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Will Phase III change the radio advertising game?

Will Phase III change the radio advertising game?

Author | Saloni Surti | Tuesday, May 14,2013 8:14 PM

Will Phase III change the radio advertising game?

When radio stations first became operational post Phase II, a number of stations witnessed stoop in inventory levels. However, stability was then derived on the back of the volume growth model. In the years to come, advertising moved from volume to limited inventory and high ER approach.

Advertising rate per 10 seconds for most big stations is currently between Rs 9,000 to Rs 10,000. Post Phase III, advertising composition on radio is estimated to reform radically. While there shall not be any significant changes in the first few months, there will be a graphical change on the path of the marketers and broadcasters from 18-20 months of the expansion.

Will there be a rate hike post Phase III?
Fever FM and My FM recently increased their prices by 20 per cent and Radio Mirchi and Radio One increased prices by 30 per cent in lieu of the increase in demand and limited supply.

According to broadcasters, the hike is a mere correction of prices as the industry was functioning on undervalued rates.

With the arrival of Phase III, radio is expected to be blessed with mass reach as an addition to their quality of being local. Does this imply that broadcasters will significantly increase rates to offer their services?

While all broadcasters unanimously expressed that a hike in ad rates is expected, they feel it will not be an influence of Phase III expansions.

“When Phase III stations are operational, overall national pricing will increase because new stations will be operating. That’s not a price increase,” said Prashant Panday, Director and Chief Executive Officer, ENIL.

Based on a research conducted by Ernst & Young, radio’s share of advertising industry is expected to grow from 3-4 per cent to around 5-7 per cent within five years on the back of the growth by Phase III.

“Any increase after Phase III will be purely on the merit of which markets have been added and the value for money we are offering to our customers,” remarked Nisha Narayanan, Chief Operating Officer, Red FM.

As opposed to the forecast in CII- E&Y radio report, Pitch Madison report 2013 predicted that Phase III is unlikely to shake up advertising spends on radio as marketers are not happy with the growth witnessed last year and are likely to search for greener pastures across digital.

“It is very difficult to say how everything will pan out. Going by our experience of Phase II, we will keep the prices affordable. Clients have multiple advertising options and thus, radio will offer equal economy – at par with other media,” said Ashwin Padmanabhan, Business Head, Big FM.

While broadcasters express full inventories and demand supply chain are the only aspects that drive price hikes, media buyers are of the opinion that radio is not in a position to increase prices. Radio has not seen a surge in ad revenues for a very long time now and increasing prices in such a scenario will only lead to decreased investment in the medium.

“Radio as a medium is still fighting. Thus, there will not be a price hike as such. The prices can increase by seven to eight per cent post Phase III but that will be merely industry inflation,” said Vaishali Verma, Vice President, Lodestar UM.

Changes in marketer spends
Tier II and III markets are expected to witness maximum change. My FM currently has ad rates in the range of Rs 250 to Rs 450 (varying for different markets and deals). Marketers are expected to increase their radio spends for smaller markets by 15 per cent, due to larger reach through more stations in every state. “It is difficult to predict the increase as of now but I see a positive and substantial increase post Phase III,” said Harish Bhatia, CEO, My FM.

Also, retail marketers, one of the highest spenders on radio, shall increase from current levels of 35-40 per cent to more than 50 per cent. A few experts also believe that retail will drive almost 80 per cent of ad spends in some of the stations.

According to the projected growth (of five-seven per cent by CII – E&Y) the Indian FM radio industry is projected to exceed Rs 23 billion within three years of Phase III expansion.

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