"This is not a joke. If you can you lend us 50 million quid between you, we need it"
Monday 03 November 1997
Meg Carter looks at the deals that are making waves in radio
As rescue attempts go, it's certainly high profile. "We have to buy the radio station by 19 November, otherwise we're out on our ear," Chris Evans told bemused listeners to his Virgin Radio breakfast show last week. "We need to get this sorted out - this is not a joke. If you can lend us 50 million quid between you, we need it."
But what, exactly, was he trying to rescue? And does it, for that matter, need "saving"?
Evans certainly seems to think so. Virgin Radio, which he joined in September, is currently the subject of an pounds 87m takeover bid by Capital Radio. The bid is being examined by the Monopolies and Mergers Commission, which is expected to make its decision in two weeks' time. With his Virgin contract due to expire a week before Christmas, Evans seems convinced Capital will not extend this contract if its bid goes through.
"We're going to make [Virgin] the people's radio station," he went on to pledge. "We can either pay you back over the years, which we promise we'll do at a good rate of interest, or you can just share in the profits. It'll be like a Co-Op. Otherwise we're in trouble."
Insiders at Capital and Virgin have been quick to dismiss the comments as a jape. "It's just a stunt," a spokesman helpfully explained. Evans' comments about the deal, however, have coincided with renewed industry debate about the likely outcome of the MMC inquiry.
"Given the loaded nature of some of the questions I was asked, I got the impression the outcome is anything but cut and dried," said one industry source who was quizzed as part of the procedure by the MMC.
News of the Capital bid stunned the industry and many insiders at the two companies when it broke in May. Although it was known Capital was looking for expansion opportunities after it failed to win a new London FM licence, which subsequently went to "indie" station Xfm, Virgin was not an obvious target.
Virgin 1215 was launched by Richard Branson in 1993 as an "adult rock" station. Audience growth was initially slow, hampered by its mono AM frequency which was especially poor in London and the South- east. Programme changes and extending the playlist to include "contemporary classic rock" tracks followed.
Virgin subsequently applied for, and won, a London FM licence and launched Virgin 105.8 - carrying almost identical programming to the national station, but in stereo. Virgin Radio now attracts combined weekly audiences of 3.4 million.
The rapidly expanding commercial radio industry welcomed Branson's entry into the market as a clear indication that, in audience and revenue terms, independent radio had finally "come of age". Branson, too, seemed enthusiastic about his radio station, which would form a base for further expansion into media and - a long-held dream - television. So why did he decide to sell?
"Richard's attitude has always been that everything has got its price," one Virgin source observes. "And when it came to the crunch, the Capital offer was one he just couldn't refuse."
Initially, some staff felt deeply let down by his acceptance of Capital's offer. Loyal stalwarts, however, now insist it makes perfect sense, for both sides.
"It gives Virgin a bigger presence in radio, and into the new century the development of digital audio broadcasting will require a large volume of investment," says Virgin Radio managing director John Pearson.
As part of the deal, Virgin Radio would be sold, but Virgin would retain an indirect stake through a 14 per cent holding in Capital and a seat on the board for Branson, who will become Capital's biggest shareholder. But surely this would give Virgin only limited control of the future development of two stations that will continue to carry the Virgin brand name?
Not a problem, Pearson replies: "It's no different, really, from the arrangement Virgin has with EMI for Virgin Records. In effect, it's a licensing arrangement."
As for Capital, it gets a national AM station, another London FM station, and the digital licence which Virgin 1215, as a national station, is guaranteed. Capital Radio has significant scope for further growth through applying for new licences and acquiring existing ones, chief executive David Mansfield explains.
"We considered what would be the best future move for Capital, and Virgin was top of the list. We feel the Virgin stations haven't realised their full potential. We know in the past Virgin has been concerned about the AM licence and its poor frequency, which is why they have mostly simulcast across the two. We would produce two distinct stations which would benefit audiences and advertisers."
Capital plans to turn Virgin's national station into a "younger, faster, pacier" rock service and Virgin London into something "more 25-to-34-year- old male and laddish". It's a shrewd plan, designed to protect the younger, female-biased audience for Capital FM.
The national plan is to take on commercial radio's greatest enemy - Radio 1 - outside London. Which, of course, begs the question: won't they end up stealing audience from local independent FM services, too?
"No," says Mansfield. "Capital already owns principal local stations in Birmingham and along the south coast - the last thing we'd want is to take market share from ourselves."
But there would, he concedes, be "net gain" to the Capital group whatever the eventual outcome of such a head-to-head with Radio 1. Which is one reason that others in the industry are not united in the support of Capital's move.
"It's the Capital culture that's been the cause of friction in the past," one observer explains. "They're seen as bullying and, inevitably, there's resentment when an out-of-town operation is bought and controlled by someone down in London."
That's life, though. And Capital is not about to start hiding its commercial ambition. "We're moving from being a radio company to being a music-based entertainment business," Mansfield says.
As well as 11 radio stations, the group has recently moved into restaurants and is a partner in a record label, Wildstar, and a talent agency, Wildstar Management.
Where, then, does all this leave Chris Evans? Well, his contract expires on 18 December - one week after the latest date both companies hope to hear if the bid is cleared. The MMC is due to decide by 14 November. It will then notify the Department of Trade and Industry, which is expected to make an announcement 20 working days later.
According to Pearson, Evans' contract with Virgin was only ever for 10 weeks (a fact the company's spin doctors neatly played down at the time). "It was an insurance policy," he explains. "If the deal does not go through it would have been foolish not to have made appointments and improvements during the six month process -we couldn't afford to take our eye off the ball."
However, Pearson adds he would happily sign up Evans for longer and that Evans is enthusiastic, too.
Capital is more circumspect. Openly irritated by his on air comments last week, one insider huffs: "It's ridiculous. The fact is, we're just not in a position to make a decision until we know if the [Virgin] deal has gone through."
There is, however, another possible twist. Evans has made no secret of his desire to own a station as well as broadcast on it. Just last month he claimed he was in talks to buy national broadcaster Talk Radio - a suggestion the station later flatly denied. And he has already been involved in a number of local and regional radio licence applications through his company, Ginger Productions.
Some conspiracy theorists within the industry now speculate what might happen to Virgin should the Capital deal not get MMC approval. Might a certain Mr Evans step in?
Few would dare question the ginger wonder's talent as a broadcaster or, for that matter, his popularity. To what extent his outspokenness might one day prove a commercial liability - to a future employer or even to himself - remains to be seen.
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