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How Radio One turned all its stations EBITDA positive
MUMBAI: Back in 2009 when Radio One began restructuring its formats to be ‘away from the herd’, it met with a lot of scepticism. But, five years since, all of its seven stations have turned EBITDA (earnings before interest tax depreciation and amortisation) positive for the first time on the back of this very differentiation.
Radio One MD and CEO Vineet Singh Hukmani tells TelevisionPost.com that the restructuring of formats in the seven cities gave Next Radio Ltd (Radio One) the prime mover advantage, building a rapport with the listeners as well as advertisers, thus leading to profit. He says that all the stations are doing well yielding an EBIDTA margin of 35.3 per cent.
For FY’14, all its stations across the seven cities of Mumbai, Delhi, Bengaluru, Kolkata, Ahmedabad, Chennai and Pune have turned EBITDA positive.
In Q4FY14 itself revenue surged 20.24 per cent to Rs 15.68 crore ( Rs 156.8 million). Operating profit (EBITDA) grew marginally to Rs 5.69 crore (Rs 56.9 million) for this quarter. However, this translated into an EBIDTA margin of 36.2 per cent. Annual EBITDA margin was at 35.3 per cent in spite of 13 per cent increase in EBITDA to Rs 20.81 crore (Rs 208.1 million).
While it was looked upon as a sceptic move by industry experts, Radio One went ahead and changed its regional Bengaluru station to a local Bollywood station in FY2008–09. The station began showing profits within eight months of the change, thus strengthening their belief in the step taken.
This led to Pune turning into a 100 per cent Hindi station among many Marathi stations in FY2009–10. The station became profitable within six months of the change.
After that, there was no looking back for the team as they spearheaded the move to turn its two main stations in the metros of Delhi and Mumbai into international stations in FY2012–13. And these stations too were immediately lapped up by listeners and turned profitable in a matter of nine months.
Hukmani says, “The minute you are different, people start recognising you and you get value which helps in increasing the rates and providing value to the listeners and advertisers.”
The strategy was then replicated in Ahmedabad and Kolkata which were converted into 100 per cent retro stations in the same fiscal, after playing a mix of old and new songs. Not surprisingly, these stations also turned profitable within 10 to 11 months.
Chennai was the last in the pack to adopt a completely different route, turning into a complete request station towards the beginning of 2013–14.
“Only Chennai, where we made the change last, turned profitable this year. The process of restructuring formats was done with full local knowledge of the listeners in a step-by-step process bringing us to a year where all seven stations are EBIDTA positive,” Hukmani explains.
Format differentiation was a key factor for success but that was not all. The content of the stations now appeals to a well-profiled educated audience and the guests on the shows range from CEOs of companies to musicians and more.
The network also boasts a strong digital engagement with a business model that targets the educated mass both in the forms of online broadcast and social media integration, which it hopes to take forward to other cities in Phase III.
But though most other stations benefitted on the back of political advertising in the last quarter, it was not much of a game changer for Radio One, as its segment-wise top line contribution was only 1.7 per cent.
“Our total top line has grown 17 per cent over last year while the industry has only grown 7.2 per cent in these seven cities. So our growth has come from our differentiated play led by innovative programming,” he adds.
This, in turn, has also helped in terms of advertising growth, as the station has managed ad hikes by offering premium value to its advertisers. It also claims that its advertisers target the educated mass and are thus exclusive to them.
Hukmani states that advertisers prefer the network because of its high-impact programming and solution idea for the target audience, and also because it offers proof of target with excellent online response.
In fact, 30 per cent of the network’s revenue comes from exclusive clients who apparently do not advertise on any other radio station.
Also giving credit to his sales team, he adds, “Over the past three years, our sales team has got accustomed to selling difference at a premium price and that is why they succeed. We initiated a 20 per cent price increase in February 2014 and we have already achieved a 14 per cent incremental average across cities already.”
Meanwhile, the company generated 98 per cent of cash flow from operations during the current quarter. “Cash generated is a measure of efficient operations. When you grow your business at a small incremental cost of operation, cash generated grows exponentially,” explains Hukmani.
He further adds that the company’s cash generation is growing year on year at over 95 per cent.
“It is a measure of our efficiency that we are able to pay our debts and substantially reduce the interest cycle which further improves cash available next year.”
One of the major drivers of this steady cash generation is the cost-saving methods the company has adopted over the past few years.
The network claims to have invested only in product development and digital engagement to create the right impact and engagement.
Hukmani elaborates, “We have saved money because we don’t spend on empty reach and we certainly do not spend money on inefficiencies like activation and off-air marketing. We have the lowest team size per city averaging 17 people, which is almost half of the industry average.”
He also proudly states that Radio One has had the lowest attrition rate (less than 2.5 per cent) in the last seven years.