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FM Phase II expansion: HT Music saved Rs 154 cr in Mumbai due to revenue sharing regime

FM Phase II expansion: HT Music saved Rs 154 cr in Mumbai due to revenue sharing regime

Author | Asit Ranjan Mishra | Monday, Jan 09,2006 7:17 AM

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FM Phase II expansion: HT Music saved Rs 154 cr in Mumbai due to revenue sharing regime

With the first round of bidding for Phase II expansion of FM Radio for Category A+ and A cities out in the open, some interesting calculations reveal that HT Music, the highest bidder amongst A+ category cities, might just have saved a whopping Rs 154 cr as compared to the highest bidder in Phase I, thanks to the new government policy of migrating to the revenue sharing regime from the erstwhile licence fee regime.

Under the new revenue sharing regime, the permission holder will have to pay an annual fee to the government at the rate of 4 per cent of gross revenue for each year or at the rate of 10 per cent of the Reserve One Time Entry Fee (OTEF) limit for the concerned city, whichever is higher.

Using the later formula, when calculated for Mumbai, which saw the highest bidding by HT Music (Rs 35 crore), the players in Mumbai will now have to pay a minimum of Rs 87.5 lakh per year, which is 10 per cent of Reserve OTEF. Reserve OTEF is explained as one-fourth of the highest successful valid financial bid for the city, which is Rs 8.75 crore for Mumbai with the highest bid being Rs 35 crore by HT Music. Calculated along with the yearly OTEF, that is, Rs 3.5 crore, HT Music would be paying a minimum of around Rs 4.38 crore per year besides the service tax. Thus, in a 10-year period for which the licence is obtained, HT Music will be paying a minimum of around Rs 44 crore sans the service tax.

In the Phase I expansion of private FM Radio, the highest bidder in Mumbai paid Rs 9.75 crore for a one-year period. With the figure escalating at 15 per cent each year as per the licence fee regime, the highest bidder would have paid a whopping Rs 198 crore by the end of 10 years.

But thanks to the revenue sharing regime, the current highest bidder would be paying a minimum of around Rs 44 crore for 10 years. Thus, the highest bidder of Phase II expansion, HT Music, is saving around Rs 154 crore over the highest bidder in Phase I, only because of the revenue sharing regime. Though this figure may come down to an extent as the calculation is based on the Reserve OTEF formula and service tax is excluded, still there is no doubt about the substantial gain made by the new players due to the policy change.

Similarly, in Delhi the last time highest bidder with Rs 7.12 crore would have paid Rs 145 crore by the end of 10 years, whereas the highest bidder of Phase II in Delhi, Radio Mid Day with Rs 31.4 crore, would be paying a minimum of Rs 40 crore, including the 10 per cent of Reserve OTEF by the end of the 10-year licence period, thus making a saving of around Rs 105 crore than the highest bidder of Phase I in Delhi.

But an important question that remains is whether small players could sustain the competition. In Mumbai, each player has to pay a minimum of Rs 87 lakh as annual fee, in Delhi it stands at Rs 78.5 lakh, while for Bangalore it is Rs 54 lakh.

“Of course, they can,” said Nisha Narayanan, Media Consultant and former Programme Director, Radio City, “This is quite affordable even if the market leader may command around 50-60 per cent of the ad revenue in a particular city. With the advertising market for radio expected to surge at around 8 per cent, the situation looks bright for the players.”

Tags: e4m

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