Striking a discordant note

FREEZE FRAME

The recorded music industry worldwide has been caught in turbulence for the past few years. In fact, it is the only segment of the entertainment industry whose growth rate has fallen.

In India too the sound of music has been a bit jarring. This distortion amidst a booming economy and a flourishing sector is a classic twenty-first century dilemma.

The digital economy opens several new opportunities but it forecloses a few. One very obvious disruption by technology is the whole market flow of the music industry.

While it was almost certain that the rapid spread of the world wide web and its concomitant use of peer-to-peer and other file-sharing technologies would change the contours of the music business, what has surprised many is the speed and severity of the change.

While the global music business remained stagnant at around US$ 30 billion last year, India's music industry's turnover has seen a sharp decline from around Rs 800 crore to Rs 600 crore.

Of course, both these figures exclude almost an equivalent amount in the unaccounted market "� the result of piracy, counterfeit products and P2P.

Yet in spite of sales falling, the actual consumption of musical products has increased. More people in India and around the world are listening to music today, be it on hard media (MP3, CDs, cassettes, records) or on soft media (the radio, internet, TV).

The problem is that reach and penetration are not translating into revenue. The digital world is a much more democratic world the digital divide notwithstanding.

Sheer convenience overcomes all guilt in accessing intellectual property unfairly as long as the act does not entail any public display of the process.

The success of Napster, Kaaza and many such file sharing websites is based on this premise. Most people indulge in copyright theft even as they condemn it.

Once you are used to accessing content free it becomes very difficult to start paying for it, unless the price of the legitimate product appears reasonable and it is easily accessible to the consumer.

The music companies failed to realise this. There has been some consolidation in the industry but by and large the old 'analogue' distribution still dominates.

Till Apple figured out a business model in I-tunes, most efforts at creating workable P2P sites were disasters.

Now several subscription-based models for digital downloads are emerging. Varying technologies allow you limited or unlimited use of either a fixed number or any number of titles from a catalogue.

This appears to be a near-term solution in the more developed markets which have high PC penetration and better connectivity.

India is one of the few markets in the world where 70 per cent of the revenue comes from the sale of audiocassettes

Not only are piracy levels high but gross margins are low

The music industry's problems are further compounded by FM radio

However, India has more problems. It is one of the few markets in the world where 70 per cent of the revenue comes from the sale of audiocassettes. Not only are piracy levels high but gross margins are low too.

The problem is further compounded by the nascent FM radio. Suddenly, Indian music lovers are getting to hear a wide variety of music round the clock on affordable stereo systems or even low-priced FM radios.

With the number of FM stations expected to rise to a few hundred in the next few years, even a small broadcasting fee can be a substantial source of revenue for the music companies.

Similarly, a plethora of TV channels which broadcast songs 24x7 can be looked upon more as a revenue source than a threat. From telephone ring tones to piped music and live concerts "� many new business streams are emerging.

People can choose from a fair amount of free music. As a result, the number of paying customers is actually dropping in an otherwise expanding market.

Having said that, there still is enough opportunity provided the music industry is swift in its response to the changing paradigm and customer needs.

Traditional sales models will have to be dumped fast in favour of newer methods of digital distribution and airplay. Music companies with large catalogues can specially benefit from these.

In the past, whenever a major technology shift (shellac to vinyl discs, discs to cassettes, cassettes to CDs and now the P2P and digital downloads) happened, the music industry, particularly in India, has been slow in adopting the new technology.

Since a market does not support a vacuum, pirates and interlopers have taken large chunks of revenue away. Now with increasing digital connectivity and affordable devices, a huge opportunity stares music makers in the face. The key to all this is affordability.

We have seen in various product categories "� from mobile phones to shampoos (sachets) "� that the right pricing has led to an explosion in dormant demand in a huge market like India. Most of the time the music industry has priced itself out of a new opportunity.

Unlike any other market, the Indian music scene is dominated by film music. Except for the cyclical race to acquire the rights to top films, very little innovation has been done either by film producers or the music industry to push sales.

Creatively too, the industry has been on a downslide in the last few years, with not a single blockbuster of a song emerging. Except for remixes with bawdy videos, nothing has caught audience imagination.

Instead of constantly crying wolf, the music industry needs to adapt as fast as possible to technological change, spruce up its marketing and get the creative juices flowing. There's no reason the sound of music should not translate into money even in the digital age.

Amit Khanna is chairman of Reliance Entertainment. The views expressed are his own.