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What Lies in Store for FM Radio?


Think about it. A medium with high reach and low advertising rates ought to have witnessed explosive growth. That’s the mouth-watering prospect that enticed private FM players for almost two decades.

The stark reality, however, is that of an industry struggling for growth.

At the core of the issue is the high government license fee, coupled with a curb on content and an advertising story that won’t take off. FM radio in India is in the midst of an existential crisis. In all, there are 381 FM stations today against an ambitious target of over 800 stations that was envisaged at the completion of Phase III licensing. Far from that number becoming a reality in the near future, what will happen to those already in business, is the critical question.

Huffing and puffing

For all practical purposes, advertising is pretty much the sole source of revenue for FM radio. Events are the other chunk though that is only an addition to what comes in by way of advertising. A 10-second spot in the metros on any of the stations would cost around Rs 1,500, not a serious amount of money if you think of the large captive audience.
However, a report on India’s media and entertainment industry by KPMG earlier this year reveals how unimpressive revenue for radio has been. Between FY16 and FY20, it has moved from Rs 2,300 to Rs 2,500 crore barring a spike in FY19 to Rs 2,800 crore, giving it an annual CAGR of 2%. The government holding back on advertising spends and of course, the impact of Covid-19 means the prospects for the current financial year look bleak too. The fear is that the size of the radio industry will shrink by well over half.

The story of the FM radio industry is a tragedy of monumental proportions. Unlike other parts of the world, FM radio is not allowed to air news and is hence left with no option but to play music through the day and night. The fallout of that is that the content sounds eerily similar across stations. An inability to differentiate one from another is a recipe for disaster – a key reason for the industry being where it is.

Historically, the FM radio industry has cried foul since inception, at the high rates of music royalty. Court cases between radio and music labels through the sound recording collection society, Phonographic Performance Limited (PPL) ensued, culminating in a Copyright Board order fixing royalties to PPL at 2% of ‘net advertising revenue’ of stations. Significantly, the order, that was in force for 10 years, did not address royalty rates to members that were not part of PPL, nor did it address the rate to be paid to the Indian Performing Rights Society (IPRS) for the underlying composition and lyrics in the music. Which meant more confusion.

With that Copyright Board order having run its course in September 2020, the big debate once again turns to what royalty rates FM radio stations will pay the music companies for airing their content. Since the compulsory licensing order, the Copyright Act has been amended in 2012, which brings music broadcast on radio and television under statutory licensing. The Copyright Board has also been disbanded and all music copyright issues brought under the Intellectual Property Appellate Board (IPAB). The IPAB is now set to rule on the statutory rate for music royalties in November. Understandably, the music companies – not a bunch of folks in the best health either – will want a higher percentage since they see the era of protection accorded to the radio industry as over, while stations will do anything to drop that number. “Since Sony and Saregama have now disabled PPL from the collection of royalty on their behalf, each major music label and each major radio broadcast group are before the IPAB, and that includes T-Series as well,” points out Gautam Radia, CEO, Hit 95 FM.

Asheesh Chatterjee, CFO & CBO, Reliance Broadcast Network says the industry has been operating in a 2% regime based on the orders for the last decade.

“Given the above circumstances, it is time to look at an even lower percentage for catalogue content. Any increase in this percentage is just not viable. We would like an order that applies to all labels irrespective of they being part of any consortium so that there is uniformity,” he says.

In all, private FM radio stations paid over Rs 60 crore last year as royalty to music labels.

On the flip side are the record labels, on whose behalf Vikram Mehra, Managing Director, Saregama India, says,

“The issue of royalty has to be viewed from the perspective of labels having made significant investments in acquiring the music. That money has to be recovered and a royalty of 2% puts us in a very difficult position. All we are asking for is a fair valuation for our music, which is equitable across the music industry. We would like the number to be increased to make it a fair business proposition for us given the investment made. The radio industry is at least twice as large as the music industry and it is us who end up taking a large share of the risk.”

As a medium, radio’s grand plan was to get into smaller centres – the likes of Nashik or Gorakhpur – to offer itself as a platform for local advertisers. It could be a local real estate company or a large departmental store for whom the medium was ideal – there was an option to do hyperlocal advertising at an affordable price. For well over two years, real estate, a big chunk of the pie, has had its own issues and spending on advertising is hardly a priority. An indifferent economy has had a huge impact on consumption and any company in that space is in the mood to conserve cash. Unlike television that also has subscription revenue or for that matter print, where circulation revenue still exists, radio’s fortunes are completely linked to advertising. If that were not bad enough, the threat from digital lurks menacingly. A blunt Radia predicts FM radio not existing in 15 years. “There will continue to be a shift to digital platforms due to the affordability and choice offered by digital,” he says. It is a view that is endorsed by Chatterjee who is quick to point in the direction of smart devices enjoying high penetration.

“This has enhanced time spent on such platforms significantly and Adex dollars are moving towards this medium. The advent of 5G and cheaper devices will see this shift continuing,” he explains. On the specific issue of audio streaming, still an urban phenomenon to his mind, Chatterjee sees them “carving out a 20% listenership and revenue upwards of 10%.”

The license outgo

In the hope that the medium would take off, an ambitious bunch of folks paid very large amounts in the last round of bidding during 2015. For instance, the license for Delhi was picked up for Rs 169 crore when the reserve price was only Rs 31 crore. In Mumbai, the story was no different with the winning bid at Rs 123 crore when Rs 35 crore was the reserve price.

Elaborate business plans must have anticipated a surge in advertising revenue to compensate for the money paid. These licenses are for a ten-year period and a slowdown now topped up with a pandemic is hitting the companies hard. In both the metros, the winning bid was made by HT Media and they soon launched stations playing retro Hindi music. A great idea surely but was it worth that kind of money against a backdrop of that music appealing only to a limited listenership base? Yes but only if the outgo had been a lot less.

HT Media joins the likes of other large media houses – Times Group, Dainik Bhaskar, Sun TV, Jagran Prakashan to name a few – for whom radio is still only a small part of their overall business. Print or (in some cases both) television remains the cash cow where they enjoy dominant positions on their home turf. The objective of getting into radio is really two-fold – one is to offer a larger bouquet to the advertisers and the other is to boost their valuations since many of them are publicly listed companies. It opens up another window to attract investors and raise money in the process. A setback in radio is easily absorbed by other parts of their media business.

None of that takes away from the fact that FM radio started with a bunch of promises that are still in the realm of imagination. In larger countries, governments encourage the proliferation of radio stations to strengthen the sense of community and of course, create a robust business. Entry barriers are limited and the objective is to widen the listenership base. News, talk shows are only some examples of programming that have worked. In India though, the approach has been archaic with disproportionate levels of freedom given to print or television. Restricting the role of radio is not just unfair but also kills the purpose for which the medium exists. And that purpose certainly cannot be to belt out only film music. FM radio finds itself in an extremely precarious situation where the next step is perennially unknown. That is not the way business is done.





                                                                                                                                                               Krishna Gopalan

This article is written by Krishna Gopalan who has been a business journalist for two decades. 

He has worked with The Financial Express, Business Today, The Economic Times, Fortune India, 

before his current assignment with Outlook Business. Krishna writes across sectors as varied as

media, telecommunications, cement, private equity, consumer, and apparel



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