At the end of the spectrum auction for FM Radio Phase III, Stage I, after 33 days of intense bidding, the government raked in about 1,157 crore against the aggregate reserve price of about 460 crore as non-refundable one time entry fee (NOTEF). While this is miniscule compared to the thousands of crores firms bid for radio waves for mobile services, it is not a small amount either.

In emerging economies, radio is still the most popular and affordable medium of mass communication, entertainment, and education. The terminal devices are affordable and portable. Even low-end mobile phones have FM tuners. Though the radio dipped in popularity after the diffusion of television, it has regained much lost ground due to the government’s initiatives in allowing private firms to enter this segment.

How radio works
In the case of FM radio, the geographical jurisdiction of operators is relatively small, such as cities. One reason for city-based licensing and allocation of spectrum is the localised nature of radio content. Another important factor is that radio stations, much like television broadcasting, are akin to two-sided market platforms. Radio broadcasting by nature is non-excludable and non-rival, and is a public good in some sense. Listeners on one side of the platform don’t pay due to its inherent nature. Radio stations own the content or procure content such as music albums by paying royalty to music label owners. Revenue for radio stations comes solely from advertisers on the other side of the platform. Advertisement is the only monetisation model for radio services. Hence the industry is extremely cost conscious.

There is less stickiness among both listeners and advertisers to a specific radio station. The advertising revenue from radio is around ₹1,720 crore per annum which is just about 10 per cent of ad revenues in television and the print media. A major portion of this comes from metros. Hence the seeming over-bidding for radio waves in cities such as Delhi, Mumbai and Bengaluru where the final bid prices are more than five times that of the reserve price.

One can surmise whether FM radio is here to stay or be dwarfed by internet radio and on-demand music streaming services being provided by over-the-top players such as TuneIn, Biscoot, Dhingana and Ghana.

Though advertisement models for internet radio and music streaming services are still evolving, it is a low-cost service to roll out compared to the complex spectrum/antenna set-up required for running FM radio stations. There are platform providers such as TuneIn that manage subscriptions and advertisements while individual radio stations can be set up easily using widely available streaming servers such as VirtualDJ plugged into the platforms.

Realising this trend, radio stations such as Radio Mirchi have started offering their programme over internet radio as well. Internet radio and music streaming services have a much wider reach compared to FM radio per unit of investment; hence the cost effectiveness and revenue potential of these OTT services is much better than that of FM radio stations.

Staying power
India is unique in that over-the-air television broadcasting is non-existent, solely provided by the declining viewership of government-owned Doordarshan, thanks to the more proactive cable TV and DTH industries. Will FM radio also go the same way, giving way to internet radio? Very unlikely.

First, OTT services can be adopted only in metros and cities where smartphone penetration is high and 3G/4G connectivity is available. The objective of Phase III FM radio augmentation is to increase coverage in smaller towns and rural areas. The high prices paid by bidders will force them to be first operational only in large cities to earn ad revenue.

The annual licence fee is set to be 4 per cent of the revenue in all areas except some selected north-eastern States, which will pose an additional burden to FM operators. Given the public good nature of FM radio, provided by private firms, the government shall look into revising the annual fee to 1 per cent (as applicable in the case of 4G mobile spectrum) just to cover administrative costs.

While I was driving down from the airport to my home in Bengaluru, there was no FM radio call drop in the entire 60-km journey! What a relief compared to the incessant call drops and poor internet connection we generally face. Long live FM!

Article from: http://www.thehindubusinessline.com/opinion/be-free-of-call-drops-tune-in-to-fm-radio/article7681821.ece

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