Stage set for further consolidation in radio

Larger media groups will take the acquisition route to lucrative regional markets

Is the Indian radio industry headed for consolidation? The signs have been getting stronger for sometime now.
 
Last Monday, the government announced the results for one part of the phase-three auctions. The same week saw the announcement of the approximately Rs 480-crore initial public offer of Music Broadcast (Radio City) of the Rs 2,106-crore Jagran Prakashan. While some of this money will go towards debt restructuring, analysts are certain that Radio City will be on the prowl for acquisitions especially in places where group flagship Dainik Jagran (a Hindi newspaper) has its 400-odd editions and sub-editions.
 
Jaykumar Doshi, equity research analyst, Kotak Institutional Securities, points out that “Jagran acquired Radio City for around Rs 425 crore (in 2014) and invested about Rs 275 crore in extension of old and new licences. At the IPO price, its market capitalisation will be Rs 1,900 crore. So in about two years, Jagran’s investment has nearly tripled in value. This could become a beacon of sorts for standalone players to sell. There will be consolidation.”
 
Reasons for consolidation
 
He is right. The investment activity in radio over the last two years offers smaller networks an attractive exit and larger media firms an opportunity.
 
That is the first of three reasons why the Rs 2,504-crore Indian radio industry could be ready for a hectic round of mergers and acquisitions. For example, Subhash Chandra’s Zee Group acquired 49 per cent in Reliance’s Big FM late last year with a first option on the remaining 51 per cent after a certain period. Even Jagran’s acquisition of Radio City was driven by its need to expand its footprint.

The second is that there is a sense of clarity on the contours of the radio market in India. “You are in the reckoning only if you have spread and size. You have to have 50-60 stations in unique cities to be relevant. Long tail networks will become part of larger networks,” says Tarun Katial, CEO, Reliance Broadcast Network. The large players that get a chunk of the national ad spend on radio are the Times’ Group’s Entertainment Network (Radio Mirchi), Reliance, Music Broadcast and Sun (Suryan). Each of them has 40 or more stations. For them, growth is about having relevant advertising inventory at a national level.
 
For others, it is about carving out a leading share of a state or region. “Radio is still not providing an alternative to print or regional TV. So if print can give you 20 cities in a state, radio offers 5-6, while regional TV can offer the whole state. For example, to get a Parle interested in using radio, you need to offer (an audience across) the whole of Maharashtra,” analyses one senior consultant.
 
Bidding patterns
 
You could see the influence of these national and regional compulsions in the pattern of bidding in the latest round. Only 66 of the 266 stations on offer were sold. There was almost no major bidding war, making it, arguably, one of the most focussed radio auctions. Entertainment Network picked up 21 stations across India, taking its tally to 77. Sun picked up 13 stations in home state Tamil Nadu, taking its total to 58. Malayala Manorama and Mathrubhumi picked up a station each in Allepey in Kerala, the state they dominate with their respective newspapers. The need to dominate national or regional markets will mean that operators will be on the lookout for more stations — either through auctions or acquisitions.
 
The third is the need of the big media houses to ensure that they have a finger in the radio pie. It helps get a larger share of spends, especially for print players in regional markets. For example, DB Corp operates in markets such as Rajasthan, Gujarat and Maharashtra with its Hindi, Gujarati and Marathi newspapers. “We know the market, the advertiser and what he needs,” says Harrish Bhatia, CEO, MyFM, DB Corporation’s radio business. This local knowledge and connections with the retail advertiser translate into higher spends with DB Corp. Bhatia says that radio has been growing in double digits year-on-year and now brings in five per cent of the firm’s Rs 2,052 crore revenues.

 
The big challenge? “There are too many rules that make mergers and acquisitions difficult in radio,” says Prashant Panday, CEO, Entertainment Network. At  a national level, a firm cannot hold more than 15 per cent of all stations in the country excluding those in Jammu & Kashmir, Northeastern states and island territories. Also, operators can run or own not more than 40 per cent of the total stations in a city subject to a minimum of three different operators in the city. Besides, there is a lock-in period of three years for the largest Indian shareholder. “Consolidation will happen in new geographies, like Odisha,” says Panday.
 
The triggers are all there. Watch out for the action.