| 18 Jul 2024
20-TEN Year-ender: Prashant Panday, ED & CEO - ENIL

* 2010: The year of waiting. 2011: A year to grow!

Everyone in the radio industry kept waiting for things to happen in 2010! We kept waiting for Phase III to be announced. We waited for the economic down-turn to end. And we waited for the new music royalty rates to be issued. Some things happened. Some didn't!

2010 could also be described as a year when the maturity and strength of the radio industry was tested. Nothing does that better than a tough economic environment. I thought the fledgling radio industry fared extremely well in a bad year. Radio convinced advertisers about the role it plays in the advertising mix and got them to commit more and more volumes to it.

At the end of 2010, the radio industry has achieved decent size and scale. Private broadcasters exist in about 80-85 cities around the country. They operate more than 240 channels and they have collectively brought back the habit of radio listening. While they have bled financially themselves, they have given full blooded entertainment to the people! The share of radio has risen from 3.5 odd % (of ad spends) in 2009 to 4.5% odd in 2010. Radio has grown faster than any other medium except the internet. Today, there are more than 120 million radio listeners… a number that looks small at first glance (it's lesser than print and TV). However, when you consider that radio broadcasters only cover about 30% of the population of the country, it demonstrates correctly how much penetration radio has achieved. Imagine when Phase III came and radio spread to 300 towns… we would give TV and print a run for their money!

The radio industry continues to struggle, however. This is because of both revenue and cost reasons.

Let's look at the revenue piece first. There has been no new channel launched in the last three years. Most rollouts under Phase II were completed by March 2008. New launches cannot happen because the government first needs to dole out more spectrum. And spectrum is a very dirty word these days! Radio is the only medium that still operates under a License Raj -- a system which officially ended in India in the 1980s. So while the number of TV channels has crossed 500, the number of newspaper editions keeps mushrooming, the number of outdoor sites keeps out-doing itself and the number of internet sites keeps challenging even the mighty Google, radio stations can easily be counted on your fingertips. Cities like Delhi, Kolkata or Bombay, with populations nudging 20 million, have only 8 radio channels each. What kind of travesty is this? When will we have at least 25 to 30 channels in each big city? When will the shackles of the License Raj be broken?  We have been talking of Phase III for so many years… Phase III does nothing to increase the number of channels in the big cities. Will we have to wait for a Phase IV for this? If so, when will Phase IV come? After we are all dead and gone?!

The growth rate of radio has slowed down because there is no capacity creation. Only those broadcasters are growing fast who have inventory available. The growth of the bigger broadcasters has slowed down to under 20%. From 50%+ rates of growth, the industry growth rate has come down to some 20% types. This is putting severe pressure on the industry. Revenue growth is the lifeline of all companies.

There is severe pressure coming from the cost side also. No other media pays the government such hefty charges for spectrum (the One Time Entry Fee – OTEF). In fact TV and Print pay almost nothing. Imagine this: the smallest medium (radio will become the smallest soon with internet going ahead of it) is the only one burdened with these humongous spectrum charges! Its share is just 4.5% of the ad industry, yet it pays almost ALL of the monies paid to the government as license fees.... And worse, this OTEF does not get broadcasters  a life-time... license; it only gets them a 10-year license. This burden is proving too much for the radio industry. Even when radio broadcasters run their operations most efficiently, they are unable to generate enough EBITDA to take care of the OTEF amortization. Almost no one except Mirchi has been profitable at PAT level till now. Even if a few more will become PAT-positive soon…  really, is that enough? Will their operations give any decent ROI to their shareholders? I can say this with certainty for most shareholders: they would have been better off investing their money elsewhere.

In addition to the revenue- and cost pressures, there are other significant challenges that broadcasters face. One often cited is related to content differentiation. The fact is that content differentiation is limited. Most broadcasters play the same music, so about 55-60% of the content is identical. Another 25% is advertising. That leaves 15-20% for real content differentiation. So while most broadcasters try and do the best they can, they really can't do much.

As a result, radio broadcasters have focused more on brand building... rather than content building. Because they could not do content differentiation, they have done a fairly good job of brand building. It's clearly the best job done anywhere in the media industry. Today, radio brands are strong. They are differentiated. A Radio Mirchi is totally different from Radio City or Big FM or Radio One. Research shows conclusively each brand's unique position in the minds of their listeners. No other medium has such strong brands. In TV particularly there is not even the concept of brand building -- a channel is only as good as its shows. This is probably why Mirchi was voted the #1 media brand in 2008 in a Pitch-IMRB survey -- ahead of the iconic TOI and Star Plus!

2010 thus provided a short moment for broadcasters to think about where they were going. Was all this financial investment worth it? Is the future going to be dramatically different? Will Phase III change the rules of the game? As we look towards 2011, do we have reason to be happy and cheerful, or should we be circumspect?

In my view, those who are sensible will succeed in the radio business. More than in any other media business, common sense must always rule supreme in radio. There is no role for individual or corporate egos here. There is no media glamour... associated with radio. You over-bid for licenses, you die that same day. The joy of having the biggest network is short-lived. The joy of having a profitable network is forever. Those who remember this simple mantra will enjoy the ride that Phase III offers. At Mirchi, we have been clear on this matter. And we will continue with this philosophy into the future. We are not interested in acquiring existing radio businesses unless they are sensibly priced. We will not bid for a second or third frequency unless it makes business sense. We believe that with a changed regulatory environment, we will get a second chance to acquire and grow; the bidding is not a once-in-a-lifetime case as many thought it was during Phase II.

This sobering reality is something we have internalized at Mirchi. This is what makes me very optimistic about the future. I think Phase III will be revolutionary for the radio industry. Finally, radio will find its own space. Finally, radio will compete with regional print and give a new option to the small advertisers there. Finally, radio will be able to partake of the strong growth that the regional markets are seeing.

The new music royalty regime has also helped the cause of Phase III. In doing so, it has also helped the cause of the music industry (a fact not understood currently by many in the music industry). When radio expands in Phase III, its revenues will grow and that will cause the royalty to music industry to grow exponentially.... Not only will radio royalties grow, it will cause an explosion in the digital royalties that music companies collect. CRBT downloads are directly proportional to song rotates on radio. This is why music companies keep pressurizing radio broadcasters to increase rotates on their channels -- even while they complain in the courts that radio hurts music sales! Sense will prevail soon; sensible people will reign ultimately.

For Mirchi, the two most exciting developments were the launch of Mirchi Mobile and the scaling up of the Mirchi Music Awards. Mirchi Mobile is a unique product. You can listen to a Mirchi station of your choice anywhere in the country. So a person from Jalandhar who travels to Bombay can continue listening to Mirchi's Jalandhar station even while he is in Bombay. All this at a very small cost. We call it Ghar ka radio....

What gives me so much joy is that Mirchi Mobile has become the top VAS product launch of 2010. Initially it was only with Airtel, and now that we have launched it on Reliance and BSNL (on both platforms – CDMA and GSM), it has the potential to cross Rs 100 crores in telco revenues. Imagine what this does to music royalties. With just this one mobile product, music companies will more than recover all they think they have lost... on royalties from Mirchi's FM operations; in fact, they could make more from Mirchi Mobile than they made from Mirchi's FM in a full year! This is why I keep saying: radio and music are two sides of the same coin. We must work together in a spirit of co-operation.

The Mirchi Music Awards are an emotional experience. We lose money hand over fist in these awards. It's our salaam... to the brilliantly creative music artists. We are the only radio channel that credits all songs to the music artists, not to the film stars. We stand up and applaud their contribution to films. We support them in any possible way. We have an open offer to the music industry -- come to us for any marketing support you want. The Mirchi Music Awards have energized the artists. Today, they look forward to this mega event with great anticipation.

Mirchi's been at the forefront of many innovations in radio. We were the first ones to have dedicated studios for advertising agencies to come and make radio scratches. We were the first to offer per-sec... billing. We were the first ones to set up the Mirchi Activation business (in 2002). We were the first ones to set up a dedicated Creative Services Team (CST, in 2007). The CST is headed by the foremost creative person at Mirchi and is focused on delivering delightful radio solutions to clients.

So much is happening in radio, it's impossible to list all in this note. New radio advertisers are jumping on to the bandwagon. Today, everyone wants to have a radio campaign. It's only an archaic advertiser who doesn't advertise on radio. The biggest beneficiaries are the small retail advertisers, for whom radio has become a life-saver. The share of retail in the radio advertising pie has increased to nearly 40-45% of all revenues. In a few years, this number will climb to 60-70%. Everyone knows this: retail advertisers don't advertise if they don't get results. This is what gives us the maximum joy in radio: to emerge as the top medium of choice for so many advertisers!

The research scenario is changing. RAM is likely to extend to many more markets -- at least on a one-off snap-shot... basis. Electronic measurement of radio is on the anvil, though honestly, one should ask why the smallest medium is attracting so much attention from the research companies! Is it going to help the medium or stifle it even more by subjecting it to questions that the bigger media are seldom subjected to?

All in all, 2010 was a year of waiting. And recovering. Hopefully, 2011 will be a year of action and faster growth. Hopefully, the Phase III policy will be announced soon. Hopefully, the bidding will also happen soon. Hopefully, radio will continue to out-grow its bigger peers. I stay confident.

I have always said this: with Phase III and Phase IV still to come, the next 5-7 years belong to radio!