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Chase ends, 3 metros gobble 45% of FM radio’s Rs 1,157-cr bid amount

MUMBAI: Even as the first batch of e-auction of FM radio Phase III frequencies has ended, certain clear trends have emerged.

Delhi, Mumbai and Bengaluru are shaping up as the three big FM radio cities as they account for 45.3 per cent of the total bid amount.

The three metro cities, each crossing the Rs 100-crore mark, received a total winning bid amount of Rs 524.05 crore (Rs 5.24 billion).  The other 53 cities were pocketed for Rs 632.85 crore (Rs 6.33 billion), with the tail attracting less value.

Ending 32 days of intense activity, the private FM radio companies coughed up Rs 1,156.9 crore (Rs 11.57 billion) to win 97 channels in 56 cities. The business models will evolve, but given the high bidding in many cities, there will be pressure to increase revenues. The gestation period for stations to become profitable would be longer, media analysts predict.

Delhi, which had a single frequency up for auction, topped with Rs 169.17 crore (Rs 1.69 billion). Mumbai, which had two frequencies on sale, got a total of Rs 245.62 crore (Rs 122.81 crore) per frequency.

Led by leading technology companies, Bengaluru emerged as the most lucrative city in South India for the radio operators. It received a winning bid of Rs 109.25 crore (Rs 1.09 billion).

Top 3 city radio channels

The top three outdistanced the others by a long way. For national FM broadcasters, the dependence on these three cities for revenues will be high.

Following the three big cities is Chennai, the home turf of Sun TV Network. Incidentally, it is the only city to have received a winning bid amount of over Rs 50 crore (Rs 500 million), but falls well behind the top-three bracket.

In hot chase were Pune and Ahmedabad. Being a mini metro and the home city of Prime Minister Narendra Modi, Ahmedabad saw a lot of demand. Even in television, the state of Gujarat has seen a string of launches of local-language news channels.

Neighbouring Mumbai, Pune is of interest to the FM radio broadcasters. The city is seeing high growth. Incidentally, Pune is one of the few markets in India where DTH rules over cable TV and the average revenue per user (ARPU) is high.

Jaipur featured in the middle, getting a price of Rs 28.3 crore (Rs 283 million) for its single available channel.

Top 4 citiy radio channels

Below Jaipur, eight cities grossed between Rs 11 crore (Rs 110 million) and Rs 20 crore (Rs 200 million).

Top 8 city radio channels

Twenty cities, mostly belonging to Categories B and C, got a provisional winning price that ranged between Rs 1 crore (Rs 10 million) and Rs 10 crore (Rs 100 million).

Top 20 city radio channels

21 cities garnered provisional winning prices ranging from Rs 12 lakh (Rs 1.2 million) to Rs 84 lakh (Rs 8.4 million). Of these, 5 cities crossed the Rs 50 lakh (Rs 5 million) mark.

Top 21 city radio channels

Meanwhile,13 cities remained unsold. Interestingly, 11 of these cities are in South India.

Top unsold cities radio

According to radio players, this was because the reserve prices were obnoxiously high.

“Who would bid in Vijaywada if the reserve price was Rs 7 crore?” said a radio operator.

The 2006 bidding in South India was irrational with a player putting extremely high bids back then. Such extremely high reserve prices made the auction unviable this time around. As a result, many smaller stations/frequencies went unsold.

Who said what before the auctions?

Entertainment Network India Ltd (ENIL) was planning to invest Rs 600–700 crore (Rs 6–7 billion) in the first batch of Phase III auctions, MD and CEO Prashant Panday had said prior to the auctions. This would include migration fee, bidding amount, and capital expenditure for the new stations. The capex would be Rs 60–80 crore (Rs 600–800 million) if ENIL got 20 stations in Phase III.

Radio One had earmarked Rs 200 crore (Rs 2 billion) for the renewals and auctions, MD and CEO Vineet Singh Hukmani had said. The network would mainly focus on adding five new frequencies to its already operational seven.

“In the partial auctions, we will bid for two to three larger metro cities. Our aim is to acquire two frequencies in cities where we already exist, which are Bengaluru and Pune,” he said.

DB Corp, which has presence in Tier II and III cities, was stated to invest around Rs 40 crore (Rs 400 million) in the Phase III auctions for new stations. A separate amount would be invested in renewing the licence of its existing FM radio stations, which operate under the MY FM brand. Its strategy was to bid only in those markets where DB Corp has strong print presence.

Following the company’s acquisition by Jagaran Prakashan Ltd, Radio City CEO Apurva Purohit had stated, “We now look forward to expanding aggressively in the upcoming Phase III auction and cross-leveraging on strengths.”

Sun Group had allocated Rs 350 crore (Rs 3.50 billion) for fresh licences. Red FM COO Nisha Narayanan had said that the company had a strategy in place to expand their presence aggressively.

It will be interesting to know how aggressively these radio companies spent to win frequencies.

Post auctions, what’s next?

As per the NIA released prior to the auctions, the e-auction of the first batch consists of two stages—the channel allocation stage and frequency allocation stage. After the channel allocation stage is over, the frequency allocation stage will commence on the next working day, i.e. 9 September, 10 am.

During this stage, the provisional winning bidders will be allowed to select the FM frequency for the winning channel from the frequencies already identified in the respective city.

It is pertinent to note that the frequency selection preference will be based on the rankings of the bidders. For example, Bidder 1 will have the first preference to choose from the frequencies already identified. All the identified frequencies were made available for selection and included in the NIA.

The winning bidders will pay the sum of the auction determined by the winning prices for the cities based on which they were assigned a channel. All the winning bidders in a city will pay an equal winning price.

After the e-auction process is over, the government will notify the list of successful bidders. As per the memorandum, the participants must maintain confidentiality and the bidders must not disclose the status of their participation, including whether they continue to bid in any or all of the cities, in any of the auctions, until the completion of the relevant auction.

The bids made in the auction will be valid for a period of one year from the date when the bids were made.

It will be interesting to see the list of successful bidders, especially in the high value cities of Delhi, Mumbai and Bengaluru.

The bidders provisionally won more than 71 per cent of channels of the first batch. Cities like Guwahati, Bhubaneswar, and Jodhpur witnessed robust bidding activity with provisionally won price as high as 800 per cent over the reserve price. Overall, 18 cities were provisionally won at prices more than double their reserve price.

At the end of the channel allocation stage, 97 channels in 56 cities became provisionally winning with a cumulative provisional winning price of about Rs 1,156.9 crore against their aggregate reserve price of about Rs 459.8 crore.

The sum of the provisional winning prices surpassed the cumulative reserve price of the corresponding 97 channels by Rs 697.05 crore (Rs 6.97 billion), or 151.58 per cent. Overall, the cumulative provisional winning price exceeded the total reserve price of the first batch of Rs 550.18 crore (Rs 5.5 billion) by Rs 606.72 crore (Rs 6.07 billion), or 110.27 per cent.

The closure requirement of no bid for any channel in any city was received in the 125th round with the auction activity requirement (AAR) set at 100 per cent.

The e-auction of the first batch of FM Phase III comprising 135 channels in 69 existing cities of Phase II had commenced on 27 July 2015.