The Hindu Business Line : A comeback for FM radio

THE ENTRY OF established names and the frenzy of bidding activity in the FM radio space over the past fortnight is an indication that industry participants have taken a favourable view of the revised policy framework. It is also likely that a greater proportion of successful bidders will start operations, unlike in the last phase when several players opted out upfront, put off by the huge licence fee obligation. It has also mitigated, to a large extent, the risk that the few private players, who have been operating for about five years now, will vacate the FM radio space. Swamped with losses, mainly due to prohibitive licence fees, which exceeded revenues by a factor of more than two, even players with deep pockets had to quit. A combination of a one-time entry fee and revenue-sharing has enabled them not only to continue operations, but also bid for more properties. Their move to widen the footprint is also likely to provide scale economies, as it will help them spread the cost of content across several cities, operate with a more competitive cost structure and have greater clout with advertisers. This factor could give players in Mumbai, Delhi, Bangalore and Chennai an edge over their potential competitors.

As successful bidders now have to share revenues with the government on an ongoing basis, the operating costs may be more competitive. But the bidding pattern suggests that, in several properties, the new entrants may end up forking out more than the prescribed percentage of revenues to the government, at least in the initial years. Given the aggressive bidding and the gradual growth in advertisement revenues, the annual payment to the Government, computed as a percentage of the one-time entry fee, may well be more than the 4-per cent revenue share; it will take a few years for new entrants to establish an audience base of a size advertisers find worthwhile. This means new entrants would also need reasonably deep pockets as, even if their operations do not become fundamentally unviable, they will face players who may have an edge on revenue share. This may emerge as the long-term peg for revenue sharing for quite a few players, and points to the possibility of consolidation as weaker players get weeded out. The regulatory framework may also mature to permit such consolidation in much the same way as has happened in telecom. The listeners, however, will be spoilt for choice and have no cause for complaint. This is also likely to spur the quality of content on offer and draw advertisers to this fledgling media opportunity.

There is, however, a case for carving out a separate investment limit for FIIs in such companies as, otherwise, their attractiveness to equity investors will be limited. As they are not allowed to broadcast news and current affairs, there is no reason why a restriction of 26 per cent of equity for FDI/FII investments should be imposed. Having given FM radio a fresh lease of life, the time is ripe for the Government to push for the concept of `community radio', which will have an even larger socio-economic impact