Talk about the perfect radio face. Mumbai RJ Jeeturaaj makes it a point to remain hidden from sight, even when he’s photographed with celebrities. You may see his back, his headphones strategically placed in front of his face, his arms decked with a multitude of beaded bracelets, and his surprising taste in clothes, perhaps an occasional side profile or a view of reflective sunglasses, but you won’t get a glimpse of his face. The Radio Mirchi RJ is so fanatical about staying anonymous that a few months ago, when he performed live in Zurich after winning the Sound of India contest, he wore a cardboard boom box over his head — still, people took it in their stride since the boom box head is the symbol of the International Radio Festival. “Brand Jeeturaaj is very different from Jeeturaaj the person. What you hear on radio isn’t the person,” says Prashant Panday, CEO of Entertainment Network India (ENIL), which owns Radio Mirchi.
His most popular RJ may shun the limelight, but Panday has no qualms about tom-tomming the company’s achievements. Well, he does have plenty to exult about. With 32 stations across 14 states, Radio Mirchi may be only the third-biggest national player, behind Red FM (47 stations) and Big FM (45), but it is the leader in the Indian radio market, with over 30% revenue market share. More importantly, this 15-year-old subsidiary of Bennett, Coleman (BCCL) group company, Times Infotainment Media, is among the very few profitable FM radio firms in the country, alone accounting for nearly 75% of the industry’s Ebitda. “During my tenure as CEO, we have doubled our revenue compared with the next broadcaster and have perhaps grown our Ebitda five to six times. Our clients are happy with the fact that we are a solutions provider rather than a mere vendor of free commercial time and our shareholders have got good returns on their investment,” says Panday, who has been with ENIL since inception and took over as CEO in 2007. Sounds like a perfect symphony, doesn’t it? So, what accounts for ENIL’s golden run and can it continue winning at the same frequency as the FM radio industry heads towards phase III?
Tuning in
But first, some background. While FM radio in India has been around since 1977, it was the monopoly of the state-owned All India Radio until July 1999, when the government decided to allow private players to enter the FM radio business. In the first phase, open, ascending auction led to speculative bidding that, combined with a 15% annual hike in licensing fee, proved disastrous for the budding industry. Of the 121 licences on offer, only 21 became operational, while small players in Rajasthan and Kolkata soon moved the dial to ‘off’.
In 2006, the government again auctioned spectrum, this time with a one-time fee and revenue-share arrangement. This time, 245 licences were granted to 38 companies in 86 cities. But the aggressive bidding and the pressure on ad rates have ensured that most radio companies in India are still struggling — while some players such as the Zee group surrendered their licenses within a couple of years, others are still reporting losses or minimal profits. “Radio Mirchi is the only FM radio station to have consistently reported operating and net profits for the last seven years,” says a December 2012 CII-E&Y report on the FM radio industry in India. In FY13, ENIL had a profit of Rs 68 crore on a revenue of Rs 338 crore, a 20% increase over the previous year.
It turns out that ENIL has been hitting the right notes since its inception. For starters, it was a cautious bidder in the FM auctions. ENIL cumulatively spent Rs 326 crore in the first two phases, but by bidding for only those circles where it felt the returns justified the investment, especially in category A and A+ towns, the company lost out on areas such as Chandigarh, Patiala, Agra and Kochi. But what it lost on the swings, it made up on the roundabouts: Panday quotes IRS data that shows Radio Mirchi is the No.1 player in revenue terms in all 32 cities where it is present. “ENIL is one of the few companies that participated in both phases of auctions. It has an enviable network and circles, including lucrative category A and A+ circles that many others don’t. It has also built up a strong brand for itself,” declares Tarun Katial, CEO, Reliance Broadcast Network, which runs the radio channel Big FM.
In terms of listenership, too, Panday points out that Radio Mirchi is No.1 in 22 cities and No.2 in eight — it has the highest number of listeners in the industry at 38 million, compared with 22 million for Red FM. That is a result of Radio Mirchi’s programming mix, believes Naval Seth, research analyst at Emkay. “The kind of music being played, the timing of the shows and the RJs all contribute to the popularity of the shows and, at the end of the day, it is the attractiveness of content that retains listeners,” he points out.
That’s especially significant when you consider the restrictions on programming content. According to current rules, private FM channels cannot broadcast news, live sports or weather bulletins.
“Most stations provide the same genre of content. Furthermore, given the large amounts paid to acquire licences, the content must appeal to a large audience base to most effectively monetise investments and therefore, radio stations generally broadcast content and formats that have mass appeal,” says the E&Y report.
Still, Radio Mirchi has managed to differentiate itself. It was the pioneer of the retro music genre in India, with its evening programme Purani Jeans (now, some channels such as Radio One in Kolkata and Ahmedabad and Big FM have gone completely retro). The positioning is also consciously positive: “Like the group’s broadsheet, The Times of India, our jocks consciously look for positive subplots in everything. Radio Mirchi is like a pep-up pill for its listeners,” says Panday. That is echoed in the tagline: Mirchi sunnewale always khush.
Panday also emphasises the localisation of content when it comes to jock talk. The breakfast shows on Radio Mirchi are the main driver of listenership, so the emphasis on local conversation is more apparent here — the production team and the RJ usually refer to a variety of sources to gather material for the show, always with the filter that it should be appropriate and relevant to that city. Content for the rest of the day is more generic, but local touches come in through the jock talk, local lingo and interactive sessions with listeners.
Radio Mirchi also depends heavily on research to ensure that the company is on the right track. Proprietary research before launching a station offers market insights, while ongoing research — including peeping into cars to see which radio channel is playing — ensures that the channel is on the same wavelength as its listeners. It is also one of the few FM channels that has an online as well as mobile radio presence, with four mobile stations and nine internet radio stations, each catering to a different genre such as modern Bollywood, Hindi retro, Western music and club mixes. “In a year and a half, we have had over 200 million streams on these stations,” says Panday.
Good vibrations
If Radio Mirchi’s content has brought in listeners, they, in turn, have attracted advertisers. At present, the channel has over 5,000 clients and at Rs 10,000 for a 10-second spot on all 32 channels, its advertising rates are the highest in the industry. It’s still lower than the 2008 peak of Rs 12,500, but with radio inventories fully exhausted, Panday says rate increases are a certainty, going forward. “This year, with political advertising expected in big dollops, we believe overall pricing will climb,” he adds.
It helps that ENIL is part of the BCCL stable. Getting access to clients becomes a whole lot easier, as is recovering payments from sticky clients refusing to pay up on time. “Being part of the Times Group allows ENIL access to preferential rates in advertising, access to private treaty clients and the ability to cross the moat on other media vehicles,” says Rahul Gupta, CEO, Radio Mantra, which has eight stations in four states in north India. About half of Radio Mirchi’s clients are also advertisers with newspapers, and like other radio companies, ENIL’s top advertisers are real estate, retail and travel companies and government agencies. There are no annual contracts and seasonal campaigns are the norm here. “Nearly 55% of our revenue comes in the second half, when most companies intensify their campaigns compared with the rest of the year,” says Panday.
Radio Mirchi doesn’t offer just plain vanilla advertising. ENIL has developed a basket of non-radio products such as digital activations, TV properties and multimedia solutions, which constitute nearly 25% of its revenues. There’s also a captive creative unit that creates customised radio campaigns for brands, working on everything from creating on-air spots to on-ground activations and promotions and viral campaigns. For instance, for Idea Cellular’s ‘save trees’ campaign, the channel launched a ‘paperless’ ride over the Bandra-Worli Sealink: listeners would get SMS toll receipts that the sealink operator honoured. Then, when Pepsi was creating a new jingle, Radio Mirchi invited listeners from Hindi-speaking markets to send in their compositions and brought in Bollywood composers Vishal-Shekhar to the studio to compose music for these lyrics. The result: while the industry grew by 10% y-o-y in FY13, ENIL grew faster, at 12.3%, improving its revenue market share in the process.
Cash call
Overall industry growth has meant that the others are cashing in as well. There’s been a steady rise in advertisers, which has led to the industry growing from Rs 830 crore in 2009 to Rs 1,460 crore in 2013, a CAGR of over 15%, which is higher than all other traditional media segments, according to a Ficci-KPMG report. Over the next five years, the industry is expected to grow even faster at 18%, and cross Rs 3,360 crore by 2018. Despite those impressive numbers, radio remains a very minor player in advertising, accounting for just 4-4.5% of the total advertising pie, although it’s still an improvement over the 1.4% of 2005.
For most advertisers, radio is an add-on medium or even used to clean up whatever’s left of the ad budget. But it also has its share of admirers. “Across the Aditya Birla financial services group, we ensure we invest in radio as it is a great medium for consumer engagement and helps us stay in the mass media for the greater duration of the year in a cost-effective way. Its reach extending to tier 3 and 4 towns will only present more opportunities for us,” says Ajay Kakar, CMO, Birla Sun Life.
While it will be a long while, if ever, before radio becomes a worthy competitor to television and print, it’s already come a long way. “Five years ago, radio was an afterthought for advertisers while allocating budgets. Today, advertisers have come to understand the efficacy of radio as a medium through experience and the efforts of radio broadcasters,” says Jehil Thakkar, partner and head of the media and entertainment practice at KPMG India. For his part, Panday believes growth in media comes from growth in supply, which means radio is likely to see explosive growth once phase III is implemented.
New frequency
There is a lot riding on the phase III auction of FM radio licences, whenever it happens — it’s been delayed three years already. With this, radio will move out of the current 86 tier 1 and 2 cities to 294 tier 3 and 4 towns with a population of 100,000-300,000, exponentially increasing the reach of FM radio in India — only 50 of the 800 frequencies offered are in category A and B cities; the rest are in C and D towns. Moreover, broadcasters will be allowed second and third frequencies in A+ cities, leading to differentiated content targeting different consumers; smaller cities can also be networked with big ones, saving on operational costs. “If a broadcaster has to create different content for all his stations, it is prohibitively expensive. Network sharing will prove a boon for all players,” says Thakkar. Big FM’s Katial puts the phase III expansion in perspective. “This will enable radio to get a greater share of advertising, from the current 4% to 7-9%, as a result of greater reach across India as well as differentiated content, which will pull in new advertisers,” he says.
And how is Panday planning to make the most of it? Under phase III, ENIL will “definitely” bid for the single FM frequency in Delhi and two in Mumbai, in addition to smaller towns around the country. “We don’t necessarily want to have the largest network but we want to be the biggest in revenue and profit,” says Panday. The capital cost of setting up a new station is between Rs 1 crore in small towns and up to Rs 6-8 crore in metros, while operating costs for a small station fluctuate between Rs 70 lakh and Rs 1 crore a year. “If revenue potential of a town is less than Rs 1 crore, we aren’t interested,” he says. The target for the new stations is the same as it was for phase II: break-even at the Ebitda level in six to eight quarters. The bid for new cities, then, will be made only at prices that are viable.
That looks difficult as phase III will also be an open, ascending auction and the reserve price for circles has been set based on the highest rate received for a similar city in phase II. That means all C circle cities, such as Bilaspur and Aligarh, will have a reserve price of #15.6 crore, since that is what the C-circle Chandigarh licence fetched last time. “E-auction is fine for sectors such as metals and telecom as there is not too much product differentiation there. But in radio, if every bidder has to pay the exact same amount to win a licence, how will differentiated products emerge? The reserve price is too high and will lead to failure of the auctions,” declares Panday. He is tight-lipped about which small towns Radio Mirchi will target, only saying that the company is following “scientific models” to estimate revenue potential, cost structure and profit margin of potential locations.
Panday is more open when speaking about the potential phase III brings. “If we have a station in a tier 3 town, we can provide advertisers with lower pricing than a tier 2 city and tailor-make content for the area. There is definite interest among both national and regional advertisers,” he says. That’s a thought echoed by Thakkar. “Expanding into smaller towns and cities means you offer much wider coverage to advertisers. If you don’t have a presence, you will lose to your competitor,” he says.
It is this confidence that is driving ENIL’s ambitions: it aims to double profit and revenue in the next three to five years and increase its revenue share from non-tier 1 cities from the current 33% to 50% over the same period. Panday is already looking beyond phase III. He’s counting on the benefits that will accrue if the Telecom Regulatory Authority of India’s recommendation of halving the gap between frequencies to 400 kHz is accepted — that could lead to metros having 10-15 FM stations each. “Imagine the programming options we could create to attract advertisers. We could have two or three different formats in English music, vernacular shows — Marathi in Mumbai, Punjabi in Delhi — radio talk shows, etc. These could be monetised by making sure the new channels target new audiences,” he says. That’s a long way away, but if it happens, Radio Mirchi will certainly be “always khush”.
