Effects of Radio as a Form of Advertising

Effects of Radio as a Form of Advertising Radio Advertising Executive Summary Advertising in general expresses the positioning. Powerful advertising is the result of powerful planning. Great ideas and great ad campaigns dont just pop out from no where, they are built on the key communication points that motivate sales. Radio is entirely a medium of sound, which evokes smells, sensations and visual images which brings the listeners imaginations into play. Radio advertising is one of the tools of advertising which is effectively used for communication and positioning. It is one of the foundations for effective and successful advertising. Radio can be used effectively for advertisement since it can target the large audience because of its high reach. Radio is good at increasing awareness about the brand and business and helping in building the brand image. But all this was only for pure academic purpose. With the advent of television radio lost its popularity and thus its purpose with the marketers. This led to sharp declines in the proportion of advertisement spending on radio as compared to other media. But then came the governments order on liberalization and privatization. This brought about loads of changes in the world of radio broadcasting in India. Prominent and established companies entered the business of FM Broadcasting. FM broadcasting has breathed a new life into the medium of Radio in the past few months. Could radio now think this as a new phase of its life or a re-birth? Of course yes, people are today talking only Radio- Radio Mirchi, Radio City, RED, Go and WIN. One will find people with radio sets of different shapes and sizes listening to their favourite music on roads, in hotels, even the bidi shops aired on any of the music channels. The radio channels are now vying against each other to provide their best to the listeners However one can see that although radio is an excellent medium it has been used to its full potential and various efforts should be taken to improve it as with proper direction radio can reach heights as it is the cheapest and a very good medium. Objective Through this project my objective has been to understand the following To find out about the current scenario of the radio industry. The reasons for a stunted growth of the industry The various steps in radio advertisement Realizing the needs and wants of consumers and fulfilling them What the various radio stations have to offer the masses. Research Methodology Through this project I have made an effort to understand the advertisng tool called radio advertising which is being increasingly recognized by marketers as a powerful tool that helps in finding new customers and retaining the existing ones at a much lesser cost. Primary Research: The aim of primary research was to understand radio advertising as it is seen in the corporate world. To understand this I have taken two interview from different fields. Mr. Madhav Joshi who is currently working in Leo Burnett who helped me understand what all goes into the making of a radio advertisement. The mode of interview used was an informal one where he answered my questions on one to one basis. Also Mr. Sudarshan Sahe the senior marketing manager of Radio City gave me an interview and helped me in trying to understand as to how the station works and looks after the needs of its consumers Secondary Research The aim of secondary research was to understand as to why radio advertising has been able to grow at a considerable rate as compared to the other media.also the fall out of radio in the last decade . It was also undertaken to understand how radio advertising is done and what re the current players in the market. Secondary data collection method: desk research Secondary data collection sources: internet, books, newspaper articles Introduction Old media dont die! They just bounce back in new avatars. Not so long ago radio had been written off as fuddy-duddy, down market and not so cool. Television and later â€Å"new media† were touted to being the media of the future. But thanks to technology radio is making a comeback. In fact, in its new avatar-fm-radio is all set too become the hippest, coolest and most with -it medium. FM radio is a new entity altogether and has to deal with new market dynamics. Media owners dealing with new markets will virtually have to draw up their strategies as they go along, create programming that is new, innovative and grab away eyeballs from TV sets and make them tune into their radio sets. Its a whole new challenge and competition is never far away. Ad revenues will also not be easy to come by, as advertisers will expect media players to put their money where their speakers are before they commit large sums of money towards radio advertising. The other challenge for radio in attracting advertisers is the nature of the medium-radio has always considered being a reminder medium. The involvement of listeners to radio is low, Vis a Vis television or print media. However in spite of the various challenges the emergence of private FM stations is certain to increase the quantum of radio advertising in the country , much like satellite channels did to the quantum of television advertising in the country. That should open up a vast new market of consumers-100 million Indian households own an estimated 150 million radios, outnumbering television sets 3:1. The geographical area covered by radio in India in India is as high as 98 percent and the penetration level is approximately 97 percent. But FM presently covers only 17 percent of the area and 21 % of the population of India through transmitters. Currently radio has just 2 percent of the 9000 crore Indian advertising market according to an Arthur Andersons survey. Globally depending on each country, radio has a 5 % to 12 % of the advertising cake. On the higher side are countries like the United States with 13 %, Canada with 12.7% and Spain with 9.1%. FM station executives are not forthcoming on multi-platform strategies as yet. Given that radio has penetrated into 100 million homes and a FM set costs around Rs. 50/- FICCI estimates FMs share up from the present 1.5 percent to 5 % in five years. They have also forecasted that revenues from radio advertising in India will be Rs. Rs. 1200 crores by 2005 and Revenue of radio services is expected to rise to Rs 689 crore by 2008 at a CAGR of 30 per cent. While TV is a family medium, radio is personalized. Also advertising of certain product seems to work very well while some might not. For example, cellular phone service or auto related products would have a good impact when advertised on radio is primarily known as a â€Å"drive time† medium most people who turn in are doing so while commuting. Thus the potential if FM is better is bigger town, as the car population is much bigger. This would be the key when evaluating the medium. Also one must not forgot that radio continues to be a medium that has tremendous reach among the poor and marginalized sections of society. With the coming of more channels, and the emergence of lifestyle advertising, radio will become a push and pull medium. As said earlier, is not just making a comeback but is being reincarnated into a new avatar. Some Basic Technical Knowledge Any radio setup has two parts: * The transmitter * The receiver The transmitter takes some sort of message (it could be the sound of someones voice, pictures for a TV set, data for a radio modem or whatever), encodes it onto a sine wave and transmits it with radio waves. The receiver receives the radio waves and decodes the message from the sine wave it receives. Both the transmitter and receiver use antennas to radiate and capture the radio signal. When you listen to a radio station and the announcer says, you are listening to 91.5 fm â€Å"what the announcer means is that you are listening to a radio station broadcasting an fm radio signal at a frequency of 91.5 megahertz. Megahertz means millions of cycles per second, so 91.5 megahertz means that the transmitter at the radio station is operating at a frequency of 91,500,000 cycles per second. Your fm (frequency modulated) radio can tune in to that specific frequency and give you clear reception of that station. All fm radio stations transmit in a band of frequencies between 88 megahertz and 108 megahertz. This band of the radio spectrum is used for no other purpose but fm radio broadcasts. Common frequency band includes the following†¦ * AM radio 535 kilohertz to 1.7 megahertz * FM radio 88 megahertz to 108 megahertz AM radio has been around a lot longer than FM radio. The first radio broadcasts occurred in 1906 or so, and frequency allocation for AM radio occurred during the 1920s. In the 1920s, radio and electronic capabilities were fairly limited, hence the relatively low frequencies for AM radio. FM radio was invented by a man named Edwin Armstrong in order to make high-fidelity (and static-free) music broadcasting possible. He built the first station in 1939, but FM did not become really popular until the 1960s. Royalties FM is primarily a music channel, so the question of royalties is relevant. The Indian Protographic Record Society (IPRS) and Phonographic Performance (P) Ltd. (PPL) are supposed to hold all the rights of royalties. They are demanding Rs. 1,500 per hour (as against Rs. 100 per hour, at which they are supplying music to AIR), PPL is demanding a royalty of Rs. 250 per hour of needle time, the actual duration of a piece of music. The IPRS is demanding Rs. 100 per hour. The IPRS claims royalty for the original composers and authors of music. Cost Aspect A Licencee pays Rs. 6000/- per hour. Add Rs. 1,500/- for the music. Add Rs. 3,000/- for the technology, salaries and other expenses. An hour long show thus costs Rs. 10,500. 10 Minutes have been set aside for advertising. One minute is reserved out of 10 minutes for social awareness advertising. Thus, advertising time available for sale is 9 minutes. In other words, 18 advertisements each of 30 seconds can be accommodate in an hour. This is the high target. Besides the tariff card should be modest, considering the limited range and listenership supposing a 30 seconder costs Rs. 500 at prime time for 18 such spots, the total revenue generated is Rs. 9000/- . Another estimate puts the production cost of an hour long programme around Rs. 6,000/-. Add Rs. 6,000/- of the licensee fee to AIR. Studio hiring costs are between Rs. 500 Rs. 1000 an hour. The total expenses are thus Rs. 12,500 to Rs. 13,000 per hour. Advent of Format Radio The arrival of Moving Pictures with sound and then Television were expected to be the death knell for Radio. However Radio has not just survived repeated predictions of its demise but grown tremendously. It has benefited listeners and advertisers alike and earned the status of a Constant Companion What allowed Radio to accomplish this feat? Read on for the long journey the Radio industry has covered thus far. It was way back in 1895, that Guglielmo Marconi invented an antenna to send and receive radio signals. It took quite a while before Reginald Fessenden developed the first radio receiver in 1913. However, experts give a lot of credit to David Sarnoff who actually conceived what is called as the radio music box. It was Sarnoff who suggested that radio should be mass-produced for public consumption. His persistence paid off in 1919 when such sets were available for general purchase. This saw the beginning of what was later looked on as the Golden Age of Radio. Early 1920s saw the launch of commercial radio. People in households would gather around the radio to listen to their favorite programs much as they do today with TV. Radio became the first medium delivering entertainment to the masses in their homes. The 1st paid announcement on radio was a 10-minute capsule from Howthorne Court; a Queens based Real Estate Company. This era was characterized with block programming wherein radio offered something to everyone. News, drama, sports; live musical recordings would be presented in 30 or 60-minute programs. A network soap opera could be followed by a 15-minute newscast followed by one hour of a concert. Then in the 1950s TV began to catch the publics attention. Audiences were charmed by the audiovisual experience of TV. A large number of popular shows moved from radio to TV. That was not all, as the radio industry was also losing a large number of talented staff to TV. At this point in time, radio experts discovered an opportunity that only radio could provide. They realized that radio was the only medium that could be used while doing other things, like getting dressed for work, cooking a meal, traveling to office, studying and more. Radio turned local and moved to what is known in the industry as Format programming. This era also spawned two of radios greatest strengths: immediacy and local service. Format radio strategy was based on providing the same kind of entertainment to a selected audience, throughout the day, seven days a week. As the story goes, Storz and McClendon used to frequent a local malt shop, which had a jukebox. They observed that the customers would usually come and play the same songs that they liked, over and over again. In fact, the staff serving these people would end up playing just the same songs even when the shop was closed.From this insight emerged the Top 40 format or the Contemporary Hit Radio (CHR) format were the most popular hits would be played on a higher rotation. This led to a change in the way radio time was being sold. Sales people shifted from selling programs to selling commercials. It also led to a shift in the way radio programs were scheduled. As radio was being used as a background medium of entertainment, it had to be relevant to the listener at every point of time in the day. The shows therefore had to be reflective of various day parts in the life of the listener. Irrespective of the form it came in, format radio definitely made radio not just survive the onslaught of TV but also made it grow tremendously. Being the only medium that could be carried and used wherever you are, it could update you about your world throughout the day while providing you with the entertainment you like all the time. Radio became The Constant Companion. The total number of radio sets at the time of independence in 1947 was a mere 275000.at that time a radio receiver used to be a status symbol in this country. But today its possession is taken for granted. According to estimates, there are radio sets in about 105 million households in the country. History of Indian Radio For more than 4 decades, the Government of India did not permit private radio stations to broadcast in India. Then history changed its course. In 1993, the Government allowed private FM operators to buy blocks (chunks) on All India Radio, prepare programming content, book commercials from advertisers and broadcast the whole lot. Within 4 years, (1997-98), the FM Radio advertising and sponsorship business grew to Rs. 93 crores with Times of Indias Times FM Mid-Day Groups Radio Mid-Day becoming the main players. Then, in June 1998 the Government, through its electronic media regulatory body Prasar Bharti, decided not to renew contracts of private FM operators.Not surprisingly, the advertising revenue fell by 50% within a year! This time, the Government gave the green light to privatize radio in India. July 6, 1999 was the historic day when the Government announced that 150 new FM channels would be licensed across 40 cities. And in 2000, the Government auctioned licenses for private FM channels to bolster the revenue. And the focus on metros was evident in the bidding. Expecting to collect Rs 800 million from auctioning 108 licenses, the government had to actually face mass withdrawal of bidders because of the huge license fee. A handful of serious bidders chose to remain. In response to the Governments offer, many companies bid for the licenses to operate in key markets. But the going was not so easy. Many gave up, unable to shell out the high license fee. For instance, the bidding price for the Mumbai license was reportedly to the tune of Rs 9.75 crore. Others dropped out saying the business was not viable. So, in effect, the competition shrank, players consolidated and the Government extended its deadline. Today, there are roughly 10 players who will operate approximately in 37 cities across the country. The government collected close to Rs 4.6 billion as license fee for the privately run FM radio channels in 40 cities. New Media Broadcasting, a Zee Group company, which focused mainly on the smaller towns, won the largest number of bids. The first round of bidding for 76 channels in 26 cities, garnered close to Rs 3.5 billion. The government got the highest bids Rs 97.5 million from each of 10 broadcast companies for stations in Mumbai. Interestingly, the bids for Hyderabad and Nagpur came next, each for Rs 77.2 million and Rs 74 million, respectively, while the bids for Delhi were Rs 71.2 million each Radio is expected to follow the growth of the Television industry, which grew rapidly following the entry of private players Currently, FM coverage in India is restricted to just 17% of the country, compared to 89% of All India Radio (AIR). Players in Different Centers Company Location of Centers Number of Centers Bid amount for first years license (Rs. crore) Entertainment Network [India] Delhi, Mumbai, Calcutta, Chennai, Ahmedabad, Bhubaneshwar, Cuttack, Hyderabad, Indore, Jabalpur, Lucknow, Pune 12 43.87 Hitz FM Calcutta 1 1.00 India FM Calcutta 1 1.00 Living Media Delhi, Mumbai, Calcutta 3 17.87 Mid Day Broadcasting Delhi, Mumbai, Chennai 3 20.17 Millennium Broadcasting Delhi, Mumbai, Chennai 3 20.17 Music Broadcasting Delhi, Mumbai, Nagpur, Bangalore, Patna, Lucknow 6 41.37 Sumangali Publications Sun TV Chennai, Coimbatore, Tirunalveli 3 9.87 Vertex Broadcasting Calcutta, Indore, Bhopal, Vishakapatnam 4 2.90 Udaya TV Sun TV Vishakapatnam 1 0.50 Incidentally, Music Broadcasting became the first firm in India to commence private FM broadcast from Bangalore in July. Licence Fee and revenue sharing model Currently, FM players pay annual licence fees, which go up by 15 per cent every year. Private FM radio sector would shift to a revenue-sharing model from the existing licence fee regime. However, revenue-sharing also exists in the media sector. The objective is to â€Å"make FM radio a success story†. Its better to keep the revenue-sharing low than to have a failed project. There has been debate on whether to recommend a revenue-sharing structure or a fixed amount for a period of 10 years; it is firm on revenue-sharing now. Revenue-sharing will follow payment of a one-time entry fee through a process of bidding. Revenue-sharing is quite low at around 4 %. While the private FM players had sought revenue-sharing in the band of 2-2.5 per cent, the panel has fixed it at 4 per cent. Setting up new radio stations After the second round of privatization, the number of FM radio stations targeted is around 300 to 400. The panel also suggested that players wanting to enter the sector in the second round of licensing need to have a technical viability clearance by a financial institution on the financial viability of the project. It has also recommended to the government to release additional spectrum for the use of FM radio companies so that the number of companies operating in one centre can go up. Future of Radio Industry FM Radio can play its part in building a stronger business future for India. Providing free-to-air local broadcasts of music and entertainment, helpful information traffic advisories, community announcements and public service messages provide a real value-added service. But at current levels of advertising support, each radio station is reeling under the brutal financial impact of high costs. With more players in the fray the FM radio industry would grow and also enhance the governments yield from licensing radio naturally. The new India deserves an active private FM radio sector. It can provide a level playing field with benefits for listeners, for advertisers, employment career options. Spearhead the government objective of growing the FM radio business in India. With the government ready to reduce the license fees it will help in attractingnew palyers like reliance which had earlier backed out only due to the entry fees.also government allowing foreign players to enter he Indian market it will help the industry grow. Virgin group has already started exploring the Indian market for suitable partners. various radio stations are coming up with IPO for example Radio Mirchi thus helping them expand. The future looks bright as the reach of radio is expected to raise post the increase in the number and quality of players in the industry. It is on the basis of these key drivers of growth, it is being predicted that radios share in the total advertising pie will see an increase in the medium term. There are an estimated 150 million radio sets across the country. The Rs 1.6 billion industry is reported to be growing by 31 per cent every year and should touch the Rs 6.2 billion by 2007, with revenue rising at 23 per cent annually. Also, though radio has only a 2 per cent share in the Rs 6,000 crore Indian advertising market, advertising spending is expected to amount to Rs 500 crore this year. SWOT Analysis Strengths: * Recently, the government has agreed upon revenue-sharing model, which is 4 % for the growth of the radio stations. So that they can develop themselves well because this industry is still in an introduction stage. * The success of private FM stations, and reveals that radio listenership habits have changed considerably; not only are listeners tuning into it more often but also sticking to radio for longer hours everyday. * The advertisers, who would depend on word-of-mouth, pamphlets, brochures or ads in local supplements of newspapers, are welcoming the opportunity. * Radio is considered as a background medium, because people can listen to radio anytime and anywhere they want. It is also a free medium. * 90% of India has access to radio which is unmatched by any other media. * Radio also reaches to uneducated village folk who do not read print publications. At the places where the literacy rates are low where people hardly read newspapers and radio is the only medium that they can understand. They cant afford a TV set. Therefore radio is more popular. * Radio is the least cost medium and it helps to reach mass audience with various backgrounds. Radio offers its reach frequency and selectivity at one of the lowest costs per thousand and radio production is relatively inexpensive. * Radio is considered as a medium where the â€Å"Proximity to purchase† is very high. * Radio is a complement to another media. Therefore, other media or the advertisers or agency can use this medium for brand recall. Weakness: * One of the major weaknesses of Radio is that there is very less differentiation in the programmes that are aired. Most of the stations plays much of the music that is played consist of Hindi Film songs, and therefore it is difficult to differentiate between the programmes of the different channels. * Fragmented Audience the large number of the audience in India is fragmented in various remote places. And therefore, the percentage of listener tuned to anyone station is likely very small. * No proper research available research is very important for any advertising segment. Research is the main base to attract client and get more revenue. But, in India there is no proper research is available. Many stations are conducting their own research which can be biased. * Radio-only nature of radio communication is a tremendous creative compromise. An advertiser whose product depends on demonstration or visual impact is at a loss when it comes to radio. And like its radio message creates a fleeting impression that is often gone in an instant. Many advertisers think that without strong visual brand identification the medium can play little or no role in their advertising plans. * Increase in listenership numbers but no increase in ad revenue. This is the situation that every radio channel is facing. * Short commercials Opportunities: * Getting copyright licenses from the government for running mega events which are aired on the AIR radio station and have been restricted to be aired on other private stations. * Launching a radio station with 24-hour news channel * Tie-ups with BEST or railway authority for playing the FM in train and in bus. * The launch of Private Radio FM has managed to create a set of ‘New Listeners for the medium * The new radio stations which will come in future they can have venture with the college or university campuses. And can play their station which will exclusively provide with the information relating to that university/college campus. * With the coming of the many more new players in the radio industry each channels can position themselves quite different from others, like, if some station is targeting the health conscious people then their programming strategy will vary accordingly. And then it is easier for the advertisers also to decide on which channel to advertise. * Allowing private FM players to start news and current affairs programmes. * One has to constantly innovate, and that is the challenge. Brand building is thus much more difficult. At the same time, we are very bullish, and gung-ho about this whole enterprise. * Leaves huge scope for innovation in local market Threats: * The biggest threat to private radio industry players is ALL INDIA RADIO. AIR is the biggest player in India because of its reach, low charges, government channel etc†¦ * Because of the new government policies there will be more number of stations and then competition will also increase. This is one of the biggest threats it faces. With no particular differentiation in the music. So, there is a fear of losing its brand loyalty. Advertising in India India has been among the fastest growing economies in the world, with a nominal GDP CAGR of 9.94% over the last 10 years (1995-2005). The nominal GDP for fiscal 2005 was Rs. 30,636 billion. According to CSO estimates nominal GDP growth for fiscal 2006 is estimated at 10.9%. There is a correlation between the economic growth rates of a country i.e. the nominal GDP growth rate, and growth rates of the advertising industry The Indian advertising spends, as a percentage of GDP, is 0.34%, which lags behind other developed and developing countries During fiscal 2005, the gross advertising spend in India is estimated at Rs 111 billion, and is expected to grow at 14.2% to reach Rs. 127 billion by fiscal 2006 Segmentation in advertising The five key industry segments comprise print, television, radio, cinema, and outdoor. These different segments within the industry are at varying stages of growth and corporatization Media Spends as % of Total Ad Spend Year Print TV Radio Cinema Outdoor Internet 2000 49.0% 39.3% 2.5% 0.5% 8.4% 0.3% 2001 48.4% 40.6% 2.7% 0.4% 7.5% 0.4% 2002 47.2% 41.9% 2.9% 0.7% 7.0% 0.4% 2003 46.6% 43.0% 2.9% 0.7% 6.5% 0.4% 2004 46.3% 43.7% 2.9% 0.6% 6.0% 0.3% The Indian television industry has grown rapidly, especially since 1991, which saw the beginning of satellite broadcasting in India. This growth was also aided by the economic liberalization program of the Government. The growth of the satellite television audience saw proliferation of a number of satellite television channels offering more choices to media buyers and consumers of entertainment. Thus, the television broadcasting business, which started off as a single government controlled television channel, now has over 300 channels covering the Indian footprint, resulting in growing ad spends on this medium. Reforms and proliferation of private players were the key reasons for this rapid growth of the share of television in the advertising industry. Radio Advertising Radio is still the king when it comes to getting your music. The best way for a new band to get heard by the public and record label executions is over the airwaves. Paradoxically, radio currently has only a 2.9 per cent share of the total advertising pie in India. Globally, depending on country, radio has a 5 per cent to 12 per cent share of the advertising cake. On the higher side are countries like the United States, with 13 per cent, Canada, with 12.7 per cent and Spain, with 9.1 per cent. Companies that advertise on FM channels today such as Hindustan Lever (HLL), Dr Morepen, Amul, Castrol, Santro, Britannia, Parle, DSP Merrill Lynch etc are dominating the advertising on each one of the FM channels, be it Radio Mirchi, Go 92.5 Red 93.5 or Radio City. Today, 70 per cent of the advertising comes from big-budget, national advertisers and the balance 30 per cent comes from retail. It is a known fact that retail advertising will grow because radio presents the perfect advertising medium for local businesses in a local environment. But national advertisers are also operational in the local market, implying that it is as important to them as it is to a retail advertiser, if not more. Nevertheless, it is undeniable that radio can be integral in exposing a new artist, new product or services to new fans and taking a local market to a national level. Accordingly, it is extremely difficult to obtain meaningful airplay. Putting it bluntly, successful radio promotion revolves around making and managing relationships. Radio promotion is an art that demands a certain style you may simply neither have nor desire to cultivate. On top of that, it can take a great deal of time to make all the contacts and connections that are required for successful radio promotion. Advertising agencies that control the national picture will be slow to move on to radio for creative reasons. They have people who love to make television commercials, but dont have anybody who knows how radio works. Here, only about 2.9 per cent of the money spent by advertisers goes to radio, and up till now, all of that went to ALL INDIA RADIO. However, in revenue terms, money from advertising has gone up. Revenue from commercials on AIR, including on Vividh Bharti and Primary Channel (including FM) rose from Rs 393 million in 1990, to Rs 808.4 million in 2000, Rs. 600 crores in 2002, representing a growth of about 7.5 per cent per annum.