Hitting the right notes: Indian music biz finally getting its act together

A push for subscription and a search for capital indicate that the Indian music business is finally getting its act together

Gaana, one of India’s largest music streaming apps, is free-to-hear. Last year, it got over 80 per cent of its (unknown) revenue from advertising. It is, however, far from making profits, says CEO Sandeep Lodha. “You can’t build a business on free. Our number one strategy for growth is subscription. We have been running pilots (at Rs 99 per month). Over the next two-three years the advertising to subscription ratio should be 60:40,” says he.

Adarsh Nair, CEO, Airtel Digital, and the man running Wynk, among India’s top five music OTTs, agrees. “There’s nothing wrong in an ad-funded business. The problem is when you apply it to premium content. No amount of advertising will help recover the cost of content. At the root of Wynk is the idea of building a subscription-driven business, which has 30-40 per cent margins.”

Of the 834 million Indians online, over 192 million are now tuned into some or the other streaming music app, according to Comscore data (see table). That is up from 130 million just two years ago. “Music consumption has shot through the roof,” says Rakesh Nigam, CEO, Indian Performing Right Society, which licenses and collects royalties on behalf of lyricists and composers. Almost 70 per cent of the Rs 1,800 crore music revenues come from streaming. Almost all of it is from advertising. Every time a song is streamed a label or the rights owner gets anywhere from 4 and10 paise per play against an estimated 50-90 paise globally. That clearly doesn’t amount to much in a business awash with hundreds of labels with a few thousand songs each. Five years after streaming took off, music remains at less than half of radio or 10 per cent of films in revenue size. “The business remains small because it is free,” says Lodha.

A sharp swerve to subscription is the first reaction to the growth and challenges that streaming has brought. The second is the fund-raising and deal-making in a business that, till recently, was rendered comatose by the internet. “M&A (mergers and acquisitions) activity crossed the $10-billion mark globally,” points out Blaise Fernandes, president and CEO, Indian Music Industry. In the last four years, David Crosby, Bob Dylan and Neil Young among others have sold their catalogues to music funds such as Hipgnosis, Royalty Exchange or Shamrock Capital at 10-15 times their value.

Back home, the Indian arm of Paris-based Believe bought out the catalogue and music arm of Venus Worldwide for a reported Rs 380 crore in 2019. Late in 2021, it took a 76 per cent stake in South-based Think Mus­ic for over Rs 1,000 crore. Around the same time, Saregama raised Rs 750 crore for news mu­sic acquisition and tech among others. Vikram Mehra, managing director, Sarega­ma, says, “We can monetise it (music) better now.”

The house that streaming built When MP3, a technology to compress music, took off in the late nineties the resulting file sharing and CD ripping almost destroyed it. From $23.4 billion in 2001, global music industry revenues fell to a low of $14.7 billion in 2011. It started rising again in 2016 to just about $22 billion now. iTunes (2001), You­Tu­be (2005) and from 2006 onwards the re­gular launch of music streaming apps such as Spotify changed the business. It re­duced piracy, brought transparency and aided the discovery of new music. “Streaming has been the silent saviour of the industry,” says Vi­vek Raina, managing director, Believe India.

With over two billion users Google’s YouTube is the world’s largest streaming brand across music and video, making a bulk of its $20 billion in revenue from advertising. In 2020, it paid out over $4 billion to the music industry globally. However, it is YouTube Music, with over 50 million paying subscribers across the world, that it is most interested in talking about. That is not surprising. Free platforms do very well on numbers but the subscription-driven ones do better on engagement. The average Spotify listener spends almost 15 times more time on the app than the average Gaana listener, going by Comscore data (see table).

The margins are better, too. The global norm is that streaming firms keep 30 per cent of subscription revenues. “Of the rem­aining 70 per cent, 10 per cent or so goes to publishers (of music), 53 per cent to recordi­ng firms, which pay artists,” says Simon Dy­son, practice leader, music, UK-based Om­dia. That is why subscription is attractive.

Currently, only two million Indian listeners subscribe to a music app. Compare that to video apps, which have over 100 million subscribers. Just like in video, in music too advertising-supported free content is important for walk-ins, which is all of those 192 million. To convert them to paid subscribers, “analytics is critical”, says Nair. However, it is the rare firm that manages to get the combination of tech, artificial intelligence, algorithms, moods and music right.

Spotify, the world’s largest subscription-driven music service, has almost 400 million users and about €8 billion in revenue. Akshat Harbola, head of market operations, Spotify India, takes us through the three things that Spotify has contributed to. “One, the playlist as the central way of consuming music. Two, the emergence of artist-driven music. Three, the mainstreaming of podcast. We have to keep experimenting to get people behind pay,” he says. That and the ability to take losses. Spotify only started making money in 2019, almost 14 years after its launch in 2006. That is where all the capital Indian firms are raising will come handy.

The other thing that will give subscription a leg-up is the changes the pandemic brought. “There is a continued democratis­ation of music. We find that a lot of indepen­dent artists are finding fame and fortune,” says Pawan Agarwal, director, music partnerships, India and South Asia, YouTube. He points to Emiway Bantai, an Indian rapper who now has 17 million subscribers, and to the rise of languages such as Bhojpuri, Haryanvi, Telugu and Tamil online.

“In mature markets, 25-30 per cent of the population (of listeners) subscribe. In others, it is 10 per cent. In India, it is less than one per cent. Eventually it (subscription) grows very fast. We are on the same trajectory as other global markets. The upside curve may be delayed to 2024,” thinks Raina. Amen to that.