Ralph Bernard: Station master
GWR is on the brink of a merger that will make it the biggest player in British commercial radio. Its chairman talks to Raymond Snoddy about how he confounded his critics by investing in Classic FM and digital radio - and why he wants to take on the BBC
Monday 20 December 2004
Ralph Bernard, the chairman of GWR, which owns Classic FM, has always believed that size does matter. In fact, his entire career in commercial radio has been dedicated to getting bigger.
Ralph Bernard, the chairman of GWR, which owns Classic FM, has always believed that size does matter. In fact, his entire career in commercial radio has been dedicated to getting bigger.
The need for grander scale was a lesson he learned in the early days of his career, when he was managing director of Radio Wiltshire, then a small, struggling station based in an old house in the village of Wootton Bassett. "It became very evident that if you don't have size you don't have the ability to do things and you are forever trying to find the money to fix leaks - literally," says Bernard, now one of the most influential and outspoken figures in the British radio industry.
He quickly realised that, while his station covered Swindon and rural areas of the county, nearby Radio West had the much more lucrative population of Bristol. Bernard solved the problem by putting together the first merger in the history of British commercial radio, in a deal with the Radio West chairman, Marmaduke Hussey, later Lord Hussey who went on to be chairman of the BBC.
For the ambitious Bernard, it was then a case of getting bigger still, through more mergers and acquisition, until he bumped up against the competition threshold. "With size comes the ability to have a little more comfort to start experimenting and developing ideas that you wouldn't otherwise be able to do," he says.
GWR is so big that it is in the middle of an unprecedented £700m merger with London's Capital Radio Group - a deal that will create by far the biggest commercial radio group in the UK. If the merger is given the go-ahead by the regulator, Bernard believes it will give him the financial firepower to take on the BBC, which has been squeezing commercial radio relentlessly in recent years, steadily reducing its current share of listening to only 44.5 per cent.
"This will address the principal concerns we have as an industry with the BBC, and we will start pushing the BBC back in terms of audience share. I believe we will have a majority of listeners within five years," says Bernard, who began his career as a newspaper reporter on the Stratford Express in East London, before moving to Radio Hallam in Sheffield.
Critics of the growing scale and consolidation in commercial radio point to the homogenising effect of computerised music playlists and the endless repetition of chart-music shows.
But Bernard says such consolidation gives him the ability to take risks, such as he did when he launched Classic FM, and the freedom to be one of the prime evangelists of digital radio. Both developments were written off by observers at their outset. "There was no way we could have launched Classic FM had we not had sufficient muscle behind us. Everyone thought Classic FM couldn't make it," he says of the station that today attracts an audience of more than six million regular listeners.
More than 80 financial institutions and the rest of the radio industry snubbed GWR when it was trying to raise the money to launch a national classical-music channel. The group was within an hour of having to give up the licence when the American group Time Warner arrived with financial backing.
Bernard was thoroughly convinced that there was a market made up of people such as him who loved classical music but didn't know much about it, and who had responded to Puccini's Nessun Dorma at the World Cup and to Dvorak's New World Symphony delivered to a mass audience by a Hovis advertisement.
For the GWR chairman, another example given as evidence for his big-is-beautiful theory is the development of digital radio, which is accelerating sharply. "There would not be a digital radio industry today, were it not for the fact that GWR committed to doing this in 1998." Bernard has the perfect example of the speed of change in digital radio in his office at Classic FM's headquarters, on an alleyway near Oxford Circus. He points to a £99 digital portable set. It is sitting on a bulky digital radio tuner that cost £799, the only one available four years ago.
Many of the original investors in the Digital One multiplex, or block of digital frequencies, in which GWR was the majority investor, pulled out. "Virgin pulled out a week or so before the [licence] submission went in and, after we won the licence, Kelvin MacKenzie bought Talk Radio and pulled out," he says.
Rather mischievously, he also points to a letter written by an executive of the rival radio group Chrysalis in 1998, which said that the radio industry recognised a turkey when it saw it and that investing in digital would lead to a huge financial black hole that could throw away the gains it had made in recent years.
Bernard acknowledges that Chrysalis is now a fully committed digital enthusiast and concedes that GWR has suffered financial pain. Two years ago it had profits of £8m but that was after a £5m investment in digital. The company even paid for the development of the special microchips that brought down the size and cost of digital sets to kick-start the manufacture of affordable receivers.
There was pressure on Bernard at virtually every board meeting to reduce spending on digital, at least. Instead, he decided to sell the company's overseas radio investments in Europe and Australia to help reduce the group's debt from an unacceptable £170m to the present figure of £60m, and to continue with his punt on the future. "We are betting the shop, if you like, on digital, and we are saying that digital will be the future," he says.
At least now the size of the shop can grow considerably thanks to an intense lobbying campaign by the radio industry over many years to allow the creation of much larger groups.
Both GWR and Capital were already close to their size limits under the old legislation, and would have found it impossible to merge. "I had done what I could in building the company as big as we could get within the rules as they existed, but needed London," says Bernard. GWR has its national station, and stations in cities such as Bristol, Wolverhampton and Nottingham, but quite apart from London, it has no presence in either Birmingham or Manchester - all Capital territory.
The Communications Act cleared the way for such a merger. Indeed, it allows the number of owners in major UK markets to shrink to just two plus the BBC. Ofcom, the communications regulator, is expected to rule on the GWR merger soon - most people in the industry expect approval - and the Office of Fair Trading is investigating.
It would be strange if the merger were to be blocked, given that the regulator approved the much larger Granada-Carlton ITV merger with only modest conditions imposed. "There is minimal overlap [between GWR and Capital]. The only overlap is in the East Midlands, where Capital has a regional station, Century, and we have stations in Nottingham, Leicester and Derby," says Bernard, who points out the existence of a competing regional station and increasing competition from digital stations.
The City and shareholders of both companies, including the Daily Mail and General Trust, publishers of the Daily Mail, which has a 29.9 per cent stake in GWR, are all supporting the deal. The companies are of nearly equal size and GWR would get about 48 per cent of the enlarged company.
There was one serious problem in the planning: one of who was going to do what. What exactly was Bernard's role in the new company going to be, and where would the line be drawn between that and the responsibilities of David Mansfield, the group chief executive of Capital?
Bernard explains. "The one thing ... we both agreed on was that unless we sorted out [the division of responsibilities] there was no deal. We were absolutely, acutely conscious of what happened in ITV and we knew we had to avoid that."
The GWR chairman, who has long since lost his Zapata moustache, is not at all large himself. He may be greying but the 51-year-old remains impressively slim as a result of regular five-a-side football matches with much younger opponents, and equally regular marathon runs. He was in the middle of the Great North Run and took conference calls on his mobile when news leaked of the planned merger with Capital.
The turmoil in ITV after its merger still looms large, more than a year after it happened. Investors moved against Michael Green, the former chairman of Carlton, who was the prospective chairman of the merged group.
To avoid any chance of a similar scenario, the two executives of GWR and Carlton have met many times informally in a London flat with the former Hambros merchant banker Nigel Pantling, now a consultant, to ask the tough questions. "Nigel was almost like a marriage-guidance counsellor and his contribution was to ensure that there would be no divorce," says Bernard, who acknowledges that the discussions became heated at times.
Luckily, the two men come from completely different backgrounds - Bernard from programming (he has a national award for a radio documentary series on alcoholism) and Mansfield from television advertising sales. Bernard has agreed that Mansfield's expertise in the commercial and selling areas is greater, and has promised not to interfere.
David Mansfield will run the company as chief executive, with Bernard as chairman. "I am executive chairman because I am full time and I take responsibility for the development of the strategy, particularly of the group but also for the development of digital," says Bernard.
The GWR chairman is like a dog with two tails over the current speed of development of digital radio. All the industry research suggests that, by the end of this year, a total of more than more than a million digital radios will have been sold. A digital radio for just is on sale for just £49 at branches of one of the big supermarkets.
Bernard is in the process of adding to the numbers available. His office is stacked with boxes containing digital sets being sent out as Christmas presents. In two years, 4.5 million homes are expected to have digital radios, offering CD quality and interference-free sound as well as additional stations. By 2008, industry forecasts say, a total of 13 million digital radios will have been bought.
"Anyone who understands radio knows we are in a new phase now which is going to be the third golden age of radio," says Bernard, who has been working closely with Jenny Abramsky, the BBC's director of radio, on the development of digital radio. "We, the industry, have built the infrastructure. We are now getting the sets in the market. The building blocks are in place. And I know you can say this is arse-about-face, but the last thing is content."
Until now, the BBC and the commercial sector have needed each other to establish the digital market. As more and more households get digital radios, and spending on content increases, it may be that traditional hostilities will resume.
The GWR executive believes that, with more investment, his national pop digital station, Core, could go head-to-head with Radio 1 for the 15 to 24-year-old market. He would also like to provide more ambitious programmes such as music documentaries for Planet Rock, which at the moment is largely broadcasting pre-recorded material designed to keep the transmitters warm. Capital has Life, a national digital station that could provide "a brilliant opportunity to match Radio 2".
For all his admiration of Abramsky, the GWR chairman is in an almost permanent rage at what he believes is the unfair encroachment of Radio 2 into the audiences of the commercial sector while the corporation neglects its older listeners. "The BBC is a brilliant institution. It is utterly unique and executes its job very well in the position that it has got, but it dominates and distorts the market. I want it to be regulated by Ofcom, by an independent regulator," he says.
The radio executive also has designs on an alternative to Radio 4. "I'd love to do a commercial version of Radio 4. It's my background. I recognise its actually a huge task but its not impossible. In the 1980s, LBC absolutely gave Radio 4 a run for its money in London. It really did. We need a speech station that isn't just full of phone-ins."
As ambitious plans for the digital future unfold, legal battles continue. The former Sun editor MacKenzie went to the High Court this week to try to force the radio industry to adopt immediately an electronic form of measuring the radio audience. The case was thrown out on Thursday.
MacKenzie claims that, using an electronic system rather than the current method of a panel recording their listening habits in diaries, his talkSport station has more than seven million listeners, and Classic has only five million, as opposed to more than six million using the conventional method. "Kelvin's figures are just unrealistic," he says. "You get a feel for audiences. I come across listeners to Classic FM all over the place but I have never once met anyone who claims to listen to talkSport," says Bernard, who admits to having been hurt by some of MacKenzie's negative advertising.
"If we were relating it to the playground, I would have given him a bloody nose a few months ago. But there is absolutely no point. You never win with Kelvin because he will always try to out-succeed in belittling you and be provocatively rude about you."
GWR has an important study under way that is looking at the ideal number of advertisements to broadcast during programmes. The number might be reduced to hold onto listeners for longer, or it could go entirely. "We are looking at a whole new business model," says Bernard. "There is a possibility with digital radio that you might have ad-free radio stations in future based on subscription or sponsorship."
Regardless of the former Sun editor's views about its audience, what are the plans for Classic FM? Bernard says that change is on its way, though it will scarcely be revolutionary. There are plans to broaden the range of classical music played, to make it a little more adventurous. Classic FM TV has just had its first profitable month and the latest relaxing music CD set, Relax and Escape, is selling well.
Ralph Bernard is far from relaxed about the future and his thoughts always return to how he can make the company bigger by merging with Capital, taking on the "utterly rampant" BBC, and getting commercial radio's share back to 50 per cent. "There will be much more balance in future and we believe that is what listeners would want and that's what advertisers would want," he says.
Apart from winning regulatory approval, there is one hurdle still to be jumped before the merger can go ahead. The new company hasn't got a name. Bernard says he will make a big donation to the Breakthrough Breast Cancer charity if anyone can provide the answer. The name must recognise the success of commercial radio groups without being silly or irrelevant or simply based on the names GWR or Capital. Answers on a postcard, please, to Ralph Bernard, prospective executive chairman of what is potentially the biggest player in British commercial radio.
LIFE AND TIMES
Born in 1953 and educated at Caterham High School - where, when his first article for the school magazine was rejected, he set up his own publication. On leaving school he started work as a journalist on local newspapers, became involved in hospital radio and moved to the newsroom of Sheffield's Radio Hallam in 1975.
His professional life changed with an award-winning dramatised documentary series on drinking, Drying Out, which got him the head of news job at Peterborough's Hereward Radio, and then programme controller at Wiltshire Radio in 1982. Two months after joining he replaced the managing director and in 1985 merged the station with Radio West - a bold move at the time - to form GWR. After buying Plymouth Sound in 1987 he floated GWR in 1988 and has made profits from merging local stations - 31 in total - to create bigger audiences and attract greater advertising revenue.
As pre-launch manager, Bernard took responsibility for a commercial classical music station few thought would work when it was created in 1992; more than 80 City financial institutions turned him down. But in 1996 he merged the station with GWR, cutting the chat and playing familiar tunes all day, transforming Classical FM from a company which lost £1.95m to one with a pre-tax profit of £14.8m and more than six million listeners.
Wary of the threat posed by the BBC and foreign commercial rivals, he has fought against "outdated ownership rules" and the "inappropriate regulation" of British radio, limiting expansion. Accused Radio 2 of parking its tanks on commercial radio's front lawn when Jim Moir youthed-up the station in the late Nineties, "a prime example of the abuse of monopoly power".
Charging ahead of doubting competitors into digital radio, Bernard insisted in 1998: "Someone had to pick this up. Digital radio is the future." GWR owns a two-thirds stake in operator Digital One, responsible for much of the development of UK digital radio. He believes it will give commercial radio the chance to hit back at the BBC and take a 75 per cent share of listening (it now holds 43.7 per cent and the last figures showed a drop).
GWR spent 2003 paying off £100m of debt so that it was able to play a prominent role in radio market upheaval. In September this year Bernard sealed a £711m merger with Capital Radio, filling the London hole in GWR's network.
Bernard lives with wife Lisa and four children in a listed mansion (with swimming pool) in Marlborough, Wiltshire, and spends his time playing football, running marathons, watching cricket and collecting early Wisden editions.
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