Bad news, Johnny: the boss says you're 'in intensive care'

Capital Radio is in big trouble. Traditionally the top commercial station in London, it has seen its audience drop from three million to 1.8 million in five years. Top staff have deserted it too. So serious have its problems become that the man who took over a year ago says the station is not just sickly, it is "in intensive care". Ralph Bernard, chairman of GCap, the company that owns Capital, says he will not pay for any more marketing until he is happy with the station.

Attacking your own product has been seen as a sign of desperation ever since the jeweller Gerald Ratner paid the price for describing one of his own firm's products as "total crap". But Mr Bernard had good reason for doing so in an interview with Marketing Week magazine last week. His company was formed 12 months ago after the merger of Capital and GWR Group, owner of Classic FM - making it Britain's biggest commercial radio group. Capital was seen as its greatest asset, far more important than just a local station. But when the latest Rajar listening figures are published this week, it looks likely to be lagging behind the new London favourite, Heart 106.2.

"He's right. Capital is in intensive care," says Howard Bareham, head of radio at the media agency Mindshare. "The question is whether GCap has the right doctors and nurses."

Mr Bareham identifies a problem that has been hotly debated since the former Big Breakfast presenter Johnny Vaughan replaced Chris Tarrant as Capital's breakfast host in April 2004. "Johnny does not appeal to the female audience as much as they hoped he would. Some people think he is too laddish."

Heart executives believe Vaughan's tone has driven women towards their own breakfast slot, presented by Jamie Theakston. Analyst Susann Jerry of the Media Foundry says: "Theakston is more in touch with his feminine side."

This matters because breakfast shows are the foundation on which radio stations build their schedules. But Capital's problems go deeper. Since the merger it has lost virtually all of its senior management team, culminating last month in the departure of managing director Keith Pringle. His replacement, Scott Muller from the Australian music station Nova 969, faces a daunting challenge.

Last November GCap responded to the problems by announcing an overhaul of the station. Convinced that the sound was wrong, it adopted a policy pioneered on Mr Muller's Sydney-based station - a cut in the number of advertising slots.

This tactic can work. As Mr Bareham puts it: "People do not tune in for the ads." And when fewer advertisements result in larger audiences, the value of slots goes up. But Susann Jerry says: "Heart and Magic have been running the same number of ads as Capital for the last three years and their audience performance is better. This is not an ad problem. It is about content."

Industry watchers fear that this applies to the entire group. GCap Media has struggled to combine the cultures of the two companies that formed it, at a time of declining revenues and falling audiences. In the last quarter of 2005, GCap's indie rock station Xfm - which lost its own star breakfast host, Christian O'Connell, to Virgin - saw its audience decline from 628,000 to 497,000. Then last month GCap revealed that its full-year revenue to the end of March was down 13 per cent. The sale of nine local radio stations was scrapped after it failed to raise the £50m GCap wanted.

A senior GCap insider acknowledges that life has not been smooth. "Launching a merger when the advertising decline was starting to bite was painful. Once we got into it we realised we had to get bigger synergies than we had imagined." But GCap insists the worst is over. "We've sorted out the management structure and we have relaunched Capital," says the insider. "But that is only one of our stations. We have 53 FM stations, including Classic FM, and more than 60 digital ones. The future of GCap does not rely on Capital alone."

However, Capital's battle is seen as a litmus test for GCap's management and an indicator of commercial radio's vitality in a market increasingly dominated by BBC Radios 1 and 2 and challenged by online advertising. GCap's resources mean it ought to be able to fight. Many analysts see that as the source of Ralph Bernard's frustration and what one analyst calls his "Gerald Ratner moment".

MEDIA DIARY

Rooney and the runes

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Rod's in the loop

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Unrequited Rachel

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Critical judgement

The Guardian's theatre critic Lyn Gardner has an article across the front of a "newspaper" called the Elephant & Echo that turns out to be a PR flyer for the Royal de Luxe theatre company. Previewing the company's The Sultan's Elephant, Gardner calls it "a wonder of a show" and "a stunning visual spectacle. It brings us together and makes a community out of us," she gushes. Was she paid for this article? If so, what price Gardner's critical reputation?