UK Radio Update From Merrill Lynch

The broker is forecasting that 2003 growth will be a little stronger, at around 3% to 4%, but the ‘lacklustre macro conditions’ are likely to prevent any more spectacular growth. Naturally, the outcome of tensions with Iraq will have a substantial affect on the way the market falls.

In addition, the introduction of the Communications Bill in the second half of this year might spur a round of merger activity, although analysts believe that asset swaps and deals are more likely than outright takeovers given the uncertainty and lack of confidence in market valuations.

Media buyers Looking at the airtime marketplace, Merrill notes that media buyers pay for larger/higher quality audience impacts and a radio operator’s ability to set price premiums is largely based on its audience size and demographic.

Given this, analysts believe that Capital Radio’s traditional premium may be under threat following its recent decline in audience levels (see Capital Stock Hit By Poor RAJAR Figures). EMAP appears stable, with a strong presence in London, whilst GWR’s Classic FM and lack of London presence might inhibit a significant premium growth, says the broker’s report.

Capital Radio maintained a premium during 2002, according to analysts, as it commanded 22% of total industry advertising revenues against a 15% share of listening, according to the Q4 2002 RAJAR figures.

Conversely, GWR Group’s listening share was a leading 22% in Q4, but its share of revenue is expected to be 21% across the year. This is mainly because the group’s Classic FM station has a large volume of listeners, but they have a high average age making them less attractive to the majority of advertisers.

Forecasts Estimates from Merrill Lynch put UK radio advertising growth behind that of US radio, but above the UK television market, as shown.

Advertising Growth Forecasts
	2001A	2002	2003
UK radio	-7.7	2.3	4.0 (3.0%-4.0%)
US radio	-7.5	5.6	5.3
UK ITV	-13.3	-1.0	-2.5
UK terrestrial TV	-10.8	2.2	0.1
Total UK TV	-8.7	4.1	2.2
Source: Merrill Lynch, February 2003

By way of comparison, the Advertising Association is forecasting a 6.5% rise in UK radio spend this year, whilst OMD UK predicts growth of 2.5%. This puts Merrill Lynch’s forecasts roughly in the middle of the range.

UK Radio Forecasts
	2003	2004
Merrill Lynch	3.0-4.0	5.0
Advertising Association	6.5	7.0*
OMD UK	2.5	4.2
* to Q3 2004
Source: As above; Merrill Lynch, February 2003