 "Ads to offset radio players’ auction costs")
The recent auction of the first tranche of radio frequencies saw the government mop up Rs 1,157 crore in bids, more than twice the aggregate reserve price of Rs 550 crore for the 135 frequencies up for sale across 69 cities. It is expected most of the companies that bought frequencies will bank on advertising revenues and activation (on-ground engagements) to help recover the costs.
More than half the total bid amount was accounted for by two companies — HT Media (Fever FM) and Entertainment Network India Ltd (ENIL), which runs Radio Mirchi FM radio station. The two put in Rs 340 crore each. While HT Media acquired 10 new frequencies, ENIL added 18 to portfolio. Jehil Thakkar, partner and head of media and entertainment practice, KPMG in India, says, “From a purely fund-raising perspective, this was a successful auction for the government. However, there were a number of cities and even more licenses that did not find takers. This was partly due to the reserve price being too high in some cases; it could also be that funds were diverted to some of the more attractive markets. Radio is important in any consumer market, as it is a key lever for local consumption and media plans. To encourage wider coverage of radio, scarcity premium should be kept at manageable levels.”
Of the 135 frequencies, 38 (across 13 cities) were unsold.
Among those that attracted bids, there was a huge gap for three to four metros, compared to other cities. The lone frequency from Delhi went for a whopping Rs 169 crore (HT Media), followed by the two frequencies in Mumbai at Rs 122 crore (HT Media and Digital Radio Broadcasting). The frequency in Bengaluru cost ENIL Rs 109 crore.
Subsequently, the bidding saw a steep fall in terms of value, as the next in the pecking order, in terms of cost, were two frequencies in Pune (Rs 42 crore each).
Prashant Panday, chief executive of ENIL says, “We were definitely stretched a bit and ended up spending more than we anticipated. For one, there was a scarcity created for metro frequencies, which meant players had to stretch themselves for those. We are, however, confident of making returns on the frequencies we have picked up.”
Experts say advertising will be the key revenue generator and companies such as ENIL and HT Media, which have multiple frequencies in metros and Tier-I and -II markets, will be able to raise rates. As they have already expanded inventory, it will add to their revenue in a significant way, say analysts.
Thakkar of KPMG says, “Advertising continues to be the main source of revenue for radio stations. While the price of licences in major urban centres exceeded expectations, the hope is radio is a play on India’s long-term consumption story. There is no standard break-even for a radio station; it depends on the location and format.”
Most leading playing are expected to increase ad rates, despite the growth in inventory, though many aren’t confirming this. While the number of frequencies acquired by Sun TV’s Red FM, as well as their cost, hasn’t been disclosed by the network, the radio station recently increased rates 35 per cent.
An executive from the radio sector says, “ENIL now has three frequencies in Hyderabad, which means it can provide a wider variety of content in a city that is cosmopolitan and has an appetite for regional and Bollywood fare. Another revenue stream for radio stations has been activations, which have been high-margin business units. I am sure activations will continue to play a huge part in their business plans.”
Some also bid conservatively. Radio City, for instance, ear-marked Rs 65 crore for bidding and ended up spending that amount to buy 11 frequencies. Reliance Broadcast Network Ltd’s Big FM added 14 frequencies for Rs 117 crore, which it claims was within its budget.
Apurva Purohit, chief executive of Radio City 91.1 FM, says, “We got the mix of stations we wanted, which will enhance our current and very successful strategy of concentrating on high-potential markets and delivering the maximum impact for clients.” In fact, our network delivers possibly the best CPT in the SEC (socio-economic class) AB audience across all networks. MBL is already a very profitable network and we have a strong team in place. We will break-even on our new network within two and a half years.”
