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

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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 against hope that March 31, 2004 would be cut-off date for the licence fee model, the government has decided on March 31, 2005 as the date that ends the old regime. From April 2005, the existing FM players are in a new model with 4 per cent revenue sharing and 20 per cent permit, which would be inclusive of FDI and other portfolio investments like FII and NRI investments.

A senior Information and Broadcast (I&B) official explained that there will be a one-time entry fee for the new radio channel players, which would be decided soon on the basis of a bidding process. The prime income to the Government will come in the form of the 4 per cent revenue sharing by the radio channel players.

I&B Minister Jaipal Reddy made the announcement earlier yesterday 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 the radio channel advertising rates to considerably fall, because of the relief from payment of license fees. Kajal Malik, Regional Director, Optimum Media Solutions, said, “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.”

Around 330 stations in 90 cities will come up now, with the end of the licence regime.

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”.

A P Parigi, MD, Entertainment Network India Ltd (ENIL), which operates Radio Mirchi, was ‘relieved’ as he expressed his view on the development, “We were bleeding in the business so far and this brings relief. With this, the scope of viability will drastically improve for the medium and this will encourage new players to join the market.”

Nonetheless, Parigi further added, “It’s a significant move but yet not a substantial one. We hope that the medium will evolve to be an attractive one in the future.”

When contacted, Ambar Basu, VP, Finance, Music Broadcast Pvt. Ltd. (Radio City), said, “These are welcome decisions and would certainly give a fillip to the industry, which has been experiencing severe financial difficulties in the prior licensing arrangement, constraining investment into business building in what is a nascent industry.”

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

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

Added Malik, “One more thing that seems quite likely is that the metros will see more fragmentation. The retailers will certainly have reasons to smile, as now there would be use of local channels to target customers.”

For sure, the advertisers have two definite reasons to be happy – one, for the possible rate cut in radio advertising and two – the opportunity to target customers through local channels too.

See Also:

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


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