The FM radio sector is expected to touch the Rs 2,300-crore mark within three years of the roll-out of the much anticipated Phase III licences, according to estimates by CII and Ernst & Young. The sector is expected to close this fiscal year at Rs 1,400 crore with 245 private FM stations.
Currently, FM radio contributes 4 per cent to the total ad industry, lower than the global average share of 5 to10 per cent. The report stated that though radio is not considered as primary advertising platform currently, the implementation of Phase III with 839 frequencies will help the sector provide advertisers with a much deeper reach.
Listenership is largely driven by consumption at home followed by people tuning in when in transit. Around 25 per cent of total radio listenership is now on mobile phones, fuelled by handset manufacturers that have made FM radio a standard feature in most of their models.
The report said while the Phase III auctions of FM radio frequencies is expected to cover 294 cities with the auction for 839 licenses, only 52 of these licenses will be in the high revenue generating category A+, A and B cities. Experts believe though margins of the radio stations will decline in the short run they will stabilise in 3-5 years and rise subsequently.
“Phase III is also likely to make the industry more conducive to M&A due to proposals such as reduction of the license lock-in period from 5–3 years, an increase in the license period from 10 to 15 years, significantly more networking between all the stations to enable cost optimisation, ownership of multiple frequencies in a city and an increase in the foreign investment limit to 26 per cent from the current 20 per cent,” the report stated.
Ashish Pherwani, Partner, Ernst & Young, said that the growth of the FM radio industry revenues would depend on “enabling networking and cost management, development of a measurement metric which supports the industry, and ensuring license fee prices during Phase III auctions are not irrational.”
The growth in mobile and internet ad spends could, however, pose a threat to the rise of FM radio.
Some of the other key challenges highlighted by the report include limited inventory, inability to demonstrate return on investments and slow recovery of ad effective rates. “Therefore, the need of the hour is for radio industry is to collaborate and implement a measurement system that supports the growth of the industry,” the report stated.
According to IRS 2012 Q2 data, radio has an estimated audience of 158 million people, out of which FM radio accounts for 106 million. It also said that advertising revenues comprise nearly 90 per cent total revenue generated by FM radio companies.
Meenakshi.v@thehindu.co.in