Sra Radio Industry in India

7/29/2019 Sra Radio Industry in India

1/8

Symbiosis Institute of Business Management, Pune

Title Radio Industry In India

Author Amit Puri, MBA I SIBM

Source Forthright

References

1. ISI Emerging Markets

2. www.capitaline.com

3. www.thehindubusinessline.com

4. www.communityradionetwork.org

Document Type Secondary Analysis

Subject Marketing

Date November 20, 2006

Abstract

The radio industry in India is presently in the red on its bottom line. In this article we

explore the present tariff structures of radio vs other forms of communication. The article

then extrapolates the data to determine the most successful type of business model, the

room for more players and a break even analysis to check profitability. It also includes

recommendations to make radio a more healthy and profitable business.


2/8


Exposition:

Radio: Is it a pie big enough for everyone to party on?

Radio in India is segmented into MW (Medium wave), SW (Short Wave) and FM

(Frequency Module) based upon the frequency of the radio station. It covers 99% of the

countrys population and is also the most cost effective mass medium of one way

communication. The strength of radio lies in its coverage and cost effectiveness.

The penetration of FM radio is estimated to grow from the current 30% to 60% by 2010.

The importance of radio has not been neglected even by the policy makers. The tenth five

year plan targets to get FM to 60% of the Indian populace.

FM has gained popularity in India only in the recent past and but much earlier around the

globe before that, because:

1. It is a means for low coverage broadcasting, thus best suited for deliveringlocalized content

2. It can be used to broadcast stereo-quality music which is not possible using AMor MW thus Making it a preferred low cost medium Broadcast to good quality

music and content

Research suggests that in the ad-avoidance world that we live in, radio can be a friend.

The radio audience is consistent and loyal, and thus radio works better to build brands. It

offers efficient targeting by reaching the right audience at the right time and in the right

place! Radio creates strong emotions which when linked with local people provides strong

communities. Thus whilepeople avoid watching ads on television (by changing channels,

or doing something else) they dont mind listening to advertisements on radio in one form or

the other. Even on the internet, people tend to close advertisement windows as soon as they pop

up which is less likely in case of a radio.


3/8


With mature mass mediums such as television and print available, why is a rush to get a share of

the radio pie observed? Especially when knowing that returns are not as lucrative (the portion of

the advertisement spends on radio is a meager 2% of the entire advertisement spend amountacross media).

The answer seems to be simple. To reach to the masses and also generate value for the advertiser,

radio is an ideal medium. Let us give it a closer look - the potential of the opportunity, the players

vying for it, expansion options and what keeps the hopes high after the first phase of radio

reforms have left a majority of the players in the red.

At present FM radio is present in 12 cities, and would go up to 87 cities, with 245 new stations

being added to the existing 21 stations, and with ad spends to go up to 5% by 2010 in

comparison to the current 2%. This in effect creates a Rs.13 Billion opportunity in a shortspan of 4-5 years.

The opportunity is definitely good enough for several players to try their hands in this

field!

Phase I: A learning curve or a lesson in through failure?


4/8


Phase-I of radio reforms left most of the players entering in the FM market in the red and

several players even had to close down shop. The reason was an extremely high entry

limit. In phase-II the entry limit is effectively the OTEF (One Time Entry Fee) which is linked to

the revenues that the company would generate. This would ensure that any company

entering the market has to pay a lower amount to get in; but just in case it does make it

big, it would have to share the revenue.

Annual License Fee = 4% of the revenue generated or 10% of reserve OTEF whichever is

higher

Existing players have been given an option to migrate to the new regime by paying OTEF

as the average of the successful bids in that city for the radio frequency/license. Clearly

then, it is a step in the direction to increase participation in accordance with the primary

goal of increasing the presence of radio as a mass medium.

Although the entry barrier has been reduced to lure a larger number of players, is the

strategy sound enough to sustain numbers? The number of players entering the arena in

this phase is 43. Considering the size of the opportunity (Rs13bn), each player is left with

an average of just above Rs 0.3bn.

The experience in foreign countries shows that radio developed as a medium for the

masses before the others including TV and internet, while in Indias case TV and internet

are mature mediums already; this could hinder growth of radio as an industry to a certain

degree.

The risks:

No consolidation possible within the current structure. As one company

cannot run multiple station in a single city, smaller players who find it


5/8


difficult to sustain operations, would have no option at a later stage but to

close shop, as there would be few takers for such operations.

With generalized targeting and minimal content differentiation, the strength

of radio might be lost. Globally, radios potential lies in being able to deliver

niche content for specific audiences. With one channel per city and high entry

barriers, generalized content is the only option that most companies would be

left with to generate hearer-ship.

Rs 5Million per station is paid towards music royalties which would make

it an unviable business proposition for the smaller players that too in smaller cities

where revenue generation opportunities are limited.

News and current affairs content is not permitted on private channels thus further

restricting the options available for differentiated content.

At Rs 2116 Cr and 32 stations (13 in A & A+ Cities) ENIL - Radio Mirchi and

1599Crand 45 stations (8 in A & A+ cities) Big Radio (Reliance ADAG) are

the biggest players.

Breakeven analysis:

To check whether it is a viable business proposition for new players to set shop, lets

analyze the costs and revenue generated for one player on a very simplistic basis


6/8



7/8


Assumptions and Considerations

1. Each station is treated as a different entity. Thus the performance of one station

for a company would not affect the performance of the companys other stations.

2.The revenue earned per radio channel is taken as Rs. 12244897 which would not be the

case for all channels and would differ from one city to the other. But this would be

offset by the entry barrier difference between different tier cities.

3. A radio broadcasting setup would require:

i On Air Studio

ii Voice Over Booth(Discussion Studio) Production Studio

iii.Transmission Equipment

Depending on the combination of setup option that a company goes in for the cost would

vary between 9 to 29 lack, for the current breakeven analysis the setup cost has been

taken as 30 lack. The setups have been recommended by BECIL (Broadcast Engineering

Consultants India Limited).

With an estimated earning before tax and depreciation over 1.5 lakhs per station, each

station should ideally break-even in the first year of operation itself, but following are the

problems with the present policy that could hinder the growth:

1. The earning per station would vary and the stations which earn less than the

average revenue as estimated are not left with other revenue generating options.

2. One option for stations is to reduce their expenditure by saving on the music

royalty by catering to specific audiences thus reducing the range of music for

which they would have to pay royalty. This option would reduce the target

audience and thus the revenue as well, inducing a vicious cycle.

Thus, phase-II of the radio policy is a step in the right direction to enable a lot of players

to take it up as an opportunity. There are a lot of loopholes that are yet to be plugged for

the sustained growth of the industry, including:

Option to operate multiple channels

Lower entry limit for niche content channels

Differentiation of radio station on basis of content rather than just


8/8


geography

Option for companies to collaborate

The size of the radio pie as of now is too small for 43 players to co-exist and grow. The

policy needs new thrust either to increase the size of the opportunity (by allowing to

operate in the restricted areas) or to collaborate (so that a few can grow to an optimum

size by consolidating)

Recommendations:

To plug these possible problems that the radio industry could face, the following

recommendations can be considered:

a. Let a company operate multiple radio stations in the same region

b. Distinguish channels based on the content that they propose to

broadcast.

If the companies are allowed to operate multiple channels they would be able to cater to different

audiences by niche channels, the overall operating cost for the company to operate

multiple channels would go down as royalty towards music used by the channel wouldcome down and the company can use the same common infrastructure, e.g. the

production studio.

Infrastructure and technology for operating radio is not a constraint as it is a full blown

industry in other parts of the world. The regulating policy is the only major roadblock in

the growth of the radio industry in India. Limiting the growth potential or even slowing

down the growth curve doesnt make sense. The sooner radio claims its due share of the

market the better. After all, marketers and customers alike wouldnt want to see radio as a

lost opportunity!

Sra Radio Industry in India

Documents

Transcript of Sra Radio Industry in India