Upbeat radio players hike ad rates, but will advertisers pay?

Owing to strong performance and a 17.96% growth rate in 2013, quite a few FM players are increasing their ad rates, calling it course-correction. But will advertisers consider the value proposition?

e4m by Abhinna Shreshtha
Updated: Mar 5, 2014 7:59 AM
Upbeat radio players hike ad rates, but will advertisers pay?

The radio industry had a good run last year, exceeding industry expectations of a projected 4 per cent growth to register a growth of 17.96 per cent as per the Pitch Madison Media Advertising Outlook 2014 report. This year, the report projects a growth of 15.04 per cent for the radio industry.

Various private FM players have been increasing their ad rates in the last few weeks. Radio One hiked its ad rates by 20 per cent across all geographies beginning February 1, while Big FM announced a rate hike in the range of 20-30 per cent in February. My FM has just announced that it will be increasing its ad rates by 25 per cent to address an inventory crunch. Meanwhile, Oye FM is also expected to announce an ad rate hike.

Reasons for the hike
Most radio operators usually hike prices during the first half of the year in the range of 15-30 per cent, depending on their reach, market potential, increased interest by advertisers, strong reception of programming and other factors. According to radio operators, the main reasons for this are inventory crunch and/ or the need for price correction. For example, while announcing the increase in ad rates, Harrish Bhatia, CEO, My FM said, “Our markets (My FM operates in 17 Tier II and III cities across seven states) are growing at an exponential pace, and advertisers have realised that radio is the most effective way of reaching out to the audience. Advertisers know the value proposition we offer basis our local understanding.”

Similarly, Big FM calls its ad rate increase more of a price correction and credits it to the strong performance of the network in both metros and emerging markets, especially in core markets such as Delhi, Kolkata and Mumbai, where it has adopted a completely retro programming.

When asked about the rationale behind the increase in rates, Vineet Singh Hukmani, MD, Radio One, replied that the premium is justified since the station has a well-defined TG of educated audiences, which adds value to the advertiser.

Confirming an increase in ad rate via email, Rahul Shaw, Business Head, Oye FM said, “Oye FM has seen a steep incline in performance this year. Across all markets, our rates were underpriced and weren’t aligned well in line with the size of audiences we are delivering. Our perception and familiarity has tremendously improved over the last few months. Hence, the effectiveness of advertising has drastically improved. Delhi has almost doubled, beating the much older players. SEC AB and in-car audiences remain our strong points. The ROI on our stations are far superior, if you look at last quarter, and would continue to be so post-revision.” He, however, did not provide specific details about the proposed price hike.

Will advertisers pay?
The main question, of course, is whether advertisers are willing to shell out that little extra. The head of a leading media agency opined that most price hikes or price corrections could be more important from a negotiation perspective. “I don’t see radio operators taking a stand on pricing with the big-money spenders or long-time clients. It might probably work with the ad hoc spenders. At the end of the day, advertisers want a cost-effective rate, so any increase in price should be justifiable for the client.”

Hukmani agreed that negotiations do tend to happen in case of price hikes. “There are two types of hikes – when your channel has improved and you are confident of your value, and the second is when you feel that you are undervalued and it is time to increase your rates.” It is mostly in the second case where negotiations tend to happen, he said. “In the first case, the client can see the improvement and the value for themselves,” he added.

Hitesh Sharma, COO, Radio Mirchi also raised a valid point. According to him, there are multiple ways of increasing revenues without resorting to hiking ad rates. “I don’t think price hikes actually happen in the 25-30 per cent range. You cannot have a one-size-fits-all philosophy with pricing,” he stressed. Elaborating on other opportunities to increase revenues, he added, “If we are doing an innovation for a client, we might take an innovation premium. Or, since we have the best track record in the industry when it comes to selling non-prime slots, we could bundle non-prime time slots along with prime time slots. This gives the client the rate advantage and the station the distribution advantage. It is all a question of rebalancing the inventory, so that there is more inventory available to generate business.”

Meanwhile, a spokesperson for Radio City said that the station usually takes a call on whether to increase ad rates or not at the beginning of the new financial year. Radio City has been increasing its ad rates by 15-20 per cent around April since the last couple of years. Red FM also does not seem to have any plans to increase its ad rates for now. The channel had last hiked its price in June 2013 by 20 per cent. Kerala-based Radio Mango also does not seem to be in a hurry to raise its rates. A spokesperson for the station said that usually ad rates are increased during the festive season (around September).

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