Capital is more than a Tarrant spotter

David Mansfield wishes the City would look beyond the radio station's star performer. Heather Tomlinson tunes in

When David Mansfield, chief executive of Capital Radio Group, next takes Chris Tarrant on one of their regular fishing trips, there will be plenty to discuss. After months of speculation about whether he intends to resign as breakfast show presenter on the group's main London radio station, Tarrant last week finally declared: "I will stay! I like it here!", adding cheekily that finance director Peter Harris was a "buffoon" for saying otherwise.

That comment has led to some amusement in the City, and Mansfield has also taken it in good part, particularly as Harris has denied he ever said Tarrant was leaving in the first place. Nevertheless, the group's shares leapt 5 per cent on news of Tarrant's pledge of loyalty, a measure of the financial importance of his show, which is estimated to bring in around 15 per cent of Capital's revenues. However, Mansfield points out that Tarrant is not the only man on the microphone. "Chris is a hugely important part of what we do," he says, "but we have 300 presenters on the books."

Although the company is best known for its London station, there are Capital brands elsewhere in the South and in Scotland, as well as Capital Gold, Century and "alternative" station Xfm, which likes to distinguish itself from the rest. The latter boasts Zoe Ball and Ricky Gervais as presenters. In a tour round Capital's Leicester Square offices, the guide points out that Xfm is "a bit different from Capital". A territorial Xfm loyalist stresses the point. "Yes, very different," he says, a touch of defiance in his voice.

The 48-year-old Mansfield has run Capital in his blunt, straightforward manner since 1997 after arriving as com- mercial director in 1993, and his methods proved fruitful. Though last year the group's total audience fell, it is still 40 per cent higher than in 1997 at 7.8 million listeners. And while it has been reporting falling revenues and profits over the past two years, it has one of the healthiest balance sheets in the sector.

But the fall in listeners last year, particularly at the London flagship station, caused some concern for analysts. Tarrant put it bluntly when he said the station's music was "the dullest we've ever had". So Mansfield has brought in a new production team for London and new blood to run the music policy.

Mansfield admits that Tarrant's programme had its problems. "We needed to get some energy back into the show. We decided to broaden the music we were playing, and with the state of the music market at the moment, a lot of the music is not strong enough to be played on a narrow and heavily rotated playlist."

Here lies the problem for the radio stations that rely on mainstream chart music at a time when global music sales are falling. Many argue that record companies are chasing market share without focusing on the quality of their artists.

"The industry has really failed to grasp a number of things," says Mansfield. "The failure ratio of 95 per cent [for artists] is seen as acceptable. But I think that's pretty poor. The industry has spent far too long reworking back catalogue from vinyl to CD, and the relationship between artists and record companies appears to be appalling. We have an interest in a strong music industry that produces successful artists."

Capital has made a small investment in making its own music, owning half of Wildstar, the record label that signed Craig David. The company has also decided to exploit the original music played on its station by recording live gigs and licensing the content.

"We have more interest in owning the content we produce," Mansfield says. "We don't like businesses that need a lot of cash investment, so we're not interested in venues, like some radio companies. We don't like anything that takes [financial] capital."

The group is also branching out into other types of media, such as X-Ray, a magazine aimed at Xfm listeners. But launching new products is not the only way it can expand. Under existing legislation it is restricted from buying new stations, but once the Communications Bill comes into force, probably in the summer, the rules will be relaxed. Although Capital has been touted as a target for foreign predators, its high price relative to earnings is likely to put off many bidders. Instead, it looks set to be one of the consolidators. Mansfield believes the new Bill could let it double in size. "Capital has 25 per cent of total radio revenues," he says. "We think we could comfortably get up to something like mid- to late 30s without necessarily being referred for a formal investigation."

He is widely said to be interested in merging with GWR – which runs local radio stations and is part-owned by Daily Mail and General Trust – or in buying Magic and Kiss, the radio assets of Emap.

Mansfield admits there are barriers to a quick deal, not least investors' reluctance to provide the money. "Whichever way you look at it, there are issues," he says. "There is no slam-dunk deal out there to be done. If anything happens, it will require a great deal of hard work."

But he says the "anything" would be a friendly takeover, because going hostile is "a euphemism for overpaying".

Digital radio offers another opportunity for expansion, and Capital has 50 licences. The problem is that no one is making the radios needed to listen to the stations, at least not at a price that will draw the mass market. At this very moment, there are many digital stations on air that have only a handful of listeners through no fault of their own.

Even Chris Tarrant couldn't solve the digital problem, unless he personally negotiates a manufacturing deal with a Japanese electronics company. The way the stock market reveres Tarrant, you might almost believe he could do it.