Broadcaster axes digital radio stations

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The UK's largest commercial radio broadcaster, GCap Media, axed two of its stations today after labelling digital radio "economically unviable".

The Classic FM owner said theJazz and Planet Rock will go as it looks to concentrate on its core FM stations in a bid to revive the business.

The company - currently fighting takeover interest - also plans to boost advertising at its flagship Capital 95.8 station - reversing its previous policy of broadcasting no more than two adverts in a row.

Chief executive Fru Hazlitt unveiled the review weeks after the group rejected a £313 million takeover approach from Global Radio, an acquisition vehicle headed by former ITV chief executive Charles Allen.

She said digital "was not an economically viable growth platform for GCap Media".

The former Virgin Radio boss added: "We are structuring the business around the revenue streams that can deliver us the most profit going forward. Planet Rock and theJazz are brands that we do not believe can win for us."

Ms Hazlitt hopes to deliver cost savings of £8.8 million a year through disposals and restructuring, as well as achieving profit margins of up to 19% by March 2010 under the "radical but realistic" plans.

GCap has also agreed to sell its stake in Digital One, the national broadcasting platform for digital stations, to communications infrastructure firm Arqiva.

The company - which has around 15 million FM listeners - said that, in the year to March 2007, it spent £8 million on digital radio despite the medium accounting for just 9% of all radio listening.

Ms Hazlitt said: "FM is the backbone of the radio industry and we believe it compares favourably to any of the digital platforms currently available to the consumer in terms of quality. It is also the source of the majority of our revenue."

The company plans to concentrate on its Xfm brand in London, and is in talks to sell its three loss-making regional Xfm stations in Scotland, Wales and Manchester.

GCap will also move to satisfy demand for advertising on Capital 95.8, which is currently outstripping supply. Although GCap said adverts would not exceed the industry average of nine minutes an hour, the new inventory policy will add £3.6 million to profits by March 2010.

The disposal of the Xfm regional stations - as well as the closure of Planet Rock and theJazz - will also increase profits by £1.5 million.

Ms Hazlitt added: "If digital is going to be viable on a local and regional level, it will have to be on a much lower cost platform."

Shares in the company were virtually unchanged this morning, trading just below the 190p-a-share proposal put forward by GCap's suitor in January.

Altium Securities analyst Roddy Davidson said: "The measures outlined in this morning's announcement look fairly sensible and if the cost reductions outlined are achieved, it would result in a more profitable business than we are currently forecasting during the year to March 2010.

"We believe a further offer from Global Radio is likely and that other parties could also enter the fray."

Global Radio has been given until March 5 to signal its intentions towards GCap under a "put up or shut up deadline" imposed by the City's Takeover Panel.