The transformation of the radio market in Budapest

The Media Council’s transformation of the system of radio frequency tendering is in itself understandable as an administrative reform, yet of all the decisions made by the Media Council to date none has made waves as big as this one has. The story has in effect vested Klubradio as an admittedly dissenting voice with symbolic significance. Perhaps more to the point, this series of events raises important questions about the role of radio in Hungary’s media market and the kind of media policy objectives that can be glimpsed in the new scheme of allocating frequencies.

In early April, The Media Council held a public hearing over three radio frequencies in Budapest. The 88.1 MHz band, formerly used by the embattled Rise FM, is currently unoccupied, while 98.0 is the frequency of Civil Radio. The tenders announced for these two frequencies expressly presuppose community programming. The third frequency, 95.8 MHz, currently used by InfoRadio, is advertised for commercial programming at HUF 77 million per year. The greatest coverage among these is afforded by the 95.8 MHz frequency, which is claimed by the announcement to reach 2.6 million listeners — a number that can actually be increased by broadcasting in mono, which is perfectly suitable for voice programs. 88.1 MHz and 98.0 MHz are only good for 1.85 million and 926.000 listeners, respectively. Unlike the previous tender advertised for the frequency of Klubradio, these tenders do not preclude the winning bidder from expanding by building a network.

The evaluation criteria for the two community tenders are identical, as are the ones for the commercial tender with those of previously announced tenders for frequencies in Budapest, including the frequency used by Klubradio. Even though the announcements in each case allow some discretion for the bidder in terms of program content and structure, they seem to reflect a policy concept — provided, that is, that one assumes bona fide that the Media Council works by any concept at all — that preference among a commercial stations must or should be given to music stations, relegating talk radios, including those airing public affairs content, to a status of community service provider excluded from the logic of the market.

In terms of point scores, the evaluation criteria for the 95.8 MHz commercial frequency are identical to the terms of the tenders previously announced by the Media Council for frequencies in Budapest. The declared winners of these former tenders were music stations exclusively. However, the court invalidated the results for the 95.8 MHz frequency, if only for formal lapses rather than because of any substantive criteria of evaluation. It is difficult to generalize from the Klubradio affair given its political sensitivity, but it does seem to demonstrate that the evaluation criteria applied by the Media Council tend to favor music stations. 

Here is a list of the criteria for the commercial frequency:

  • Fee: The announcement for the commercial frequency assigns approximately 21% of the available score to the media service fee: The highest offer gets the maximum number of points, the others proportionately less. Since the rather high basic fee makes wide variation among the bidders in this regard unlikely, the expected differences in the number of points achieved by the various bidders are expected to be relatively minor. In any event, there is no provision among the evaluation criteria that would make it possible to factor in the cost of operating a talk-format station, which is significantly higher than the cost of running a music station. In this way, non-music bidders are disadvantaged early on in the process.
  • Music: Approximately 14% of the score is awarded on the basis of the undertaken ratio of music in the total programming. In order to collect the maximum of 10 points, the bidder must make a commitment to broadcast music for 60% of its airtime. The ratio of 40-60% is worth 7, while 20-40% gets 4 points. If the proposed ratio of music is any less than this, the bidder will not receive a point. If it is true that this single criterion — like the previously mentioned one — is not sufficient in and of itself to decide the outcome of the tender, it is also evident that the evaluation method clearly favors music content. The bidder making a commitment to 40% music will get 6 points less than competitors broadcasting music exclusively, which means that it will lose about 8% of the total available score on this count alone. Then again, bids with less than 20% music can virtually be declared the losers ahead of time.
  • The predominance of commitment to music among all of the evaluation criteria is also evident in the fact that another 10 points can be collected in return for the proportion of Hungarian music in the total musical palette. The bidder not undertaking to devote more than 40% of its music programming to Hungarian music will lose 5 points from the get-go. This, however, is not a meaningful way to differentiate among bidders, considering that 5 points are awarded to those who commit to reserve more than 37% of their music programming to Hungarian music. It is inconceivable that a bidder would be willing to take a loss of 5 points just to be able to reduce its commitment to Hungarian music by a mere 3% — if only because this has no effect on the operating costs, given that a higher ratio of Hungarian music will not entail higher total expenses in copyright fees. The only consideration behind this criterion is to further increase the ratio of Hungarian music, which is stipulated at 35% by law. As an evaluation criterion, it simply does not make sense.
  • Local public affairs: About 28% of the available score comes from commitments to programs discussing local public affairs and providing assistance with local daily life. Here, the maximum number of points will be awarded to the bidder who undertakes more than 25%. One thing that this means is that the tender provides no incentive to make a commitment for an even higher ratio of public affairs in the total programming. On the other hand, this much is certainly expected, because if you only commit to 20% — merely 5% less than the ratio rewarded by the maximum number of points — you will end up with 10 points less. According to the description in the announcement, these must be programs “specifically focusing on the public activities of administrative organs, agencies, civil or other organizations within the range of coverage, or deal with the daily life, pursuits, circumstances of an individual or social group residing within the range of coverage, or provide locally relevant information for everyone living within the range of coverage.” This definition is difficult to interpret for  Budapest-based station whose range of reception reaches more than 2 million listeners, encompasses organizations that have the deepest influence on national public affairs, and stretches far beyond the city’s administrative boundaries. To make things even more confusing, this is the fourth tender announced by the Media Council that claims to support “local” news in Budapest, without the range of reception of these frequencies covering different districts or circumstances specific to smaller localities. So what does the Media Council have in mind with this criterion?, on might ask. For one thing, this criterion is capable of preventing the formation of radios that could present as an alternative source of news if organized into a national network. Secondly, this is yet another way to extend preferential treatment to stations airing music and light content. Thirdly, the Media Council have no clue, this is roughly how they inherited this criterion from their predecessor, the ORTT. Of course, this criterion will have a totally different effect on a truly local station based outside Budapest, in a market comprising no more than a couple of local stations. Unlike in the market that covers Budapest in its entirety, in such smaller places there are indeed appreciable arguments of media policy for bolstering local public affairs.
  • Subjective elements: Ironically, none of the above criteria really matter in practice. The announcement reserves 12 points, or nearly 17% of the total score, to be awarded at the sole discretion of the Media Council based on an admittedly subjective evaluation of the program schedule proposed by the bidder. Neither the outside observer nor indeed the courts are in the position to overrule the taste  of the authority which is entirely subjective, as conceded by the announcement itself. And whatever else the Media Council might say, subjectively awarded points — particularly when they represent such a high ratio in the total — inherently carry the danger of considerable abuse. The objective criteria listed above will result in a well-controlled, unambiguous score. Beyond this point, all that the authority needs to do is fashion the subjective scores in such way as to be just enough for the favorite to win. In vain did the Media Council cited the fact that Klubradio achieved the maximum score in one category, when the winning bidder was given just enough subjective points to come out on top. Not one point less or one point more, but precisely the number that carried the day.
  • Experience: Another 3 points can be awarded for proven experience  in media provision; 3 to the bidder whose experience is associated with the advertised frequency; 2 to the one who has was actively involved in radio for one year during the previous five years; and 1 to the bidder whose owner verifies his radio provision experience from the past five years. This means, then, that the provider reentering a bid for the same frequency enjoys an advantage of 1 point compared to the competitors otherwise established in the market.
  • Ancillary services: Bidders can collect 2 points for undertaking to provide a so-called ancillary media services such as RDS. There was a time when this used to be a valid consideration, but today these technical capabilities and standards are practically taken for granted to a degree that make it entirely superfluous to name them among the eligibility criteria. Even back in the days of the ORTT, there were not many bidders who did not gather the maximum points on this count. So what is really the point?

All things considered, the Media Council’s media political vision concerning the radio market in Budapest is far from being lucid, to say the least. The ideal candidate in terms of this announcement would broadcast music 24 hours a day, air a few minutes of news each hour, provide one or two longer news segments, and a couple of cultural magazines. In other words, it’s the kind of nondescript programming that the nationwide commercial radios supply. In any event, it would certainly not contribute to the diversity of media. By contrast, the loss of a widely received, viable talk radio with a massive listener base would surely impair that diversity.

Let us now take a look at the tender announced for the two non-commercial services. The Media Council’s concept here seems completely different. Pursuant to the Media Act, advertising these frequencies for purposes of community radio itself implies major expectations in terms of programming structure and content, including the requirement to broadcast programs satisfying the public service definition in two thirds of the station’s weekly airtime.

Criteria of the community radio tender

  • Talk format: In other ways, too, the announcements positively orient bidders toward the talk-radio format. A commitment to devote more than half of the daily airtime to talk programs is worth 20 points. Bidders limiting their commitment to between 40 and 50% lose 10 points, and no point is given for commitments to under 40%. These tenders, then, are clearly designed to aid the market access of talk radio shows.
    By defining so-called “special characteristics,”  the tender announcement also seeks to influence the designed image or identity of the media service. In the routine of the former media authority, the “special characteristics” feature required the airing of thematically specified programs in a ratio of the total airtime. These two tenders by the Media Council offer bidders a choice among the following “special characteristics:”  news and public affairs; environmental protection; consumer protection; programs for minors; cultural affairs and non-governmental organizations. Each bidder must pick only one of these and undertake to devote 30 to 40% of its airtime to this thematic. Commitments to over 40%, 30 to 40%, and 20 to 30% are worth 20 points, 10 points, and 5 points, respectively.

The bidder will lose nearly 17% of the total score if he does not agree to air the specified maximum ratio of talk programming and/or the specified maximum ratio of a specific theme. For all intents and purposes, it is virtually impossible for a bidder to win without making a maximum commitment in both categories.

  • Subjective elements: Like the other tenders discussed above, these too reserve 10 points (worth some 17% of the total score) for a subjective appraisal of the program schedule. Once again, this leaves the door wide open for the authority to make arbitrary decisions at will.
  • Experience: These tenders reward experience with up to 8 points, or approximately 13% of the total score. Former experience with the same frequency means no advantage over experience with other radio frequencies in Budapest. The bulk of the maximum reward for experience, 5 points can be given for experience with a community station (understood as a public service rather than for-profit operation) or special-theme programs. Preference is given to autonomous stations compared to those linked in a network. In light of these criteria, Civil Radio’s chances of winning its formerly used frequency are not bad at all. In fact, this set-up may turn out well for InfoRadio, which easily satisfies the “special characteristics” thematic requirement in its present schedule. Here, we may glimpse the outlines of yet another “unorthodox” solution, the specter of tailor-made tendering.

The tenders announced for the 88.1 MHz and 98.0 MHz frequencies open the way to market access for mostly-talk stations exempt from the media service fee obligation. The authority seems to believe that the real business is in the music format anyway and that business logic is alien to talk-based content. Real-world market experiences do not corroborate either of these assumptions.

The radio market in Budapest is quite diversified in terms of the profile of the available stations and the size of the media providers behind them. The three public service and two nationwide commercial stations are of course available in the capital and are joined by four district commercial stations as well as several local and district community stations. Most of the providers are for-profit ventures, although some of the community radios are run by foundations. The picture is rather hodge-podge, also because some of the providers, such as Class FM and InfoRadio, are linked to a larger media enterprise through their owners, while others have vested interests in the radio market only.

Revising the fee system was in itself a justifiable measure, given the ad hoc character of previous radio tenders, at least when viewed from the outside. Bidders would be able to win frequencies with patently unfeasible business plans, and then retroactively apply for, and be granted, a reduction of the payable fee. In its release, the Media Council claims that, “In the future, the system of calculating the fees will be equitable, proportionate, and standardized, grounding the business activities of the commercial stations in genuine and realistic competition.” This is no doubt a noble goal, albeit one that will not be easy to accomplish. The whole media market, and the relatively small market within it, is extremely vulnerable to fluctuations of economic cycles, with advertising revenues capable of skyrocketing or plummeting overnight. The exigencies of predictable operation and long-term planning require radio frequencies to be awarded for several years at a stretch, typically 5 to 7 years — a period long enough for major changes to emerge in the market that will make it impossible to guarantee full predictability across the term of the frequency right, even if the authority acts in good faith and by best intentions.

 

Table 1: Actors in the radio market of Budapest

Station

Provider

Principal owner

Type

Daily listeners

(2011 data), in thousands*

MR1-Kossuth

Hungarian Radio

public service

200-300

MR2-Petőfi

Hungarian Radio

public service

80-140

MR3-Bartók

Hungarian Radio

public service

30-55

Class FM

Advenio Zrt

Zsolt Nyerges

commercial (nationwide)

150-200

Neo FM

FM1 Zrt

FM1 FRIENDS Kft.

commercial (nationwide)

150-210

Juventus

Rádió Juventus Zrt

Juventus Media Agency  Kft.

commercial (district)

140-210

Music FM

Prodo Voice Studio

Gerardus Petrus Jacobus Ligtenberg

commercial (district)

n.a

InfoRádió

Inforádió Kft.

Central European Media and Publishing Zrt.

commercial (district)

n.a

Klubrádió

Klubrádió Zrt.

MONOGRÁF Investment and Service  Zrt.

commercial (district)

110-130

Civil Rádió

Civil Rádiózásért Alapítvány Foundation

n.a

commercial (district)

n.a

Gazdasági Rádió

Műsor-Hang Nyrt

PHYLAXIA 1912. Holding Nyrt

commercial (district)

n.a

Mária Rádió

FM-4 Rádió  Kft.

MÁRIA RÁDIÓ Religious, Social, and Cultural Nonprofit Kft.

commercial (district)

n.a

Tilos Rádió

Tilos Cultural Foundation

n.a

commercial (district)

n.a

Klasszik Rádió

Aeriel Rádió Kft.

Radio Consult Kft.

commercial (district)

20-30

Lánchíd Rádió

Lánchíd Rádió Kft.

Gábor Liszkay

commercial (district)

n.a

Rádió Q

Start Média Kft.

Consult Financial Consulting Services Kft.

commercial (district)

n.a

Jazzy Rádió

Magyar Jazz Rádió Kft.

Belmond & Adams Magyarország Kft.

commercial (local)

20-30

Magyar Katolikus Rádió

Magyar Katolikus Rádió Zrt.

Hungarian Catholic Bishops’ Conference

commercial (local)

n.a

*Average number of listeners in Budapest aged 15 years and older

Source: NMHH, Opten, Marketing&Media (March 1-14, 2012,  p. 28)

Some of the stations listed above are broadcast nationwide, but the fact remains that the market in Budapest is well saturated. With a low rate of profitability and an absence of consumer revenues, the radio business depend on advertising sales to cover operating costs. The advertising market is marked by fierce competition, with online advertising claiming an ever increasing role side by side with the traditionally massive print and television markets. According to data posted by the Hungarian Advertising Association (MRSZ), radio grabbed a mere 4.2-percent slice of the advertising pie in 2010. To make an already tight situation even worse, advertising revenues suffered a major setback in the wake of the inception of the crisis in 2008, which affected all media sectors adversely.

 

Radio advertising revenues (in thousand HUF)

 

MEME

MRSZ (net-net)

2008

7.081

n.a

2009

n.a

8.190

2010

4.545

7.140

2011

4.618

7.409

Source: www.memeinfo.hu, www.mrsz.hu

There are differences in methodology between the surveys respectively performed by the MRSZ and the Association of Hungarian Content Providers (MEME). The MRSZ gauges the entirety of the market, whereas the MEME only takes into consideration the data of the largest players — including, in 2010, Class FM, Juventus, Magyar Rádió, and NEO FM — so the numbers will have been smaller than for the MRSZ. The trends, however, are common to both surveys: In 2011, a powerful setback, followed by a slight upturn in 2011.

The radio advertising market is hardly going to produce any spectacular and dynamic growth. According to a survey conducted by Ipsos Marketing and Media Index, the key players of the marketing communication industry are less than optimistic about the prospects of the radio market, with 65% of respondents expecting further loss of advertising revenues in this sector, and 22% predicting a standstill.

Table 3: Revenues and profits of Budapest-based radio stations

 

Net sales  (in thousand HUF)

Profit (in thousand HUF)

 

2008

2009

2010

2008

2009

2010

Advenio Zrt (Class FM)

90 030

2 434 154

– 257 640

225 188

FM1 Zrt (Neo FM)

73 971

1 143 574

-74 444

-694 427

Juventus

533 751

411 173

411 942

-24 648

-135 623

-143 837

InfoRádió

678 055

669 216

579 687

-47 998

-60 785

-34 799

Klubrádió

876 170

656 734

447 536

-39 800

-177 917

-198 834

Műsor-Hang (Gazd. Rádió)

303 227

172 705

34 794

– 117 291

FM-4 (Mária Rádió)

24 985

51 924

54 418

-27 224

-13 149

-8 179

Aeriel (Klasszik Rádió)

12 544

5 274

12 899

-1 762

-14 431

-29 370

Lánchíd Rádió

109 743

262 740

404 172

– 267 302

-96 190

10 295

Start Média (Rádió Q)

24 001

63 507

49 683

-75 841

-15 738

-19 498

Magyar Jazz Rádió (Jazzy)

95 781

77 543

73 075

-13 382

-9 030

353

Magyar Katolikus Rádió

39 860

51 512

28 048

-34 351

-27 258

-17 172

Source: http://e-beszamolo.kim.gov.hu/, Opten

Looking at the financial performance of the stations, it is obvious that this market segment is hardly a prosperous one. It goes without saying that the two nationwide commercial stations, which gained market access in 2010, realized significantly higher revenues that the district or local stations. Even so, the only venture capable of posting a profit was Advenio Zrt. (Class FM), owned by Zsolt Nyerges and widely known for its affiliation with the political right. This may or may not have to do with the commonplace fact that, in the media business, advertisement from state-run companies somehow always finds market actors close to the government that be.

The period between 2008 and 2010 saw a massive setback in revenues for most Budapest-based stations. The only exceptions to this trend consisted of Lánchíd Rádió and FM-4 (Mária Rádió), which reported considerable growth figures. Over the three years under scrutiny, both upward and downward trends characterized Aeriel (Klasszik Rádió), Start Média (Rádió Q), and Magyar Katolikus Rádió. Here it is important to note that a content provider based in Budapest may operate frequencies elsewhere in the country as well, so that the financial figures do not reflect performance in the capital alone.

The business results clearly show that most actors in the radio market produce losses rather than gain. Suboptimal business management may obviously play a part, but it is nevertheless easy to venture the conjecture — one actually borne out by reports from the field — that several stations carried out a cost-cutting program just to be able to survive on dwindling revenues. One can be certain that producing losses is not the ambition of these enterprises. Therefore, there must be serious issues of profitability at work in a market segment where almost every one of the competitors struggles with a deficit.  

In light of the pertinent data, it does not make sense for the authority to impose a hefty service fee on frequencies whose operators have produced losses to date. The question then arises as to the ways in which the tendering system should be adapted to the new circumstances in a market that has sustained a major setback in recent years. The authority must either recognize the reduced ability of the market to make money and take this into account in setting its fees, or else it has to plan for and bank on an imminent end to the negative effects of the crisis and count on soon-to-be increased revenues. In any event, these media service fees amount to a mere fraction of the receipts of the NMHH, not to mention the national budget, while being capable of effectively thwarting certain stations. At the same time, the disappearance of stations like Klubradio or InfoRadio would seriously impair the diversity of the media market. In their range of reception, these stations represent a key source of news for many citizens.

It would be interesting to find out on what research or surveys the Media Council had recourse to in transforming the frequency tendering system. In vain did they identify the anomalies during the ORTT era and formulate sound principles, such as that of proportionate fee rates, they will hardly succeed in bringing about a diversified yet predictable radio market if they fail to clearly define the policy objectives underpinning the tendering system. Of necessity, this short report is confined to discussing the most important market information. The authority would surely have the resources to conduct a deeper investigation into the situation. It is of course possible that such a survey already exists. If it does, we will be keen to know the findings on the basis of which the new scheme of fees has been devised. If no such survey exists — a possibility we dare not even entertain — the tendering system must have been hammered together based on the sheer intuition of decision makers.

One question remains: What is InfoRadio going to do? Is it going to reenter the fray for the frequency it presently uses, commits to 20% music of which half will be Hungarian music, cross its fingers and hope that the Media Council will like the news-radio format after all? Or is it going to toss its business model and carry on as a community media provider, with fewer commercial breaks and more mandatory content, but enjoying the benefits of the fee waiver? Or is it possibly going to wait out the next tender for frequencies in Budapest? Appearances can be deceptive, but it nevertheless appears that each of these options is pregnant with massive risks for InfoRadio — even if the community station tenders seem to have been specifically designed with the attributes of InfoRadio in mind. This begs the question: What really is wrong with InfoRadio? Why scare it into a fit? InfoRadio and other members of its group of companies, notably the news portal Index, are remarkably autonomous media outlets in spite of the affiliation of their owners with the political right. The present tender may be a tool to bring to heel, or even to silence another voice that reaches important numbers of voting citizens without being directly subservient to any single political will. I do hope I am just seeing things. The trouble is that these “things” have always turned out painfully real in the past.