Cabinet clears next phase of FM, eases content rules

Cabinet clears next phase of FM, eases content rules

New Delhi: he Union cabinet on Thursday approved the process that will see FM radio extend its coverage almost threefold across the country and made changes to ownership rules that could spark a round of consolidation and attract more foreign investment.

The cabinet gave its assent to the information and broadcasting (I&B) ministry’s proposal to conduct e-auctions for the award of licences in what will be phase III of the FM expansion plan, in which as many as 839 new channels will be available to bidders.

“It extends FM radio services to about 227 new cities," I&B minister Ambika Soni said. Currently there are at least 250 radio stations in 86 cities.

Private operators can now own more than one channel in a city, but not more than 40% of all the stations in a city.

“Allowing multiple frequencies could lead to M&A (mergers and acquisitions) activities," said Prashant Panday, chief executive officer (CEO) of Radio Mirchi, run by Entertainment Network (India) Ltd (ENIL). “However, there are still too few channels (allowed) in each major market."

The cabinet also increased the cap on foreign direct investment (FDI) and investments by foreign institutional investors in FM radio broadcasting firms to 26% from 20%.

It’s a move in the right direction, but not enough, said Apurva Purohit, CEO of Radio City, promoted by Music Broadcast Pvt. Ltd. “A shift from 20% to 26% is hardly what you call a huge switch. It’s certainly not the ideal FDI limit for radio," she added.

The e-auction will escalate the licence fee, especially for frequencies in Delhi, Mumbai and other metros, said S. Keerthivasan, business head (radio and entertainment) at HT Media Ltd. He said that ideally FDI should have been raised to 74% in private FM. HT Media, the publisher of Mint, runs the Fever 104 FM radio station in four cities.

The new licences will lead to 30% year-on-year growth for the radio industry, said Tarun Katial, CEO of Reliance Broadcast Network Ltd (RBNL), which runs 92.7 Big FM stations.

“At RBNL, we will be looking at multiple frequencies which will be a revenue multiplier without huge incremental capex/opex," he said in an email. “In addition to key urban centres and a network of C and D cities, the significant increase in radio inventory and the pricing power offered by multiple frequencies in cities will lead to content innovations and drive growth."

The government said the first two phases resulted in a total revenue accrual of 1,733 crore. That expected from the new auctions is 1,532 crore.

Soni said phase III licences will be issued for 15 years instead of the usual 10 years.

The e-auctions will be conducted in batches and details of the process will be decided by the ministry later. The ministry will appoint an independent expert agency through a transparent process to conduct the e-auctions.

“I think the overall policy is good. But we have a principled disagreement on e-auctions for radio. E-auctions are a great method of auctions for telecom, but for radio, a ‘single-step tendering’ process would be better," ENIL’s Panday said.

“In e-auctions, all frequencies are auctioned for the same price. This would lead to a loss of content plurality (content diversity) since no one would like to do a niche programming format after bidding so high," he said. “Having said that, ENIL specifically has no worries with respect to e-auctions. In fact, e-auctions will benefit ENIL."

Broadcasters were concerned the e-auction model may give those with deep pockets an advantage, Radio City’s Purohit said. “Still, we expect to see a lot of local and regional players come forth and bid for new licences," she added.

The government has also eased content rules for private FM channels, which currently can’t carry news broadcasts. They will now be allowed to carry news bulletins from All India Radio. Public service information will also be allowed as it won’t come under the label of news and current affairs. This relates to information on sports, traffic, weather, cultural events, exam results, admissions, career counselling and job opportunities. They will also be allowed to carry announcements regarding civic amenities—electricity, water supply, natural calamities, health—as provided by the local administration.

At the national level, the ownership limit for radio channels has been retained at 15%. However, as an incentive, bidders in Jammu and Kashmir, the north-eastern states and island territories will be allowed to exceed the 15% ownership limit at the national level. Private FM broadcasters in these regions will only be required to pay half the rate of the annual licence fee for the first three years.

Cabinet approval was the first step in the road to the long-awaited phase III, said Smita Jha, consulting head (entertainment and media) at PricewaterhouseCoopers (PwC).

The changes “will help the radio stations in innovations and thereby improve ad revenues, which in turn will positively impact their margins under pressure", she said.

The increase in the foreign investment limit is in line with the government’s overall objective, Jha said. PwC estimated last year that the radio industry will be worth 1,600 crore in 2014, up from 1,000 crore now, growing at a compounded annual growth rate of 19.2%.