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Commercial radio update: pressure continues
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This report updates our coverage of the commercial radio sector. In Q1 2010, RAJAR data showed that the average number of hours listened per listener and the total number of hours listened, across both the commercial sector and the BBC, fell by 2.7% and 1.2% respectively compared to Q1 2009. This continues the long term trend of gradual consumption decline we have highlighted in the past. Another consistent trend is the relative robustness of listening to BBC radio, whilst the brunt of the decline is borne by the commercial sector.
Whilst BBC radio is funded by the licence fee, the commercial sector relies on advertising, which was severely impacted by the recession in 2008-09, on top of the structural shift of advertising to the internet. Oversupply of radio inventory continues to cause downward pressure on ad rates. As the UK economy exited recession in Q4 2009, commercial revenues rose 6.3% over Q4 2008, after six consecutive quarters of revenue decline. Q1 2010 is expected to come in at approximately 7-8%, with more modest positive growth in Q2.
Public sector advertising, which includes procurement by the Central Office of Information (COI), has proved to be a significant source of income for radio (18.9% of revenues in 2009, COI itself accounting for 11.5%). On 24 May George Osborne announced that, with the exception of previously committed and essential campaigns, further COI advertising will be put on hold until March 2011. Based on this understanding about COI spend, which will translate to a small negative impact in H2 2010, we expect H2 2010 to be flat. Overall, we forecast small, positive annual growth of commercial segment revenues of 2.5% for 2010.
Whilst income is being compressed, the cost of serving dual analogue and digital transmission remains a strain. Ofcom’s ongoing deregulation will have a small positive impact on costs. However, further station closures are entirely possible, especially if COI spend continues to be squeezed.
