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Scarcity of spectrum led to fiercely fought FM battle: Prashant Panday

Entertainment Network (India) Ltd (ENIL), which operates Radio Mirchi, has increased its footprint to 43 cities from 32 where it now has a presence. It spent to the tune of Rs 339 crore in batch 1, phase 3, FM auctions.

It successfully bid in seven new cities, namely, Chandigarh, Kochi, Kozhikode, Jammu, Srinagar, Guwahati and Shillong - in the latest round of auctions. It has also succeeded in winning a second frequency in Bengaluru, Hyderabad (2 frequencies), Ahmedabad, Pune, Kanpur, Lucknow, Jaipur, Nagpur and Surat. What has further added to ENIL’s kitty is its acquisition of TV Today group’s FM Channels in Amritsar, Patiala, Shimla and Jodhpur, which would now be rebranded as Mirchi channels.

Prashant Panday, MD and CEO of ENIL is a happy person. Future strategies are being put in place and the launch plans are taking shape. He expects size of FM industry to grow to Rs 6000-8000 crore in a seven-eight time span, is undeterred by rapid growth of digital, and believes that FM Radio space would be increasingly consolidated with the big players owning a large chunk of it.
It was in this backdrop that Adgully.com caught up with Prashant Panday. Excerpts from the interview: 

AG: Are there any second thoughts about the monies spent in FM bidding?

PP: None at all! Why should there be? The auction format allows constant calibration and re-calibration of strategy, business models, bidding limits etc.

AG: Any stations in your wish list that you missed out on?

PP: A lot. We wanted many more smaller stations, but we were not allowed to go beyond 52. I wish we could have got those. Amongst the big cities, we have ALL of them.

AG: What are the key challenges of managing an FM station with a large footprint in India?

PP: You need to have a solid management team. In ENIL, we have a whole team of very highly qualified and trained professionals in the form of Station Heads, Cluster Heads, Regional Directors, Functional Heads and CXOs. Then you must have a very high calibre team of programming and marketing professionals, who have it in them to create magic every day! And then you need a whole lot of people with high adrenaline levels (!), who can provide the dynamism that powers a nation-wide organization. I am so happy that ENIL has been blessed with all such people.

AG: When do the new channels go on air?

PP: guess they will take 6-12 months’ time.

AG: What, in your view, led to such a fiercely fought FM battle in some of the cities?

PP: Just one reason - scarcity of spectrum. Broadcasters were hungry because auctions were happening after nearly 10 years. Then the Government put out small morsels of spectrum in the big cities. Biddings were bound to be irrational. This was a serious mistake of implementation by the Government, and its deleterious effects will be felt on the radio industry for many years.

AG: Most of the channels are bagged by big players. Do you see it as a beginning of consolidation phase in India?

PP: Absolutely. Just look at the cost structure in the radio industry. First, the huge one-time-entry-fees (OTEF). Collectively, radio players have put in Rs 1157 crores. Second, all of this has to be paid UPFRONT. Even large multi-national telcos do not have to pay 100% upfront. Third, there is an annual license fee that broadcasters have to pay. The minimum annual license fee is 2.5% of the highest OTEF. So in Delhi, it is now 2.5% of Rs 169 crores, which is equal to Rs 4.22 crores. This has to be paid by all nine broadcasters in Delhi. Across the country, radio broadcasters will have to pay somewhere around Rs 150 crores minimum as annual license fees. Fourth, the government does not permit more than 26% FDI. Hence, broadcasters have to source capital locally. Fifth, banks do not normally lend to radio companies, unless they make profits. In the initial years of losses (as happened after Phase 1 in 2000 and Phase 2 in 2006), no bank wants to give loans. So funding has to be mostly via internal accruals and/or group companies. Sixth, operating costs are very high in radio, given the huge costs in electricity, rents, marketing, HR and music royalties. As a result of all these factors, operating a radio station is a very expensive proposition. On the other hand, revenues come only from advertising. There are no distribution revenues in radio. The upshot is that only big players can play this game. There has been some consolidation already; but there will be a lot more in the years to come.

AG: One can almost see cut throat competition in most promising cities. What would be your differentiating strategies?

PP: Each player will follow a different strategy I guess. But those who have a 2nd frequency have a good opportunity to do something unique and differentiated. We’ll have to wait and see what each one does.

AG: Do you see clients spending larger amounts on FM in days to come?

PP: Without any doubt. Look at it like this. Over the last 8-9 years, the share of FM radio in the ad pie has climbed from 1.5% or so to 6% or so now. This has happened without any increase in frequencies. Now that 97 frequencies have been added, the share will easily climb to 7.5 to 8%. Radio will grow at 18% per annum for the next 5 years or so for sure, while the ad industry might grow at 12% or so. Today, clients are hooked onto radio. Almost all clients – national or retail – are repeat advertisers. So yes, advertisers will definitely spend more on radio.

AG: How do you plan to ride the digital wave?

PP: We believe the digital wave could reduce growth rates of FM radio, but only partially, and that too, after 7-8 years. We are already the biggest radio player in the digital space. We have 14 channels on Gaana.com, and we stream at the rate of 200 million streams/year. We attract a very large number of listeners, who spend 30-60 minutes on our channels per session. We are also monetizing these streams, but we are not getting anything close to what we should be getting or deserve. That will change with time. We are fully ready for the digital world….we will transition from FM to digital seamlessly when the time comes.

AG: What, in your view, is the future of FM in India?

PP: The future of FM is very bright. For the next 7-8 years, FM radio will grow very fast. Industry turnover could cross Rs 6000-8000 crores. Even after this period, FM radio will continue to grow, albeit at a slower pace, as digital gains more traction.

AG: Would we see any change in your business model? Not in a big way.

PP: Not at the moment. In the long run, everything changes!

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