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Photo: Hindustan Times
Photo: Hindustan Times

High reserve prices for new cities irk FM radio operators

Conversations with top executives of radio broadcasting companies bring to light the unrest in the radio sector over the latest auction

Last week, the ministry of information and broadcasting issued a notice inviting applications for e-auction of 266 private FM radio channels in 92 cities in the second batch of FM Phase III. The auction for the first batch was held between July and September in 2015.

The second batch actually consists of 227 channels in 69 new cities. However, it has leftover frequencies from the last auction: 39 channels in 23 cities. The 69 new cities are either classified under C or D categories. Most C category towns have got four frequencies each while the D category ones have three frequencies each. Only one frequency is available in Hyderabad, which is a category A city. In category B, two cities—Vijayawada (Andhra Pradesh) and Asansol (West Bengal)—are available.

The e-auction notice comprises the eligibility criteria, application procedures, reserve prices of channels, frequencies available for selection, auction rules and other details. Applications are required to be submitted latest by 5.00pm on 1 August 2016.

So far, so good. The country’s private FM radio firms are happy with the government’s move to expand radio broadcasting to more than 150 cities. Currently, private FM radio channels are available in 89 cities. They say the government has exhibited determination in announcing batch 2 frequencies and is doing its best to fast-track the auction.

But that’s where the good news ends. Conversations with top executives of radio broadcasting companies bring to light the unrest in the radio sector over the latest batch of frequencies on auction.

For a start, the number of frequencies listed came as a surprise. Not all of the remaining frequencies (850) are being auctioned in batch 2 as had been expected. Only about 266 are being offered. Further, no information is available on when the remaining frequencies will be auctioned. This makes it a little difficult for broadcasters to plan their finances, points out Prashant Panday, chief executive officer (CEO) of Radio Mirchi, the FM radio brand of Entertainment Network India Ltd, a Times Group company.

But that is only part of the problem. The high reserve prices set for the new cities in the auction are a source of worry too. Radio broadcasting companies fear that at current rates, operations in these cities will be unviable.

“There is some inconsistency in the pricing of many cities of comparable sizes and geographies. Reserve price of many towns is prohibitive and the government must reconsider these," says Harshad Jain, CEO (radio & entertainment) at HT Media Ltd, which runs Fever 104 and Radio Nasha 107.2 FM stations. HT Media is the publisher of Mint. The radio stations of HT Media and Times Group compete in several markets.

In a number of cities, the reserve prices of frequencies are ridiculously high, say radio operators. A clutch of cities in the south, for instance, Alappuzha, Belgaum, Bellary, Erode and Kakinada, have all been priced at 7.02 crore each. “Who’s going to pay such high RPs (reserve prices) for Vellore, Kurnool and Erode?" asks Panday of Radio Mirchi.

However, the four cities with the most bizarre reserve prices are in the north. Dehradun, Saharanpur, Shahjahanpur and Muzaffarnagar carry a steep reserve price of 15.6 crore each, which according to radio broadcasting companies, is “crazy". Compare these to the reserve price of 31 lakh for Jhansi which is in the same category. The logic of such pricing, if any, hasn’t been explained.

According to Tarun Katial, CEO of Reliance Broadcast Network Ltd, which runs 92.7 BIG FM radio channel, the government did not reconsider the reserve price formula that the Telecom Regulatory Authority of India had suggested for new towns, thus making the frequencies completely unviable for radio broadcasting companies to bid for.

Going by the current mood in the radio broadcasting sector, the new frequencies will not find any takers at these prices and if they do, the business will not be viable. Also if listeners are expecting “variety" in programming or “different" music, such high reserve prices will not allow that either. There will be no money left for marketing or experimentation. Those who take up these licences will opt for standard formats, the radio firms claim.

Companies may pick up a few frequencies here and there to fill the gaps in their networks but mostly the response to the auction may be underwhelming under the current circumstances, they say.

The notice of auction of frequencies at forbidding prices comes at a time when the radio broadcasting sector is seeing healthy growth in view of expansion of stations under the Phase III, batch 1 frequencies that were auctioned last year. If the pricing was right, the licences in the new cities could also offer an incremental opportunity favourable for growth in the sector. Katial of Reliance Broadcast says that the new frequencies will definitely not create a glut, but increase the reach of the medium. Since most of these are new and untapped markets, an impact on the existing markets is unlikely, adds Jain of HT Media.

To be sure, the private radio broadcasting sector is very under-penetrated with scope for geographical expansion. Over time, it has also become a preferred medium for advertisers for its reach, to connect with the youth and for being a free medium on-the-go for consumers. Although the medium is expected to grow at 18-20% a year, if the policy is flawed, much of this potential growth won’t be realized.

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.

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