December 2007

The main issues for radio in 2007

The main issues for radio in 2007

For our final comment of the year, we have opted to examine briefly the issues we perceive as the major ones for radio over the past year - those of industry ownership; consolidation of that ownership; the effects of technological change; and the role of regulation and legislation.

The effects of technological change are something that governments cannot control much if at all in some cases -such as the development of MP3 files and subsequent downloading of audio from the Internet but in others can pretty well control - as when analogue TV is switched off, leaving consumers with no choice but to spend money on new equipment or do without TV. In other cases they can significantly influence take-up of some changes as opposed to others through incentives and disincentives.

In considering these broad areas we are working on the basis that the outcome most conducive to the public interest is one that will strike the best balance between promoting investment to develop services and ensuring a range of services and competing providers that best serve that public interest.

Industry ownership.

As regards industry ownership we are broadly against large corporations owning too large a share of companies controlling broadcast content or new outlets in a market although less so, providing there is either strict regulation to prevent abuse of near-monopolistic ownership or a complete monopoly, when it comes to the transmission chain.

In some ways, indeed, splitting off the transmission side from the programming side could be good for democracy and multiple media sources since it reduces the barrier to entry whilst the current situation enhances the security of incumbents and increases the value of their holdings but in many cases seems to do little or nothing to promote local programming and news coverage.

The same is, of course, true of the adoption of Iniquity's in-band on-channel HD system for digital radio transmissions - it preserves the powers of the existing corporations and increases the value of their businesses but nothing has been done to ensure that any of the potential benefits go to newcomers although pious words have been spoken. The cynic might well compare the lobbying power of the big corporations in the US with the bribery and corruption of the third world in this regard.

In practical terms we see little chance that US politicians will take on the entrenched lobbying powers of the big corporations whose money they need to get elected but there does seem to be enough public opinion against further consolidation to potentially permit it to be limited and at the same time allow further development of low-power FM: The latter, if allied with digital transmission, could potentially greatly increase community involvement in radio without in our view causing any significant problems for most existing commercial stations.

Ownership consolidation.

Our views on this follow on from the comments above and we have seen no well thought-out arguments in favour of allowing significant additional consolidation in US media.

We also do not concur with arguments that by allowing cross-ownership of broadcast stations and newspapers there will necessarily be any overall increase in local news and public affairs coverage.

Far sounder an approach in our view would be to set a reasonable rate of return on investment in broadcast equipment and programming allied with public service requirements attached to licences: If the return falls close to these levels then reconsideration would be allowed but otherwise licence renewal would be automatically denied if the requirements were not met.

This would, of course, be anathema, to the current licence holders whose stock would fall initially but we suspect that in the long term there would be a reasonable balance reached in terms of private profit and public interest albeit it would be tiled more to the latter than is currently the case in the US.

Technological change.

For radio the technological changes that particularly affect the medium are now matters of uptake rather than immediately foreseeable advances -- the main digital systems are now in place for digital radio transmission as are technologies to download from the Internet, to store audio digitally on portable devices; and to receive the Internet via wireless devices.

So far as the marketplace is concerned the major take-up worldwide has been of Internet listening and downloading for use on portable devices with some success for Eureka DAB digital radio in the UK, significantly in part because of regulatory action in adopting a stick and carrot approach - analogue licensees (whose licences were not automatically renewed in the UK) were guaranteed renewal if they provided a service on the local digital multiplex.

The UK approach ensured additional services were available on digital receivers thus helping create a market that in turn allowed production of receivers at levels that allowed significant price reductions.

In contrast to this the Canadian approach used DAB but actually prevented provision of different services, thus reducing consumer incentives to purchase receivers.

In the US, adopting iniquity's system without imposing any conditions regarding licensees' use of the spectrum seems outside the country to have done little to add genuine viable alternative programming outside the services of public radio.
Indeed it can be argued that if anything the regulatory system - which not only allowed licensees to keep their existing control of spectrum but did not require them to make use of it or to offer it to others and also through copyright law (The Digital Millennium Copyright Act) imposed charges on suppliers of digital audio that do not apply to terrestrial analogue transmissions - is a brake on the uptake of digital.

The role of regulation and legislation.

The above takes us on to the role that regulation and legislation can play. We referred in our second paragraph to the decision to switch off analogue TV, thus forcing consumers to take-up digital.
Unlike the adoption of MP3 players and I-Pods (and earlier of the Sony Walkman), the decision is not one of consumer choice or the marketplace but rather a combination of politics and accounting sleight of hand that moves costs onto consumers and many of the benefits to others -those who will benefit from the spectrum thus released including the government through what it will collect for spectrum licences and the users of the spectrum.

Whilst we can see that it may be in the longer-term public interest to make the switch for TV, where the spectrum released is of great value for other communications purposes, the costing of the change nevertheless in our view is a confidence trick if they do take into account the money that people will be forced to spend on digital equipment and of disposal of the analogue equipment that becomes junk because of the switch, even if the cost is really one of moving purchases of new equipment forward in many cases rather than forcing a purchase that would not otherwise be made.
For radio the situation is different - the HD system that uses part of existing analogue spectrum for the digital signal means there is no general release of spectrum for other purposes and where different spectrum is used for digital radio as in the case of Eureka DAB, the spectrum released is of very little value compared to that of the TV spectrum freed up by dropping analogue transmissions.

There is pressure from commercial interests in the UK - and there will be elsewhere - to switch off analogue as a way to increase digital take-up on which commercial companies have spent money without getting returns.

That pressure we think should be rejected since the cost of replacing the many analogue radio receivers that people have (In our household as well as two digital radio receivers there are at least five analogue portables plus a good quality AM-FM-short wave receiver) for no real benefit to the consumer will for a long while outweigh the benefits to consumers of digital: This particular decision should be left up to the consumer (Already the combination of extra services and reduced receiver prices has led to some five million receiver purchases in the UK alone).

We think therefore that in the case of radio the best way forward for digital is a combination of stick and carrot - stick so that licensees cannot simply hold on to spectrum that would be better used by others (In the US we would have required licensees as a condition of licence to free up at least one HD channel for allocation to newcomer broadcasters with revocation if this were not available within say a year of them starting HD transmissions and also to forfeit the HD spectrum completely if within 18 months of an external organisation expressing interest and showing finance to provide equipment to broadcast HD on the station's frequency had they not commenced their own HD broadcasts).

We also think in regulatory terms that in the long term the public interest would be better served by an equal playing field for digital and analogue broadcasters than by allowing the current exceptional exemption from performance royalties for the latter as in the US, although as per our March 2007 Comment (2007-03Comment.html) we think there would be a benefit in creating a number of classes of copyright, thus producing a market pressure on copyright holders to keep their prices reasonable or lose airtime, a situation that would quickly show whether the NAB or recording companies are correct about the value of the promotion that music gets from airplay.



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