The Indian radio industry is looking at consolidation in smaller towns and markets to remain profitable. Although in 2007, the sector saw a 40% revenue growth?thanks to geographical growth, small players in small towns are still bleeding.
Even for big FM radio broadcasters, remaining profitable is a big challenge, especially for stations in small towns. Even some stations haven?t been able to pay salaries to their employees for months.
Big FM CEO Tarun Katial, said, ?Rather than seeking multiple licences, we should try and consolidate our current frequencies in the next one to two years.? He further said more frequencies to the current business will make matters worst and bring down the revenue heavily.
The primary reason for this state of affairs is music royalty, which is the same for broadcasters with 10 stations or with just one station. Royalty for radio companies comprises a significant portion of costs, varying between 7% and 43% of total costs (excluding licence fees). These costs are around Rs 60 lakh a year for a station, which are currently making several smaller stations unviable.
Ashish Pherwani, senior manager, media and entertainment industry practice, Ernst & Young, said, ?This consolidation will be more in the lines of sharing assets in order to bring down operation costs.? Even Trai has recommended that radio stations in smaller towns should share processes, studio facility, ad sales teams and so on. Pherwani said already this trend was setting in and there is a big station in the Hindi speaking belt, which is selling ad spots for smaller stations.
While players in the sector are optimistic about the future, there are some challenges that need to be addressed for the sector to maintain growth. According to Ernst & Young, regulatory issues faced by the radio stations at this stage include restrictions on FDI, inability to trade radio licences purchased, low number of FM radio frequencies due to unused spectrum gaps and high rentals paid for the radio towers to Prasar Bharti.