The smell of money just wafted into radio industry circles. Thanks to 19 surprisingly sensible recommendations by a radio committee headed by Amit Mitra, secretary general, Federation of Indian Chamber of Commerce and Industry, it finally looks as though the radio industry could end up making some money. The report was submitted to the Ministry of Information and Broadcasting in November, four months after Mitra and his team heard out the woes of the beleaguered industry. If its suggestions get implemented, they will bring goodies for everybody and rescue the private radio industry from the red (estimated losses: Rs 125 crore till March 2003). And it will bring more stations, at least 70 more, and give listeners, more variety.

Already, buoyed by the committee's recommendations, many players have begun to plan the future. "If the new rules go through and the licences in other cities are available at a reasonable price, we will be encouraged to expand our radio play," says Tariq Ansari, managing director, Mid-Day Multimedia (Go 92.6). "We are very keen to be in 10 more cities," says Sumantra Dutta, COO, Radiocity.

In the changed scenario with a fresh set of calculations, it looks as though most existing stations will break even in their fifth year of operations, instead of their seventh years, as they expected earlier. More importantly, new stations that come up can expect to break even in as short a period as 2-3 years. The primary reason is that once the recommendations are implemented with retrospective effect from July 2003, radio operators will have to pay only 4% of gross revenues to the government instead of a huge licence fee that increases 15% annually. (See 'Licence to Kill', BW, 24 March 2003.) That means an immediate drop of 50-60% in operating costs.

Matrix's Prasad is the main reason why the company is where it is today

Just like the one on revenue-sharing, there are many other recommendations by the committee that will help players cut operating costs, even as the number of opportunities to make money increase. For example, operators will be allowed to own more than one station in a city making local radio networks with different programming on different stations a possibility. That means better rates for advertising seconds.

Another recommendation is to allow private radio to broadcast news and current affairs, opening up a new market. There is a third one that suggests doing away with mandatory co-location of radio towers. Remember the almost two-year delay in launching the Mumbai and Delhi stations? That happened because the government insisted that radio stations should get together and set up only one tower in the metros. This means that operators can now launch stations on their own steam instead of waiting for others to join the fray.

The most important part of the report, however, deals with phase two of the privatisation process. It suggests using a tender process for bidding in the future. That simplifies the whole thing and ensures that after the one-time entry/licence fee, companies are free to go about their business except for the 4% revenue share. It means more companies are likely to bid in the second phase of radio privatisation. So radio networks offering 15-20 stations, or even more, at one go, just like TV networks, become a real possibility. And that, in turn, will force advertisers to up their spends from about 1% to at least 5-10% of the (current) Rs 10,000-crore ad pie. More frequencies, variety, and news and current affairs means access to the local ad pie of Rs 3,600 crore. The bottomline - if this report gets implemented, radio can grow into a Rs 1,000 crore-1,500 crore industry in 3-5 years. It can finally deliver on the promise of the medium. Remember, globally, at $59.5 billion, radio and out-of-home advertising have shown better growth and performance than newspapers or magazines.

To figure out what was holding the industry back so far, here is a quick recap. In March 2000, the government invited private operators to bid for frequencies at an open auction, with disastrous results. There was crazy overbidding with a total of Rs 425 crore bid for 108 frequencies. Finally, only 37 licences were given out, as many bidders like Zee and Sunrise Radio, among others, defaulted. Imagine such a situation in a country, where more than 3,000 stations can easily co-exist. In contrast, the US, according to one estimate, has 14,000 radio stations.

The lack of enough players and high licence fees meant a curious market, one with no variety and no profits. Take Mumbai, for example. The five players in the city paid Rs 49 crore in licence fees for a market that brought in roughly Rs 25 crore-30 crore in advertising revenues in 2003. If you add the operating costs of Rs 5 crore-7 crore to run a station and a stagnating ad market, there was no hope of breaking even before seven years. By March 2003, the whole business started looking terribly unviable with the industry piling up a loss of Rs 125 crore, of which more than Rs 75 crore was licence fees, points out A.P. Parigi, CEO, Entertainment Network (Radio Mirchi).

With the licence fee out, the prospect of more players getting in, quick market expansion and more variety looks real. When there were just 4-5 channels, TV was a sub-Rs 500-crore market. Now with more than 100 channels, just ad spend on TV is about Rs 4,800 crore. "More licences would mean more excitement in the field and, thus, more revenues all around," agrees Ansari. It allows "the category to develop", as Parigi, puts it. So you could have a station offering only classical music and charging premium rates from a specific audience.

Is there a catch? Gautam Radia, managing director, Millennium Broadcast (Win 94.6), points to three: pending litigation, migratory licences, and the danger of the Union Cabinet turning down the recommendations.

Operators like Millennium have filed suits against the government and vice-versa. So what happens to those cases? The report "appeals to all bidders who have gone to court to withdraw their litigations and take advantage of the new Phase II regime". The actual business of migration from licence fee to revenue-sharing and the legal standing of the players from phase one, et al, are bound to create administrative delays, but these should not delay break even, reckon most within the industry.

The possibility of the report not getting approved is dismissed by most industry insiders. "We are confident that the report will surely see light of day," says Parigi. "There were members of the government in the panel, how can it not go through?" asks another operator.
Well, given the all-round optimism, the ball is now firmly in the court of the radio industry. Now, instead of all those discordant notes and whining about the licence fee, can we finally hear the sound of money?