Kate Bulkley, Media Analyst.

Media money: Will the sale of Chrysalis trigger a radio roll-up?

By Kate Bulkley

Broadcast News

For Broadcast July 05, 2007

A few years ago it was the sellers in the radio business who got it right. Chris Evans pocketed £225m for Virgin Radio from Scottish Media Group in 2000 - the same station now mooted to be worth no more than £80m in a trade sale or as little as £65m in a public float. SMG itself insists Virgin Radio is worth £100m and that an autumn initial public offering (IPO) is on track. But in 2005 Waheed Alli and 3i mounted a £100m bid for Virgin Radio, which SMG turned down, saying it was worth £120m. In this context, Charles Allen's purchase of Chrysalis's radio assets last week for £170m against a valuation forecast earlier this year of £200m looks like a good price.

Radio's valuation vertigo can be blamed on the internet. Not only have radio groups been slow to embrace it, but advertising cash is flowing to websites as radio stations struggle to keep audiences and advertisers. Here's a stunning number: in June 1999 Capital Radio had 40.5 million listening hours a week; by June 2007 it had 17.3 million.

UK radio is surely set for consolidation. GWR and Capital Radio Group's marriage in 2005 has been difficult but Allen's private equity-backed Global Radio is something altogether different. Its aspirations are printed large in its name and it has cash from Lydian Capital Partners to get the job done. Plus, most analysts think Ofcom will be open to what Bridgewell Securities' Patrick Yau calls "radio consolidation 2.0".

SMG wants to offload Virgin Radio and Emap seems ready to strip out its radio business (valued at more than £400m) and even GCap is said to be considering a tie-up with Emap. In fact, Virgin Radio's IPO plan may be intended to flush out the most logical buyer of all: Richard Branson. Any trade sale triggers a clause that allows Branson to decide if he wants to continue licensing his brand.

So would you buy or sell your radio station today? Maybe you should ask Chris Evans.

Net neutrality: does it matter?

How often have you heard: "Your greatest strength is also your greatest weakness"? The speed of broadband and the vast choice of web content is transforming media consumption, but there's a problem with broadband supply, consumer demand and who pays for delivery for the likes of Joost and the BBC's iPlayer.

When the BBC says it is launching the iPlayer as a download rather than streaming service because of the potentially unlimited cost, you know something is up. Every video served on the net costs someone - either the content provider, the ISP, or the consumer. The iPlayer is free to all UK TV licence fee payers, but what if the demand overruns the ISPs' ability to serve the video at a reasonable cost to them? As Mary Turner, the head of Tiscali UK, puts it: "bandwidth doesn't come for free". She estimates the national roll-out of Tiscali's own IPTV service formerly known as Homechoice will cost as much at £40m.

The BBC is working closely with ISPs to monitor demand before it rolls out a streaming iPlayer, but what of other companies with broadband video in their business plans? Joost is not alone in signing up content suppliers, but the web network could crash if the traffic is not handled correctly.

There is talk in the US of differential pricing to pay for required capacity and the European Union already has a regulatory framework to cope with overcapacity. But no one wants an internet where rich customers or big content providers are the only players. Turner says it is up to the industry to work it out and the BBC's director of new media and technology, Ashley Highfield says the corporation wants to be a "force for good" on the net. Let's hope that Joost et al feel the same.

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