Analysis of private FM Radio Industry in India

Amit Bhargava

Dec 2009
Executive Summary
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Executive Summary
Summary

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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Agenda
Executive
Executive Summary
Agenda Summary

The Media and Advertising Industry in India

Characteristics of The FM Radio Industry in India

Analysis of the FM Radio Industry in India

Future drivers and Risks

The Media and Advertising Industry in India
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Executive Summary
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The Media Summary
Industry in India

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

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

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 Agenda
Executive
Executive Summary
Agenda Summary

The Media and Advertising Industry in India

Characteristics of FM Radio Industry in India

Analysis of the FM Radio Industry in India

Future drivers and Risks

Characteristics of FM Radio Industry in India
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Executive Summary
Executive Summary
Characteristics of the Indian Radio Industry

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.
• 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

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Characteristics of FM Radio Industry in India
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Executive Summary
Characteristics of the Indian Radio Industry

Key indicators

• 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)

Future drivers

• 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)

*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
Executive
Executive Summary
Agenda Summary

The Media and Advertising Industry in India

Characteristics of The FM Radio Industry in India

Analysis of the FM Radio Industry in India

Future drivers and Risks
Analysis of the FM Radio Industry in India
Agenda
Executive Summary
ExecutiveofSummary
Analysis the Indian Radio Industry
The metro market phenomenon
• 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

Advertiser driven
• 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.

8/10/2018 Size of Indian Advertising Industry – INR 221 bn (2008) 9

Analysis of the FM Radio Industry in India – Competition
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Analysis the Indian Radio Industry – Competition
Price Wars
• 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.
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Listenership Wars
• 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
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Analysis of the FM Radio Industry in India - Differentiation
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Analysis the Indian Radio Industry – Differentiation
Differentiation - The search for competitive advantage
• 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

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Analysis of the FM Radio Industry in India – Issues
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Analysis the Indian Radio Industry – Competition
Talent 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.
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Other Issues
• 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.
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Agenda
Executive
Executive Summary
Agenda Summary

The Media Industry in India

Characteristics of The Indian Radio Industry

Analysis of the Indian Radio Industry

Future drivers and the Risks

Future Drivers and the Risks
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Future Summary
Drivers and Risks
The Crystal ball says
• 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.

Identified risks
• 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

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