Here we are in the age of Mobile phones, better call them smart phones. So what you look out when you buy a cell phone. Multimedia, media players, camera etc. and to top of all RADIO CAPABILITIES.

Recently government has doled out licenses for new circles to radio companies. For staring operation and expansion of facilities in exiting circles companies are out to make huge CAPEX. According to a CNBC report Radio Mirchi (a leading Pvt Radio player) is expected to tap the equity markets for fund requirements.

Recently I have done research on the sector and let me give you the industry specific findings I have come across.

history

1923 First radio prog. Broadcast.
1935 Radio broadcast begins with AIR.
1936 News broadcast begins.
1977 First FM service in Madras (Now Chennai)
1993 FM allowed operators to take blocks.
1998 prasar bharti decides to stop FM players from airing.
1999 Privatization of FM.
2000 Bidding licenses for increasing revenue.
2001 Licenses given to Pvt. Players.

And now you have following prominent players.
Major Private Players

Radio Mirchi
Red FM
Radio City

Govt. Player ( excluding region specific channels)

AIR

Scenario

AIR alone covers around 91 % of the India’s area and reaches to 99% of the population because of its regional appeal. Pvt. FM players cover the rest

Apart from there are 21 privately owned FM stations in 12 Major cities. (Some region specific).

India has around 180 million radio sets (Excluding FM Mobile ph.). So a vast commercial potential is out there to be tapped.

According to a market survey in metro cities alone around 70% radio listener listens to FM all seven days.

Pointer to Listener profile

Age group %

11-14 35
14-19 41
19-29 40
30-39 34
39-49 28
50+ 20

Revenue And Costing.

Advertisement is the sole contributor to revenues. Though SMS based revenue sharing model and revenue from calls of listeners contribute a bit but set to grow. The total revenue of the sector is around INR 2.2 billion and growing @20% annually.

Global standards,

Country Ad spend share as % to Total Ad Spend

Sri Lanka 21%
US 13%
Spain 9%
India less than 2%

Looking at the data we are fairly below global standards.

Significant part of Operating cost is annual License fee and royalty for playing music. Which is estimated to increase @ 14- 15 % p.a. given the competition scanrio and growing popularity and reach among in all segments of population this part of cost could go up.

According to Research trends and in my opinion due to hectic and paced lifestyle (Specially due to Call Centers and Other BPO proliferation) the love for FM is set to grow continuously. People especially in the age group of 15-25 years old love to interact with RJs, using SMS for contest, song requests etc.

Other Triggers and Obstacles

Radio station has their sales teams working in isolation. With the sector is gaining maturity, sales efforts required to be integrated to exploit the aggressive strategies. The utilizing the full potential of their assets and offer a greater value to advertisers.

Till now radio stations have focused on either regional contents or Hindi film music. With the penetration of satellite radio and growing younger listeners, now there is shift in focus towards English programming.

Build greater loyalty levels with listeners as the listener switch from to song. This could be through value richer contents.

Focus toward specialization like business channels, Hindi music channel, and English Channel etc. try to become niche player.

Future outlook

Nevertheless there are still some obstacles to overcome but the brighter side takes that over and these could be removed over the course of time.

Ad spend is still to be unlocked. Radio could get around 10-12% of total ad spend in long term. Which does not look very hard to get.

In past few years FM has made it presence felt across all segment of population (specially during light outs and natural disasters like Tsunemi). Even the companies, particularly FMCG have recognized the importance of FM to reach to potential customers. This would definitely bring good amount of revenues through Ads.

To tap the real potential of the industry, INR 11 billion investments are estimated. And the route would possibly be equity Markets because Debt repayments and financial charges will unnecessarily hit the bottom line of these companies who could not possibly take that given the limited Revenues Sources.

Given the huge potential of market pie, my recommendation for those looking for handsome return, don’t let the opportunity go as the IPO of these companies hit the market. Take the long term prospective. The industry is still in growing phase and will take 4-6 years to hit the saturation level. Till then the returns would continue to grow.

Entertainment Media Ltd which manages Radio Mirchi is set to bring IPO offering 12 million shares in the price band of 142- 162 per share through 100% book building route.

Music to ears………

Any suggestion, comments are welcome.

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