City @10

BY IMPACT Staff

Radio city’s journey up to its 10th anniversary is marked with endeavours of organisation building. As CEO Apurva Purohit puts it, the need of the decade was building a team that would drive the results the company boasts of today.

Private FM in India is completing a decade and the journey of Radio City, the oldest player in the space, has milestones that mirror highpoints of the FM industry itself. As Radio City celebrates its 10th anniversary, IMPACT got together with its CEO Apurva Purohit to listen to the company’s story first hand. Bangalore was perhaps the perfect setting for this conversation... after all, it was Bangalore where private FM in India was born.

Circa 2001, the Indian media industry was waiting in anticipation when two media behemoths Bennett, Coleman & Company Ltd and STAR India were racing to launch the first private FM station. In July 2001, STAR India won that race with the launch of Radio City in Bangalore. Radio City has seen an action-packed life since then. While it continues to be one of the leading players in the FM space in India, after STAR sold the business to India Value Fund, unlike most other FM players, Radio City was no longer associated with any media behemoth.

But before we get there, let’s begin with a lesser known fact – even as Radio City was the second largest FM station in India in 2005, the station was ready to close down. STAR India was still the owner and due to issues ranging from the industry environment at the time that had made it impossible for FM to survive to other subjects of concern, STAR had started advising people to exit the company. Apurva calls it Radio City’s first defining moment.

The Early Days

Radio City’s run from 2001 to 2005 was about expansion in key cities like Mumbai, Delhi, Bangalore and Lucknow. This period was marked with experiments and innovations for Radio City. “Due to the business model at the time, stations did not have enough monies for marketing or brand-building – the only thing you could control was programming. Radio City was the first to bring talk on radio with some of STAR Plus’ then leading shows. Today when people speak of ‘Ramayan’ on radio as an innovation, we just smile, because for us it is been there, done that,” Apurva says.

The business structure then forced radio stations to pay very high license fees, that made all of them bleed. Radio City was amongst the key players to lobby with the government to change these business conditions. By January 2005, STAR had clarity that it could not continue with the radio business, and over that one weekend, India Value Fund bought over the company making Radio City a PE-owned standalone radio company. Apurva reiterates that IVF knew what it was getting into because within six months, the Phase II expansion policy was announced.

Building the Brick & Mortar

July 2005 was celebration period for the FM industry per se, as a progressive Phase II policy was announced. Instead of paying fixed license fees, which could go as high as Rs 40 crore, a revenue-share system was introduced which required radio stations to pay 4 per cent of their revenues as fees. The policy was effective in retrospect from April 2005 and that meant immediate profitability for stations such as Radio Mirchi and Radio City. But even before Radio City could truly sink this in, the station was already faced with challenges borne out of its new parenthood.

Protect Brand, Repair while Running

The change in ownership led to a ‘hollow’ Radio City and that was the first test. The brand, its listener connect and advertiser relationship were still in place, but a leadership team was missing. There was no programming head or marketing head or a sales team, as the station’s sales were still centralised with STAR India. The station only had a finance head to speak of. “We had very well-known RJs (radio jockeys),” adds Apurva, “There was no organisation behind the brand, and so the first task was to protect the brand. It was important that the listener or advertisers did not feel insecure in any form. Radio City was the second largest player and it already had 500-odd very strong advertiser relationships, not just national players but local advertisers as well. To protect the equity built with stakeholders, we had to put a curtain between the advertiser-listeners and the organisation, and we had to quietly work behind the scenes.”

The work happening “behind the scenes” was two-fold - building an organisation that could attract senior talent without the weight of a media brand name behind it, and getting the leadership right. “Step one was to get good people to hold the fort. The media experience helped at the time in identifying and accessing the right people. So we had Ashit Kukian for sales, Ashish Gharde to handle HR and Vikas Verma to handle programming. We needed people who could just get on and repair the train while it was running. They had to be known names with the right expertise, and for that we had to invest in creating the right work culture,” she adds.

Of People and Processes

The radio industry’s battles notwithstanding, one key task on Radio City’s agenda was organisation building. “A media brand which has presence in multiple domains supports a medium like radio in many ways but we did not have that luxury. How do you attract talent for a PE-owned radio company? Getting the right people is a key aspect of it because everyone has a different style of working and it takes just one Head of Department to spoil it all for you. But creating the right culture was the Holy Grail. Our starting point was to make the team a part of the value creation process and experience ownership. The IVF parenthood played an important part there too. Today, all our HODs run this company like they are running their own company and that makes a huge difference,” Apurva remarks.

Radio City has the statistics to substantiate this. As the company celebrates its 10th year, out of a staff of 340, at least 30 senior hands have been with the company  for over five years. Nearly half the organisation is made up of people who have been around for more than four years. “Between us, we have 150 years of running Radio City!” quips Apurva, and adds, “We started participating in employee engagement five years ago to learn what could be improved. We have always scored in Best Places to Work and we are competing there with the likes of Viacom and NDTV. Almost 50 per cent of our top managers are women. How many media organisations invested in things like these? It was necessary to build a robust organisation.”

The attrition rate in the company in 2010 was 12-14 per cent and among the key 100 people, it was 8 per cent.

Gearing for Phase 3 by building on Phase 2 Strategy

Radio City made no error in assessing the difference that the right approach to FM Phase II would make for the company. With Phase II came the scale-up challenge because City had won 16 new licenses in the second phase. The IVF bloodline came into play again, and helped in the financial assessment of what would work and what should be the right matrix. A shareholder’s objective can be as diverse as showing returns on investments or scaling-up for an IPO later. According to Apurva, Radio City had the clarity that bottom-line was important.

She admits, “From a media planner’s mindset - and I will be candid that there are moments when I view things from that lens - I would have gone for the reach but the question was clear: what would we do with reach if the advertiser was not willing to pay for it? So our goal was clear. The next step was identifying the cities where we wanted the stations and then figuring the right price for those licenses. That period was a big high for us, in fact, because we got most of the stations we wanted, and at the best price too. We did not overpay or lose any stations for underpaying.”

The next was speed in the scale-up mode to get all stations running, while fighting with a changing market where fragmentation was becoming a norm and new players were “spoiling” the game. “There was a certain cost that was anticipated but we had to work our way through inexperienced players who came in and were paying double the salaries and so on. By the time the government infrastructure was in place and all stations were set, it was already 2008. The increase in number of players and the recession of 2008 both led to a drastic decline in advertising revenues,” recalls Apurva.

Expectations of a Positive Ad Rate scenario

The other challenge that came upon Radio City, and the industry per se, at the time was the constant de-growth of advertising rates. Apurva says that despite the drop in effective rate (ER), the total value of the radio industry has been increasing. While it was approximately Rs 200 crore with an ER of Rs 1,800 per 10 seconds, it is now a Rs 1,000 crore industry. However, she admits that the growth graph for the industry has been erratic. It started off at the bottom and then by 2005, all players were making money and it was an upward graph for the radio business. Then there was a short period when no one was making money, so the business graph dipped.

To put things in perspective, while in 2001 to 2005, stations such as Radio City commanded some of the highest effective ad rates in the range of Rs 1,800 per 10 seconds, today the medium’s ER is Rs 500 per 10 seconds.

While fragmentation in the genre and recession contributed to the drop, Apurva says the changing nature of the medium too was responsible. She explains, “When we had only four stations, we could go to an advertiser and ask them to spend Rs 1,800 for a station. They were willing to pay that only because they were getting additional focus in a local market. But we cannot ask for Rs 1,800 for each of all 20 stations because that would not make sense to advertisers. The way advertisers would see it is that if they bought 20 markets, what is the rate that they would get? The local medium can command a rate that a national medium at times cannot.”

From 2009 onwards, things started improving. The royalty issue was resolved after a seven-year legal battle and finally all stations were paying revenue-share to music companies. This has again given impetus to their EBITDA. “This did not mean profit for all players, but it made an impact to bottom-line, and since this was also in retrospective effect, it practically impacted a large part of the decade for us,” adds Apurva.

For Apurva, the efforts – both external to make the industry profitable and internal to build and keep a team together - allowed 2010 to be the defining year for Radio City. She says, “I often quote the example of 10,000 hours, in corporate terms it would work to four years of work that is required before you become an expert of anything at all.”

Primed for the Next Decade

The initial challenges for the medium and Radio City taken care of, Apurva now looks at Phase III as the most important milestone. The station is already planning its growth in the next decade. “Phase II worked very well for us, and we would be building on that strategy for Phase III. We don’t want a long tail even now, so we will focus on key markets,” she says. At the centre of the station’s vision is still the constant attempt to improve the work culture and keep good talent engaged.

So far, the business of radio had a converse path to what was seen with listeners and advertisers and what was happening to the business. Today, Radio City alone commands two crore listeners and there are 10,000 advertisers on radio. Phase III, which Apurva feels will not be as disruptive as Phase II, comes with the promise of growth for the medium, and for the players. And Radio City will soon be heading on another journey to capitalise on this opportunity.

‘Phase II worked well for us, we’ll build on that’

Radio City has completed a decade, and the management is now focused on the decade ahead. For Apurva Purohit, CEO, Radio City, changes in the medium itself impact the company’s future. Purohit talks to Noor Fathima Warsia on issues facing the industry and her views on the road ahead. Excerpts:

Advertising revenues continue to be a challenge for radio stations. Do you think the radio teams have cracked the selling model now?

There are experienced teams everywhere now and in a sense, we have. However, I don’t think we have cracked a model where we can go to a client and say that if you want a pan India rate, this is what we have, and if you want city-specific, then this is the rate. There was a time when retailers were paying much higher, but today they are paying the same rates. Again, changes in the industry also have a role to play. Earlier, local retailers would buy from us directly but now even they work with media agencies, so it is becoming difficult to maintain differential pricing.

But isn’t it in the best interest of media agencies also that media owners do well?

Yes, but let us be realistic. Buying is the bigger thing for media agencies. That is fine, but that industry is also focusing on being fairly remunerated. When they were representing media owners in a manner of speaking, media owners were paying them 15 per cent but as buyers, advertisers are paying them 2 per cent – so there is a bigger question at play there.

When we were speaking to you on the defining moments of the industry, you did not mention measurement...

When we started radio measurement in 2006-07, there was a clear industry view that radio needed measurement. One recognises that as a key need for the evolution of the industry, but as I look back today, I don’t think measurement like RAM became a growth driver for the industry. It may have been one of the factors but not a key one. Even now, RAM is available only in four cities. IRS (Indian Readership Survey) listenership data has helped to a certain extent. It is not fair to blame measurement alone. Due to external environment such as the recession, radio stations couldn’t invest in industry research. Even today, radio players don’t have the ability to invest in electronic measurement. And other stakeholders like advertisers and agencies don’t invest in research.

The government’s role has been very important for the radio industry. Do you think the government has done its job right?

Let me explain with a bit of background. We have been discussing the Phase III policy for two years and the contours were reasonably clear over a-year-and half ago. We knew news would come in a limited form. We knew we would get 20-25 per cent FDI only and that there would be networking, multiple frequencies and 800 more licenses would be issued. But the government went into a state of inertia and did not push the policy through, which they could have, and should have done with far more aggression.

There were different players with different agendas, and there is nothing wrong with that but you expect players to do that – no one would be completely happy with the policy. But it is up to the government to still push the policy through. Delay is going to cost you more than getting half of what you wanted. If the policy wouldn’t have come today, we would have suffered as an industry. In the last two IRSs, listenership numbers have not grown but what can be done about it? It is happening because we cannot give differentiated content since we don’t have multiple frequencies and we have been in the same 90 markets in the last few years. There were those who tried customisation in a way but from a business model, it is difficult to make that work. On what basis would we be able to get new listeners? It is great that Phase three is finally here.

Feedback: noorw@exchange4media.com

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