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When an infant industry cries for help...

When an infant industry cries for help...

Author | Vineet Singh Hukmani | Monday, Jan 26,2009 7:14 AM

When an infant industry cries for help...

When evaluating the Central Government on the radio sector, the analogy is that of a parent neglecting an infant child. The radio industry is an infant, a growing one, but it needs all the help it can get. It needs care, nourishment, guidance till it can stand on its own feet. The responsibility of the Central Government and the I&B Ministry does not end with ‘issuing licenses’, but begins there and ends when the radio industry is on a safe growth path. It is only then that both the operators and the Government will see long term gain. It is time for the Government to realise this parent-child relationship.

Pushing the child to run before it learns to walk. (Rating 3 out of 10)

Phase III is an ideal revenue opportunity for the Government. But can the industry move into the next phase when it is finding it cumbersome to even walk in Phase II? Until the crippling problems of Phase II are sorted out, Phase III is not attractive to any operator. How many times will the child have to fall down running for the Government to take notice of this?

Solution: The Government needs to give a deadline that all Phase II problems would be addressed with a time line by March 31, 2009. No one wants Phase II problems amplified in Phase III for both the Government and the operators. The Government must seriously look at ‘format licensing’ in Phase III versus just ‘selling’ non-differentiated frequencies. The biggest problem of the radio industry is that it is severely commoditised/ undifferentiated, which is pushing advertising rates down.

Lethal music costs. Taking a toy away from one child to satisfy another. (Rating 1 out of 10)

Music costs are the most crucial and crippling issues for the radio industry. Worldwide, music costs are ‘variable’ and an affordable 2 per cent of revenues. If ‘fixed’, then they are categorised by share/ size of market controlled by the operator and are never fixed costs common to all players. The music industry, which is going through troubled times, decided to cry. The Government has allowed ‘fixed music costs’, thereby protecting the music industry but penalising radio. The result – an industry where music costs are higher than revenues of some players, especially in smaller markets, and no means for the radio operator to protect PBT. The music industry anxiously awaits Phase III so that they can get ‘free revenues’. The radio industry has paid for licenses, the music companies have not. The Government must intervene and arrive at a solution quickly as this one area can ruin all business dynamics irreversibly.

Solution: Make music cost a variable cost, which is 2 per cent of revenue or a rate card system that is based on size/ share of market operated in, or if the music companies don’t co-operate quickly, then the Government needs to change the Copyright Act in India to ‘disallow compulsory licensing at fixed rates’. Non-action here will surely shut the industry down.

School fee charged in advance even before the school building is ready. (Rating 3 out of 10)

The 10-year license is an ‘operational’ license fee. BECIL was never ready with common infrastructure, creating dual expenditure for operators. So, radio operators began to pay an operational license fee even before complete infrastructure was operational. This has elevated costs in the initial years and pushed PBT breakeven further. Balance sheets of radio operators, therefore, do not look attractive enough as compared to other media to funding agencies, investors and banks.

Solution: Extend the current 10-year licenses to 15 years at the same fee to allow for more efficient amortisation and the delays caused by BECIL and other teething problems that slowed down profitability.

Keeping the child in a cage. (Rating 4 out of 10)

The Government is not allowing news, which allows the industry to tap new advertisers for revenue. There is no clarity on when this will be allowed and the manner in which it will be allowed. Political advertising was allowed recently and at the last moment, but revenue opportunity on the news front has definitely been lost.

Solution: 25 per cent of Government ad spending on media should be allocated to radio due to loss of the news opportunity. Networking should be allowed across any and all cities so that judicious use of talent can be used to allow saving of manpower costs.

The complaints above are only to urge the Government to take notice and provide immediate relief to an ailing child. Can a child demand this from a parent? It definitely can.

(Vineet Singh Hukmani is Managing Director, Radio One)

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