Radio Mirchi - Spicing up the Indian Air Waves

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Case Details:

Case Code : MKTG124
Case Length : 16 Pages
Period : 2000 - 2006
Pub Date : 2006
Teaching Note :Not Available
Organization : -
Industry : FM Radio
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"The task of the Radio Mirchi team is to steer the growth of Mirchi Republic of India, which got independence on April 1, 2005 - the milestone day when the revenue sharing regime was made effective."¹

- A. P. Parigi, MD and CEO, Entertainment Network India Limited (ENIL), holding company of Radio Mirchi, in 2006.

"The world over, very few radio stations lose money, and India will be no different. It's a risk-free business model, should one get the right programming mix."²

- Sunil Kumar, Managing Director, Big River Radio India Pvt. Ltd.³ in 2006.

Introduction

In February 2006, Radio Mirchi,⁴ the most popular private FM radio channel in India, announced that its license bids for 32 cities, spread across the country, were successful. Its highest bid of Rs. 281.6 million was for the city of Bangalore. The bidding process, which began in January 2006, was part of the second phase in the Government of India's (GoI) efforts to privatize FM radio. Radio Mirchi was already present in seven cities, including key cities such as Mumbai, Delhi, Kolkata, and Chennai. It announced that the new radio stations would become operational by 2007. In mid-November 2005, Radio Mirchi had announced that it was entering the capital market to raise capital of Rs. 2-3 billion.

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It intended to use about Rs. 1.45 billion of the equity to pay for OTEF⁵ and migration fees.⁶ The issue, which opened on January 23, 2006, was oversubscribed 40.76 times.⁷ Radio Mirchi enjoyed the largest operating network among private FM radio stations in India.

It strove hard to differentiate itself in the highly competitive FM radio industry mainly through innovative marketing and promotional strategies. However, as of September 2005, it had accumulated losses of Rs. 1.02 billion. The company attributed the losses to the faulty policies adopted by the GoI in Phase I of FM privatization which required private broadcasters to pay exorbitant annual license fees. The license fee was more than double the revenue Radio Mirchi was earning. In November 2004, it had even served the GoI a conditional notice to close down its station at Pune. However, the new Revenue Share Model⁸ introduced by the GoI in the second phase of FM privatization raised the hopes of Radio Mirchi and it planned for a massive expansion.

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1] “Management reshuffle at Radio Mirchi,” www.exchange4media.com, February 01, 2006.

2] “BBC, Murdoch queue up for Radio India,” www.financialexpress.com, January 06, 2006.

3] Big River Radio India Pvt. Ltd. is a New-Delhi based consulting company which advised companies that bid for radio licenses in the second phase of FM radio privatization.

4] Mirchi means chilli in Hindi.

5] OTEF or One Time Entry Fee is 25% of the highest bid for any city.

6] Migration fee is the amount to be paid by existing radio companies to migrate from phase I to phase II of radio privatization. It is the average of all the bids received for frequencies offered in a particular city.

7] “Radio Mirchi IPO oversubscribed,” www.indiatimes.com, January 30, 2006.

8] Under the revenue share model, the FM radio companies are required to pay 4% of their annual gross revenue to the government instead of the high annual license fees.