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Are you unknowingly imploding your FM radio business?

Vineet Singh Hukmani, MD and CEO, Radio One, writes about the dangers facing the radio industry. EBIDTA focus seems to have vanished and it’s back to topline chase at any cost

Are you unknowingly imploding your FM radio business?

Vineet Singh Hukmani, MD and CEO, Radio One, writes about the dangers facing the radio industry. EBIDTA focus seems to have vanished and it’s back to topline chase at any cost

Delhi | August 9, 2016

Vineet Singh Hukmani Vineet Singh Hukmani

A new phase of FM radio is now underway in India but have we learnt from the past and are we protecting our FM radio businesses in the short to medium term or do we continue to have long-term misconceptions about what this medium can deliver from a business perspective?

It is common across players to blame the government and auction methodology for high prices but those prices have been paid and players have 14 years left to deliver a healthy return on capital to shareholders.

Whether players bid for more frequencies or not, it is imperative to look at the current state of business to prevent the risk of self-implosion. The larger networks are at greater risk of this as can be seen in the case of a ‘big network player with 50 stations’ who is seeking to be bought over and has a debt on its books of over Rs 600 crore! Most players who have either a large number of stations or have taken new licences are at greater risk than before as they are not adding enough value to their product but only discounting their networks. Even one large player imploding puts the whole industry at significant risk.

What is the truth?

Almost all FM players in India continue to have accumulated losses or low rate of return. Return on capital as an industry is negative. Expensive new licences and renewals have added further to business burden. These hugely expensive licences were paid to acquire ‘air-time’ for 15 years. But what is being done to the value of that air-time?

In Q1 2016-17 alone which is really the first quarter of phase 3 operation in the top 3 radio markets of Delhi, Mumbai and Bangalore which feed the radio industry, a desperation and panic situation to ‘gather topline’ has led to 5 dangers to ‘air-time value’ which the radio industry had stopped doing in the last three years due to better sense prevailing.

But these panic attacks have begun again. True EBIDTA focus seems to have vanished and it’s back to topline chase at any cost. It is back to hiding costs of the radio business in parent companies and ‘engineering’ the radio P&L. We need to look at the implosion dangers carefully and correct them now and set the industry on a healthy growth path. We need to be strong to tackle print, television and other new media by not devaluing radio continuously.

Implosion Danger 1: Increasing supply of inventory of old and new stations without increasing price in Q1: Actual net price per station per hour is reducing due to combo city pricing and same city multiple licence pricing, thereby reducing the yield on the very air-time that one paid for with heavy license acquisition or renewal.  Four new expensively acquired stations are chasing Rs 200 crore plus in a Rs 700 crore metro market that is growing less than 10% (with the top networks having only gained this quarter from increased DAVP advertising, their DAVP rates being higher).

We are talking large radio brands with huge listener equity continually offering free value ads and diminishing their own yield on air-time and with that the reputation of their own on air product. We have a situation where a ‘market leader’ today is down on operating profit by 26% and down on net profit after tax by 44% on this quarter compared to Q1 last year. This same market leader many years ago charged Rs 2500 per 10 seconds for a single city. Today you can get four cities for this price from the same player! Did this ever happen to the print business from the same group?

If this doesn't convince you that you need to increase price nothing else will! Please have more faith in your own ‘on air product’ and don't see network reach and rate reduction as the only 2 parameters to run your business on.

Implosion Danger 2: On ground activations and promotions of over Rs 40 crore was done at a cost of Rs 34 crore in Q1 alone in these 3 markets: This a classic ‘topline’ buying approach where the ‘air time’ value is significantly and irreversibly devalued by adding ‘on ground promotion’ at the radio players cost. It is a net negative return as you are yourself telling your clients and agencies that your ‘air-time’ has no real value without the on-ground ad on. Sales teams are encouraged to ‘gather revenue’ this way not realizing that this very sales team loses all respect for the on-air product and is not able to sell without expensive on ground events/activations. So first you bring down net price and then you give free on ground promotion. End result: Advertiser has diminished the value of your on-air offering significantly. Other media like TV, Print and Digital which are not time controlled licenses never offer such value ads and this makes their on-air product look stronger in the advertisers’ eyes.

Implosion Danger 3: Huge marketing cost of Rs 18-20 crore was spent in Q1 by players in the 3 markets to get people to listen to their stations: This is again a classic problem area. Lack of confidence in the impact of your own offering make you use other expensive media to advertise your offering. If radio uses outdoor or print to sell itself, you are telling your advertiser that your medium – radio - has no reach strength of its own.  You are also using ‘your own visibility’ to feel good about your brand and probably gain some recall points in listenership surveys without realizing that again this is diminishing the value of your programming air-time inventory. Have more faith in your programming teams that they can deliver content that attracts people to a medium that reaches 300 million people every day. Paying listeners 1 lakh every hour to say ‘I love you” really does not cut ice; it cuts the value perception of your business in the market. Again you are telling your advertiser that people only listen to your station when you offer them money and freebies.

Implosion Danger 4: Offers to new people were given to the tune of Rs 15 crore in Q1 alone in the three markets: 70% of these offers were to sales people. But what you did was brief them to sell at a lowered effective value, add on activation and got them used to high visibility of brand. How will they sell the true value of your on-air product now that you have diminished it? So, in effect, you are hiring more people at an elevated cost but diminishing the value of  your on air inventory that you paid a huge premium for in the form of licences.

Implosion Danger 5: New business streams like Online Radio and Large Event IPRs further devalued radio inventory in Q1: It is always good to innovate with new revenue streams but let’s not miss some critical factors. A) Online music has huge royalty costs in India and you are still giving it away as a value add to existing radio advertisers thereby diminishing the value of both businesses. You have probably added huge people costs to this area too. B) Large event IPRs are monetized by packaging huge radio inventory and probably revenue sharing with a TV partner. So in effect again, the belief you are propagating is the radio medium as a standalone has no real value.

Sure, you can always hide behind the fact that these are early days and we need to spend and be the last radio brand standing on the hill top! But without correcting the value perception of ‘on-air inventory’, you are crumbling the very hill on which you want to be on top of! Believe in the value of your on air product mainly because you paid a huge premium for it, price it right and innovate constantly to create unique monetizable new content that you can sell to the advertiser with confidence and not be on a back foot on network rates!

It is not too late to save your business from the dangers of self-implosion. If larger players implode, it affects the smaller players too. Let us not junk sell this wonderful medium like this. Look deeper to find value pockets within the medium that improve the yield of every hour leading to a higher rate of return on capital for the investors.

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