The Anchor: 8 key aspects of Phase III that radio companies need to address

23 Nov,2011

By Ashish Pherwani

 

#1 Which licenses to bid for:

The answer is quite complex, as it needs to consider the ability to sell the new stations both singly and as a bouquet, how well the new stations complement the existing bouquet of stations in terms of tactical sales, the future revenue potential from these stations both from the point of view of generating local revenues and adding on to the revenue generating ability of other stations, etc.

 

#2 Bid values: 

The bid value should logically be based on the revenue generating ability of the station over its license period, and expected costs.  But when you factor in that the revenue generating ability depends on the listenership position the station achieves, the rest of radio company’s station network, the efficiency of the sales team, expected competition in the market, etc, and the cost depends on variables like the license period (10 or 15 years), the rate of music royalties, the ability to share infrastructure and content, etc, it’s a complex decision to make!

 

#3 Alliances:

Some radio companies need to consider which stations to bid for on the assumption that they will form alliances with other networks that together will provide advertisers with national, regional or state-wide reach.  In addition, radio companies with existing ad sales alliances may need to reconsider these in the light of the licenses they propose to bid for.

 

#4 Trade licenses that add value to other networks:  

Radio networks are entering the phase where they will be able to begin trading their licenses.  Some radio companies may want to exit, and valuations aside, may find buyers in those wishing to enter the segment, as well as those which need to increase their presence through a more assured mechanism.  Particularly if multiple frequencies are permitted.

 

#5 Using FDI effectively:

Given the increase in foreign investment that is expected to be permitted, radio companies are already looking to identify partners / investors.  The long term strategic fit and the degree of control that is required to be diluted are key areas that need to be considered.  Particularly since there will also be a Phase 4 one day.

 

#6 Go for multiple frequencies:

If they do come into being, the key questions will pertain to the programming mix – what genre should the new station be? – and ad sales – how not to discount the existing station’s rates when selling space to advertisers.

 

#7 Build better MIS and control mechanisms to prevent operational chaos:

Given the growth in the number of stations, the need to refine processes, automate, and ensure an adequate level of controls in the new, and existing, stations, will be key.  As the span of controls increases, controls always get less effective.  Processes which were performed manually across 20 or 30 stations won’t continue to operate across a 100 stations.  Key persons from existing stations will be used across new station launches, and that could cause the controls environment in existing stations to get lax.  Integrating station infrastructure and content, centralising capex and support function, implementing standard operating procedures and accounting checklists could benefit radio companies.

 

#8 Focus on people:

When 300 stations become 900, the number of people is expected to grow by 175 percent as well.  Recruitment, training, and then monitoring the new set of radio operations will be a challenge by itself.  Not to mention managing the inevitable poaching!

 

Ashish Pherwani is Associate Director, Advisory Services, Ernst & Young Private Limited.

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