Mathew Horsman on radio advertising's boom

Those of us wedded to the Today programme on Radio 4, or likely to tune in to Radio 1 for the best in contemporary music, might assume that the venerable BBC still dominates the radio waves in the UK.

Not so.

Commercial radio, the country's fastest-growing advertising medium, overtook the BBC in terms of audience share early in 1995. It now accounts for more than 50 per cent of total listenership. But perhaps you already knew that. Readers of the Independent and the Independent on Sunday are more likely than readers of any other national quality newspaper to listen to commercial radio.

The medium's growth has been impressive by any measure. Since the latest round of liberalisation, starting in 1992, the commercial sector has seen advertising revenues gallop ahead, from pounds 141m that year to pounds 270m in 1995. In the past three years, the annual increase has been at least 23 per cent - far outstripping the advances in other media sectors such as newspapers and television.

It must be said, of course, that the two leading media generate far more money in nominal terms. Newspapers take in pounds 1bn in advertising revenues in a good year, while commercial television, including ITV, Channel 4 and cable and satellite, account for bit more than pounds 1.6bn.

Still, the attractiveness of radio as a medium has become increasingly obvious. Next to television, it is cheap. Moreover, surveys suggest radio creates an intimacy between listener and programme that is far deeper than the associations we have with the televised image. That means listeners tend to recall the messages they hear on radio - or at least are predisposed to pay attention.

Paradoxically, people like radio because they can carry on with other activities - shaving, cooking, DIY in the living room, driving along the M6 - as they listen. Favourite programmes are like old friends; you get to listen in on snatches of conversations between jokey DJs, or follow the latest twist in the mad cow scare, all the while staying far from couch in front of the telly.

Even better from the point of view of advertisers, commercial radio can now allow companies to mount a national campaign - using various sales house networks - or to target just a slice of the West or the city of Birmingham.

The range of programme formats, from soft rock to "talk radio" to jazz to classical music, also provide some tantalising opportunities to focus on specific demographic groups: the much vaunted 25- to 44-year-old cohort, for example, or housewives. Radio may be dwarfed by TV and newspapers, but it does hold its own during certain times of the day. Indeed, despite the introduction of breakfast television, radio still dominates media consumption first thing in the morning, and carries half of all ads until well into the afternoon.

The advertisers' love affair with local radio is a relatively new phenomenon. The recent explosion probably has two root causes: deregulation and aggressive marketing. The 1990 Broadcasting Act gave us more radio licences and even greater format choice. Meanwhile, the Radio Advertising Bureau mounted a campaign to sell the concept of radio to the advertising profession and companies.

RAB has had some notable successes since it was set up in 1992. For a start, it is funded by a voluntary levy on national advertising revenue but has managed to sign up every station. It has produced handbooks and guides for the industry, and sponsored research into attitudes among advertisers and listeners, helping the sales force to focus their efforts with greater clarity. In just three years, RAB has found that media planners' views on radio have shifted remarkably, with the medium's erstwhile negative image - too small, too unfocused, not worth the effort - turned around.

The success can be measured in pounds and pence, too. Last year's 23 per cent overall increase in advertising spend on radio masks some astonishing rises sector by sector. For instance, financial services companies doubled their spending on radio between 1994 and 1995, while the outlay by sport companies went up by a factor of two and a half.

Big companies have discovered radio, too. The top advertiser last year was McDonald's, followed by Kimberley-Clark, the consumer products company, and Camelot, operator of the National Lottery. The nominal amounts are still small, of course. Last year's total of pounds 270m was spread across 150 different radio stations. And the growth looks likely to moderate this year, to a still respectable 15 per cent.

All the same, commercial radio has been an undoubted success story. So who is making the money? The leading radio companies - Capital, Emap, GWR, Virgin - are best placed to earn profits for their shareholders. Once the basic costs are met, advertising revenues are just so much fillip to the profit line, making radio a very decent business to be in.

Not surprisingly, the attractions are not lost on big media companies eager to diversify into new sectors. And with the Government preparing further liberalisation of media cross-ownership rules, consolidation of the commercial radio sector is a virtual certainty. Media analysts expect that national newspaper publishers will lead the charge, snapping up radio licences when they are free to do so.

The natural candidates for expansion into radio - local newspaper groups - won't have a free hand, however. The Government is still minded to restrict regional publishers, lest there be far too much local concentration of media ownership. With these kind of growth rates, and with the prospect for even greater advertiser interest in the medium, the "old" technology of commercial radio must be counted among the most attractive sectors in the media business - even next to new-age cable, satellite and the ever-present, much-hyped Internet.