Music finds its beat

For a business that was almost comatose a decade ago, the action has been hectic. From 2020 to earlier this year, mergers and acquisitions in the music industry crossed $10 billion globally. In the last three years, musicians such as Neil Young, Shakira and Bob Dylan have sold their song catalogues to funds and publishers such as Hipgnosis, Royalty Exchange or Universal for 10-15 times their value. In 2019, the Indian arm of the Paris-based Believe bought out the catalogue and music arm of Venus Worldwide for a reported Rs 380 crore. Then late in 2021, it took a 76 per cent stake in South Indian Think Music for over Rs 1,000 crore. Around the same time Saregama, one of the largest music labels in India, raised Rs 750 crore. 

Look closely at what is happening to music and the past, present and future of the entire media and entertainment industry becomes evident. 

Music has always been the petri-dish of the media business. It needs very little data and therefore bandwidth to carry a music file from one part of the world to another. This then made it among the first businesses to get disrupted due to the internet. Not surprisingly, then, it has been among the first to bounce back too.

MP3, a technology to compress music, took off in the late 90s. As young people formed peer-to-peer networks for sharing songs ripped from CDs, the music business collapsed. From $23.4 billion in global revenues in 2001, it fell to $14.7 billion by 2011. Soon iTunes (2001), YouTube (2005) and, from 2006, music streaming apps such as Spotify democratised access for both creators and listeners. This changed the economics of the business. “Earlier if you or I bought an album it didn’t matter how often we used it. If one album had 10 tracks and you heard one track more than others, you would still pay the same. On the other hand, payment and returns come over time from streaming; it is about smaller amounts over longer time,” says Simon Dyson, practice leader, music, UK-based Omdia.

Whether it was iTunes, which charges for every song you download or Spotify that charges a subscription fee, the internet made it possible to track when, where and how many times a song was played. This helped capture and monetise all consumption. Globally revenues started rising again in 2016 to just about $22 billion currently. 

Back home, more than 192 million Indians tune into one of the 15 major streaming music apps going by Comscore data for November 2021. The biggest of these — YouTube, Jio Saavn, Gaana — are advertising led. Just about 2 million Indians subscribe to a music app. The world’s largest YouTube channel, T-Series, is an Indian music company. Short video apps like Josh or Moj license millions of songs and have created a new revenue stream. 
 

All the action notwithstanding, the Indian music business remains tiny. At Rs 1,800 crore in revenue, it is about 10 per cent of films or 2 per cent of television broadcasting. One big reason is that it is terribly under monetised. Every time a song is played, a label earns anywhere between 4 and 10 paise against an estimated 50-90 paise globally. The average music label in India has 60,000-70,000 songs. So no matter how many million times a song is played, the 4 paise doesn’t amount to much. Not surprisingly, almost every one of the biggies from Airtel’s Wynk to Times Internet’s Gaana is swerving towards subscription. They are raising money to invest in the AI (artificial intelligence) and backend needed to convert a healthy proportion of free listeners to paid ones. Sounds familiar?

This swerve began in publishing after the first wave of the pandemic. In video it began earlier. Some of the biggest global successes in video are subscription-led services such as Netflix or Hulu. In India, a country with some of the lowest cable TV rates in the world, there are now 102 million OTT subscribers. 

Though the push for subscription in music has begun, advertising will remain the funnel to get people to try a service. All the capital being raised will come in use to convert them to pay. Eventually though the balance should shift to pay, a la TV where the pay to ad ratio is 70:30 globally. In the Indian market, the proportion of advertising is bound to remain large given the huge numbers. There are currently 468 million Indians using some form of online entertainment and news. These are the number of walk-ins possible if the service is free. It explains why India is one of the few countries where Spotify, the world’s largest pay-driven music app, offers a free, ad-supported service too. A healthy balance of ad to pay will ensure that video, music or news firms continue to tap into the huge numbers that India offers and yet improve per unit monetisation. 

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