Private FM radio to generate Rs 14 billion in 2012-13: CII-E&Y study

According to the latest study conducted by Ernst & Young (E&Y) in collaboration with the Confederation of Indian Industry (CII), the sector is expected to grow to Rs 23 billion at a CAGR of 18 per cent in the next three years.

With 245 private radio stations operating across 86 cities and growing at a CAGR of 14 per cent annually, the radio business in India is expected to generate Rs 14 billion in revenues in 2012-13.

And, it's not just this. According to the latest study conducted by Ernst & Young (E&Y) in collaboration with the Confederation of Indian Industry (CII), the sector is expected to grow to Rs 23 billion at a CAGR of 18 per cent in the next three years.

Titled "Poised for Growth: FM radio in India", the study suggests that the sector currently accounts for around 4 per cent of the country's total advertising spend.

E&Y notes that the report is a culmination of an extensive research that involved detailed discussions with the CEOs of radio companies as well as with marketing agencies, marketers, music owners and regulators.

Ashish Pherwani, partner, Ernst & Young says that if the implementation process of the third phase of digitisation speeds up, the industry could grow to Rs 23 billion in ad revenue over the next three years, that is, at an average annual growth rate of 18 per cent. "However, if the roll out of Phase III does not happen fast, the growth rate could be limited to just 10 per cent per year"

, he says.

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 readers in the print sector. Now, advertising revenues comprise more than 85-90 per cent of the total revenue generated by FM radio companies, while non-FCT sales can contribute up to 20 per cent of a radio company's total revenue today.

"Now the biggest problem with radio is that the industry today is faced with limited inventory, inability to demonstrate ROI and slow recovery of ad effective rates (ERs); the only way to grow the inventory is by growing the number of stations," he elaborates.

The current state of the industry

Radio is not considered to be the 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, the report states that 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 per cent 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 and shops. About 25 per cent 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 per cent of their total listenership, E&Y states.

Phase III

According to the report, 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.

These 52 licenses expect the share of local retail advertising to increase from current levels to more than 50 per cent of the total revenues generated in the segment, wherein activations and other below-the-line marketing initiatives will play a more important role in generating the monies. The margins of radio stations are projected to decline in the short run but stabilise 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 to 3 years, an increase in the license period from 10 to 15 years, significantly more networking between all the stations to enable cost optimisation, ownership of multiple frequencies in a city and an increase in the foreign investment limit to 26 per cent from the current 20 per cent. The industry needs to push for parity with the FDI norms of other media segments such as broadcast TV, the report suggests.

Overall, in the long term, significant growth for the private FM radio industry will only be possible if several thousand stations become operational; burden of high license fees is removed by increasing the variable component and reducing fixed costs; and news dissemination is equated with other media, the report concludes.