Why Zee’s radio buy makes sense
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Zee has been third time lucky with radio. It failed in its first two attempts to get into the FM radio business in India. However, last week, the radio opportunity knocked in the form of Anil Ambani’s Reliance Group, which agreed to sell a 49% stake in its radio business and its entire television business to Zee group entities. As per a Mint report, Reliance Broadcast Network Ltd (RBNL) signed definitive and binding agreements with Zee Media Corp. Ltd (ZMCL) to sell the stake in its radio broadcast business. The Reliance general entertainment business will also be sold to Zee Entertainment Enterprises Ltd (ZEEL), a separate entity under Zee group. The transactions are expected to be completed by next year.
RBNL’s network of FM radio stations in India operates under the 92.7 Big FM brand and reaches 45 cities. RBNL has 45 operational licences that were issued under Phase II of radio privatization and later migrated to Phase III. Another 14 new licenses were issued in the Phase III auctions held last year.
For now, Zee is acquiring only 49% of RBNL’s radio business, although ZMCL and RBNL shall also have a call/put option to acquire/sell the balance 51% after the lock-in provisions on the holder of these licences expire. The regulations of the ministry of information and broadcasting mandate that at least 51% shareholding needs to be held by the licence holder for a minimum period of three years from the date the channels were operationalized. The lock-in period for the 45 operational licences will expire on 31 March 2018, while the lock-in period for the 14 new licences will end after three years from the day all 14 licences become operational, which is expected to be around March 2020, a statement from Zee noted.
To be sure, this is not the first time that Subhash Chandra’s Zee group is dabbling in FM radio. The group, surprisingly, has had a long and uneasy relationship with the medium. In 2000, it had bid for frequencies during the first ever auction for radio privatization. The media company won 28 stations in that auction. However, the firm surrendered the frequencies it had acquired. Although there’s never been any official word on the reason for abandoning radio 16 years ago, former Zee executives say that Chandra let go of radio at that time as the media company faced other issues that needed his attention. Rival Aaj Tak had transformed into a 24-hour news channel and competitor Star Plus was nipping at its heels.
However, the media company failed to launch stations even after it bid for and won eight frequencies in the Phase II auctions. Clearly, its radio business remained a pipe dream up until it acquired the UAE-based radio station Hum 106.2 in September this year. The station was acquired by ZEEL, which operates entertainment channels such as Zee TV and Zee Cinema. Hum 106.2 is a Hindi FM radio channel with a 26% share in that market.
Back home, experts say Zee’s acquisition of Big FM is well-timed and judicious. For one, it completes its media portfolio, which already boasts of television and print businesses. The radio and TV business of RBNL also fits in with Zee’s vision of expanding its reach. In its annual report for the financial year 2015, Zee had spelled out its vision of achieving 5x viewership growth and 4x growth in content consumption by 2020. “The latest acquisition is more like a fulfilment of that target. The Big FM acquisition is a great way of reaching 45 towns. The media company will also see its reach grow via Reliance’s Bhojpuri channel Big Ganga and the comedy channel Big Magic in Hindi,” says Ashish Pherwani, partner at EY Llp.
The radio deal makes perfect sense for Zee as radio as a medium is headed in the right direction, he says. Agrees Sunil Kumar, who runs radio consulting firm Big River Radio. “With advertising revenues from radio touching Rs2,000 crore and growing at a compound annual growth rate of more than 15%, Zee would obviously want a share,” he says.
Besides, buying an established brand like Big FM with a network of 45 stations, covering all metros and major cities spread across India, makes huge sense, Kumar says. Obviously, because it is from stations in the top 20 towns that 80-90% of radio ad revenue comes from.
Clearly, profitability of almost all radio companies is improving. “And now that they have the certainty that has come with the extension of their licences for another 15 years, this was the right time for Zee to have acquired Reliance’s radio business,” concludes Kumar, who headed Zee’s radio business when it first bid for the stations 16 years ago.
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.
Reliance Group companies have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay high court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.
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