Radio broadcasters celebrated Diwali early last October after the government increased the rates that it offered for relaying advertisements of state-run agencies on privately-owned stations. The hike in the gross base rate, of 43% to Rs 74 per 10 seconds, was the first in seven years and an adjustment was intended to maintain parity with “current market rates”. The government said it would also adjust the city-wise rates for advertisements.
While the higher ad rates did help, the overwhelming competition from streaming services has hit broadcasters hard. Telecom operators or e-commerce players have been, for many years now, offering discounted music streaming services along with their data packs or retail memberships. Cheap data packages and more smartphones have set the audio OTT market on fire. “The popularity of apps like JioSaavn, Spotify, Hungama Music, Gaana and Amazon Prime Music has only been growing,” says an expert, adding that in the metros listenership is plateauing or even falling as commuters switch to podcasts and playlists.
Even 5-6 years back about 70% of the SEC-A audience was listening to the radio but this number has come off sharply. The share of radio advertising, which was already only 4% in 2019, has fallen. While advertising volumes increased by 19% in 2023 over 2022, the ad rates remained below the 2019 levels. PWC estimates that radio advertising revenues will grow by just a compound 2.1% over 2023-2028. “In some cities, stations are airing up to 40 minutes of ads per hour just to meet revenue targets, which is not helping the industry in any way,” Nisha Narayanan, COO & director, Red FM & Magic FM told FE.
Anticipating the popularity of digital streaming, most radio companies had started investing in their own digital platforms. They were also collaborating with streaming platforms to enhance reach. Unfortunately ahead of the digital onslaught, they had coughed up large sums bidding for 15-year licences at the phase III auctions in 2015 and 2016. For some of the metros, these licences cost upwards of Rs 125 crore each.
The high upfront cost for the airwaves —frequency—apart, the annual fee—the higher of 4% of gross revenues or the 2.5% of the non-refundable one-time entry fee (NOTEF) for the concerned city—had also weighed on broadcasters’ bottom-lines. As Ashish Pherwani, Partner and M&E Leader, EY India, says, the regulatory fees have made business unviable in some cities.
The NOTEF can vary significantly. For instance, HT media paid Rs 169 crore for a Delhi channel while Reliance had picked up Aizwal for just Rs 12 lakh. “What broadcasters were expecting when they bid for the licences was an IRR of 17-18%, but that has now come down to single digits,” said an expert, adding that having invested big sums in buying frequencies, they are now trying to recover as much of their sunk costs as possible.
That explains the lack of enthusiasm for the next round of auctions for the 732 stations across 234 cities—the third batch of phase III—announced last month. The estimated total reserve price is Rs 784.87 crore but national players such as DB corp, HT Media and Jagran Prakashan are unlikely to be among the applicants. The government may have capped the fee at 4% of gross revenues for the 234 cities and towns but broadcasters want the base price to be scrapped, as they believe it is too high, especially for some of the smaller markets.
They are also looking for better distribution asking that all smartphones enable FM transmission. As Abraham Thomas, CEO, Reliance Broadcast Network Limited, points out makers of high-end smartphones often disable FM radio receivers for a variety of reasons. “FM transmission can be received only in feature phones and some basic smartphones,” he said.
The limited revenue streams and debilitated balance sheets have left little cash for broadcasters to invest in content. Much of the programming revolves around music, music-based entertainment and talk shows.
“Unlike a Spotify or a JioSaavn, FM players don’t have a library,” points out Abraham. Experts say unless operators are able to thrash out revenue-share arrangements, with those who own the music rights, there won’t be enough to plough back into original programming.
Manpreet Singh Ahuja, CDO & TMT Leader – PwC India, estimates that advertising revenues could come in at about Rs 2,000 crore, growing at a compound 2.1%, by 2026. In the meanwhile, he says, broadcasters are looking at events, brand activations, international music streaming, influencer marketing contests brand placements (‘RJ mention’ in radio speak) to boost their top lines. Non-FCT (free commercial time) revenues now contribute about 20-25% of total revenues for top broadcasters, says Ahuja. At BIG FM, for instance, FCT brings in 75% of revenues down from 80% two years ago. “We are looking to bring it down to 65%very soon,” says Thomas.
What could help broadcasters, according to EY’s Pherwani is a proper mechanism to measure radio listenership and analyse consumer preferences. The industry is not so comfortable with TAM Media’s radio listenership measurement platform RAM which was unveiled in a new avatar last year. “The sector requires robust guidelines and advanced measurement technologies to accurately capture listenership data. This is essential for hyper-targetting and delivering enhanced value to advertisers,” says Chandrashekhar Mantha, Partner, M&E sector leader, Deloitte India.
Many of the new stations on offer can be promising. But in the absence of regulatory forbearance, broadcasters are unwilling to risk more capital.