ENIL AR21 notes
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In FY21, Mirchi digital was one of the flagbearers of growth. Digital products either sold independently or as part of Solutions packages contributed to 12% of total revenues. We expect this to increase to nearly 25% of total revenues by FY25. Mirchi digital is currently reaching an estimated 50 million users through multiple platforms like Social Media, YouTube, music OTTs, etc.
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During the year, Mirchi’s social media footprint grew impressively. Between its own handles and those belonging to its RJs, Mirchi had a reach of nearly 23 million on Facebook and 10 million on Instagram. On YouTube, its subscriber base grew to 13 million this year. Total views on our YouTube channels increased to nearly 800 million during the year.
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In the US,
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we have been present on FM in the second most important market for radio for South Asians – New Jersey (NJ) – since Jan 26th, 2019.
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We have also been available across the US via our radiomirchiusa app.
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In July 2021, we launched a powerful AM station in the number 1 radio market – the Bay Area in California.
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We have also launched an online Telugu radio station on our app that specifically targets the Telugu people living in California. Even though its content is designed for California, it is available all over the US.
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Over the last couple of years, the feedback on the product has been very encouraging, and it reflects in our revenue share, which is estimated to be close to 50% in NJ. We are confident of replicating this success in the Bay Area next year.
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In the US, your Company has signed a lease agreement for a frequency– 1170 AM – in the Bay Area. This is a powerful frequency that covers the whole Bay area – from San Francisco to San Jose. The Bay Area is the biggest radio market for South Asians in the US. We hope to launch commercial operations soon.
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During the year, we returned the New York frequency to its owner because the owner wanted to sell it, and it was anyway not proving to be viable.
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Mirchi was present in Bahrain under a brand licensing arrangement with a local partner till September 2019, after which our partner decided to surrender the license. After making a bid on our own in November 2019, ENIL won the bid in June 2020. We have now relaunched Mirchi in Bahrain on May 9th, 2021, through a 100% owned subsidiary called Mirchi Bahrain WLL. Initial audience and client feedback have been good.
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In our first stint in the UAE, in partnership with the Abu Dhabi Media Corporation, we had become the number 1 broadcaster across the country. In our second stint, this time in partnership with Dolphin Records, we have made a strong come-back in March 2021
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A shareholder agreement was signed between ENIL, Global Entertainment Network Limited (GENL), Marhaba FM and Mr. Salem Fahad S E Al-Naemi to operate a radio station in Doha, Qatar. Marhaba FM holds a commercial radio broadcasting station license for the FM frequency 89.6 in the state of Qatar and it was operating under the brand name “One FM”. GENL is the wholly owned subsidiary of Marhaba FM. In March’2021 ENIL made an equity investment that gave us a 49% stake in the share capital of GENL. GENL shall provide services to Marhaba FM in connection with operating the station under the brand name “MirchiOne”. Despite multiple obstacles faced, including travel restrictions, MirchiOne was launched in Qatar on 21st March’2021.
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Normally adverse economic conditions benefit radio, as advertisers spend more on “promotions” rather than core “brand building” . However, the pandemic is unique because it has disrupted the retail sector the most. With retail shut, there was no scope to run promotions . Radio depends heavily on retail advertising and so it has suffered a lot.
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Solutions and Digital.
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During the year, both saw a significant improvement in gross margins. Solutions’ gross margin improved to 52.7% from 38.4% last year and digital’s gross margin improved to 37.5% from 11.5% last year. Since both products are dependent on advertising, revenues fell during the year.
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In FY21, we have taken the first steps towards building our own digital web and app platforms . The big gain in having our own platform is that we will finally “own” the customer. We will also own the ad inventory on the platform. This will future-proof the Company against any more economic disruptions and crises like the pandemic.
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In line with this vision, your Company took the bold decision to drop the word “Radio” from its logo “Radio Mirchi”. The brand will now be known simply as “Mirchi”. This decision allows the brand to do so much more than just radio – original videos, original podcasts, live events, TV impact properties, solutions etc.
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Because of the pandemic, the on-ground component of solutions was badly hit. It was down 92% over FY20. But our multi-media solutions component fared much better, dropping by only 16%. The solutions we designed for our clients using TV – what we call TV impact properties like Mirchi Music Awards – dropped by only 37%. Despite solutions products dropping, the margins of the solutions business rose strongly from 38% to 53%.
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Mirchi now runs 18 web radio stations on Gaana including exclusive Punjabi and Marathi stations for metro markets like Delhi & Mumbai.
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Mirchi’s selected content is also available on Amazon Alexa, making us part of the growth story of smart speakers and smart homes in India.
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As a focused business line, Mirchi continues to create original visual content (Web series) and thereby ride on the growth of video OTT platforms in India. While the number of shows created during the year were less due to Covid restrictions, this will continue to be a major thrust area for Mirchi in the days to come especially since Mirchi’s talent and capabilities in multiple Indian languages places us in a unique position to grow this vertical.
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In FY21, digital products, either sold independently, or as part of solutions, grew to approx. ` 32 crores, contributing about 12% to revenues. This 12% is part of the 1/3rd share of solutions. One of the positive impacts of this replacement of on-ground activities with digital was that gross margins increased to more than 50%. As is known, margins on on-ground activities are a little limited.
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In order to add muscle to the solutions and digital businesses, your Company has invested in people, processes, training and software . Most of the programming team members are now making content not only for radio, but also for client solutions and digital platforms.
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As a result of the Company’s right sizing exercise, the headcount of the Company came down from 1124 at the beginning of the year to 910 at the end . In addition, senior employees took pay cuts ranging from 10% to 50% from April 2020 to February 2021 . Many employees were put on Part-Work-Part-Pay (PWPP) in which they worked for half the week and received half pay
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The annual incentive program was disbanded for all people in the first half of the year and though a special incentive plan was introduced for the 2nd half, no one was able to earn any incentive.
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Vaccination doses have been provided free of cost to all employees, including the support staff. Employees were also offered the option of taking interest-free loans to pay for Covid related expenses. Employees were also encouraged to take an extra week off, a leave that we called “recharge” leave.
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In another case, your Company won an order from the Delhi HC which stated that radio broadcasters did not need to take any license for the “underlying” works in a sound recording– viz the lyrics and compositions. As a result of this, your Company was able to write back past provisions made to the tune of Rs. 23.5 crores .
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Financials
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On a consolidated basis, total income of the Company declined from Rs. 56,153.32 lakhs during the previous year to Rs. 29,117.52 lakhs during the year under review. Profit after tax declined from Rs. 1,071.21 lakhs during the previous year to loss of Rs. (11,050.31) lakhs during the year under review.
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In the 1st quarter, your Company’s revenues were down 72%. In the 2nd, 3rd and 4th quarters, revenue was down 59%, 42% and 34% respectively.
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Radio ad volumes took a hit in the 1st half of the year falling by 74% in the 1st quarter and 27% in the 2nd quarter but recovered smartly in the 2nd half. Ad volumes grew by 1% and 6% respectively in the 3rd and 4th quarters. Pricing of radio however continued to remain lower by about 25% throughout the year .
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Recovery typically follows this pattern – first the volumes recover, then the pricing.
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The recovery continued into the 1st quarter of FY22. However, the 2nd wave of the pandemic has paused it. Recovery may now be delayed till the end of the 2nd wave, but the experience of the last year has shown that the demand for radio remains strong. With vaccinations growing rapidly, it is our hope and belief that future waves will be milder in strength and will require lesser restrictions on business. If this comes true, a recovery can be expected in FY22.
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The pandemic caused disruption in the growth trajectory of 2nd brand, Mirchi Love and 3rd brand, Kool FM. Your management has taken a conservative, yet pragmatic view of the long-term impact of the pandemic on these channels and decided to impair their assets by Rs. 97.5 crores. The management team will continue to strive to return these stations to the earlier growth trajectory.
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We gave up some office space, and also renegotiated rates in some places. This led to a saving of 16% during the year.
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Due to the new royalty order, costs were down 38% during the year .
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License Fees paid to the Govt were down just 8% despite a crash in revenues, because they are governed by a formula which sets the floor.
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Marketing costs were pruned by 69% and travel virtually ground to a halt with costs down 90%
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Cash and equivalents of Rs. 233 cr.
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Substantial revenue from Holding company BCCL. Revenue of Rs. 65-70 cr out of total Rs. 272 cr in FY21.
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Total investment of Rs. 19.64 cr in subsidiaries.
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During the current year, the holding Company terminated eight lease arrangements pertaining to office premises and one lease arrangement pertaining to transmission facility resulting into de-recognition of related Right of use assets and lease liabilities amounting to
1,323.45 lakhs and1,650.66 lakhs respectively. The resulting gain on termination amounting to ` 327.21 lakhs has been recorded as Gain on termination of lease.
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Industry
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Growth in radio penetration continues with 31 private FM broadcasters in 2020, across 111 cities who operates 385 FM radio stations in India .
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In addition, the public broadcaster Prasar Bharti’s All India Radio service operates 479 stations in 23 languages reaching 92% of the country’s area. India also has 251 operational community radio stations as on September 2020.
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As per the Pitch Madison report, the radio industry reported a 44% decline in advertising revenue in FY’21 to reach I 1,270 crore. With this drop, Radio has also lost one percent of the market share. This has brought down its share to 2% of the entire Media & Entertainment industry
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costs related to payment to the Government of India and its companies proved to be sticky as the Government refused to give any relief. All the Government of India allowed was a 3-month deferment in 1st quarter license fees. Prasar Bharati gave no concessions for their tower rentals. BECIL gave a quarter’s waiver on monitoring charges, but that was all.
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At one time, the FM radio industry was concerned about losing listenership to music apps. However, over time, it has become clear that music apps have created their followership, not taken away FM radio listeners , The 200+ million monthly listeners of radio continue to use the medium, but many of them are now also using music apps. In all, it is estimated that nearly 300 million users exist for music apps. FM radio and music apps have learnt to coexist with several partnerships now starting to form between them. For example, Mirchi has 18 radio stations playing on Gaana, and Gaana spends money on advertising and sponsorship on Mirchi.
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Radio broadcasters pay royalties to music companies. The rate of royalty was last set by the Copyright Board (CRB) in August 2010 and the order was valid for 10 years till August 31st, 2020. There was some apprehension amongst radio broadcasters about what the new order would look like.
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Broadcasters approached the Intellectual Properties Appellate Board (IPAB), the body that replaced the CRB for such matters, for a new order. The IPAB first restrained music companies from filing infringement suits against broadcasters till the matter was being heard and new orders passed. The new order would be effective from 1st September 2020.
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While the earlier royalty was based on revenues (2% of revenues), the new order was based on actual hours of music used by radio stations . The new order prescribed rates by “needle hours” (actual hours) of music used. It divided the day into prime-time, non-prime time and night time with different rates for each time band .
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The new order has been widely welcomed by the radio industry for several reasons.
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Firstly, the rates were seen to be broadly fair , protecting the interests of both music companies and broadcasters. The IPAB rejected many of the excessive demands of the music companies. The needle-hour order actually helped the music industry in FY21, earning them more royalties than they would have earned if the revenue based order had continued (since revenues fell in FY21).
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Secondly, it’s an order that applies to all music companies . The earlier order had been challenged by a few companies who managed to get orders in their favor and stay outside its purview, forcing broadcasters to negotiate voluntary licenses with them. Not only did this increase workload for broadcasters, it also subjected them again to the same old extreme demands of these companies.
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Thirdly, even though the order is valid only for only one year, the IPAB has clearly said that the basic rate structure would not be disturbed in the future . It thus gives certainty about music royalties in the future.
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The IPAB however also entertained a request from the music artists (composers and lyricists), represented by their society, the Intellectual Properties Rights Society (IPRS), to prescribe royalty for them also. Despite protests from broadcasters that various courts had opined that they didn’t need to pay IPRS at all, IPAB went ahead and prescribed rates for them. A few days later, the Delhi High Court ruled in one more long pending case that radio broadcasters did not need any license from IPRS, and thus did not have to pay them, thus rendering the IPAB order for IPRS infructuous. Broadcasters have now appealed in the Delhi HC to annul the IPRS part of the IPAB order, while accepting the rates set for music companies.
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As per the applicable Frequency Module (FM) broadcasting policy, license fees is recognised in statement of profit and loss at the rate of 4% of gross revenue or minimum fixed fee for the concerned city, whichever is higher. Minimum fixed fee is 2.5% of the Non-Refundable One Time Entry Fee (NOTEF). However, for the first three years of operations in the states of North East (i.e. Assam and Meghalaya) and Jammu & Kashmir the rate of License fee is 2% of Gross Revenue or 1.25% of NOTEF, whichever is higher.
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