"The license fee regime was killing. We will be able to breath easy now," says Abraham Thomas, COO, RED FM.
This is how he had reacted to Thursday's announcement by the I&B ministry, when the yearly license fee regime was waived off, in lieu of a four per cent share of the annual revenue earned by the company.
He adds, "The development is very encouraging for the entire private FM radio industry."
Ambar Basu, vice president, finance, Radio City concurs. He says, "It's too early to comment as we are still awaiting the details of the policy migration. At the same time, let me add that the entire industry supports this initiative. We will be able to build our businesses now."
As per industry estimates, a FM channel has to pay Rs 8-10 crore every year as license fee. And the total revenue earned by the channel in a whole year is approximately Rs 12-15 crore. In such a scenario, radio stations either managed to barely break even, or made a profit with a very low margin.
Under the new regime, a radio channel with a revenue earning of Rs 12-15 crore will have to pay only Rs 40-60 lakh, which 4 per cent of its total revenue earned.
The advertising community is very hopeful about the growth of the private FM business.
As Kajal Malik, regional director, Optimum Media Solutions, says, "While the new regime will open up new markets, the advertising rates are also expected to come down."
She adds, "The rates charged by the radio operators were exorbitantly high, but now with an increase in their profit margin, rates may come down."
As per industry sources, any leading radio channel in Delhi or Bangalore charges a rate of around Rs 1,000-1,500 for a 10-second spot, which is apparently at par with any news channel or a niche channel which has a nationwide reach.
A Delhi-based media planner, says, "If a radio station, whose audience reach is only restricted to the city, puts out an ad bill at par with a national television channel, the rates are undoubtedly on the higher side."
However, Thomas of RED FM feels that the current development wouldn't affect the ad rates at all. He says, "The advertisers will always want the ad rates to move down. But as a matter of fact, the ad rates that they were paying was not because of the high license fees, but because of the number of consumers, or the audience that we reach. Now with the liberalisation and opening up of this sector, the reach of radio stations will only grow."
Under the new regime, many more new radio channels would come up in newer markets. Malik of OMS, says, "This will give a boost to retail advertising, especially in smaller towns and sub-metros."
She explains, "There are local retail players such as a saree shop or a jewellery showroom, who cannot afford the local print media because it is expensive. But with more radio channels and ad rates hopefully coming down, they will get a better organised option. In addition, the production cost of placing an ad, or making an announcement on radio is much cheaper compared to the other media."
Previously, the only option available to local retail advertisers was to advertise on local cable channels, or showing slides at the local theaters.
Another Mumbai-based media planner says, "Cities such as Chandigarh and Hyderabad have been a perfect place for test marketing. Now print advertising in these markets have been very costly. With private FM radio stations coming up in these markets, the advertisers will get multiple cheaper options. As a result, the local print media will feel the heat." © 2005 agencyfaqs!