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Mumbai: Jagran Prakashan Ltd on Tuesday announced that it will enter the radio industry by buying Music Broadcast Pvt. Ltd. The deal is estimated to be worth some 500 crore, according to a person familiar with the development who declined to be named.

Music Broadcast runs 20 radio stations in seven states under the brand Radio City. Music Broadcast’s 2013-14 revenues were 161.8 crore, and for the first half of 2014-15, the company has shown a 28% growth in advertisement revenues, Jagran said.

“Jagran Prakashan has entered into an agreement to acquire Radio City 91.1 FM, subject to the approval of the ministry of information and broadcasting," said Apurva Purohit, chief executive officer of Radio City 91.1 FM. “This augurs well for all the stakeholders. Both Jagran and Radio City have been pioneers and leaders in their respective space and this partnership will help augment the growth aspirations of the brand."

The radio business has seen significant growth in the recent past and is expected to grow at more than 18% compounded annual growth rate in the coming years, according to a KPMG-Federation of Indian Chambers of Commerce and Industry report.

“This deal will catapult JPL (Jagran Prakashan) into a leadership position in the radio industry and enable the company to benefit from the rapid growth in radio advertising," chairman and managing director Mahendra Mohan Gupta said. “The radio business will complement our print, outdoor, activation and digital business, and enable deeper inroads with advertisers both at national and local level."

The acquisition will be funded from internal accruals and investments, the firm said.

Jagran Prakashan is a media and communications group with interests in newspapers, magazines, outdoor advertising, promotional marketing, event management and digital businesses. The group publishes 12 newspaper brands.

The company’s shares fell 1.2% to 140 on BSE, while the benchmark Sensex shed 1.97% to 26,781.44 points. The announcement was made after market hours.

Jagran set its sights on Radio City as it turns in a profit of approximately 55 crore, according to the unidentified person cited above.

“The infancy period of FM radio is over. It makes sense for JPL to acquire Radio City as it is a profitable business. Besides, it will be useful to have these stations when the auction for Phase 3 of FM radio frequencies starts," the person said.

Shri Puran Multimedia Ltd, which operates as a subsidiary of Jagran Prakashan, already runs FM Radio stations under the Radio Mantra brand.

The risk in the deal is that the permits for the stations to be acquired by Jagran will be expiring by 2016. But the new licences for the stations will be auctioned for the next 15 years. “The company has taken an entrepreneurial risk. We will have to bid for these licences again but we already have an inventory of advertisers and listenership base if the deal goes through," the person said.

The acquisition will not impair the company’s ability to distribute dividends, the firm said.

“Radio has largely been used as a frequency medium (a small part of advertising budget allocated to make a campaign seem spread across media) to complement ongoing campaigns on print or TV. However, some of the large national advertisers have started using radio as a stand-alone platform (for certain categories such as food and beverages), reflecting increasing acceptability of the medium," according to a 18 August report on the media and entertainment by IDFC Securities Ltd, a brokerage.

The steady increase in contribution of local advertisers to overall spends on radio and higher reach coupled with multiple frequencies in the same town by the same operator will be a significant growth driver for the industry, the report said.

Radio now gets approximately 4% of the total advertising pie, but is expected to hit 5-6% over the next four-five years. It potentially makes it the fastest-growing medium at 18% compounded annual growth rate over the next five years, after digital advertising, the report said.

“Most media companies in the west are fairly integrated. If you look at Walt Disney, Sony or Fox, they are into producing movies, they are into publishing and also distribution of their products. While in India, companies are generally present in a particular line. However, the customer base that you are selling advertising space to, whether it is in print, TV or radio is generally the same. So it makes sense to be able to provide a variety of media to the customer where he can advertise ," said Deepak Nanda, chairman of Knights Bridge Financial Services Pvt. Ltd.

Also, most growth today is seen in regional channels and radio, he said. “Print media as a percentage of total ad spend is falling," Nanda said. “So if you have to survive as a media house, you have to be present across media."

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