DAB - Dead and Buried?

My Phillips DAB radio plays merrily away in the kitchen most hours of the day and I wouldn’t leave home for a long walk without my portable DAB player for company but owners of digital radios might be perturbed by the news that one of the big players in the industry is pulling out. GCap Media, the UK’s leading commercial radio group and the owner of Classic FM, Xfm and the One Network, has announced that it is retreating from digital radio to focus on FM and broadband services. Two of its non-core brands Jazz and Planet Rock stations are being axed, while GCap is selling its remaining stake in Digital One to the masts company Arquiva for a nominal sum.

Withdrawing from the digital market has thrown into debate the longer-term economic viability of digital broadcasting in an age when younger listeners are turning more and more to the web and to their mobiles for branded radio output.

The latest figures from RAJAR show that DAB radio accounts for only 10 per cent of all radio listening and digital only stations account for less than 4 per cent of all radio listening. 3 per cent of digital broadcasts are listened to through digital televisions.

GCap was created through the merger of Capital Radio and GWR in 2005 and the business invested over £18 million during 2006-07 in developing its digital platform. But that injection of capital has not yielded enough profit and GCap has decided that its strategy is now best served by focusing on FM stations and in expanding the output available through broadband channels. The commercial reality for GCap is that it is not enough to have a sizeable audience on its digital platforms, what matters is whether its output can be monetized through advertising revenues and other spin-offs. Digital radio has added more to their costs than it has to revenue streams. GCap has recently announced a tie-up with Apple enabling people to listen to digital radio on their iPhone”.

GCap’s withdrawal from the market leaves the BBC and Channel 4’s 4 Digital Group as the major players in the digital radio market.

Adopting the technology

Although 6.5 million sets have been bought since they were first launched in 1999 this is fewer than the industry originally expected. One factor behind the shortfall in sales has been the price with a typical set costing £80 - £100, far more expensive than an analogue radio set. Pocket digital sets also have a reputation for eating up battery life very quickly which adds to the costs of using one. The ‘retro’ design of many of the radios available for sale has also come under criticism. And some listeners have complained that the sound quality isn’t as good as advertised - poor reception has been a millstone round the neck of the pioneering digital radio broadcasters. Some analysts believe that too many digital stations were permitted to set up in the early years compressing the available bandwidth and worsening the quality of DAB reception.

Those that have bought sets overwhelmingly listen to traditional stations such as the BBC Radio 5 Live and Radio 4 and 1 rather than searching through the myriad of digital stations on offer. That has meant that audience growth has been disappointing leading to a slower growth of advertising revenues. For the moment, FM stations provide simulcasting of the output of the digital brands and advertisers are favouring FM because of the greater audience reach.

The good news for the remaining players in the digital radio industry is that the number of listener hours is rising - RAJAR estimated that in the final three months of 2007, the volume of listener hours rose above 100 million for the first time. And GCap’s decision to pull out of the industry may also be a response to a £300m takeover bid by rival Global Radio.

This BBC news av clip looks at the popularity of digital radio and the challenge from the internet

Do you own a digital radio? How often do you listen to commercial stations? Do you think that digital radio still has a bright economic future?