RadioandMusic
| 14 Jul 2024
Jaideep Ghosh [KPMG] on Themes of Sector Growth in Phase-3

Jaideep Ghosh - Partner, KPMG Advisory Services, captures the essence of his special presentation at AROI's Radio Congress 2011. 

The Radio Industry registered high revenue growth of ~24% in CY 2010, to INR 10 bn from the CY 2009 figure of INR 8.1 bn, and this growth has obviously resulted in higher profitability, which augurs well for the future of Radio in India. From 2011 to 2015, the Radio Industry is projected to maintain a high growth rate of 20% CAGR, to reach a revenue of INR 25 bn.*

Obviously, key themes for sector growth in Phase 3 will include Increase in Reach, which will be very dependent upon Content Innovation and the Emergence of Regional Networks, which in turn will hinge upon the way Regulation evolves. Ultimately, Radio will need to offer a much stronger  value proposition to the advertiser, and local advertising in particular will need to become stronger.

Let's look at these areas one by one.

Regulation:

Key regulatory changes in Phase 3 are expected to facilitate industry growth. The industry is looking forward to receiving the benefits of cost economics, format innovation, increasing reach and revised industry structures.

While over 800 additional licenses across more than 200 new towns will definitely increase reach in a big way, content networking and multiple frequencies will enable cost economies. Permission for News and Current Affairs content from the regulator along with multiple frequencies will enable format innovation, and the medium will realize its potential for consolidation with an expected increase in the FDI limit to 26% to allow more foreign participation.

Increase in Reach:

The reach of FM radio, in India, is significantly lower than in International markets. The average reach of FM Radio in the US, UK, Australia and Malaysia is 92.5%, and it reaches as high as 95% of the total Radio audience in Australia. Compare that with the low reach figure of 35% reported for India overall, though the reach RAM reports for the four metros it measures is 77%. And this does indicate significant potential for an increase in overall reach.

And the good news is that FM Radio Listenership could potentially increase from around 55 million  currently to around 122 million by 2015 at a CAGR of over 15%. The existing towns would have a total of around 100 million FM Radio Listeners by 2015, by which time the new Phase 3 towns would add another 22 million FM Radio listeners.**

Advertiser value proposition

As we are aware, Radio offers a unique value proposition for advertisers, and its value proposition is well understood in international markets.

(1) It drives customers to action.

In a survey by Arbitron National, 49 % of customers were motivated by radio ads to visit a store the same day they heard the ads, while 60% were motivated to do so some time later the same week.

(2) Radio is effective as a complimentary medium.

Radio Ad Labs in the US, which measured Radio's impact on brand recall, reported that the recall score of a campaign that ran only on TV, without Radio, was 100; with Radio, it rose to 134. Similarly, the recall score of a campaign that ran only on Newspaper, without Radio, was 100; with Radio, it shot up to 280.

(3) Radio provides cost-effective local reach.

In a survey of perceived cost effectiveness for local advertising amongst advertisers, Arbitron Sales Insights indicated that internet was rated as the most cost-effective medium by only 4% of the advertisers surveyed; while 9% of the advertisers surveyed rated newspapers as the most cost effective medium. TV had 11% and Local Cable, 12% of the advertisers surveyed voting for them as the most cost-effective medium, but Radio was voted the most cost effective medium by as high as 51% of the advertisers surveyed – notching up more votes than the rest of the mediums combined.

In India too, advertisers are increasingly recognizing the benefits of Radio.
 

Local Advertising set to grow in Phase 3

Driven by Radio's strong value proposition and Phase 3, there could be significant growth in local advertising.

Yes, right now, the share of local advertising on Radio in India is low compared to international markets – it is only around 40% in India, compared to around 83% in just the top 3 US broadcasters. However, thanks to Radio's key benefits to local advertisers, of high and cost-effective local reach, keeping them connected with the local community, and its strong ability to drive customers to action, and combined with the fact that Phase 3 could make it available in over 200 additional, smaller cities, where markets are more driven by local advertisers, Radio could benefit greatly from significant growth in local advertising.

Emergence of regional networks

With high purchasing power, media companies can look forward to a good opportunity in regional markets, where Regional TV channels, for example, have already increased their share of ad spends from 21% in 2006 to 29% in 2009.***

Phase 3 is expected to lead to the creation of stronger regional networks in Radio due to the availability of a number of additional licenses in key regional markets. Regional networks will offer a cluster of stations to advertisers,  enables Radio to compete more effectively with Print and TV, and will help leverage cost synergies across stations. In the US market, players like Citadel Broadcast and Cumulus media have leveraged this effectively.

Content innovation

Permission for multiple frequencies and permission to relay news, sports and current affairs could create opportunities for content innovation.

In the US, for example, a variety of formats (music and non-music) have emerged. Yes, Music has remained the primary content format with an audience share of 78% from General and Regional Music formats, and 22% from non-Music formats like News, Talk and Information, All Sports, All News, Talk/Personality, Religious, Variety, Spanish News /Talk and Education.****

In India, initial format innovation could be around language, demographics  and  music genres with broad appeal. In addition, news, sports and current affairs could supplement music-based programming.

So, with high revenue growth and profitability improvement during the year, Radio could be set for a phase of high growth, with key drivers for growth being Regulatory changes, significant potential for increase in reach, strengthening value proposition for advertisers, growth in local advertising, emergence of regional networks and content innovation.

The risks and challenges for the industry, however, include the potential for irrational bids in Phase 3 licensing for metros and mini metros, given the limited licenses available, and the expansion of the measurement system.

I believe Radio is the true  mass medium that, with regulatory and other support, can better the projected revenue and reach growth figures over the next five years.

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*KPMG Analysis;  Based on past industry growth and estimated growth from existing cities and new cities to be added in Phase 3.

** Source: KPMG Analysis. Key assumptions: Reach in existing towns increases to 60% by 2015; Reach in new towns/ cities is~40% by 2015; Population growth ~2%.

*** Source: Avendus Equity Research

**** Source: Arbitron Radio Today, 2009 Edition

Download presentation here