Source : Globe & Mail

Consolidation credited for steady growth of the once-struggling broadcast sector

Private radio is enjoying something of a resurgence in Canada with FM stations racking up record profits last year and the long-struggling AM format finally on the cusp of profitability.

Total revenue for all private radio stations jumped nearly 8 per cent last year to a record $1.19-billion, according to figures released yesterday by the Canadian Radio-television and Telecommunications Commission.

Broadcasters' total operating profit increased 31 per cent last year to $210.4-million, which was also a record, the CRTC figures showed.

"The last time we were in this kind of range was in 1975," said Glenn O'Farrell, president and chief executive officer of the Canadian Broadcasters Association. "If you look at the formats and genres that are available to Canadians in most markets across the county, it's a richer menu than we have ever had in terms of musical variety."

In fact, the CRTC figures showed that so-called "ethnic and native" stations are experiencing significant growth. These stations reported a total operating profit of $2-million in 2003, more than double the previous year's profit.

Mr. O'Farrell credits industry consolidation and new niches for AM radio for much of the turnaround.

Radio fell into disarray in the 1980s and 1990s, he said, in part because of strict ownership rules that prevented large players from developing networks.

In 1997, the CRTC changed the rules and allowed broadcasters to own up to four stations in any one market. Since then, CRTC figures show the industry has seen a steady increase in both revenue and profitability. Most of the financial gains last year came from the FM side. According to the CRTC figures, FM stations posted a profit of $214-million last year, up 17 per cent from 2002. By contrast, AM stations lost $3.6-million in 2003. However, that was well below the $22-million loss in 2002 and the $50-million loss in 2001.

One main reason for the difference in financial performance is that FM stations are generally far less expensive to operate. AM stations require expensive transmission towers whereas FM transmitters are much smaller. One executive said it cost his company about $1-million to set up an AM station in a major city. Setting up the same station on an FM format would have cost as little as $250,000.

AM radio also cannot compete with FM in terms of sound quality. As a result, most AM stations have moved to all-talk formats or found other niches in news or sports.

The switch has met with some success and it is the main reason AM radio losses shrunk last year, industry players say. "AM is really about keeping costs down or finding a niche that you totally dominate," said a radio executive.

About a decade ago, Toronto-based Rogers Communications Inc. switched the formats of its main AM stations in Toronto and Vancouver from music to all-news. Today both stations are faring much better and the company's 680 News in Toronto brings in more revenue from billings than any other AM station in the city.

"Those are the kinds of formats where AM does fairly well," said Rogers Media president Tony Viner.

But there are significant challenges ahead. Pat Bohn, a Vancouver-based broadcast consultant, said one major problem facing radio is its aging audience.

"We are weak with our younger consumers because we don't have a program that is targeted to teenage and younger consumers," Mr. Bohn said. "Young consumers are just not coming to the radio."

Another challenge is the advent of subscription-based satellite services, such as U.S. giants XM Satellite Radio and Sirius Satellite Radio. Both companies provide about 100 radio channels to subscribers who pay up to $13 (U.S.) a month. XM has about 1.5 million customers and Sirius close to 300,000 and they have both formed partnerships with big auto makers, such as General Motors, DaimlerChrysler and Ford, to make the service available in new cars.

The companies have applied to bring the service to Canada with Canadian partners. Toronto-based CHUM Ltd. has also applied for a licence to run a similar subscription service in Canada. Mr. Bohn says he is worried that subscription services will harm local radio by poaching major talents and limiting access to some performers.

However, others say subscription services could help push radio toward an all-digital format, offering clearer signals for AM and FM.

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