India’s private FM Radio segment to generate INR14 billion in 2012-2013: Confederation of Indian Industry and Ernst & Young Study

India’s private FM Radio segment to generate INR14 billion in 2012-2013: Confederation of Indian Industry and Ernst & Young Study

 The CII-Ernst &Young Study “Poised for Growth: FM radio in India” will be released at CII’s CEO Roundtable on Radio to be held on 21 December 2012

India’s private FM Radio segment is expected to generate revenue of around INR 14 billion in 2012–13, with 245 private FM stations operating in 86 cities, and has been growing at a CAGR of 14% annually. Furthermore, the sector is expected to grow to INR 23 billion, at a CAGR of 18%, within three years of Phase III being rolled out, according to “Poised for Growth: FM radio in India” latest study by Confederation of Indian Industry and Ernst & Young. The sector accounts for around 4% of the country’s total Ad industry. Globally, radio’s average share of the total Ad industry is between 5% – 10%.

This report is the culmination of extensive research involving detailed discussions with the CEOs of radio companies as well as with marketing agencies, marketers, music owners, regulators, and so forth, from across the country.

According to IRS 2012 Q2 data, radio has an estimated audience of 158 million people (out of which FM radio accounts for 106 million), as compared to 563 million in the TV segment and 352 million in the print sector. Advertising revenues comprise more than 85%–90% of the total revenue generated by FM radio companies; non-FCT sales can contribute up to 20% of a radio company’s total revenue today.

Ashish Pherwani, Partner, Ernst & Young says, “The report is a compilation of the views of 23 industry stakeholders including radio companies, regulators, music labels, etc. It highlights the need for a speedy implementation of Phase III, which can grow the radio industry from INR14 bn to INR23 bn in three years, subject to enabling networking and cost management, development of a measurement metric which supports the industry, and ensuring license fee prices during Phase III auctions are not irrational.  The report also highlights operational, tax and technology implications of the industry”.

Current state of the industry

Radio is not considered a primary advertising medium due to its limited number of stations. While larger cities are mostly covered by it, advertisers interested in regional ad campaigns prefer using regional print (which can enable them to reach several more cities and towns than radio currently can) or regional TV, which has grown significantly since 2005. Therefore, radio is only used as a back-up medium for most ad campaigns. However, with the implementation of Phase III, with 839 frequencies being made available for auction, radio is expected to provide advertisers with a much deeper reach.

More than 50% of FM radio consumption is in homes, followed by people listening in transit (on mobile phones and in-car listening) and out-of-home listening at restaurants, offices, shops and so forth. Around 25% of total radio listenership is now on mobile phones, fuelled by handset manufacturers that have made FM radio a standard feature in most of their models. Some radio companies claimed that their research indicates that mobile phone listenership in metros comprises more than 75% of their total listenership.

The study highlights the fact that the key challenges faced by this industry today include limited inventory, inability to demonstrate ROI and slow recovery of ad effective rates (ERs). Therefore, the need of the hour is for radio industry is to collaborate and implement a measurement system that supports the growth of the industry.

Phase III

Phase III of FM radio licensing promises further growth opportunities for the Indian FM radio industry, since it covers 294 cities and 839 licenses.  However, only 52 of these licenses are in high revenue-generating category A+, A and B cities.

They expect the share of local retail advertising to increase from current levels to more than 50% of the total revenues generated in the segment, and activations and other below-the-line marketing initiatives to play a more important role in generating revenues. The margins of radio stations are projected to decline in the short run, stabilize in three to five years and then rise. The growth in mobile and internet ad spends could, however, pose a threat to the rise of FM radio.

Phase III is also likely to make the industry more conducive to M&A due to proposals such as reduction of the license lock-in period from 5–3 years, an increase in the license period from 10 to 15 years, significantly more networking between all the stations to enable cost optimization, ownership of multiple frequencies in a city and an increase in the foreign investment limit to 26% from the current 20%.  The industry needs to push for parity with the FDI norms of other media segments such as broadcast TV. 

According to Mr Chandrajit Banerjee, Director General, Confederation of Indian Industry, in long term, significant growth for the private FM radio industry will only be possible if several thousand stations are operationalized, burden of high license fees is removed by increasing the variable component and reducing fixed costs, and news dissemination is equated with other media.