As the day nears for e-auction of licences under Phase III of radio privatisation, Dipali Banka finds out what major players expect, how they are preparing for it and why they are upbeat about the outcome.
In the realms of FM radio, Phase III has finally arrived. There are pros and cons attached to any new move, and the third phase of radio privatisation is no exception. While the government has taken a big step in allowing 839 new stations to cover all cities with a population of 1 lakh and above, factors like limited frequencies in metros, access to news from AIR and uncertainty over the e-auction process for new licences have kept the industry on its toes. All stations are abuzz with preparations for the e-auction, even as they wait for more clarity from the government about base price for auction and other conditions. Meanwhile, radio firms, many of which are still losing money, remain wary of mounting bid prices for radio spectrum that may not bring equivalent returns. They are likely to tread cautiously in the e-auctions.
FOR SOME, IT’S A NUMBER GAME; OTHERS WANT PROFIT, COMFORT
According to the FICCI-KPMG Indian Media and Entertainment Report 2011, players with extensive national networks like Big FM and Red FM (over 40 stations) could use Phase III as an opportunity to expand their footprint further, positioning themselves as the players with the largest reach across India. National networks with a smaller number of stations, like Radio Mirchi (32 stations) and Radio City (20 stations), may focus on building up select regional networks. Given their existing presence in metros, the national networks may look to acquire a second station to build focused formats in these markets.
Soumen G Choudhury, Business Head, 92.7 BIG FM (Reliance Broadcast Network Ltd.) says, “Quoting an exact number might be difficult; however, we will want to grow our network significantly and strengthen our reach in key cities where we are currently not present.” But for Prashant Panday, CEO, ENIL, the key word is profit. “We will look at bidding all over, but only where we believe we can make profits in the long run. We are not interested in having the largest network. We are interested in having the most profitable network,” Panday says. Even Radio City is looking at expanding its network from the current 20 to 40 stations.
Metro-focused players like Mid-day’s Radio One and HT Media’s FeverFM are likely to look at expanding their presence across metros/mini metros. In addition, they too may look to acquire a second station in key metros for focused formats while regional players may look at acquiring select metros/mini metros to strengthen the proposition of their regional networks, says the FICCI-KPMG report. FM stations of Jagran, Bhaskar and Malar groups may look at expanding their presence to cities where their group publications are already present to strengthen their position in those regions and offer a complete bundle to advertisers for their regional market.
The FICCI-KPMG report also mentions that independent stations/limited network players may look to largely focus on their existing markets, and may not bid aggressively for new licenses. They could also emerge as acquisition targets for the larger networks, as they try to acquire second station in the key metros. Eastern Media Limited, which runs two stations in Orissa in the name of Radio Choklate 104 FM, plans to confine itself to the State and would try and bid for all other frequencies available there. “As our forte in programming and content is for the masses of the State, we will confine ourselves to Orissa and try and bid for another five cities that are available here. Rather than going elsewhere to increase the number of stations, it is advisable to go where you are strong and competent,” says Monika Nayyar Patnaik, JMD, Eastern Media Ltd. New players like regional print players or music companies may also enter the sector.
LIMITED NO. OF STATIONS ON OFFER MAY UP COSTS
There could be a lot of interest in the limited stations on offer in the metros/ mini metros. However, these could push up acquisition costs in these markets. This will also spiral up bidding and have a cascading effect on smaller towns. There are only four stations being offered in metros - Chennai (1), Delhi (1) and Mumbai (2) - and a total of 19 stations being offered in nine cities under category ‘A’ which include Ahmedabad, Bangalore, Hyderabad, Jaipur, etc.
According to Panday, in a situation where auctions are conducted on the condition of scarcity, the license fees will go to irrational levels. “Then in future, the government will say that this irrational amount should become the starting point for future rounds. This will start off a cost spiral. It’s insane really. We have been talking to the government to release more spectrums before auctions are undertaken in the major markets. We have even suggested an easy way for this – simply reduce the gap between two channels from 800 Khz to 400 Khz. The government has agreed to refer this matter to the TRAI,” he said.
PANEL WILL ENSURE TRANSPARENCY IN E-AUCTION
The government has decided to go in for an e-auction for Phase III licences in order to ensure transparency in the entire process. “E-auction of licences will make the process more transparent. The government will appoint a committee to oversee e-auctions in three months time,” declared Raghu Menon, Secretary, Ministry of Information & Broadcasting, at an industry event two weeks back.
The radio industry feels that although e-auction will ensure transparent processes, it will escalate costs and make bidding unviable. Harrish M Bhatia, CEO, 94.3 MY FM says, “The e-auction process is good, open and transparent provided it has a logical way of approaching the base price. If your reserve price is very high and your number of frequencies is limited, as it is in some metros and non-metro towns, it becomes really impossible to bid on the highest bidding price of last time. I do not think anybody can really survive if they go for second frequencies in metros with such a process.”
Panday, also CEO of Radio Mirchi, feels that e-auctions are wrong not because of costs, but because all licences in one city are sold for the exact same fee. “If this happens, what is the motivation for any broadcaster to launch a niche radio station? The situation is already bad. But lone English stations came up in Delhi, Chennai and Bangalore because they had paid smaller licence fees in Phase II. Imagine if they had paid the same licence fee as the top broadcaster, would any of them have been able to launch English stations? E-auctions kill programming variety and market plurality. That’s why they are bad for media where variety is an essential requirement. E-auctions are good for telecom, roads, natural resources, but not for media,” he states.
Industry analysts feel that established players have a better understanding of the market, and good planning coupled with well-defined strategies will help them through the process. It has worked for other industries and may work for radio too. Smita Jha, Associate Director, Consulting (Entertainment & Media), PwC India says, “Given their past experience, established players will have well defined location strategies, valuations and bid strategies for Phase III. E-auction will also bring about additional transparency in the process. Though there may be slight escalation of costs, we do not expect the bids to reach astronomical levels.”
Ashish Pherwani, Senior Manager, Media & Entertainment at Ernst & Young Pvt Ltd, feels that radio companies need to address the e-auction process, as it could result in increased payouts. “They will need to pre-determine ‘must-have’ frequencies and then adjust budgets in real time during the bidding process,” he says.
WANT TO INVEST IN STATIONS? IT’S EASIER THAN BEFORE
A few government decisions have actually made ownership of radio stations and transfer quite flexible among players. Reduction in the lock-in period of shareholding of promoters/majority shareholders from the present five years to three years will give them greater freedom to change the shareholding pattern. This reduction in the lock-in period will help increase investments in radio companies and get in new investors post launch. Also, unprofitable or non-serious broadcasters who are interested in exiting the radio business will have an option earlier now.
Alongside, FDI in radio has been increased from 20 to 26 per cent. “The radio industry is fundamentally strong, but simply raising the FDI by 6 per cent will not make it more attractive to foreign investors. Without resolution of the royalty issue, extension of the licence period, etc., investors may still shy away,” says Rana Barua, Chief Operating Officer, RED 93.5 FM Network. What this will do is allow investors to have a veto power in the management. “Now, 26 per cent will give investors a blocking right and will allow them to have a veto power in management. However, 26 per cent still deters a lot of big players. Foreign investors are still hesitant to put their money in radio here but overall, it is better than having only 20 per cent, where you hardly have any control,” states Timmy Kandhari, Leader - Entertainment and Media Practice, PwC India.
“Radio is considered a sunset medium in developed countries, so global radio companies’ interest in investing in radio in India may not be high. Increasing the FDI limit by 6% won’t excite them too much, either,” says Pherwani, adding that foreign interest will largely depend on whether the foreign investor prefers a controlling stake, or is willing to take a minority stake now and play the waiting game and see if investment limits are increased in future. With 26 per cent FDI limit, we might see companies taking strategic stakes in radio businesses here.
MORE NETWORKING SET TO CUT OPERATIONAL COSTS
The government has allowed networking of channels within a private FM broadcaster’s own network across the country instead of in ‘C’ and ‘D’ category cities only of a region allowed at present. This means that radio stations will be able to reduce their operating costs for number two and three ranked stations in smaller revenue markets. Radio has very high infrastructure costs and small stations would be unviable if they had to be completely independent operating stations. Networking on a regional basis, especially, would allow for better cost efficiencies without losing out the localisation of the medium.
Music royalty is still the bane of smaller stations in the country. While a recent high court judgement has provided relief to the industry, people are praying for a compromise soon, ideally before the auction process starts. This becomes critical as the majority of the stations on offer are in Tier II and III cities.
NEWS BULLETINS, MULTIPLE FREQUENCIES TO ADD MORE BUZZ
Two things approved by the government will encourage content differentiation - one is allowance of news broadcast by FM stations which now have to source it from All India Radio (AIR), and the second is allowing ownership of multiple frequencies in one city.
While news broadcast on private FM stations is an acknowledgement of the medium’s reach, the industry would have preferred it if it would have been allowed the freedom to package it in keeping with overall programming and brand. Most players in the domain are large media houses having a presence in news publishing and broadcasting on television.
The industry very well knows that news on radio in its current form may not generate increased revenues. Radio content is largely undifferentiated at this time. Multiple frequencies will allow for further content innovation, focusing on different age groups. “Internationally, major cities have 5-6 times the number of stations that we currently have and we too need to make place for more talent. There is scope for more channels in our large metros and this step should make radio a better medium for new as well as existing players,” says G Krishnan, Executive Director and CEO, TV Today Network which runs the station Oye! FM in seven cities including Delhi, Mumbai and Kolkata. This group had earlier explored the idea of a women’s talk radio station with Meow FM. Later, the group rebranded itself and positioned it as a Bollywood station in September, 2010 in line with the rest of the industry. Now, with multiple frequencies available, companies can actually venture into niche channels. “Stations focused on youth and women have good potential. Business and sports will also emerge as exciting categories. There is dearth of content on current affairs / talk shows, etc. The industry is at an inflection point and there is potential to create the next Oprah Winfrey on radio,” says Choudhury.
Jehil Thakkar, Executive Director (media and entertainment) at KPMG India feels multiple frequencies may also lead to mergers and acquisitions in the domain. “For the very fact that you are allowed more than one station, you might see some M&As happening down the road, even with existing licences. Earlier, it was inhibited because multiple frequency ownership was not allowed. So, with limited number of licences in the metros, we could see consolidation taking place over a period of time,” adds Thakkar.
WHAT WILL PHASE III MEAN FOR ADVERTISING ON RADIO?
The interplay of mobile and radio penetration will see a host of new applications, content and engagement with audiences across demographics. With expansion of FM radio to 300+ cities, FM radio will now touch 90 per cent of the Indian population, making it truly a common man’s medium. “We were in any case expecting the radio share to grow by 10-15 per cent, and indeed it has. Despite the recession, the medium has grown more than the rest of the industry, also because the base was small. With Phase III, we are expecting an average 25 per cent year-on-year growth, so we expect the medium to double from Rs 1,000 crore to Rs 2,000 crore in the next four years, and hence become 6 to 8 per cent of the total ad pie,” believes Apurva Purohit, CEO, Radio City.
However, media planners are not very optimistic about significant increase in the advertising pie of radio immediately. Janardhan Pandey, Associate VP, Mudra Max–Media, says, “Phase III will surely add dynamism to the radio medium and expand the market geography/ listenership exponentially. However, I do not see a sudden jump in the advertising spend in these stations from national advertisers. They will first get patronage from local and retail advertisers and then, investment from national advertisers will follow. Putting money here will be a very cautious decision.”
On increasing the overall advertising pie of radio, he says, “This will not push the current level of advertising spends much further. The total ad spend in radio is estimated to be around Rs 900 to 1000 crore maximum. This can go up to 1200 crore in the next three years at best. Radio has lots of ground to cover and lots of competition to face from other existing as well as emerging media such as digital, OOH, innovative media offerings and regional/local TV.”
Sejal Shah, EVP, Vivaki Exchange reiterates Janardhan’s view by saying that the expansion may give marketers another medium to reach out to lower markets at an affordable cost, but it may not increase the overall advertising pie significantly.
RADIO MEASUREMENT MATRIX HAS LIMITED REACH
Another issue that always comes along with radio advertising is measurement matrix. The industry has two major measurement tools, Radio Audience Measurement (RAM) and Indian Readership Survey (IRS). The low frequency of IRS data collection means that only ‘snapshot’ data is available and trends are lost. In the case of RAM, the tool has limited coverage currently in the four major metros of Delhi, Mumbai, Bengaluru and Kolkata.
For smaller regions, marketers have been referring to IRS to some extent along with market feedback and their own commissioned research to get data points. Praveen Kulkarni, GM Marketing, Parle G, says, “We have been spending consistently on radio for the last four to five years. And with this expansion, our mass brands like Parle G and 20-20 will definitely get a new medium to reach out to more towns through radio. Currently, we follow IRS data for smaller regions and I think we will continue to do that. We also conduct surveys from time to time to know whether people in those regions have heard our advertisement.”
Asked how RAM is poised at the point of Phase III expansion, Pradeep Hejmadi, Sr. VP, Marketing, S – Group & RAM said, “We are planning to expand RAM’s presence in nine additional markets, that include Chennai, Hyderabad, Ahmedabad, Pune, Nagpur, Indore, Kanpur, Lucknow and Jaipur. “
However, with 227 new cities getting activated, measurement will keep haunting the industry. “I don’t think we will have any solid and robust measurement mechanism in place for the new stations in the near future,” said Janardhan Pandey.
UNANSWERED QUESTIONS, HURDLES AND DILEMMAS
More clarity on the policy, the process and conditions of auction and migration from Phase II to Phase III are yet to be given by the government. Until then, the industry will not have a concrete strategy in place. As Rajeev Nambiar, CEO, Hello FM puts it, “There is still no clarity on the policy, migration from Phase II to III, AIR news access, the roll-out process, etc. There is also a lot of ambiguity on the acceptable reserve price for the auction. Unless these issues are cleared, we will not get a clear picture about Phase III. The level playing field that policy has to bring in for radio is still not there. Collectively, we radio operators need to coax the Ministry of Information & Broadcasting to review the expansion formula and the economics for radio to thrive amongst other competing media. Maybe in a few weeks, we can hope to have better clarity.”
The biggest challenge of the industry will be the process of bidding. Once the bids are done, radio companies will need to bolster their ad sales and programming systems. The sheer volume of inventory coming into the market will result in competitive pressures to reduce rates, which, historically, have taken radio a long time to increase. People will play a key role. The industry will need three to four thousand more people at least. It’s going to be recruiting and training people for a long, long time.
Feedback: dipali@exchange4media.com
