A royal-ty spot of bother for radio

MUMBAI: At a time when regulatory hurdles seem to be getting resolved with favourable recommendations by the Telecom Regulatory Authority of India, India’s private FM radio sector is showing symptoms of an unviable business, due to high operating costs.

One cost is the price paid for the sound of music alone — or music royalty fees.
Analysts in Ficci’s PwC report 2008 observe that royalty for private FM should be in line with international norms, which is in the range of 3-5% of annual revenues of a station.

However, FM broadcasters say that the music royalty fee structure is highly skewed in favour of a music industry that is looking to milk the most out of FM radio, at a time
when piracy has killed physical sales of music albums.

Apurva Purohit, CEO, Radio City, and president, Association of Radio Operators of India, says that costs incurred on music royalties are “the biggest stumbling blocks to the future growth” of FM radio.

“Since there is lack of gradation of royalty fees based on the size and thus revenue potential of a city, it is especially going to harm stations in the smaller (tier II) cities. Today the industry as a whole in India pays around 20% as royalty fees while the international norm in far more mature markets than India approximately ranges from 2 to 4%,” she says.

Prashant Panday, CEO, Radio Mirchi describes the music royalty fee structure as “irrational.” “Every station, annually ends up paying anywhere between Rs 50 lakhs to Rs 1 crore on royalty alone.”

Abraham Thomas, COO, Red FM agrees and points out that negotiations for music royalty fees vary from station to station.

For music companies, royalty fees derived from FM broadcasters forms a significant part of their revenues today, especially since physical sales of music albums are falling by the dozen.

“The music industry must wake up to the fact that music royalty from FM can’t be their most vital source of income. And royalty for a tier-I station can’t be equal to that of a tier-II station,” says Tarun Katial, COO, Big FM.

Under current rules, Indian Performing Rights Society (IPRS) collects royalty on behalf of lyricists and music composers, while Phonographic Performance Ltd (PPL) collects royalty for several music companies such as Saregama, Sony BMG, Universal Music.
Rakesh Nigam, CEO, IPRS, says that discussions are on, to put a grading structure into place.

Meanwhile Vipul Pradhan, CEO, PPL, points out that tariffs have not been hiked even once, after the Copyrights Board intervened and fixed a fee structure in 2002.

“Considering that music is the only major raw material cost incurred by a radio station, the tariff that broadcasters are paying is actually a very small portion of their revenues. The tariffs are outdated. Both PPL and FM industry, being commercial entities, should come under one roof and decide the rates based on the market. Because we can identify market best - so if a Tamil FM station were to come up in Mumbai, PPL might give even a 50% discount on fees.”

The music industry though, is not very kicked about modifying the royalty fee structure. Atul Churamani, vice president, Saregama says that FM stations “haven’t helped the cause of the music industry much”; therefore the question of bringing down royalty doesn’t arise.

“When the first phase of FM radio begun, we thought it would give a fillip to musicians by promoting various genres of music. However, nothing of that sort has happened. Instead, all you see is about 150-odd FM stations, all playing the same Bollywood music in the Top 20 format,” he says.

Licence fees are another issue. With a fresh auction of FM licenses expected to commence in Phase III of FM radio expansion, bidding amounts for every city will only go higher. For a single city, an FM station has to pay an annual license fee of 5.3% of net revenue. It also has to pay 2.5% of maximum bid of OTEF (One Time Entry Fee) for a city and this has to be paid over a period of 10 years. This amount varies from city to city, and depends on the bidders’ estimate of the market’s potential.

A senior official at leading FM station further says that people-costs are high in a business where “the cash rolling is slow.”

“At the end of the day, radio is more or less a radio jockey (RJ) driven business and today an average RJ command anywhere between Rs 25-40 lakhs annually. If one were to start a new music content centric FM station, with no differentiated content, he would have to think twice.”

c_arcopol@dnaindia.net