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Radio industry: Growth drivers - Views on News from Equitymaster
 
 
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  • Dec 19, 2007

    Radio industry: Growth drivers

    In an earlier article, we had provided an overview of the radio industry. In this article, we shall outline the growth drivers of the radio industry, which is the fastest growing segment within the advertising industry

    Fastest growing segment of the media and entertainment industry

    The radio industry recorded a growth of nearly 58% in 2006. The share of radio in the total advertising industry increased from 2.4% to 3.1% during the same year. This is further expected to increase to 5.5% by 2011 as per the FICCI-PwC report on the Indian entertainment and media industry. The size of the radio industry is projected to increase at a CAGR of 28% from Rs 5 bn in 2006 to Rs 17 bn by 2011.

    Robust growth of the Indian economy

    The Indian economy has grown at a robust rate of 9% and 9.2% in FY06 and FY07 respectively. The advertisement industry is a proxy to India’s high economic growth. It grows at a faster rate in such buoyant times. As per a study conducted by ZenithOptimedia, the media planning and buying arm of advertising group Publicis, the advertising spend is expected to increase to Rs 367 bn by 2010 from Rs 227 bn in 2007.

    Beneficiary of the buoyant growth of major advertisers

    The major advertisers on radio are the entertainment channels, real estate firms and retailers.

    All these industries are expected to witness robust growth in the years to come. More than 90 channels across various languages and genres are being launched this year. The real estate industry is projected to grow at a CAGR of 25% in the next five years. Organized retail industry is projected to grow at a CAGR of 40% in the next five years. Radio industry should be a major beneficiary of the high growth in these sectors.

    Biggest radio advertisers (Jan-Nov 2006 )
    Category % share (time based)
    TV channel promotions 11.8
    Real estate 6.2
    Cellular phone service 5.5
    Independent retailers 3.8
    Publications/books 3.1
    Source:ENIL prospectus

    Demographics

    The target listeners for the radio industry are the youth. 55% of the India population is below 25 years leading to an increase in the audience of the radio industry. The content on radio primarily comprises of film music. The Indian film industry is getting more organized and receiving more institutional funding. The quality of music produced is improving which augurs well for the growth of the radio industry.

    Reduction in license fees

    The Phase I policy for the privatization of FM radio had a very high fixed license fee structure with an annual escalation of 15%. In the phase II policy, a revenue sharing formula was introduced whereby radio companies had to pay a fixed annual license fee of 4% of gross revenues or 10% of the reserve OTEF (One Time Entry Fee) whichever is higher. The reserve OTEF was 25% of the highest valid bid for that city.

    Availability of listenership data

    Leading TV viewership research company, TAM, has recently ventured into radio audience measurement through a study called RAM (Radio Audience Measurement). The study is currently restricted to the cities of Delhi, Mumbai and Bangalore. Research may cover larger number of cities in the years to come. Availability of listenership reports is bound to support and attract larger spends from marketers. Marketers generally wait for adequate research data to emerge before committing large spends to any medium.

    Local advertising

    Globally, the local retail segment constitutes a large part of radio's advertising income. As per the CII-KPMG report, while local advertising contributes 70% of radio revenues in the United States of America, in India, the share of local advertising is only about 8% of radio revenues. Ideally, a localized medium like radio can be effectively used for local-level promotions apart from being bundled as part of cross-media promotion strategies. Thus there is huge potential for the radio industry to benefit from an expected increase in the share of local advertisements.

    Phase III policy

    It is expected that after the completion of Phase II Policy, the Government will open up as many as 700 channels in the Phase III as per some media reports. This phase will witness licenses being awarded in smaller towns. This could result in radio getting a larger share of the advertising spends.

    Though the radio industry has many growth drivers, there are various risk factors also that could derail the growth of the radio industry. In the next article, we shall outline the risks to the growth of the radio industry.

     

     

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