The Hindu Business Line : FM radio: Will ad flow be music to bidders?

Radio is back and moving up. But Friday's bid amounts for FM radio, in particular the Rs 35-crore winning offer for Mumbai, have set the industry wondering if its ascent is yet again at high cost.

According to one official whose media company backed off from bidding, the price, coupled with 10 per cent finance cost, is near Rs 7 crore for the first year of the licence. Topping this would be running costs and four per cent of topline as revenue sharing. That is little relief from the high-cost situation the industry had faced in the first round.

What makes an instance of over-pricing bite, is that second round bidding conditions required the last chosen bid to be not more than 25 per cent lower than the highest bid.

A high bid therefore raises the ante for all and chokes the chances of those who may have put in a modest bid.

Radio's share of the advertisement pie should grow from the current 2.9 per cent to seven per cent over the next 10 years, even as the advertisement pie itself grows at 14 per cent, Mr A.P. Parigi, Managing Director & CEO, Entertainment Network (India) Ltd (ENIL), had said. But the second round brings to the table over 300 FM stations nationwide. "The market could get fragmented," an industry official said. At Asianet and Malayala Manorama, there was shared belief of a long time to break even.

"It is going to be a difficult business, no doubt about that," Mr Rajeev Chandrasekhar, former Chairman & CEO of BPL Mobile and successful bidder in the second round for FM radio, said.

According to him, the concerns about the advertisement pie are real, though equally strong would be the opportunities in FM. "It means you have to work the FM category," he said, recalling his previous experience in telecom.

The overall ratio of revenue to number of players is not the only cause for worry.

Ad rates are high in cities, but that potential could get split between more players in the same market.

On the other hand, though metros remain revenue drivers, radio listening as a practice is strong in small cities and towns given the traditional factors such as irregularity in electricity supply. The versatile radio then scores over television and Internet.

But the question is how many of those listeners are avid consumers of brands? Ultimately, it is branding and the need to promote brands that fuels advertising, in turn the prime source of media revenue.

Amidst these concerns opportunities have developed, including in urban geographies where the assumption of media overload exists. The BPO growth has ushered in a demographic and lifestyle change that impacted every service sector. FM radio's chance to tap it officially starts now.

How - still, remains a question. "I don't want to discuss strategy," Mr Chandrasekhar said. But away from Bangalore in a market like Mumbai, service differentiation is hazy in a sea of homogenous radio content.

Bollywood dominates and has squeezed out other genres of music. Without service differentiation, how would more stations survive?

And if indeed you offer it, is there a market for anything but film songs? "The gap between the leader and the runner-up is high," an equity analyst at a brokerage said. Over April-May 2005, ENIL, the industry leader, made income from airtime sales of Rs 48.37 crore and a net profit of Rs 11.05 crore, from seven cities.

There would seem a hint of distant consolidation in all this. But bidding clauses disallow sales or ownership of more than one frequency in a city, the official said.

Not for nothing, then that Living Media came off looking smart. It cashed-in on the first round growth reportedly for Rs 100 crore, and re-entered the market at a modest price.

That is a new way out for money even if music still be item numbers.

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