Policy Reforms in FM Radio Industry Make Way for Advertisers

Written by Vamshidhar, Govind, IIM LucknowSaturday, 06 August 2011 23:57

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The cheapest and oldest form of entertainment, the radio is poised to see dynamic changes in the light of new policy changes and initiatives taken up by the Indian government recently. In spite of recommendations in favor of privatization and deregulation of the FM radio industry made by the committees set up in the past, the government had turned a blind eye and had been tardy in its response. The Indian government has finally cleared the third phase of expansion of FM Radio Service that will allow private radio channels to extend its reach to 839 new stations in 227 cities. There are currently 260 stations on air across 91 cities. The limit for Foreign Direct Investment has also been raised to 26% from 20%. This move is significant in taking FM radio to small towns across India.

Industry Outlook
The size of the Indian radio industry was at US$ 171.38 million with 250 stations in the year 2009 and is expected to reach a size of US$ 360.32 million with over 700 stations by 2014, says an industry report. In 2011, the radio industry is expected to clock revenues of US$ 226 million, as per the Pitch Madison Media Advertising Outlook 2011. When recession scarred the global economy and slowdown hit India, it was only radio whose economics remained stable, while other media platforms such as television and print showed a significant slack in growth. Increase in the number of radio stations as a result of the new regulatory reforms is likely to improve profitability, stimulate foreign investments and lead to growth in locally targeted advertising. With increase in scale, the industry is expected to grow at 20 per cent per annum and become profitable. With a significant increase in utilization levels, prices firming up, the potential resolution of the royalties issue and profitability improving, the industry is heading towards long term sustainability. Only the major metros have enjoyed wide coverage over the last few years without any interruption. Whereas in other parts of the country like Jammu and Kashmir, the north eastern states and the island territories, the Government has promised to auction radio licenses at steeply discounted rates. Additionally, to improve the quality of the listening experience, the Government has also decided to allow all FM stations to air news and sports commentary sourced from All India Radio. This will address a long-standing issue of the absence of news on private FM radio channels in the country.

However, some industry critics have expressed their qualms about traditional radios positioning in a digital age. Consumers now have greater access to online music sites, streaming radio and downloadable music. Further, online media has gained popularity and huge following over radio for news bulletins in many countries and GPS-based services will eventually replace radio as the best source of the on-the-go information about traffic. These alternatives are continually gaining traction with consumers and new technologies integrated with mobile data services may result in even faster growth. Radio also lacks uniqueness in its positioning as compared to other media. Radio should grow in line with the segment of advertisers who find radio to be the most appropriate medium of its marketing objectives. Many of these advertisers will be geographically constrained advertisers that distinguish themselves on the basis of reaching consumers and will likely continue to prioritize radio above other media choices. All India Radio (AIR), covers 91% of India's area and reaches 99% of Indias population. Among the private players, Radio Mirchi leads the overall market with share in revenue terms in excess of 40% while Big FM owned by AdLabs Films Ltd., a subsidiary of Anil Ambanis Reliance Group leads in terms of highest number of stations. Majority of players are backed by media houses with interests in media activities like TV or Print. FM Radio Consumer Insights There are 250-300 million radio users today. This is more than that of newspaper penetration. Also, the consumption time of radio has moved ahead of television. It is 145-150 minutes per day as compared to the television, which is approximately 140 minutes per day according to L V Krishnan, CEO at TAM Media Research. Radio attains peak in the mornings and evenings much similar to that of TV. In the recent times, the penetration of radio in India has seen a tremendous rise. Today, 80-90 per cent of mobile users exercise radio accessibility. And, this mobility of the radio has increased the usage of the medium. Another trend to be noticed is that the consumption of radio amongst women has also increased considerably. Of all the consumers, 20 per cent people hear it on the mobile phone rather than radio sets. Radio companies and mobile service operators are keen on exploring the possibilities of this convergence. Advertising in Radio It was during the slowdown phase that everyone discovered the potential of radio. It was revealed as a very effective system, and today, it plays a very important role in the media plan of various advertising categories across the metros. The platform is very effective as a delivery system. But, advertisers are yet to completely recognize its full potential. Radio is increasingly gaining acceptance among advertisers, which is expected to result in higher ad spends on radio. There are a number of advertiser categories that are currently under penetration on radio, which could potentially increase spend. Advertisers are also increasingly focusing on non-metro markets, given the rising purchasing power of these markets.

Revenues for radio are driven largely by advertisements. Up to 85%-90% of revenues for radio are derived from advertisements. The FM radio industry conducted business worth Rs. 2000 crores in the year 2010. Although the figures may seem impressive, the cost of doing business remained inconsistent with the projected revenue models. But the situation is likely to improve backed by an increase in the number of new stations catering to a larger audience. Advertising revenues from radio in India which are only 3% of the overall advertising industry in India, less than 50% of the world (8%) indicates the immense potential and scope for growth for radio in India. The industry is projected to grow at a CAGR of 12.2% over 2010-14, reaching Rs. 16.0 billion in 2014 from the present Rs. 9.0 billion in 2009 according to a report by KPMG. Jingle companies, advertising agencies and media houses are all set to benefit from the governments move. The cost per thousand and cost per reach of radio is significantly better than television. Radio has a higher potential to penetrate the rural areas than other media. High growth rates in sales of consumer commodities in these areas should attract firms. Increased rural marketing by corporate needs to be matched by independent consumer awareness creation and radio offers them an easier and effective way to do it. Radio sees a majority of advertisers which are exclusive on those mediums and are of the regional/local nature. Local retailers and restaurants see an advantage in advertising their products, services in local newspapers or radio as opposed to television. But most stations use same level of genre of content with little or no differentiation.

Listenership trends

Source: RAM Radio Establishment Survey, Universe Update 2011

Radio Audience Measurements (RAM) recently concluded Universe Update to its radio establishment survey showed a significant increase in FM penetration in the four RAM markets, from around 59% in 2007 to around 77% in 2011. Penetration significantly increased in Mumbai, Delhi and Bangalore while

Kolkata remained flat. While music remains the primary format for the industry, the year also saw some radio channels experiment with new content forms. Local advertising continued to remain a strong contributor to industry revenues, accounting for around 40 percent of ad revenues. Categories like cellular phone services, TV channel promotions, independent retailers, jewellery and educational institutions remained strong advertisers in 2010. Real estate, which has hit during the recession, jumped to the number one position during the year. Automobiles, cellular phone equipment and corporate/brand image advertisements were new entrants in the top ten during the year.

Source: RAM Radio Establishment Survey, Universe Update 2011 How effective is advertising through FM? Radio is considered as a secondary medium for reminder advertising. Radio has always been a highly cost-effective medium, helping brands to communicate with their target audiences at a very local level. In India most of the people listen to FM radio when they are on the move (in bus, cars etc) and also when they are at work. Still the most popular programs in FM are Bollywood and regional songs. The advertisements are aired in the breaks between songs. The brand recall for radio is around 80% that of television. The effectiveness of a radio ad depends on the brand recall per unit cost. The researchers in developed countries have shown that radio has a relative power to affect recall which is greater than its relative cost leading to an important difference in value as reported in the Radio Ad Lab Research Compendium, 2002. The key elements in radio commercials are jingles, catchy songs about a product or service that carry the advertising theme and a simple message. The jingle serves a reminder of pleasure of consumption. These jingles are written by companies that specialize in writing commercial music for

advertising. The jingles are written after selecting a song which suits the mood of the situation. Movie songs, pop songs and parodies of movie songs are also used for this purpose. The jingles are an effective way to keep the company name and advertising remain in the minds of customers and prospects. Since most of the FM audience in India are tuning in for music, use of songs and parodies will help to gain attraction towards the message. Another key form of advertisement is the voiceovers. There have been successful campaigns such as Radio Mirchi is Pink campaign for Hutch when Hutch snapped ties with Orange and rebranded itself as Hutch Pink. Docomos Do the new campaign took an altogether different path when they launched a new station on the brands launch date by tying up with FM stations such as Big FM, Fever Fm ,Radio City,Red FM where the top RJs across all stations sat together and talked about Do the new. Radio was chosen over television or print for

this successful campaign.

Since most of the radio advertisements are short and the number of advertisements aired between programs is less, the audience is hooked onto the advertisements. Also because of less differentiation between the FM channels, the listeners do not usually switch to another channel only for advertisements. When people are caught at these bottlenecks there is an opportunity for the marketer to convey the message without much resistance. For example, for a person who is travelling in a bus to his workplace, FM radio provides the much needed entertainment and helps in avoiding boredom. In such a scenario, the person will not block the advertisements which are otherwise difficult to reach. According to the new regulations, a single player can have multiple channels in the same city. A possible implication of this policy is that there will be more differentiation in terms of program variety, transmission in different languages and channel perception. There might be channels dedicated to certain genre of programs which will attract a relatively homogenous group of listeners. This will help the companies to better plan their advertising campaigns with messages targeting this particular type of audience. The major problem associated with spill over can thus be minimized. In short, FM as a secondary medium for advertising is expected to make a foray into Indian market once the new FM policy is implemented. Once the FM channels are allowed to broadcast news, the number of active listeners also goes up thus providing lot of opportunity for marketers. The new policies also help the advertisement agencies to look at FM as an alternate advertising medium to reach more people and for reminding them of the offering. The prominence of retail advertisers is also expected to rise. In a world when the choices for the consumers are plenty while the tendency to block is also high, FM radio advertisements serve as an effective medium for marketers to reinforce their messages with less resistance. The opportunity in India rises with increasing penetration levels of mobile phones and liberal policies on FM broadcasting.