The Hindu Business Line : Radio's reckoning

A supposedly oppressive licence fee regime, an advertising industry that hasn't woken up to the potential of the new medium, the tussle with music companies and homogeneous content. Where's private FM radio heading? Catalyst tunes in.

PRIVATE FM radio broadcasters are agitated. It's been three years since radio took off but the annual licence fees is still a cause for concern. Rumours are rife that this industry would crack up over the issue of rationalisation of license fee.

April 28 was a black day for Entertainment Network India Ltd (ENIL), which owns Radio Mirchi. The Bombay High Court, on this day, ordered the Centre to encash the bank guarantee deposited by ENIL if it failed to pay by April 29, the due date. The knee-jerk reaction to this was Millennium Broadcast's WIN 94.6FM going off air the very next day. Gautam Radia, CEO, Millennium Broadcast, said: "We shut our station because we couldn't sustain ourselves on a licence fee that soared as high as 200 per cent of our revenue. We had gone off air on May 27 last year on similar grounds in the hope that things would change, but nothing did. Our impressions of the Centre's earnest attempts to gradually rationalise its licence fee in public interest have fallen flat."

As part of the second phase of FM privatisation, the Amit Mitra committee's proposal of revenue sharing of four per cent of gross revenue instead, and Telecom Regulatory Authority of India (TRAI) recommendations, instituted by the Government, were welcomed. If only the Government acts on this issue soon, we will evaluate the possibilities of returning, Radia added.

According to industry sources, radio stations that are backed by organisations with deep pockets — like Radio Mirchi (which has been promoted by Times of India, Radio City (Star group), Red FM (India Today) and Suryan (Sun Network) — can hold on for two to three years, even if the licence fee regime remains as it is. The concern is more immediate for standalone players, who don't have any established business to fall back on. For the biggies, however, the licence payout, under the present fixed regime, could really start to hurt after the initial years, especially as advertising revenues may not grow at a higher rate than the licence fee; even before that, they have a lot of catching up to do, add the sources.

At last count, there were eight private FM broadcasters and 37 stations across 19 cities, including few non-metropolitan cities such as Bhopal, Bhubaneshwar, Coimbatore, Jabalpur, Lucknow, Nagpur, Patna, Tirunelveli and Visakhapatnam. Given the current situation, the chances of the list getting longer are uncertain, but what is certain is the ever-increasing clutter of clouds in the horizon.

Since its inception, private radio has had its share of teething problems. And three years down the line, the issues remain the same. Revenue-sharing is still confined to discussions. Advertising hasn't cut much ice with media planners and buyers. Broadcast of news continues to be restricted. The tussle with music companies hasn't settled and a standard audience measurement system still remains a distant dream.

Sumantro Dutta, COO, Star-affiliated Music Broadcast Pvt Ltd that runs Radio City, said: "The licence fee in itself was an anomaly. When the licences were auctioned three years ago, most media Web sites had peaked the value curve and media valuations had gone through the roof, so everybody drove the price of radio licences high. The projection on radio was too euphoric and radio considered too lucrative."

How it fares as an advertising medium

In spite of all the unabashed criticism it receives, the licence fee arrangement has played a small part in making radio successful as an advertising medium by restricting FM players from entering niche programming areas, and instilling a more mass market approach.

In an earlier interview to Catalyst, Prashant Pandey, COO, Radio Mirchi, said: "In Mumbai, if you play, say, 100 per cent English music, the number of people listening to it will be small. Therefore, your advertising rates, and thus the revenues, will be small. If the revenues are small, the cost should also be small, or you won't be profitable. But the problem is that the licence fee is fixed. Which is why everybody has moved into the mainstream Hindi music. Likewise, in Delhi, everybody is playing the same music."

Despite most media planners anticipating an emergence of radio as a mature medium, radio stations couldn't get their mojo working. Madison Media in its report on radio trends had estimated that by 2004, advertisers would spend around Rs 500 crore on radio, but industry sources said that in 2003, FM radio could only garner around Rs 110 crore as against Rs 9,000 crore of television ad spends.

The fact is that in India, radio at its best accounted for 1.5 per cent of the total ad spend. In established countries, ad spend in 6-7 per cent. In Sri Lanka, it is 10 per cent of the total ad spend. "But for ad revenue of such kind, you need to be all over the place; you can't have just 19 cities having radio stations and hope to make 5 per cent of revenues," said Dutta.

There has been a decent growth in listenership. The medium has certainly revived. There are close to 52 lakh daily listeners in Mumbai and Delhi each. Chennai and Kolkata have around 25-30 lakh, and there are around 1,000-odd advertisers. But that hasn't resulted in any profits, Pandey of Radio Mirchi said.

"The industry had to bear a cumulative loss of Rs 100 crore last year. I would be very surprised if the picture was different this year. The radio market would have grown by 15 per cent, but the licence fee also grew at a similar rate making the business unviable," he adds.

The issue with royalty

As music is the primary fodder that most radio stations offer, music companies have to deal with royalty issues over their music being aired by FM radio players. Phonographic Performance Ltd (PPL), which administers the broadcasting rights of music companies', claims that the music industry witnessed a 35 per cent drop in total sales of audio cassettes and CDs due to private FM channels in the country.

Vipul Pradhan, CEO, PPL says: "Before the advent of private FM radio, the monetary realisation of copyright through physical sales — sales through audio cassettes and CDs — were more than 90 per cent. However, sales have plummeted as low as 50 per cent, and Rs 1,500 per clockhour as compensation for the loss in sales or 20 per cent of the company's net revenues whichever is higher, is justified."

Beyond music

Almost all stations have put their money on innovations in non-music programming. While Radio City aired popular television soaps on air, Radio Mirchi brought a galaxy of Bollywood stars to the drawing rooms through interviews. Living Media's Red FM has introduced fashion as a part of its programming mix. Radio Mid-day claims to have developed a sense of community among the college campuses of Mumbai by hosting interactive programmes.

However, the worldwide trend is for stations to target specific audience segments, 24 hours a day, so that whenever a listener in that target audience tunes into a station, the on-air programme consistently appeals to him or her.

According to Gautam Bose, General Manager of Kolkata-based Airtime Marketing & Sales India Pvt Ltd (AMSI), such format programming develops strong listener loyalty — loyalty to an FM station, as opposed to loyalty to a particular programme. AMSI offers sales, marketing, research, broadcast studio facilities and technical services to Aamar FM and Power FM, FM radio stations in Kolkata.

Where's the full potential?

Most media planners buy at a national level. At this stage, there is not a great number of stations or operators. Although there is genuine interest in what the industry can offer advertisers, not all advertising agencies or their clients have yet been exposed to the full potential of FM radio as an advertising medium.

Explains P. R. P. Nair, senior media advisor, Media Direction, the media arm of R. K. Swamy BBDO: "Better negotiations in terms of ad spots in a category like music channels can offer rates as competitive as Rs 500 to Rs 1,000 per ten second spot. But, FM radio rates of Rs 1,500 to Rs 2,000 per ten seconds is not a cost-effective proposition, considering they are too localised and have limited reach.

Moreover, if the client expects wider coverage, say across five cities, the bill to foot would be Rs 7,500 to Rs 10,000. Now compare this with the music channel rates of Rs 500 to Rs 1,000 per ten seconds, which is aired across cable and satellite homes in the country. Radio has definitely got the potential to make it big, but it's about time they solved their licensing problems, and offered the advertisers a better deal, he says.

Adds Shonima Kaul, media planning manager, Media Planning Group India, "It is unfortunate that FM radio got a raw deal from the Government. If the industry were to crack up over licence fee, it would seriously affect radio listeners, but business will run as usual since radio was considered more of a reminder medium rather than an inducing medium."

The scope

Despite the recent Bombay High Court directive and Win FM closing down, Media Planning Group India has continued to buy media on radio. Just recently, it put Otrivin, a nasal decongestant brand, on air with Radio City's Bangalore station, Ms Kaul added.

The second phase of radio broadcasting definitely holds a lot of promises. Rationalisation of licence fee will enhance the quality of programming and increase the number of FM stations, which will create more competition between radio stations for listeners, and create more opportunities for advertisers. Real growth will be advertiser-driven, Airtime's Bose says.

As the licence fee has definitely affected the radio players, only time will tell if this business will be successful.

The enigma of numbers

RADIO audience research is another sticky wicket for most media planners, considering that different stations swear by different studies. Recently, the IMRB car-track survey rated Radio Mirchi as the number one station in Mumbai, while AC Nielsen ORG-Marg survey rated Radio City as the top radio station.

Incidentally, in June last year, when Red FM commissioned Development and Research Studies (DRS), a Delhi-based research outfit, it discovered that listeners could not distinguish between stations. The study inferred that in 74 per cent of the cases, the listeners associated their favourite programmes with the wrong FM station.

According to the recent observations made by Madison Media in its radio report, in the absence of reliable research, most advertisers prefer to spread their FM monies to minimise risk. Brands like Panasonic have an advertising spread across Radio City and Radio Mirchi, while Zee TV advertises on all five radio stations in Mumbai.

Says Roda Mehta of Media Research User's Council (MRUC): "Internationally, advanced systems like wristwatch meter systems that pick up radio signals are in vogue. However, they are too expensive and most radio broadcasters here cannot afford them. So, the cheaper and efficient proposition is to adopt methodologies like diary methods, and `day after recall' methods. As regards the other survey, each have their significance and all depends on the methodologies they follow."

MRUC recently made an entry into radio audience measurement study with AC Nielsen ORG-Marg partnering the research. Indian Listenership Track (ILT 2004) will be one of the most comprehensive tools for media buying and planning for radio, and is due to be released soon.

This study is designed on a Day After Recall (DAR) methodology, which would provide `yesterday listenership' for establishing the effectiveness of advertising as a medium. This is based on recall of programmes aired the earlier day. The study will cover people more than 12 years of age across all social economic classes (SECs) in Mumbai and Delhi.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
The salesman is a liar!

Price: The great leveller

Re-discovering Post-It Notes

Of yellow knights and cubicle envy

BL in Mumbai

COFFEE and more

The grand brand experience

Knorr's challenge

Radio's reckoning

Don't advertise yourself into bankruptcy

Hardsell