Fresh huge investments by broadcasters in Phase III seem doubtful, since the current players haven't succeeded to make monetary gains from Phase II. Apart from a few broadcasters, not many who spent exorbitant amounts for acquiring licenses have been able to milk their businesses. Players have to plan their investments as they are liable to renew their licenses acquired in phase I and phase II which would lapse on completion of ten years and would be open for rebidding.
Players in the first phase - Radio Mirchi with seven frequencies, Radio City with four, Red FM with three frequencies, Radio One, Vishaka FM, Power FM, Aamar FM would have to renew their licenses. Radio broadcasters had invested exorbitant amounts towards setting up of infrastructure and haven't yet recovered costs and only a few have managed to break even. In the current scenario where only the metros seem to be contributing towards profitability of the network, it is a question if broadcasters would like to sail in murky waters by investing in the smaller towns.
Walk into earlier phases
Going back, phase I saw city-based licenses being granted for 108 stations in 48 cities. Phase I auction was done in an 'open bid' process allowing eligible bidders to raise bids in a common forum. This was changed into 'closed bidding' in Phase II licensing where bidders submitted sealed bids for each station and the top bidders were granted licenses.
101 bids were received, aggregating to a license fee of approximately Rs.4.25 billion. [Source: FICCI Ernst & Young Report, 2004]. However, 64 of the bidders defaulted, as a result of which only 37 frequencies were allotted, corresponding to a total license fee of Rs. 1.59 billion. The unusually high license fee structure and year-on-year annual escalations of 15 per cent hampered FM radio growth in the country.
For reducing the burden on the radio broadcasters in Phase I, the fixed license fee structure was changed into an annual revenue sharing arrangement along with a one-time entry fee.
With a shift from fixed license fee to revenue share model and addressable of other issues of Phase I, the radio industry looked at next phase of bidding positively. In Phase II, cities were classified into 5 categories (A+, A, B, C and D) and around 250 private FM radio stations were initiated. For increasing the economic viability of stations, TRAI recommended that the restrictions on networking of programmes within the same operator across cities be removed. This would decrease the operating costs and help FM radio attain economies.
According to the Ernst & Young report, amongst the major players only one, Entertainment Network India Ltd. (ENIL) has shown some profitability, with most of the others unlikely to do so in the near future.
Although it is touted as the cheapest medium, radio advertising hasn't gained impetus in India. Of the total advertising spend in India, the radio industry's share is around three to four per cent. This share is expected to rise substantially over the next few years, mainly due to the wide reach in the phase III and the interior markets offered by the medium.
PricewaterhouseCoopers in its report "Indian entertainment and media outlook 2009" projected the radio advertising industry to grow at a CAGR of 18 per cent over 2009-13, reaching Rs 19 billion in 2013 from the present Rs 8.3 billion in 2008; more than double its present size. In terms of share of ad pie, it is projected that the radio advertising industry will be able to increase its share from 3.8 per cent to 5.2 per cent in the next five years.
Industry observers point out that radio broadcasters are not concentrating on growing the medium and in a competitive scenario are merely eating each others' revenue. Radio broadcasters discount their inventories and offer lower competitive prices to get advertising shares from competing players, they aver.
The bottom-line of radio industry hasn't increased and the sector needs to create value proposition for the medium, is the consensus.
The burning issues
The biggest concern for operators is that of music royalties and the third phase has been delayed mainly because the issue stands unresolved. Both the radio and the music industry are eyeing the next copyright hearing scheduled for 14 December for a solution to the music royalty issue. Absence of a nationwide radio measurement metric is restricting the potential of the medium. Radio Audience Measurement (RAM) is currently available only in four metros and the non availability of the measurement in other cities and small towns poses a hindrance for media planners to include radio in their campaigns. Also, the current allegations of the radio broadcasters about the inconsistent data from RAM has stirred the air in the advertising sector regarding the reliability of the weekly data.
As Phase II regulations do not allow radio broadcasters to own more than one frequency in a city, the industry has been pushing the issue with the ministry, as well as lobbying for multiple licenses citing differentiation issues, and increasing the current FDI limit of 20 per cent to 26 per cent.
As broadcasters press for allowing news on private FM, the Information and Broadcasting minister Ambika Soni last month suggested that a via media should be found where the channels can be permitted to broadcast some programmes other than just playing music.
If the ministry does indeed succeed in addressing the issues recommended by the radio industry, the radio players just might hit the jackpot with Phase III.
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