Tepid response to FM radio auction
Advertising expenditure on Indian radio is expected to grow 10% in 2017 over 2016, according to the latest forecast by media agency GroupM in its report titled This Year Next Year released on 14 February. This is lower than the 12% growth rate it posted in 2016 over 2015. While that may have been spurred by the expansion in the sector owing to new radio stations coming up after the 2015 FM auctions, 2017 may be slower as the last auction held by the government (between October and December 2016) was a damp squib.
Although the government is yet to officially declare the final results of the FM e-auction held for the second batch of frequencies in Phase III of radio privatization, the information and broadcasting (I&B) ministry has provisionally sold 66 out of 266 private FM radio frequencies put up for auction.
In a written reply to a question in the Rajya Sabha, minister of state for I&B Rajyavardhan Rathore said that 66 FM radio frequencies were provisionally sold in 48 cities in the second batch. Provisionally sold channels are subject to due diligence and regulatory approvals. The 266 frequencies on sale were available in 92 cities and the e-auction was conducted over one-and-a-half months, ended 14 December.
Even in June 2016 when the I&B ministry had invited applications for the auctions, there were murmurs of disappointment with its terms. Several companies like HT Media Ltd, Reliance Broadcast Network Ltd and Music Broadcast Ltd, which run radio businesses and had emerged as big spenders in the first batch, stayed away.
However, a total of 14 firms participated, including Abhijit Realtors and Infraventures Ltd, JCL Infra Ltd, Mathrubhumi Printing and Publishing Co. Ltd, Sun Group through its subsidiaries Kal Radio Ltd and South Asia FM Ltd, and Entertainment Network India Ltd, which operates Radio Mirchi, among others. HT Media, the publisher of Mint, competes with radio channels of some of these companies in several markets.
To be sure, in the latest round, the frequencies on auction were mostly in small towns with the exception of a few cities such as Hyderabad (one leftover frequency), Vijayawada (two frequencies) and Dehradun (four frequencies). Frequencies were also available in a whole host of mid-rung cities in various states.
However, most cities remained unsold because of highly unreasonable reserve fees. Dehradun had a reserve fee of Rs15.6 crore, the same as Chandigarh in the first batch. Similarly, several towns in the south had a reserve fee of Rs7.02 crore. As a result of being priced so steeply, several frequencies were rendered financially unviable and found no takers.
Among the high-priced frequencies in Dehradun, only one was sold out of the four on offer.
Cities like Muzaffarnagar, Saharanpur and Shahjahanpur, too, had four frequencies each on offer. However, these cities drew a blank, according to information available with companies which participated in the auction. Inexplicably, the government had fixed the same reserve fees for all “similar category” cities in the north. So based on population, Dehradun, Muzaffarnagar, Shahjahanpur and Saharanpur were Category C cities in the north as was Chandigarh. Hence they were treated equally. “But this move was bizarre. For, while Chandigarh as a media market may possibly be worth Rs400 crore, Dehradun may be barely Rs50 crore and the rest possibly under Rs10 crore. Yet, the RF (reserve fee) is the same for all,” said an executive of a radio company who declined to be named.
Among cities with a reserve fee of Rs7.02 crore, few stations were sold. While no frequencies were sold in places like Kurnool, Kakinada, Bellary and Belgaum, Vijayawada sold one out of two frequencies. Vellore and Salem, too, managed to sell only 50% of their frequencies.
It was the same story at other reserve fee levels also. “Essentially, there is a total mismatch between the reserve fee and the city’s potential. The reserve fee was set in Phase II under a different auction methodology, in many cases, because the number of frequencies offered was too low,” said the executive cited above.
Although the radio operators had raised the issue with the I&B ministry, they say their pleas were ignored. They fear the situation may get worse in the future rounds of auctions if the reserve fee and city potential mismatch issue is not resolved.
Unfortunately, it’s not just the radio operators who are the losers in the latest round of auction. Even the government has not been able to maximize its revenue. According to estimates, the government made only about Rs200 crore from the batch 2 auctions. Even if it had sold all the frequencies at the reserve price, it would have made more than Rs900 crore. With only 66 frequencies provisionally sold, the auctions were a letdown.
Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pressing issues related to all three. Or just fun stuff.