High reserve price irks operators as second batch of Phase III radio auctions begin
Auction of second batch of Phase III frequencies, which began on Tuesday, has seen a muted response by the radio sector with many large operators not participating in the auction process, with high reserve price being stated as one of the key reasons
Auction of second batch of Phase III frequencies, which began on Tuesday, has seen a muted response by the radio sector with not every operator participating in the auction process. Prior to the auctions, FM operators had submitted a list of suggestions to the Ministry of Information and Broadcasting (MIB), primary among which were allowing private FM broadcasters to air news and current affairs, reduction of reserve price for many of the cities being made available as part of Batch 2, removal of the 3-year lock-in period and allowing a deferred payment plan for operators where they will start paying after 3 years.
However, all these suggestions have been turned down by the MIB. According to operators we spoke with, the high reserve price (RP) for the cities has been one of the key stumbling blocks in the auctions and the reason why many national level players have opted out of it. In their submission to the MIB, radio operators had stated, “The reason for splitting Phase-3 up into a number of batches was that the radio industry was extremely unhappy with the Reserve Prices (RP) for new towns. This is why Batch-1 comprised only older, Phase-2 cities, where RP was not a problem. We were told that the government would reconsider the RP formula that TRAI had suggested for new towns. It is so disappointing that the government has in fact not considered anything, and has simply gone ahead with the formula as is. As per our estimates, most cities are unviable. The radio industry believes that three-fourth of the frequencies are unviable because of high RPs.”
One senior executive at a private FM station, speaking on condition of anonymity, said, “The reserve prices are exorbitant. For example, Muzaffarnagar has a price of Rs 15 crore, which is the same as Chandigarh but you cannot compare the two markets. It is not that the cities being auctioned are not viable for business, but not at such high reserve prices.” The head of another station based in the south, which is not participating in the auctions, pointed out that the fact that most of the cities are Tier II or III cities could also be a factor.
“We are a non metro station company and have reasonable experience and understanding of small towns. We believe that most of the towns where we wanted to bid were non-starters for us. The government needs to understand that small towns in C and D category don't have ready market for advertising revenues even for the mainstream mediums and since the cost to run the stations is very high( music royalty /manpower) it is not possible to justify the returns and create good enough shareholder value against the money invested. So we have not participated and keeping in view this lukewarm response government should reconsider our suggestion of looking into one time frequency cost( OTF), so that it becomes viable to invest,” opined Harish Bhatia, CEO of MY FM.
The likes of Big FM, Radio City, Radio One, Fever FM and MY FM have all decided to not participate in the auctions for a variety of reasons. However, there seem to be a number of regional players that are participating, though whether the high reserve prices will deter them remains to be seen.
The current batch of auctions comprise of 266 FM channels in 92 cities comprising 227 channels in 69 fresh cities and 39 unsold channels from 23 cities of batch I of Phase III auctions. As per information released by the MIB, the Ministry has received applications for participating in the bidding from 14 companies. Prominent among these are Entertainment India Network Limited (ENIL), which runs Radio Mirchi and Red FM.
“It is indeed commendable that the government is taking steps to expand FM radio network in India with this speed. Just like the first batch, we are actively participating in Batch 2 as well. It would be too early to comment on the outcome of the auctions but it is good to see many regional players also showing their interest in bidding for stations and we are hopeful that their active participation will boost prospects for the local markets as well as government in terms of revenue maximisation, said Nisha Narayanan, COO of RED FM.
At the end of day 2 of the auctions, 56 frequencies in 42 cities had become provisionally winning channels.
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