The last year saw some significant changes made in the Copyright Act with respect to Royalties etc. In what way and how much has the amendment to Copyright Act affected music companies?
The Copyright Act has been passed but the rules that tell you how exactly to administer the amendments made in the Copyright Act are yet to be passed and are likely to be passed any moment. So technically the Act is in place but it hasn't begun being fully implemented. Assuming things are implemented soon, I'll tell you what exactly is then likely to happen. A music company has 2 hats- one of a record company and the other of a publisher. So you have both the recording rights and publishing rights with one music company. However, what the new Act does is it clearly divides the recorded music and the underlying music. Typically what happens is if you are making Rs. 100, out of that Rs. 80 will go towards the recording side and Rs. 20 will go towards publishing side (within this Rs. 10 will go to the lyricist/composer and the balance Rs. 10 will stay with the publisher). What this new act does is that it has enshrined this 20% as a separate business and doesn't allow it to be merged with the recording business. It states that the 20% can't be held by the film producers and that the artists need to be rewarded accordingly. So basically it paves the way for the publishing rights to be monetized via societies. So effectively the revenues of music companies would shrink anywhere between 20 to 25% and that 25% would then get administered by a society of which half of it would go straight to the lyricist/composer. So net effect is that it would result in an overall shrinkage in the revenues that come to a music company's kitty.
In the last few years how has digital as a source of revenue grown for music companies?
At an industry level, digital contributes about 65% of total revenues and is growing at about 20% a year. That's what is driving the music business despite the decline in physical sales and pressures on the performance / broadcast side. The music industry is growing at about 18% a year and a large part of this growth is on account of the disproportionate growth in digital. Digital eco-system broadly constitutes of telecom based music services (via mobile operator networks), internet and devices. Till recently the telecom based music services were the largest contributors; all the operators put together used to sell approx. Rs. 6000 crores worth of ring back tones but that has also been declining at approx. 20 to 25% mainly because of Government coming down heavily on TRAI regulations. From a consumer's point of view, the changes in TRAI regulations that we witnessed last year will only help safeguard their interests because a lot of crazy practices were happening and this move is aimed towards some basic cleaning-up to protect consumer interest. This has in turn caused a massive reduction of almost 40% in the ring back tone business as we speak. But I think it's important for some cleaning up of this kind for the consumers to feel secure. If people are nervous about buying music on an operator network based music eco-system with the fear of being charged heavily, it's not a good sign. So this is a kind of a confidence building measure for the consumers. So basically yes there is a huge decline in the revenues but from the overall long-term perspective of the health of the industry, I think it's a good thing to happen. But on the positive side, in the last 18 months there has been a lot of growth with respect to the smart-phones market. People are no longer interested in buying plain feature phones but are looking at smart-phones. So the internet has become portable now and much more accessible moving from a desktop to a smart-phone or a pad. This has resulted in a growth in streaming services provided by sites like Gaana.com, Saavn, Dhingana.com etc. The total per week streams of all these guys put together is simply incredible- almost 150 to 200 million song streams a week which is an insane volume of transaction. So to answer your question, there is an operator based system which still exists, there is an internet based eco-system which is mainly your portable devices like smart-phones and pads etc and third is the OEM (Original Equipment Manufacturer) business where you have the likes of Nokia Store, Samsung Store etc. all of which contribute a major chunk to the overall digital business.
There are 3 things when it comes to acquiring music- either it comes to you for free through a device or you download it through pirate sites or you legitimately download from sites like iTunes. There is an ownership model, rental model and an ad-supported model which basically constitute 3 different economic business models of music. Gaana.com, Saavn etc are entirely ad supported models, you don't have to pay for it but there will be ad banners flashing around and every now and then you will hear an audio commercial which is a bit of an irritation but broadly the advertisers are paying for your music experience so you can't really complain. Then you have the rental model where you essentially pay a premium and hear it on a subscription basis just like you pay Tata Sky or Dish TV for your set-top box and choose your channels package. We don't yet have a rental model on the internet but it will come sooner than later. The third is e-commerce where you buy the song and the song is yours forever. iTunes is this model. There is also a fourth model which is the device model. For example – You buy a Nokia phone and know that the device is going to come loaded with a lot of content and services. For a digital company to be robust, all 4 models need to fire. This is because different consumers are comfortable with different things. The good news about Apple coming up with iTunes here is that you finally have reliable a-la-carte download model where you can go and buy that one 'Pitbull' song or a Barfi song for Rs 10 and be happy. We are seeing all of these models develop in India which is a good sign.
Has the emergence of so many different options to acquire music reduced the impact of piracy which has been plaguing the music industry for a while now?
No…its' not like that. If a guy wants it for free, there's nothing you can do. Technology is always going to put that power in the hands of a person to go and do whatever he wants to do. It applies not just for piracy but also for pornography, hate-mongering and all sorts of things which you can't stop. The problem of piracy is not going to go away. That is a decision that an individual and then a society have to collectively make. It may at times come from self-awareness and at times may be out of enforcement but it's an individual decision at the end of the day. But the good part is that in this large digital landscape, (however small percentage it may be) it's heartening to know that there are still people who want to pay and are ready to pay for good music. It's a social issue and not an industry issue.
You also spoke briefly about how the CRBT business is on a decline but there has been a growth in the full track downloads. Could you shed some more light on that?
Why do people own songs on their device? Indian consumers love anything free. For a free experience people may take to ad supported models but you don't own the music in that case. The sense of ownership is a prestige issue for many which is why people acquire music. People may not be paying to watch a video on YouTube but while doing so they are still consuming data and indirectly paying their ISP. So it's a hidden cost and many a times at the end of the month you get a bill shock and end up cutting back on your data plans. When it comes to full track downloads, the thought process is I'll pay Rs. 10 to own this track from Barfi but everytime I listen to it I am not paying mobile service operator a data charge so it works out cheaper for me. Even if I listen it for a month, it's gonna work out cheaper. Like I said before frankly speaking I don't consider CRBT as a music experience; it's more of a personalization service but it can never be the equivalent of experiencing a full track and understating the meaning of it. It's heartening to see that on the full track side there is a down load model developing with sites like iTunes etc entering the Indian market. As people get richer and their lifestyle improves, they look for better music experience, acquire good quality speakers and don't mind paying a reasonable amount for their favourite song / album to get an enhanced sound experience. At the end of the day, it's our job to make it easier and comfortable for the consumer to get such an experience.
Article written by staff at Bollywood Hungama. Read more