Monetising Music

Have you ever wondered why music companies invest almost nothing in developing new formats, markets or genres?

There are over a hundred genres such as Indipop or carnatic or quawaali across say 200 languages and dialects. We may hear of a funny “Why this Kolaveri di” or a lovely bhajan only if it goes viral. Otherwise the hundreds and thousands of singers, songs, instruments and compositions are rarely sampled by a large cross-section of people within India, forget outside. The largest market for Latin music is outside of Latin America. K-Pop or Korean pop music’s global popularity has brought billion dollar valuations for Korean music firms. The last big hit from India was the A R Rahman composed Jai Ho in 2008. Music is a key piece of content across India’s Rs 1,67,400 crore entertainment ecosystem — for radio, TV, OTT, phones, restaurants et al.

What then holds it back? Two things.

One, it is very small, fragmented and totally slammed by piracy. Going by EY figures the industry made revenues of just Rs 1,400 crore in 2018. Of this 80 percent comes from film music. Therefore the largest chunk of investment available goes there. Historically films have brought in over 90 percent of the industry’s revenues. The proportion has gone down over the years as music channels (Channel [V], MTV et al), formats (cassettes, CDs, streaming services), television and the growth of the concert business helped non-film music find its audience. That is how Indipop, ghazal and other genres grew. But film music, usually a fusion of genres remains the most popular. Now digital offers the ability to slice and dice by musician, genre, country, language among dozens of variables.

But it still hasn’t been leveraged to expand because the money the music industry makes is pathetic. And regulators have helped keep it that way. This is the second reason why the business lags.

Think about it. The Rs 3,100 crore radio industry is almost three times the music business. It makes a bulk of its money from music. However, it pays just about Rs 60 crore as royalty. A Copyright Board order from 2010 mandates that radio stations share 2 percent of the net advertising revenues with music licence holders. It came at a time when radio was reeling from lack of scale, high licence fees and losses. The business is now competitive, and revenues come in from multiple sources like political ads and live events. It is time then to allow “voluntary licensing to determine market rates,” says Megha Patnaik fellow at Esya Centre and assistant professor, Indian Statistical Institute. With the compulsory licensing regime up for review in September 2020 the Delhi-based think tank along with the Indian Music Industries association or IMI held a discussion on the subject last month.

Across media segments (TV, OTT, DTH) content costs range from 15-40 percent. So it seems unfair that content costs in radio are only 2 percent. However both compulsory licensing and the 2 percent average are global problems says Mark Schultz, director, Intellectual Property and Technology Law Program, University of Akron School of Law. He reckons that voluntary licensing — meaning allowing buyers and sellers to negotiate — could help music companies get a 25-50 percent revenue share. Streaming platforms, which are not subject to the 2 percent rule, share between 50 percent and 70 percent with music owners.

Voluntary licensing sounds ideal but can it work in a fragmented market like India where large buyers like Airtel or Jio control reach? Maybe there is a case for increasing the compulsory licensing royalty rate to 10-15 percent.

For perspective there is always China. About five years ago it shifted to a free-market royalty regime and cracked down hard on piracy. The result — its music industry has added 40 million jobs to the entertainment ecosystem and China has become one of the world’s top 10 music markets up from 39 in 2010. Maybe a combination of things — a free market and some regulatory backbone — could help transform India’s music industry.

As IMI president Blaise Fernandes puts it: “Open up the recorded music industry sector and we will see the next Despacito emerge from India and that will be a true Make in India story.”―Business Standard

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