Chrysalis backs digital radio

CHRYSALIS, Chris Wright's media group, is joining forces with Border Television to bid for regional digital radio licences when they come up for grabs next year.

The move highlights the growing importance attached to digital radio by radio groups, despite initial scepticism about its prospects.

Chrysalis, which operates the Heart and Galaxy stations, sees bidding for digital radio franchises as a way of protecting the future of its existing licences while also building a new business.

"By forming a joint venture with Border we effectively cover the whole country in terms of the different regions," said Phillip McDanell, managing director of Chrysalis.

The move also highlights the growing importance of radio to Chrysalis. In the past, the group has been best known for its independent television operations - it is responsible for programmes such as Channel 4's Football Italia and ITV's Babes in the Wood sitcom - and its music business, which this summer published hits from teen chart sensations including B*Witched and Billie.

These two divisions are still Chrysalis's largest revenue earners. But results for the year to 31 August, released yesterday, show that radio is catching up fast. Turnover in the division increased by 72 per cent to pounds 18.4m while it lost just pounds 100,000, compared with pounds 1.9m in the previous year.

This contributed to a 24 per cent increase in group revenues to pounds 123m and a pre-tax loss of just pounds 1.2m, down from pounds 1.9m a year before. Analysts said the results were in line with their expectations.

Profitability is still some way off, however. Last month, Chrysalis was selected to run the regional radio licence in the North-east with its Galaxy dance format. The win, though significant, will require a significant investment from Chrysalis.

But the company shrugs off fears that a downturn in advertising spending will hit revenues. "Radio is much better positioned because we've got stations that are growing," says Mr McDanell. "It is becoming a first choice for advertisers."

Daniel Kerven, an analyst at the stockbroker Dresdner Kleinwort Benson, believes the radio investment will keep the whole of Chrysalis in the red for the coming year. However, he expects the company to move into profit by August 2000.

This renewed optimism has helped revive Chrysalis's share price. After a tremendous run over the past five years the company saw its shares plunge from a high of 810p earlier this year as worries about a recession took force. They closed up 15p at 662.5p yesterday.

At the moment, only the television division makes a profit. For the past year, the group reported a pounds 3.0m profit - up from a pounds 100,000 loss, on a 50 per cent increase in turnover.

Meanwhile, the music division is having a tough time. Operating losses deepened to pounds 2.2m from pounds 1.7m in the previous year. Although the UK music publishing division performed well, results in the US were down. In the recording business, its Echo label continued to struggle.

But with Chrysalis well positioned to benefit from the growth in the Internet - the company has already invested in some electronic commerce sites and is considering linking with larger partners to promote its music on the Web - most brokers still remain positive about Mr Wright's prospects.