Matt Deegan and I have started an interesting debate on FM/DAB switch-over, with his post here.
My starting premise is that the most important number to look at is FM reach, rather than the oft-quoted digital share, as the essential prerequisite to making a switch-over decision. Digital share is moving nicely upwards across the UK, and is now nudging 30% - which is fantastic, and suggests to me that the market will ensure DAB, and digital more generally, remains and grows as an essential part of the radio landscape.
At the same time however, out of the 90% of the UK population who listen to the radio at some point each week, around 75% of them make use of FM as part of their weekly listening repertoire – and this then results in FM forming a significant proportion of their total listening – currently in excess of 60%. Whilst this share will decline over time, as listening migrates to digital platforms, the reach enjoyed by FM will remain stubbornly high – and my thesis is straightforward - I simply cannot believe the BBC, major commercial operators, or even MPs, will sit by and let current FM signals go dark whilst millions of people are still using an FM radio for at least some time during each week.
For the BBC it would be a complete denial of their over-riding requirement to serve the whole population; for commercial operators it would be to willingly risk losing listeners and revenue for no good reason (except to save the comparatively small sum that FM TX costs); and for MPs it would mean backing a proposal which will result in many angry constituents.
And why might FM reach remain stubbornly high whilst digital share marches to 50% and beyond? Well there are two reasons.
Firstly, in-car listening. Radio consumption in cars accounts for about 20% of all listening, but weekly reach in cars is much higher (it's currently 52% in Birmingham.) Ford Ennals at DRUK told me last week that he thinks there are 30 million cars on the road in the UK at present, so to start with we need to think about retro-fitting all of these, as only a very small percentage currently have DAB fitted either as standard or as retro-fit. My understanding is that retro-fit is improving in leaps and bounds, but realistically we must be at least 10 years, or longer, away from all of these cars being DAB-capable. Now obviously some of these cars will be scrapped each year, to make way for new vehicles, but even here it will be slow progress. Currently 21% of new cars come with DAB as standard, and this will rise - but it still means almost 80% of new cars sold this year won't have DAB installed. As every year passes with a significant percentage of new cars coming on stream without DAB automatically installed, so the base of cars needing retro-fitting remains large. Perhaps I’m being unduly pessimistic about the ability of manufacturers to develop clever retro-fit solutions which are simple, quick and cheap to install – but aerial technology alone will make this hard to achieve. For lots of listeners, in-car will remain FM for quite some time.
Secondly, we are stuck with multi-set listening – in bathrooms, bedrooms, kitchens, garages, sheds etc etc. Each secondary or tertiary set might only account for a modest share of an individual’s listening, but taken as a whole these sets add up to big weekly reach figures. Whilst consumers might well be willing to splash out on a new DAB for the kitchen or main bedroom, and then replace their second set at a later point, I suspect getting them to continue to shell out for multiple sets around the home will prove more problematic – especially with listeners for whom an FM delivering their favourite station is “perfectly adequate thank you very much.” And of course there will remain quite a substantial number of digital refusniks as well, so I think this is an issue of a different order to that faced by digital TV switch-over.
So my view is that FM will remain an essential component of listening, with FM reach remaining well into significant double figures until the mid-2020s, even though FM share might shrink more rapidly.
At this point you have to turn, certainly in the case of commercial operators, to the economics of transmission for simulcasts. And here the maths are quite revealing, because when you are broadcasting essentially the same output over multiple platforms, each platform becomes viable, and then valuable, as soon as the marginal revenue exceeds the marginal cost – and for simulcasts this means audience delivery is key, as audience size by platform is almost exactly proportionate to revenue generated. For most locals who are simulcasting on FM and DAB, I would guess annual revenues to be on average £2m+. Given a local FM transmitter probably costs £50k-£75k or less to rent each year, and a stereo slot on a local mux is likely to cost less than £100k per annum, this means as long as at least 5% of your listening is on either of those platforms – you’ll want to stick with it until forced off. It’s for this reason that even those operators opposed to DAB on principle (and I am not one of those) but who are on the platform in order to secure licence renewal, might be nervous about relinquishing their current DAB slots. As an example, given our birmingham DAB audience now represents just under 10% of our total listening, even if OFCOM said "you can keep your FM licence and switch off digital transmission" we might be very nervous about doing so, and losing those hours. And if a 10% share on DAB means it's a "must have," that must hold true in reverse.
So we have a real dilemma here – FM reach will remain stubbornly high, meaning residual FM share will not decline as fast as digital evangelists would want, and whilst local commercial stations are attracting any decent share on FM, they won’t want it switched off – especially given the uncertainty of listening habits and retuning risk in a forced overnight march to DAB.
Ironically, in the end, given FMs comparatively low transmission cost, there being no commercial imperative to shift us off (I’m not convinced there will ever be a new, commercially attractive use for the band) and the fact we’d be encouraging Arqiva (and others) to reduce FM costs as much as possible, we commercial operators might end up wanting to eke out FM audiences at low cost for as long as possible. For national FM networks, the economics of transmission are different – but this is where the BBC dominates, and universal coverage delivery will be their acid test.
I could be wrong, and Matt right, that the impetus grows more quickly, but I can’t see FM reach dropping below 25% and share dropping below 10% for at least another 15-20 years. And for as long as that’s the case, it will remain marginally financially attractive to commercial operators to keep it on, and problematical for the BBC and regulators to switch it off.
And if we knew now for certain that it was going to take that long to get to that point, would we today still want to head down that path? I suspect that's an argument that might take the full half-hour!