The document analyzes India's private FM radio industry. It notes that while the industry has experienced rapid growth since being privatized in the late 1990s, it remains far smaller than international standards. The industry is highly competitive with many players engaging in price wars. Differentiation is limited due to regulatory restrictions on content. However, future drivers for growth include proposed Phase III licensing that could add over 600 new stations, foreign investment, and development of more localized advertising. Risks include threats from internet advertising and potential delays from issues around music royalty payments.

1. Analysis of private FM Radio Industry in India Amit Bhargava Dec 2009

2. Executive Summary Executive Summary Radio industry globally is a well established and a mature medium of communication and used by advertisers affectively in brand building and sales promotion. The medium also provides entertainment and information to its consumers and hence acts as an important business medium of communication and entertainment. In India the private radio industry is experiencing rapid growth. Though the industry was privatized in late 1990s, the business model was not viable until the phase II of licensing came into force. The phase II fostered competition and brought in new players into the industry. The new and the old players largely belong to established business groups who in turn are part of larger media houses. These players also control a large chunk of radio business in the country. As part of the overall growth experienced in the Indian economy during last decade, the media and the advertising industry have experienced good growths. While the share of radio industry is far below the international standards, the industry is experiencing good growth. Because the model of the industry is advertisement driven, the radio industry largely mirrors the contours of the advertising industry. While there are several promising factors that support the growth of the Indian radio industry, there are quite a few factors that might actually delay or dampen the growth. The competition for listeners and advertisers that ushers in price war without any strong differentiating factor among players is not good for the long term health of the industry. The undifferentiated content issue should be addressed immediately and even though the players might be ready now, the regulator has to address the concern. The phase III licensing will surely enable the industry to move forward and resolve some long standing issues but it is still some time away and the new and existing players should adopt wait, watch and prepare policy until it is announced to make new moves. Executive Summary 2 12/17/2009

3. Agenda Executive Summary Executive Summary Executive Summary Agenda The Media and Advertising Industry in India Characteristics of The FM Radio Industry in India Analysis of the FM Radio Industry in India Future drivers and Risks

5. CAGR ~14.8% (realized) 2005 – 2008

6. CAGR ~13.8% (projected) 2009 – 2013

7. Fragmented and large number of players

8. Business Model is largely advertising and subscription driven.

9. Controlled by few business groups

10. On a growth trajectory

11. CAGR ~14.8% (realized) 2005 – 2008

12. CAGR ~13.8% (projected) 2009 – 2013

13. Fragmented and large number of players

14. Business Model is largely advertising and subscription driven.

15. Controlled by few business groups

16. Global recession impacted the growth of industry in 2008

17. Indian Advertising spend as a percentage of GDP is 0.47% representing huge potential in the overall industryThe Media and Advertising Industry in India *KPMG (2009) "In the interval... But ready for the next act." FICCI-KPMG Media & Entertainment Industry Report. 4

18. Agenda Executive Summary Executive Summary Executive Summary Agenda The Media and Advertising Industry in India Characteristics of FM Radio Industry in India Analysis of the FM Radio Industry in India Future drivers and Risks

20. Impacted by the global recession, growth in the last two quarters of 2008 was slow because of slowdown in the advertising industry

21. A cost effective medium for advertisers as it has more penetration and reach compared to the traditional print and television

22. Controlled by few business groups having sizable stake in different media properties

24. Phase II licensing made the business viable

25. Has huge infrastructure setup costs

26. Oligopolic and witnesses price wars

27. Overall growth rate is impressive6 12/17/2009

29. News and current affairs broadcast for content differentiation

30. Phase III licensing to ease industry expansion

31. New stations to result in more fragmentation

32. Advertising revenue generation from national to local base

33. 2009-2013 CAGR ~15.4% (projected)

34. Highly fragmented and regulated

35. Top 5 players part of large media groups control 63% radio stations

36. Top 5 players earn 40% of total revenue

37. More than 240 private radio stations

38. Slowdown in promoter’s primary business activity has resulted in diversification in radio business

39. 2004-2008 CAGR ~9% (realized) *CII-KPMG (2005) Indian entertainment industry, Focus 2010: Dreams to Reality. **KPMG (2009) "In the interval... But ready for the next act." FICCI-KPMG Media & Entertainment Industry Report.` 12/17/2009 Characteristics of FM Radio Industry in India 7

40. Agenda Executive Summary Executive Summary Executive Summary Agenda The Media and Advertising Industry in India Characteristics of The FM Radio Industry in India Analysis of the FM Radio Industry in India Future drivers and Risks

42. Advertisers who provide big business are largely based out of metro markets.

43. Advertisers give maximum business to market leaders who have large presence, eg. Radio Mirchi, Big FM.

44. Radio commands 4% of total advertising revenue.

45. Industry expert opine that small players distort market by virtue of their inability to support large advertisers.

46. 18% of all private FM stations in metro markets

47. Metro markets contribute maximum revenue to the industry

48. No room for expansion in metro markets – metro markets already have maximum number of permitted stations in operation.

49. Witness fierce competitionAnalysis of the FM Radio Industry in India Size of Indian Advertising Industry – INR 221 bn (2008)

51. Small players openly engage whereas large players/leaders do not admit price wars wanting to protect their market.

52. Airtime is inventory in the industry. It goes waste if unsold, advertisers play a hard ball till the last minute forcing price wars.

53. Return on Investments (ROI) is the key focus for the players.

54. Established players such as Radio Mirchi command premium for their brand and not engage in price wars.

55. Advertising revenue is listenership driven.

56. Listenership tracking tool has evolved over time. There are two main tools – RAM and ILT.

57. RAM covers metro market and gives weekly figures, giving different figures each week bringing different leaders at different times.

58. ILT (India Listenership Track) is based on diary method. Is pan India, but the method is disputed by players.

59. Every significant player claims to be leader in the market.

60. Radio Mirchi is market leader in almost all markets and has maximum listenershipAnalysis of the FM Radio Industry in India – Competition

62. Non-differentiated (homogenous) content (bollywood music - Hindi movie music) across all stations

63. 70% of the content is bollywood music.

64. Companies innovate within a limited bandwidth to compete and gain competitive advantage

65. Stations try and differentiate with jokes, chat, humor, RJ mentions, etc. in the remaining 30%

66. Stations unwilling to experiment with the format for fear of alienating revenue (advertisers)

67. Few stations have experimented with format and content

68. Meow FM’s target audience is women

69. Hit 95 FM plays songs in English language

70. Chennai Live’s format is interactive talk shows

71. Differentiation is not the priority for the stations, breaking even is.

72. According to stations, branding is the key differentiating elementAnalysis of the FM Radio Industry in India - Differentiation 12/17/2009 11

74. decentralized sales in case of TV, &

75. lack of trained sales staff to handle airtime sales on radio.

76. Advertisers uneducated/ill-informed about the potential of radio as a medium.

77. Royalty payment to music owners is a major issue. Varies from 15-50% in India. Internationally it is 2-3%.

79. Popular RJs such as Malishka, Nitin of Red FM command huge salaries.

80. RJs and other radio staff want to stay in the metro market because of greater opportunities.

81. Shortage of talent, such as star RJs, forces players to poach from other players driving up the cost of talent acquisition.

84. FDI to ease niche programming with more money for developing targeted content.

85. Tradability of licenses to allow for consolidation in the industry through mergers and acquisition.

86. Differentiation to come in the form of weather, sports, news bulletins, news broadcast.

87. Industry to improve its share from ~4% to more than 5% of the advertising revenue in next five years.

88. Big radio companies to go global. Recently –

89. Radio Mirchi acquired Virgin Radio in the UK

90. Big FM launched a dedicated station in Singapore

91. Growth to come from locally targeted advertising

93. Prolonged slowdown will have negative impact on the industry

94. Royalty issues between radio companies and Indian Performing Rights Society (IPRS) could delay phase III licensing

95. Fragmentation in the industry could further price wars

96. Lack of skilled and experienced professionals could derail global expansion plans

97. Significant efforts need to be invested in educating the advertisers about radio as a medium12/17/2009 14