Will radio see double digit growth in 2018?

Top research agencies have predicted a double digit revenue growth for the radio industry in 2018. But is it actually possible when revenues are consistently under stress because of subdued adex growth, threat from other mediums and rising operational costs? Best Media Info analyses

BestMediaInfo Bureau
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Will radio see double digit growth in 2018?

Radio adex is expected to grow by 16.1 per cent in 2018 as per KPMG’s report, whereas GroupM’s TYNY report predicts the growth to be around 10 per cent. The KPMG report has said that radio revenue will grow from Rs 2,270 crore to Rs 2,640 crore.

Does it mean that 2018 will be the coming of the age year in terms of revenue for radio as the impact of demonetisation and GST rollout is behind us? 2018 is likely to bring growth in the wake of upcoming 2019 general elections, increased government ad spend and rising FMCG, dotcom and real estate ad spend.

While industry leaders believe that 16 per cent growth is too optimistic, some feel 10 per cent is actually doable.

The Believers

Tarun Katial

Tarun Katial, CEO, Big FM, said, “With industries having already come to terms with the effects of demonetisation and the implications of GST, I believe now 2018 will see a rampant growth in the overall adex across sectors, including radio.”

Vineet Singh Hukmani

Vineet Singh Hukmani, MD and CEO, Next Radio (Radio One), said, “10 per cent is very much achievable. I hope that the large networks raise rates to reduce the number of ads on air (which is huge now), thereby grow 10 per cent, protect profits and let listeners enjoy a clean station. Corporate brands spending in the metro cities is expected to go up as the effect of demonetisation and GST is on the decrease.”

Nisha Narayanan

Nisha Narayanan, COO & Director, RED FM & Redtro (One of India's largest radio network) and CEO, Digital Radio (Mumbai) Broadcasting, had, in one of her opinion pieces, mentioned that radio had grown by only 2-3 per cent in the last 15 years.

However, this time around Narayanan is also optimistic about the year ahead, though she also mentions the pain points of demonetisation and GST and how it stunted growth. She added, “I am reminded of a writer’s lines which said we can complain because rose bushes have thorns, or rejoice because thorns have roses.” Quickly adding, “But now that we have already walked through that phase we are optimistic that marketers will be spending more on our medium.”

The Conservatives

Harshad Jain

Harshad Jain, CEO, Fever FM, is not very optimistic about the year ahead. He stated, “It will be difficult to really hit the growth predictions. It has been a very tough year because of a lot of factors. If you look at the financial results of the radio companies that are publicly listed, the topline growths and hence profits are under tremendous pressure. My estimate is that the overall industry growth should be in the range of low single digits.”

One of the former platform owners and industry observers, who did not want to be quoted, outrightly declined the KPMG estimates, questioning whether the ‘predictors’ at all keep an eye on ‘return on investment’ rather talking about the topline only. He told us that 16 per cent growth is too aggressive and may come at enhanced costs and decrease the profitability of the industry. “At 10 per cent topline growth, profits will be protected. The activation revenues are too expensive to depend on and that is what the 16 per cent topline growth is predicted upon. So if you have to ‘buy topline’, what’s the point of running a business?”

Connecting activations to terrestrial radio, which is the core business of the radio owners, the industry observer said, “Activations diminish the value of on-air inventory as radio players pay for activation event from their pockets and also include radio inventory free. That’s a double hit.”

There are radio stations that have stopped or reduced activations so as to lessen the burden on spends, while there are few others who have increased their spends on events and activations. Radio One stopped activations about six years ago, while Radio City has almost doubled their investments in this stream in the last six years.

Abraham Thomas

Abraham Thomas, CEO, Radio City 91.1 FM, feels that the industry itself is to be blamed for the overinvestments in activations. “Because in our eagerness to go topline and get revenues, we have actually indiscriminately sold it. At RadioCity, we do stuff only which is amplifying our own on-air property, nothing that is completely unrelated independent activations. By doing that we are able to get higher premiums. Indiscriminately, the industry has done activations with little or no meaning.”

KPMG’s figure of 16 per cent was a CAGR number across five year end, and it was predicted on the back of all the geographic expansion of radio with the phase three stations.

Potential growth drivers

Speaking on the expected drivers of growth, Katial mentioned, “FMCG penetration will increase with modern trade growing faster in tier-II and tier-III cities, further increasing ad spends. The launch of new stations will expand the target audience while resulting in wider reach. The government’s financial inclusion initiatives are expanding the reach of BFSI into rural areas, which will also see BFSI players spending on advertising. With rural electrification and e-commerce expansion, the consumer durables segment will witness growth. These factors will contribute heavily towards the growth in adex this year.”

The next phase of radio auction is one of the most important factors that all the players are depending on. Narayanan too mentions it as one of the major drivers of growth in the coming year. “Radio with its phase three has expanded to newer markets, and with the batch three announcements, is likely to add further to its reach. For phase two cities, this is going to be crucial year. The new frequencies have been added but they will have to expand the market to continue their growth momentum. We are hopeful that 2018 being a precursor to general elections year, it will provide substantial advertising from the government to highlight its achievements and the good work that has happened. If 2017 was of moderate growth for us, we expect 2018 to be better than that. We will be pushing for expansion both vertically and horizontally in existing markets and newly launched cities.”

Speaking further about the advertisers that will push growth, she added, “We are expecting more spending from BFSI, real estate, healthcare and pharma, retail and shops, FMCG, education and vocational sector, organised retail lifestyle and IT and dotcom apart from government and its key components like the services sector.”

Local advertising is a very crucial part of the advertising that radio generates. So much so that local and national advertisers were each said to be contributing half of the total advertisements on radio. Hukmani stated, “Local retail spending in the metro cities will take time to pick up and perhaps we will see an upswing in the second half of 2018. Net growth in metro cities on topline is expected to be 10 per cent. 16 per cent figures can be achieved only if radio companies push for rate increase and stop selling activations by discounting on air inventory. The sectors that will push growth are ecommerce, government spending, automobiles, mobiles and finance. Local retail growth will come from hospitality and healthcare.”

Jain from Fever FM, on the other hand felt that clutter-breaking programming is the only thing that will differentiate and help grow. “Content is going to play a very important role. Events and activations are an important one, but we do events on a need-based offering to our clients. It is not a main focus area for us.”

Thomas mentioned how sports will contribute to the growth. “Next year is a year of sports. With so many sporting events happening through the year, we expect it to work on multiple levels. We have a new broadcaster who is going to be selling sports, and that could definitely lead to a substantial increase in rate. They are able to drive our rates using sports. These factors will help the year to pan out both in terms of volume, as well as value.”

Changes expected

There are serious changes, including the introduction of a new listenership measurement system, which the players are expecting to take place in 2018.

Katial is expecting the radio advertising sector to increase their repertoire of categories, especially in the pre-election phase since the medium reaches out to audiences even in the remote areas of our country. “With these factors in mind, we are looking forward to a stable year, provided we do not face any major economic disruptions. And with the stability, the focus this year will be more on bringing in innovation and taking the sector to the next level.”

The industry was told to develop a sturdy third party measurement system, on the lines of the TV measurement agency – Broadcast Audience Research Council of India (BARC India). Meetings progressed aggressively in the second half of 2017 and major decisions are expected in 2018. Thomas said, “We are optimistic on that. There has been a fair amount of meetings and discussions that have happened as an industry body.”

Narayanan said, “Phase 3 will push FM radio reaching out to farthest corners of the country. As technology is changing, we may see a clear policy from the government on phase four and digitisation. We will be also seeing ourselves becoming more of a 360 degree solution provider rather than just being in FM radio broadcast. Radio, on ground events and digital synergy will be more sought after as an ultimate audio, visual and experiential marketing tool.”

Digital has been in a long fight with radio, providing music on the go and as you chose it. While almost all the radio players have already started their digital journey, more is to be done. Jain said, “Radio will live alongside digital. While there is a lot of music on internet radio, the business models are yet not there. There aren’t many digital radio companies that make money. So, I think the two will co-exist for a long time now.”

Learnings and Resolutions

2017 has been a tough year, but tough years teach the best lessons. The growing competition from digital, shrinking interest of advertisers because of GST and the sudden push towards events were some of the major challenges in 2017. Based on these, BestMediaInfo asked the radio players about the learning they got from 2017 and how they will plan for 2018.

Katial said, “With online presence becoming indispensable, radio has started expanding its footprint in the digital space to reach out to a wider demographic. I believe this should continue and should be a part of the industry's master plan for digital India by 2020.”

Narayanan puts her learning very clearly, “My learning from 2017 is to never give up optimism and let it go easy. In spite of all odds, most of us launched our phase three stations and are doing a decent job on them. Yes it’s not easy to maintain the same growth of which we had become habitual. I will be honest to say that we are not doing bad on our numbers and expectations. What I feel we need to take from 2017 is the zeal and a never-give-it-up attitude and never allow the baggage of pessimism to burden our shoulder.”

Hukmani is very strict on respecting one’s own advertising space. He mentioned, “Value your on-air inventory because that is what we paid the licence fee for and large networks must not discount it in combo selling and activations. We must focus to grow profit and not topline at enhanced costs.”

Jain’s area of focus in 2018 is the compelling programming that will drive a high level of listeners to radio. “Because a lot of money have gone into phase III, the new frequencies and the increase of penetration of radio are very important. The next phase of auctions is also expected in 2018 and I think that will add on to the existing adex numbers since it will be newer frequencies. It might not eat into the existing revenue figures.”

Humbly, Thomas recalls his learnings, “Because an overall sentiment was subdued, some of our top categories were muted in the last year, so that has enabled us to become smarter. We have managed to reengineer our processes, becoming more cost conscious about how we spend our money. And all that learning is not short term. We want to now take the learnings and advantages of that and make it a way of life going ahead. There are a lot of integrated deals that are beginning to come into radio. Those integrated deals are the way to grow. So we will actually be able to give the client more value with on ground, on air and online. We are able to integrate the influence of our own 100 influencers and their reach through their digital assets, their social media, and our own digital assets, and so give better value to the client.”

Will radio see double digit growth in 2018?