On Radio
Radio is a mass medium and therefore ideally suited for India - leveraging its twin advantages of wide coverage and cost effectiveness. It is dominated by the stateowned All India Radio (AIR), which covers 91 percent of India's area and reaches 99 percent of the population, through a wide network of broadcasting centres and transmitters. Apart from AIR, there are 21 privately-owned FM stations in 12 major cities, all of whom have been granted licences over the past 3-4 years. Advertising is the sole source of revenue for radio in India. Currently, the sector generates annual revenues of INR 2.2 billion and is growing at around 20 percent annually. This implies a marginal rise in radio's share in the advertising pie to around 1.9 percent. Given that commercialisation of radio is still in a nascent stage in India, this growth rate is far from flattering.
As a result of unsustainably high licence fees, the sector has been reeling under heavy losses. A few FM stations have been forced to shut down, as they could not afford to pay the annual license fees, set at levels significantly above their earning capacity. If one considers the private sector FM market in Mumbai, four players cumulatively generate annual revenues around INR 250-300 million, against total operating costs of around INR 550-600 million. Given that a significant portion of the operating costs is the licence fee, which is set to increase at 15 percent per annum, revenues would need to grow at over 40 percent annually to break even in the next three years.
Globally, radio is enjoying a renaissance based on the support of the youth. They seem to prefer it since, unlike television, it is more compatible with their lifestyle. Research trends in Australia indicate that radio enjoys a higher level of popularity among the 15-29 age group. Today's busy teenagers love radio because it complements a faster-paced lifestyle - they can listen to music and get information on the move. Younger audiences, particularly those below the age of 25, also have access to new technology like mobile phones. They have taken very quickly to interacting with their favourite radio stations and RJs via email and SMS for song requests and competitions.
The Indian potential
India has an estimated 180 million radio sets, reaching over 99 percent of its one billion inhabitants - a clear indication of the vast commercial potential in India for this medium. Plainly, the radio sector cannot and should not be satisfied with a growth rate in the low 20s. In India too, it is the younger generation that is the key target audience vis-à-vis radio. While consumption in India is still largely at home, 'the radio on the move' trend is catching on in urban and semi-urban areas. The easy availability of FM radio sets at affordable price points (ranging from INR 40-INR 150) is fuelling its mass penetration.
According to market research, in Mumbai and Delhi, FM penetration is the highest in the SEC A segment and least in SEC D. Further, 70 percent of radio listeners in these cities listen to FM radio all seven days of the week. However, this sector has not been able to monetise its hold on the listener’s eardrums. In spite of such attractive statistics, in terms of its advertising spend, radio remains a laggard. It has less than 2 percent share of the total advertising pie in India, compared to a global average of 8 percent. In the US, radio has a 13 percent share, in Spain 9 percent and closer to home, in Sri Lanka, radio has a 21 percent share of the advertising spend.
Universally, media categories in the growth stage have a share of around 5 per cent and mature categories average around 10-12 percent of the total advertising expenditure across various media. We estimate that if its real potential is unlocked in India, commercial radio could account for approximately 8 percent of media spends in the short to medium term and up to 10-12 percent in the long term.
Bridging the gap
Due to the public-broadcaster nature of AIR and its socio-economic rather than a commercial focus, its ad revenues are expected to grow at a moderate pace. Since the private FM channels need to survive in a commercial and competitive environment, they have focussed on mass entertainment to gather listeners. Hence, it is expected that the private FM channels will drive the future growth of the sector. To exploit the true potential of this sector, FM radio needs to grow from the current 21 stations in 12 cities to at least 300 stations in 100 cities. At an investment of INR 40 million per radio station frequency, the total additional investment required will be INR 11 billion. In its current form and structure, the radio industry will not be able to attract the necessary funding.
TRAI, the designated regulatory body for radio, has proposed a transition from the existing license fee regime to a revenue sharing one, to help the radio industry curb it losses. It is hoped that clarity on revenue-sharing emerges, soon. The industry, on its part, needs to develop strategies to expand across the country and enhance business performance, thereby turning India's promise into reality. In other words, the challenge confronting radio is to bridge the gap between the current growth trend and potential growth expectations.
Local mantra
The sales and marketing efforts of the major FM radio stations have focussed on the large advertising clients. This may be partly attributed to the FMCG-marketing background of some of the managers and partly due to the sales strategy of the multi-media groups that own most radio stations. However, radio is a unique medium and the focus on large advertisers seems to be at the cost of its largest potential benefactor - the local retailer. The retail segment globally constitutes a large part of radio's clients and sales, but currently in India accounts for a small portion of the radio revenue pie. For example, in USA, 70 percent of all radio revenues come from local retailers, and only 30 percent comes from either national or international advertisers or from the network of advertisers. In contrast, in India, retail comprises only 8 percent of radio advertising.
Radio, by its very nature, is a localised medium, due to it’s ability to transmit a particular message over a small geographical area. The retailer, with city/ localityspecific target groups, can be a major beneficiary of radio advertising. Clearly, there is a need to unlock the advertising potential in the retail segment. Radio stations offer high frequency ‘opportunity to hear’ for the advertiser. International research indicates that radio has 60 percent of television’s effectiveness at increasing campaign awareness amongst an audience of 16-44 year old radio listeners. However, advertising on radio costs just 15 percent that of television. While the price relativity for other audiences will vary, the achievement of 60 percent of the result at 15 percent of the cost makes radio significantly more cost effective than television.
The price differential between radio and television will vary depending on the area and the audience. In India, where the cost of television advertising is more than seven times that of radio advertising, the cost effectiveness of radio advertising will be even more acute, which can be a great proposition for local retailers. A high frequency combined with a moderate card rate (effective rates average between INR 500 to INR 900 per 10 seconds) provides an opportunity for retail players to promote their products and services cost effectively without fragmentation as in the case of national or even regional media.
Presently, the advertiser base of FM radio is highly skewed, with around 11 percent of advertisers contributing 60 percent of their revenues. This should not be the case in a localised, mass-medium like radio. Ideally, the advertiser base should be broad-based with a large number of local advertisers promoting their products. While some radio stations are waking up to this reality, this potential is largely untapped. It is important for the radio stations to highlight the effectiveness of using radio for local level promotions and region-specific ad campaigns. Moreover, since many FM players are associated with larger, vertically integrated media corporations, cross media promotions could be an added incentive for the potential advertiser.
Creation of value packs
Most of the programming currently being aired, whether music or not, has little or no library value. Very little programming is developed to create any strategic intellectual property. Creating specific IP whether in the form of RJs, programme formats or around content areas could have the dual advantage of being re-usable in the future and being syndicated across other channels. Interactivity is a major content driver within the radio programming strategy. However, if the topics discussed are not affected by the 'recency' factor, there is enough potential to create a library of recordings that can be used beyond a single show. Such content, when re-broadcast, saves the cost of producing new content and generates newer revenues by offering brand association with such a property at reasonably low rates. Besides, such content can be exported for broadcast in other countries where the demand for Indian content is considerable. Creation of a good software library can become a source of competitive advantage for a radio player.
Niche programming
Internationally, content specialisation has been a distinct trend in the evolution of radio, especially FM radio. Radio stations have traditionally grown by attracting specialised audiences. These stations address specific audiences based on geographic, socio-economic or ethnic or combination of factors, like a radio station that caters to the African-American population of New York or a Malayalam channel with Indian content for expatriate Indians in the Middle-East. Being localised, these channels also meet the demands of local advertisers. Initially, most radio stations in India started off with a defined niche as well. Between them, they provided the listener with a choice of English, Hindi and mixed content. However, the pressure to sell airtime forced them to resort to the lowest common denominator - Hindi film music. Very few have held on to the English format or even non-film content.
Channels that started out with English programming as a key differentiator have drastically reduced the total airtime dedicated to it. Since there is very little to differentiate between the various channels, the resultant effect is constant channel swapping by listeners. Radio stations have not been able to generate any significant channel loyalty. In fact, a closer look reveals that even programme loyalty does not exist, with listeners simply switching from song to song. This me-too approach towards content has a direct implication on the marketing of the radio channels as any message or campaign carried by it runs the risk of being lost in the clutter. Hence, there is an urgent need to evolve programming towards differentiated content. It may also require a shift from mass marketing of the radio channels to marketing programmes targeted at specific market segments. Validation of niche audiences would enable differentiated client targeting with unique value propositions. With limited sponsored market research done in this area, radio stations find it difficult to market their USP. However, these radio stations need not look beyond their walls to get valuable listener data. The innumerable contests and interactive sessions on air bring in close to 30,000 callers every day for a single channel in a city like Mumbai - a valuable database that is currently under leveraged. Radio stations will need to start finding their own niche. Channels that address specialist listener groups need to emerge.
Manpower
The most conspicuous item on the expense list is 'salaries'. The salary structure in radio is comparable to that of other larger media units. This is driven by the fact that radio stations hire people from high wage industries like television, FMCG marketing or advertising. This has led to the creation of a people-cost structure that is incompatible with the current size and revenue earning capacity of the radio industry. While it is necessary to incur reasonable manpower costs in order to stay competitive and attract the best talent, innovative cost management solutions such as the right mix between live and recorded music could reduce production and salary costs.
Branding
Branding plays an important role in establishing a strong channel and programme association amongst listeners. The key word is 'association'. What the listener associates with is the quality of content. Brands that have spent more on marketing have a higher recall, but that does not necessarily translate into higher listenership, particularly in a market where lack of niche programming has resulted in constant surfing for songs of choice. Some private FM stations have incurred large costs on building merely 'Top of Mind Recall' for all listeners, irrespective of their preference or affinity to the station. But as the market matures and niche channels develop with defined target groups and unique value propositions, branding exercises will become more meaningful. Channel brands and programmes will be associated with niche content and specific listener profiles that can be sold to potential advertisers.
There is no doubt about the effectiveness of radio when it comes to building brands for its clients. For example, brands like Binaca / Cibaca and Bournvita were built on radio. These programmes rode on extremely successful content formats. Branding is expensive and therefore, radio stations with limited budgets need to make a choice between channel branding and programme branding. What could work better for them would be a combination of two. Programmes that are aligned to channel positioning can ride on the channel branding, while other programmes should develop their individual brands, without diluting the channel positioning.
Conclusion
India's radio industry has a strong growth potential if mechanisms and policies are put in place to provide it with appropriate support. India, with its diverse regional influences, is in a prime position to take advantage of the growth potential of this segment. With privatisation gathering momentum, the increased number of private radio channels across the country is likely to transform commercial radio from an urban phenomenon to a national one, as has been the case with satellite television.
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