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Author
Source
Forthright
Subject
Marketing
Date
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.
Exposition:
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.
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 amount
across 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
comparison to the current 2%. This in effect creates a Rs.13 Billion opportunity in a short span 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?
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 Symbiosis Institute of Business Management, Pune
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
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
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 Symbiosis Institute of Business Management, Pune
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. b. broadcast.
If the companies are allowed to operate multiple channels they would be able to cater to different
Let a company operate multiple radio stations in the same region Distinguish channels based on the content that they propose to
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 would come 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!