FM: An Overview

Global FM Scenario

FM and AM channels accounted for a 12 percent increase in the USA and an 11
percent increase in the UK. Radio analysts predict tougher times than expected
in the US, which has the world’s largest FM radio network, in the first half
of 2001, due to a disappointing industry-wide radio and sales revenue. The
recession has resulted in trimming of budgets by radio companies and even
layoffs have been resorted to. Therefore, companies are concentrating on
generating non-traditional revenue like the local businesses, which seldom
advertise on radio. The phase, according to analysts, is a temporary one.

Los Angeles City has about 50 FM channels, New York has 40 and there are
about 25 such channels in London. Even Colombo has four channels. Radio in the
US really took off after the 1996 Telecommunications Act, which removed
restrictions on the number of stations any one company can own. Improved
technology and large-scale consolidation did a lot of good to the radio
industry. According to McKinsey estimates, the US radio networks now record
annual returns of 30 to 40 percent before interest and taxes.

Some of the major players, Chancellor Media, the Columbia Broadcasting System
and Clear Channel Communication System own hundreds of local broadcast channels.
Then started the digital revolution leading to the improvement in the quality of
sound coupled with growth in the number of channels. USA Digital Radio, Digital
Radio Express and Lucent Digital Radio (a JV between Lucent Technologies and
Pequot Capital Management) are competing to set up a dominant standard in the
shift from analog to digital radio.

Emerging New Audio Broadcasting Media

Emergence of newer media for delivery of radio signals has added variety to
the audio broadcasting scenario. Satellite, cable and the Internet have quickly
emerged as potential alternate media. Of these, streaming audio over the
Internet has taken the listeners’ world-over by storm. These alternative
services, no doubt revolutionary, are in no way going to compete with FM radio,
at least in the near future in India. According to a McKinsey study,
"Satellite, cable and Internet radio will each compete in about a third of
today’s broadcast market: satellite radio for affluent motorists, cable radio
for home listeners; and Internet radio for office listeners, students and
teenagers at home." The report further says that satellite radio, first out
of the block, may encounter consumer resistance to the idea of buying
subscriptions for radio signals, which have traditionally been free of charge,
and the strength of the signal may not be sufficiently consistent in downtown
areas to prevent tall buildings from "shading" it. It also says that
cable radio’s future is tied to that of cable television, an industry
undergoing fundamental change as it adapts to digital TV and the demand for
high-speed Internet access.

Satellite Radio

This is a service based on Digital Audio Broadcasting (DAB) through a
satellite receiver. This service was launched in India last year, but the
response has not been so good due to the high entry-level cost of the satellite
receivers, which are being sold. Washington-based WorldSpace Corporation claims
to be the only service provider which beams digital broadcast of audio and
multimedia programs directly from satellites to portable receivers. WorldSpace
has a constellation of three satellites, which it claims will provide service to
a potential audience of more than 4.6 billion people. It also has an advanced
direct media service, which is delivered to a user’s PC through the digital
receiver coupled with a PC adapter. Through this, web content, selected by the
subscriber, is loaded directly to the hard drive of the user’s Pentium-class
PC, without the need for a telephone line.

Cable Radio

This allows a single digital television channel to deliver hundreds of
CD-quality audio channels to private homes. In the US, Digital Cable Radio
Associates, TCI Music and Muzak are already providing this service. The
technology banks on the existing stereo and home theater sound systems to
provide high-fidelity radio. Though it is felt that most people would rather
prefer watching television rather than listening to radio in their living rooms,
the high number of channels and sound quality could be an incentive.

Radio on the Net

By virtue of having the unique feature of providing worldwide coverage, this
has a great potential–theoretically. There are an estimated 8,000 sites, which
stream audio on the Internet. Internet may offer the most revolutionary
possibilities, but due to the bandwidth crunch, especially in India, good
quality audio streaming is unlikely to take off. Till broadband becomes a
reality, streaming of audio, or video for that matter, is going to remain an
unfulfilled pipedream. The broadband network, which is being laid in the
country, will take at least five years before actually starting to offer
services. Moreover, this streaming will remain confined to a certain class of
people having a PC and Internet connectivity and so will never become a mass
medium, which the FM has the potential to be.

There are Internet radio portals, like RealNetworks, Broadcast.com and
Imagine Radio, which operate or aggregate stations. They have designed software
"tuners" that select radio stations by geography, content or other
factors. Listeners could thus choose among a multitude of stations by making a
couple of simple entries on a computer screen. Interactivity is a feature, which
has the potential to end the difference between radio and recorded music. There
are several radio portals in India as well. Radio Mid-Day, one of the licensees,
has been streaming audio streams programs on its web site (www.chalomumbai.com).

Digital Audio Broadcasting (DAB)

DAB was developed by the European EUREKA 147 group. DAB systems are currently
used across Canada, Europe and parts of Asia. The transmission of traditional
analog radio signals to both mobile and fixed applications are prone to various
types of interference. DAB uses Coded Orthogonal Frequency Division Multiplex (COFDM),
an innovative modulation technique, in order to overcome the problems associated
with traditional FM/AM transmissions. DAB is a terrestrial COFDM-based system
for the transmission of interference-free CD quality sound, coupled with a
visual component called Program Associated Data (PAD).

DAB Advantages

DAB offers many advantages over current broadcast radio systems.

• The modulation scheme employed is
  almost impervious to multi-path distortion, enabling excellent reception on
  stationary or mobile receivers, in congested downtown areas or busy traffic.

• Transmission of
  digital signals requires considerably less power than analog and as long as
  the signal can be received and decoded, the audio maintains uniform clarity.

• The bandwidth
  allocated to each service, and hence its quality, can be dynamically
  adjusted at the point of origin.

• The ability to
  carry multiple services (stations) on one transmitter allows for more
  cost-effective or shared-cost deployment.

• Single Frequency
  Networking (SFN) implementation is easily achieved.

• Provision for
  data transmission in addition to the audio, paves the way for various new
  value-added applications. Services generating more revenue are possible
  without additional investment

M’s Advertising Potential

Most of the FM operators are going to look for advertisements, which are
their main revenue stream. Here, they have to compete with other audio-visual
media to garner their share of the pie. A joint study by FICCI, and Anderson
Consulting has projected revenues from radio advertising in India to be Rs 720
crore by 2002, and Rs 1,200 crore by 2005. The report had made certain
recommendations to make the radio a potential and lucrative medium. It had asked
the government to emphasize on setting up in smaller towns and cities. It had
also suggested the removal of restrictions on leasing and hiring studios owned
by AIR. Lintas, however, predicts the radio advertising revenue to reach Rs 690
crore by 2010, from the present 135 crore.

According to a McKinsey article, "A nonvisual medium can’t compete
with the breakneck editing and eye-popping effects of many television
commercials–a problem that explains why consumer goods companies have
traditionally spent up to 75 percent of their budgets on TV." The report is
optimistic about some developments, which might transform radio’s prospects.

According to Forrester Research, as an advertising medium, radio is more
effective than the Internet. It adds that radio commercials tend to fill natural
pauses between musical selections rather than interrupt extended narratives, so
listeners find radio commercials less obtrusive than their TV counterparts. For
advertisers, radio has the potential of attracting both an audience somewhat
different from televisions’ and the same audience at different times of day.
According to the study, the peak time for radio is 7 AM to noon, while for TV it
is from 7 PM to 11 PM. And, because the retention of listeners is high, TV
sometimes uses radio to create awareness of TV programs. Radio advertisements
also have the potential advantage of low cost of reaching listeners, which
attracts even those advertisers who cannot afford TV or print advertising.

Sudesh Prasad