MUMBAI: Is there light at the end of the tunnel for the struggling private FM radio industry in India in the form of mergers and consolidations?

The solution, that appears to be playing on the minds of several FM players might just reignite the radio industry by bringing the medium on the national advertising map but opinions are mixed about the effects of this trend on the industry.

Marketing alliances between radio stations for monetisation and sustainability has become a standard in the Indian radio industry. But now radio stations are eyeing station acquisitions to increase their footprint and corporate houses are planning investments to break into the Indian radio business 

Pricewaterhouse Coopers media and entertainment associate director Smita Jha affirms, A lot of companies are looking at radio and while planning finances for the coming year, are earmarking investments in radio sector. The corporate profiles looking at radio investments include media conglomerates and financial companies... 

There might be news of flux in ownership of radio stations in 2010 with media ownership gaining ground. The current Information and Broadcast ministry regulations restrict the tradability of radio licenses till the completion of five years of existence, which ends in 2010. The Association of Radio Operators of India (AROI) has been lobbying with the government to reduce the restriction of tradability of license from the current five years to three years. Apart from this, other regulations like non-availability of multiple frequencies, license term period of ten years also pose a hindrance for the industry 

Industry sources say that even big players would not hesitate to give away ownership of their non viable stations in the smaller towns. On the other hand, big conglomerates are on the look out for stations in money making smaller towns to increase their footprints 

Many stand alone stations in smaller towns confirm on condition of anonymity that they have been approached and lured with the promise of big money. These stations, are however still considering these business propositions over giving up their stations to these bigger players 
The Phase II policy of limiting ownership of radio broadcasters in a city might pose a hurdle in the proposed acquisitions however. The radio industry is hopeful that if I&B considers allowing multiple frequencies in Phase III, there might be a surge in radio acquisitions next year 

Player speak

Big FM CEO Tarun Katial says, In the current scenario, regional players are looking for corporate revenues and are finding it difficult to sustain only on regional revenues. In this scenario, consolidations might help the smaller stations. These consolidations will showcase true strength of the medium as advertisers look for volume of listeners and with larger footprints, the medium can deliver more....

A radio broadcaster from a huge network station says on condition of anonymity that investing to increase foot prints will reap benefits in the long run. He says, Adding on another station under my wing will only increase my network. Even though this station might not have a strong market presence, it will still add on to my revenue because of our presence in metros. So, acquiring stations is on the cards for us once the regulations are in place....

Radio Mirchi CEO Prashant Panday opines, There are many unique challenges in the radio business with consolidations. There will be consolidations but it would take longer than what the industry believes. Eventually, in media, a few strong groups will emerge and this is similar to what happens in all industries. Consolidation will help offer more programming formats and target a different set of people, thus offering a wider choice set to advertisers. Whether consolidation happens or not, radio will become a stronger medium than at present....

Investing in existing radio stations would be a dead investment, according to these broadcasters.

As a senior radio broadcaster who is considering acquisitions in metros points out that the license term period of ten years acts as an impediment  He explains, The operational stations will already complete five years till the license is transferred due to restrictions in tradability of license till five years. It doesn't make business sense to spend on acquiring an existing station when I can bid for new licenses in Phase III. With a new license, the period of profitability increases to ten years compared to five years in case of acquisition of existing station... 

As no such deals have been sealed in the radio industry in the country so far, there is no benchmark for market evaluations of radio stations for sale. More often than not, probable sellers will end up demanding exorbitant prices and this could put off the investors.

Says Jha, Operational stations are in bad shape and thus evaluations would be difficult for the industry. Also technically speaking, consolidations cannot happen at the movement but there can be stake buying where radio broadcasters can dilute their stakes and other players can own upto 49 per cent... 

Breather for smaller players

The radio business in India hasn't taken off as expected and apart from handful players minting profits, stand alone radio players in smaller towns are desperately looking for way out to sustain 

As Nine FM CEO Bobby Gupta, whose stations operate in the north east, explains, It is unaffordable for us to sustain as a major part of our meager revenue is spent on music royalties and high rentals to Prasar Bharati. To make matters worse, the advertising revenues in the region is very unimpressive and we are struggling to continue our business. If the revenues in this quarter don't improve, we might think of disinvesting to continue in the business....

Radio analysts are of the opinion that these ailing stations should be bought over by successful counterparts rather than going extinct. There is a sizeable amount of investment in setting up a station which can be utilized by another player after acquisition. Such sale will get some revenue for the ailing player and frequency can be retained....

Radio Misty CEO Nishant Mittal, whose stations operate in Siliguri and Gangtok, however begs to differ. It doesn't make sense to buy over ailing stations as once the brand image is diluted, it is difficult to bring back credibility and revive the station. Instead of buying over an ailing station, it would be rational to invest in new licenses...   

Having foot prints in Ranchi and Jamshedpur, Radio Dhoom is contemplating acquiring stations to increase its footprint. We are planning to invest in existing stations in Bihar, Jharkhand, Kolkata and Siliguri and there are some stations in these regions looking out for buyers. We wish to expand our footprints from the current two station network to a few more but the five year cap on tradability is restricting us. We might consider buying stations next year,... says Radio Dhoom CEO Sanjeev Kumar Singh.

On the same lines, prominent south India player Hello FM's CEO Rajeev Nambiar asserts, We might think of consolidations after Phase III if we need more stations in our current sphere. If there is a station restricting our hold on a region, we might buy them off to have control over it. Fortunately, for us we bid for seven key markets in Tamil Nadu and got all of them."

Consolidations between smaller players

Radio Mantra, with its stations in north India, is set to create a new benchmark in the radio industry by entering into sales and consultancy alliance with smaller players. Unlike the current trend of marketing alliances between national players and stations in smaller towns, Mantra envisions to change the rules of the game.

Says Radio Mantra COO Narendra Tripathi, In such alliances, we would be providing solutions for sales and as well as operating the stations. All the stations in this alliance will sound the same although the music and links will differ from station to station. As market matures, advertisers will look out for differentiation rather than numbers and we will pitch for national advertisers. Our alliance with smaller players will be similar to the national alliances with revenue share between the players and this might be a breather for bleeding stations...    

Radio Chaska executive director Tarun Goyal puts in, Advertisers will get the maximum benefit as mergers will reduce the number of players and they can decide investments city specific campaigns through a single network. Also, it will reduce price wars between the big and the small players as there would be only biggies competing against each others....

Figuring out ways to sustain themselves, there might be an interesting battle if smaller stations plan such consolidations throughout the country. This might encourage more advertisers to invest in the medium if smaller players deliver value for money   

There is also a downside to such alliances as it might result in further price wars where players would be forced to sell their inventory at lower costs      

In the current scenario, the Indian radio industry comprises a large number of players, making it difficult for advertisers to reach them. Consolidation could enable the radio broadcasters to package radio stations and sell them to advertisers in cluster. The consolidated group can also provide the advertiser a national reach and command a higher price for their inventory.

Is it time for the fraternity to unite, then?