Community radio: Why players are not in tune with the govt's policies

The community radio industry has received much attention in government plans and policies. The Union Cabinet has recently approved a proposal to hold a third batch of e-auctions under the ‘Private FM Radio Phase Ill Policy’, with an estimated reserve price of Rs 784.87 crore, for 730 channels in 234 new cities.

According to the government’s press release, the rollout in 234 new cities and towns is aimed at fulfilling the unmet demand for FM radio in these areas, which remains uncovered by private FM channels. The efforts are towards bringing in new and local content in local languages and dialects.

However, private FM players do not seem upbeat about this idea. Most of the players say they may not even participate in the e-auction.

“No private player is at all excited or interested in participating at this moment,” said multiple radio industry stakeholders.

Why does the industry disapprove?

Industry experts suggest that the plan lacks commercial feasibility. The licence fee for FM operators, too, hasn’t seen any change despite multiple discussions.

“All the radio companies are bleeding because the ad rates aren’t going up and the licence fee is where it is. The bottom line is – it’s very difficult to make any profit margins on the plan,” said an industry source close to the matter on the condition of anonymity.

The Annual License Fee (ALF) is 4% of a private FM channel’s annual gross revenue, which turns out to be a hefty amount for the players. This is especially true if they are investing in tier two and three cities with a small listener base that doesn’t guarantee much ROI in the initial stages, shared key industry stakeholders.

As per another industry source, the cities proposed for the auction are so small that even if a radio station is put up and the cost is borne, there is no guarantee that in the next two to five years the amount will be recovered or these areas will develop to become profitable ad revenue markets.

“The cost of base price, plus the cost of setting up a station in a particular town and to top it up, the cost of annual licence fee, all turn out to be a heavy investment for the channel, making it bleakly viable for the FM player,” shared another industry insider.

Moreover, in terms of community radio there are certain restrictions on the ad to music ratio, based on how much time can ads run and what kind of programming can one do. Stakeholders suggest there are strict guidelines and amidst this rigidity, to ensure that there is commercial feasibility is a bit difficult.

“With these community channels we are going even deeper, which means we are going to touch very small markets. Now, in those markets, the revenue that one can expect is very less, the market size is so small, the royalty fee would be there plus the community radio guidelines,” the source explained further.

Overall the entire combination is such that the community radio will not be a viable option for the industry players under the current circumstances.

Is the government in tune with the industry’s concerns?

Stakeholders suggest quarterly meetings with AROI and the MIB are held where every company is represented but key problem areas – the currency of the industry, incorporating FM on mobile phones to ensure deeper penetration, licence fee – have not been taken up by the MIB.

They further suggest that while the MIB is putting up a lot of mandates and doing one-sided estimation of the market, there is no real advantage for the private players.

Another industry insider revealed that in the previous auction meeting, the players put up a lot of papers to the government where they raised a concern that the base pricing is very high. As a suggestion, they said there should be no pricing but the players should have an open bidding with each other. Let the players decide the pricing but the government has not responded yet on the same either.

How can govt and FM players sync their tunes?

Experts recommend the licence fee must be brought down, which is killing all the FM players at the moment. Additionally, the base price needs to be rethought because when the bidding opens and the right base price isn’t decided upon, especially for these small markets, it will again be detrimental.

The music royalty and music licensing are also major costs for radio companies. “These small stations have to spend a lot on creating the infrastructure, paying the music labels for the royalty, paying the licence fee, and putting up the manpower. After doing all of this, whatever revenue that one gets, they don't know whether it will suffice,” said an industry executive.