Some countries have had commercial radio systems for as long as they have had radio, but for over half a century the only legitimate radio services in the United Kingdom were those of the British Broadcasting Corporation (BBC), which began sound broadcasting in 1922. Even commercial television in the United Kingdom predated commercial radio by some 18 years. In these facts are found some of the reasons why, when it belatedly arrived in 1973, commercial radio struggled to become established. But the first stations also had other severe handicaps: heavy-handed regulation, high costs, and a repressive music copyright regime.

Origins

     During the long period when British radio consisted solely of BBC public service radio, commercial radio was being introduced and developed in some other countries, but others had to wait even longer than the U.K. for the public ownership monopoly to be broken. The BBC monopoly of sound broadcasting might have gone on even longer, but two developments paved the way for the introduction of commercial radio. One was the emergence of the offshore pirate stations in the 1960s, which not only spurred the BBC into creating its first pop music service, Radio 1 (1967), but demonstrated that there was an audience for commercial services. The second development was an increasingly insistent lobby for commercial radio to be introduced.

     Commercial television had begun in 1955, regulated by the Independent Television Authority (ITA). After the 1972 Broadcasting Act performed a neat (as the government of the day saw it) double shuffle, the ITA changed one initial and added an embryo "radio division" to become the IBA (Independent Broadcasting Authority). As with commercial television, the ​​IBA was to be technically "the broadcaster"-building, owning, and operating the transmitters-and the independent radio stations, as they were known, would be holders of franchises to supply program services. Regulation of radio mirrored that of commercial television in many respects: it was detailed, severe, and costly. The commercial television contractors lived with this system because they had what the first Lord Thomson of Fleet once described as "a licence to print money." But it was to be almost two decades before the government accepted that commercial radio needed to be much more lightly regulated than television if it was to prosper.

     The first radio franchises were offered in 1972, and the first stations began broadcasting in the autumn of 1973. The first two were in London: Capital Radio, designated a "general entertainment" station, and London Broadcasting (LBC), designated "news and information." More stations came on the air over the next few months in Glasgow (appropriately on New Year's Eve), Birmingham, and Manchester, and within a year others in Newcastle, Swansea, Sheffield, and Liverpool brought the total to nine. Over the next three years the system grew to 19 stations, each separately owned and locally funded, for these were the franchise conditions.

     Then there was a gap of four years while the government commissioned and then digested the report of a royal commission under the chairmanship of Lord Annan, which looked at the future of all broadcasting. The franchising of commercial radio stations was not resumed until 1980 and then proceeded at the rate of four or five a year until 1985, by which time there were 49 stations.

     Independent radio, like independent television 18 years earlier, was conceived as public service broadcasting, to be funded by advertising instead of the license fee that sustains the BBC. Thus many obligations were imposed on the companies that won franchises. They had to produce schedules that offered a wide range of programming designed to appeal to all tastes and age groups. They had to carry a news service approved by the IBA. They had to produce programs on religion and for children. And they had to pay "rentals" for their franchises that averaged 10 percent of their incomes.

     Independent radio struggled in its early years. With bright and breezy programming and close identification with the life of the areas they served, independent radio stations soon began winning large numbers of listeners from both the BBC local services (which had begun in 1967) and from the BBC national networks, but they found it very difficult to attract sufficient advertising revenue to meet their substantial costs. In addition to the rentals paid to the IBA, copyright royalties were the highest in the world, averaging 12 to 13 percent, and the IBA (pressured by the Musicians' Union) insisted that stations spend another 3 percent of their revenue on providing employment for musicians. So no less than 25 percent of a station's income was committed before it had paid one employee or met any of the usual costs of running a business.

     Remarkably, only one of the early radio companies went bankrupt, Centre Radio (Leicester), which closed in 1983 with debts of more than £1 million, but others were in dire straits. In fact, in the early 1980s managing a commercial radio station in Britain was regarded as being about as secure as managing a soccer team; in the years 1981-83, when there were just over 30 stations, there were 20 changes of managing directors.

Turnaround 

     In 1984, by which time there were 33 commercial radio companies of which more than half were losing money, the management of the companies decided that something had to be done. All were members of the Association of Independent Radio Contractors (AIRC; now the Commercial Radio Companies Association), and on 23 June 1984, AIRC called a "council of war." On that hot summer afternoon, the chairman and managing directors of all 33 companies locked themselves in a hotel room near Heathrow Airport and made a series of decisions that were to change the whole thrust of radio development in the United Kingdom. In the shorter term-which was of more immediate concern to those companies clinging to existence-they stopped an industry from collapse.

     The AIRC made three key decisions: to force the IBA to reduce rentals substantially and to remove some of its more irksome rules; to press the government for revision of the Broadcasting Act; and to commission an independent report demonstrating the scope for deregulating radio. All three initiatives succeeded: within 18 months, the IBA had cut rentals by 35 percent and had dropped many of its most petty rules. Within two years the Home Office (then the government department responsible for broadcasting) was actively reviewing the broadcasting legislation, and the report, by the Econo­ mist Informatics Ltd., showed clearly and authoritatively that radio could be largely deregulated.

     The reform process is never a swift one. AIRC made its first formal submission to the government on what a new Broadcasting Act should contain in January 1986. The AIRC made another submission in October, and in February 1987, the government published a Green Paper, "Radio: Choices and Opportunities," which was widely welcomed and contained nearly all the industry's proposals. However, it was a further three years before new broadcasting legislation was enacted. The delay-caused largely by indecision over structural changes for television-was frustrating for a radio industry that was totally clear about its needs; fortunately, business improved in the late 1980s, and over the four years to 1989, revenue increased by 85 percent.

     Then there was another downturn, not because radio had lost its way, but because the general economic situation had deteriorated. Retailing was an inevitable early casualty, and all media soon felt the trickle-down effect. In fact, radio was somewhat better placed to withstand recession than it had been a few years earlier, and although national sales were hit hard in 1990, local revenues held up well for most stations thanks to the success story radio had created in the preceding four years and the increased professionalism of station management and sales teams.

     In parallel with the somewhat slow-moving legislative developments and the financial adventures, much was happening to the radio services during this period. British radio-both the BBC and the commercial sector-had always simulcast, transmitting each service on at least two frequencies, one on medium wave (now more widely known as AM, or amplitude modulation) and one on VHF (FM or frequency modulation). The commercial services had been conceived as FM stations (the BBC already had FM frequencies for all its medium wave services), but in the early 1970s, the bulk of radio listening was still AM, so to give the fledgling services a better chance they were also allocated AM frequencies.

     Simulcasting continued until 1988. By then the Green Paper had been published and the government's intention to create many more commercial radio services had been announced. A long-standing excuse for the limited number of radio services in the United Kingdom (as compared, say, to the United States and to most European countries) was shortage of radio spectrum. Under international agreements, Britain was due to get more FM spectrum in the 1990s, but to hasten the government's objective of widening listener choice simulcasting had to go. The then-home secretary, Douglas Hurd, coined the injunction, "Use it or lose it," and said that the commercial radio companies could each effectively become two stations by having separate programming on their AM and FM frequencies-"splitting," as it became known. If they didn't do so, they would run the risk at the next franchise renewal of losing one of them.

     Between 1988 and 1990, all the larger stations and a number of the smaller ones began broadcasting two services where previously there had been one. The pattern was fairly general. The station's existing service, perhaps slightly modified to appeal even more to younger listeners, was retained on FM (which by this time was being used by about two-thirds of all listeners), and a new service, broadly labeled "Gold" and aimed at those over age 35, was started on AM. There were one or two exceptions to the general trend: LBC was required by the IBA to stay with speech, although they would have preferred to make one of their services music oriented. Piccadilly (Manchester) put its existing output on AM and sought a yuppie audience on FM (which didn't work and was eventually abandoned), and Radio City (Liverpool) initially went for a talk service on AM, but within six months the station had dropped it for the Gold music format.

     In under two years, "splitting" dramatically increased the number of commercial services, from 60 in 1988 to over 100 in the autumn of 1990. At the same time, several new services were launched. The pattern of development of the first 15 years had been for all new stations to be in "white space"­ areas not previously allocated a commercial station-with the objective of eventually covering the whole country. In 1988, although it was known that new legislation was on its way that would provide for many more stations, such was the pressure from would-be new broadcasters on ministers that the Home Office asked the IBA, "Is there anything you can do in the meantime?"

     The IBA came up with "incremental" contracts-additional franchises within areas that had a commercial service (or perhaps two, if the original station had "split"). The IBA claimed that these incremental contracts would widen listener choice ahead of the new act, because they would be awarded to groups whose programming plans offered services markedly different from those already available.

     The IBA eventually offered 26 such franchises. One was never applied for, one was awarded but then surrendered when the winners failed to raise enough cash, one had its license withdrawn, and 23 went on air. For the most part, the increments struggled, much as the first stations had 16 years earlier, but for different reasons. The incremental franchises were supposed to bring new blood into the commercial radio business (existing contractors were told they could not apply, and some of the new entrants actually described themselves as "the new wave"), but within a short time the established stations had to come to the rescue with cash injections and management know-how. Many of the new stations struggled, some because they came into existence when the economy was entering a downturn and, others because they underestimated the cost and complexity of launching even a small station. Happily, the majority survived, aided in some cases by refinancing and changes of ownership.

     The largest number of incremental franchises was created in London, where there had always been the greatest clamor from entrepreneurs for the chance to broadcast. In 1988 London had just two commercial stations; two years later it had 12, and by 1999 the figure was 23. Although this number may seem small compared with the major U.S. markets, London also receives the three national commercial stations and the five BBC national networks, and it has its own BBC local station. The commercial services now have 61 percent of the total radio audience in the capital, to the BBC's 36 percent.

     By the end of February 2003, there were 266 analogue commercial radio services broadcasting in the U.K., comprising three national stations, 16 regional stations, and 247 local stations. A majority of these stations also broadcast digitally, and there were also digital-only services.

     There was one national digital multiplex (carrying eight radio services) and 41 local digital multiplexes which between them carried over 250 services. All these were licensed by the Radio Authority and were, of course, additional to the BBC's digital services. There were also 78 satellite and 13 cable radio services.

     Shares of listening for the survey period ending in December 2002, were: BBC 52.5 percent; commercial 45.5 percent. Commercial's share had been marginally ahead for a time at the end of the 1990s, but BBC Radio has come back strongly in recent years.

Radio Authority

     The new legislation, for which the industry had fought so hard and so long, was the 1990 Broadcasting Act, which saw the end of the IBA and the introduction of separate regulators for commercial radio and commercial television. Since 1 January 1991, commercial radio has been the responsibility of the Radio Authority. Although it has had its detractors, the Radio Authority has operated with a minimal level of interference with stations' operations and has steadily created many more opportunities to broadcast. The 1990 act swept away the concept of the regulator as technically the broadcaster; stations now hold licenses instead of franchises and are now responsible for their own transmission arrangements.

     New ownership rules were introduced in the 1990 act and modified in the 1996 Broadcasting Act, and these have allowed groups to develop, although there is still a ceiling on the proportion of the industry that any one company can control. This is based on a somewhat complex formula of ownership "points." Every license has a point score that depends on the potential audience, that is, the number of adults in its predicted coverage area. No group can hold licenses that add up to more than 15 percent of the total points in issue at any one time, but of course, as the Radio Authority issues more and more licenses, the total, and the 15 percent ceiling, rises.

     Unlike the U.S. system, there is still not the freedom for owners to determine what formats their stations will follow or to change them at will. When a license is awarded, it is for a specific format. Subsequent minor adjustments to the content can be made with the Radio Authority's approval, but total change is not possible.

     The major groupings of stations that have emerged in recent years include GWR, which holds 36 local station licenses and also owns the national station Classic FM; EMAP Radio, which owns 18 stations, including market leaders in five major cities; Capital Radio (14 stations); and Scottish Radio Holdings, which among its 15 licenses owns the leading stations in all the main cities and towns in Scotland and Northern Ireland. There are more than a dozen smaller groups, each owning a handful of stations, of which the most significant is Chrysalis Radio, which owns 6 of the regional stations.

     Music copyright-both the level of royalties and the restrictions imposed by the record companies-was a major problem for the industry throughout its first two decades. Even before the first commercial stations came on air toward the end of 1973, the regulator, the IBA (technically the broadcaster) made deals with the Performing Rights Society (PRS; a composers' organization) and Phonographic Performance Limited (PPL; record companies) to which the stations were bound for the first five years. These agreements delivered very high royalties (much higher than the BBC had ever paid) to both PRS and PPL and also allowed the latter to limit stations to playing eight hours of records a day, the infamous "needle-time" restriction.

     The moment those first five-year contracts expired, the radio trade association, AIRC, referred both agreements to the Performing Rights Tribunal (now the Copyright Tribunal). There followed no fewer than 15 years of litigation-costing the industry millions of pounds in legal fees-and on-off negotiation before, in 1993, AIRC won a significant victory over the record companies at the Copyright Tribunal and peace broke out. PPL had wanted up to 20 percent of a station's revenue on a sliding scale that would rise with both usage and revenue. The tribunal decision broadly gave PPL a flat rate of 5 percent of a station's net advertising and sponsorship revenue (still high by other countries' standards and, of course, the United States has no such right) and gave the stations the unfettered right to play as many records as they wished. Two years later AIRC struck a deal with PRS at a slightly higher figure.

     Of course, with royalties linked to revenue and with the industry expanding so rapidly in the second half of the 1990s, both in terms of number of stations and of revenues earned, the copyright organizations can have no complaints: they have seen their incomes from commercial radio increase spectacularly with no extra effort on their parts.

Digital Radio

     After a difficult start and a long period of struggle against restrictive regulation, punitive royalties, and advertiser indifference, commercial radio in the United Kingdom enters the new century as an undoubted success story. However, in the modern world every industry faces new challenges, usually of a technological nature, and radio is no exception. The new challenge is digital radio.

     Current transmissions, whether in AM or FM, are analog, and the signals pass through the ether from transmitter to receiver in wave forms that are all too easily affected by topography, especially by high buildings in towns and cities. Digital transmissions turn the sounds from the studio into data, which is not subject to such interference and which, when turned back into sound by the receiver, is almost as clear as the sound from a compact disc. Not only this, but digital radio makes much better use of spectrum, with six or more high-quality channels able to be radiated from the one transmitter.

     These "advantages" of digital radio have encouraged broadcasters across Europe, and especially the public broadcasters, to develop a single European standard, known as Eureka 147, which all countries have adopted, and to press forward with the building of transmitters and the testing of new program services. All the countries have had to find new blocks of spectrum for digital radio, and there is no overall uniformity: some place it in Band III, and others choose the much higher frequencies of the L-Band. In the United Kingdom, spectrum in the L-Band will not be available until about 2007, and so the limited allocation made so far in Band III means that at present not all local commercial radio services will be able to begin digital transmission even if they wish to. The intention is that once the bulk of radio listeners have switched to digital, the spectrum currently occupied by analog FM services will be released-either for more digital radio or for other uses, such as mobile phones. However, even the most bullish advocates of digital radio accept that such a switch­ over is a decade or more away.

     A major delaying factor is that new receivers are required to be able to receive digital broadcasts, but unfortunately, the receiver manufacturers have not moved as fast as the broadcasters. They decided that initially they would cater primarily to the more expensive end of the market and produced only receivers for automobiles or hi-fi systems that sold for many hundreds of pounds. As a result of this, public interest in digital radio was slow to develop, but when a cheaper digital tuner, which could be linked to a home PC, became available interest rapidly picked up, and by the end of 2002 portable digital receivers costing around £100 were on sale, but not in huge quantities.

     In the United Kingdom, the prime mover into digital radio was the BBC, and by 1999 it had built a digital transmitter network covering 60 percent of the population at a cost of £14 million. Its existing five national networks and several new services, including a sports channel and Parliamentary channel, are being transmitted digitally.

     The commercial sector, inevitably, has had to be more cautious, because its revenues are not guaranteed as are those of the public broadcaster, and it has to make profits to satisfy shareholders. For a commercial station to embrace the Eureka 147 system of digital radio, it has to bite the bullet of doubled transmission costs for at least ten years with no immediate prospect of increasing its audience and therefore its revenue.

     A national digital network has been launched by the commercial sector-with the largest radio group, GWR, the prime mover-and in 1999 the Radio Authority began offering licenses to run local digital radio systems, but managements are decidedly nervous about the implications of the digital revolution. For example, there was only one application to run the digital multiplex for England's second city, Birmingham, and that was a combined effort by two of the largest radio groups, Capital and EMAP. However, by the beginning of 2003 there was a national commercial multiplex carrying eight stations, and the Radio Authority had licensed 41 local digital multiplexes carrying over 250 services. The overwhelming majority of digital services, both locally and nationally, are simulcasts of established analogue services.

     Digital is unquestionably a bigger advance for radio than the introduction of FM broadcasting in Britain in the I 960s. In addition to vastly improved reception (especially in cars), the Eureka 147 system offers exciting opportunities for the operators to add value to their sound broadcasts with text and to make money from separate and additional data services. But for commercial radio, there are the two major headaches of long-term additional transmission costs and getting listeners to buy new receivers. The digital era will come for radio-as it has for all other forms of electronic communications-and commercial radio stations will eventually be beneficiaries. Only the timing is in doubt at the beginning of the 21st century.