Keeping Time: Music companies are getting pushed into redefining their existing business models
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With physical sales of CDs fading out, the Indian music industry knows it will have to diversify or perish. Tune in, then, to the new sounds of music

Rohan Mazumdar, Bradley Tellis, Rhys Sebastian, Adil Kurwa and Aditya Ashok are the 20-something writers and composers behind Colour Compound, an English rock band. “Their music is easy to relate to,” says 23-year-old Kritika, a BPO employee and follower of the band. “It’s contemporary and catchy.” But is there room for Colour Compound in a Bollywoodian kingdom ruled by Chammak Chhallo and Chikni Chameli? Universal Music is willing to bet on it. Its newly launched vertical, Contraband, is a platform dedicated to English music. The intriguingly named off-shoot, a joint venture between Universal Music, Blue Frog and broadcaster VH1, will work like this: Contraband will own the intellectual property rights of all content created by Colour Compound, and take responsibility for marketing, distributing and monetising it by distributing the band’s music across digital formats (internet, mobile, TV and radio), and with live shows

 
 
“Universal’s move into publishing English music in India is a matter of survival. We have to diversify in order to do well"
 
 
. “We expect Contraband to contribute Rs 10 crore (about 7-8%) to our overall revenue in the next one or two years,” says Devraj Sanyal, MD, India and Saarc countries, Universal Music India. While Colour Compound is Universal Music’s first band under Contraband, Sanyal confirms that the company is in talks with several more and it plans to sign up at least five bands every year.

Contraband is just one of several efforts with which the Indian music industry is realigning itself to its new, cruel realities. Music companies across the industry are increasingly getting pushed into redefining their existing business models. Physical sales, which earlier constituted 80% of their revenue, are now down to just 10%-20%

 
 
“These are scalable businesses and we are growing the pie of the music industry by getting into sharply defined spaces"
 
 
. In 2009, revenue was around Rs 420 crore, but in 2010, it dipped to Rs 320 crore. Last year, physical sales contributed just about Rs 260 crore to the Rs 900-crore music industry. Digital music, which contributed around Rs 260 crore revenue in 2009, has spiralled up to Rs 520 crore in 2011, according to the Ficci-KPMG Indian media and entertainment industry report 2012. Universal’s first-time and only venture into publishing English music in India — the company’s repertoire in Western markets is vast — is a calculated strategy to expand from its decades-old music label business (that is, buying the music rights to film and non-film music for physical sales). “It is a matter of survival,” says Sanyal. “We have to diversify in order to do well.”

The market for non-Bollywood music may be just 30% of overall industry revenues but it’s growing at more than 20% year-on-year

 
 
Companies are identifying talent with live performances, and monetising the music over different platforms
 
 
. That’s why, even though English music contributes just 2-3% revenue to the Indian music industry, Sanyal has plans for it. “Out of the 800 million mobile phone users in India, barely 50 million will download international music in all probability,” he says. “But this, to me, is a sizeable enough mass to capitalise on.”

Now that 70-80% of revenues come from digital sales, all music companies have their own digital platforms — Hungama Mobile, for instance, takes care of T-Series’ digital distribution. Apart from this, companies are also venturing into new verticals such as live music, talent management, corporate anthems, web concerts, merchandising, licensing of music rights from their libraries, and even film production as an indirect route to procure affordable music rights. “This [diversification to other revenue models] is the most logical way forward,” says Vijay Lazarus, president, IMI, a trust representing recording industry distributors in India. “Physical sales cannot sustain the business and even digital media is yet to become a stable revenue stream.”

Changing tunes

The spate of radical thinking should gladden creative hearts though whether it will also make enough money remains to be seen. Universal recently launched another vertical to focus on creating corporate anthems — Flipkart’s was its first. “Not only are we going to create the anthem but we will also create the video and place it in the media,” says Universal’s Sanyal. “The anthem will play the role of an ad campaign for the brand.” Universal’s talent management arm will come in handy here as it has artistes such as Leslie Lewis, Apache Indian and Rabbi, all of whom may be roped in to create anthems.

Later this year, Universal will launch Bravado, its global merchandise business in India. Worldwide, Bravado is the largest music merchandise company representing more than 90% of all artists, living or dead — Lady Gaga, Rolling Stones, Metallica and Madonna among them. Though all the new verticals put together currently contribute less than 10% to the company’s overall revenues, Sanyal hopes to raise that figure to 50% by focusing on non-film labels like indie pop, regional and English rock music. Time will soon tell if that’s an over-ambitious estimate.

Sony, meanwhile, has launched Day 1, its global non-film music business, in India. Day 1 has developed concepts such as Zomba, a platform for urban hip-hop that, like Universal’s Contraband, gives new talent opportunities to perform by organising live concerts, and then monetises their music over different platforms. Folktronic, another property from Sony Music, blends Indian folk music with modern electronic sounds. Under this label, the company has signed up musicians like Swaroop Khan (finalist in Indian Idol’s fifth edition) and tabla maestro Bikram Ghosh. “We also monetise this vertical by doing ad jingles for brands and soundtracks for films,” says Shridhar Subramaniam, president, Sony Music Entertainment. Within six months of its launch, Sony’s non-film business already contributes close to 25% of its revenue and, also like Universal, it wants non-film verticals to bring in 50% of its revenue. “These are scalable businesses and we are growing the pie of the music industry by getting into sharply defined spaces,” says Subramaniam.

If music publishing is a $30-billion business worldwide, the Indian market finally has a taste of it. In September 2011, Sony Music launched Sony ATV, its international music publishing business with a vast bank of tunes, in India. Each time it licenses a tune from its bank to a user (say, a film producer or the maker of a jingle), the company makes money. Among the first few deals this arm struck was with Red Chillies Entertainment, producer of Ra.One, for the song Dil Dara, a take on Ben E King’s Stand By Me. “The tune was from the Sony ATV library, for which Red Chillies paid us a fee,” says Sony’s Subramaniam. “We also got a revenue share each time the song was downloaded.” An industry insider says Shah Rukh Khan would have paid anywhere in the region of Rs 20-30 lakh as licence fee for the song and Sony’s revenue share per download would be around 33% (downloading a song costs Rs 10-15). Saif Ali Khan has licensed the Boney M track Rasputin for his forthcoming Agent Vinod on a similar arrangement.

Hungama Digital Media’s Artists Aloud, on the other hand, encourages artistes to go to its site and publish their music independently. If the music appeals to Hungama, the company takes on the onus of distributing and monetising the music. And the RPG-owned Saregama, which already earns 70% of its revenue from its digital business, plans to strengthen its digital focus even further. Last year, the company got into a JV with Timbre Media, which owns rights to World Space Radio. Through this JV, the company began offering an internet radio service (10 channels at Rs 30 per channel) to Vodafone users last month — Saregama generates content for it. “Going forward, we hope to offer this service to other telcos also,” says Apurv Nagpal, MD, Saregama India.

A Bollywood potboiler

If they are trying to shore up revenues innovatively on one side, companies are also shying away from buying and monetising expensive music rights on the other. Unlike the golden pre-2002 years, when rights for the music of a film cost around Rs 6-7 lakh, they are sold in the range of Rs 8-10 crore today. Film producers know well that even if physical sales have dropped, there are several digital platforms that can pull in cash from catchy music. So, the cost of music rights keeps escalating.

“Earlier, we had physical sales to fall back on, so monetisation was faster and easier,” says Nagpal of Saregama, which has stayed away from buying rights of Bollywood films since 2005 and is instead focused on the cheaper regional market (Rs 7-8 lakh per film). “Also, the window is much shorter today. If your film doesn’t perform well in the first week, there is less chance for the music to do well later.”

Older music companies such as Venus and Tips have stopped buying music rights from film producers and studios but even they concede that Bollywood remains the way to go. They continue pursuing film production, as they have since the 1990s. “We don’t feel the need to invest in any other business as we understand the business of filmmaking and music the best,” says Ganesh Jain, director, Venus, which has produced 35 films so far. By producing their own films, companies also own the rights to their music. “This works in our favour as close to 30% of a film’s cost is music and we understand the music business well,” says Tips promoter Kunal Taurani.

Eventually, Lazarus predicts, older music companies will join the diversification bandwagon. “Once they see the pie growing, they will also feel the need to venture into newer territories,” he says.

Pitched too high?

Which is not to say the road ahead will be easy to negotiate because, although they are bandied about as the only way forward, digital platforms are not without drawbacks. “Only 5% of the music consumed worldwide on the digital platform is monetised,” says Lazarus. “The revenue generated worldwide from the digital medium is $7-8 billion, while the potential is $100 billion.” From a time when a consumer had to pay Rs 100-Rs 150 for a CD with not less than 10 tracks, he now pays not more than Rs 10-Rs 15 per song downloaded on a mobile platform or the internet. “The valuation comes down to 1/10th and, therefore, recovery is bound to take time,” adds Lazarus. Not to mention the problem of piracy.

Grand plans notwithstanding, whether revenues will really climb to the levels the founding fathers of the new verticals have in mind is entirely open to debate. Like all experiments, only time will tell how many will succeed and how well. Soumini Sridhara Paul, associate vice-president, Artists Aloud (an independent digital music platform owned by Hungama Digital Media), sums it up, “All music companies have to focus on what they are doing and do it for the long haul. Only then will it contribute a sizeable portion to their revenue.”


Switching Chords

Universal Music

  • Existing model: Present in the music label business — regional music, indie pop and international music

New ventures:

  • Contraband: Focuses on publishing of English music created by local, Indian bands
  • Corporate Anthems: Includes creation of music, making videos and distribution across platforms
  • Merchandising: Launching Universal’s Bravado range later this year

Sony Music

  • Existing model: Present in the music label business — Bollywood, regional music, indie pop and international music. Also manages music talent

New ventures:

  • Sony aTv: Music publishing
  • Day 1 Entertainment: Focuses on artiste development in non-film music through Zomba (hip-hop) and Folktronic (Indian folk with electronic music)

Saregama

  • Existing model: Present in the music label business — Bollywood, regional music and indie pop

New ventures:

  • Internet Radio: JV with Timbre Media to offer World Space radio service to Vodafone, content offered by Saregama
  • Film Production: Plans to look at film production as an independent vertical
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