For Broadcast June 28, 2007

Next week the second national commercial Digital Audio Broadcast (DAB) licence will be awarded either to 4 Digital Group - a consortium led by Channel 4 that includes big brands such as Emap, Sky, SMG, the newly sold-off radio unit of Chrysalis and The Walt Disney Co - or to National Grid Wireless, the national transmitter network operator and a founding partner of Freeview. Ofcom is poised to choose the new 12-year licence winner, but the problem with announcing this second coming of DAB is that hardly anyone seems to remember the first one.

Digital radio has been a painfully slow burn. GWR (now GCap) won the first national, commercial DAB multiplex licence with the intention of giving the BBC's DAB multiplex a commercial competitor. Some new stations such as Core and Lite were set out to woo the radio-listening public but several years on, DAB radio sets barely number 5 million. Although listening through digital TV and the web has increased audiences for digital radio overall, the payback for DAB has been limited. The result has meant that the BBC still has 56% of the total UK radio audience for music and nearly 80% of the total speech radio market.

Earlier this year, GCap announced it would stop investment in its Core and Lite stations as well as its DAB joint-venture station with Disney. For the year ended 31 March, GCap lost £16m on its DAB channels business, which brought in a paltry £1.9m in advertising revenue for the year.

GCap's problems with DAB are both specific and general but the big picture result for DAB overall has been a lack of significant audiences, a dearth of DAB-receiving devices and very reluctant advertisers. Set this against the backdrop of a faltering overall radio advertising market, and DAB has not been an easy ride.

Who will win?

The second coming of DAB is more like a second chance and, thankfully, the digital age is now fully upon us so digital radio might finally get a much-needed kick-start. We listen to radio on our mobile phones, on the internet and via our digital TVs. Meanwhile, the cost of in-car DAB receivers are falling. The newest digital radios can deliver podcasts, images and text to supplement music. Electronic programme guides and PVR-functionality, on-demand downloads and colour screens are all in radio's near future too, making them more interactive and certainly more appealing than radio sets of yesteryear.

More choice and better marketing is what will make DAB work in the future. The 4 Digital bid should win because it has content front and centre, and cross promotion of DAB on C4, on Sky and with partners such as Carphone Warehouse and the BBC as its central premise. Its marketing budget is just under £30m - compared with GWR's £14m.

True, the size of the radio advertising market is falling (5.2% down in 2006 and another 1.8% in Q1 this year) and various manufacturers are still to be convinced that installing DAB chips in their devices makes sense.

So, DAB 2 must be about compelling listening choice with big-brand backing if it is to succeed. The analogy with Freeview is clear. The DTT technology is certainly not the most advanced, but its programming line-up and low-cost of entry have made it the leading digital TV platform in the UK.

DAB 2 should spur the independent radio production sector, and adding more and better commercial radio stations should help gain listeners. Here's a number to ponder: every 1% share of radio audience gained by the commercial radio sector is worth about £5m in ad revenue. In a weak radio ad market, this is no small number.