Western Railways opens bid with high expectations

By afaqs! news bureau , afaqs!, New Delhi | In OOH News | November 20, 2008
OOH players have been invited to bid for a seven year contract with Western Railways


Railways has called OOH players to bid for a steep seven year contract for rights to advertise on the suburban section of Mumbai railway stations from Churchgate to Dahanu Road. The company with the winning bid will have inventory options at 36 different stations on this stretch.

The minimum bid price for the contract is Rs 40.5 crore per year, taking the total minimum bid amount for seven years to Rs 283.5 crore. According to the new contract, the winner will have to up the licence fee from the second year onwards by 10 per cent, 15 per cent, 20 per cent, and so on. This will be on an annual basis from the previous year's licence fees. The licensee will be allowed to pay the licence fee on a quarterly basis and put up media at their own expense, apart from using the media options already available at the stations.

At a time when brands are chopping their ad budgets, is it reasonable on the part of Western Railways to ask for such an exorbitant licence fee? Even if outdoor companies are willing to make this huge investment, what will be the assurance of good returns? afaqs! spoke to some movers and shakers of the OOH industry for answers to these questions.

Virender Raina, senior general manager and national business coordinator, Serve and Volley, says he thinks that the minimum bid price is on the higher side. "Due to the economic slowdown, many big players of the industry are withdrawing from long term contracts. There is no surety of timely returns in the OOH business at the moment," he says.

Raina adds "Currently, 80 per cent hoardings are lying vacant in the metros. Whoever wins this bid will have to wait for a period of at least seven months to get substantial returns. Also, the new financial year will bring fresh budgets. This will be followed by the rainy season, which is certainly not a good time for outdoor media. It is only in September 2009 that one can expect any returns. I doubt if there are many OOH players who can afford to lock their investments for such a long period."

Some OOH companies already have media rights at some of the stations on the stretch from Churchgate to Dahanu. These will retain their rights as per the contract. Ajaz Memon, director, Network Media Solutions, explains, "We have put up 360 digital clocks at various stations and have advertisement displays below them. This has been done as part of the contract we signed with Western Railways in October 2007. Once our contract expires in 2009, the property will be handed over to the winner of the tender bid."

Memon also says that it will be difficult for Western Railways to get the high licence fee it is demanding. But at the same time, he says that he believes that the section from Churchgate to Dahanu will boost the portfolio of any outdoor player.

Arun Pinto, regional vice-president, West and South, Big Street, voices a similar opinion on the potential of the property offered by Western Railways. "The licence fee is high, and as a potential bidder, we will have to work on our revenue model. There are brands in the market that would love to bank on the strategic location of the stations."

Indrajit Sen, OOH veteran and newly appointed president at Laqshya Media, says he would like to explore the possibility of bidding for this contract, though he points out that Western Railways is running the property in an unorganised way, and there are certain loopholes in the contract.

"The Churchgate station is cluttered with advertisements. Western Railways wants to earn more money by compromising on the quality of the media. It is not possible to extract all the advantages in one go, and eventually, this clutter will impact the revenues of Western Railways," he says.

He adds, "All 36 stations will not be hot media selling properties and 50 per cent of the licence revenue will come from Churchgate station. Also, the licence fee will increase with every year and that is enough to break the back of any media seller."

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