FICCI-KPMG-Report-13-FRAMES

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124 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
The power of a billion: Realizing the Indian dream 125 In 2011, TRAI had initiated a process of evaluating the possibility of reducing the channel separation between two adjoining FM channels from the present 800 Khz to 400 Khz – a worldwide practice. Doing this will immediately double the number of channels in each city. Some of the leading radio stations had supported the proposal for key metros on several grounds, including expansion of FM radio revenue pie in the overall media spends and providing a diversity of content to radio consumers. However, there has been no progress on this front. Internationally, it has been observed that higher number of radio frequencies results in differentiated and niche content being made available to listeners. The FM stations in New York City playing differentiated content substantiates this. FM stations in New York 18 FM stations in New York 18 Frequency Primary Genre Frequency Primary Genre 87.75 Russian 88.1 Jazz 88.3 Jazz 88.7 Variety Music 88.9 Variety Music 89.1 Variety Music 89.1 Variety Music 89.5 Rock 89.9 Variety Music 90.3 Variety Music 90.7 Americana 91.1 Music-Freeform 91.5 Variety Music 99.5 Variety 100.3 CHR 100.7 AC 101.1 Oldies 101.9 Sports 102.7 AC 103.1 Religion – Christian 103.5 CHR – Rhythmic 103.9 Adult Contemporary 104.3 Classic Rock 105.1 CHR – Urban 105.5 Rock 105.9 Classical – Music 92.3 Contemporary Hit Radio (CHR) 92.7 Spanish Mexican Regional 93.1 Spanish 93.5 Caribbean Music 93.9 News/Talk/Public Affaris 94.7 Country Music 95.5 CHR – Rock/Pop 96.3 Spanish 96.7 Christian Contemporary 97.1 CHR – Urban 97.9 Spanish 98.3 Adult Contemporary (AC) 98.7 Sports 106.7 Adult Contemporary 107.1 Rock AC 107.5 Urban AC Going forward In union budget speech on 28th February 2013, Finance Minister Shri. P Chidambaram said that the phase III expansion is likely to take place in FY 2014. The government had in December announced the reserve price for the proposed stations. This announcement has definitely provided a ray of hope to the radio players. The key drivers that would propel the radio going forward are release of spectrum especially in larger cities, less regulation of content, increased focus on client by devising innovative solutions and development of a robust measurement methodology. 18. New York Radio guide downloaded from http://www.nyradioguide.com/freqlist.htm on 6th March 2013 © 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.
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Acknowledgement We acknowledge the
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FICCI-KPMG-Report-13-FRAMES

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