After TV, is it time for an ad cap for radio?

Radio players argue that advtg being the only source of revenue, an ad cap is not a viable option. However, the industry needs a change to provide better consumer experience

e4m by Saloni Surti
Updated: Jun 11, 2013 7:25 PM
After TV, is it time for an ad cap for radio?

With the 10+2 ad cap for TV coming into force from October 2013, broadcasters are not left with any option but to adhere to the mandate introduced by TRAI. As the broadcast industry gears up for implementation, there are speculations about having similar concepts in other media such as print and radio.

According to the CII – E&Y report ‘Poised for growth’ on the Indian radio industry, on an average during prime time, leading channels play up to 17 minutes of advertisement per hour reaches up to 20 minutes during festivals.  Advertisements account for 20 to 30 per cent of the typical programming clock.

Keeping in mind the listener experience, does the private Indian FM industry need a similar kind of model? Industry experts believe that the dynamics of radio are completely different from that of the TV industry, thus not making 10+2 a very viable option.

Radio owners’ views
Commenting on the prospect of implementation of 10+2 ad cap in radio, Prashant Panday, Director and CEO, ENIL said, “It is legally not possible, since our bidding for licenses (in 2006) had taken place under certain conditions defined in the tender. Since there was no mention of a cap there, it cannot be introduced now. Had a cap been there, we would have bid keeping that in mind. In TV on the other hand, the cap was always specified in their relevant Act (The Cable TV Act). It had just not been implemented till now.”

Radio players often find it difficult to break even money invested in the license fee due to the high operational cost and advertising being the only form of revenue. While the ad cap will ensure high consumer experience, it is not viable for radio broadcasters in financial terms.
Harish Bhatia, CEO, My FM is of the opinion that all these concepts are applicable only to an industry which is established. Radio is still a young industry and advertisers are yet to see its potential. “It is not about ad cap,” remarked Bhatia. When people will know how to buy and use radio the industry, listeners will get its true value. It (value) will come from innovation and right use. The challenge is to let people understand this.”

Currently, Radio Mirchi has 10 to 12 minutes of advertising in peak hour which rises up to 18 minutes in peak season. At My FM, advertising per hour is between 12 to 14 minutes and varies from city to city.

The ad cap, in the long run, will be very beneficial to the broadcasting industry and will benefit advertisers and content quality. The content quality will go up immensely because broadcasters need to create engaging content that will keep audience tuned in to give advertisers their value.

However, 10+2 ad cap is not likely to have a similar effect on the private FM industry. Almost 80 to 90 per cent of revenues of a radio station are earned from advertising. Thus, an ad cap implies a direct revenue cut to radio players, who will not be in a position to increase ad rates enough to make up for the loss in advertising time.

“In TV, the broadcasters are getting additional revenues from distribution. This has been the trigger for the cap being introduced now. There are no such revenues for radio. So no, it’s not possible to introduce a cap on radio. Just like there is no cap on newspapers,” added Panday.

Detrimental to content quality
The revenue cut might also result in quality of content going down as broadcasters might need to cut down on operational costs.

Retail advertising accounts for almost 40 per cent of radio’s ad revenues in metros, and about 60 to 80 per cent in tier II and III cities. Thus, there are high chances that these advertisers may not reciprocate well to the increase in ad rates caused by an ad cap and withdraw from the medium looking out for cheaper options.

Radio advertising is usually not just spots, but also a combination of RJ mentions, BTL activities, sponsorships, promoted properties, etc. Thus, an ad cap in radio will have to be precise in terms of where is the cut required so as to give listeners an ultimate experience.

Private FM industry in India currently functions on the code of ethics of the All India Radio (AIR). While these set of rules manage to keep the industry on the same page, they are quite outdated and fail to keep up with the changing woes of the radio players. A 10+2 ad cap or any such similar model could be the catalyst in establishing a new set of rules.

With almost 14 minutes of advertising and almost equal amount of RJ links, listeners are currently not getting enough music from a medium which is meant only for that. While a 10+2 ad cap may not be one of the most viable options of improving consumer experience, some sort of change is surely required.

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