In a country as obsessed with music as India, it comes as no surprise that companies are lining up to tap the 140-million-strong smartphone network and find ways to serve audiophiles across the country. Music streaming apps have become a rage not just abroad, but in India as well. Allowing users to browse a plethora of songs across genres and languages, music streaming apps have become the Next Big Thing in music, with even musicians joining the fray. Rapper Jay Z has launched his own service Tidal, while Apple recently launched its music streaming service by revamping Beats, the company it acquired from hip-hop mogul Dr Dre. The likes of Spotify and Pandora have been inaccessible to Indian citizens so far, and local companies have used that as an opportunity to introduce us to a new way of enjoying our tunes on the go.
The media and entertainment survey for 2015 conducted by FICCI and KPMG claims that about 55% of the revenue in the music industry comes from the digital end of the rope (see: Dancing to a new tune). According to the International Federation of the Phonographic Industry, 14 digital music services already operate in India, though many of them, like the iTunes store from Apple, primarily sell downloads. India generated just $113 million in wholesale music revenue in 2013, making it the 19th-biggest market in the world, the London-based trade group said; the biggest market — the US — had a revenue of $4.5 billion in comparison. The report also added that mobile music service adoption in India has touched 47%. Most streaming apps across the world follow the same model.
There are two models available for users to choose from – a ‘freemium’ (or ad-funded) model and a subscription-based model. While India is mostly restricted to the former, it is interesting to see that there are takers for the subscription-based model. All revenue earned goes directly to the labels that the services associate with and the share for revenue varies from label to label. This could either be in the form of a license fee per stream (pay per listen) or on a revenue-sharing basis with the streaming service and the content owner, or a mix of both. In some cases, this could result in the content owners earning up to 70%.
Mahesh Narayanan, COO, Saavn Media, refuses to call the freemium model as a free model. “I won’t call it a free model, as someone or the other ends up paying for it. With the free model, the advertisers are the ones paying for ad space to associate with our music content. It’s never technically free. A move towards the pro (paid) model in India will need a behavioural shift. We are hoping that consumers will eventually see the benefits and make the shift to the pro model,” he says. Saavn Pro, as compared with the more popular ad-funded model, promises the user better quality music and the ability to save their favourite songs so that they can be heard offline. The service is currently charged at around ₹255 per month ($3.99) for global users, where the app can be accessed across five devices and the user is allowed unlimited downloads. There is also Saavn Lite which, exclusively for India, is priced at ₹120 per month, and can be used on any one device. In addition, Saavn has also tied up with Airtel and Vodafone in India to allow services on a per day, per week and per month basis, starting from ₹5.
These claims, however, haven’t convinced too many of the 13 million Saavn users to change their tune and subscribe to the Pro model, despite a catalogue of over 2 million songs and counting. And the company knows what a tiny number of conversions it has managed. Gaana’s business head, Pawan Agarwal, knows that the percentage of paying customers is small for his company as well, but believes that there is no option but to build on those numbers. The Gaana+ model, priced at ₹99 per month and ₹199 per year doesn’t pay off as much as he’d wish it would, at the moment. Says Agarwal, “At the moment, we have 90% of our users using the freemium model. If we change the radio experience, as in the case of products like Pandora, to the streaming experience, we might be able to grow the industry for sure. It will depend on price experimentation and the consumer’s need to pay. Dependence on a 90% freemium model won’t be viable for long.”
Making money rain
Despite the challenges, Agarwal gives a rather optimistic estimate as far as subscription revenues are concerned. He believes that the entire industry itself will be able to rake in ₹1,500 crore-₹2,000 crore from subscription alone in another five years. “Digital music streaming being a new medium, we’ve been focused on evangelising the medium, getting people to download and experience the service. Currently, a majority of our user base is from the ad-funded model. As we scale and the category grows, we expect the paid subscription revenues to grow as well.”
When you ask Hungama CEO Siddhartha Roy about music streaming apps, he is pretty sure they had the idea first. Hungama began streaming music in 2011, as data networks were not strong enough when the company first had the idea back in 2009. There has been an average of 90 minutes of consumption per user on the app as of February 2015. But the difference between the others and Hungama’s model is that its subscription-based service can either be billed along with phone bills or be paid off by credit card.
Roy explains, “Every form of billing needs to be brought in. Products such as Netflix and Spotify grew in markets that had a huge number of credit card transactions – they moved smoothly from the physical to the digital realm. The challenge in our case will be building a customer base. We want to allow a seamless payment service to get people in.” Hungama’s model costs the user ₹110 per month on Android devices and ₹120 per month on iOS devices. But despite all its thoughtfulness, Hungama gets about 93% of its 4 million app users through the ad-funded model.
In an extremely competitive space, Hungama is trying to differentiate itself with its app, having the advantage of allowing video streaming. Roy adds, “We are trying to entice Indian users with the audio-visual model. We will work on AV services and get customers to sample both using all forms of payment.” However, the problem with such platforms is that everybody loves a freebie. Even platforms such as Spotify (which recorded $1.3 billion in revenue in 2014) had an net loss of $197 million. Jay Z’s Tidal has acquired 777,000 subscribers as of April 2015 because of its subscription-only model, built in the name of paying artists better. So, there isn’t much enthusiasm to go around on Indian shores.
Beating the competition
But local players are definitely not afraid of overseas rivals. Says Roy, “International players such as iTunes may come and go, but they cater to a niche market. For someone to penetrate the Indian market, they would need the insights that homegrown companies have. India is a market to reckon with.” Agarwal agrees, “We have been growing at about 20% per month, and that’s not slowing down. We are continuing with strong investments in product and technology, increased local curation with our playlists, a growing local and regional catalogue and aggressive marketing and distribution to make sure that we continue to be the most remembered product.” With 10 million songs already available on Gaana, he adds that the company is in the middle of fundraising to back these efforts.
Pankaj Makkar, MD, Bertelsmann India Investments(an investor in Saavn), says, “Spotify has only around 20% conversion to the paid model. Since India doesn’t have such numbers, it will be a combination of ad-funded and premium models that will push the product through. I don’t worry about Saavn as a free product. I don’t think we need to cross over to pro 100% to do good business. We will see how the market evolves and continue building on the product.” Saavn has, so far, refused to divulge any information about revenue.
The success of these companies in a country that loves freebies will also depend upon the status of data networks available to consumers. Narayanan says, “Users need data or WiFi to use our platform. Is there a way we can ease their data bills or make the experience more seamless? We work with carriers such as DoCoMo and T-Mobile to help them stream more effectively and without running up a huge bill by the end of the month.” Roy adds, “We are trying to show telcos that we are part of the same ecosystem. We have co-created revenue and value for these companies.
Even if the consumer is ready to pay for the services, we are not able to deliver the sort of quality we want to as our services depend on good bandwidth.” Agarwal, however, doesn’t look at data networks as a problem. In fact, he has a different approach. “Our users will find one way or the other to connect — many connect using WiFi. Also, instead of streaming all the time, you can download the songs when connected and listen to them whenever you want. It is a more attractive choice as it saves on data costs. Revenue will improve as people’s dependence changes to this.”
Neeraj Kalyan, president, T-Series, sees data bundling as a natural progression. He says, “While there has been no growth in digital sales for us as this is just a transition from one medium to another, we need to realise that on the internet, things will not always be available for free. Data bundling is not new.”
In fact, Airtel has come up with its own music streaming service, Wynk, based on a similar model. The music industry is also happy to have these apps around, for now. With piracy being the biggest challenge to all forms of legal sales of music, these apps provide a legal platform for fans who are looking for cheaper and more accessible ways to listen to music. Says Narayanan,
“Most Indians have music in some or the other form on their phones. Invariably, it turns out to be pirated music. With around 50 million people pirating music, we see an overlap between smartphone users and those who are pirating music. Music connects people and we are looking to get them to access that through digital streaming.”
With a laugh, he adds, “It’s like moving from paranthas to muesli as breakfast food. Kellogg’s had to do that when they moved to India and it has worked. So, there is hope for us.”
Music labels such as T-Series have given up their entire catalogues to these platforms to be able to make their content legally accessible to listeners. Kalyan says, “It has got tremendous reach and it is how music is proliferating all over. With the internet and the growth of smartphones in India, it works well for us. People were used to getting the music downloaded from pirated sites. Hacking was also an issue. With the apps and availability of music, it has helped fight piracy up to an extent.”Makkar of Bertelsmann India — which also owns music label BMG — says that the label might actually use Saavn as a platform to make a comeback in the Indian market by using its reach to launch its music catalogue here.
Struggling to breathe
While the larger labels are quite pleased with the idea of having a wider reach and reducing the risk of piracy to an extent, independent artists don’t have much to say about streaming services. Vijay Nair, founder, Only Much Louder, which also manages artists says, “Be it an independent artist or a label, the revenue sharing system for streaming services doesn’t ensure that the model works for artists, as they are paid probably 0.02 paisa per listen. If we can eliminate the aggregator and make sure that artists get money for their work directly, it will help them much more. Streaming sites are great for outreach as part of a marketing plan. But we use commercial shows and gigs to earn money. We have seen that that works better for independent artists right now.”
Nair also believes that offering better quality music does not guarantee that more listeners will opt for a subscription model. He explains, “People who want better quality music will find their solutions, through technological advancements such as better headphones, HD music and better quality recordings and the likes.”
Karthik Srinivasan, music blogger and national lead, Social@Ogilvy, adds, “Any solution that lets independent artists share their own music is highly viable for them; for example, sites such as YouTube, SoundCloud, SongDew and Bandamp, where artists can stream and also sell their music. This is a better option than their music not having an opportunity to be heard at all. Apart from that, commercial viability is more about discoverability than streaming as a technology per se. Independent artists without the backing of a label with managers need to depend entirely on word-of-mouth, an unpredictable factor to be discovered.” He adds, “The Indian market is notorious for ignoring quality of content delivery. Most free streaming sites’ quality is pretty average, and less said about pirated sites the better. But given that it’s free, many Indians flock to those content pieces because they feature the latest content. The quality parameter may not work in India, or may work with a very tiny segment, similar to the way vinyls are working.”
For now, as long as we believe we can stream on the go, we will keep resorting to the idea that we are entitled to the joys of free music. The lure of better quality and unlimited downloads is something Indian listeners are still wary of. Spotify has 60 million users, of which about 12 million pay. That kind of scale has been possible after being present across several countries, and it could be an uphill task for Indian players to get anywhere near that scale or raise that kind of money. Not to forget that the music streaming business is extremely competitive. After Airtel tasting success with Wynk, more telecom operators are likely to follow suit.
More international players are looking to come to India and the space is becoming increasingly competitive. While streaming apps are changing the way people listen to music today, their survival hinges on their ability to make the freeloaders pay, and that is going to be a huge challenge for an industry that might not have access to the deep pockets that its western counterparts have at their disposal. As Kalyan adds matter-of-factly, “Music is not for free and people have to understand that. How long can people enjoy music for free?”