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Friday, July 8, 2011

Phase III of FM radio rollout gets go-ahead

This news story first appeared in DNA Money edition on Friday, July 8, 2011.

Radio buffs stay tuned in, the fare’s getting bigger.

The Cabinet on Thursday approved the information and broadcasting ministry’s proposal for expansion of FM, or frequency modulation, radio broadcasting services in the country.

Under the proposals —- the third phase of expansion, or FM Phase-III, policy —- FM radio services will be extended to about 227 new cities, in addition to the existing 86, with as many as 839 new FM radio channels covering 294 cities. In fact, all cities with a population of 1 lakh or above will be covered by private FM radio channels in this phase.

The rollout is expected to fetch Rs1,733 crore in revenue for the government.

Industry players welcomed the announcement.

The policy allows radio companies to expand their network, put a revenue multiplier in place and make radio a healthy and profitable business, said Tarun Katial, CEO, Reliance Broadcast Network Ltd (RBNL). “Some of the things the government has been able to resolve in Phase-III were actually the key issues for the industry and it looks like a policy that can bring about the transformation that radio desperately required, starting with the foreign direct investment limit being raised to 26% from 20%,” he said.

Ashesh Jani, partner, Deloitte Haskins & Sells, said the policy will give a boost to the sector. “More so because this opens an investment opportunity to many in an era of an uncertain stock market and limited vistas of investments.”

According to Jani, for both radio station owners and advertisers, spreading to newer cities amounts to tapping an untouched market.

Multiple licensing is another provision the industry has welcomed, saying it will lead to varied offerings such as sports, news and cultural affairs, helping expand radio’s reach further.

FM channels have now been allowed to carry news content sourced from All India Radio and give public service information, such as information on sports, traffic, weather, exam results, admissions, career counselling and job opportunities. Announcements concerning civic amenities, such as electricity, water supply, natural calamities and health, can also be broadcasted.

But there’s a catch —- the private players will most likely have to buy news content from AIR.

Harrish Bhatia, COO, MY FM, conceded as much: “The FM radio channel business will continue to be under stress, unless the music royalty issue gets resolved completely. We have been demanding extension of licences for 15 years and we still have no clarity on the same. Buying news content from AIR is also something that needs to be looked at differently.”

Also, though private operators can own more than one channel, they cannot own more than 40% of the total channels in a city.
Not everyone, though, is excited about the multiple-licensing provision, considering radio is still not a viable business. “I really don’t understand the logic behind multiple licensing in such a scenario. Besides, there are a few unresolved issues and I don’t think there would be many takers for this multiple licensing offer from the government,” a senior official at a FM radio company said on the condition of anonymity.

The government’s target of raising Rs1,773 crore from Phase-III rollouts, though, is seen as reasonable. “If there are over 400 frequencies coming in, I think it’s really worth the money,” said Katial.

But it is also a significant development for the Rs1,200 crore radio industry, feel analysts.

“Currently, the radio industry is relatively small but witnessing robust growth of over 20%. With the introduction of Phase III, the growth rate can go up to 30%. The share of radio in total advertising stands at 5% and is expected to increase to over 7% post Phase III. The development will further boost the strong performance of the leading players, which are expected to see 12-15% advertising rate growth accompanied by a double digit volume growth in FY12. The only concern is high bidding, which will impact the profitability of the players as it is an extremely cost sensitive business,” said Rahul Kundnani, analyst, SBICAP Securities Ltd.

The policy announcement also clears concerns over the government’s allocation approach. It outlines the conduct of ascending e-auction as followed by the telecom department for sale of 3G and BWA spectrum, with necessary changes, for award of FM channel licences.

“The route of auctions has not been cleared yet. We are hoping that it would be rational and the government will have enough spectrum in the market to keep it affordable,” said Katial.

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