Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

To Bid or Buy? It is decision time for FM Operators

To Bid or Buy? It is decision time for FM Operators

Author | Abhinn Shreshtha | Tuesday, Jan 27,2015 8:44 AM

A+
AA
A-
To Bid or Buy? It is decision time for FM Operators

Now that the Phase III auctions have finally been cleared, radio operators will have to decide how they want to approach the matter of expansion. To acquire new frequencies or does it make more sense to buy out an existing station which has already set up operations. We spoke to a few operators who agreed that both options have relative pros and cons.

The one big example of the second option was Dainik Jagran buying  majority stake in Radio City in December of 2014. The stakes are even higher for single city operators in cities like Bangalore, Delhi, Chennai, etc. who might find themselves more vulnerable with expensive license renewals and with increased competition. For them and even for a large and profitable player like Radio City, having a larger entity investing is a good way out of this quandary.

“I believe if the station has funds and expertise, it is better to acquire a known brand because it will give you committed business from day one and the radio station will have a set base of listenership,” said Harrish Bhatia, CEO of MY FM

This is perhaps the most important aspect. With competition across the board expected to be cutthroat in the coming days, an acquisition will allow the player to, as Nisha Narayanan, COO of Red FM, puts it, “hit the deck running”. “In case the entity has positive cash flows, then those cash flows help greatly in the business and bring down your pay-back period,” she says.

This time around, with the license period fixed at 15 years, players have a little less pressure about recouping investments as compared to during Phase II though.

Apurva Purohit, CEO of Radio City agrees that each player will address these options differently based on internal business forecasts. Her personal choice, she says, is to invest in an already existing station/network. “In any stage of consolidation an industry goes through, individual players evaluate make or buy decisions as part of their growth strategy all the time. Clearly the radio industry is entering that phase now. I believe it is better to invest in an already existing station/network than go through the process of building from scratch. This is because the industry is already in a fairly mature state with several players having operated markets for a decade and more. In this environment, with cost of brand building being so high and investment in attracting listeners and retaining them being a constant effort, it is better to buy rather than make,” she opined.

The major situation when it comes to acquiring an existing network would ideally not be from a financial perspective since it is a given that every entity will do its due diligence before making a decision. The issue could arise if there is disconnect in the brand philosophies of the two. Also, the FM sector in India does not show a lot of brand differentiation, so, there might be a need to create this, opines Narayanan.

“Team integration to create a seamless transfer of ownership is a very sensitive issue. If the format of seller is identical to the buyers current station/city which may give rise to discounting by the advertiser/agency hoping to get a bulk buy at a lower combo price of two stations in a city versus one, since it largely duplicates into the same audience,” opined the head of another radio operator.

This is obviously one advantage of building something from scratch. The player can tailor make the system and programming to suit his particular philosophy and needs.

“If bidding for a new frequency it will take time to establish and build a brand. It will take time as there are existing brands in the radio category that have understanding and strong grip in the market. However, setting up a new station from scratch will allow a radio channel to incorporate its brand philosophy and train the manpower in accordance with its requirements,” said Bhatia.

Narayanan also agreed that the advantage of setting up a new station is that you get to set it up as per your requirement and mould and stricture it the way you want. “You do not get the baggage of the previous brand and the exiting mindset of the staff which is tough to change. Thirdly, it gives you the flexibility to create your content and present it the way you want. Fourthly, CAPEX in radio is not very high and so there is no major advantage in Capex costs in buying out a new station. Migration fees will have to be paid in both cases,” she explained.

This approach might definitely work for smaller tier 2/3 smaller cities, which form the bulk of frequencies available in Phase III, where license cost is low and the player can use networking to further offset their cost risks.

On the con side, it takes time to set up a new station and one needs to establish all the linkages with various parties all over again. “With trained talent being scarce in this industry, one has to go through the entire process of creating and identifying talent and training them accordingly,” added Narayanan.

Also, there is no guarantee of success, especially with competition so strong. This is something that sadly the Indian private FM sector is quite familiar with. The player will also need to make upfront investment into infrastructure, new team and brand building in a market having established brands and frequency memorability. This is especially a problem with large metro frequencies like Delhi and Mumbai where there is less availability, the price is very high and also the market has yet not experienced multiple frequencies by the same player which may result in discounting. New teams will result in a longer learning curve and if not handled properly results in high attrition in a competitive market

Narayanan sums up the situation best when she says, “Each radio player has its’ own peculiarities and with both approaches having their pros and cons. Each player will need to judge on its own as to what makes business sense for them and adapt accordingly. From a broader industry perspective, in some markets it may make sense to expand the market by getting in more players, while in some smaller markets a new player may just make all the players unviable.”

 

Write A Comment