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Community radio could be a good revenue opportunity: Ashish Pherwani

Community radio could be a good revenue opportunity: Ashish Pherwani

Author | Abhinn Shreshtha | Tuesday, Jun 16,2015 9:28 AM

Community radio could be a good revenue opportunity: Ashish Pherwani

Ashish Pherwani is the Partner (Advisory Services) at Ernst & Young. One of his focus areas is the radio industry and with Phase III auctions expected soon, we sat down with him to get his thoughts on what the brave, new world that the Indian radio ecosystem has been waiting for so long will look like. Excerpts.

After a long wait, the radio sector is in for an exciting year. Your thoughts.
In terms of growth there is a normal growth of 8-10 per cent, maybe 12 per cent depending on the company. It is pretty much inflationary and that is going to continue. Once the Phase III has happened there will be some growth in radio because of the organic nature of the medium but by the time the auctions happen, everything is set up and revenues start coming in, it might take 6-9 months.

There are going to be two kinds of impact—one is starting of additional stations in larger cities, which this will put pressure on the incumbents. Even today if you are an operator in a city like Mumbai, you do not make money unless you are in the top 3-4. So, this is going to put more pressure on existing operators. However, there is a lot of space in Tier 2-3 cities and it might lead to overall growth of the radio industry in India.

This is really needed and before digital music makes an impact. When music consumption actually starts getting digital at a very, very fast pace, at a very affordable price; then people will start consuming more and more customized music. When that happens there could be a loss of incremental audience and even existing audiences can move to that side. We cannot say the exact impact because it has never happened before. Right now, streaming is really expensive but if streaming becomes affordable then it will definitely take audiences to that service.

So, I think it is very important that the radio licensing happens quickly so that people start getting onto FM rather than the whole thing (radio) becoming redundant. Having said this, there is always going to be a market for mass radio. Even globally it is an 8-9 per cent industry whereas in India it is about 2-3 per cent of the total media industry. This 2-3 per cent will always exist but the incremental growth opportunities, which we have seen in the US, has been held back due to the delay in radio licensing and expansion.

How much business sense does expanding into Tier 3 and Tier 4 cities (which form the majority of licenses available in Phase III) actually make?

It does make sense, because whenever you buy a license you do not look at it in an individual sense. You always look at it as a bouquet. For example, if someone wants to launch a product in Maharashtra he will always look at TV and print because it gives you reach. Radio would probably give him 7 stations in Maharashtra but with Phase III, brands can now create focussed radio campaigns reaching out to 25 different cities in the state. Suddenly, it becomes a viable alternative to print. So, that’s how you build relevant bouquets—either you build a bouquet of metros and Tier 2 towns or statewide bouquets that matter to advertisers.

Even if the stations are very small, the rates will accordingly be less. With networking allowed, I can make my costs even lower. Therefore though the revenue is low, the cost is also low and my overall revenue increases because of the volume as my bouquet is relevant to the advertiser.

So I think it is all about the strategy with which you manage the stations.

We have been seeing a lot of consolidation in the market. There are also some operators who seem to be planning on exiting as soon as their current licenses expire. What do you think the Indian radio ecosystem will look like, say, 2 years down the line?

I think the radio market will break up into a number of different types of operators. First, the independent radio operators who are doing only radio and are going to the market with a 100 odd station bouquet. The second will be radio operators who are an extension of print, where both businesses grow simultaneously so as to keep advertisers in their core markets with them on both radio and print.

And the third will be very small, regional players who are going to run one or two stations because they are very focused on the town and these are low cost stations. This is how I think the long-term radio ecosystem will pan out—large, national players, print extensions and small, regional players.

What I also think will happen is that at some point community radio will start picking up and this will largely be funded by the large FMCGs who want to reach out to the small villages and Tier 4 cities. Many of the people in these areas are not reachable by television and because of low literacy; print is not a very good option but FM radio is a way to reach to these people.

I actually feel there is a good revenue opportunity for Tier 4 and community radio as well.

We have not really seen a lot of things happening on the community radio front. What is holding it back?
It is the revenue part. There are very small guys who want to start community radio and most of them do not have ad sales experience. How will they sell ads? Unless we put together something that will help community radio sell ads, it will never do well. They are not allowed sponsorship of programs, there are a whole bunch of revenue restrictions on them.

Since you mentioned digital earlier, there have been complaints that we need to get the policies and rules governing digital radio to be put in place. What is needed for digital radio to grow in India?
Lower broadband cost. The minute broadband cost becomes affordable, it will work. The other thing that might happen in the industry, and this is subject to Doordarshan playing its part, is digital terrestrial transmission. It hasn’t been tried till now but the advantage of it is that the quality is better and you can have above 20 stations in a city. From a frequency perspective it is fantastic but the only thing is that the mobile handset ecosystem has to be digital terrestrial friendly.

Once that happens, I think digital radio from a terrestrial mode can also have a great future. Right now you have 8-10 frequencies in the market, with this, you can add another 20. It is very good for large cities so let’s hope they do it in the top 10-15 cities like they have been talking about.

A number of radio operators have also been requesting the MIB to reduce frequency gap to accommodate more stations in each city. Is this feasible right now?
If it is feasible it should definitely be done. I think the government is carrying out some tests on it right now. The way I am looking at it is that it will help to grow the market.

Today, there are a wide variety of people who listen to very different music. In Mumbai, of all the channels you have, barring 1-2, everyone else plays the same kind of music—Hindi Bollywood. Suppose you increase the available frequency then you provide a chance to create more niche categories. More choices mean more listeners who want to hear their kind of music. There is enough space so there is no reason to worry that the mass channels will take a hit.

Reducing frequencies is good but the only problem is that companies have paid for those frequencies in a time of scarcity; so the amounts have been humongous. Now, if the government opens up more frequencies then the value will come crashing down. There are two sides to the story but my point of view is that, from a consumer perspective, there should be enough channels for everyone. There is enough demand for other content and music but we are restricting ourselves. This will not grow the industry. A small city like Abu Dhabi has 25 stations, while Mumbai has 8!

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