Riding the Digital Wave

With physical music sales plummeting globally each year, the music industry has long been scratching its head for some sort of direction. So we spoke to some of the top honchos of the music business who have been the riders of the storm these past several years, on where the industry is headed today.

In the last decade the music business has evolved into a totally different ball game with no one knowing quite what to do with the ball, thanks to technology (Karlheinz Brandenburg of Fraunhofer Institute along with Prof. Dieter Seitzer, who are credited with developing MP3) and the accidental genius of Shawn Fanning, creator of the infamous file sharing program, Napster. At its peak Napster had a verified worldwide user base of over 26.0 million and a song list of about 80 million. The music business was never the same.

Earlier there was copying but the scale was miniscule compared to what it became post Napster. With a click of the mouse, millions of people the world over could download practically every piece of music available, all for free. Napster was closed down in 2001 but the damage had been done. Thus it was - why buy music! its yours for the taking on the www; a piece of cake really and of course there’s no one to question you. In 2006 an estimated 5 billion songs were shared through P2P sites on the net globally. Today the problem has become too deep rooted and the acquired mindsets of the P2P generations will need a lot of time, persuasion, manipulation and ultimately enforcement, to change.

Technology that is ever changing inherently leaves us standing. It unfolds at a speed we are unable to keep pace with or get a grasp of. The end result has been rapid changes in music consumption patterns and new emerging platforms for delivery of music. Music companies are thus faced with the challenge of having to adapt as quickly with innovative marketing and distribution strategies. With technology in a constant flux there is also a diversity of areas with potential for the music industry to exploit but it requires foresight and perception to identify the area with the greatest potential. Going by increasing activity, the Mobile Platform for music delivery has opened up enough potential to become one of the most promising ways forward for the Music Industry.

More and more people are taking to the use of mobile devices like smartphones and tablet PCs to access the net and carry on everyday activities, be it business, social networking or entertainment. To quote Mr. Mandhar Thakur, COO, Times Music, ‘mobile internet is already a heightened reality and the mobile portable device is the centre of the digital universe’. According to a study conducted by MMX (Mobile Music Exchange) India, mobile users in India would increase from the present level of about 30 crores to about 70 crores by 2012. This spells an increase in demand for music of every kind - Indian and Global, especially in view of India’s cultural and linguistic diversity.

Music companies are gearing up with their plans to meet the growing demand and with 3G (which allows 3-4 times faster data transfer speeds compared to 2G, enabling fast downloads of music and video) spectrum services expected to be lunched very soon by private telcos, it should be interesting to see how things unfold in the year ahead. Says Rajat Kakar, CEO, Universal Music, ‘2011 will be a defining year for the music industry as 3G services will be rolled out…with a great delivery mechanism where consumers can enjoy both streaming and downloading and we hope to sell a lot of rich media content –full length tracks and videos to telecom networks’. Mr Suresh Thangiah, CEO, EMI, is also quite optimistic that, ’In the pre-3G world consumers had very little access to non-film content. It is our belief that once the power to select goes to consumers, on account of 3G speeds and easy to use interface, the consumption of non-film music will shoot up drastically’. But experts are of the opinion that 3G consumption would be restricted to urban areas with higher purchasing power and it is left to be seen to what extent music companies will benefit from it.

Based on the responses received from music companies, a major chunk of their revenues come from telcos with Vodafone, Airtel and Idea taking the top three positions, primarily because of their larger subscriber base. While telcos are one of the main targets of music companies and Mr Sridhar Subramanium, CEO, Sony Music, admits that ‘In India, Telcos are the biggest revenue generators…’, hand set manufacturers are also a major source of revenue.

‘Nokia, Sony Ericsson and Spice have taken embedding licenses from PPL (Phonographic Performance Ltd.)on behalf of music companies and other manufacturers are also approaching with fresh proposals’, says Mr Ganesh Jain, MD of Venus Records. Music services offered by hand set manufacturers have proved to be very successful internationally, if you take the example of Apple iTunes and Nokia Ovi stores. This is a happy situation for the music companies, specially the big companies with a massive back catalogue. As things stand, most music companies have on going deals with telcos and hand set manufacturers, so in the long term it would be a matter of reworking the revenue sharing formula from time to time.

Recently a group comprising most of the major Indian music companies, launched MMX (Mobile Music Exchange) India, in association with IMI (Indian Music Industry) an independent body representing 123 members from the music industry and 75% of the legitimate music recording output in India, with the aim of providing legitimate music by licensing content to retail outlets where consumers can down load music of their choice.

Besides MMX some music companies are even contemplating setting up their own B to C portals as Universal’s Mr Kakkar points out, ‘Music companies that tried to retail their music on usb devices and memory cards did not meet with much success because consumers want freedom of choice. On the other hand MMX which was rolled out initially in AP has received a quite positive response. However, as licensed retailers would have a limited selection, we also plan to launch our Universal India portal where you can buy music in physical formats, because it is really all about delivering music to consumers and we believe that there is still life in the physical format’.

For companies like Saregama and Universal who have a vast back catalogue the prospects may be better because as per Mr Gautam Sarkar, Chief Manager, Saregama, ’90 % 0f our revenues comes from our old catalogue’, but other music companies too, who have been around for 25-30 years, generate about 40-50% of their revenues from their old catalogues. Of total revenues, both Saregama and Sony Music say 75% comes from mobile as against 15% for radio and 10% for the internet, while Universal has a break up of 35% for mobile, 25% for radio, 40% from physical format sales and negligible from internet.

Accordng to music companies practically all telcos are involved in promoting music especially Vodafone and Airtel. Most companies are also gearing up for 3G and working with telcos for promoting videos especially companies that have a lot of video content.

To conclude, everybody is gaga over Nokia Ovi music stores but illegal music downloads is not going to die in 2011. So music companies, telcos and handset manufacturers will have to work in concert to make legal downloads attractive whether by letting consumers download songs or videos of their choice, VAS, embedding content, subscription services, promotions, special offers, discounts, et al, - the idea being to satisfy the consumers’ perception of a bargain, because everybody loves a bargain and willingly pay for it .

- By C P Joseph, Stanley Paul and Ria Shah.