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Phase III: A mixed bag for radio broadcasters

By Nandana Das , afaqs!, New Delhi | In Media Publishing | July 08, 2011
According to the new policy announcements, FM channels can feature news bulletins from AIR; the FDI limit has been increased from 20 per cent to 26 per cent, and it is proposed to give licences to 839 new FM channels.

The Indian government has finally given a nod to the clearance of the much-delayed FM radio expansion Phase III, which will allow private radio channels (FM) to broadcast news of All India Radio (AIR). The cabinet has also increased foreign direct investment (FDI) and foreign institutional investment (FII) limits in FM radio broadcasting companies, from 20 per cent to 26 per cent. Though this is a very minor increase, the expansion of the medium to 300 cities will make it a truly pan-Indian medium, with proposed 839 new FM radio channels.

However, radio operators do not seem very enthusiastic about broadcasting news from AIR as they are unlikely to fit into the tones and renditions of the private FM stations.

Prashant Panday, chief executive officer, Entertainment Network India, says, "We are all large and responsible media houses. It is ironical that we have to take news from AIR.

"This is not a comment on AIR's news quality - it is just that we believe this policy is anachronistic with the times."

However, Vineet Singh Hukmani, managing director, Radio One, a Mid-day Multimedia and BBC Worldwide joint venture, comments, "We have waited for so long for doors to open - so we are satisfied that at least a window has opened."

Hukmani echoes Panday's views of letting the radio stations package the news bulletin in "the channel's way". He adds, "Each FM station follows a particular style. We should have been allowed to abide by it."

On the other hand, Anurradha Prasad, chairperson and managing director, BAG Infotainment and president, The Association of Radio Operators of India (AROI) feels that perhaps it is just another model being worked for AIR, through which the government can earn more money.

Apurva Purohit, chief executive officer, Radio City, says, "Certainly we would have preferred to deliver news in our own formats and sources. However, in the overall context of the policy, at least this is yet another step in the right direction - although a small one."

Tarun Katial, chief executive officer, Reliance Broadcast Network, has welcomed the government's move of FDI at 26 per cent. He says, "Now investors can largely look at a more active participation in the management of the company."

Multiple frequencies will be made available through the new revisions, which will be a revenue multiplier without huge incremental CAPEX/OPEX. In addition to key urban centres, a network of C and D cities will see a significant increase in radio inventory and the pricing power offered by multiple frequencies in cities will lead to content innovations and drive growth.

Hukmani mentions, "It is to be noted that 80 per cent of the radio reach is in C and D towns."

Echoing Katial's view, Panday says that it is a good decision because it aligns radio FDI limit with that of other media segments. "It will help companies like ENIL, where FDIs will be able to play a bigger role. However, I am not sure if strategic investors will come in big numbers. For strategic partners to come in, the sector has to become viable and profitable first."

The Union cabinet has also given a nod to the proposal of the Ministry of Information and Broadcasting to conduct e-auctions for the award of FM radio licences. As claimed by the government, this will enable revenue generation of Rs 1,733 crore from the auction of licences for services in 227 cities.

Prasad feels that auctioning the new licences in the 3G way is not right. "In 3G, consumers pay for the services, unlike radio, which is free for all. So, the ad revenue generated will not be too great, which will lead to low profit. High fee for licences in radio is just not acceptable."

S Keerthivasan, business head, Fever 104 FM is of the view that the e-auction route will take the licence fee to a high, especially for frequencies in metros such as Delhi and Mumbai.

As a part of the Phase III expansion plans, licences will be given to 839 new channels, which is bound to lead to more fragmentation and segregation of advertisements.

Purohit says, "The quantum leap will definitely help the growth of the medium in the country. As a truly national medium now, it will draw advertiser interest even more strongly. We see this policy as being the final stepping stone in the medium, garnering its true share of 8-10 per cent of the advertising pie, which is the international norm. Both national and local advertising is going to increase in Phase III as reach expands."

On the other hand, Katial says, "With this policy announcement, the number of stations in each city will remain a maximum of nine in the big cities, and about three in the smaller ones. So, there is not going to be any major impact of that. In fact, with more supply and more regional markets getting covered, radio will boom. I am confident that radio will grow by a CAGR of at least 25 per cent in the next five years. Its share should rise from the present 5 per cent of the ad industry to 7-8 per cent in the next few years."

According to Hukmani, the revenue for the first few years is bound to be less. "Unless the ad rates of the whole radio industry go up, Radio will not see much profit," he concludes.

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