Feature: Real to Heart, Smooth to Gold?

With news this week that the Guardian Media Group has had offers for its radio business, there’s speculation a deal could be announced in the not-too-distant future. But what would happen if Global bought the Real and/or Smooth brands? And what does the future hold for the sector with another spurt of consolidation on the cards?

Scores more jobs lost, along with at least one – maybe two – UK radio brands. If the Global takeover of GMG Radio goes ahead it’ll be another sad day for commercial radio. More networking, fewer presenting opportunities and less plurality of news sources. But as we’ve said before, commercial radio is about making money – and by sharing buildings, programmes and production, news and backroom staff there are major costs to be stripped out and profits to be targeted.

So what would Global do? Only Ashley, Stephen and Parky can really answer that for sure right now. And the group declined our offer of an on-the-record comment, quite understandably. So let’s make some assumptions…

Real to Heart, right?
Real Radio’s six regional licences cover areas Global don’t already operate a Heart station on FM. Well, nearly. Yorkshire, the North West, the North East, Central Scotland and South Wales all fit perfectly. North & Mid Wales is actually now joined to the South Wales licence to be a Wales-wide licence, so it wouldn’t be straight forward to split them up and sell off the North & Mid Wales bit to someone else to avoid a clash with Heart North West & Wales (stations formerly known as MFM, Coast and Buzz) and Heart Cymru (formerly Champion 103) which already exist.

Heart could replace Real across Wales of course and the existing Welsh Hearts could be either sold (nice fit for Town & Country or UTV?) or rebranded as Capital FM (subject to Ofcom format change approval). Or maybe Global would sell the whole of the Real Wales licence to avoid a competition commission problem in Cardiff where they’d own the big two commercial stations… perhaps Bauer would be interested in their first foray into Welsh radio with a national licence?

In Leeds, Manchester, Newcastle, Cardiff and Glasgow the existing Global studio buildings which are home to Capital FM could stick another studio in the corner for regional Heart breakfast and drivetime shows, saving millions of pounds a year in one stroke of the pen.

Smooth to Gold then?
This is where things start to get a little trickier. Merging the Smooth and Gold networks in some shape or form would give Global a much stronger Soft AC station with which to challenge Magic and Radio 2 for audience. There is some overlap of course – Manchester, London and the East Midlands. Interestingly, with Gold in the West Midlands becoming Free Radio 80s from later this year, the Smooth v Gold clash in Smooth’s 105.7 patch won’t soon exist.

Global having Smooth in Birmingham would mean they had Smooth, Heart & Capital – but with Free Radio and Kerrang there too there shouldn’t be too much of an issue for the competition commission.
In Manchester of course there are other issues – adding GMG’s current assets to Global’s would give them Smooth (Gold FM), Real (Heart), Capital, XFM, Gold (AM) and Real XS – but the market is probably big enough for competition not to actually be an issue.

The big question would be whether Global stick with the Gold name or adopt the Smooth name on the AM network.
Another suggestion has been that Smooth would be disposed of by Global – perhaps to UTV, Bauer, Orion or someone else. This could certainly make things easier for them, but wouldn’t give them the opportunity to take their Gold format to a bigger national audience and the revenues that might attract. Smooth also comes with names like Simon Bates, Kid Jensen and Pat Sharp (all formerly of the Classic FM/Gold/Heart & Capital parishes) which are a better way of attracting audiences than Gold’s current line-up (no offence intended Gold jocks!)

And the artist formerly known as Rock Radio?
We mentioned Real XS above, but it’s probably likely that Global won’t buy the two rock stations in Manchester and Glasgow (Paisley). Last year there was talk of former GMG Scotland MD Billy Anderson buying them.. and that deal could now be back on, it seems. Billy ran an RSL at Download festival this weekend under the ‘Team Rock’ brand, and the temporary station featured a handful of presenters currently to be found on GMG’s Real XS – including Moose, Dewsbury and others. You do the math.

Regardless of the permutations of what-changes-to-what and what-gets-sold, the portfolio Global Radio could end up with if this deal goes ahead will be massive. The reported price of £45-£50m for the Real and Smooth licences is a snip compared with the amount GMG has spent over the last 12 years – but you have to remember that times have changed and we’re in a recession. It’s only five and a half years since John Myers paid £60m for the two Century stations in the NW and NE which would later rebrand as Real. Then add what GMG paid for the two Jazz FMs in London and Manchester, Scot FM, the Saga stations in the WM, EM, Glasgow and NE, and Q96 and it’s close to £200m. (The group won four of its licences – South Wales, Yorkshire, Manchester and North & Mid Wales – but bought the rest).

You have to think what Global’s long-term game plan is too. The group’s investors are going to want a return for their money at some point… so once the costs have been stripped from a stack more stations and the economy picks up, the tills should start to ring. And maybe even prime Global ready for a takeover by a major international firm such as Clear Channel? Who knows what might happen in five years eh?

But it’s all just speculation anyway isn’t it?
The news yesterday only reports offers having been made for GMG’s radio assets. There’s been no official confirmation that this is the case – nor of any offers being accepted.

In an internal email to staff, GMG Radio Chief Executive Stuart Taylor said that interest, whether real or rumoured, wasn’t surprising given that the group is a “strong, growing business.” He added that he would always inform staff about any changes to the way the group is owned and managed as soon as it is possible to do so but said GMG Radio “cannot and will not be drawn into speculation right now,” and concluded that it was “in everyone’s interests for business to continue as usual”. He didn’t go as far as to say the reports were inaccurate or misleading, so read into that whatever you like.

What the industry thinks

Here is a selection of comments on the situation we’ve received back from the many consultants and radio execs we contacted for their views….

“Commercial Radio can still benefit further from potential consolidation to help drive category revenue growth to prompt further investment in Talent, Content, Marketing & Digital. This would then further enable the Industry to grab revenue share from online and audience share from the BBC. Ultimately the UK radio industry will be represented by less than 10-12 consumer radio brands in a similar way to the highly profitable French radio industry, with 3-4 major owners.”
Clive Dickens, COO – Absolute Radio

“I’ve always thought It makes a lot of sense for Global to acquire GMG and turn the Reals into Hearts, complementing their Capital stations in the NE, NW and South Wales. I’m sure Global would pay a lot to extend the Heart brand into these big areas and enhance its growing appeal to national advertisers. There would certainly be significant cost savings to be made. Perhaps Global will buy GMG and, to avoid regulatory issues, keep the Reals but sell off Smooth to Bauer or UTV.”
Paul Chantler, Senior Partner – United Radio

“It’s entirely possible that someone could buy the whole portfolio. Anything’s for sale at the right price! Global Radio remains an ambitious company, and you can see how Real Radio could be morphed into the Heart brand, despite some regulatory issues (which potentially could be overcome). But I also believe having brands like Real and Smooth makes for a more vibrant and healthy commercial industry in the UK. Plurality of ownership ensures the whole sector doesn’t descend into an amorphous glob of ‘smart networking’. That said, there feels a certain understandable inevitability about it all!”
Nik Goodman, Director of the music, sound and content company ‘Bounce’

“Obviously any signficant change creates lots of uncertainty for teams that work hard serving their communities. However, as Global have made excellent progress reducing their debt and becoming a business that generates significant cash, further acquisitions are likely. The addition of Real to Heart would give them a true national AC network with 10m reach to sit alongisde Classic and Capital. This would give them good formats and coverage for an international trade sale or IPO of the group. Smooth would be another additional national network for them, but one of potenitally less interest because of audience and demographics. Should GMG wish to sell (and i’m not sure £50m is necessarily achievable) I think a deal may result in the business split – with the brands going to different companies.”
Matt Deegan, Creative Director – Folder Media

“The sale and/or break-up of GMG will simply accelerate the inevitable consolidation of the sector into the two logical and conclusive components we have been heading towards; local and brand-based.”
William Rogers, Chief Executive – UKRD

Note: We asked GMG Radio, Global Radio and UTV Media (also linked with the purchase of GMG’s radio assets) for a comment but all declined our offer.

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Posted on Wednesday, June 13th, 2012 at 12:31 pm by RadioToday UK

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