Rate hikes not a long-term solution for radio

Though no one doubts that the Indian private FM industry is in for good times with analysts predicting a growth rate of 18-20 per cent once the new channels become operational, the growth in the industry might not come in ways that are expected

e4m by Abhinn Shreshtha
Updated: Sep 24, 2015 8:13 AM
Rate hikes not a long-term solution for radio

The private FM industry is in a buoyant mood. The addition of 91 channels across 54 cities will expand the footprint of radio in new areas. With the new Phase III policy now allowing networking of stations as well as multiple frequencies in the same city for the same operator, it has also provided FM stations more options in terms of their content strategy along with a way to reduce their financial footprint. It is no wonder then that some industry analysts and operators expecting the radio industry to grow by as much as 20 per cent in the next couple of years.

“With 97 more frequencies in the market, radio has finally seen expansion after nearly 10 years. This will provide a huge fillip to the radio industry. I think radio’s CAGR in the next 5 years will climb to 16-18 per cent minimum, from the present 13-14 per cent. With this, radio’s share of advertising could increase from the present 6 per cent to 8 per cent or so,” opined Prashant Panday, MD and CEO of ENIL.

But not everyone is quite convinced about how exactly this growth will take place and by how much. Will radio cannibalize mediums like print and TV? Or will we see growth in radio ad spends as operators increase ad rates.

There is some logic in thinking that the growth in private FM will be driven by an increase in ad rates as operators look to provide differentiated content or more targeted/wider audiences at steeper prices.

The radio industry, as a whole, has spent close to Rs 3,000 crore in the recently concluded auctions. This includes migration fee paid by stations for extending existing licenses. It is only natural for them to want to earn back this amount and hiking ad rates seems like an option.

For example, RED FM has already announced a 35 per cent ad hike. Other operators we spoke with also said that ad rates would be increased as radio stations scurry to recoup their huge investments. The head of one radio operator opined that we could see an average hike of 25-30 per cent across the board over the next few months.

However, one person familiar with the FM industry, speaking on the condition of anonymity said that the euphoria might not actually be justified and ad rates might in fact drop as more inventory becomes available. “There is a lot of start-up money in the market right now but this is not a sustained demand. The airwaves today are full of clutter. Radio depends on local advertisers and most of them approach it as they would print Classifieds; they want that high RoI. Can radio provide this?” queried the person.

Smita Jha, Executive Director & Leader (Entertainment & Media Practice) at PwC, also has a different opinion. She believes that the growth will come as inventory increases and not necessarily through an increase in ad rates. “One cannot suddenly jack up prices. Can they justify it? Definitely not. Operators will need to come out with new revenue streams as advertising alone cannot sustain the ecosystem,” she said.

But this does not mean that radio ad spends will not increase, it might just not be in the way we expect them to.  Ashish Pherwani, Partner (Advisory Services) of Ernst & Young, believes that radio could potentially cannibalize mediums like print once the new stations become operational.   The reason for this he feels is that operators might look to create a strong bouquet group and offer these to advertisers at higher rate by promising more targeted advertising. “As inventory increases we will see a disproportionate increase of revenue for radio. Due to new cities now available in many states, it might come across as a more viable media in terms of reach for advertisers,” he opined.

There is a sense in this as operators like Radio Mirchi have long been rumored to want to start a second ‘network’ with a more differentiated content.

But there is another way of looking at this. Let’s take a look at some of the biggest investors in the auctions. HT Media Ltd (Fever FM) and Times Group (ENIL or Radio Mirchi) have spent the most with just over Rs 339 crore. Music Broadcast Pvt. Ltd., which runs Radio City and which is now a part of the Dainik Jagran group, invested Rs 62.5 crore. Dainik Bhaskar, which runs MY FM, has put in Rs 32.4 crore, while Rajasthan Patrika, which runs Radio Tadka, has invested Rs 12.4 crore.

The only non-print company that could be considered in the same category is Reliance Broadcast Network, which runs Big FM, and has invested Rs 116.9 crore. Radio One did not win any frequency and due to the Chennai court order against Sun TV run RED FM, only frequencies won by its associate companies Digital Radio Broadcasting Limited (Delhi) and Digital Radio Broadcasting Limited (Mumbai) are known, though Red FM won a Mumbai frequency.

It is quite clear that the print majors in the country have invested heavily in radio because they think of it as a great companion medium for print. In fact, operators like Fever FM CEO Harshad Jain and Harish Bhatia, CEO of My FM, have all admitted that a key part of their auction strategy was to identify frequencies in areas where they had a strong print presence.

“There might be some cannibalization (of print ad spends) but I think there will be a lot more of communications that are print-radio aligned. This combination could potentially hurt TV ad spends. I think there is more possibility of this happening as there are more synergies between print and radio,” said Vineet Singh Hukmani, MD of Radio One.

Jha also agreed that we might see closer synergies between print and radio, which could boost radio revenues, especially since with networking now allowed, there is scope to create better content. “What we need to see is more synergies between sales teams (of radio and print divisions) than we have till now. We have not really witnessed players leverage national advertising networks at local level and vice versa,” she opined.

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