Introduction to Wi-Fi radios

Channel 4 pulls out of DAB

Channel 4 has decided to close down its radio division due to its current funding crisis. Channel 4 was originally planning on launching three digital radio stations, and it is also the majority shareholder of the 4 Digital Group, which owns the licence to operate the second national commercial DAB multiplex — dubbed Digital Two, or D2 — that was meant to have launched back in July.

This is disastrous news for DAB, because the DAB industry was banking on the fact that Channel 4 launching its three new stations, along with the inevitable heavy cross-promotion of the radio stations on C4's TV channels, could have led to DAB's lamentable sales finally picking up. And the air of optimism amongst the DAB supporters was summed up by Ofcom's Director of Radio, Peter Davies, who considered that the launch of the second national DAB multiplex, and in particular C4's new stations, were a chance to "re-launch DAB", which he considered would lead to:

"DAB's Freeview moment"

i.e. the launch of Channel 4's new stations would act as the spark needed to finally make DAB successful.

But Peter Davies was part of the BBC team who did the original planning (I use the term loosely) for DAB in the 1990s, so he has a habit of viewing DAB through rose-tinted spectacles — some would say he views DAB through two eye-patches, in much the same way as his fellow light-touch regulators at the FSA view the companies they "regulate".

As events have actually transpired, though, a more accurate description would be that this has become:

DAB's FAIL moment

D2 national multiplex is now dead in the water

C4 has a 55% shareholding in the 4 Digital Group that owns the licence for the D2 national multiplex, so it's pretty certain that D2 won't now launch at all, or at least it won't launch for several years until DAB ownership has grown substantially so that a second national commercial multiplex could become financially viable (unless they used DAB+, for reasons I'll discuss below).

Out of the ten stations that were part of the original winning bid for the D2 licence last summer, only five stations now remain, because in addition to Channel 4's three stations, Virgin withdrew its Virgin Viva station within months of the D2 licence being awarded, and Sky News Radio followed the same way shortly after.

In their bid for the D2 licence, the 4 Digital Group had committed to Ofcom that they would provide 90% population coverage, and figures from the BBC show that providing 90% population coverage level on DAB costs around £11m per annum in transmission costs. So these five remaining stations would have to shoulder an average annual transmission bill of £2.2m each, and Arqiva, the transmission provider, would want the 4 Digital Group to sign long-term transmission contracts (probably about 12 years or so) for it to be worth its while to build the transmitter network.

But following the closures of theJazz, Oneword, Core and Life earlier this year on the Digital One (D1) national commercial multiplex, there are now only four stations left on D1, so there's bags of national capacity available. Also, four out of the five remaining stations are only mono stations anyway (mono stations only require about half of the capacity of a stereo station, so they pay about half as much), so their transmission costs on D1 would be around £500,000 per annum, as opposed to them having to shoulder their part of the £11m on a long-term basis. Also, the fact that there have been no new stations launch on D1 since the raft of station closures earlier this year shows that there's no demand for national DAB capacity, so it's pretty much inevitable that the 4 Digital Group will hand the D2 licence back to Ofcom. Cue violins.

National DAB stations — a licence to lose money

It costs £1 million per year to transmit a 128 kbps stereo station on D1, and the following table shows how much that equates to in terms of cost per listener for the last RAJAR figures before the stations closed down earlier this year:

Comparing those figures to an average local FM station with 200,000 listeners and a transmission bill of £60,000 per year, that works out as being £0.11 per listener per year — so local FM is over 100-times more cost-effective than transmitting Life. Basically, national DAB stations aren't economically viable — which is exactly what Fru Hazlitt said earlier this year.

Internet radio, which Fru Hazlitt favoured, but the DAB industry always tries to make out is very expensive, is also far cheaper to distribute than DAB, and Internet radio has the advantage that the cost of Internet bandwidth halves every 18 months due to Moore's Law. Furthermore, multicast is only a couple of years away from being widely supported, and multicast makes it effectively free to distribute live radio. So when viewed on a medium-term basis, Internet radio is a far, far cheaper option than DAB.

Ofcom is mostly to blame for the Channel 4 debacle

I consider that the combination of two things were to blame for the Channel 4 debacle, both of which can be attributed to Ofcom's decisions:

• It was far too early to launch a second national DAB multiplex; and
• Channel 4 asked Ofcom if they could use DAB+, but Ofcom told them to use DAB

Channel 4's planning shouldn't be excused, though. C4's plans pivoted around them making a profit from operating the D2 multiplex, because they were going to use that profit to help fund the three stations they were going to launch. So obviously Channel 4 should have done its sums better. But ultimately it's the regulator's job to get the timing right for when a new national multiplex should be launched, and they simply couldn't have got that decision more wrong. And this led to Channel 4's plans slowly unravelling over the last year.

Launching D2 in 2008 was far too early

As the graph below shows, the sharp downturn in DAB's year-on-year sales growth happened at the beginning of 2006, and the sales growth — which is a barometer on the state of DAB's health — kept on falling from there onwards. This should have acted as a warning sign, but Ofcom ignored it and pressed on regardless in the belief that launching new channels would solve all of DAB's problems.

But just 7 - 8 months after the D2 licence had been awarded to the 4 Digital Group, four of the stations on the D1 multiplex were forced to close down because they weren't economically viable. This suggests that Ofcom can't even have done the most basic of sums to figure out whether the market could withstand a second national DAB multiplex being launched. This inability to look beyond the end of their noses seems to be a recurring theme with DAB.

Channel 4 wanted to use DAB+ but Ofcom told them to use DAB

Coupled with the decision to launch D2 far too early was the fact that Channel 4 asked Ofcom if they could use DAB+, but Ofcom told them to use DAB instead. The transmission costs per station on DAB+ are 2 - 3 times lower than on DAB (depending on what level of quality the broadcasters choose to use). So if Ofcom had delayed the launch of D2 until a more appropriate time, and they had allowed Channel 4 to use DAB+, the D2 multiplex would have been economically viable and the Channel 4 debacle would have been avoided. However, the one and only positive thing to come out of this debacle is that there is now an opportunity to launch D2 as a DAB+ multiplex over the next few years.

DAB's 2008 FAIL timeline

2008 hasn't been the best year for DAB. And yesterday's news is the conclusion of an ongoing saga over the last six or seven months, which went approximately as follows:

1. Fru Hazlitt, the then-CEO of GCap Media, and Near-Saviour of Digital Radio, announced earlier this year that she wanted to pull GCap out of DAB because it wasn't an "economically feasible platform", and she wanted to focus on FM and broadband instead
2. This led to the Channel 4 board quite rightly doubting the wisdom of jointly-funding the launch of a new national DAB multiplex along with funding three new and very expensive C4-owned stations, especially when this came at a time when C4 was already facing a funding shortfall
3. Launch of the D2 national multiplex was then delayed until the end of this year
4. Global Radio took over GCap, and Global Radio kept hold of its majority shareholding of the Digital One multiplex which Fru Hazlitt had wanted to dispose of, and the DAB industry was temporarily skipping down the road whistling a happy tune
5. C4 announced that they were going to stagger the launch of their three stations rather than launching them all at once -- by now, people at the mediaguardian had started to doubt whether the Channel 4 Radio station, which was billed as competing with Radio 4, would ever launch because high quality speech radio is so expensive to produce
6. Launch of the D2 multiplex was then put back to next year, and it emerged that C4 hadn't signed any contracts with Arqiva, the transmission provider, so in reality it couldn't have launched for probably a year or so
7. Rumours emerged that talks were taking place between 4 Digital Group and Global Radio about merging D1 with D2
8. News emerged that C4 was laughably considering that mobile TV could come to the rescue of the D2 multiplex, even though when mobile TV had been launched on DAB on the D1 multiplex a couple of years ago it was an abject failure (10,000 subscriptions were sold following a £10m advertising campaign), and mobile TV has failed to take off elsewhere — and it's basically a waste of time in comparison to on-demand TV applications such as the BBC iPlayer, which are going to be widely available on mobile devices in the not too distant future
9. It was then reported that it was looking likely that 4 Digital Group and Global Radio would merge D1 and D2, but Channel 4 was still saying that D2 would still launch in a couple of years' time — this was about 2 - 3 months ago from today
10. Talks were ongoing between 4 Digital Group and Global Radio, and sources were "optimistic" that they could agree terms
11. Andy Duncan then told Brand Republic on 30th September that the Channel 4 Radio and Pure4 stations would be mothballed but that E4 Radio would launch next year
12. 10th October: Channel 4 axes its plans to enter the commercial radio industry

Let's see what you could have won

The three stations Channel 4 was going to launch are as follows:

E4 Radio and Channel 4 Radio were originally billed as competing head-on with BBC Radios 1 and 4 respectively, whereas Pure4 looked to be similar to 6 Music but with some speech radio as well. And although I can't deny that I'm quite amused at the latest entry to the DAB FAIL 08 scrapbook, I do think it's a shame that Channel 4 won't now be moving into radio, because they could have provided a shot in the arm for the unimaginative UK commercial competition for the BBC.

As things now stand, however, the only remaining stations from the 4 Digital bid are ones that the vast majority of people couldn't care less about. And combining that with the national station closures earlier this year, DAB's proposition will actually be significantly weaker than it was a year ago. Things are not looking good. But of course the BBC will begin its 21^st TV advertising campaign for DAB in the next few weeks in time for the run-up to Christmas. At the end of the day, though, it was always highly hypocritical for C4 to want to spend many millions on its radio ambitions when it was simultaneously holding out the begging bowl to receive BBC TV licence fee money. Radio was also obviously uncharted territory for C4, so it was a high risk venture, and it would have taken them several years at the very least before they'd see a return on their investment. The 150 staff who C4 is in the process of laying off wouldn't have been overly chuffed if they'd have continued with their radio plans, either.
 
 

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