31 JANUARY
THE NEW ZEALAND GAZETTE
411

below. Some evidence or argument relates to more than one of the
matters but may conveniently be discussed under one heading.

(a) The extent to which the proposed service is desirable in the
public interest

United saw itself as the only applicant who would provide a new
and distinct programme, a new radio atmosphere and quality for
a distinct new, underserviced audience. It also advanced
the advantage of new advertising formats and programme sponsorship
schemes.

Its claim was a courageous one based on what it saw as an
identified upper income growing market not served by present
commercial radio. We believe the programming would serve a small
audience which is partly served by non-commercial services of the
BCNZ and partly by 2ZB.

We do not accept that there would be any significant increase in
listenership. The company may well appeal to people who are not
heavy radio listeners. Those who are heavy radio listeners will still
find much of what they want in the more heavily talk oriented
programmes of Radio New Zealand’s 2YA and 2ZB.

In terms of desirability, there is no doubt that it would bring an
additional service to the Wellington community. The extent to which
that service may not be served by 2YA, 2ZB, 2YC and Radio Rhema
does leave an opportunity for some programming enterprise. But
the type of audience they seek will not adapt quickly to the FM
mode. Such a station may succeed in attracting a satisfactory
audience some years later when FM has become a more familiar
process of listening. All the experience is that the younger audience
is the first to shift to FM.

The Windy FM proposal was based on a known quantity (Windy
AM), having the people and money to experiment from a position
of strength. It was based on the premises that the Wellington
audience was more oriented to talk-back and non-commercial radio;
ZM-FM would take some audience; the segmented market is well
exploited; there may be impact from a Horowhenua station; and
coverage problems. The new element was beautiful music on FM.

During the other daytime and evening segments, a new service
would be provided directed to an older audience which would not
be substantially attracted to the ZM format. For the person who
continued listening on AM or FM the format would change, not
just because of the type of listener being served from time to time
but because the station was going on or off simulcasting. We do
not consider this would satisfy either the AM audience, which would
further diminish, or the FM audience which would be moved back
on to a more talk-oriented AM format during drive time or breakfast
time.

The proposal suffers from not offering a consistent alternative
FM music based approach. While simulcasting reduces costs, we
believe it would at best be only a halfway house which the applicant
is not prepared to move out of in even a short period. It is an
unconvincing compromise.

Wellington FM aimed at an adult (primarily 25–44-age) group.
It intended to feature an even mix of easy listening soft rock, music
of the 60’s and 70’s and middle of the road current music. It put
it forward as a known, tested and accepted programme format and
one which is found in most metropolitan centres. The individual
music tracks would be selected to appeal to the 25–44-age audience.
The programme was criticised as essentially the same as Radio
Windy AM and therefore offering no alternative to listeners in the
Wellington market. The applicant pointed out that the music would
be broadcast in the FM mode which was fundamentally an
alternative. The question of complementarity should lie within the
proposed FM programmes, not as between AM and FM. The
company said it would be virtually impossible to establish a
commercially viable radio station in Wellington without there being
some overlap with at least another existing station.

The Wellington FM station would be music oriented with a much
higher proportion of music than Windy. It would also be less
personality oriented.

We concluded that the two most desirable proposals in the public
interest would be the proposals of 2ZM and Wellington FM. Both
provided a recognised appeal and the fact that some of the music
was the same as an AM station which also offered other services,
including much more talk, does not deny the validity of the
Wellington FM case.

(b) The economic effect which the establishment of the station to
which the application relates is likely to have in respect of
broadcasting stations already in operation

There was a conflict of evidence as to the amount of “room in the
market”.

Wellington FM pointed to a past continual increase in real terms
of revenue for radio in the Wellington market which would continue
and would help to sustain a new entrant. United claimed that the
additional audience it would bring and the fact that some came
from non-commercial audiences, would have less impact. It was
generally agreed that the transfer of 2ZM to FM would cost the
Corporation some loss of audience and therefore some loss of
revenue. Radio Windy put forward its proposal as being that which
would, together with the transfer of 2ZM to FM, provide the best
service with the least impact on existing stations.

We cannot possibly traverse all the evidence that was given to
us on this topic. What we can say however is that while we do not
entirely accept that the Wellington market is as tight as Mr Gold
for Radio Windy and Mr Dunlop for the BCNZ would propose,
we do not believe it has much more in the way of consistent growth
potential in real terms.

Putting that growth to one side, we believe that Mr Dunlop’s
analysis of the effect of each proposal on each of the existing
operators was a convincing analysis even though it is quite
impossible to predict with complete certainty the effect which might
in fact follow due to the repositioning that tends to occur as existing
stations respond.

Mr Dunlop argued that there was no room for another commercial
operator for several reasons. He said that Wellington is a more
competitive trading market than Auckland and he believed a
practical level of untapped revenue for a fourth station does not
exist. His evidence was that two of the existing operators, Windy
and ZM, had been swinging in and out of profit and that the
Wellington market could not support even 3 stations consistently
in profit. If a fourth commercial music station operated then at least
one station would be consistently in loss.

Mr Dunlop claimed that commercial stations in Wellington
already existed on fewer people per station than Auckland (86 666
compared with 91 057). He also said that the retailers’ turnover per
capita in Wellington was 14.5 percent less than Auckland.

He calculated that Wellington stations extracted 14.2 percent more
advertising revenue per capita than in Auckland. When advertising
revenue was compared to retail trade turnover, Wellington was 33.7
percent more efficient than the Auckland market in extracting
advertising revenue already. He considered that if there was more
money available, existing stations would have found it as they needed
it. However, he did agree that there was enough revenue available
for 4 operators if it were carved up differently.

At present 2ZB gets an extremely large proportion. Because of
the success of 2ZB it is not necessarily the most vulnerable to
significant losses of audience share but its high earning rate per
percentage share of the market ($67,483 compared with ZM $45,321
and Windy, $54,862) exacerbates the financial effect of every
percentage point lost.

Mr Dunlop’s analysis for the 1982–1983 year showed the effect
on the Corporation and Radio Windy in the estimation of the grant
of warrants in various combinations. If warrants were granted to
ZM and United, the effect on the Corporation would be $316,000
if United only achieved a 6 percent share and $631,000 if it achieved
a 10 percent share. In each case the major effect is on the
Corporation’s 2ZB income, which would be reduced by $270,000
or $540,000 respectively.

The effect on Radio Windy would be $55,000 if United achieved
a 6 percent share and $164,000 if it achieved a 10 percent share.

Mr Dunlop calculated that if Wellington FM was granted a warrant
and achieved a 7 percent share, its effect on the Corporation would
be to take $271,000 in revenue but it would take $274,000 from
Radio Windy. If they achieved a 10 percent share the figures would
be $384,000 and $329,000 respectively.

Mr Dunlop said the effect of Radio Windy FM simulcasting and
achieving a 5 percent increase over Windy AM, would cost 2ZB
$337,000 and ZM $91,000, a total of $428,000. Windy would
improve its revenue by $230,000.

It will be seen therefore that the impact of United at its calculated
initial audience of 10 percent (which Mr Egerton considered
reasonable) would be $631,000 on the Corporation and an effective
$164,000 on Radio Windy.

We do not necessarily endorse Mr Dunlop’s analysis with the
absolutism with which he tended to defend it, but we think it is
sufficiently cogent to indicate the type of effect on the other stations
of the grant of warrants in various combinations. Wellington FM’s
reasoning for room in the market was commented on by both Mr
Keane and Mr O’Brien. We accept that there is substance in many
of those criticisms. But we believe enterprise and determination
combined with skill and experience can tend to improve revenue
slightly each year in real terms.

We deal with the effect on the Corporation more conveniently
under the next heading but it is clear that Radio Windy FM proposal
would not adversely effect Radio Windy AM plus Radio Windy
FM combined in terms of total revenue. The granting of the ZM
FM warrant would have a minimal effect. Any other proposal other
than United at 6 percent would have the effect of putting Radio
Windy into a serious financial loss situation.