839 radio stations in 294 cities. These figures offer hope and better scale for the FM radio industry in India. But two years after the government’s policy announcement to roll out Phase III, the big players are worried about a lot of issues, including when the e-auctions will take place. We analyse what’s at stake for these players post the auctions, and how it’ll affect the future of the medium
In July 2011, the government announced policy guidelines for Phase III expansion of FM Radio Broadcasting services through private agencies. For the Indian FM Radio industry, this news felt like a new lease of life. Limited inventory, high entry fees, copyright issues were just some of the reasons which had the industry, barring some stations, struggling to break even.
However, two years later, there is still no clarity on migration fees, license fees and most importantly, when the e-auctions will take place. While 2000 and 2006 could be considered as landmark years for the private FM radio industry in India — 2000 being the year the government permitted private FM players to own frequencies and 2006 when expansion took place — the big question now is, will 2013-14 see Radio compete with Print and Television, to see who gets the biggest slice of the advertising pie?
We look at what’s at stake for the radio players and why Phase III auction is important for the growth of the Indian FM radio industry, the critical issues that plague the industry ahead of the long awaited Phase III auction and the big question: with the upcoming general elections, will the government really go ahead with Phase III at all?
HOW PHASE III WILL AFFECT THE ADVERTISERS
WILL THERE BE SCOPE FOR NICHE CONTENT?
Are smaller stations viable?
The Phase III policy extends FM radio services to cover over 200 new cities, and in addition to the current 86 cities, allows 839 new FM radio channels in 294 cities. This will cover all cities with a population of one lakh and above each. Of the 839 licences up for auction, 787 licences are in the C and D categories — cities with lower revenue earning potential. In this situation, radio operators (majority of whom are still not profitable) will bid for cities or towns that ensure revenue generation, especially at the local retail level, and not for smaller towns unless provided with an incentive.
The main deterrent for operators is the Reserve Price set at the highest bid of Phase II. Anurradha Prasad, President, AROI (Association of Radio Operators For India) and Chairperson and MD, BAG Films, says that there could be little or no bidding in certain cities due to very high reserve pricing. “For example, the reserve price for C class towns in the north zone has been pegged to Chandigarh at Rs 15 crore, which was classified as C class in Phase II,” she explains. “Today, one cannot expect C class cities like Saharanpur or Muzzarfarnagar, to have the same potential.” This anomaly is because Chandigarh in Phase II with only two frequencies up for bidding went for a high price, whereas a city like Rae Bareilly, which could be compared to Saharanpur in market size, went for just Rs 27 lakh.
Operators suggest that the reserve price for new licenses should begin at the average of all license fees including zero value bids as maximum reserve price is not viable in today’s economic conditions. Harrish M Bhatia, CEO, MY FM (radio business of DB Corp) adds, “Government policies should make Phase III option viable for investors, the cost for entering C and D towns should be such that both the bank and investor will invest. The current spectrum fees as proposed by the Indian Government shall not make them viable for investment.”
However, in an earlier conversation with IMPACT, Uday Kumar Varma, Secretary, Ministry of Information and Broadcasting, says that if out of 839 towns there are ‘x’ cities where the base price is just not low enough to attract bids, it can always be changed. “Our view is the majority of towns would be able to get competitive bids and we should be able to auction those towns. There are some towns which are not being auctioned, so those will be addressed as and when we reach that stage. So to say that the process is somewhat defective because in some cases the base price may be very high, may not be the correct position to take.”
Monica Nayyar Patnaik, Joint Managing Director, Eastern Media Ltd, which runs regional radio station Radio Choklate, says, “We want our licenses to be extended from 10 to 15 years. There is no clarity on the migration fee whether it’s applicable or not. We can just wait and watch as we’ve put all our cards on the table.”
The battle for big cities
With the majority of frequencies being seen as ‘unviable’, analysts feel that limited frequencies in larger cities and towns could go at a high cost, due to fierce bidding – especially since Phase III will see the ascending e-auction method (as in 3G auction) and not the single-step closed bid tenders, as seen in Phase II. With the go-ahead for an operator to hold multiple licenses in a city, some operators worry that bidding could reach irrational levels in metro cities. However, a few believe that the maturity the radio industry has gained over the last decade will ensure rational bidding. “The challenge is for bidders not to go overboard with their bids,” says Prashant Panday, Executive Director and CEO, ENIL, which runs Radio Mirchi. “Experience with Phase II should have shown them that radio is a cost-sensitive business and keeping bids reasonable is critical to ensuring profitability.”
Changing the inter-channel spacing
With limited frequencies in key markets, the operators have asked for reducing the inter-channel spacing from 800 KHz to 400 KHz. In other words, it means reducing the minimum channel spacing/ frequency separation between the adjacent channels’ carrier frequencies.
The Ministry of Information and Broadcasting (MIB) had requested the Telecom Regulatory Authority of India (TRAI) to give its recommendation on reducing the minimum channel spacing in the FM radio sector. The regulator on its part had said it was technically feasible to reduce the minimum channel spacing to 400 KHz, which would in turn lead to effective radio spectrum utilization. This means that the number of radio channels will be doubled as more frequencies will be available by reducing the spectrum. With more frequencies available, viewers should get to listen to more varieties of music, niche content such as talk shows and a sports channel could also be on the cards.
In fact, in its recommendation, TRAI had mentioned that this will facilitate greater consumer choice, better utilization of natural resources and would spur innovation and healthy competition and growth in the industry. However, operators believe that the government will not change the inter-channel spacing in the upcoming auction process. This is because though TRAI has given its recommendation the government has yet to accept it.
Ashwin Padmanabhan, Business Head, Big FM, RBNL shared, “It looks like the government might go ahead with current separation versus reducing the separation at least, in this phase. What it can potentially do is that in the larger cities where there are only one or two frequencies, the bidding can really go out of hand.”
What’s the bid price?
The final bid is critical as in all likelihood, the incumbent licenses could be renewed at the Phase III auction prices, whenever the auction takes place. According to Vineet Singh Hukmani, MD and CEO, Radio One, the government should let current players extend their licenses to 15 years from the current 10. “The formula for extension must be average of all licenses in the city including zero value bids prorated to five years,” he explains. “That will form the core of the ‘migration fee’ as otherwise this fee has no real value and therefore will become contentious with all players.” He adds that current players will bid confidently when their licenses are extended and brought on par with Phase III licenses.
In addition, there is no clarity on this migration fee, which allows Phase II broadcasters to migrate to Phase III license terms. As most radio operators have still to make profits, the five-year extension could help them recoup the initial investment costs. While the Phase II policy provided financial relief and a fresh license term of 10 years, neither of these benefits are offered in Phase III. This sentiment is echoed by all radio operators who feel that these issues must be clarified before the Phase III bidding begins, so that players can project their businesses better.
Currently with no policy or formulae in sight, existing players have no idea about the amount required to extend their licenses. This could also impact operators looking to raise funds for new auctions till they are able to factor in the finances that may be required to extend existing licenses. Nisha Narayanan, COO, 93.5 Red FM reiterates, “The main concern is the ambiguity regarding the migration fees payable by the existing players for migration to Phase III and extension of the existing license period for existing players. If we are not clear about these points how do we firm up our existing business plans and arrive at future funding requirements?” If a frequency were to get bid at a high price then operators who got a license at a lower price in Phase II, could end up paying the highest bid price during migration.
Is networking the way forward?
On the upside, Phase III allows networking of channels for radio broadcasters, across the entire networks and not just in C and D categories of cities. Ashish Pherwani, Partner & Segment Champion – Radio, Ernst & Young says, “I don’t think most C and D categories can afford to have their own stations. The shared infrastructure will help cut costs by as much as 35 to 40%, which is what is required.”
Radio City, one such beneficiary of networking, runs a network of five cities in Maharashtra out of Ahmednagar. Apurva Purohit, CEO, MBPL (RadioCity 91.1) says, “Ahmednagar, the whole Maharashtra belt turned to be profitable within two and a half years. Looking at the example of Radio City, I am sure that the other players will also be looking at network options. If you are allowed to network out of a city, it actually makes the whole footprint profitable faster.”
Boost for consolidation
Phase III policy also proposes the lock-in period for promoters and major shareholders to be brought down from five years to three years. This could in turn lead to mergers and consolidation in the Indian FM industry as loss-making stations could exit faster paving the way for new investors to come on board. Though most of the current operators are still struggling to make profits, Phase III could see interest from new layers, both from a media and non-media background. This is because compared with traditional media, like Television and Print, Radio is still a medium of cheaper investment.
Some sources say that while an Indian alcohol brand and a major news broadcaster showed enthusiasm, it is still not clear if these entities are still interested in the medium. Observers say that popular entertainment, music and streaming channels could look at radio going ahead. “There are a lot of synergies to be exploited from Radio for TV networks especially Music and Entertainment channels in building communities, activations and that can be effectively monetized,” says Abe Thomas, a media independent professional. “One needs to separate ‘content’ from the platform. Content can be adapted across multiple platforms, from TV to Radio to Online platforms to On-Ground activities, etc. I would expect existing media platforms to extend their content to Radio in Phase III.”
Will change be imminent?
Like Digitisation for Television, Phase III is seen to be the game-changer for the Radio industry. The industry saw the last phase of expansion back in early 2006 and the Phase III policy was announced in July 2011. While the other media have grown in the same period, Radio growth has been restricted. Some operators believe that the auction will take place in the third or fourth quarter of the current financial year. However, observers say that with elections looming ahead and government under the scanner on account of various scams, Phase III auctions may not be their top priority and the status quo will continue till a new government is sworn in.
The other factor to be considered is the continued economic uncertainty. Observers believe that players, especially small operators will be hurt if the auction is held in a scenario where the business sentiment is negative. In this case, the gainers could be the big national players backed by large corporate media houses who could walk away with the prized frequencies.
Feedback: simran.sabherwal@exchange4media.com
