A business study commissioned by the Broadcasting Authority (BA) about the viability of additional radio and television services in Malta showed that there are “significant disparities” between audience shares and the corresponding shares of advertising revenues for radio and TV stations.

For instance, a radio station with an audience share of around 21 per cent gets around six per cent of the advertising revenue available for radio, while a station which has an audience share of around 10 per cent – less than half – has around 23 per cent of that advertising revenue – almost four times more.

It is the same with television. A station with an audience share of around 16 per cent manages to earn around 30 per cent of advertising revenues, while another station with double the audience share obtains only around 29 per cent of advertising revenues.

The authors of the study – Kenneth Bonnici of Grant Thornton and media adviser Pierre Cassar – did not mince their words on this situation.

“Success in the industry, from a financial perspective, is not entirely dependent on audience share,” they said in their executive summary distributed to the media at a press conference last recently.

The study concludes that “the issue of additional licences for nationwide radio and terrestrial TV stations would not be viable”. However, BA chairman Joseph Said Pullicino said the financial element was only “one of the elements” that the BA considers when issuing a call for applications.

The study showed that the market is dominated by the State and political stations (PBS, One Productions and Media.Link Communications), which capture around 53 per cent of radio and 98 per cent of TV audiences, and control 78 per cent of radio and TV advertising revenues (2002).

In 2002, PBS’s share of total radio and TV advertising revenues was around 28 per cent, while the two major political stations account for circa 50 per cent of the market, Mr Bonnici told The Malta Independent on

Sunday.

These figures were based on revenue figures quoted in financial statements filed by the respective companies with the Registry of Companies.

There has even been a slight increase in the share of advertising revenues enjoyed by PBS and political stations over the past few years – in 1995, their advertising share (radio and TV) stood at 76 per cent, in 1998 it rose to 77 per cent, and in 2002 to 78 per cent.

In view of the statistics of the past eight years, “it is therefore doubtful whether new stations would be able to attract revenues away from these dominant stations,” the study states.

With a population of just 390,000 and radio and TV advertising revenues in the region of Lm4 million, Malta’s broadcasting industry is the smallest one of the new EU member States. There are already 13 radio stations and four terrestrial TV stations competing in this limited market.

The advertising market available to non-political private stations is just Lm800,000, currently shared by some 10 players. Hence, even if new stations were to succeed in capturing say 10 per cent of this market (an optimistic assumption), the historical financial performance of exiting stations shows that this would not be enough to make a station feasible.

Moreover, even if new stations manage to capture a reasonable share of audiences, this will not necessarily guarantee a corresponding share of advertising revenues and make them viable. “The dominant political and public stations,” the study shows, “will continue to enjoy strong advertising revenues even if they were to lose some audience shares to other stations”.

Naturally, given the level of market saturation, capturing such a market would be of detriment to existing stations and would represent no real value added for the industry as a whole.

A radio station requires around Lm120,000 to Lm150,000 in revenues every year to be viable, the study shows.

The study says there are clear indications that the market has reached maturity and offers little growth prospects beyond that spurred on by normal economic growth. Following a period of stable growth up to 1999, radio/TV’s share of the total advertising market remained relatively constant during the ensuing years, even slightly contracting in 2002.

There is also a strong correlation between radio/TV advertising revenues and GDP based on statistics for the period 1995–2002. This means that one cannot expect to have a growth rate in advertising which exceeds the GDP rate for that year, the study shows.

All station operators describe the market as “cut-throat” or extremely competitive. There is little differentiation in supply, particularly in radio (where the dominant genre is music), and most stations have resorted to competing purely on price, a strategy “with very damaging implications” for the industry.

Advertising rates for radio are constantly going down and are “flexible”, while barter agreements have become “integral” in television.

Almost all stations have incurred repeated heavy losses consistently over the years, resulting in severe cash flow problems, high level of creditors, bank loans, and constant pressure on shareholders to inject more funds.

There were stations that had increased their turnover substantially but still continued operating at a loss the study shows. In 2002, the aggregate losses of the nationwide radio and television stations (excluding PBS) reached more than half a million liri.

In 13 years of pluralism in broadcasting, despite the precarious financial situation of the industry, only one radio station has closed (Radju MAS). More recently, FM Bronja was also closed down because of the heavy losses incurred by PBS. There have also been three take-overs in radio (Radio One Live, Island Sound Radio and Radio Calypso). However, only one station manager said he or she would consider a merger with another radio station.

This indicates that exit barriers are quite high. As one of the station managers who was interviewed as part of the study, pointed out: “After having invested huge sums of money you do not consider closing down a station”.

The station managers interviewed do not agree that the BA or another regulatory body should order them to close down because they are losing money. “If I want to lose money no-one has the right to stop me,” was the response of a station manager on this one.

Nobody is closing down as a result of what was described as a “culture problem” among station managers, as new players keep entering the market, thus increasing competition levels.

Most people in the broadcasting industry privately point their finger at the poltical stations for taking such a large advertising share, but few dare say so in public. So we made the million-dollar question: If the political stations had to close down, how many TV and radio stations would then be able to enter the market?

“It is difficult to predict what would happen in such a scenario,” Mr Bonnici said. “One cannot simply assume that if the political stations were to close down their advertising revenues would be diverted automatically to other stations.”

The high degree of competitive rivalry in the industry has been further accentuated by the advent of community radio stations. In 2000 there were only five community radio stations and these have continued to mushroom. There were 22 when the study was made. There are now 24, eight of which are in Gozo.

There is the perception among some nationwide radio stations that community radio stations are eating away from their advertising revenue by offering very cheap advertising rates. The two main advertising agencies interviewed for this study say this is not necessarily the case, but community radio stations which do take advertising generally bypass the advertising agencies.

It was pointed out by nationwide radio station managers that community radio stations have much lower overheads and rely heavily on volunteers.

A sore point mentioned was that the annual licence fee for nationwide radio stations is Lm7,000 as against the Lm150 for community radio stations, although the reach of community radio stations is limited.

Despite the fact that not all community radio stations take advertising, there are some which are doing this in an intelligent manner despite the limitations imposed by law about the collection of adverts only in the area of reception.

Out of three community stations interviewed for this study, one of them was making a profit, one was breaking even and another one was making a loss.

The stations interviewed were in Gozo, Naxxar and Cospicua respectively. Two of them take advertising while the third does not.

Indeed, community radio stations do have a percentage of listeners. A telephone survey of 300 radio listeners conducted as part of the study showed that around 26 per cent of listeners tune in to community radio.

Moreover, according to the survey carried out separately with radio listeners and TV viewers, there does not seem to be sufficient demand for more local radio and TV stations.

In the case of radio, 82 per cent said they do not see the need for new stations, despite the fact they believe that there are fewer stations than there actually are (the mean number of stations cited was 9.4 compared to an actual of 13). In the case of TV this lack of need was expressed by 63 per cent of respondents.

For radio, the study could not identify sufficient demand for new programme genres that could signify the existence of niche markets large enough to sustain new entrants.

Some respondents said they would like to listen to more education and cultural programmes on radio, but this statement was contradicted by the fact that the preferred type of radio programme is music according to the survey.

As regards TV, although a strong demand was expressed for more films, documentaries and comedy programmes, it is unlikely that new stations would be able to afford the production and/or purchase of such programmes and face the stiff competition of foreign stations.

There has already been a substantial increase in production costs for television stations over the past few years, the study shows.

Station managers have highlighted a severe shortage of trained personnel in the industry, and have called on the BA to organise broadcasting courses. Many stations said they are unable to meet the salary expectations of those few people who are indeed trained.

In the absence of professional training which, in any case, stations do not have the resources to finance, new stations will have to poach talent from existing stations or make do with personnel who lack the necessary skills and experience. In either case, the quality of programming is bound to suffer.

The view that the market can hardly sustain existing stations, let alone new entrants, is strongly supported by existing stations and also the two main advertising agencies interviewed.

Knocking on Broadcasting Heaven’s Door...

So what will the Broadcasting Authority do? After all, it was the BA itself which decided to commission the business study before issuing additional licences for nationwide radio and TV stations.

The BA will first analyse the report, see whether those who expressed an interest are still interested or not, and then decide whether to issue a call for applications or not, Dr Said Pullicino said.

This report is useful as new applicants can proceed “with their eyes wide open” since the financial risk is borne by themselves, Dr Said Pullicino said.

The Malta Communications Authority (MCA) has suggested that due to the impending switch to digital television, which should place in the next few years, “no further analogue licences are to be issued”.

However, this proposal does not impede the BA from issuing additional licences if it deems fit to do so, Dr Said Pullcino said.

According to BA chief executive Kevin Aquilina, there are 19 expressions of interest for nationwide radio stations and seven expressions of interest for television stations.

Among those interested in having a nationwide radio station, there are the General Workers’ Union (GWU), the Union Haddiema Maghqudin (UHM) and Where’s Everybody?.

There are also four community radio stations which have expressed their interest in having a nation-wide radio station – Fantasy Radio, Christian Light Foundation, Radju Tlett Ibliet and Deejays Radio.

A fifth community radio station which also intended to go national – Radju Marija Malta – has already achieved its objective after taking over Radio Calypso’s frequency last month.

The other people or companies who have expressed an interest for a nationwide radio station are Andrew Farrugia, Fun Media Company Ltd, Malta Bible Society, Russian Radio Broadcasting Ltd, Graham Charles, Dr Roger de Giorgio (managing director of MaltaToday), Dr James Muscat Azzopardi (on behalf of clients), Messrs Camilleri & Cacciattolo, Donald Mangion, Bianchi Group of Companies and Mr Shane Huntley.

As already known, the seven expressions of interest for television stations were made by Grima Communications Co. Ltd, Fr John Baptist Farrugia, Front Maltin Inqumu, Techinvest Limited, Alternattiva Demokratika, Where’s Everybody?, and Allied Newspapers Limited.

Dr Said Pullicino also confirmed last Sunday’s report in The Malta Independent on Sunday that Telever had been allocated a TV frequency – channel 53 on the UHF band.

He said that the assignment of the frequency was made long ago, but since it was assigned to them, “they did not do anything about it”.

“We have decided to write to Telever asking it to reply within the stipulated time whether it is still interested or not,” Dr Said Pullicino said.

VER Co. Ltd (the company promoting Telever) was the sole applicant when the BA issued a call for applications for a terrestrial television licence in February 2001.

The promoter of the application was Qala Archpriest Fr Karm Refalo, who runs the community radio station Radju Lehen il-Qala.

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