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Fee millstone: FM players feel it's the end of the road

Rumi Dutta in Mumbai | July 02, 2003 12:57 IST

Within one year of information & broadcasting ministry opening up the Indian radiowaves to private FM broadcasters, two players - Win 94.6 and Radio Mid-day - have announced their intention to close shop.

And now, the other industry players are sending feelers that it would be difficult to survive beyond a year thanks to the unrealistic licence fee regime.

Says Sumantra Dutta, chief operating officer of Radio City, "I don't see the radio business surviving for too long under the current licence fees regime. The future looks grim."

The industry witnessed an erosion of over Rs 120 crore (Rs 1,200 million) in the very first year of operation.

"At best we can survive for another year," said a top executive with another radio station.

What has gone wrong? The licence fees for operating an FM radio station in Mumbai is around Rs 10 crore (Rs 100 million) with an annual escalation clause of 15 per cent.

Compare this with the total revenue of Rs 48 crore (Rs 480 million) that the five FM radio players in Mumbai reported last year. This gives an impression that the government has designed the FM radio privatisation programme keeping in mind that there is no tomorrow.

The I&B ministry is currently busy with the issue of conditional access system which is to roll out sometime this month.

The step-motherly treatment towards FM broadcasters is mainly because of the ministry busy tying up loose ends regarding the conditional access system, industry sources said. Hence for the next 2-3 months nothing could be expected on the radio front, he added.

"We have lost around Rs 10-12 crore (Rs 100-120 million) in our first year of operation and if the revenue sharing model in not in place there would be further loss. It is not a viable business under the licence fees system. We are not in a position to start operations in other cities where we own licences," said an executive of one of the bleeding radio stations.

"Without a radio broadcasting policy it is extremely difficult to justify future investments in this industry," the head of a Mumbai-based radio broadcaster added.

Chasing the listeners' ears are a group of media giants, including Rupert Murdoch's STAR marketed and P K Mittal-promoted Radio City, Radio Mirchi from the Times of India stable, the India Today group's Red FM, the Mid-day group-promoted Radio Midday and Salgaoncar's Win 94.6.

Meanwhile, FM broadcasters have requested the government to complete the licensing of the 80 odd radio channels in the balance 30 cities that was part of the tender document as Part-2 of the licensing process.

But why are the private radio broadcasters wanting more competition on their turf? Last year the private radio players across 11 cities generated Rs 50 crore (Rs 500 million) as ad revenues representing 0.5 per cent of India's advertising industry.

For the radio industry to move to 10 per cent of India's advertising revenues, which is also the international average, radio broadcasting needs to spread to at least the top 35-40 cities and the number of private radio channels must increase ten-fold to justify the investments.

"It is better to have a smaller share of larger pie than a large share of minuscule pie," said the head of one of the radio broadcasting companies.

"Worldover, the radio industry works on the principle of extensive coverage across the country and multiple radio stations in each city. Radio is a support medium and is used by national advertisers for multi-media campaigns and local promotional campaigns. National advertisers will not be interested in radio for supporting their nationwide TV and print campaigns unless advertisers can buy airtime in radio stations across the country," said a senior executive of a radio-buying agency.

This is the second coming of Indian radio, the first being post independence in 1947 when the state owned All India Radio was born.

In July 1999, the government announced the privatisation of FM radio permitting 150 new FM channels across 40 cities.

The metro cities including Delhi, Kolkata, Mumbai and Chennai were allotted 12 channels each, with the balance licenses going to 36 other cities.

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