In the digital age, the buying of radio frequencies seems almost archaic. The internet means that any major radio brand can now be accessed across the nation. And yet, in the recent Radio Spectrum auction, NZME broke a record by paying $7.4 million to retain the frequency it currently uses for Newstalk ZB in Christchurch.
And while slightly more frugal than its competitor, MediaWorks Radio also pulled out the chequebook to pay $2.5 million for a frequency used for Mai FM in Waikato and $2 million for a frequency that will host George FM in Wellington.
In total, MediaWorks spent $7.4 million on 27 radio spectrum licences across New Zealand, while NZME picked up 15 for a sum that NZME Radio managing director Dean Buchanan says will be disclosed once all details are finalised (the networks now have the right to use these frequencies until 2031).
Through these purchases, MediaWorks will turn George FM into a nationwide radio brand, extend Mai FM’s footprint into 12 markets, and plans to launch a new nationwide radio station in 2015.
In an interesting change of approach, the entire auction was hosted on Trade Me as part of a campaign organised by Turners and The Ministry of Business, Innovation and Employment (MBIE).
“It was like bidding for a Christmas hamper,” says Buchanan. “The only difference being that there were fewer bidders and far more zeros involved.”
According to Trade Me spokesperson Paul Ford, the sale of the Christchurch frequency is the single most expensive item ever to sell on Trade Me via auction.
And while Ford wouldn’t go into details about the specifics of its commercial partnership with Turners, he did provide a hypothetical estimate of what the company would’ve earned had the standard structure applied.
“Our normal fee structure didn’t apply here, but, just for fun, if it had, the success fee would’ve been $149 (our maximum success fee) which amounts to a 0.0019 percent commission fee on $7.8 million.”
The price of this record-breaking frequency was driven up to this extent by a bidding war between MediaWorks and NZME, with both sides of the network divide seeing strategic value in securing an important frequency for the Christchurch market.
“It’s money in the bank for us,” says Buchanan in response to investing such a huge sum in the frequency. “Newstalk ZB is number one in Christchurch … and we know that you can’t have strong national hold without having a strong presence in [the city].”
MediaWorks group content director Leon Wratt played down the significance of the frequency by pointing out that it constituted only a small percentage of NZME’s share of the Christchurch radio market.
“Previously, they [NZME] had a ten percent share of the market with their AM frequency and then it became 14 percent after the FM frequency was added, so it really only has about four percent of the market.”
Wratt also went on to say that the price for the frequency became too high to make the purchase commercially justifiable for MediaWorks. However, it’s worth noting, that MediaWorks would’ve bid quite a few million dollars before deciding to throw in the towel.
Contrary to the view that $7.8 million was too much, Buchanan saw things differently, saying that the purchase was comparable to those he has previously been involved with.
“In 2003, TRN set the previous record by purchasing a frequency for $6.8 million,” says Buchanan. “And when I was at DMG, we purchased the Nova 96.9 frequency for $155 million in Sydney, which is a market about the same size as New Zealand. So by these standards, we actually got a bargain.”
The interesting thing about these exorbitant prices is that they are determined by the brands that are hosted on them.
In between auction periods, radio networks can occupy available frequency spaces without incurring any major expense, but as Wratt explains—with the help on an unlikely metaphor—there are risks involved in this approach.
“It essentially operates in much the same way as squatters’ rights,” says Wratt. “We live on the property until the owner comes along, kicks us off and tells us that we have to pay to stay there. When we signed up these frequencies, we always knew that the day would come when the government asked us to pay up. MediaWorks, NZME and others around the country knew the risks involved.”
In this sense the success of brands ends up costing the networks money. And given that Newstalk ZB remains the number one radio station in terms of national share, NZME saw it as strategically crucial to keep its brand where it was.
Whether this matters as much in the digital era is up for debate. These days, the nation’s radio stations can be accessed online, meaning that listeners no longer have to rely on FM and AM transmission to listen to their favourite stations.
However, Wratt believes that the prices paid by the respective networks for these frequencies stand as testament to the important role that traditional transmission continues to play.
He says that the problem with streaming, especially via mobile phones, is that it is still too expensive to pay for data. And Wratt is of the opinion that things aren’t going to become cheaper, because telcos are consistently having to invest in new technology to keep apace with how quickly things change.
“Here in New Zealand, we’re still rolling out 4G, but some international markets are already investing in 5G. Rolling this out isn’t cheap, and the money has to come from somewhere.”
Wratt argues that major advantage of traditional transmission over digital streaming is that listeners don’t pay to tune into their favourite radio stations. And although connected cars are becoming increasingly popular, Wratt believes that consumers might still be hesitant to pay for the data packages that are required for streaming.
Over the past year, both MediaWorks and NZME have already incorporated a host of changes in an effort to make their brands visible across all available channels. And if the comments of Wratt and Buchanan are anything to go by, then this evolution is set to continue as we enter 2015.
And although the future of traditional radio is somewhat unclear, the government will certainly be satisfied that there’s still a demand for radio frequencies.
On this topic, Buchanan found it fitting to add a bit of jest to the industry discussion by saying: “The honourable thing for the Honourable John Key and Bill English to do at this stage is to send a bottle of champagne to the radio industry in a show of thanks for filling up their Christmas coffers.”