18 Nov 2017
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Rationalisation of auction prices and cutting ad inventory needed for FM radio sector to grow

MUMBAI: Taking a leaf from the unsold frequencies in the second batch of the Phase III auctions, the government should rationalise the reserve prices to make it economically viable for the players to bid for new frequencies.

The FM radio companies also need to bring down advertising inventory to at least 10-12 minutes per hour so that rates go up, industry experts at FICCI frames said on Thursday.

These two steps would help in building the ecosystem for the private FM radio sector to grow in India.

Only 25% of the frequencies on offer got sold in the second batch of the Phase III auctions due to high reserve prices. In the Phase III auction, which began in July 2015, the government had offered 800 frequencies for auction in 294 cities.

Prashant PandayEntertainment Network (India) Ltd managing director and CEO Prashant Panday said that the frequencies would only attract bids if the reserve price was reduced and larger spectrum was offered. “We all saw the impact of high reserve price in batch 2 of Phase III auctions. There is no economic viability for players under such prices,” he said.

ENIL, the FM radio broadcasting arm of the Times Group that operates Radio Mirchi channels, was one of the few bidders in the second batch and won 21 licences for Rs 51.3 crore.

“We bought the smaller frequencies where we found economic viability. As we have a bigger base, we could afford to bid at that cost. The government needs to open up spectrum,” Panday said.

Elaborating on his point, Panday said that Jabalpur with a population of around 10 lakh has four licences while Mumbai with a population of 2 crore, has just nine licences.

Compared to the first batch of Phase III FM radio auctions, in the second batch only 66 frequencies in 48 cities got sold out of 266 frequencies in 92 cities.

Harrish M BhatiaAgreeing with Panday, My FM CEO Harrish Bhatia said: “The challenge is from radio governance itself. The industry must come together and create a currency for the industry. By currency, I mean justification of the station’s positioning that will help advertisers to identify. If we have to enter more cities, many issues need to be tackled—reserve price and opening more spectrum being at the top. In smaller towns, the government is charging one-time frequency cost for 15 years. It is necessary to streamline the process if we want radio to become a mass medium.”

Leading FM radio players at FICCI Frames also said that the advertising inventory should be cut to at least 10–12 minutes in an hour for more listenership and premium programming. The number of ad inventories has increased from 3-lakh seconds a month to 10-lakh seconds a month in some cities, which, in turn, is having an adverse effect on the medium.

Said Panday, “One of the main complaints that we have received is that radio plays too many ads. The increasing ad inventory, which at present is around 20–24 minutes, has had an adverse impact on the medium. We are looking to bring down our ad inventories to bring in more listeners.”

ENIL has maintained a 10-minute cap across all of its newly launched radio stations including the second frequencies in Bengaluru, Hyderabad, or new markets in Chandigarh, Kochi or Guwahati. Radio Mirchi accounts for a total of 35% in the overall radio advertising spend of the country.

Supporting Panday’s decision, Reliance Broadcast Network CEO Tarun Katial stated that people did not come on radio station for ads. When asked if other players should support the decision of bringing down ad inventories, Katial said that, when one player had started cutting down on its ad inventory, other players had to join the trend as listeners would prefer stations with fewer ads.

“It is all about what you give to your consumers. We control our ads by 20 minutes. Radio in metros is still very under-leveraged for the kind of reach it delivers on a weekly basis. The volumes of ad inventory on radio is high and there is headroom for rates to go up,” Katial said.

The panel agreed that certain stations carry 30 minutes of ads in one hour. So, cutting down on the ad inventories would negatively affect their revenue.

Commenting on the revenue crunch, Panday said, “We had an advertising cap of 22 minutes for 15 days during Diwali. We have decided to reduce it back to 18 this year and 15 by next year and 12 by 2019. Yes, we will lose revenue, but there are other ways to report growth. Radio is an important part of promotions and marketing these days, so one can consider increasing ad rates or other such measures. We need to take risk and I am sure all of us would be happy to pull it back for the long-term gain.”

Music Broadcast CEO Abraham ThomasMusic Broadcast CEO Abraham Thomas added that the best way to increase pricing was to restrict supply. “It is not just about restricting the supply in the newer stations but restricting it across. In the new stations, it can be 8–10 minutes. About 20–40% of advertising is coming from local ads, and national ads are also being featured on radio. Today, 65% of the population listen to radio, so we are witnessing growth.”

Hit FM founder and CEO Gautam Radia commented that, although radio did not enjoy the same visibility as TV and films, growth was still there. “The industry has grown 10 times in the last 10–11 years. The boundaries are breaking down and radio has tangible advantages, which I don’t think digital can take away,” he said.