GCap retreats from digital radio to focus on FM and broadband

The future of digital radio has been dealt a blow as the owner of Classic FM and Capital 95.8 signalled its retreat from the medium.

GCapMedia is closing two digital stations and selling its stake in the national digital radio platform Digital One as part of a major change in strategy. But rival radio companies have rushed to defend DAB (Digital Audio Broadcasting) as the medium of the future.

Fru Hazlitt, who took over as chief executive of the radio giant last month, insisted digital "was not an economically viable growth platform for GCapMedia".

The Jazz and Planet Rock stations are being axed, while GCap is selling its stake in Digital One to Arquiva for a nominal sum.

The withdrawal from digital is part of a wider strategy review at GCap, coming a few weeks after it rejected a £313m takeover bid from Global Media, an acquisitions vehicle headed by the former ITV chief executive Charles Allen.

Ms Hazlitt, the former Virgin Radio chief, said GCap had spent around £8m a year on digital radio, but had failed to recoup the investment. It is a marked change in strategy for GCap, which under its former chief executive Ralph Bernard, championed DAB. Ms Haz-litt said: "We believe the future for the new GCap is on FM and broadband. FM remains the backbone of the radio industry and on quality compares favourably to any other platform."

The latest Rajar figures show that DAB accounts for 9 per cent of all listening, digital radio alone for 4 per cent and online – in which GCap is now placing its faith – for just 1.9 per cent, even though many more households have broadband than have DAB radio sets.

GCap is also selling its three unprofitable Xfm stations in Scotland, Wales and Manchester and will concentrate on its London Xfm brand. The company is changing its policy of not broadcasting more than two adverts in a row on its flagship Capital 95.8FM, increasing the airtime devoted to commercial breaks to nine minutes an hour.

Ms Hazlitt hopes to make savings of up to £8.8m from the disposals and restructuring and forecast that full-year profits will be boosted by £12.3m, followed by an increase in profit margins to 12-14 per cent by March 2009 and by 17-19 per cent the following year.

Since the merger of Capital Radio and GWR three years ago, the company has seen its audience, sales and profits fall, despite increasing cost savings from an initial £7.5m to £35m. GCap's share price fell 2.9 per cent yesterday in response to the announcement.

Mr Allen said: "The question for shareholders is do they want 190p a share in cash now or the plan that's been presented today?" He added that GCap would need to treble profits to match Global Media's bid and the new strategy had fallen well short of this, only doubling profits, while removing digital as a potential growth area.

The Altium Securities analyst Roddy Davidson said: "It's a bold change of strategy for GCap, who were real pioneers in the digital DAB market. I think it's the right thing for them to be doing at the moment. DAB for them has been a real addition to the cost base.

"FM is still very much the dominant frequency and I think will be for some time."

But elsewhere in the radio industry, DAB still has many champions. Channel 4, which is heading a consortium to launch the second national digital radio multiplex later this year, put out a joint statement with the BBC reaffirming their commitment to digital radio.

Richard Wheatley, the chief executive of the Local Radio Company, has described DAB as "the Betamax of radio", but defenders of the medium maintain that it provides a superior listening experience, including on-screen programme guides and the ability to record radio shows. Nathalie Schwarz, chairwoman of 4 Digital Group, said: "Media convergence is a reality. The industry can choose to invest in the future or get left behind. DAB for radio should be the same seismic shift that FM was for AM."

Mark Story, group programming MD for Bauer Radio, formerly Emap Radio, which owns the profitable Heat digital station, said: "We're very enthusiastic about DAB and we continue to be. I don't think there's any doubt that it's getting momentum."

A spokeswoman for the Digital Radio Development Bureau said: "DAB digital radio is growing strongly, and remains a strong proposition for the UK radio industry, both commercial and public."

Digital radio stations

* Planet Rock (GCap)

Classic rock from the likes of Led Zeppelin, AC/DC and Pink Floyd. Weekly audience rose 32.8 per cent year on year to 563,000 in Q4 2007.

* The Jazz (GCapMedia)

The only national station devoted entirely to jazz. Weekly audience fell slightly on the quarter to 364,000 in Q4 2007.

* Heat (Bauer Radio)

Celebrity news and pop music from the magazine of the same name. Weekly audience rose 56.9 per cent year on year to 386,000 in Q4 2007.

* 6 Music (BBC)

Alternative music played by the likes of Mark Radcliffe. Year on year weekly listening figures rose 28.7 per cent to 493,000 in Q4 2007.

* BBC7

Comedy and drama from spoken word station. Weekly audience rose 26.9 per cent to 853,000 in Q4 2007.

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