Poised for Growth: FM radio in India
This report is a compilation of views and opinions of 23 survey respondents including Indian radio companies, advertisers, media agencies and other industry stakeholders.
Current state of the radio industry in India
India’s private FM radio segment accounts for around 4% of the country’s total ad industry, with 245 private FM stations operating in 86 cities, and has been growing at a CAGR of 14% annually.. The sector is expected to generate revenue of around INR14 billion in 2012–13.
Many large companies are now achieving EBIDTA break-even after 50%–60% of their license period has expired. This implies that they have very little time left to recoup their accumulated losses. Given limited inventory and revenue growth opportunities, proﬁtability has been largely achieved by companies by controlling their costs by centralizing their operations, enhancing their employees’ productivity and networking their stations.
Key challenges faced by the industry
The key challenges faced by the industry today include limited inventory, inability to demonstrate ROI and slow recovery of ad effective rates (ERs). Therefore, the need of the hour is for the radio industry to collaborate and implement a measurement system that supports the growth of the industry:
Phase III – Implications and opportunities
Phase III of FM radio licensing promises further growth opportunities for the Indian FM radio industry, since it covers 294 cities and 839 licenses. The sector is expected to grow to INR23 billion, at a CAGR of 18%, within three years of Phase III being rolled out.
Respondents of the survey say that the industry growth is likely to slow down to an average of at best 10% over the next three years if Phase III is not initiated. They expect the share of local retail advertising to increase from current levels to more than 50% of the total revenues generated in the segment. Activations and other below-the-line marketing initiatives are set to play a more important role in generating revenues.
The margins of radio stations are projected to decline in the short-run, stabilize in three to ﬁve years and then rise. The growth in mobile and internet ad spends could, however, pose a threat to the rise of FM radio.
Phase III will make the industry more conducive to M&A due to proposals such as reduction of the license lock-in period from five to three years, an increase in the license period from 10 to 15 years, significant increase in networking between all the stations to enable cost optimization, ownership of multiple frequencies in a city and an increase in the foreign investment limit to 26% from the current 20%.
In the long term, signiﬁcant growth will only be possible if several thousand stations are operationalized, the burden of high license fees is removed by increasing the variable component and reducing ﬁxed costs, and news dissemination is equated with other media.
Download our report for more on the FM radio segment.
Source: Various industry reports. Figures in brackets indicate number of licenses.
Source: EY survey analysis