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Private FM Radio Industry In India

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Privatization of Radio industry began in India around late 90s but the real boost came from the phase II licensing norms which made the business model viable.

This report, presents the current status of the private FM radio industry in India and also highlights the pain points and the area of future focus of the players.

Published in: Business, News & Politics
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Private FM Radio Industry In India

  1. 1. Analysis of private FM Radio Industry in India<br />Amit Bhargava<br />Dec 2009<br />
  2. 2. Executive Summary<br />Executive Summary<br />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.<br />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. <br />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.<br />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.<br />Executive Summary<br />2<br />12/17/2009<br />
  3. 3. Agenda<br />Executive Summary<br />Executive Summary<br />Executive Summary<br />Agenda<br />The Media and Advertising Industry in India<br />Characteristics of The FM Radio Industry in India<br />Analysis of the FM Radio Industry in India<br />Future drivers and Risks<br />
  4. 4. Agenda<br />Executive Summary<br />Executive Summary<br />Executive Summary<br />The Media Industry in India<br />12/17/2009<br />Advertising Industry<br />Media Industry<br /><ul><li>On a growth trajectory
  5. 5. CAGR ~14.8% (realized) 2005 – 2008
  6. 6. CAGR ~13.8% (projected) 2009 – 2013
  7. 7. Fragmented and large number of players
  8. 8. Business Model is largely advertising and subscription driven.
  9. 9. Controlled by few business groups
  10. 10. On a growth trajectory
  11. 11. CAGR ~14.8% (realized) 2005 – 2008
  12. 12. CAGR ~13.8% (projected) 2009 – 2013
  13. 13. Fragmented and large number of players
  14. 14. Business Model is largely advertising and subscription driven.
  15. 15. Controlled by few business groups
  16. 16. Global recession impacted the growth of industry in 2008
  17. 17. Indian Advertising spend as a percentage of GDP is 0.47% representing huge potential in the overall industry</li></ul>The Media and Advertising Industry in India<br />*KPMG (2009) &quot;In the interval... But ready for the next act.&quot; FICCI-KPMG Media & Entertainment Industry Report.<br />4<br />
  18. 18. Agenda<br />Executive Summary<br />Executive Summary<br />Executive Summary<br />Agenda<br />The Media and Advertising Industry in India<br />Characteristics of FM Radio Industry in India<br />Analysis of the FM Radio Industry in India<br />Future drivers and Risks<br />
  19. 19. 12/17/2009<br />6<br />Agenda<br />Executive Summary<br />Executive Summary<br />Executive Summary<br />Characteristics of the Indian Radio Industry<br />Radio Industry<br /><ul><li>Business model is mainly advertising driven
  20. 20. Impacted by the global recession, growth in the last two quarters of 2008 was slow because of slowdown in the advertising industry
  21. 21. A cost effective medium for advertisers as it has more penetration and reach compared to the traditional print and television
  22. 22. Controlled by few business groups having sizable stake in different media properties
  23. 23. Mainly an act of diversification from existing media players as an risk mitigation exercise with slowdown experienced in traditional media outlets such as print.</li></ul>Characteristics of FM Radio Industry in India<br /><ul><li>Regulated and recently privatized
  24. 24. Phase II licensing made the business viable
  25. 25. Has huge infrastructure setup costs
  26. 26. Oligopolic and witnesses price wars
  27. 27. Overall growth rate is impressive</li></ul>6<br />12/17/2009<br />
  28. 28. Agenda<br />Executive Summary<br />Executive Summary<br />Executive Summary<br />Characteristics of the Indian Radio Industry<br />Future drivers<br />Key indicators<br /><ul><li>Consolidation in the industry
  29. 29. News and current affairs broadcast for content differentiation
  30. 30. Phase III licensing to ease industry expansion
  31. 31. New stations to result in more fragmentation
  32. 32. Advertising revenue generation from national to local base
  33. 33. 2009-2013 CAGR ~15.4% (projected)
  34. 34. Highly fragmented and regulated
  35. 35. Top 5 players part of large media groups control 63% radio stations
  36. 36. Top 5 players earn 40% of total revenue
  37. 37. More than 240 private radio stations
  38. 38. Slowdown in promoter’s primary business activity has resulted in diversification in radio business
  39. 39. 2004-2008 CAGR ~9% (realized)</li></ul> *CII-KPMG (2005) Indian entertainment industry, Focus 2010: Dreams to Reality.<br />**KPMG (2009) &quot;In the interval... But ready for the next act.&quot; FICCI-KPMG Media & Entertainment Industry Report.`<br />12/17/2009<br />Characteristics of FM Radio Industry in India<br />7<br />
  40. 40. Agenda<br />Executive Summary<br />Executive Summary<br />Executive Summary<br />Agenda<br />The Media and Advertising Industry in India<br />Characteristics of The FM Radio Industry in India<br />Analysis of the FM Radio Industry in India<br />Future drivers and Risks<br />
  41. 41. 12/17/2009<br />9<br />Agenda<br />Executive Summary<br />Executive Summary<br />Executive Summary<br />Analysis of the Indian Radio Industry<br />Advertiser driven<br />The metro market phenomenon<br /><ul><li>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.
  42. 42. Advertisers who provide big business are largely based out of metro markets.
  43. 43. Advertisers give maximum business to market leaders who have large presence, eg. Radio Mirchi, Big FM.
  44. 44. Radio commands 4% of total advertising revenue.
  45. 45. Industry expert opine that small players distort market by virtue of their inability to support large advertisers.
  46. 46. 18% of all private FM stations in metro markets
  47. 47. Metro markets contribute maximum revenue to the industry
  48. 48. No room for expansion in metro markets – metro markets already have maximum number of permitted stations in operation.
  49. 49. Witness fierce competition</li></ul>Analysis of the FM Radio Industry in India<br />Size of Indian Advertising Industry – INR 221 bn (2008)<br />
  50. 50. 12/17/2009<br />10<br />Agenda<br />Executive Summary<br />Executive Summary<br />Executive Summary<br />Analysis of the Indian Radio Industry – Competition <br />Price Wars<br />Listenership Wars<br /><ul><li>Hypercompetitive forces in operation in the industry, forcing price wars.
  51. 51. Small players openly engage whereas large players/leaders do not admit price wars wanting to protect their market.
  52. 52. Airtime is inventory in the industry. It goes waste if unsold, advertisers play a hard ball till the last minute forcing price wars.
  53. 53. Return on Investments (ROI) is the key focus for the players.
  54. 54. Established players such as Radio Mirchi command premium for their brand and not engage in price wars.
  55. 55. Advertising revenue is listenership driven.
  56. 56. Listenership tracking tool has evolved over time. There are two main tools – RAM and ILT.
  57. 57. RAM covers metro market and gives weekly figures, giving different figures each week bringing different leaders at different times.
  58. 58. ILT (India Listenership Track) is based on diary method. Is pan India, but the method is disputed by players.
  59. 59. Every significant player claims to be leader in the market.
  60. 60. Radio Mirchi is market leader in almost all markets and has maximum listenership</li></ul>Analysis of the FM Radio Industry in India – Competition<br />
  61. 61. 12/17/2009<br />11<br />Agenda<br />Executive Summary<br />Executive Summary<br />Executive Summary<br />Analysis of the Indian Radio Industry – Differentiation <br />Differentiation - The search for competitive advantage<br /><ul><li>Regulatory policies (Phase II licensing norms) do not allow for content differentiation and permit only non-news content
  62. 62. Non-differentiated (homogenous) content (bollywood music - Hindi movie music) across all stations
  63. 63. 70% of the content is bollywood music.
  64. 64. Companies innovate within a limited bandwidth to compete and gain competitive advantage
  65. 65. Stations try and differentiate with jokes, chat, humor, RJ mentions, etc. in the remaining 30%
  66. 66. Stations unwilling to experiment with the format for fear of alienating revenue (advertisers)
  67. 67. Few stations have experimented with format and content
  68. 68. Meow FM’s target audience is women
  69. 69. Hit 95 FM plays songs in English language
  70. 70. Chennai Live’s format is interactive talk shows
  71. 71. Differentiation is not the priority for the stations, breaking even is.
  72. 72. According to stations, branding is the key differentiating element</li></ul>Analysis of the FM Radio Industry in India - Differentiation<br />12/17/2009<br />11<br />
  73. 73. 12/17/2009<br />12<br />Agenda<br />Executive Summary<br />Executive Summary<br />Executive Summary<br />Analysis of the Indian Radio Industry – Competition <br />Other Issues<br /><ul><li>Cost per advertiser acquisition is higher compared to TV industry because of
  74. 74. decentralized sales in case of TV, &
  75. 75. lack of trained sales staff to handle airtime sales on radio.
  76. 76. Advertisers uneducated/ill-informed about the potential of radio as a medium.
  77. 77. Royalty payment to music owners is a major issue. Varies from 15-50% in India. Internationally it is 2-3%.
  78. 78. 10 year license fee paid to regulator is a huge sunk cost.</li></ul>Analysis of the FM Radio Industry in India – Issues<br />Talent Issues<br /><ul><li>Radio Jockey (RJ) is the star of the radio station and drives listenership to the station.
  79. 79. Popular RJs such as Malishka, Nitin of Red FM command huge salaries.
  80. 80. RJs and other radio staff want to stay in the metro market because of greater opportunities.
  81. 81. Shortage of talent, such as star RJs, forces players to poach from other players driving up the cost of talent acquisition.
  82. 82. Limited size of industry (only 248 stations across the country) also poses problems in terms of attracting talent.</li></li></ul><li>Agenda<br />Executive Summary<br />Executive Summary<br />Executive Summary<br />Agenda<br />The Media Industry in India<br />Characteristics of The Indian Radio Industry<br />Analysis of the Indian Radio Industry<br />Future drivers and the Risks<br />
  83. 83. 12/17/2009<br />14<br />Agenda<br />Executive Summary<br />Executive Summary<br />Executive Summary<br />Future Drivers and Risks <br />The Crystal ball says<br /><ul><li>Phase III licensing to bring in more players (more than 600 stations in 250 cities across the country)
  84. 84. FDI to ease niche programming with more money for developing targeted content.
  85. 85. Tradability of licenses to allow for consolidation in the industry through mergers and acquisition.
  86. 86. Differentiation to come in the form of weather, sports, news bulletins, news broadcast.
  87. 87. Industry to improve its share from ~4% to more than 5% of the advertising revenue in next five years.
  88. 88. Big radio companies to go global. Recently –
  89. 89. Radio Mirchi acquired Virgin Radio in the UK
  90. 90. Big FM launched a dedicated station in Singapore
  91. 91. Growth to come from locally targeted advertising
  92. 92. More awareness about the medium and its potential to result in better utilization with the advertisers.</li></ul>Future Drivers and the Risks<br />Identified risks<br /><ul><li>Threat from internet advertising which can take away bulk of advertising revenue
  93. 93. Prolonged slowdown will have negative impact on the industry
  94. 94. Royalty issues between radio companies and Indian Performing Rights Society (IPRS) could delay phase III licensing
  95. 95. Fragmentation in the industry could further price wars
  96. 96. Lack of skilled and experienced professionals could derail global expansion plans
  97. 97. Significant efforts need to be invested in educating the advertisers about radio as a medium</li></ul>12/17/2009<br />14<br />

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