The private FM radio industry's revenues are projected to grow at an average annual pace of 15 per cent over the next five years propelled by the third phase (Phase 3) of radio frequency auction, says ratings firm Crisil.

The industry's revenues are expected to touch Rs 3900 crore by 2020. The corresponding figure for 2015-end is estimated at Rs 2000 crore.

The volume of advertising on radio, too, is expected to increase, as post the implementation of Phase 3, private FM radio is set to reach 85 per cent of the population covering 294 cities from 86 cities at present.

Crisil says that the government will earn around Rs 5,000 crore from e-auction of radio frequencies in Phase 3. Of this, the government is expected to earn Rs 1,150 crore in auction proceeds, Rs 2,000 crore from migration of 266 frequencies to Phase 3 from Phase 2, and Rs 2,000-2,300 crore through licence fees garnered through revenue sharing and aggregated over 15 years.

It should be noted that the earnings of the government from Phase 3 is significantly more than what the government earned in Phase 2 and Phase 1. As per the report, the combined Phase 1 and Phase 2 earnings of the government stood at Rs 1,500-1,700 crore.

Phase 3, which took off in July this year, saw 135 frequencies being auctioned. Of this, 97 frequencies were finally sold. A total of 839 frequencies is proposed to be auctioned in lots in the third phase.

“FM players were selective in the bidding and frequencies were being bought depending on the commercial potential of markets,” says the report.

With the government putting a 15 per cent cap on the overall frequency a company can own, bids surged in cities with high commercial potential. Over 60 per cent of the auction proceeds came from the top six cities, mainly metros. Interestingly, 40-50 per cent of the advertising revenue too comes from these cities.

Compared to large metros, tier 2 and 3 cities saw moderate bidding, while smaller towns found few takers. As many as 13 cities failed to generate any bids.

Phase 3 allows more flexibility to broadcasters compared to the previous two phases. Longer licence period (the licence period has been extended from 10 years to 15 years), ownership of multiple frequencies in one city and sharing of network infrastructure for multiple frequencies, are some of the provisions which are allowed now.

The report further says that due to lower set-up costs for players with established operations, new frequencies will be earnings before interest, tax, depreciation and amortisation (EBITDA) positive from the very first year. Crisil estimates an internal rate of return (IRR) of 11-14 per cent, and a payback period of 7-9 years for the big radio companies in metros.

Also, metros command higher ad rates compared to smaller cities. For example, a 10-second ad spot during prime time, that is, 8-10 am and 7-9 pm, costs Rs 1,150-1900 in cities such as Delhi and Mumbai.

In cities such as Kanpur and Lucknow, a 10-second ad slot costs Rs 250-660.

Crisil says radio players will have to attract more local advertisers who do not buy in bulk to increase ad revenue. 

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