private fm radio industry in india

Analysis of private FM Radio Industry in India

Amit Bhargava

Dec 2009

Executive SummaryExecutive Summary

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Radio industry globally is a well established and a mature medium of communication and used by advertisers affectively in brand building and sales promotion. The medium also provides entertainment and information to its consumers and hence acts as an important business medium of communication and entertainment.

In India the private radio industry is experiencing rapid growth. Though the industry was privatized in late 1990s, the business model was not viable until the phase II of licensing came into force. The phase II fostered competition and brought in new players into the industry. The new and the old players largely belong to established business groups who in turn are part of larger media houses. These players also control a large chunk of radio business in the country.

As part of the overall growth experienced in the Indian economy during last decade, the media and the advertising industry have experienced good growths. While the share of radio industry is far below the international standards, the industry is experiencing good growth. Because the model of the industry is advertisement driven, the radio industry largely mirrors the contours of the advertising industry.

While there are several promising factors that support the growth of the Indian radio industry, there are quite a few factors that might actually delay or dampen the growth. The competition for listeners and advertisers that ushers in price war without any strong differentiating factor among players is not good for the long term health of the industry. The undifferentiated content issue should be addressed immediately and even though the players might be ready now, the regulator has to address the concern. The phase III licensing will surely enable the industry to move forward and resolve some long standing issues but it is still some time away and the new and existing players should adopt wait, watch and prepare policy until it is announced to make new moves.

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Executive Summary

Agenda

The Media and Advertising Industry in India

Analysis of the FM Radio Industry in India

Characteristics of The FM Radio Industry in India

Executive SummaryExecutive SummaryExecutive SummaryAgenda

Future drivers and Risks

AgendaExecutive SummaryExecutive SummaryExecutive SummaryThe Media Industry in India

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• On a growth trajectory• CAGR ~14.8% (realized) 2005 – 2008 • CAGR ~13.8% (projected) 2009 – 2013• Fragmented and large number of players• Business Model is largely advertising and

subscription driven.• Controlled by few business groups

Media Industry

• On a growth trajectory• CAGR ~14.8% (realized) 2005 – 2008 • CAGR ~13.8% (projected) 2009 – 2013• Fragmented and large number of players• Business Model is largely advertising and

subscription driven.• Controlled by few business groups• Global recession impacted the growth of

industry in 2008• Indian Advertising spend as a percentage of

GDP is 0.47% representing huge potential in the overall industry

Advertising Industry

*KPMG (2009) "In the interval... But ready for the next act." FICCI-KPMG Media & Entertainment Industry Report.


Agenda



Characteristics of FM Radio Industry in India



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AgendaExecutive SummaryExecutive SummaryExecutive SummaryCharacteristics of the Indian Radio Industry

• Business model is mainly advertising driven• Impacted by the global recession, growth in the last two quarters of 2008 was slow

because of slowdown in the advertising industry• A cost effective medium for advertisers as it has more penetration and reach

compared to the traditional print and television• Controlled by few business groups having sizable stake in different media properties• Mainly an act of diversification from existing media players as an risk mitigation

exercise with slowdown experienced in traditional media outlets such as print.

Radio Industry

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• Regulated and recently privatized• Phase II licensing made the business viable• Has huge infrastructure setup costs• Oligopolic and witnesses price wars• Overall growth rate is impressive

AgendaExecutive SummaryExecutive SummaryExecutive SummaryCharacteristics of the Indian Radio Industry

• Highly fragmented and regulated• Top 5 players part of large media groups control

63% radio stations• Top 5 players earn 40% of total revenue• More than 240 private radio stations• Slowdown in promoter’s primary business

activity has resulted in diversification in radio business

• 2004-2008 CAGR ~9% (realized)

Key indicators

• Consolidation in the industry• News and current affairs broadcast for content

differentiation• Phase III licensing to ease industry expansion• New stations to result in more fragmentation• Advertising revenue generation from national to

local base• 2009-2013 CAGR ~15.4% (projected)

Future drivers

*CII-KPMG (2005) Indian entertainment industry, Focus 2010: Dreams to Reality.**KPMG (2009) "In the interval... But ready for the next act." FICCI-KPMG Media & Entertainment Industry Report.`

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Agenda



Characteristics of The FM Radio Industry in India



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AgendaExecutive SummaryExecutive SummaryExecutive SummaryAnalysis of the Indian Radio Industry

• 18% of all private FM stations in metro markets• Metro markets contribute maximum revenue to

the industry• No room for expansion in metro markets – metro

markets already have maximum number of permitted stations in operation.

• Witness fierce competition

The metro market phenomenon

• Radio globally is optimized for local advertisers but Indian Radio industry vies for advertisers with national presence. The mix currently is in favor of National advertisers.

• Advertisers who provide big business are largely based out of metro markets.

• Advertisers give maximum business to market leaders who have large presence, eg. Radio Mirchi, Big FM.

• Radio commands 4% of total advertising revenue.

• Industry expert opine that small players distort market by virtue of their inability to support large advertisers.

Advertiser driven

Size of Indian Advertising Industry – INR 221 bn (2008)


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AgendaExecutive SummaryExecutive SummaryExecutive SummaryAnalysis of the Indian Radio Industry – Competition

• Hypercompetitive forces in operation in the industry, forcing price wars.

• Small players openly engage whereas large players/leaders do not admit price wars wanting to protect their market.

• Airtime is inventory in the industry. It goes waste if unsold, advertisers play a hard ball till the last minute forcing price wars.

• Return on Investments (ROI) is the key focus for the players.

• Established players such as Radio Mirchi command premium for their brand and not engage in price wars.

Price Wars

Analysis of the FM Radio Industry in India – Competition

• Advertising revenue is listenership driven.

• Listenership tracking tool has evolved over time. There are two main tools – RAM and ILT. • RAM covers metro market and

gives weekly figures, giving different figures each week bringing different leaders at different times.

• ILT (India Listenership Track) is based on diary method. Is pan India, but the method is disputed by players.

• Every significant player claims to be leader in the market.

• Radio Mirchi is market leader in almost all markets and has maximum listenership

Listenership Wars

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AgendaExecutive SummaryExecutive SummaryExecutive SummaryAnalysis of the Indian Radio Industry – Differentiation

• Regulatory policies (Phase II licensing norms) do not allow for content differentiation and permit only non-news content

• Non-differentiated (homogenous) content (bollywood music - Hindi movie music) across all stations

• 70% of the content is bollywood music.• Companies innovate within a limited bandwidth to compete and gain competitive

advantage• Stations try and differentiate with jokes, chat, humor, RJ mentions, etc. in the remaining

30%• Stations unwilling to experiment with the format for fear of alienating revenue

(advertisers)• Few stations have experimented with format and content

• Meow FM’s target audience is women• Hit 95 FM plays songs in English language• Chennai Live’s format is interactive talk shows

• Differentiation is not the priority for the stations, breaking even is.• According to stations, branding is the key differentiating element

Differentiation - The search for competitive advantage

Analysis of the FM Radio Industry in India - Differentiation

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AgendaExecutive SummaryExecutive SummaryExecutive SummaryAnalysis of the Indian Radio Industry – Competition

• Cost per advertiser acquisition is higher compared to TV industry because of

• decentralized sales in case of TV, &

• lack of trained sales staff to handle airtime sales on radio.

• Advertisers uneducated/ill-informed about the potential of radio as a medium.

• Royalty payment to music owners is a major issue. Varies from 15-50% in India. Internationally it is 2-3%.

• 10 year license fee paid to regulator is a huge sunk cost.

Other Issues

Analysis of the FM Radio Industry in India – Issues

• Radio Jockey (RJ) is the star of the radio station and drives listenership to the station.

• Popular RJs such as Malishka, Nitin of Red FM command huge salaries.

• RJs and other radio staff want to stay in the metro market because of greater opportunities.

• Shortage of talent, such as star RJs, forces players to poach from other players driving up the cost of talent acquisition.

• Limited size of industry (only 248 stations across the country) also poses problems in terms of attracting talent.

Talent Issues

Agenda

The Media Industry in India

Analysis of the Indian Radio Industry

Characteristics of The Indian Radio Industry


Future drivers and the Risks

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AgendaExecutive SummaryExecutive SummaryExecutive SummaryFuture Drivers and Risks

• Phase III licensing to bring in more players (more than 600 stations in 250 cities across the country)• FDI to ease niche programming with more money for developing targeted content.• Tradability of licenses to allow for consolidation in the industry through mergers and acquisition.• Differentiation to come in the form of weather, sports, news bulletins, news broadcast.• Industry to improve its share from ~4% to more than 5% of the advertising revenue in next five years.• Big radio companies to go global. Recently –

• Radio Mirchi acquired Virgin Radio in the UK• Big FM launched a dedicated station in Singapore

• Growth to come from locally targeted advertising• More awareness about the medium and its potential to result in better utilization with the advertisers.

The Crystal ball says

• Threat from internet advertising which can take away bulk of advertising revenue• Prolonged slowdown will have negative impact on the industry• Royalty issues between radio companies and Indian Performing Rights Society (IPRS) could delay phase III

licensing• Fragmentation in the industry could further price wars• Lack of skilled and experienced professionals could derail global expansion plans• Significant efforts need to be invested in educating the advertisers about radio as a medium

Identified risks

Future Drivers and the Risks