FICCI-KPMG-Report-13-FRAMES

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The power of a billion: Realizing the Indian dream
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
• on for multiple frequencies in a city is expected to be
granted as part of Phase III. This could also improve
the cost economics as the incremental cost for
additional frequency is significantly lower than that
for an independent station. There is potential for
operational cost savings on staff/manpower, premises,
marketing and overheads related costs. On the capital
expenditure front, there is potential for savings on studio
infrastructure, IT and office infrastructure as a large
part of infrastructure for leading players is already in
place and hence they will be able to reap the benefits of
additional frequencies at limited capital expenditure in
Phase III.
• Also, permission for networking content across
categories of cities is expected to be granted as part of
Phase III licensing (with a stipulation of a minimum 20
percent local content). This could help players build more
cost effective models, with potential of over 20 percent
savings on operating costs.
• The permission for multiple frequencies is expected to
result in established players looking to acquire additional
stations in larger cities to build focused formats. Also,
the reduction of shareholder lock-in period from 5
to 3 years and increase of license period from 10-15
years may encourage consolidation post the Phase III
auctions. Consolidation is likely to enhance profitability
of the players owing scale benefits accrued due to
networking permission.
“
Delay in phase III has hit the growth and
profitability projections of existing players.
Revival of radio industry is possible only when
Phase III reforms are brought about swiftly to
address Industry’s concerns.
Key challenges of phase III
While phase III has many clauses that promise to be
beneficial to the radio industry, there are certain clauses
that need further clarity.
• High reserve price for certain cities
“
- Rahul Gupta
Director and Project Head,
Jagran Radio
The current clause for phase III reserve price states
that the Reserve Price for new channels in existing FM
Phase-II cities shall be the highest bid price received for
that city in Phase-II. In cities which are being taken up
afresh, the reserve price shall be the Highest Bid price
received during FM Phase-II for that category of cities in
that region.
Consequently, the reserve fee for all C category towns
will be a high amount of Rs 156 Million since the relevant
benchmark will be Chandigarh where it was the highest
bid. Likewise, the benchmark in the South for B and
C category towns will be set by Kochi at around Rs 95
Million and Kozhikode at around Rs 70 Million.
Also, Information & Broadcasting (I & B) Ministry
sources have stated that in case the benchmark from
phase II for a particular region is not available, then the
lowest of the highest bid received in other regions for
that category of cities shall be taken as the reserve
price. For new cities in border areas with a population
less than 100,000, the reserve price will be INR
500,000. 17
Industry experts believe that these prices are very high
for many cities and bidding at these levels may not be
viable.
——
Uncertainty on migration fees – There continues to
be uncertainty on the migration fees that is likely
to be charged for radio players who want to extend
their licences beyond the phase II license period.
This prevents the players from predicting the future
capital outflows of radio ventures thereby limiting
their ability to estimate the reserve price they may
be willing to pay.
——
Restriction on news - Broadcasters would be
permitted the carriage of AIR news bulletins on
their stations as part of phase III. However, there
are restrictions on the format of news and only AIR
news bulletins would be allowed for broadcast.
This puts further restrictions on the content
differentiation and creativity of the medium.
Measurement
Measurement continues to be a challenge that is
confronting the industry. Industry players and advertisers
all cite the need for a robust measurement system more
comprehensively covering all radio markets. However, there
have been no major steps in this direction. Industry experts
feels that post phase III when there are more players in
the industry and also when profitability prospects look
brighter, the industry may be able to make investments for
developing a more inclusive measurement methodology.
Content differentiation
“
The major impediments holding back
the growth of Radio industry are lack of
appropriate listenership research and limited
reach to only handful of cities. Radio needs to
grow really fast.
“
- Sanjay Hemady
Chief Operating Officer,
Hit 95 FM
Given the limited number of FM channels available in
various cities and high license price, it becomes difficult
to shift focus away from mainstream film music. The
phase III provisions of permission for multiple frequencies
and permission to allow news, sports and current affairs
may encourage players to come up with differentiated
content. However, addition of more stations in metros
will be instrumental in driving niche content provided the
license fees is adjusted to encourage alternate content like
classical music, regional music or old Bollywood music.
17. “Expect radio ad growth of only 10 percent in 2013” published in RadioAndMusic on 4th Feb 2013