The Hindu Business Line : Playing it by the ear

Despite the licence fee being restructured, private FM operators are still wary as there is a cap on the number of licences each can hold and an impending drop in ad rates.

The all look the same!

PRIVATE FM radio operators must have heaved a sigh of relief on the last day of June, as the Government freed them from a licence fee system that had contributed to losses of over Rs 230 crore in two years.

The burdensome fee, with an increase of 15 per cent every year, was also cited to be the reason for radio stations' fascination for mainstream music. For example, it was Bollywood music all the way for Mumbai's four stations while the two players in Chennai dished out pretty much the same stuff: Tamil film music.

That's the way you attract the biggest swathe of advertisers and the best rates, an industry official told Catalyst a while back. Once the licence fee system is restructured, you would see dedicated channels for genres such as classical, bhangra and the like, he had said.

What he wouldn't have envisaged then is that the Government would disallow each operator from having more than one licence per city. That's what it has done, despite recommendations to the contrary by a committee and the Telecom Regulatory Authority of India.

The TRAI had said, "Multiple licences with the same owner would provide the platform to offer variety since each licence would have to provide a different type of programme — to maximise the market reach for the common owner," while suggesting that the number of licences an entity can hold be capped at three or one-third of the total, whichever is less.

Forget non-film music, "even multiple languages by a single player" isn't possible, says Sun Network's Kalanidhi Maran. He believes a Telugu station will do well in a city like Chennai. And there can be separate channels for Telugu, Kannada and Tamil in cosmopolitan Bangalore.

Although radio companies now will have a better chance of survival, with the advent of a 4 per cent revenue-share system, would their content be diverse enough to appeal to all sections of advertisers? Not quite, seems to be the answer.

"True competition would encourage players to differentiate content and segment the market. Right now, regulations are killing innovation, and all stations are medley stations differentiated only by packaging and anchors," says Ravi Kiran, Managing Director (India-West & South), Starcom Worldwide.

In the absence of a second channel, existing radio players are unlikely to significantly tweak programming that fetches them the best deals, though India Today's Red FM reckons things could change.

"So far, everyone was trying to be everything for everybody. Content was undifferentiated. With the unshackling of these restrictions, you will now see the growth of unique content and audience segmentation," says Thomas Abraham, Chief Operating Officer, Red FM.

But, JWT Chennai's Client Services Director U. Jayraj Rau says, "As three-fourths of advertisers want the best buys, there could be, at the most, limited slots for niche genres."

The big question is: will the ad rates fall? Starcom's Ravi Kiran thinks they need not. "Our sense is that stations will find it difficult to raise prices; but won't have to actually lower the rates, which are quite reasonable now. In any case, unlike the licence fee days, revenue share model would reduce the temptation to get revenue through short-term price hikes. I believe the station owners can now think long-term."

In a broad range, 10-second radio slots cost between Rs 500 and Rs 2,000, with rates in Mumbai and Delhi on the higher side.

Some industry watchers, however, fear that the lack of content differentiation would force newcomers to adopt predatory pricing tactics in order to capture the market.

"In major cities, there's already a base of listeners. That base won't increase drastically with the coming of new players. So, a drastic fall in rates can't be ruled out," says Rau.

Maran agrees. He says lower rates are the only way newcomers are going to get noticed by advertisers.

Another restriction — that each player shouldn't own more than 15 per cent of the total number of channels in the country — will prevent a player from being, say, a Star Plus of radio. In other words, nobody would be able to offer that kind of reach, dear to national advertisers on the look out for alternative media.

"National advertisers like media partners who offer geographical expanse," says Atul Phadnis, Vice-President of TAM Media Research, which also tracks radio ads.

An advertiser, he explains, will prefer one station that reaches, say, 10 per cent of the audience than 10 stations with the same collective reach, even though the former is available at a slight premium.

Local advertisers, however, don't go by this rule, and they have a commanding presence in FM radio. Four-fifths of earnings from ads in Chennai are from them. The ratio is slightly less, yet a significant two-thirds in Mumbai.

Local advertisers will be significant when private FM radio gets introduced across 330 stations in 90 cities, as per the Government plan. "The radio market will see phenomenal growth, especially in sub-metros and smaller towns. It will also be able to now serve the needs of smaller/medium size advertisers by providing them a cost-effective medium to advertise," says Red FM's Abraham.

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