With the merger of Saavn & Reliance Jio, music streaming hits a high note

It is a hyper-competitive market, with over half a dozen over-the-top (OTT) music players (online music streaming services) battling it out for a share of the sub Rs 1 billion market. But it is attracting the big global boys like Amazon, Google and Apple and telcos like Bharti Airtel and Reliance Jio, besides online companies like Times Internet, a part the Bennet and Coleman group.

Last week, Reliance Industries took everyone by surprise, when it announced that it was combining its OTT platform Jio Music with Saavn, a global music and audio streaming service, creating a new entity valued at a staggering $1 billion. And it said that the implied value in the deal for its own music app was $670 million, and it would have an 80 per cent stake in the merged entity. The Mukesh Ambani-led company has also decided to invest $100 million in the platform to make it one of the largest streaming services in the world.

Competitors, however, say that the deal is over-valued as Jio’s revenues are not even a fraction of that of Saavn. Also, competitor Times Internet’s Gaana is valued much lower at $360 million (based on the latest round of funding) despite claiming to have over 60 million active customers and being the biggest music OTT player in the country. Competitors say that the valuation has been based on the number of installed base of Jio customers (100 million on Playstore) who use its 4G services and download the app but do not truly reflect active users of the music streaming service.  But sources close to Jio say that the valuation is based on the active users of both the platforms apart from their usage in minutes.

So why is there so much action in the music streaming business? One reason is that currently there are over 100 million active subscribers a month on music OTT platforms and this number is expected to increase three-fold, according to a Ficci-EY report, to 273 million by 2020. And during the same period, the penetration of paid subscribers is projected to hit 5 per cent, from 1 per cent currently.

So the name of the game in this market is to invest money to grab more customers, followed by pushing up minutes of usage. The third is to retain subscribers by offering them innovative content. Of course, while the first signs of monetising the business is discernable, the battle has just got tougher with new players like Google and Amazon music joining the party, leveraging their large installed customers base.

Yet there is no doubt that the deal with Saavn will catapult Reliance to the top of the heap in the OTT market. That is because Saavn will bring in 25 million new active customers per month, and with JioMusic’s active customer base of 35-50 million, according to analyst estimates (JIO does not share numbers), it will be close, if not ahead, of Gaana. Yet, no one knows how many customers use more than one music OTT platform.

Looking at it only from the number of downloads, say, on Playstore, Jio and Saavn together hit 100 million, ahead of Wynk Music (which is part of Bharti Airtel) and Gaana at 50 million each (this does not include downloads on other operating systems).

The merged entity, unlike its competitors, will follow a dual strategy for music streaming — an OTT app which will be telecom service agnostic and a special offering for Jio customers which will provide some exclusive music and programing.

Jio, of course, could cash in on its over 160 million 4G customers who still do not use the music app. It also looks to grab 400 million new customers, a large part of whom would be migrating from 2G services. For them, music would be a compelling offer to tap into the data world.

The merger will also help the new entity expand its music library (together they have 50 million songs) to include a large collection of English songs where Jio was not strong.

But the deal is not only about expanding the subscriber base. Sources close to the company say that what Saavn founders — Rishi Malhotra, Vinodh Bhat and Paramdeep Singh who started the streaming service in the US in 2006 — bring is an in-depth understanding of the music business as well as technology. “The winners in this business will be those who will be able to use technology to understand and offer what the customer wants to listen,” says the source. That is why the founders will continue to run the company, with RIL only overseeing on the board.

Current players in the industry agree that with a data revolution underway, streaming music is poised for a huge take off. Wynk Music CEO Sameer Batra says: “With data prices falling, usage going up manifold and increase in smartphone devices, what we are seeing is a huge growth in music OTT platform.”

He has a point. Data prices have fallen over 95 per cent in the last 18 months and, as a result, data usage in the country has gone up tenfold. And with 4G device prices falling, 130 million new customers are expected to jump on the data bandwagon in the next12 months.

So does this give telcos an edge over independent music OTT companies as they can tap into their own subscriber base? Prashan Agarwal, CEO of Gaana, which is part of Times Internet, says the crucial factor would be products and not so much the captive installed base in winning over users. After all, the music library is more or less common to most players as labels sell it to everyone.  Agarwal says: “This business is all about product differentiation, it is about curation of music and customising content. Even we as part of Times Internet have an installed customer base but that does not make a difference.” Gaana, for instance, is working on numerous innovations — such as an autoQ through which it will be able to line up 15 songs relevant to a customer by understanding his music choices.

OTT players are also looking at ways to create differentiation in their music offering. Currently, over 60 per cent of the music in Hindi cinema but the appeal of English and regional music is growing. Companies are also innovating. Last year, Saavn introduced Artist Originals, releasing and marketing tracks and albums by South Asian artists directly. Gaana is pushing non-film music, an area where it thinks there is little on offer, by supporting music companies and offering them its large digital distribution platform. And Wynk is sharing data with musicians through its artificial intelligence for it to understand how its product has been received in various parts of the country.

But will the business make money? After all, the Rs 14-billion music business gets over 65 per cent of its revenues from digital platforms and a substantial sum comes from OTT players buying music even though they mostly do not charge for it. Some attempts are already being made in this effort. Wynk Music, for instance, is offering ads free music platform for Rs499 a month, but a subscription is a negligible portion of the revenues. Gaana says that it will pursue both subscriptions as well as ad-based models, but agrees that both are in their infancy.  

Bundled offerings is another way to monetise the investments. But it might be at least another two years say experts that OTT players make money. Till then, it is music for the ears of users.