Riding on strong first quarter financial performance, leading FM radio players like Radio Mirchi, Big FM, Radio City and others are expected to increase advertising rates by 30-50% between now and October. This could effectively take the average rates to over Rs 600 per spot, rates that prevailed two years ago.

The confidence to increase advertising rates stems from the expectation that the eight-year-old legal tussle with the music industry over royalty rates will be resolved and that the third phase of FM radio will be announced by the government.

?Increasing ad rates has become a necessity as inventories at most radio stations across big cities are full as a result of us dropping the rates two years ago during the slowdown,? Apurva Purohit, CEO, Radio City said.

Radio Mirchi is also gearing up to hike rates across its 32 stations soon. However, the company plans to do it in two phases. ?The price increase for us in August-September will be about 15%. There will be a further increase in October-December depending on the demand scenario,? Prashant Panday, ED & CEO, ENIL (Radio Mirchi) told FE.

However, advertisers need not worry much as large radio operators plans to help them in other markets. ?There are ?set-offs? available which make it a win-win for the advertiser and for us. We have lost 25% of our pricing in the last 18 months. We have stood by advertisers when they faced the economic downturn. Surely they will stand by us when they have rebounded and we are still to,? Panday said.

According to a Pricewaterhouse Coopers report released last month, the size of the Indian advertising industry stood at Rs 21,650 crore in 2009 with radio cornering Rs 900 crore. With expectations of double-digit growth back in the radio sector, FM operators expect the industry to reach Rs 1,100 crore in the current fiscal.

The country?s largest FM radio operator Reliance Broadcast Network (RBNL) has already started hiking ad rates across its network. ?Our inventory utilisation on FM network in tier-II and tier-III towns are over 70% and at some point, we will have to say no to advertisers. However, advertisers are willing to pay more to be on Big 92.7 FM; therefore, ad rate hikes will happen soon,? Tarun Katial, CEO, Reliance Broadcast Network (Big 92.7 FM) recently told FE.

The rate hike move also comes on the back of encouraging first quarter earnings of ENIL and Reliance Broadcast Network, two listed FM radio companies.

ENIL recently reported Ebitda of Rs 14.5 crore for the quarter ended June 30, 2010 with a 57% year-on-year growth. The company reported revenue growth of 14.5% to Rs 57.5 crore while its net profit stood at Rs 4.3 crore against a net loss of Rs 1.4 crore in the Q1 FY10. Reliance Broadcast Network also recorded its highest quarter revenue of Rs 52.16 crore with the radio inventory utilisation standing at 64%.

However, the expected resolution of music royalty issue between radio operators and the music industry is also giving positive signals to FM radio companies. ?We look forward to a quick resolution of the music royalty issue and thereafter to Phase III. I wouldn?t be able to comment on the Copyright Board?s order. I am only hoping that it addresses the issues of radio broadcasters,? Panday said.