Battle of the radio waves: Eight London listening franchises have attracted 48 widely varied bidders. Patrick Hosking reports

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The Independent Online
ANYONE can run a radio station, it seems. Angus Deayton, the comic, thinks he can. Lynne Franks, the doyenne of public relations, thinks she can. Sebastian Coe, the athlete-turned-MP, thinks he can. London Transport, which can't even run London Transport, thinks it can.

Then there are Cardinal Basil Hume, Joan Bakewell, Anne Diamond and Robert Smith, the lead singer of The Cure. They and others are behind no less than 48 companies and consortia that put in bids to the Radio Authority last week for the rights for eight London franchises.

The six frequencies occupied by Kiss FM, Jazz FM, Melody, Spectrum International and LBC (which has two) are coming up for grabs, as are two former BBC frequencies.

The bidders included several media heavyweights such as Reuters Holdings, which has fingers in three bids, and Associated Newspapers, the publisher of the Daily Mail. At the other end of the scale are niche bidders such as London Country Radio and Radio Africa.

Even Newspaper Publishing, the owner of this newspaper, is in on the act, linked to a bid financed by the merchant bank Guinness Mahon, which wants to run news services on both the FM and AM wavebands.

Radio is different from widgets. Investors are not wholly guided by commercial criteria. There is the lure of power and influence. And for the generation that secretly listened to Radio Luxembourg under the bedclothes, there is also undeniable romance.

Part of the investment appeal of radio is that it can be very cheap to set up. Putting in a bid costs pounds 2,500, to deter time-wasters. But, unlike television, there are no franchise fees thereafter. Broadcasting law reforms mean your equipment no longer has to be approved. In theory, you could start up with a tape recorder in your front room. Transmission costs (pounds 50,000 to pounds 200,000 depending on waveband and frequency) and music copyright fees (a flat-rate pounds 60,000 for a music station) are only payable after your advertising income starts (you hope) to come in.

So is it that easy to make money from radio? Yes, according to Avtar Lit, chairman and chief executive of the ethnic station Sunrise Radio, which already has a licence to broadcast in west London, but now has its sights set on the whole of Greater London.

Mr Lit, who learnt his trade running a pirate Asian station in the UK and then two more in Los Angeles, set up in West London four years ago, broadcasting a mix of music, current affairs and chat in Hindustani and English to Indians and Pakistanis.

He and some fellow Asian businessmen put up pounds 187,000 at the start and have not needed to put in another penny. 'By the nineteenth day of broadcasting we had enough advertising business signed up to pay for our studios in Hounslow.'

The business is now turning over about pounds 1m a year and making pre-tax profits of about pounds 250,000, Mr Lit says, making it a spectacular success.

It has been so profitable that in 1991 it bought the loss-making Bradford City Radio - now renamed as Sunrise Yorkshire and profitable - and is running a third operation for Asians in the East Midlands. It has also developed a satellite service, available for households with an Astra receiver. Mr Lit claims the group now has more than one million listeners.

John Parcell, UK managing director of Reuters, is equally confident he can make money from radio. Reuters is bidding to set up a specialist channel catering for the business community. Its partners are the local radio group GWR, which owns nine local licences and a stake in Classic FM, and Associated Newspapers.

Reuters hopes up to 80,000 people will tune in to its mix of business news, personal finance advice and interviews. It plans to make a special feature of economic indicators, announced at 11.30am, having specialists on hand to assess the news instantly.

After pounds 2m of start-up costs, Mr Parcell sees the station breaking even in year two and making pounds 1m of profit after tax by year five. It hopes an audience of wealthy business people will enable it to charge higher rates to advertisers. 'We're unashamedly going for an upmarket AB audience,' said Mr Parcell. 'We're going to expand the advertising market.'

But Reuters has an unhappy track record in radio. In the 1970s, it ran a service whereby Reuter correspondents around the world recorded stories that were sold to stations worldwide, including Mutual Broadcasting in the US. Reuters Radio lost money and was closed in 1980.

Advertising and sponsorship are the only sources of income, and radio has to fight against television, newspapers and posters. According to Ralph Bernard, chief executive of GWR, 'Independent radio has always laboured under this wretched tag of the 2 per cent medium' - it attracts only 2 per cent of the total advertising cake.

He believes that can be lifted to nearer the 8 per cent achieved in the US, but only if radio can attract more upmarket listeners - the ABC1s in marketing speak. That is already happening at Classic FM, which has lured advertisers like Schroder Wagg, British Gas and Time-Life to the medium for the first time. A business radio channel would continue the good work, he said.

The consensus is that radio can attract more advertising. Zenith Media, the media buying arm of Saatchi & Saatchi, forecasts that radio advertising revenues will grow by 6-8 per cent this year - faster than television. Last year advertisers spent pounds 144m on the medium, spread across 120 channels.

Classic FM helped. So too did Richard Branson's Virgin 1215, launched in April amid unprecedented hype. It managed to secure advertising from Nestle, Hewlett-Packard, McDonald's, Abbey National and other blue-chip companies even before launch.

No official listener figures have come out yet. Virgin will probably meet its modest targets. But there have been complaints about its sound quality, and rivals believe it may not be quite the expected money-spinner. And if it turns out that Mr Branson can't hack it, that must throw a question-mark over the prospects for Deayton, Franks, Coe, Hume and the rest.

(Photograph omitted)