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FM players prep for expansion; ambiguity over license renewals remains

FM players prep for expansion; ambiguity over license renewals remains

Author | Abhinn Shreshtha | Tuesday, Oct 28,2014 7:54 AM

FM players prep for expansion; ambiguity over license renewals remains

As the much-delayed Phase III expansion moves ever closer, FM players are busy preparing for the next growth phase of radio in the country. However, for a few of the larger players like Radio One, Radio Mirchi, RED FM, one key problem that still remains before they start thinking about expansion, is the extension of current licenses, which will start expiring from March 31, 2015.

“It is very difficult to plan without any clarity. The first priority is completing the auction and solving the license extension issue,” said Nisha Narayanan, COO of RED FM, when asked about this issue.

Operators and government officials are busy discussing alternatives just in case the issue is not resolved. Options like giving an extension to the expiring licenses or holding the auctions for cities whose licenses are expiring first are currently being talked about said people familiar with the solution.

“No bidding can be successful unless these concerns of extension are addressed. The ministry has made a lot of promises that need to see the light of day. If this is done players will be bullish about future business and will bid freely and positively. Protecting existing business is more important before funding further expansion,” opined Vineet Singh Hukmani, MD of Radio One.

However, this is not delaying FM operators from getting their strategy and finances in order as they prepare for the auctions. With Phase III, FM will now extend to even smaller towns and cities and this will also have an impact on the expansion strategy. It is fair to question how much good business sense will such small cities make and what the response from local advertisers and the audience will be to the medium.

FM stations feel that their experience with Phase I and Phase II will serve them in good stead.

“Seven years back when we launched 17 stations only 2 of them had previous exposure to FM radio. We might have been nervous back then but we now have enough experience about going to small and new markets,” said Harrish Bhatia, CEO of MY FM. He, however, mentioned that a lot also rides on the pricing that will be set by the government on these Tier 3 towns as a prohibitive price could make the business less lucrative.

Hitesh Sharma, Executive President for ENIL, which runs Radio Mirchi, agreed with the notion that evangelization would not be a problem as the experience garnered over the past 13 years would help the radio industry. He compared it with print, another medium that can be considered regional. “To launch a radio station in a new market brings similar challenges in terms of advertisers and audience,” he said.

The thing to keep in mind is, according to Narayanan, that it will be more a case of concept selling, rather than inventory selling. “In some cities we also have to contend with listeners who are not in the habit of listening to radio. So it is not only about advertisers but also about listeners. It usually takes 2-3 years to warm up to a new medium. We have seen this earlier and we might see it again,” she said.

With frequencies in the metros expected to be limited and expensive, we could see the frequencies in the smaller towns be of more strategic importance to radio operators. Even if, as operators feel, it might take a couple of years to see returns, it will still be a worthwhile investment, especially since the license period has now been extended to 15 years. Bhatia also suggested that the government could introduce a deferred payment plan, similar to what is seen in telecom space, for the auctions as it would help the radio business.

“We expect intense competition in bidding between the top three networks to retain/gain network dominance. Large national advertisers are focusing on Tier 2 and 3 markets. Local advertisers are adding to the list on a daily basis. Government spends in those markets are also growing. The cost of small cities is very less and with networking being allowed break even will be very quick,” opined Hukmani.

Radio advertising constitutes around 5% of the total ad spend pie and increasing penetration of FM into the Indian hinterland will allow the industry to grow at a much faster rate. No wonder then that FM operators are looking at Phase III as an opportunity to multiply business.

As Apurva Purohit, CEO of Radio City puts it, “Why have we not become a 10% medium? It is because we are not available in 70% of the country. What FM first needs is an expansion. In the digital era where the internet is available across the world, 90 cities (the number of cities FM is currently available in India) seem insignificant. I think with Phase III, FM should have opened up to the length and breadth of the country. We should have been talking about Phase IV right now.”

Things might have not exactly going the way of FM radio in recent years but operators are hopeful that Phase III could be used as a stepping stone to bring FM to cities across the country in the near future.

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