The power of the jingle

Amidst a growing regional focus, radio offers advertisers the cheapest ride into the heartland

As an increasing number of companies look to get the word across to consumers in small towns and to non-English speaking audiences, radio is emerging as the new advertising star. A recent report by research firm Crisil shows that with the latest round of auctions, which brings 294 cities across the country under the FM bandwidth, the medium will see a near doubling of revenues over the next five years. From Rs 2,000 crore in 2015, the industry will grow to Rs 3,900 crore primarily on the back of advertising revenues.

Radio today offers the cheapest option to get the message across in the metros as well as tier-II and III towns. Prime time rates for a 10-second radio jingle in the metros is around Rs 1,900 and in other towns around Rs 660 while a 10-second spot on any of the top six general entertainment channels costs close to a lakh-and-a-half.

Advertisers have already caught on to the growing power of radio. A survey by S-Group, TAM Media Research shows that between January and September 2015, ad volumes for online shopping companies increased 126 per cent for radio over the same period in 2014. For print it was 62 per cent and television, 78 per cent.

Not just cost, even reach is radio's strength. After the recently concluded auctions, radio is expected to reach 85 per cent of India's population. Also, broadcasters get greater flexibility this time because the new rules allow ownership of multiple frequencies (or channels/radio stations) in one city and sharing of network infrastructure. A longer licence period also supports profitability.

"In large advertisement markets such as Mumbai and Delhi, the top players are operating at peak utilisation of 90-100 per cent. Therefore, an addition of one or two frequencies would keep their ad inventory utilisation as high as 60-65 per cent during the first year. Moreover, given a low set-up cost for players with already established operations, any new frequency will be Ebitda positive from the very first year," says the report.

If the advertising promise is fulfilled, provided there are no economic catastrophes that bring ad rates down, the report estimates an internal rate of return (IRR) of 14 per cent for the radio players. The radio rates are extremely competitive; in tier-II cities such as Kanpur and Lucknow rates are as low as Rs 250-660 per 10 second and for Delhi or Mumbai it is Rs 1,150-1,900.

Even as radio hopes to reap the advertising bounty, the government has also gained from the entire auction process. Sudip Sural, senior director, CRISIL Ratings says, "We estimate an overall bounty of around Rs 5,000 crore for the government. This includes Rs 1,150 crore through auction proceeds, another Rs 2,000 crore from migration of existing frequencies from Phase II to Phase III, and an estimated Rs 2,000-2,300 crore from licence fees collected through revenues sharing over 15 years."