Uday Varma is visibly upset. The secretary of the ministry of information and broadcasting, at a Confederation of Indian Industry roundtable on radio in Delhi last month, took radio CEOs to task for criticising the government for the chinks and delay in radio policy. “It is easy to badmouth the government. If we do it too fast, we have an ulterior motive; if we do it slowly even then we are blamed. We need a clear signal from the industry on what they expect,” he said.
Anuradha Prasad, the CEO of BAG Networks, and Prashant Panday, the CEO of Radio Mirchi, whose speeches had sparked off this reaction, remained unflustered by this public ticking-off. That is probably because some of the provocation was deliberate. The policy for the third phase of the licensing of 839 FM stations, cleared by the Cabinet in July 2011, has been hanging fire for 18 months now. The buzz is that since the 2G scam broke around the same time, there is fear on deciding on anything to do with any spectrum, including that for radio.
This policy paralysis has stymied the growth for the Rs 1,300-crore radio industry which needs to expand, fast. In a market with the potential for thousands of stations, India has only 245, in addition to the All India Radio network. The current face-off between the industry and the government tells you how desperate operators are to attain scale and profitability. Of the 30-odd operators, only three are profitable at a post-tax level, says an Ernst & Young report released at the event. After 12 years of privatisation, radio remains one of the smallest segments of the Rs 80,000-crore media and entertainment industry. The internet, which reaches roughly 40 per cent fewer Indians, does twice as much in revenues.
The big issues
“Bring in phase-III quickly because the industry is in a straitjacket,” emphasises Ashish Pherwani, partner, Ernst & Young. He reckons the FM radio industry could go to Rs 2,300 crore within three years of phase-III being rolled out. What then is holding it back?
Some sloth, some fear and a lot of conflicting lobbying. But essentially, the policy is going back and forth over three key issues. One is the auction itself. In phase-I, in 2000, an open, ascending auction for 108 stations ended in overbidding. Ultimately, only 21 stations got launched because operators such as Zee preferred to forgo bank guarantees rather than launch unviable radio stations. In phase-II, closed bids, with a reserve price of zero, worked very well, netting Rs 800 crore for the government with 70 per cent of the 337 frequencies on sale going live.
For phase-III, the Cabinet has recommended an open, ascending, e-auction. This is clearly in reaction to the 2G scam. The ‘e’ part meets the transparency objective and no one opposes that. It is the ‘open, ascending’ bit which could lead to overbidding, unsustainable licence costs and impossible break-even numbers, a la phase-I, that worries everyone. Typically, open, ascending auctions are used in a competitive scenario for things like rare paintings and homes, not for a combination of things such as a bunch of frequencies. “For a medium that is free for listeners and is such a small fraction of the total, this bidding process is unfair,” says Harshad Jain, the business head of Fever FM (HT Media).
| AT A GLANCE The three phases of growth for the Indian FM radio industry | |||
| Year | Phase-I 2000 | Phase-II 2005 | Phase-III (proposed) 2013 |
| Number of cities | 12 | 86 | 294 |
| Number of licences | 21 | 245 (of which 29 are in A+, A and B category cities) | 839 (of which 52 are in A+, A and B category cities) |
| No of radio companies awarded licences | 8 | 38 |
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auctions
tenders
The auction process creates another issue. In an open, ascending auction, the reserve price is fixed. This is the highest bid for a town in a similar category in the same region. So, for example, the phase-II bid of Rs 15.6 crore for Chandigarh becomes the reserve price for small towns in Uttar Pradesh and Haryana, though the potential for ad revenues is not similar. “How can Chandigarh and Saharanpur have the same price,” asks Harrish Bhatia, CEO (radio business), DB Corp. Note that more than 90 per cent of the licences to be auctioned in this round are in Tier-II and -III towns, such as Amravati, Muzzafarnagar and Salem. Pherwani estimates that the total cost base in these small towns has to be in the range of Rs 40-70 lakh if they are to make economic sense.
Rajesh Kumar Singh, joint secretary (broadcasting) in the ministry of information and broadcasting, agrees. “The reserve price is slightly disproportionate in some areas but it is the reserve price. If there are no bids, we could relook at it. But let us go through with the process,” says he. Any more changes will mean lobbing the policy back between the Cabinet and the empowered group of ministers, which is currently looking at it. This would mean more delay. The industry’s worry — that the prices in phase-III will form the basis for phase-IV — has to be resolved.
The second issue is frequency allocation. One of the things holding back the government was the scarcity of spectrum, large parts of which are with All India Radio or the defence services. The industry has a solution. The minimum gap between frequences of two radio channels to avoid overlapping is 800 MHz. By reducing this gap to 400 MHz, you can double the capacity within the existing spectrum. The government could then auction this additional spectrum freed up by the private sector. This, say insiders, is being blocked by radio operators on the verge of selling out. They reckon that any oversupply will hit their valuations. The government’s position is that there are technical issues with this. “Then let the industry deal with it,” retorts Panday.
The third issue; it is not clear whether the licences issued in phase-I will be renewed and at what price. With these licences set to expire in another three years, most players going to investors for phase-III financing face a tricky question: How to make a business plan if you don’t know whether you still have a licence and at what price?
Add one more variable. According to the Ernst & Young report, only Radio Mirchi has consistently reported operating and net profits for the past seven years. Among the other radio companies listed on the stock market, Big FM (Reliance), My FM (DB Corp) and Fever FM have broken even on Ebitda (earnings before, interest, taxes, depreciation and amortisation) in recent years. With licences due to expire soon, there is very little time left to recoup accumulated losses estimated at a whopping Rs 2,400 crore.
A question of programming
These three issues affect the one thing that everyone cribs about — programming variety. The ability to own more than one station in a city (not allowed currently) and a lower licence fee will give a double boost to experimentation. “The moment the licence fee increases, plurality goes for a toss. Indigo (owned by Rajeev Chandrashekar’s India Radio Ventures) paid rock-bottom prices and, therefore, it can afford to play English music. At the prices we paid, we need to play mainstream popular music in order to get maximum listeners and, therefore, advertising,” says Panday. Remember that advertising is the only source of revenue for radio. The companies that are profitable, Radio Mirchi or Big FM, have done so by having 50 or more stations and offering a region or a state to advertisers. But, given that radio is a supplementary, background sort of medium, advertising rates are still a problem, with some stations getting as little as Rs 50-100 per ten seconds. For both rates and ad spends to grow, expansion is an imperative.
That brings us back to phase-III. Some players talk of taking the ministry of information and broadcasting to court over this one. That will be taking a simple disagreement too far. It is time then for Varma, Panday, Prasad and co to have coffee, with some light music in the background perhaps.
