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Guest Column: Decoding Profitable Programming in Radio: Vineet Singh Hukmani

Guest Column: Decoding Profitable Programming in Radio: Vineet Singh Hukmani

Author | Vineet Singh Hukmani | Wednesday, Oct 21,2015 8:39 AM

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Guest Column: Decoding Profitable Programming in Radio: Vineet Singh Hukmani
It's a momentous time for everyone in Private FM Radio especially for Programming controllers who get to decide the destiny of their stations and companies by making the right format choices. The right formats will be additive to  business but any mistake will be a costly one as the One time entry Fee for Delhi Mumbai Bangalore together are in excess of Rs 390 crore not to mention the annual license fee of these stations together is in the range of Rs 1 crore a month!  Which means the mistake will leave no time for recovery and this time with such heavy one time entry fee and expensive annual licenses fees time is really money coupled with vicious competition which will not let the erring station recover and re –enter the fray with a ‘back format change’. Look at how the existing telecom brands (who pay huge entry fees) Airtel, Vodafone and Idea have made it impossible for new brands to create profitable entries into the market.
 
Additive business programming for networks 
 
Additive business programming models are evident from Radio Mirchi, the market benchmark on revenue where their bidding strategy has strengthened the ‘core mainstream Mirchi network offering’. It also allows for creation of a parallel and substantial ‘Hindi Retro network’ which is a Rs 400 crore annual market this hits out at competition like Red FM and Radio City and possibly MYFM in smaller markets. Furthermore the Mirchi Programming bastion allows for ‘regional networks to flourish the most promising ones being the ‘West, Marathi and Gujarati network’ which is likely to be in excess of Rs 190 crore, The north Punjabi network again in excess of Rs 100 crore per annum and the south network of Kannada, Telugu, Malayalam and Tamil’ which is possibly in excess of Rs 260 crore!  What is evident from the strategy is that the programming decisions will dictate the revenue strategy where the right one will result in exponential additive growth and the wrong one will diminish size of market, clients and overall employee confidence in the brand at a national level.
 
Big FM which has the highest growth rate in revenue and is close to challenging the market leader. The company with the highest growth rate in EBIDTA margins has cemented its place in the very lucrative “Hindi Retro” segment by gaining mass programming leadership in markets like Delhi and Mumbai which are the highest license fee markets. This confidence has rubbed off on the smaller markets and BIG FM is growing on this strength. Every client mass or otherwise is seen advertising on this network driven by listener loyalty. It remains to be seen whether Red FM or Fever rises to the opportunity in this segment which more and more national or local clients are gravitating towards and RAM showing a constant 15%+ market share for this format in any city of operation.  This format of Hindi Retro is the best example of National additive programming.
 
Big City Programming decisions for a new station, Mass or speciality programming?
 
Let’s take a new Mumbai station as an example. The One Time Entry Fee here is Rs 120 crore. Amortized over 15 years is a cost of Rs 8 crore a year. The return on this capital even on a bank FD at a simple interest of 10% is Rs 12 crore per annum which therefore is the basic cost of capital. The annual license fee is Rs 3 crore a year. The conservative cost of operation of a typical Mumbai station is around Rs 18 crore per annum which would include marketing cost of launching a new station brand. This totals to Rs 41 crore per annum. Which is a total cost of Rs 3.41 crore a month. So in order to breakeven the new station in Mumbai has to generate Rs 3.5 crore a month minimum in revenue to breakeven. A Retro format in Mumbai therefore has a chance to play in Rs 95 crore Market in Mumbai alone, A Marathi station format in Mumbai coupled with a Strong Marathi network in Maharashtra is a playground with over Rs 110 crore and this is a growing base for sure. 
 
Speciality programming format like English in Mumbai or Talk radio at this new license fee: 
 
The market size in these segments is currently lower than Rs 24 crore per annum. Without the coupling of other large cities like Delhi + Bangalore to offer a ‘national speciality network’, at these costs of Mumbai, attempting ‘speciality programming’ is suicidal to say the least. Speciality programming formats in large ‘influential markets’ like Mumbai tend to become the face of the brand nationally and therefore the mass network will loose mass clients at a national level due to its ‘speciality’ Mumbai/Delhi image.  Moreover, Single city speciality formats like HIT 95 in Delhi which has changed to Hindi now as it could not become profitable in ‘speciality programming’ even at an One time entry fee of below Rs 10 crore, Chennai live which is English in Chennai which is possibly at a revenue of below Rs 30 lakhs per month and Indigo in Bangalore will come under huge profit pressure after the new annual license fee.  The absence of ‘speciality programming networks’ in these stations do not offer any scope for price increase or client count increase as these are too expensive to execute. An established company offering speciality programming already in Delhi and Mumbai can easily go the same route in Bangalore thereby making the existence of single city formats even more dangerous for single city players.
 
Multiple frequency pit falls in a city
 
So if a radio company already has a mass format station in Mumbai/Bangalore and a great position on monthly revenues to the tune of over 5cr a month. Imagine the second station is now a “speciality non mass format”.  What are the pitfalls?
 
1) Advertisers and Clients are not bound to choose ‘both’ from the same stable and if they begin to choose the ‘speciality play’ over the mass play, revenue will actually move from the mass play of the same player to the ‘speciality play’ leaving the net gain on revenue for the company zero or even negative. So the format choice may derail breakeven calculations from day 1 
2) The only choice then for the player is to discount the combo which brings down the national image of the player as a ‘discounting network’ in the eyes of the large clients in Mumbai. Most networks have tried very hard to increase rates.
3) Client count must not get sacrificed by format change. It is known that mass real estate, mass retailers and many other hyper local services are currently not confident about speciality formats. These form a large chunk of local revenues for any radio station.
4) Creating and Selling ‘speciality programming’ is a huge national level mindset change with every member of the team be it programming, marketing or even sales.  The pressures of financial gain will finally be passed on to sales teams who fill find earning 3.5cr consistently month on month impossible in that city in speciality programming formats. This will result in attrition and loss of faith. 
 
What this boils down to is that programming controllers and their teams hold the key to creating a ‘saleable and therefore’ profitable product and a stable company.  Allowing a good balance of ‘head’ with ‘heart’ will take care of the spectre of huge costs of phase 3.  And letting your heart go to ‘try something’ different will damage the company beyond repair.  
 
I have always believed that product strategy defines business.  Even though Smart watches are really cool, you would not find a player giving up their phone business to enter a seemingly cooler market.  Sometimes ‘cool’ leaves you with a heated collar because your business goes in the red!
 
More power to every programming team in Radio. All the best. May your decisions be wise ones.
 
(The author of this article is Vineet Singh Hukmani, MD & CEO Radio One. The views expressed here are solely those of the author and do not in any way represent the views of the publication)
 

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