Branson takes to the airwaves: Hopes are high as Virgin radio begins broadcasting. Patrick Hosking reports
JP Morgan, one of the most conservative banks in the world, has taken an equity stake in the venture. Apax Partners, the venture capital firm that has picked past winners like Waterstones bookshops and New Covent Garden Soup Co, is another shareholder.
Blue-chip companies like Hewlett Packard, McDonald's, Abbey National and the Royal Mail are committed to advertising on the rock music station. Nescafe instant coffee and Labatt lager have signed up as programme sponsors.
The station has even won listeners already. Test transmissions have attracted a substantial audience, judging by the hundreds of letters and phone calls to the station's Soho headquarters. The target audience is 20- to 45-year-old rock music lovers. They are promised 'gibberish-free presenters' and a play list ranging from Bob Marley to Simply Red, from late Beatles to U2.
Mr Branson's star is in the ascendant. His music recording business, now sold, and his stores have made him a lot of money. But there have been brickbats as well as bouquets. Few remember his pubs venture, which flopped in the 1970s. Or Event, the listings magazine that failed in the early 1980s. Or his film version of George Orwell's Nineteen Eighty-four, an investment that took years to recoup. His airline, Virgin Atlantic, lost millions of pounds last year.
The profits record of radio stations has not been particularly good. There are honourable exceptions like Metro, Capital and some Scottish stations. But radio, with its slightly flaky image, has never managed to lift its share of the national advertising cake above a paltry 2 per cent.
That is about to change, according to Barbara Manfrey, a director of Apax, who is also on the board of Virgin Radio, owner of Virgin 1215. 'We believe the radio advertising pie will expand', she says. Traditionally it has not been easy to advertise nationally on radio. Advertisers have had to piece together a national campaign using a patchwork of regional stations. 'Now in effect it's one-stop shopping', she says.
It was also a rare opportunity to invest in a national station, one of only three commercial franchises. The first was Classic FM, which is already beating all expectations. The third, a speech-based franchise, is due to be auctioned next year.
Apax, which manages pounds 1bn worldwide, invested about pounds 4.5m for a 25 per cent stake in Virgin Radio, buying out some of TV-am's stake and investing fresh money. It then sold down one-third of its holding to JP Morgan Investment Corporation.
But the main appeal, according to Ms Manfrey, was the opportunity to link up with Virgin. 'Who is better at understanding musical tastes and the target audience than they?'
Neil Blackley, media analyst with the stockbrokers James Capel, is another believer. New stations have done well recently. Classic FM guaranteed 2.8 million listeners, achieved 4.3 million and has been able to put up its rate card - the prices it charges advertisers. He dismisses fears that the lower-quality AM wave band will deter listeners. 'Atlantic 252 (a pop station broadcasting to Britain from the Republic of Ireland) seems to have done very well despite that,' he says.
Steve Hyde, broadcast director of 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. 'Radio will do well as a result of Virgin. Advertisers and advertising agencies will look more seriously at the medium,' he says.
Last year 120 commercial radio stations scrambled for pounds 144m of advertising business. Apart from programme sponsorship, advertising is the only source of income.
According to Robert Devereux, chairman of Virgin Radio, the station has already sold 50 per cent of its first- year budgeted airtime sales even before launch. 'I think that must be a record for a media launch', he says.
Virgin 1215 is highly leveraged in the sense that profits grow very quickly once the heavy fixed costs are covered. It is paying pounds 1.8m annually to the Radio Authority plus 4 per cent of advertising sales. It will have spent pounds 2m by this summer in transmission fees to the BBC and others and in improving the quality of the signal. Copyright fees - 'needle time' in DJ argot - are another significant cost. Then there are the 35 staff on the payroll and the costly fees of DJs like Dave Fanning, Chris Evans and Richard Skinner. The news service, bought off the peg from Chiltern Radio, is said to cost pounds 50,000 a year.
The business plan has the station moving into profit in year three. 'I think that's very conservative,' Mr Devereux says. 'Maybe we'll move into profit towards the end of the second year.'
He admits that the almost universal plaudits for Virgin 1215 are a bit worrying, but cannot spot anything that can go wrong. 'To us it's blindingly obvious it's going to be a success. We know there's a huge gap in the market place for the music we'll be playing. This isn't rocket science.'
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