The industry estimates approximately 15 crores of legitimate unit sales of music cassettes and cds in the past year, with an average realization of Rs.40-45. This brings the size of the industry to about Rs.670 crores (USD 149 million) . Over this , the share of royalties earned by the music companies need to be added, the estimates of which were not available, and hence have not been included.

Digital distribution along with the other growth drivers as detailed above will drive the industry in the next five years. Piracy will continue to hamper the growth of the industry, though measures from the Indian music industry will help curb some of this. On a conservative basis, the music industry has been pegged to grow at 3% over the next five years and is expected to touch Rs.777 crores by 2009.

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Music - The times they are changin'

The Indian music industry is over a century old. However, the past few years have been a dismayed for the industry. It has shrunk to INR 10 billion from INR 13.5 billion in the last four years, as the onslaught of piracy, the high cost of acquisition of film music and the low priority accorded to the sectoral issues by the authorities have somewhat upset its business viability.

The situation in India is not unique. Globally the music industry has been in recession for about four years and is now making a slow recovery. A series of revenue enhancing the cost cutting measures have been undertaken by global music majors, which are expected to bring about a turn around soon.

In India, the pattern of music consumption and distribution has shifted radically in recent times. Music buying has reduced and despite the popularity of the new Hindi films, which make up for 40 percent of total music sales, the number of units being sold is falling. On the other hand, piracy has ensured that the average retail price of music cassettes remains stagnant over the years, while that of CDs fall. This has led to a spiraling decline in revenues, since such falling prices have not been compensated through rising volumes.

Over the last few years, the industry also witnessed the rapid rise of remixes, or cover versions and music videos of original sound track, which have attained mass popularity and received more air play than originals, on television and on FM radio, but did not significantly increase the sales of the original music companies. Future growth is likely to come from non-physical formats like digital downloads, royalty income and ringtones, among others. The Indian music industry needs to adapt to this swing in audience preferences by leveraging appropriate technology in a facilitating regulatory environment. Going forward, the industry will need to focus on controlling its distribution and manufacturing costs. This is likely to enhance the industries bottom line and result in more capital being freed for investment in technology and infrastructure.

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A unique industry structure

The Indian music industry has a unique structure compared to most global markets. Till 1990, it was completely dominated by film and devotional music. With the advent of satellite television and increasing consumer exposure to non-film albums and remixes have gained popularity recently. In the non-film category devotional music produced by smaller and local companies is the most popular. A few late entrants to this category have decided to stay away from the vagaries of film music and have focused on high end classical devotional and other niche genres instead.

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Composition of revenues

Currently the music industry derives annual revenues of INR 10.2 billion, of which music sales contributes around 92% and the non physical formats contribute the balance. Ringtones now contribute around 5% and royalty revenues 2.5%. It appears that the negative trend in revenues seen in the earlier years has been reversed. Sales in 2004 have increased at a very modest 1.2% vis-à-vis a 4% decline in 2003 and 14.5%drop in2002, while the bottom lines have significantly improved.

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Recovery and growth

From a perspective of pure financial returns and looking at other alternatives and more attractive avenues available to the entertainment sector the music industry will need to completely reinvent its business models in order to attract significant investments. In the future it is hoped that the film and the music industries will work co laboratory aided by digital infrastructure, affective distribution formats and a more conducive and effective regulatory regime , to combat piracy and get the listener back into the buying mode.

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Film Industry as a partner

The Indian music industry is quite unique compared to those in other countries as it is virtually dependent on new Hindi films for the lion’s share (40%) of its revenues.

The film industry needs to look at the music industry as partners rather than buyers-the current risk reward distribution among them is lop-sided and needs to be more equitable.

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The FM Factor

It is believed among certain sectors of the music industry that the proliferation of FM radio stations across the country has led to a decline in the sale of audio cassettes and CDs. Globally, FM stations help promote albums and labels by playing their songs. However in India FM is considered more as a threat than a promotional medium for the music industry, the reason once again being the unique genre preference of the Indian listener, which is heavily skewed towards new film music.

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Conclusion

The Indian music industry needs to undertake several strategic shifts going forward in order to retain its lost glory. It needs to revamp its operating model with support from key stakeholders and evolve new revenue streams for various delivery platforms.

The last decade saw a spurt in the number of players who were attracted by the profits seen during the boom years. The next few years could see a consolidation and shake out. The corporatisation in the film industry would have a beneficial effect on the music industry, as they jointly move towards a more equitable revenue and risk-sharing model.

Music is a creative industry which needs support in trying times. How willingly and effectively the various stakeholders come together to adopt a partnering approach will determine the pace at which the industry reinvents itself to stay competitive.

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Strategic trust on marketing non-film music

Music is not a necessary item on the consumer’s shopping list. In the film centric in the Indian Music industry, there is virtually no loyalty for the label among the segment that buys only film music. However, the marketing models developed by FMCG companies to launch and sell lifestyle and companies to boost the sale of non-film albums can implement aspirational products. This is possible by developing brands and charging premium prices once brand loyalty is built among the target audience. Once a strong brand recall is created through successful marketing of non film albums the same can be extended to film albums to create a differentiating factor over competing pirated products.

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Online marketing

With the increasing PC penetration, the internet is expected to become a significant influencer in the purchase of music. Online sales involve lower distribution costs and eliminate the retail margin of 15-20%. Part of these savings can be utilized for innovative net marketing that offers consumer’s detailed information and reviews, and also the flexibility of customized and unbundled offerings.