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Playing Blues

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There is panic in India’s radio industry. The imminent auction of about 700 new frequencies for private FM radio has put the existing operators in a tizzy. They insist their rescue must precede the industry’s expansion. All but one of the 42 existing private FM radio operators are bleeding cash. Even the sole profitable network, Radio Mirchi, run by Entertainment Network India (ENIL), still has a hole of Rs 30-odd crore accumulated loss to fill. The industry’s cumulative loss is put at about Rs 2,500 crore by the newly minted Radio Investors’ Forum (RIF).
So, on 10 February, a clutch of radio network owners met minister for information and broadcasting Ambika Soni and additional secretary for broadcasting Uday Kumar Varma. They said that unless the period of the existing radio licences was extended from 10 years to 15 years without additional charge, the private radio industry will be irreparably impaired. They also pleaded that the extension of the licence must be made part of the new FM radio policy (Phase 3). Without this, there will be no business case for bidding for the new licences on offer, they said.
“With four of the 10-year term of the existing licences over, there will just not be enough time for the investors to recover capital and get a return on the capital even if one broke even in the sixth or the seventh year,” says Tariq Ansari, managing director of Mid Day Multimedia. Ansari was part of the radio investors’ delegation. Mid Day has invested Rs 182.41 crore so far in a seven-station network under Radio One brand, which made a loss of Rs 10.28 crore in the first nine months of FY2010.
The network in the deepest financial mess is Reliance Media World’s Big FM, which operates 45 stations. It has accumulated losses of Rs 160 crore and a debt of Rs 300 crore. The company’s networth is nearly wiped out and it desperately needs recapitalisation. Prashant Panday, CEO of the profitable, 32-station network Radio Mirchi, is not happy either. “While we are making profits, our investors are still in a deficit of Rs 30 crore, and they expect to get their Rs 400 crore investment back; and some returns too,” he says.
The industry says the government owes it relief as it has paid about Rs 1,300 crore in licence fee. The government, however, is unmoved. “We need them to make a convincing case,” says Varma, the secretary in charge of the Phase 3 radio policy. He is also keen to implement the policy in this financial year along the lines of the recommendations of telecom regulator Trai. 
Trai has said that the licence period should remain 10 years and, at automatic renewal, the licencees should pay the same amount as paid for the first 10 years — or the highest bid received for the same location in the new phase. But Varma is leaving room for manoeuvre. “Hypothetically, anything is possible,” he says.
Troubled Waves
Trai has tried to solve the viability issues of the private FM radio industry by recommending some measures long demanded by the industry — allow networking of radio stations by an operator; multiple frequencies for one operator in one location; unrestricted outsourcing of content; and news and current affairs content. Trai has also recommended raising the limit for foreign direct investment in radio to 26 per cent from the current 20 per cent; and up to 49 per cent in non-news radio stations.
But this is not enough, say companies. The networking and outsourcing will save cost only at new stations. Most of the 246 stations have already invested in studio and transmission infrastructure. The permission for multiple frequencies is one bright spot in the new policy. It allows the industry to address the market beyond the 18-35 age group. But the proposal to hike FDI will turn futile unless the government addresses the viability issue through extending licences.
Further, the industry terms the permission to offer news a bad joke; private radios can use only the news feeds from All India Radio, Doordarshan and government-authorised news agencies such as PTI and UNI. “Almost every major radio network belongs to media houses that have a track record of producing news content far superior to the government sources,” says Panday. Mirchi belongs to the Times of India Group. “Merely playing AIR news feed will mean an additional cost without any value creation,” says Panday. Nisha Narayanan, vice president of programming and projects of the 44-station Red FM network owned by the Sun group, says FM radio is a local medium, and AIR does not cover local news routinely or adequately.
So, the industry insists that only an extension of licence period will help; not the belated viability aids. Still, the key question is: why is the industry asking for a rescue when there are six more years to go before the licence expires?
The question becomes pertinent if one looks at the reducing losses of the companies that make their finances public. ENIL has made a profit of Rs 13.10 crore in the first nine months of this fiscal, against Rs 2.91 crore in the entire FY2009. HT Media’s Fever network’s loss for the first nine months dropped to Rs 5.25 crore from Rs 39.51 crore in the same period last year. Similarly, the losses of Dainik Bhaskar’s My FM network fell to Rs 8.61 crore from Rs 17.23 crore.
Explaining the improving bottom line, Panday says that aggressive cost cutting is helping radio companies. For example, ENIL has trimmed its spending on staff, marketing and administration by 12 per cent this year.
It is now or never, the industry insists. “The time to extend the licences is now,” says Panday. “The industry needs additional capital right now, and the extension will attract investors as it will boost the earning potential of the licences,” he says. However, if the government does not extend the licence period, Panday forecasts death of the industry. “In six months, most firms will run out of capital, and there will be a payment crisis,” he says. “Networks will not have money to pay even the licence fee and transmitter rental to the government.”
Show Can’t Go On
So far, there have been a few casualties of the viability stress. These include about 20 licences that never got operationalised and some stations that have shut down. For instance, Zee Group surrendered its eight licences without starting a radio station. One licence has been revoked — of real estate firm Singhla Property Dealer, which stopped operating Tarang FM in Haryana’s Hissar a couple of years ago. 
Jodhpur-based Kushal Global stopped operating its Super FM stations in Ajmer and Jodhpur in early 2009. Some more operators are also planning to close down stations. For example, Radio Indigo, promoted by Jupiter Entertainment Ventures, operates a station each in Bangalore and Goa. “Our appetite and tolerance for losses is fast diminishing,” says its CEO, Sanjay Prabhu. He has no intention to bid for any licences in the new auction under the present policies.
Why then are so many people still in the radio business? “Inherently, radio is not a bad business at all, especially with 4 per cent of gross revenue as the licence fee,” says Apurva Purohit, CEO, Radio City, a 20-station network owned by Music Broadcast.
But the twin pressure of music cost and the initial downpayment for licence are the villains for her. Radio City network coughed up Rs 51 crore for 16 new stations, many in small towns, in the last auction in 2006 (Phase 2). It also paid a substantial amount to migrate its four metro licences from the fixed licence-fee regime of Phase 1 to the revenue-sharing regime of Phase 2. Big FM, which entered the business only in Phase 2, paid up Rs 160 crore for 45 stations, most of those in small towns.
Anil Mehra, CFO of Living Media India, which operates the three-station Meow FM network, blames the losses of radio companies primarily on the inevitable gestation and the stations’ inability to monetise the medium. About 225 of the 246 operational FM radio stations are two to four years old, while the rest started in 2001. Revenues from those old stations are helping older networks Radio Mirchi, Radio City and Red FM to support their new stations.
But for most networks, it is a choice between throwing good money after bad money and soldiering on having invested significant money. “We cannot even exit having invested a lot of money,” says Harrish M. Bhatia, COO of My FM, which has invested Rs 65 crore so far. 
Costly Tunes
Interestingly, the industry’s new focus on the licence period has overshadowed its previous favourite peeve: music royalties. But that is the biggest concern for smaller stations even as the big networks slug it out for licence extension.
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“I closed down my station as I could not cover my music cost,” says Vivek Singhal of Singhla Property Dealer. Dilip Dugar, vice-president of Radio Misty, which broadcasts from Siliguri and Gangtok, puts the network’s music cost at 40 per cent in spite of using 10 per cent low-cost local music. In comparison, music cost amounts to single-digit percentage of the total costs in the metros, says Radio City’s Purohit.
However, the music industry bodies — Indian Performing Rights Society (IPRS), which collects royalty on behalf of the authors and publishers of music, and Phonographic Performance (PPL), which collects royalty for music-recording companies — maintain that radio industry is a victim of its own inability to monetise radio in small cities rather than a victim of royalty costs. “How can one blame an input cost if one is not able to make a profit?” asks Vipul Pradhan, CEO of PPL. Rakesh Nigam, CEO of IPRS, accuses radio operators of using their news media muscle to prejudice the government and people against the music industry.
Ultimately, being free to the consumer, radio’s fate squarely lies in the hands of the advertising industry. According to Basab Datta Chowdhury, CEO of Madison Media, advertisers have no use for the majority of the radio stations unless they offer access to specific set of consumers — by location, language or taste. “Among the mass channels, only the top three can make money,” says Chowdhury. 
In any case, from the advertisers’ point of view, radio has its own limitations being a non-visual medium. “The fact is that radio’s share in Indian advertising pie will at best rise from the present 2.5 per cent to 10-12 per cent,” says Chowdhury. That is a brutal truth the radio investors have to put up with.
feroz dot ahmed at abp dot in
(This story was published in Businessworld Issue Dated 22-03-2010)

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