Can radio companies recover the exorbitant licence fees that they have bid?
The growth in radio advertising in India has provoked a certain level of interest for a while now. Much of that was evident at the auction of the first batch of private FM phase III frequencies. As much as ₹1,187 crore was paid for 97 frequencies with the larger ones like HT Media and Entertainment Network India (ENIL) each coughing up ₹340 crore for a total of 27 frequencies. Compared to this, they paid ₹1,730 crore for 240 frequencies during the first two rounds.
Like print, radio largely depends on advertising for sustenance and the medium today accounts for 4.15% or ₹1,720 crore of the ₹41,400 crore pie. That proportion stood at 3.8% in 2008, when the total advertising spend on radio was ₹840 crore. “In more developed markets, radio contributes 8-12%,” says Apurva Purohit, CEO of the Dainik Jagran owned-Radio City, which has won bids in 11 centres taking its total presence to 39. Among its new centres are Kanpur, Jamshedpur, Madurai and Patna.
The question is how fast can these investments be recovered in the face of intense competition? Only for Delhi and Mumbai, HT Media, that owns Fever 104, has shelled out a whopping ₹292 crore, while ENIL, owners of Radio Mirchi, has spent ₹109 crore for Bengaluru. The licence will be valid for 15 years and as a part of the revenue-sharing agreement, the operators will need to pay 4% of their gross revenue each year to the government. Purohit is optimistic and points to a city like Bengaluru, which, she says, is a ₹80 crore advertising market, from ₹15 crore less than a decade ago. “Our own assumption is that, over the next three years, advertising on the medium on a compounded annual basis will grow at 14%,” she adds.
Surely, not all new entrants will make money. In a city like Patna, which brings in advertising of ₹8 crore, Radio Mirchi has remained a monopoly. With Reliance Broadcast and Radio City now set to enter the fray, it will be interesting to see if the new players can snatch away a part of the pie. In a larger market like Chandigarh, with around ₹25 crore of advertising at stake, Dainik Bhaskar accounts for at least ₹20 crore, while Reliance is much smaller. Here too, one needs to see if the entry of Radio City will change the equation.
The big advantage that radio offers by virtue of being a regional medium is its ability to bring in smaller and more local advertisers. Across media, it is estimated that the top 40 cities in India gobble up 60% of the advertising revenue. The strategy for most players is to offer a more comprehensive package to advertisers within a state, which will ensure that the opportunity is fully exploited. For instance, Radio City has a presence in Chennai and Coimbatore within Tamil Nadu and with its recent win in Madurai, it is probably hoping that it will not only bring in new advertisers but also attract bigger spends by existing advertisers wanting to target that additional market.
While that sounds good on paper, the high licence fee coupled with the fact that big advertisers are yet to spend large sums of money on the medium, private FM stations will need to gear up for a rather challenging phase. So far, growth has been just about decent on a small base and much of the optimism rests on that growth sustaining on a larger base. Besides, there are more options for listening to music today such as streaming sites. So, have bidders bitten off more than they can chew? ENIL CEO Prashant Panday says, “What people often forget is that it is better to lose a city than win it at an irrational price. Such winners bleed for many years and we saw that in 2006. I hope that they have not made the same mistake this time around.”