While most economic pundits talk about the ongoing global recession, one market that appears immune to the trend is the Foreign Direct Investment (FDI) in the media and entertainment sector in India, more specifically the music industry, wherein foreign companies–such as Believe Digital, Spotify, Apple Music, YouTube Music, Amazon Music, and ByteDance’s Tik Tok, among others–appear to have gone ballistic in investing in the burgeoning Indian recorded business to take advantage of the changing business environment within the country.
For instance, in only referencing streaming services–as part of the larger music industry–according to Digital Music Study 2019, streaming revenues for recorded industry in India, in 2018, were USD 109 million, of which paid subscription income was almost 39%. These revenues have grown 47.3% CAGR [compound annual growth rate] on average over the last three years and, effectively, are defining the potential market growth as we enter into a new decade. Other upsides of these investments are showcased through a clear-cut focus on new or original content, rediscovering lesser-known genres, initiatives to focus on non-film and independent music, and in the enhanced consumption of regional music and, with it, the breeding of state-wise musical stars who are going pan-India.
While Music Plus has scheduled a comprehensive article focusing on foreign investment in the music industry, as a precursor, the Indian Music Industry [IMI] President & CEO, Blaise J Fernandes, took time out from his manic schedule to share his viewpoints on the subject.
Extracts from an interview with Parag Kamani –
Why are foreign companies making an investment in the Indian music industry?
The market conditions are very conducive despite regulatory headwinds, which we hope will go away and that would be the trigger for a fresh round of investments. Conducive market conditions such as-
a. Per Digital Music Study 2019, India has the highest music fandom base in the world with 80% of surveyed respondents in India who recognise themselves as music lovers or fanatics as compared to the global average of 54%.
b. Favourable digital developments and ecosystem such as-
i. Low cost of mobile data in India, which on an average cost is INR 18.5/ USD 0.26 per 1GB data (Global average: INR 600/ USD 8.53).
ii. Availability of cheap smartphones, which on an average cost USD 159 (INR 11,263) for an android smartphone in India.
iii. The Digital India Initiative- Bharat Broadband Network Project is the world’s largest connectivity scheme through optic fibres to cover 2.5 lakh Gram Panchayats (GPs).
o No. of Wi-Fi Users: 11,92,041
o Wi-Fi installed in GPs: 44,786
o Wi-Fi operational in GPs: 16,151 GPs
iv. Second largest base (after China’s 800 million+ users) of Monthly Active Internet Users with 451 million users according to the India Internet 2019 Report by IAMAI & Nielsen Holdings.
v. Increasing smartphone penetration with 468 million smartphone users in 2017, which is projected to increase to 859 million by 2022.
vi. Increasing internet penetration in Tier II and III cities. As per a Red Seer (a management consulting firm) report, it is estimated that there will be an additional 320 million internet users likely to take to the internet by 2023, with these users coming from Tier II and III cities.
c. Due to the access provided by music streaming services and given that 90% of surveyed respondents, as per Digital Music Study 2019, used audio streaming to consume music, content is more likely to traverse geographic boundaries and therefore, attract listenership, making it favourable for investments in the music ecosystem in India.
Who are these companies?
Stakeholders in the music industry ecosystem such as record labels; digital distributors example BELIEVE DIGITAL; streaming services GAANA, SAAVN, SPOTIFY, APPLE MUSIC, YOUTUBE MUSIC, WYNK, HUNGAMA; music tech companies example BMAT and BEATDAPP; and tech companies with media interests example, AMAZON and TIKTOK are key investors in India’s music ecosystem.
International record labels such as Sony Music and Universal are investing in India’s music industry, with the former investing heavily on Bollywood and regional music while Universal Music Group invests heavily in Indian non-film music through their VYRL & MASS APPEAL brands. Digital distributors like Believe Digital, a French start-up, has invested in local companies in India viz. Canvas Talent, Entco Music, etc.
Tencent, which invested USD 115 million in Gaana, and short-video content services like TikTok through its parent company- ByteDance invested USD 100 million in 2018, and planned to invest USD 1 billion in 2019 are instances of tech companies investing in India because of a vibrant recorded music economy and ecosystem.
How much have they invested up to end-2019–individually and combined?
It is difficult to put an exact number, but the music ecosystem has been investment and employment positive in the past 5 years. Please also keep in mind in domestic investments from local players such as Saregama, Zee, Tips, T-Series and Aditya as well as FDI from Sony Music Group, Universal Music Group, Believe Digital, Spotify, Apple Music, and Google Music.
How much do you believe they will invest in 2020? Thereafter?
The dice have been rolled and the players are on the high tables. It takes two to tango. The government will now have to play its part. Going forward, investments in the music industry in India will depend on a number of factors such as-
a. The government’s policy-making: ranging from removal of statutory licensing, unambiguous terms and clear definitions in rules and acts, lower piracy rates through legislation and enforcement measures, recognition of PPL (Phonographic Performance Limited) and support for societies in terms of penetration (non- royalty payments from establishments are also a form of copyright infringement).
b. The economy: consumer spending on media services (including music streaming platforms), i.e., the growth of the paid subscription economy in India, public performance licensing rights penetration, synchronisation opportunities, etc.
i. Consider the following paid subscription scenario:
According to Digital Music Study 2019, streaming revenues for recorded industry in India as of CY18 were USD 109 million of which paid subscription income was USD 42.32 million. These revenues have grown 47.3% CAGR on average over the last 3 years–referencing a high potential market (new market entrants, JIO effect, etc.). As smartphone penetration grows to 829 million by 2022–we foresee that the growth in streaming revenues will sustain with average Y-o-Y growth of ~ 20% CAGR, as the user take-up of DSP services will sustain. Therefore, at a minimum, it is anticipated that streaming revenues in next 3 years will touch USD 190 million.
Consider now, the paid subscribers’ component–this includes paid subscribers to standalone DSPs, bundled subscribers to Telco backed DSPs, Ecommerce services that bundle music (Amazon, potentially Flipkart), etc. As the cellular subscriber base increases, so will the subscriber user base for music streaming services, in particular through bundled subscriptions that represent “value for money”.
Forecasting 50 million paid subs (hypothetically) in the next few years, driven by bundled users and assuming a revenue-sharing arrangement of 50% between the platforms and the copyright holders, at standard monthly subscription charges of INR 99 (~USD 1.45), rights holder can expect to earn up to USD 432 million from paid subscriptions alone.
Therein lies the attraction for investments in the music industry.
ii. Synchronization opportunities:
With the boom in video OTT platforms example – like Netflix forecasted to spend INR 30 billion (~USD 438 million) on content creation in India, there are burgeoning synch opportunities for stakeholders in the recorded music ecosystem–as demand for long-form video content increases. According to KPMG-India Media & Entertainment Report 2019, India’s digital advertising market is set to become the largest among all media forms (TV, print, radio, OOH) to reach a total digital ad spend of INR 423 billion (~USD 6 billion) in FY23 from INR 160 billion (~USD 2 billion) in FY19. These provide investing companies in the music ecosystem with lucrative opportunities in synchronisation.
iii. Low hanging fruit :
Public Performance: PPL, a collection society that collects remuneration for record labels for the use of their music repertoire in public performances, represents 97% of records labels in India and has seen a 25% growth in revenues as per Vision 2022: Unlocking Fair Value to Stakeholders Report, 2019. Given the burgeoning live events ecosystem as a result of an increase in demand because of a rise in disposable personal income (from approximately USD 2 trillion in 2017 to USD 2.7 trillion in 2018) and the significant increase in public performance revenues, these indicate the growing opportunities in India.
Developments in digitisation of application procedures for Public Performance Licenses, for an instance, PLUS (a PPL initiative) has accelerated the process from a few days to a few minutes. Take for example–in the IFPI Global Music Report 2019, Brazil has USD 77 million in terms of revenues from Public Performance while India has revenues worth USD 15 million. We have a long way to go and that’s an opportunity.
What are the allied foreign investments in the Indian music industry?
We first need to get the basics in place and a vibrant recorded music industry in place for ancillary businesses to follow. A 70 million consumer base, consisting of middle to high-income households; with incomes ranging from USD 4000 to USD 40,000 and above, the Indian market is difficult to ignore. But in 2020, we will see FDIs in the publishing space and the entry of a few international publishers.
There will be a big play for the live events ecosystem once the basics are in place and that’s where you will get the multi-billion dollar plus investments when the global players such as Live Nation Entertainment, AEG (Anschutz Entertainment Group) and Ticketmaster make their India entry. Imagine the jobs that would be generated in order to create the infrastructure like an O2 or Manchester Arena in the UK and thereafter, the revenue and employment opportunities from these venues.
How have these investments impacted the Indian music industry?
Investments by foreign companies have helped and will continue to do so, in the development of new content, the discovery of genres and an increase in non- film music production. For instance, Mass Appeal – the USD 6 million investment by Universal Music Group in 2017, has launched the hip-hop focused label ‘Mass Appeal‘ in India in 2019 and Sony Music’s initiative on music discovery ‘7Up Madras Gig’ showcases musicians and sounds of South India. This is essential, as such initiatives focus on the promotion of homegrown talent.
What are the other foreign companies eyeing an investment in the Indian music industry?
As mentioned earlier, we will see international record labels make their entry in India, but let us not ignore higher investments spent by domestic labels at the national and regional levels.
When do you believe they will enter?
We will see investments in waves – the first wave was from 2015 to 2019. We are at the beginning of the second wave. The longer the delay in entering the Indian market, the higher will be the entry costs and also the opportunity cost that is lost.
What will be the size of their individual investments?
I would not view it in terms of size of investments but the employment of several young professionals from Grad Schools, B-Schools and IITs. The recorded music industry ecosystem has been a net employer in the past 5 years, and I think the GOI should note that. In addition, the additional opportunities being created in the Gig Economy in the music ecosystem will further drive the employment generation figures through the roof. For instance, China has around 40 million people employed in the music ecosystem.
What are the upsides of foreign companies investing in the Indian music industry? Downside?
To emphasize, India’s wide music fandom base and the digital revolution which is leading to increasing data penetration are key reasons for foreign companies investing in India’s music industry, especially as more consumers from Tier II and III cities gain access to media services (including music) thereby creating a demand for previously unknown genres of music such as Malayalam Rap, Tamil Pop, etc. Digital democratization is driving consumption of music all across India: the growth of the Punjabi, Telugu and Tamil music markets, to name a few, have seen growth over the last three years. Genres within the regional languages are also shining a light on new creative talent. Such markets represent the necessary upside to attract foreign investments.
However, ambiguous laws in terms of definitions, statutory licensing hamper the ease of doing business in the Indian music ecosystem and can, therefore, have a negative impact on the operations of foreign companies. For example, digital platforms, currently, negotiate voluntary licenses with rights holders but concerning misinterpretations of statutory licensing framework has resulted in increasing pressure on owners and creators of copyrights to accept lower rates by these platforms, else be forced to license at government-regulated tariffs.
Where do you see these foreign companies in India, heading in the new decade?
This decade will see both domestic and foreign companies investing in local and regional labels as well as promoting talent from Tier II & III cities. It has been seen that the recorded music industry has provided employment even in times of economic slowdowns and with more foreign investments, employment generation in the Indian ecosystem will continue to increase. One can expect a move towards a balanced film and non-film music ecosystem with investments in songwriters, publishers, i.e., the artist’s economy increasing proportionately–the performers will be the biggest beneficiaries and more talent across the 29 states will be discovered.