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New Radio players to shift to 4% revenue sharing model; cut-off date for old regime is March 31, 2005

30-June-2005
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New Radio players to shift to 4% revenue sharing model; cut-off date for old regime is March 31, 2005

Even though radio players were hoping that March 31, 2004 would be the cut-off date, the government has decided on March 31, 2005 as the cut-off date for an end to the licence fee regime. From April 1, 2005, all FM players including existing ones will benefit from the new policy regime that allows 4 per cent revenue sharing and 20 per cent foreign investment inclusive of FDI and other portfolio investments like FII and NRI investments.

A senior Information and Broadcasting Ministry (I&B) official told exchange4media that there will be a one-time entry fee for new radio players, which would be decided soon on the basis of a bidding process. The prime income to the government will come from the 4 per cent revenue sharing by FM radio players.

I&B Minister Jaipal Reddy made the announcement earlier today after a Cabinet meeting. He also said that 330 FM licences in 90 cities would be given out on the basis of open bidding, adding that no operator would be allowed more than one channel per city.

Significantly, it may be recalled that as Chief Guest at the exchange4media Conclave held on May 31 this year, the I&B Minister had said in his keynote address that these decisions for the radio sector would be formally announced “within a month”. With today’s announcement, Reddy has kept the promise he had made at the exchange4media Conclave.

There are quite a few implications that this has brought about. According to industry experts, first of all, one can certainly expect radio advertising rates to fall considerably, because of the relief from payment of licence fees. Kajal Malik, Regional Director, Optimum Media Solutions, says, “This regulation also spells a lot of good opportunities for new players to enter the radio market. Though the gestation period might vary from 8-12 months, there is no denying the great opportunity that lies ahead.”

Abraham Thomas, COO, Red FM said, “We are very excited with the announcement and welcome the development. This will give the much needed boost to this media. We are awaiting the details of the policy”.

When contacted, Ambar Basu, VP, Finance, Music Broadcast (Radio City), said, “These are welcome decisions and would certainly give a fillip to the industry, which has been experiencing severe financial difficulties owing to the licensing arrangement, which was acting as constraint on investment in the nascent radio industry.”

Further, Basu added that multiple stations in cities would certainly lead to a better reach in local markets in addition to more relevant programming and targeting.

Throwing further light on the implications, Malik said, “It did not make sense to pay as much for a radio spot of 10 seconds as for a news channel. The rates have to come down and this is indeed a big relief for radio channels. For the new players, the licence fee entry barrier is no longer there, so we can expect many new channels to come up.”

Malik sees greater fragmentation happening in the metros. “Retailers will certainly have reasons to smile, as now there would be use of local channels to target customers,” she said. So, advertisers have two clear reasons to be happy; one, for the possible rate cut in radio advertising, and two, the opportunity to target customers through local channels.

See Also:

I&B Ministry permits 20 per cent FDI in FM radio

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