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FM Radio: Going the cellular way? - Views on News from Equitymaster
 
 
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  • Jul 24, 2000

    FM Radio: Going the cellular way?

    In March 2000, the government completed the auctioning of 140 frequencies in 27 cities and would collect Rs 4.25 bn from private companies as license fees.

    Thatís not all. Apart from the bid amount which companies pay as license fees for the first year, they will have to pay as license fees for the first year, they will have to pay 15% more every year from the second year onwards. This does not include the cost of base stations, towers and other transmission infrastructure apart from the cost of programming.

    If the costs look sizeable, the revenue side in contrast seems hazy at the moment. Obviously, the main source for the private broadcasters would accrue the advertisements. And the main attraction for the advertisers is the relatively lower advertisement rates (anywhere between Rs 400 to Rs 500 per ten seconds) vis-ŗ-vis television. Although the latter as a wider reach radio reaches a much more focused audience which is also what the advertisers would look for.

    The total advertising pie for the media as a whole (this includes print, television, cable and satellite channels) is estimated to be in the range of Rs 70 bn in FY 2000 and is estimated to touch around 200 bn by 2010. Across the world radio advertisements has been in the range of 3.50% to 5.5% of the total advertisement revenue. So the total advertisement revenue could be in the range of Rs 7 bn to Rs 11 bn.

    This is unlikely to suffice for players who have committed Rs 4.25 bn in license fees in the first year alone. What is most likely to happen is a repeat of the cellular telephony business where the higher license fees lead to higher call charges stifling market growth. The weaker players unable to bear the burden sold out to the stronger ones who in turn pleaded for a revenue sharing agreement to be put in place.

    Already players such as TV 18 are rethinking of their equity stakes in broadcasting ventures. And many more could be thinking on the same lines.

    Will the government ever learn?

     

     

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