The country's top radio players have registered a decline in their Q1FY18 revenue due to fall in government advertising spend, negligible advertising by the real-estate sector in the wake of RERA and the lingering impact of demonetisation.
Radio revenue also recorded a decline in ad spend of FMCG and auto companies in the run-up to the Goods and Services Tax (GST) that came into effect in July.
“The negative impact of demonetisation and GST is across industry. The decrease in government advertisements is significant. The RERA policy had a major impact, said Harshad Jain, Chief Executive Office, Fever FM.
Housing and real estate companies have been major advertisers on radio channels and because of stringent sale norms under the RERA (Real Estate Regulation Act), the industry is first setting its house in order. Hence, there has been a sharp cut in advertising revenues from the sector.
Under the new rules, the government has said no ongoing or future projects can be advertised without registering them first with the new real estate regulator.
"The act which was implemented in May 2017 has forced the real estate sector to lower its marketing budget in a major way," a top executive of a radio company said on condition of anonymity. Not only radio, the revenue of print segment has also taken beating because of RERA.
Prashant Panday, Managing Director and Chief Executive Officer of ENIL (Entertainment Network India Ltd), the company that operates Radio Mirchi, has pointed out that all top advertising categories on radio have recorded de-growth in the first quarter.
"The poor results of the quarter can be attributed to the lingering effects of demonetisation, the rollout of RERA and the run-up to GST in June. The biggest advertiser – the Central Government – cut its advertising by nearly 35 per cent compared to last year," Pandey said in an official statement that came out last week.
ENIL posted a 5.8 per cent drop in operating revenues for the April-June quarter. Radio Mirchi clocked a revenue of Rs 104.4 crore for the period against Rs 110.7 crore in the same period last year. Revenue stood at Rs 107.23 crore on including other operating income.
For Red FM, another major player, it hasn't been as bad in revenue terms but the growth has been muted. Nisha Narayanan, Chief Operating Officer, Red FM, agreed saying, “The lingering effects of demonetisation and the GST have been a dampener on revenues for the first quarter as also July. In addition, the real estate sector was impacted by RERA and it cut down on ad spends. While we have grown over Q1 of last year, it has been a stifled growth."
All top executives in the sector said GST is going to be huge enabler in the long run for the industry. However, the short-term impact on revenues has been negative.
Harrish Bhatia, CEO, My FM, said, “GST means complication in the short run, it will create confusion and trader may hold on to the ad spends for the time being. In the short term, the 3 per cent increase in tax will impact our business as small retailers are confused and there is lot of uncertainty as of now. Everyone is still figuring out and there is lot of confusion. In the long run we are hoping the situation will be very positive from the business perspective.”
Radio City has been the only exception in this grim market scenario as the station has registered a 12 per cent growth in its overall revenues in the first quarter.
All major radio companies have now moved their focus on the upcoming festive season and the likely uptick in demand due to a good monsoon.
"We believe this is a temporary slowdown and business should return to normal from September, when the festive season sets in," Mirchi's Panday said.
Red FM's Narayanan also said that the company was now looking forward to the festive season to pull things back a bit. "A lot depends on how this festive season pans out. We are hoping things will normalise henceforth," she added.
However, not all players are as optimistic.
"Whether things will be better by the end of the fiscal, it is too early to predict. We will have to wait for the festive season to understand the magnitude.” Jain of Fever FM said.