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Radio investors knock on ministry's doors
After almost a decade of privatisation, the FM radio business just can’t seem to get the cash registers ringing hard enough. According to an industry press release in December 2009, on revenues of Rs 800 crore, accumulated losses stood at Rs 2,400 crore.

A group of radio operators recently formed the Radio Investors Forum. It met the information and broadcasting minister yesterday, to raise the issue of the lack of viability in FM radio. The forum includes, among others, Mid-Day Multimedia, Radio Mirchi, a Times Group brand, the Bhaskar Group and the Jagran group. These companies along with the Sun Group, Reliance ADAG and others, own the 248 private FM channels playing in India.

The forum asked the ministry to consider raising the limit of the licence period from 10 to 15 years. It also requested the government to deal with the music royalty issue.

A statement issued by the forum said: “We have suggested that an independent and transparent evaluation of the business viability of the existing FM radio industry be conducted before launching the new phase. The minister appreciated the suggestion and directed her secretariat to proceed on that front immediately.”

Phase-III of privatisation is expected to see about 800 stations up for auction. The policy and detailing of the same have already been finalised, according to senior people within the industry.

However, most players are not too keen to invest in Phase-III. “How can I bid when the issues pending from Phase-II haven’t been resolved yet, even while my licence period is running out,” says Rahul Gupta, director, Shri Puran Multimedia (Part of the Jagran group). The bulk of the 248 stations came up post 2006, so most have only six years more left to make a return on their investment.

“All data on radio performance and the revenue prospects going forward points to the fact that while radio has built huge listenership and is providing a useful public service, the commercial viability of the radio players is of extreme concern. The only player making money (and not very much) is the market leader, Mirchi. Going forward, it is extremely unlikely that the radio industry will even be able to get return on investment,” said Tariq Ansari, managing director, Mid-Day Multimedia, on behalf of the forum.

The average radio operator would be in the region of Rs 25-50 crore in revenues. Radio Mirchi had a topline of Rs 228 crore in March 2009.

At one level, this seems funny if not infuriating. Phase-I of FM privatisation in 2000 was botched by overbidding. Only a fraction of the stations bid for were finally launched. A sobered industry and the government put Ficci on the job and based on a report by Amit Mitra, the second round in 2006 was a more sedate affair. Most of the stations bid for were actually launched.

How, then, has radio become unviable all of a sudden? And, if it is the licence period at play, wasn’t this evident before the bidding happened in Phase-II, just over three years back. Some business planning would have happened then. What did the excel sheets show?

Ansari points to two things that went wrong. One, the bidders were bidding in a bit of a vacuum and there was insufficient information on what the market would look like. Also, the boom was on, so there was a great deal of “irrational exuberance,” as he calls it. “The last 24 months of severe downturn in the ad industry contributed. In any ‘normal’ business to lose two years is not a big deal — one can always catch up over time. On a 10-year licence, that is 20 per cent of the licence period, right at the takeoff stage,” says he.

He draws a parallel with telecom. “The (telecom) industry went back to lengthen the term of licence and see how this benefited the nation,” says he. Even if one accepts that argument, what is to say that 15 years would do the deed, given that the royalty issue is still stuck?

That is where Phase-III becomes even more unviable. The bulk of the new stations are in category D towns (the others being A+, A, B and C). The ad potential in these towns is very low, say Rs 50 lakh-Rs 1.5 crore each. To make money in these towns, an operator needs a long gestation period and a low cost operation.

Adds Prashant Panday, CEO, Radio Mirchi, “Even before Phase-II started, we have been talking to the (then) ministry on royalty. We were assured that it would be sorted out, that is why we bid for the small town stations in Phase-II.”

Royalty is the largest component of operating costs. Royalty is calculated on every hour of music played. So, small town stations (a bulk of those coming up for auction) end up with as much as 40-60 per cent of revenues as royalty costs. In big cities, such as Chennai or Delhi, playing the same number of songs costs as little as 7 per cent of revenues. This is because the total radio advertising revenue in each of these cities is about Rs 100 crore or more. So, the operation becomes profitable fast.

In 2008, at the Supreme Court’s behest, the matter was referred again to the Copyright Board and that is where it still rests.

Here is hoping that the numbers make sense after the independent committee has had a look at viability.

Source: Business Standard

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