The lesson so far for FM players

22 Nov,2011

By Robin Thomas

 

FM Phase-I Policy was approved by the Government in July, 1999. Under Phase I policy, a total number of 21 FM radio channels are operational in 12 cities. FM Phase II on the other hand has a total of 336 channels in 90 cities across the Country whereas the much awaited FM Phase-III policy seeks to extend FM radio services to about 227 new cities. Phase-III will cover all cities with a population of one lakh and above, simultaneously, there will be a total of 839 new FM radio channels in 294 cities. In addition to this Foreign Direct Investment (FDI) in radio has been raised from 20 per cent to 26 per cent, if allowed, multiple frequencies will bring new genres in radio leading to content innovations, and the overall advertising pie is also expected to rise from the estimated 5 per cent.

 

While the FM phase II may have been well received by the industry, all FM stations have reported break-even. Smaller FM stations are more likely to face huge challenges ahead especially since the music royalty issue is yet to be resolved. Overbidding in phase I and II could be just one of the issues, MxMIndia asks some of the industry players what lessons the FM radio industry can learn in Phase III from the earlier Phase I and II.

 

Mr Prashant Panday
Mr Rana Barua
Mr Harrish M. Bhatia
Mr. Harshad Jain
Mr. Ashish Pherwani

Mr Prashant Panday, CEO, Radio Mirchi observed, “One main lesson from Phase I and II – Do not bid so aggressively that you can never recover your investments. Those who bid sensibly in Phase-II (very few) are making PAT profits this year. Those who did not are at best making EBITDA break-even. Some are still making EBITDA losses. These people sometimes feel overjoyed that they have turned EBITDA positive; but fail to realise that the returns on investments only start after you turn PAT positive. There are barely 4-5 years left for the licenses to get over. If a company is not PAT positive yet, it has no hopes of generating any decent ROI. This is the main learning from the first two phases.”

 

“The 2nd learning is about being able to bring brands. But to build brands, companies need profits. So again, if you have bid wrongly, you don’t have enough resources to build brands. That’s what our research shows every quarter. That except for Mirchi and maybe one-two other brands in some specific cities, no other radio station has been able to build a brand. They may have listenership, but they still don’t have a brand. There are no attributes that people assign to these brands. No values that the brands stand for. Without a solid brand, listenership suffers. Pricing suffers. And long term profitability suffers” he added.

 


In an earlier interaction with MxMIndia, Mr Rana Barua, COO Red FM said, “One of the critical learning that a lot of us had in phase I and II is not to overestimate the potential of the market. The biggest challenge that lies for all of us is knowing that uncertainty has become such a huge thing today, therefore I think a cautious approach is going to be extremely critical.”

 


According to Mr Harrish M. Bhatia, CEO, MY FM, “What was witnessed in Phase 1 and Phase 2 is totally different than Phase III. The Phase-3 rollout will increase radio penetration, making it a pan-India medium, reaching tier II & III towns. The most important thing that the radio players need to keep in mind is to bid realistically.”

 


Mr. Harshad Jain, Business Head, Fever FM had a different viewpoint, he said, “The regulatory amendments in phase III are ultimately expected to facilitate industry growth.  FDI has been increased and might drive some additional investment in the industry. I do believe that FDI should have been raised further to actually fuel growth and overall industry development. Another key change is to allow multiple frequencies in the same city but we will have to wait and watch how this rolls out in practice. Another key shift in policy is the e-auctioning route as this will take the license fee to new highs, especially for frequencies in metros like Delhi and Mumbai.”

 


Mr. Ashish Pherwani, Associate Director, Advisory Services, Ernst & Young, has seven point suggestions to the FM players, some of them are  the key aspects that all radio companies need to address vis a vis phase III are: –

 

1. “Which licenses to bid for-  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.

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.” In addition to these, “Trade licenses that add value to other networks, Using FDI effectively, Build better MIS and control mechanisms to prevent operational chaos and Focus on People” are some of his suggestions to the FM players.

 

As one of the industry player said FM Phase-III is not the same as Phase I and II, true, but it is bound to have challenges of its own perhaps even more bigger and tougher. MxMIndia will focus next on the challenges for FM radio in Phase-III.

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