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Sra Radio Industry in India

Sra Radio Industry in India

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Published by Shalini Majethia
about the radio industry
about the radio industry

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Published by: Shalini Majethia on Mar 12, 2013
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03/27/2014

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Title

Radio Industry In India

Author

Amit Puri, MBA I SIBM

Source

Forthright

References 1. ISI Emerging Markets 2. www.capitaline.com 3. www.thehindubusinessline.com 4. www.communityradionetwork.org

Document Type Secondary Analysis

Subject

Marketing

Date

November 20, 2006

Abstract

The radio industry in India is presently in the red on its bottom line. In this article we explore the present tariff structures of radio vs other forms of communication. The article then extrapolates the data to determine the most successful type of business model, the room for more players and a break even analysis to check profitability. It also includes recommendations to make radio a more healthy and profitable business.

Symbiosis Institute of Business Management, Pune

and thus radio works better to build brands. It offers efficient targeting by reaching the right audience at the right time and in the right place! Radio creates strong emotions which when linked with local people provides strong communities. It can be used to broadcast stereo-quality music which is not possible using AM or MW thus Making it a preferred low cost medium Broadcast to good quality music and content Research suggests that in the “ad-avoidance world” that we live in. or doing something else) they don’t mind listening to advertisements on radio in one form or the other. people tend to close advertisement windows as soon as they pop up which is less likely in case of a radio. It covers 99% of the country’s population and is also the most cost effective mass medium of one way communication. It is a means for low coverage broadcasting.Exposition: Radio: Is it a pie big enough for everyone to party on? Radio in India is segmented into MW (Medium wave). because: 1. The strength of radio lies in its coverage and cost effectiveness. Pune . thus best suited for delivering localized content 2. FM has gained popularity in India only in the recent past and but much earlier around the globe before that. Even on the internet. SW (Short Wave) and FM (Frequency Module) based upon the frequency of the radio station. radio can be a friend. The importance of radio has not been neglected even by the policy makers. The radio audience is consistent and loyal. Symbiosis Institute of Business Management. Thus while people avoid watching ads on television (by changing channels. The tenth five year plan targets to get FM to 60% of the Indian populace. The penetration of FM radio is estimated to grow from the current 30% to 60% by 2010.

the potential of the opportunity. The opportunity is definitely good enough for several players to try their hands in this field! Phase I: A learning curve or a lesson in through failure? Symbiosis Institute of Business Management. radio is an ideal medium.With mature mass mediums such as television and print available. This in effect creates a Rs. the players vying for it. and with ad spends to go up to 5% by 2010 in comparison to the current 2%. and would go up to 87 cities.13 Billion opportunity in a short span of 4-5 years. Let us give it a closer look . To reach to the masses and also generate value for the advertiser. Pune . expansion options and what keeps the hopes high after the first phase of radio reforms have left a majority of the players in the red. with 245 new stations being added to the existing 21 stations. The answer seems to be simple. why is a rush to get a share of the radio pie observed? Especially when knowing that returns are not as lucrative (the portion of the advertisement spends on radio is a meager 2% of the entire advertisement spend amount across media). At present FM radio is present in 12 cities.

Pune .3bn. but just in case it does make it big. The experience in foreign countries shows that radio developed as a medium for the masses before the others including TV and internet. As one company cannot run multiple station in a single city. In phase-II the entry limit is effectively the OTEF (One Time Entry Fee) which is linked to the revenues that the company would generate. each player is left with an average of just above Rs 0.Phase-I of radio reforms left most of the players entering in the FM market in the red and several players even had to close down shop. Annual License Fee = 4% of the revenue generated or 10% of reserve OTEF whichever is higher Existing players have been given an option to migrate to the new regime by paying OTEF as the average of the successful bids in that city for the radio frequency/license. this could hinder growth of radio as an industry to a certain degree. it would have to share the revenue. is the strategy sound enough to sustain numbers? The number of players entering the arena in this phase is 43. while in India’s case TV and internet are mature mediums already. The reason was an extremely high entry limit. smaller players who find it Symbiosis Institute of Business Management. The risks: No consolidation possible within the current structure. Although the entry barrier has been reduced to lure a larger number of players. Clearly then. Considering the size of the opportunity (Rs13bn). This would ensure that any company entering the market has to pay a lower amount to get in. it is a step in the direction to increase participation in accordance with the primary goal of increasing the presence of radio as a mass medium.

radio’s potential lies in being able to deliver niche content for specific audiences. With generalized targeting and minimal content differentiation. as there would be few takers for such operations. News and current affairs content is not permitted on private channels thus further restricting the options available for differentiated content. Pune .Radio Mirchi and 1599Cr and 45 stations (8 in A & A+ cities) Big Radio (Reliance ADAG) are the biggest players. At Rs 2116 Cr and 32 stations (13 in A & A+ Cities) ENIL .difficult to sustain operations. let’s analyze the costs and revenue generated for one player on a very simplistic basis Symbiosis Institute of Business Management. Rs 5Million per station is paid towards music royalties which would make it an unviable business proposition for the smaller players that too in smaller cities where revenue generation opportunities are limited. would have no option at a later stage but to close shop. the strength of radio might be lost. With one channel per city and high entry barriers. Breakeven analysis: To check whether it is a viable business proposition for new players to set shop. generalized content is the only option that most companies would be left with to generate “hearer-ship”. Globally.

Symbiosis Institute of Business Management. Pune .

2. phase-II of the radio policy is a step in the right direction to enable a lot of players to take it up as an opportunity. With an estimated earning before tax and depreciation over 1. Thus the performance of one station for a company would not affect the performance of the company’s other stations.5 lakhs per station. The setups have been recommended by BECIL (Broadcast Engineering Consultants India Limited). A radio broadcasting setup would require: i On Air Studio ii Voice Over Booth(Discussion Studio) Production Studio iii. for the current breakeven analysis the setup cost has been taken as 30 lack. 2. But this would be offset by the entry barrier difference between different tier cities. Each station is treated as a different entity. 12244897 which would not be the case for all channels and would differ from one city to the other. Thus. including: Option to operate multiple channels Lower entry limit for niche content channels Differentiation of radio station on basis of content rather than just Symbiosis Institute of Business Management.The revenue earned per radio channel is taken as Rs. but following are the problems with the present policy that could hinder the growth: 1.Transmission Equipment Depending on the combination of setup option that a company goes in for the cost would vary between 9 to 29 lack. This option would reduce the target audience and thus the revenue as well. each station should ideally break-even in the first year of operation itself.Assumptions and Considerations 1. 3. One option for stations is to reduce their expenditure by saving on the music royalty by catering to specific audiences thus reducing the range of music for which they would have to pay royalty. inducing a vicious cycle. The earning per station would vary and the stations which earn less than the average revenue as estimated are not left with other revenue generating options. Pune . There are a lot of loopholes that are yet to be plugged for the sustained growth of the industry.

The policy needs new thrust either to increase the size of the opportunity (by allowing to operate in the restricted areas) or to collaborate (so that a few can grow to an optimum size by consolidating) Recommendations: To plug these possible problems that the radio industry could face. broadcast. Pune . If the companies are allowed to operate multiple channels they would be able to cater to different Let a company operate multiple radio stations in the same region Distinguish channels based on the content that they propose to audiences by niche channels. the overall operating cost for the company to operate multiple channels would go down as royalty towards music used by the channel would come down and the company can use the same common infrastructure. After all. the following recommendations can be considered: a. marketers and customers alike wouldn’t want to see radio as a lost opportunity! Symbiosis Institute of Business Management. b. Infrastructure and technology for operating radio is not a constraint as it is a full blown industry in other parts of the world. e.g. The regulating policy is the only major roadblock in the growth of the radio industry in India. The sooner radio claims its due share of the market the better. Limiting the growth potential or even slowing down the growth curve doesn’t make sense. the production studio.geography Option for companies to collaborate The size of the radio pie as of now is too small for 43 players to co-exist and grow.

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