoretical £1 billion price tag? Certainly not the existing UK
commercial radio groups, who are strapped for cash and face an imminent
advertising recession. Whoever bought one or both of the stations would
effectively control the UK commercial radio industry outright. This notion might
hold some appeal for News Corporation or RTL (both of whom own radio
networks overseas) or a competing European/global media group. Would they
acquire these stations with the intention of preserving the existing cost
structure of both services, which Richard Eyre says is £93 million per annum
under the BBC?25 It would be unlikely. The return on investment would
necessitate the stripping out of costs.
Paradoxically, it is this stripping out of costs that had been pioneered by
GCap’s two precursors, Capital Radio and GWR Group, and which has
contributed significantly to the declining appeal of commercial radio content
and the sector’s resulting loss of revenues. By 2003, a listener to the morning
show on London station Capital FM would hear very little but back-to-back
songs. If the listener had checked the station’s online webcam, they could
have watched the presenter, day in day out, sitting in the studio, occasionally
opening the microphone to talk to the audience, but the remainder of the time
doing little more than talking on her mobile phone or reading a newspaper. No
production team, no contributors, no ‘content’. On some days, the presenter
seemed so embarrassed by this inactivity in the studio of the UK’s largest
local commercial radio station that she would walk up to the webcam and
cover it. It is no surprise that Capital FM’s share of listening in the London
market fell from 12% in 1999 to 5% today.26
What would be the point of privatising Radios One and Two if these stations
were simply transformed into the kind of commercial radio that audiences
have already demonstrated has little appeal for them? Richard Eyre

8. responded: “I don’t buy the argument that only a BBC management could
preserve that kind of character of that kind of service, any more than I believe
that only BBC people can identify new music and bring it to radio”.27 However,
as one media commentator noted: “Unless there was a fundamental change
in the laws of reality, commercial radio management could never preserve the
character of either station”.28
So what precisely is the agenda behind this latest proposal to privatise Radios
One and Two? The seeds of the current idea arose from a suggestion in early
2008 that “Channel 4 could be handed an asset from the BBC to make it
commercially stronger” and that Culture Secretary Andy Burnham “wants to
explore the options” which include “most obviously Radio One”.29 Peter
Bazalgette’s former employer Endemol is a significant programme maker for
Channel 4, and Bazalgette was a non-executive director of Channel 4
between 2001 and 2004. In his speech, Richard Eyre argued that “Radio One
and Radio Two should certainly not be awarded to the highest commercial
bidder” and suggested: “I actually quite like the precedent created by Channel
4 Television to hold the services in public ownership but make them self-
funding”.30
So it appears that the proposed ‘privatisation’ of Radios One and Two might
not be a privatisation at all, but an instrument designed to hobble one
institution that is deemed too successful, in order to prop up a competing
institution that covets a (top-)slice of that success, together with part of its
Licence Fee funding. What better way to kickstart a radio ‘empire’ at Channel
4 than to be gifted the UK’s two most successful music radio networks?
Although Channel 4 has been talking loudly about its bold radio ambitions for
the last two years, its own track record to date has been limited. It acquired
51% of digital radio station Oneword for £1 million in 2005, only to close it in
January 2008. It won the licence for the second national DAB multiplex in July
2007 (see Channel 4: radio ambitions aim too high [2007-68e]) and agreed
to launch its digital services within a year, although nothing has happened yet.
Rather than Channel 4 building its own radio empire from scratch, it would
prove a lot easier to snatch someone else’s, particularly one that the BBC has
been nurturing successfully for the last 41 years.
[First published by Enders Analysis as report 2008-51.]
© 2008 Grant Goddard
Published by Radio Books
http://www.radiobooks.org
http://www.grantgoddard.co.uk
1 Richard Eyre. Radio 3.0 Conference, London, 22 May 2008.
2 Richard Eyre. Radio 3.0 Conference, London, 22 May 2008.
3 Peter Bazalgette. ‘Comment: Why Radios 1 and 2 should be privatised’, Financial Times, 18
February 2008.
4 Peter Bazalgette. ‘Comment: Why Radios 1 and 2 should be privatised’, Financial Times, 18
February 2008.
5 Peter Bazalgette. Royal Television Society dinner, 22 April 2008.

9. 6 Richard Eyre. Radio 3.0 Conference, London, 22 May 2008.
7 Richard Eyre. Radio 3.0 Conference, London, 22 May 2008.
8 Broadcasting Act 1990, c.42, para.85(2)(a).
9 RAJAR. Q2 1988 versus Q1 2008.
10 Conor Dignam. ‘Conor Dignam on Broadcasting’, The Independent, 26 May 2008.
11 RAJAR. Commercial radio: Q4 1992 versus Q3 1995. Radio One: Q4 1992 versus Q1
1995.
12 Ofcom. ‘The Future of Radio: Discussion document’, 16 November 2006. p.17, para. 3.24.
13 Digital Radio Development Bureau. January 2008.
14 Simon Cole, CEO, UBC Media. Radio 3.0 Conference, London, 22 May 2008.
15 RAJAR. Q1 2008.
16 RAJAR. Q1 2008.
17 RAJAR. Q1 2008. 67% of hours listened to Classic FM derive from ABC1 adults.
18 Radio Advertising Bureau. 2007 versus 1987.
19 Keith Boyfield. ‘Regulating Communications: The future regulation of the UK
Communications & Broadcasting’, European Media Forum, May 2006.
20 Select Committee on Culture, Media & Sport, 27 February 2007, Question 106.
21 Richard Eyre. Radio 3.0 Conference, London, 22 May 2008.
22 Emily Bell. ‘We need to start a new conversation about the BBC’, The Guardian, 28 April
2008.
23 RAJAR. Q1 1993 versus Q2 1998 versus Q1 2008.
24 RAJAR. Q1 1993 versus Q1 2008.
25 Richard Eyre. Radio 3.0 Conference, London, 22 May 2008.
26 RAJAR. Q1 1999 versus Q1 2008.
27 Richard Eyre. Radio 3.0 Conference, London, 22 May 2008.
28 Paul Smith. ‘Commercial radio: stop blaming the Beeb’, organgrinder, The Guardian, 23
May 2008.
29 Dan Sabbagh. ‘Channel 4 sure to find way to keep Shameless afloat’, The Times, 27 March
2008.
30 Richard Eyre. Radio 3.0 Conference, London, 22 May 2008.