DAB - the current state of play

DAB has just faced a very rocky couple of months, and there have been a few other recent changes that are relevent to DAB as well, so this article is going to look at how things now stand for DAB.

Fru Hazlitt's DAB bombshell

(This sub-section is a summary of an article I wrote about GCap dropping their DAB bombshell, but which I didn't publish at the time because it was unclear whether these changes would be permanent or not -- I'll address these issues below.)

The rocky couple of months began when Fru Hazlitt, the Saviour of Digital Radio, and the chief exec of GCap Media in her spare time, described the DAB platform as being "not economically viable", and she announced the station closures of theJazz and Planet Rock, as well as saying that she had agreed to dispose of GCap's 63% stake in the Digital One national commercial DAB multiplex. She also said that she would like to pull GCap out of DAB completely, but the thing stopping her doing this was that if she removed GCap's analogue stations from DAB, Ofcom would automatically re-advertise the stations' analogue licences -- this is due to the Radio Authority, which regulated radio prior to Ofcom taking over, offering the incentive of automatic 12-year licence extensions to FM stations that were also broadcast on DAB, but it had this draconian clause in place to stop broadcasters later backing out, even though it is now forcing the broadcasters to transmit heavily loss-making stations. Some radio bosses have since suggested that there should be a six-month 'DAB armistice' so that stations could pull out of DAB without fear of losing their FM licences. GCap is also bound by relatively long transmission contracts that have limited break clauses, which also limited their options regarding pulling out of DAB completely.

The reasons Fru Hazlitt gave for being against DAB were that "DAB take-up is incredibly slow - consumers are voting with their feet", that the sound quality offered by FM "compares favourably to any digital radio platform available to the consumer", and that even after years of advertising for DAB, digital-only stations account for just 4% of all radio listening, which is a figure that will itself be significantly reduced by the closure of theJazz and Planet Rock, which were actually two of the most successful digital-only stations on DAB.

Ultimately, Fru Hazlitt's reasons for dropping her DAB bombshell was that GCap had lost £8m on DAB in the financial year of 2006/7, and since BT pulled the plug on its DAB-IP mobile TV service that was transmitting on Digital One and there were no takers for the freed-up capacity, the outlook for DAB was grim. The timing of the DAB bombshell was brought about due to Global Radio mounting a take-over bid, which was ultimately successful -- I'll return to this later.

Rather than throwing good money after bad on DAB, Fru Hazlitt said that GCap should re-focus on FM and broadband, which she described as being the “platforms that listeners want”, and that broadband is “the obvious complementary platform to analogue radio”. Fru Hazlitt said at the time that GCap's broadband activities were almost breaking even, which is obviously a far cry from the situation on DAB, and more recently GCap has announced that their revenues from broadband have increased by 38% over the last year, which backs up Fru Hazlitt's position. I completely agree with Fru Hazlitt that the future of digital radio is on the Internet, and I will have a great deal more to say about this issue in the near-future.

DAB is a failing format - DAB's year-on-year sales growth has plummeted

The main reason why Fru Hazlitt was so gloomy about the prospects for DAB is summed up by the following graph, which shows DAB's year-on-year sales growth:

The sales growth was still high on the left-hand side of the graph, which coincides with the time when the BBC was still showing a series of nineteen high-impact TV advertising campaigns for DAB between its re-launch in March 2002 and December 2005. But as soon as the last BBC TV ad campaign had been shown in the run-up to Christmas 2005, DAB's sales growth fell off a cliff, and growth continued to slide from there onwards.

Year-on-year sales growth is the best indicator of how well a product or format is doing in the marketplace in its early years (DAB has been going a long time, but it was only properly launched in 2002) before the market becomes saturated -- Ofcom estimates that there are around 120m - 150m FM devices in-use today, so with 6.5m DAB sales-to-date, the DAB receiver market won't reach saturation for many years to come, so year-on-year growth is the best indicator on the state of DAB's health.

The following table shows the DAB industry's forecasts for year-on-year growth, which shows just how far below target it has fallen:

The trend of the graph above clearly shows that if the BBC didn't show any more TV adverts for DAB the growth would fall to zero percent. Zero percent growth means that annual sales wouldn't increase at all, so annual sales would be stuck at the current 2m level. The following graph demonstrates what the cumulative DAB sales would look like if DAB receiver sales grew at constant levels of 0% and 60% -- the latter being the approximate level of growth that the DAB industry was hoping for (the graph starts from the current base of 6.5m sales, and it uses 2007's sales of 2m as a base for annual sales):

In reality, growth of 60% probably wouldn't be sustained in the latter stages of the above graph because the market would be approaching saturation, so growth would level off a bit towards the end. But just supposing that 60% growth could be sustained, the graph shows that it would only take 7 years for total DAB receiver sales to reach the 120m - 150m figure for how many FM devices Ofcom estimates are in-use today, whereas with 0% annual sales growth -- i.e. 2m annual sales forever more -- it would take 56.75 years for DAB sales to reach 120m! In reality, the growth wouldn't stop falling at 0%, it would actually turn negative, which would mean that annual sales would decrease year-on-year...

Put simply, DAB is a failing format that is only being propped up in the marketplace by the BBC's TV adverts for it. And if DAB were any normal commercial format that has to pay for its own TV advertising costs, rather than having the BBC at its disposal to lavish free adverts upon it, the companies backing DAB would already have pulled the plug by now, because they would realise that with a sales growth graph that's like a lead balloon as soon as the TV adverts have been removed, spending even more money on TV advertising costs would just amount to throwing good money after bad -- I calculated that the twenty TV ad campaigns that the BBC has shown up to now would have cost £163m if they'd have been shown on commercial TV, which equates to the BBC pseudo-subsidising each and every one of the 6.5m DAB receivers sold so far to the tune of £25.08! Normal commercial products that cost sub-£100 would obviously never have anywhere near £25 per unit spent on them in advertising costs, because companies want to make a profit, not gargantuan losses...

Station closures on Digital One

The following stations have closed down on the Digital One national multiplex this year:

• theJazz
• Oneword
• Core
• Capital Life
• BFBS (which was on trial)

and:

• Planet Rock has reportedly got until the end of this month to find a buyer or else it will be closed as well
• The DAB-IP BT/Virgin Mobile TV service closed down earlier this year

The closure of the DAB-IP Virgin Mobile TV service was a major knockback for DAB, and especially for GCap with its 63% share in Digital One, because BT (which was the company behind the DAB-IP system) pulling the plug on DAB-IP will have reduced Digital One's annual revenue by around £4m per annum, and there were no stations to take the freed-up capacity. So whereas the Digital One multiplex was full as little ago as late last year, the only stations being carried on it now are Classic FM, Virgin Radio, TalkSport, and Planet Rock, which itself has the Sword of Damocles dangling ominously above its head.

Global Radio's takeover of GCap

The privately-held company, Global Radio, which is chaired by Charles Allen, the ex-chief exec of ITV, has recently taken over GCap Media in a deal that valued GCap at £375m, and this is Global Radio's second acquisition after it first bought Chrysalis (owners of stations such as Heart and Galaxy), which was another big UK commercial radio group. This means that Global Radio is now by far the biggest commercial radio group in the UK. The second biggest radio broadcaster in the UK is also now privately held since the German company Bauer bought Emap.

The big question as far as DAB is concerned, though, is how Global Radio views DAB. I've seen it reported by a fiercely pro-DAB journalist that Global Radio has "torn up" GCap's plans for DAB, but I think a better description would be that they've torn a little bit of GCap's plans up rather than tearing up the whole lot. When a company is subject to a takeover bid, the sale of assets are subject to 'buyer consent', and Global Radio stopped the sale of GCap's stake in Digital One. So on that basis alone, Global Radio is more positive about DAB than Fru Hazlitt. However, GCap has recently closed down theJazz and Capital Life, and Planet Rock is still up for sale, all of which Global Radio could have put a stop to if it wanted to due to the 'buyer consent' rule. Furthermore, Planet Rock and theJazz have actually been two of the most successful digital-only station to-date, so Global Radio allowing them to be closed down is hardly the action of a company that's massively supportive of DAB.

Let's face it, just look at that year-on-year sales graph again. Only a fool would bet the house on DAB with a graph like that. If ever there was a graph that shouts "the public isn't interested", that's it. The broadcasters should also look at the market research figures that Ofcom presented in its Communication Markets Report in 2006, which showed that only 4% of radio listeners were dissatisfied with what they were receiving on the radio. And of course, the vast majority of the people surveyed will have been listening via FM. The switch to digital TV has been easy, because I think people with analogue TV were genuinely screaming out for more TV channels. Judging by Ofcom's market research, the same obviously isn't true for radio, and switching off FM will be met with fierce opposition when they try it --the BBC tried switching off Radio 4 LW a few years back, but so many people protested that they were forced into doing a U-turn. Could you imagine the BBC trying to switch off Radios 1-4 on FM?!

Digital Two national commercial DAB multiplex

Channel 4 won the licence for the second national commercial DAB multiplex last year (dubbed 'Digital Two'), and it was supposed to be launching the multiplex later this year. However, most of Channel 4's TV executives are now against the move into digital radio, because they say that the £100m that it's expected to cost is needed to make TV programmes. Furthermore, Channel 4 has recently said that it has now reached the 'tipping point', and it now urgently needs public funding assistance via "top-slicing" of the TV Licence Fee if it's giong to continue competing with BBC TV. Channel 4 is either skint or it is not. It can't both ask for a share of TV Licence Fee money on the basis that it is skint and then go and fritter away £100m on digital radio which wouldn't deliver a profit for many, many years to come.

Channel 4's Board is going to take a long, hard look this month at the proposed move into digital radio at their monthly Board metting to see whether it would be a good idea or not. Channel 4 hasn't signed any transmission contracts for Digital Two yet, and the launch of the new multiplex has been put back to next year, if indeed it is ever launched. Channel 4 claims to be an innovative broadcaster, but the innovative way to delivery digital radio is obviously via broadband. Claims from DAB supporters that disitribution costs on the Internet are high for large audiences is simply wrong, because they're completely ignoring the fact that multicast is going to start being used over the next year or so, and multicast actually makes distributing Internet radio almost free!

It's also recently been reported that Channel 4 is having talks with Global Radio about the possibility of transmitting Channel 4's stations on the Digital One multiplex (because there's now bags of spare capacity), which, if they're going to persist in using DAB at all, this would seem to be the most sensible option rather than launching another hugely expensive national commercial multiplex that the revenues from DAB clearly cannot sustain. However, it's also been reported that Channel 4 isn't planning on handing back the Digital Two licence to Ofcom, so if Channel 4's stations were transmitted on Digital One, it sounds like the launch of Digital Two might be delayed for possibly a couple or more years until DAB revenues would be in a better shape to sustain it. This would also be an opportunity for DAB+ stations to launch on Digital Two when it finally launches -- one good thing about the recent DAB fall-out is that there's a lot more national DAB capacity available for DAB+ stations to launch once they do.

Fru Hazlitt has provoked much-needed debate about digital radio

Whatever lies in store for DAB, Fru Hazlitt dropping her DAB bombshell has led to some very positive changes. Firstly, Fru Hazlitt's preference for using broadband seems to have finally made a few radio exec's sit up and notice that they've actually got Internet streams for their stations (article is registration-only, unfortunately). If ever there was something that was an untapped market for digital radio it's the Internet -- listening to commercial radio by 25-34 years olds has dropped 34% since 1999, and amongst 15-24 year olds it's dropped by about 20% since 2003. These groups of people spend their time on Facebook and MySpace et al, which happens to be, erm, on the Internet -- and yet only Fru Hazlitt seems to have noticed that the Internet might just be a way to bring these people back to radio, whereas the DAB-supporting radio execs seem to think that young people will buy portable DAB radios, which, in terms of consumer electronics items, are about as cool as a Christmas jumper. Younger people want radio via broadband, and they want stations that are more personalised to their tastes. This requires either significantly more stations, which isn't possible on DAB/DAB+ due to lack of space, or full-blown personalised stations along the lines of last.fm -- once again, GCap are the only UK radio broadcaster to have launched personalised versions of their stations in the form of Xfm's Mi-Xfm and My Classic FM, although Virgin Radio is planning on launching a similar service later this year called My Virgin Radio.

A second positive result is that it has pricked the DAB industry's balloon, and it seems to have led to certain members of the DAB industry entering into a period of soul-searching. And even though they're still spinning things to the max in public, I've noticed that certain members of the DAB industry have been more honest -- for example admitting for the first time that mistakes have been made -- all of which can only be a good thing. I've often said in emails to people (who usually think I'm joking when I'm actually being deadly serious) that people in the DAB industry suffer from Group Think. A lot of the attributes along the lines of "we're right and they're wrong" most definitely apply to them. I also think the BBC suffers from this in a massive way, and it partly explains why the BBC is viewed by so many people as being extremely arrogant, and yet BBC people seem to be completely unable to understand why they're viewed as arrogant -- they ought to listen to Radio 4 Feedback if they're unclear why people view them this way, because the Mr & Mrs Perfects from the BBC who appear on Feedback are perfect examples of the BBC's arrogant nature towards its audiences. But I digress.

Jenny Abramsky & Ashley Highfield are leaving the BBC

The BBC's Director of Radio, Jenny Abramsky, is leaving the BBC later this year with her £4m pension pot, so she could literally have a jacuzzi of cash if she wanted to. And Ashley Highfield, the BBC's Director of Future Media & Technology, is leaving the BBC to run 'Project Kangaroo', i.e. the business that's going to make licence-fee payers pay to watch TV programmes that they've already paid for via the TV Licence Fee.

Jenny Abramsky is the main person responsible for the UK using the DAB system, because I've seen it mentioned in a book by Will Wyatt about his time at the BBC that Jenny Abramsky twisted the other executives' arms to make sure DAB happened, and Greg Dyke mentioned something similar in his autobiography, so by she's also the person to blame for the current situation as well, because without the BBC's TV adverts to support it DAB would have got nowhere.

Ashley Highfield is the person in charge of all things digital at the BBC, so he's also the person ultimately to blame for the debacle over the quality of the BBC's Internet radio streams over the last few years, albeit that I doubt he actually had a clue that anything was wrong, because he's never struck me as being very interested in the engineering side of things -- the same can be said for most of the BBC's Controllers in charge of digital technologies as well, because they seem to mostly comprise of marketing people who don't even have a basic understanding of the technologies that they're making decisions about, and he's the man that hired them for these roles. Having said that, I have noticed an improvement recently, because Anthony Rose, who's in charge of the BBC iPlayer, does seem to have a good grasp of the strengths and weaknesses of video and audio codecs he's using and such like, and James Cridland, who's recently been put in charge of the Internet radio side of things, also seems to know his stuff.

So it will be interesting to see how things change once these two people have been replaced, especially Jenny Abramsky, because I would expect there to have been at least some professional pride getting in the way of her making the right decisions regarding digital radio, and she's always laughably tried to defend the diabolical decision to use DAB, which I describe as being the most incompetent technical decision in the history of UK broadcasting.

Personally, I would like to see Fru Hazlitt become the BBC's new Director of Radio, because she's the only radio executive with a clue about what needs to be done regarding digital radio. I doubt she'd get the job though, basically because the BBC is too conservative and she's bold, and it'll probably go to an existing BBC Controller.

Digital Radio Working Group (DRWG)

The Department for Culture Media & Sport has set up a task force to look into what obstacles are in the way of digital radio growing quickly, but they've recently published presentation slides from their latest meeting, which deserves an article all on its own, because it looks to be a re-run of the diabolical planning that took place for DAB in the 1990s where all the right technologies to use were completely ignored because the people doing the planning didn't have a technical background -- and the exact same thing looks to be happening today. Fantastic.

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