A whiff of fresh air!
The new FM radio channels will have to differentiate on content

(column by Surabhi Agarwal)

The celebrations are long over and the champagnes have been poured. 91 cities across India; 338 new FM Radio frequencies and 85 bidders (many triumphs and few defeats), this has been a watershed year for the radio sector! From the basic radio to private FM channels to visual radio to World space satellite radio, the Indian listener is now truly spoilt for choice. However, now that the euphoria of the Phase II is behind us, it’s time for real action. Out of the 243 frequencies formally allocated, 10 have already started beaming. Existing players like Radio Mirchi and Radio City have been joined by few others like Rajasthan Patrika and Clear Media (of Win FM fame in Mumbai, also quite popular in Delhi now as 95 FM) in taking the first mover advantage. Most other operators are in the process of launch, setting up infrastructure and devising their optimum strategies. According to estimates of a PricewaterhouseCoopers (PwC) report, the industry, which today stands at Rs.3 billion is expected to grow by four times and reach Rs.12 billion by 2010. According to the latest National Readership Survey (NRS) figures, the number of individuals listening to FM in an average week has grown from 76 million in 2005 to as many as 119 million in 2006, a jump of nearly 55%.

While the figures hold great promise, it is certainly not going to be all that rosy for the FM channels to sustain themselves and stand out among the crowd. “The key to survive will be to differentiate,” states Rana Barua, National Head Marketing, Radio City. With so many channels in the fray, the biggest danger lurking is of lack of differentiation. “Most players will want to jump on to the biggest category (contemporary chartbusters), which will result in some channels flopping, some re-inventing themselves and finally evolving into various categories according to the demand of the market,” offers Kaushik Ghose, Senior Vice President Marketing, Radio Mirchi. With the pan India approach of the Phase II of FM expansion, many of India’s C and D class towns will soon get their own FM stations. But the strategy that works for the metros may not work for these sleepy suburbs of India, who are yet untouched by the radio revolution. Anurradha Prasad of BAG films is quick to add, “The trick is how to touch the pulse of the people and give them what they will love.” When it comes to sustainability, the revenue model is extremely critical and depends largely on advertisements. Today, advertising in radio accounts only for about 2% of total advertising in India, but with so many stations coming up, especially in small towns, the revenues are bound to go through the roof.

When asked about ad revenue break up, Apurva Purohit, Chief Executive, Radio City elaborates, “The world-over, radio advertising is led by retail clients, as radio offers a local and cheaper option compared to other media vehicles. However, currently about 70%-75% of the revenues still comes in from the corporate clients.” But this phenomenon is in for a change; once radio reaches small cities or towns, it will be the only local medium available, thus giving a complete turn around to local advertising in India. “Local advertising is informative and meant for quick action, national advertising is usually about brand building and brand awareness,” adds Barua. Coming back to the million dollar question of who will survive and how? Considering India’s cultural and regional diversity, which has given birth to many successful regional brands, one is tempted to believe that a lot of regional FM channels will dominate the air waves. But Timmy Khandari, Media Analyst, PwC has a somewhat different view, “The one with the largest footprint in the country will survive, since national advertisers will get to reach out to a wider audience through them.” Well, local or national; general entertainment or specific, all will ultimately depend on the way channels package and modulate themselves (region-wise) to woo their listeners. After all, content is still the king. Ain’t it?

(End of Surabhi Agarwal column)

When colossal ambitions turn into pipe dreams...
Contracts, particularly with overseas governments, must have contingency clauses

(column by Ryan J. Orr, Executive director, Collaboratory for Research on Global Projects, Stanford University, California)

Contracts are meant to enshrine agreements in something like stone. But contracts covering long-term infrastructure investments in emerging markets are written in something closer to sand. As more companies invest in these markets – building roads, bridges, utilities and telecom systems – contracts must become flexible enough to account for the changes that political and economic instability create. In case after case, investors have seen agreements brokered with foreign governments change – suddenly and rarely to their benefit. One World Bank study of more than 1,000 long-term investments in Latin American infrastructure concluded that 30% of the underlying contracts were ultimately renegotiated. In the 1990s, two thirds of the agreements that supported 33 investments in independent power projects in developing countries were similarly revised, a Stanford study showed.

One explanation for the changes is what Harvard economist Raymond Vernon called the “obsolescing bargain”: Over the long life cycle of an infrastructure project, negotiating power shifts from the private investor to the government customer. Initially, the customer offers attractive terms because it needs private investment, technology or management expertise; when the customer has what it desires, it unilaterally changes the terms. Frequently, government takings are triggered by unpredictable events such as economic crises, coups, assassinations or wars. Such big, destabilizing changes expose issues not covered in the initial agreement and alter both parties’ attitudes about suitable risks and rewards. In other cases, government insistence on contract changes is not the product of an external crisis but of changing political circumstances, public opposition to a project or opposition within the bureaucracy itself.

Recently, a group of senior lawyers and business executives gathered for the General Counsels’ Roundtable at Stanford University under the aegis of the Collaboratory for Research on Global Projects to analyze the legal issues raised by a decade’s worth of failed and distressed projects in emerging markets. One outcome of that meeting was the promising, although still not widely accepted, idea that contracts can be redesigned as “living, breathing” frameworks for ongoing negotiation, yet still fix terms solidly enough that parties can obtain necessary financing and operate with acceptable levels of certainty. As one general counsel noted, “Businesspeople want to know: If this thing goes all screwy, what’s my safety net? What guarantees do I have? What is the very worst it can be?” To address conflicting needs for flexibility and predictability, the group proposed two alternatives for improving project outcomes. The first involves the creation of a “governance model” to better align the economic interests of public and private parties through co-ownership and co-governance of the project company, as is now popular in so-called public-private partnerships.

With a shared economic destiny, there may be more incentive for parties to resolve the kinds of disputes that historically have contributed to project failure. The second alternative involves the use of a number of types of contractual tools. “Shock-absorber clauses” are designed to facilitate low-cost, amicable renegotiation. “Safety-net clauses” satisfy the need for security and provide protections in the event that renegotiations fail. Versions of both appear in many traditional business contracts – although they have not previously been sorted into these categories – and could be combined in contracts that are threatened by political instability. Shock-absorber clauses take various forms in the business world. In construction contracts, change clauses allow the customer to make unilateral adjustments to the agreement during a project and let the contractor recover costs associated with those changes. The customer benefits because construction continues even when disputes arise.

In the pharmaceutical industry, “development and license agreements” allow small research labs to work with global drug development companies under terms that may shift if, for example, a promising product fails clinical trials or an apparently trivial technology turns out to be exceedingly valuable. In international trade, negotiators from different nations may arrange to periodically divide financial rewards that were not anticipated in the original treaty. Safety-net clauses, also common in many industries, generally state that faltering renegotiations will move to litigation or arbitration. Adopting such clauses for the international arbitration of large projects requires very detailed provisions for variables such as governing law, supervisory agency, language, location and types of damages.

Companies can use existing legal mechanisms to enforce judgments against a contracting government outside its home country in cases where local courts have frustrated attempts to collect arbitral awards. Firms can also state that obtaining political-risk insurance or other types of insurance is a condition for proceeding with a contract. When changed circumstances or attitudes destabilize long-term agreements, companies have two choices: Renegotiation or formal dispute resolution. Contracts that combine shock-absorber and safety-net clauses can guarantee a better outcome in either case. For companies looking at the high-risk, high-reward prospect of taking on major projects abroad, these types of contracts provide the starting point for a trust-based partnership – and an ending point should trust ultimately fail.