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FM AUCTIONS A mixed bag

 

The much awaited phase III of pri­vate FM radio auctions finally kicked off on 27 July 2015, and it’s the government that has benefited the most. Twenty five days into the auction, the government earned an estimated ?1,147 crore, as compared to a conservative estimate of ?450- 500 odd crore it was expected to gar­ner from the e-auctions.

At the close of the 23rd day of bid­ding for the first batch of private FM radio phase III channels, 94 channels

However, the skewed reserve price for some markets and steep prices in big metros is proving to be unvi- able for players. There’s no denying though, that as a medium, radio has definitely become more competitive. New frequencies will offer the oppor­tunity to expand regional reach and is proving to be more attractive for advertisers now, he says.

“If you go by the money collected so far, the auctions have been hugely successful for the government,” says Prashant Panday, MD & CEO, Enter­tainment Network India Ltd (ENIL), a subsidiary of Times Infotainment Media, which operates Radio Mirchi. “Equally, it means that bidders have pooled in a lot of investments as well. However, if you go by other parame­ters, then it’s been a mixed bag.”

High reserve prices He points out that, for instance, 40 of the small­est towns haven’t even been bid for. “That’s nearly 30 per cent of the total frequencies available. That’s a huge loss of public interest, considering that FM radio reaches everyone from the richest to the poorest of people. It’s also a financial loss for the gov­ernment,” he says.

There are other underlying con­cerns among radio operators. High reserve prices set by the govern­ment have resulted in a demand-sup­ply mismatch. According to Panday these prices are a direct result of the | government squeezing supply. When 5 you offer only one frequency in Delhi, o Bangalore, Chennai or Ahmedabad, 5 and just two in Mumbai and Pune, that too after a period of over nine years, there is bound to be frenzied bidding, he says, citing the exam­ple of Colombo in neighbouring Sri Lanka on the other hand, which has 25 radio stations. “Why can’t Mum­bai or Delhi have the same number or more? Had more frequencies been released in all towns and cities, the auctions would have been a much bigger success,” he believes.

Players are now concerned that these steep prices will translate into losses for the industry, leading to a similar situation that occurred post phase II in 2006, with many con­tinuing to carry accumulated losses.

in 56 cities became provisional win­ning channels with a cumulative winning price of ?1,147 crore. Up for auction in this phase are 135 FM channels in 69 cities, which include the leftover frequencies from phase II, held in 2006.

Besides the availability of more frequencies, there are a host of other incentives that the new licensing norms offer. Under Phase III, licences will be valid for 15 years as against 10 years earlier. Similarly, the total FDI/FII allowed in the new regime is 26 per cent, as against 20 per cent during Phase II.

While the industry believes that it’s been a smooth process so far and the auctions have gone off without a glitch, the situation is still far from ideal. Frequencies in smaller towns and mini-metros have found few tak­ers, thanks to high reserve prices set by the government. On the other hand, the handful of frequencies available in some of the top metros like Banga­lore, Mumbai, Pune, Delhi, Ahmeda- bad, Chennai, saw frenzied bidding. Bigger cities also offer the opportu­nity of earning higher advertising revenues, although regional advertis­ing on radio is seeing an upswing.

Jehil Thakkar, head, media & entertainment, KPMG India, points out that, in terms of raising revenue, the auctions so far have been quite satisfactory for the government.

Another restriction is the 15 per cent cap placed by the government, on the number of frequencies that one could bid for. Players hope that the government reviews the reserve prices for the second batch, as they are even smaller in size as compared to the 40 unsold frequencies.

The issue of not being able to broadcast news over radio contin­ues to be a bone of contention, with policies still being highly restrictive. At a time when news is freely avail­able and accessible through digital and television outlets, it’s difficult to fathom why radio as a medium is being treated in a discriminatory manner, says Thakkar.

According to the 2015 FICCJ-KPMG report on the Indian Media & Enter­tainment industry, the radio indus­try showed one of the highest growth rates amongst traditional media seg­ments in the previous year, clock­ing a growth rate of 17.6 per cent in 2014. What remains to be seen now is how phase III will pave the way for growth for the radio industry going forward.

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