FM Auctions: Looking beyond the obvious

FM e-auctions for first batch of Phase 3 lasted for 31 working days and 125 rounds - and at the end of the auctions 97 channels in 56 cities stood winners – with a cumulative provisional winning price of Rs 1156.9 crore against their reserve price of Rs 459.8 crore. Nearly 250% more than their reserved price – proving that radio, by no stretch of imagination, is a dying medium in India. After pumping in such huge amounts of money, we should soon see a marketing blitzkrieg and a push for good content.

As of now wait is on for frequency allocation and formal announcement of winning channels.
E-auction offered many surprises and exploded a few myths about ‘poor’ radio. 

Factors at play

The biggest surprise came in form of the bidding prices some of the cities commanded and another one was some cities not seeing any movement at all.  Even if one looked at the cities in the same town class and more or less similar demographics (or so we believed) there is a huge difference in the prices they have fetched.  A few of the cities that the Government expected would fetch a good price did not even take off – Mysore with a base price of Rs 3,21,30,990 and Vijaywada with a base price of Rs 7,00,20,000 are perhaps the biggest surprises there. In sharp contrast to that are cities like Jodhpur, Kolhapur and Varanasi, which had a much lower base price but ended up making more than 200% of their bidding price.

A clear indication of purchase power disparity in the country?

Nikhil Rangekar believes that there are several other several other factors at play besides the purchase power disparity. He opines, “I believe very strongly that bid prices should reflect purchase power disparity because that’s the only way the station owners can profit. And its common sense that a market like Mumbai with a high purchasing power should have a substantially higher bid than say a Guwahati which has lower purchasing power. Having said that, I don’t think the current bid prices are a true reflection of this. E.g. Bangalore has a bid price of ~ Rs. 110 Cr while Mumbai is ~ Rs. 125 Cr. I don’t think this reflects the real difference in purchasing power between the two metros. Having said that it might not be such a simple comparison since we need to consider other factors like existing stations in the market, consumer demand and space for another channel in the market, local business needs etc. But on the face of it, some bid prices do not seem to reflect the real purchasing power in the metro and are on the higher side which will make it difficult for the owners to be profitable.”

Anita Nayyar too presents a similar perspective, “There is a purchase power disparity but that is not the sole reason. Certain regions do command a higher price for the critical mass offer or for the potential they are believed to have. Also not all values are fair price, it could be  overvalued or undervalued.”

Davids Win in This Battle?

The general sentiment in the market, though the channel names have not yet been announced, is that most lucrative markets might have been bagged by bigger players, with a few regional exceptions here and there. Would it lead to major media brands expanding their radio presence in a big way should be known in the next few days. Vanita Keswani, Madison Media expresses, “The auction bid values are huge and seem feasible only for the ‘Big daddies’. Not only that, due to the migration fee principle applied to all current frequencies basis the new auction price, it also serves as a big deterrent for smaller players to sustain further  as they would not have such deep pockets !”

Double Dhamaka

There are cities that have fetched more than 700% their reserve price. While there are big cities in this bracket as well, real action here happened in emerging markets. While a few of these cities ran full throttle from day one, other woke up from their slumber and gained pace. The media experts believe that it is not without reason and is indicative of the potential these cities hold today and in near future. Anita Nayyar states, “Metros certainly have the potential and existing stations are realising the same. There is potential for more stations to co-exist and the Tier1/2 cities are where the potential rests and is waiting to be realised. Hence, existing critical mass, future potential as also strong purse strings along with more appetite for risk makes these markets high on reserve prices.”

Nikhil Rangekar adds, “There could be a multitude of reasons for this. Metros in this list are already big destinations for advertising money and it would be logical that additional stations here would continue to attract advertisers. The healthy growth rate of radio advertising revenues would be attracting a lot of players to these and other markets. I think overall it is simply the positive outlook towards the economy and advertising that seems to be driving these kind of bid prices.” 

Financial ‘no’ crisis

It leads us to the story most of us have been writing for many years now – radio is not doing all that well and there is an ongoing financial unhappiness in the sector. If profits were tiny and budgets shoestring, why bid so high and why was so much noise created about the medium not doing too well? Perhaps, it is indication of the sector’s rising hopes and aspirations. Is it the beginning of consolidation era for FM radio? Vanita Keswani states, “Honestly I wonder why ..as the figures are huge . This seems a game among the larger stations to expand their networks through multiple markets and multiple frequencies. I see a few strong groups emerging and dominating the medium. The stations’ views could be to bundle and sell more.”

Anita Nayyar, meanwhile, believes radio has its own advantages as a medium and with the rules of the game changing, its potential can be now utilised to optimum. She expresses, “Radio is one of the oldest medium. In many ways it was the world’s and India’s first mobile device.  It is a great communication tool for both metro’s as well as media dark areas creating the same engagement and being as tactical in strategy.  Its cost efficiency is extremely high. The success and global accolades for Kan Khajura Tesan is not only a testament to mobile, great idea and great work but also - the power and influence of radio. Hence, reasons enough for the interest.”

Similar view is expressed by Nikhil Rangekar as well. He states, “There is a positive outlook towards advertising and the general feeling is that the usage of radio as an advertising medium will grow. The other changes in the way radio networks can be managed is another factor that seems to have boosted this sentiment. For instance, networking through which programming from one city can be aired in another city without any additional infrastructural cost except the transmission cost reduces the operating cost significantly.”
A more exciting chapter of FM journey?

On the face of it, it seems that FM has now come of age and it is the beginning of a new era for FM in India. Would the fast ascent of digital aid radio’s growth or stunt would be a point to ponder, but perhaps a bit later in the day. As of now focus is on the factors that would help FM stations recover their auction monies faster. Anita Nayyar states, “Good content and regular growing audience will determine the ‘real’ value.”

Massive reach of FM, once the new FM stations go on air too is being seen as a great opportunity for FM as a medium. Vanita Keswani expresses, “With 800+ frequencies across an expanse of more than 100+ markets on the cards, radio will become a stronger medium with more reach. There will also be a wider range of programming formats which will help target a different set of people and give a wider choice to advertisers.”

A bigger reach and a larger foot print would mean bigger revenues. One might also see more aggression in terms of emergence of national advertisers as a big advertising category. It, as the experts say, might hit the small print players a bit hard. Nikhil Rangekar comments, “I see radio advertising revenue growing in a lot of markets at the cost of small newspapers. Radio expansion will definitely put more pressure on Print.”
Summing it all

An interesting comment comes from Sandip Tarkas  who believes that there are various factors that come into play when any bidding happens. He says, “Bidding always has some rational and some irrational elements. It is futile to look for an entirely logical correlation between process and businesses. Such is the nature of competitive bidding. Haven't we seen it in all such bidding exercises? Why does Yuvraj Singh keep commanding the price that he does at the IPL auctions? Or some weird small town command a ridiculously high bid at times? In case of radio, while cities’ perceived purchasing power would have played a role, other factors like the bidders' portfolio, mind-sets, and expected competitive intensity all would have played a role in deciding the final bid price.”

An interesting phase has begun as far as FM radio goes. Market dynamics, purchasing power of the cities and some impulsive decisions at the spur of the moment have set the tone. While we might see a few quick sell outs, depending on the auction T&C, by and large we would see a no holds barred radio battle – both amongst themselves, as well as with print and OOH. The stations, after all, would be looking for a good RoI on the investments they have made.


 
 
 

 

 

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