Sound Check

Lessons the Indian radio industry can learn from the slowdown

The current economic slowdown in the economy has forced radio companies to re-look their business strategies and operations. Most players invested efforts to cut down costs through business process re-engineering and employee cost rationalisation. Several succeeded in this.

But the question remains – will radio be able to survive the next slowdown?

Given that an ounce of prevention is better than a pound of cure, I list below some of the main lessons radio companies learnt during the slowdown, which I have gathered through my discussions with them.

Exploring alternative revenue sources

Radio has to explore alternative revenue streams to spread its revenue concentration risk. While currently, most radio companies have around 90 per cent of their revenues being generated by as sales, this number must come down to around 75 per cent in the long run. Activations, large format televised events, database management, interactivity revenue, digital revenue, innovative marketing tie-ups, etc., are a few of the non-ad sales revenue streams, which a radio company can tap, depending on its listener base. It helps offering clients the ability to explore alternate ways of creating brand awareness and helps them improve their brand visibility multifold with a little additional cost.

Advertiser funded production

Several niche TV channels have exploited the AFP concept very well, reducing the overall cost of production. These are typically done on a cost plus basis, and result in a win-win situation for both the medium and the advertiser. Radio could start looking at innovative AFPs, particularly on news (if and when permitted), countdown shows, celeb interviews, chat shows, etc., to reduce production costs.

Concept and tactical sales

Marketing costs are the first to bear the brunt of any economic slowdown. This has proven true during current times as well. The industry responded by large and frequent reduction in ad rates. This sounds to be the simplest of strategies, especially when the ad rates had peaked during the boom period. However, existing radio players need to remember that dropping rates could be easy, but building them up again is very difficult, given the increased number of players in the industry. Companies could consider the following approaches:

• Build a team that could enhance innovative brand-led concept selling, with benefits for the marketer to demonstrate. Such sales tend to have a lower impact in the case of downturns and slowdowns. Companies could aim to get a quarter of their revenues from such sales.

• Ad sales teams could work towards more tactical sales. In today’s strained marketing environment, radio could prove more cost-effective than TV when supporting regional promotions and consumer schemes. Sales teams need to develop relationships with sales and marketing heads, and drive revenue to tactical radio support to such customer promotion schemes.

Go to the gym, regularly

With reduced business volumes, recessionary times forced all companies to revisit and re-engineer their key business processes; re-look at costs. But, why wait for a slowdown to do this? It’s a good idea to periodically look at all the flab, and identify costs that can be either reduced, passed on to others, or eliminated.

Don’t mess with content

Content is king, right? But several kings were treated as paupers during the slowdown. Those who tried to cut down on content costs realised that after a point, it was impacting their listenership. Radio companies are not just competing amongst themselves, but are competing with several other modes of entertainment.

Identify and engage key employees

With intense competition in radio (and media) space, and in the current scenario where it is difficult to avoid downward revision of compensation structure, leave alone giving increments, it is difficult to incentivise and inspire existing employees. This could result in loss of key talent during a downturn. Players in the industry need to identify key talent, and keep them engaged with the radio company and the brand, as these very people will be needed more than ever during the recovery phase. Another, very effective means of keeping the staff engaged is to introduce in-house training programmes across multiple functions to maintain employee interest and to prepare for alternate and/ or increased responsibilities. This would also enable the company to create a staffing-base for the increased number of stations post the introduction of Phase III of radio licensing.

Maintain FCT levels

In order to maintain revenue levels in a falling-rate scenario, some radio companies resorted to increasing the quantity of FCT. This proved to be a risky strategy as it drove listeners away from the radio channel and lead to more frequent switching between stations.

Work towards a uniform measurement mechanism
In a slowdown, advertisers and agencies used various measurement mechanisms to beat down rates. They used RAM, IRS, regional studies, syndicated research – anything that could be used and whatever suited them. Going forward, the radio sector must get together and put in place one common accepted measurement mechanism to prevent this. Standardisation would also result in increased confidence in the sector, and as has been seen in the case of TV and print, could increase manifold the revenues of the radio sector.

(Ashish Pherwani is Associate Director, Media & Entertainment, Ernst & Young, and a segment champion for radio in India.)