Audio OTT economy in India - Inflection point - February 2019 For Private circulation only - IMI
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Audio OTT economy in India – Inflection point February 2019 For Private circulation only
Audio OTT Economy in India – Inflection Point
Contents
Foreword by IMI 4
Foreword by Deloitte 5
Overview - Global recorded music industry 6
Overview - Indian recorded music industry 8
Flow of rights and revenue within the value chain 10
Overview of the audio OTT industry 16
Drivers of the audio OTT industry in India 20
Business models within the audio OTT industry 22
Audio OTT pie within digital revenues in India 26
Key trends emerging from the global recorded music market and their
implications for the Indian recorded music market 28
US case study: Transition from physical to downloading to streaming 29
Latin America case study: Local artists going global 32
Diminishing boundaries of language and region 33
Parallels with K-pop 33
China case study: Curbing piracy to create large audio OTT entities 36
Investments & Valuations in audio OTT 40
Way forward for the Indian recorded music industry 42
Restricting Piracy 42
Audio OTT boosts the regional industry 43
Audio OTT audience moves towards paid streaming 44
Unlocking social media and blogs for music 45
Challenges faced by the Indian recorded music industry 46
Curbing piracy 46
Creating a free market 47
Glossary 48
Special Thanks 49
Acknowledgements 49
03
Audio OTT Economy in India – Inflection Point
Foreword by IMI
“All the world's a stage”– Shakespeare, •• Global practices via free market
also referenced in a song by Elvis Presley, economics, revenue distribution,
then sounded like a utopian dream monitoring, and reducing the value gap
until 'Despacito' took the world by with owners of content getting a fair
storm. The audio OTT sector presents value.
an opportunity for the recorded music
industry in India to have a 'Despacito' The global geo-strategist Anne Marie
across multiple Indian languages. Slaughter coined the term “webcraft”,
a sprawling complex of networks,
Record labels across India have invested coalitions, partnerships and initiatives
heavily in content and public policy since undertaken by businesses, NGOs,
the 90’s and that’s the biggest reason universities, foundations, cities, provinces
why India today has a robust recorded and determined individuals, all working
music industry powering the goliaths in with the government. In case of the
the Radio, TV and OTT sectors. Preserving recorded music industry, it will be the
our rich cultural heritage, generating coming together of the industry, creative
employment in the formal and informal community, ISP/telecom firms, and
sectors, contributing to the national advertisers alongside the government
exchequer, and propagating India’s soft departments at the Center and State to
power from the Royal Albert Hall London find lasting solutions to piracy and drive
to the Academy Awards in Los Angeles, traffic to licensed sites.
the music industry in India has much
to its credit. Not so for our neighboring Latin music today earns more revenue
countries like Pakistan, Bangladesh, and from the U.S. than in South and Central
Sri Lanka that had a very vibrant recorded America. The tech savvy Indian diaspora
music industry but are now fighting (~31.2 million)2 has a global footprint which
battles for survival. represents a huge export opportunity for
the Indian recorded music industry.
The audio OTT opportunity can create an
inflection point for the Indian recorded Statutory licensing, safe harbor
music industry to become one of the provisions and other historic legislations
top 10 markets in the world. In 2017, we were put in place when digital delivery
ranked #19. China ranked behind India mechanisms of music were at a nascent
until 2012, yet today China ranks amongst stage. Today, music delivery occurs
the top 10 markets in the world1. For India through digital platforms and the
to realise this potential, it needs: enterprise values of these platforms
range from hundred of millions of dollars
•• More domestic investments at the
to billions of dollars. The party has just
regional level as domestic players
begun in India, let the music spin and and
understand that landscape better, and
not be hampered by faulty policy choices
international investments from the
that would put the growth of Indian
global majors and the global indies
content sectors at risk.
moving further into the Indian recorded
music industry.
Blaise Fernandes
President and CEO
The Indian Music Industry (IMI)
1
Vision 2022: Dialogue - IMI Convention 2018
2
http://mea.gov.in/images/attach/NRIs-and-PIOs_1.pdf
04
Audio OTT Economy in India – Inflection Point
Foreword by Deloitte
The Indian recorded music industry has technological environment and increasing
faced some turbulent transitions over usage of digital tools. With increasing
the past few years that have altered the smartphone and internet penetration
overall course of the industry. While and the potential for growth across the
a host of operational and regulatory rural areas of the country, the Indian
challenges have surrounded the industry, audio OTT market is poised to grow
the Indian recorded music industry has further at an aggressive rate.
increasingly shown promising signs of
growth and recovery in recent years. The At the outset, we would like to thank
ever increasing reach and significance of the Indian Music Industry (IMI) for
technology in our lives has been one of taking up the initiative to understand
the cornerstones of the aforementioned the audio OTT economy in India and
growth of the global and Indian music underline important potential trends
sectors. and developments that could shape the
future of the industry.
A common trend noted across the world
has been the increasing smartphone The reach and consumption of music has
and internet penetration. Factors such been increasing multifold and with the
as low data cost and the availability of spread of digital media, the trends only
affordable smartphones are further seem to point towards more favourable
disrupting the traditional television & times. It is therefore imperative to assess
broadcast, and related industries to and understand the audio OTT economy
bring about a dynamic shift in the way and highlight several key studies to
content is being consumed. The rise of showcase how the growth of the sector
audio as well as video over-the-top (OTT) is contributing to the overall reach and
platforms played an instrumental role in growth of the music sector.
this shift.
This report also highlights the potential
Currently the audio and video OTT of the industry and identifies key trends
market in India is valued at around that can influence the outlook for the
US$ 280 million3, with the evolving industry.
audio OTT market providing nearly 150
million4 monthly active users access to
millions of soundtracks across platforms. Jehil Thakkar
The industry is expected to continue Partner
generating employment opportunities Deloitte India
in the future with the rapidly changing
3
http://loudest.in/2018/05/24/the-rise-of-ott-music-platforms-and-content-in-india/
4
https://www.bgr.in/news/music-app-gaana-aims-to-have-over-200-million-subscribers/
05
Audio OTT Economy in India – Inflection Point
Overview - Global
recorded music industry
Over the last 20 years, the global value chain. While the advent of
recorded music industry fell from digital production tools/software has
US$ 25 billion5 in annual revenues to augmented the way music is produced,
US$ 14.1 billion in revenues in 2014 the rise of audio OTT platforms has
and finally displayed promising signs of provided stakeholders such as artists,
growth after 2014. The industry grew by music labels, and consumers a new
nearly 4 percent in 2015 and continued medium to present, market, and consume
to be on an upward trajectory through millions of soundtracks each year.
2016 and 2017 with ~9 percent and ~ 8
percent growth, respectively. The growth The last few years witnessed the global
in the global recorded music industry recorded music industry traverse a
was largely a result of disruptions in challenging yet exciting path. While
technology and digital media, and record the industry has been surrounded and
companies’ active licensing strategies. affected by issues such as piracy and the
Technology has directly influenced all value gap, it has shown promising signs of
spheres of the music industry with its growth over the last two to three years.
effect being felt across the industry
5
IFPI Global Music Report 2018.
06
Audio OTT Economy in India – Inflection Point
Figure 1: Global recorded music industry revenues (US$ billion)
25.2
25.2 24.4
0.6
23.4
23.4 22.6
23.8 0.7
21.0 20.8
21.9 0.8 0.9 20.1
20.1 0.4 0.9 19.4
19.5 0.1 1
1 0.2 18.2 17.3
18.1 2 1.2
16.9 0.3
0.2 16.0
2.7 1.2 15.8 2.4
16.3 14.9 14.9 0.3
0.2 1.3 14.8 14.6 14.7 2.3
2.7 0.3 0.3 14.2
0.4 0.3 0.3 0.4 6.6
1.4 1.6 0.3 2
14.1 3.7 1.4 1.8
0.4 1.9 4.7
0.6 1
3.9 4.2 1.4 2.8
11.9 4.4 1.9
4.3
10.4
4
3.8
8.9 3.2
8.2 2.8
7.6
6.7
6 5.7 5.5
5.2
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total Physical Digital (Excluding streaming) Total Streaming Performance Rights Synchronisation Revenues
Source: IFPI Global Music Report 2018
Digital consumption including streaming
of music has been steadily growing and
is the largest contributor to the overall
growth and revenues of the global
recorded music industry. The increase
in digital distribution and consumption
of music was led by greater outreach of % of mobile The mobile internet
smartphones globally—primarily owing connections (globally) penetration (globally)
to discounted rates of handsets, lower that are smartphones is expected to
data tariff rates, enhanced connectivity, is expected to increase from
and increased internet penetration. increase from 57% to 43% in 2017 to
The affordability of smartphones 77% 61%
along with improved internet access by 20256. by 20257.
at reduced cost has directly influenced
the consumption of music using digital
means.
6
https://www.gsma.com/mobileeconomy/wp-content/uploads/2018/05/The-Mobile-Economy-2018.pdf
7
https://www.gsma.com/mobileeconomy/wp-content/uploads/2018/05/The-Mobile-Economy-2018.pdf
07
Audio OTT Economy in India – Inflection Point
Overview - Indian
recorded music industry
The IFPI – representing the recording commercial exploitation of music, and
industry worldwide, found in a recent lack of awareness pertaining to copyrights
survey that Indian consumers spend and royalties, the Indian recorded music
21.58 hours per week listening to music, industry is currently ranked 19th, globally 17.8 Hours
higher than the global average of 17.89 in terms of revenue. Breaking into the
21.5 Hours
hours per week - clearly making India a Top 20 markets in the world is indeed a per week
music-loving country. The Indian recorded significant step for the Indian recorded
music industry has emerged as a major music industry. A key driver, the Hindi film
growth driver for the revenues generated industry (Bollywood) has ruled the Indian
in the global recorded music industry in recorded music industry for decades
the last few years. Owing largely to the together where Bollywood film producers Indian Global average of
17.8
rapidly evolving technological landscape, prioritised good music for their movies consumers
the growth and revival of the domestic to register good opening week returns in spend
21.5
music industry took the overall revenues hours per week
terms of revenue.
to US$131 million or INR 850 crores10 in
hours per
2017. Despite operational and regulatory In line with global trends, digital revenues
week listening
hurdles such as piracy of music, the were the single largest contributor to
to music
value gap, challenges in monitoring overall industry revenues in 2017.
8
IFPI Music Consumer Insight Report 2018.
9
IFPI Music Consumer Insight Report 2018.
10
IFPI Global Music Report 2018.
08
Audio OTT Economy in India – Inflection Point
Figure 2: Indian recorded music industry revenues (US$ million) by format
2.3
2013
31.8 60.6 24.3 119.1
2.5
2014
29.1 54.3 12.3 98.2
2.7
2015
21.1 56.6 11.1 91.6
2016
13.1 74.4 10.6 16.9 115.1
2017
9.2 102.1 11.7 7.7 130.7
Physical Digital Performance Rights Synchronisation Total
Source: IFPI Global Music Report 2018
Exchange rate used US$ 1 = INR 65.19
Figure 3 - Indian music industry revenues (%) by format - 2017
119.1 98.2 91.6 115.1 130.7
2% 3% 3% 15% 6%
12%
13% 9%
20%
9%
55% 62%
51%
78%
65%
30%
27%
23%
11% 7%
2013 2014 2015 2016 2017
Physical Digital Performance Rights Synchronisation Total
Source: IFPI Global Music Report 2018
09
Audio OTT Economy in India – Inflection Point
Flow of rights and revenue
within the value chain
Songs or sound recordings form the core based on various factors like arrangements
of any music industry. Creating a song for with the artists in the film or budget of the
commercial release requires a production song, so they have been categorised in high
team that helps create the content, a investment, medium risk. Music labels are
marketing team that packages and sells, categorised in High investment, high financial
and a distribution leg to ensure that the risk grid as investments are based on factors
content reaches a wide audience. Audio like budget, artists and actors in the film but
OTT platforms represent one of the major return is dependent on the popularity of
distribution and consumption mediums the soundtracks. Audio OTT services have
for content owners and consumers been placed in medium investment, medium
respectively and thus it becomes imperative risk grid as the usage rights for commercial
to understand how music / audio content is exploitation of soundtracks largely depends
created and thereafter supplied to audio OTT on the nature of the rights taken (pay per use
platforms. with or without minimum guarantee, fixed fee
arrangement) which could be provided for use
Per industry discussions, a comparison over a defined period of time, in perpetuity or
between investment versus financial risk with for single use.
regards to monetisation of sound recording
has been shown in figure 5. Artists (Lyricists, An audio OTT platform focuses on content
music composers and singers) have fixed delivery to the consumer, within the
fee arrangements and therefore have been distribution space, by procuring content from
categorised in low investment, low financial music labels / publishers / other distributors
risk grid. Film producers invest in the music and offering it over the internet. It is usually
production and may receive high or low return accessed through an independently hosted
application.
10Audio OTT Economy in India – Inflection Point
Figure 4: Revenue streams between the various verticals
Value chain vertical
Creators / Owners Publishing and marketing Distribution
Distributors
Music owners Music label
Brick and mortar stores,
radio broadcasters,
Music producer,
Record label audio OTT platforms
lyricist and online hosting
Stakeholder services
Revenue •• Sale of music rights to film •• Revenue share in sale of •• Revenue share in sale of
sources producer / music label music to end consumers via music to end consumers
•• Royalties for content use digital / physical /
Revenue •• Advertisements
Synchronization / Public
generated •• In film scenario, upfront
performance / Radio •• Subscription revenue
(2017-18) fees received by
composer, lyricist and •• Data bundle
singer from film producer
•• INR 14684 - INR 14987 •• INR 850 crores13 - Indian •• INR 2590 crores14 -
crores11 - Indian film recorded music industry Radio industry
industry
•• INR 710-920 crores15 -
•• INR 2000 crores12 - OTT industry
Live music industry
Source: Industry discussions, Vision 2022, The Indian Music Convention 2018, Economic Contribution of the Film and Television industry in India, 2017 by
Deloitte
Figure 5: Major industry stakeholders in the Indian recorded music industry: investments vs risk profile with regards to the
monetisation of sound recording
High Investment, Medium Risk
High Investment, High Risk
Investment
Medium Investment, Medium Risk
Low Investment, Low Risk
Financial Risk
Lyricists, music
Film producers Record labels OTT / DSPs
composers,performers
Source: Deloitte analysis, IMI estimates
11
Economic Contribution of the Film and Television industry in India, 2017 by Deloitte
12
Vision 2022: Dialogue - IMI Convention 2018
13
IFPI Global Music Report 2018.
14
https://www.ibef.org/download/Media-and-Entertainment-Sep-2018.pdf
15
Economic Contribution of the Film and Television industry in India, 2017 by Deloitte
11Audio OTT Economy in India – Inflection Point
Creation and Production Figure 6: Value Chain of Music for Indian Film Industry
Creation entails a song being conceived Scenario 1: Sound recording creation started at the film producer level
followed by a series of tasks initiated
to create and develop the content. The Film Producer Recording Studio Recorded song
trigger for content creation could be hires the songwriter, is hired by the Film is woven into
a result of a music composer who has singer, music composer Producer to create the film
developed a creative melody or a result for an upfront fee. the sound recording
of the creation of lyrics by a lyricist/
songwriter or as per a brief from the film
producer. The film producer considers the
following investment metrics for
Scenario 1: Sound recording creation The music label the bidding process for selling
started at the film producer level The highest the sound recording
distributes the
bidding music 01. Star Cast
sound recording
The film producer hires the songwriter label, acquires 02. Music Composer
through the music
/ lyricist, composer, singers and the the rights to the 03. Total film budget
OTT platforms,
recording studio for an upfront fee. Once sound recording
digital downloads
the sound recording is created, the rights from the film These are used to determine
and physical
to this recording is sold to a music label producer. the minimum cost of the sound
mediums
based on several criteria in a bidding recording. The sound recording
process. Thereafter, the winning music is now up for bidding.
label distributes the sound recordings
through the music OTT platforms,
download stores, and physical retailers. Music label receives revenue post distribution and film release
Lyricists / songwriters and composers
receive royalties after the release of the
Lyricists, composers, singers receive royalties, post the release of the
film /sound recording. A depiction of all
movie, via copyright societies (such as IPRS)
stakeholders in this scenario with their
respective investment as well as risk
exposure is highlighted in Figure 5. Singers earn revenue through live performance events
Source: Industry discussions
Scenario 2: Sound recording creation
started at the music label level
Scenario 2: Sound recording creation started at the music label level
A music label works in collaboration with
a lyricist/songwriter, singer and music Music Label Terms of licensing Music label bears the
composer to create an audio single/ collaborates with - Copyrights to cost of production
album. The copyright to the created Songwriter, singer or be mutually or OR in partnership
content is mutually or exclusively owned Music Composer for exclusively owned by with the artist as per
by the music label or the artist as per audio single /album. artist or music label mutual agreement
the content licensing terms. In most
cases, music labels produce or bear the
entire cost of production and hence The music label distributes
Royalties are
own the copyrights also. The copyright the sound recording through
paid to the Sound Recording
owner also holds other rights pertaining the music OTT platforms,
owners of the is created
to reproduction, distribution, and digital downloads and
copyright
modification of the sound recording. physical mediums
Royalties paid for use of the audio
content would go to the owners of Source: Industry discussions
the copyright.The usage rights for
commercial exploitation of soundtracks
largely depends on the nature of the
rights taken, which could be provided
for use over a defined period of time, in
perpetuity or single use.
12Audio OTT Economy in India – Inflection Point
Scenario 3: Sound recording creation Scenario 3: Sound recording creation started by independent artists
started by independent artists
Artists (Songwriter, Terms of licensing
The creation and production scenario singer or music - Copyrights to
composer) collaborate be mutually or Artists bear the cost
would entail one or more artists such
for audio single / exclusively owned by of production
as songwriters, singers, composers
producing music at their own expense. album. the artists/band
The sound recording thereafter produced
can either be self-marketed, sold on
digital platforms or sold to a music label / Artists can further
film producer for further usage. sell it to a film Sound recording can
be self marketed or Sound recording
producer or music
Royalty is awarded per the terms of licensed to music OTT is created
label for further
the license agreement between the usage platforms
parties and royalty rate is dependent on
multiple factors such as popularity of the
artist, state of the market, worth of the
composition as per license, etc. Royalty is awarded as per the terms of the license agreement
between the parties and royalty rate is dependent on multiple
Publishing and marketing factors such as popularity of the artist, state of the market, worth of
Publishing and marketing cover the composition as per license, etc.
compilation of the produced audio
tracks into physical and digital carriage Source: Industry discussions
mediums such as compact discs (CDs),
Blu-Ray, portable Universal Serial Bus
(USB) drives or internet-based hosting take control of publishing and marketing
platforms, where a user can stream and incur huge costs towards marketing
online or download. These are then the song using TV , digital media buying,
marketed through different mediums digital media buying, radio channels. In
such as an event for audio launch prior India, this is initiated as a pre-film release
to a feature films release, multimedia activity and continues until six to eight
advertising, etc. The music labels that weeks after the film is released16.
procure/produce the audio track typically
16
Industry discussions
13Audio OTT Economy in India – Inflection Point
Distribution and revenue sources Figure 7: Indian recorded music industry revenues (US$ million) by format - 2017
Distribution refers to the delivery of the Synchronisation
published audio content to consumers.
6%
Typically, revenues from recorded music
can be segmented in four ways: Public Performance Rights
9%
01. Digital;
Physical
02. Physical;
03. Synchronisation; and 7%
04. Public Performance Rights
Digital
78%
Source: IFPI Global Music Report 2018
Digital Physical
Digital distribution and consumption of music includes Physical distribution involves distribution and
distribution of digital music on internet platforms consumption of soundtracks using audio tapes,
such as YouTube, music-oriented websites, audio cassettes, CDs. Previously, this segment contributed
OTT platforms such as Gaana, Apple Music, Amazon to the majority of revenues of the recorded music
Music, Wynk, and JioSaavn etc. Revenues from digital industry, however, physical sales accounted for merely
means contribute nearly 78 percent17 to the overall 7 percent19 of the overall industry revenues, in 2017, in
recorded music industry revenues in India and 54 the country.
percent18, globally.
Synchronisation Public Performance Rights
Synchronisation involves distribution and placement An emerging revenue stream for producers and owners
of soundtracks in feature films, television shows, of content in India, performance rights include revenues
advertisements, video games, etc. Synchronisation is generated from concerts, live gigs, events, music
a growing revenue stream for content producers and festivals, etc. The growing popularity of Indian music
owners, and currently contributes 6 percent20 to the festivals such as Sunburn, NH7 Weekender, Magnetic
overall industry revenues. Fields, Electric Daisy Carnival, and Hindi-music concerts
from popular Indian artists are poised to provide a strong
boost to performance rights, emerging as one of the key
sources of revenues. Performance rights typically involve
event managers, hotels obtaining performance licenses
from original content owners at a certain licence fee.
17
IFPI Global Music Report 2018.
18
IFPI Global Music Report 2018.
19
IFPI Global Music Report 2018.
20
IFPI Global Music Report 2018.
14Audio OTT Economy in India – Inflection Point
15Audio OTT Economy in India – Inflection Point
Overview of the
audio OTT industry
Digital consumption of music refers about 75 percent of the smartphones
to streaming on audio OTT platforms users21 listen to music on their phones,
such as Apple Music, Amazon Music, 86 percent consumers22 out of which
Gaana, Wynk, and JioSaavn, watching use on-demand streaming. Additionally,
music content on video OTT platforms smart speakers are becoming increasingly
(such as YouTube), purchasing and popular as a regular medium of music
downloading music through third- party consumption and are helping drive
music-aggregating websites and services uptake of streaming globally.
(such as Apple iTunes), accessing content
on mobile phones (including ringtones Over the past few years, streaming
and caller ring back tunes (CRBT) or any has emerged as the single biggest
other kind of interactive revenue streams contributor to the overall growth of music
over the digital device. According to IFPI’s consumption. This growth, however, has
Music Consumer insight Report 2018, been different for countries around the
21
IFPI Music Consumer Insight Report 2018
22
IFPI Music Consumer Insight Report 2018
16Audio OTT Economy in India – Inflection Point
world with a few countries witnessing the most popular music streaming
a strong growth momentum, while the services globally with their respective
others adapting at a slower pace. As we monthly users are: Apple Music with 50
can see from figures 9 and 10, United million monthly users23, Spotify with 191
States tops the chart both in terms of million24, iHeartRadio with 100 million25,
revenue at US$ 2,769 million and user Pandora Radio with 68.8 million26 and
penetration at 47.3 percent. Some of Deezer with 14 million27.
Figure 8: Global streaming revenue (including audio OTT revenue) versus other digital revenues (US$ billion)
Total streaming revenues (including OTT) 6.6
grew by ~65.1 percent and ~41.1 percent in
2016 and 2017 respectively
4.7
4.4 4.3
4.2
3.9 4
3.8
3.2
2.8 2.8
1.9
1.4
1
0.4 0.6
2010 2011 2012 2013 2014 2015 2016 2017
Total streaming (including audio OTT) Digital (excl. streaming)
Source: IFPI Global Music Report 2018
The Indian recorded music industry
has undergone tremendous changes
in the past decade with a key lever
being the shift from physical to
digital. According to IFPI's Global
Music Report 2018, revenue from
digital contributes INR 665 crore (78.5
percent) to overall music revenue (INR INR 567 crore
850 crore). Of the total music revenue,
audio OTT revenue accounted for 66.8 INR 850 crore
percent (INR 567 crore).
Audio OTT market size Indian recorded music industry revenue
23
https://appleinsider.com/articles/19/01/29/apple-music-grows-to-50-million-subscribers-during-holiday-quarter
24
https://www.marketwatch.com/press-release/spotify-technology-sa-announces-financial-results-for-third-quarter-2018-2018-11-01
25
https://www.forbes.com/sites/hughmcintyre/2018/05/25/the-top-10-streaming-music-services-by-number-of-users/#333fe1da5178
26
https://musically.com/2018/11/06/pandora-financial-results-reveal-subscriptions-growth-but-active-listeners-decline/
27
https://www.forbes.com/sites/hughmcintyre/2018/05/25/the-top-10-streaming-music-services-by-number-of-users/#333fe1da5178
17Audio OTT Economy in India – Inflection Point
Figure 9: Global comparison: User streaming penetration for India and top 5 countries in the music streaming market for 2018
India
6.4%
India 6.4%
United Kingdom 25.3%
Singapore 26.0%
Croatia 27.9%
Sweden 39.4%
United States 47.3%
Source: https://www.statista.com/outlook/209/100/music-streaming/worldwide
18Audio OTT Economy in India – Inflection Point
Figure 10: Global comparison: Revenue for India and top 5 countries in the music streaming market for 2017
India
US$ 87.3 million
Top 5 countries and India - ranked as
per streaming revenues
Rank Country
1 United States
2 United Kingdom
India US$ 87.3 million
3 Germany
France US$ 269.6 million 4 South Korea
5 France
South Korea US$ 281.6 million
16 India
Germany US$ 355.1 million
United Kingdom US$ 500.6 million
United States
US$ 2,768.7
million
Source: IFPI Global Music Report 2018
19Audio OTT Economy in India – Inflection Point
Drivers of the audio
OTT industry in India
With its growing internet and smartphone telecom industry saw a drastic reduction
penetration, India is on the path of of data prices and emergence of many
transitioning into a digital economy. The low-cost smartphone manufacturers
Indian Government has endeavoured from different countries.
to boost digitisation through several
economic reforms, investments and The number of smartphone users in
policies to increase India’s digital the country stood at 404.1 million at the
infrastructure and raise the digital end of 2017. This number is expected to
participation rates. more than double by 2022 to reach 829
million users in the country29. The launch
The telecom subscription base of India of low-cost smartphones and enhanced
stood at 1.19 billion in November 201828. feature phones by Indian telecom players
Acting as a powerful catalyst, the launch in the range of INR 1,500– 2,500 has
of Jio saw a dramatic shift in not only fueled the increased uptake of mobile
the economics of the Indian telecom phones in India. This, coupled with the
industry, but also in the quantum of attractive data packages, has resulted in
internet and data usage in the country. a significant increase in per capita data
The heightened competition in the Indian consumption.
28
https://main.trai.gov.in/sites/default/files/PRNo05Eng18012019_0.pdf
29
https://economictimes.indiatimes.com/tech/hardware/india-to-have-over-800-million-smartphone-users-by-2022-cisco-study/articleshow/66917976.cms
20Audio OTT Economy in India – Inflection Point
Figure 11: Changing technological landscape of India with reducing data cost and increasing number of smartphones
Data cost reduction (per GB) Active smartphones (in million)
By
INR 250
FY 2014
90% 45% 463.8
FY 2018
YoY
INR 19
FY 2018
318.7
FY 2017
Source: https://economictimes.indiatimes.com/industry/telecom/telecom-news/jio-led-data-price-reduction-fuels-smartphone-adoption-in-india-cisco/
articleshow/64774860.cms; IFPI Global Music Report 2018
The digital revolution across India in January 2018 and is poised to grow
has transformed the country from a further in the next few years. Both audio
traditional audio-visual market to one and video OTT platforms have witnessed
that is experiencing an increasing number a significant surge in their usage. The
of people shifting to digital platforms rapid increase in the usage of connected
to consume music. Emergence of audio devices, especially smartphones, has
OTT platforms has provided the local primarily contributed towards the shift
audience with a new medium to consume from traditional media (such as television
a variety of genres of music. and radio broadcasts) to digital media.
The audio as well as video OTT market in
India was valued at over US$ 280 million30
The unprecedented disruption
that India is currently undergoing, Indian audio OTT platforms International audio OTT platforms
has provided many opportunities
Gaana Apple Music
for digital and traditional Media
and Entertainment (M&E) sectors. Hungama Amazon Music
Development of a robust music
JioSaavn Google Play
streaming ecosystem led to the overall
number of music streaming users Wynk
to nearly 150 million in December
Vodafone Music
2018.31 Some of the leading audio
OTT platforms have been categorised
here on the basis of the region of their Globally renowned streaming service, Spotify, is currently in the process of
origin. setting up its platform in the country and is due to enter the Indian market in the
first quarter of 201932.
India has an online video audience of the online video audience - indicating
more than 225 million, which is expected the significant growth opportunity in
to grow to 500 million by the end of CY the audio OTT space, thereby potentially
2020.33 In comparison, the audio digital increasing the revenues of the Indian
music audience is around 150 million recorded music industry.
subscribers, which is only 60 percent of
30
http://loudest.in/2018/05/24/the-rise-of-ott-music-platforms-and-content-in-india/
31
https://www.bgr.in/news/music-app-gaana-aims-to-have-over-200-million-subscribers/
32
https://www.bloomberg.com/news/articles/2018-11-27/spotify-is-said-to-secure-rights-to-booming-indian-music-market
33
http://www.businessworld.in/article/YouTube-Reaches-Around-225-Million-Monthly-Active-Users-On-Mobile-In-India-Google/26-03-2018-144571/
21Audio OTT Economy in India – Inflection Point Business models within the audio OTT industry Difference between traditional modes of shown with non-linear interactive streaming distribution and new audio OTT industry where the listeners can pick and choose the Disruptions in technology and digital media music or talk shows they want to listen to or have widely influenced how content today is watch. Online music streaming services allow distributed, accessed and consumed. With the listeners to choose music from a library the advent of internet based streaming on the app or website whereas radio stations platforms, the global recorded music do not provide similar access or navigational industry witnessed the emergence of control, however, they do provide access to two additional mechanisms for digital some of their shows after they have been distribution of content. Together, traditional aired over the radio in linear manner. radio broadcasting (analog or digital), linear non-interactive online streaming Audio OTT players follow different (internet radio) and non-linear interactive models based on the source of revenue streaming (audio OTT, YouTube) form generation. A player can offer its content the three most widely used distribution free of charge to the user and supported technologies in the industry currently. The by advertisements or generate revenue table below indicates differences between through user subscriptions. With the the traditional broadcasting model versus entry of players from telecom and retail the new internet based streaming products. businesses, a few bundled options are also Within the internet based products, it also available. Audio OTT platform business differentiates the linear and non-linear models can be categorized as ad-supported, product. Thereafter, comparison has been paid and bundled. 22
Audio OTT Economy in India – Inflection Point
Figure 12: Traditional radio versus internet based streaming services
Traditional music services New online music services
Radio Broadcasting Linear non-interactive Non-Linear interactive
Features Online Streaming streaming (audio OTT)
Internet connection to
Basic usage Tune to radio frequency of Internet connection to go to download the app or visit
requirements the respective Radio channel website/app the website
Availability of the Radio stations available in Across the world - subject Across the world - subject
service the area to licenses in that country to licenses in that country
(website or app rights may (website or app rights may
differ from one country to differ from one country to
another) another)
User can choose No No Yes
any song
User can skip the track
No No Yes
or play an earlier song
Offline play without - No Yes
Internet
Source: Industry discussions
Figure 13: Business models within Internet based audio services
Ad-supported Model Bundle Paid Model
Content is available to users on a Usually available from telecom These platforms provide audio OTT
free to use basis, and the usage from service providers that also provide services based on user payment. These
these platforms is supported in the an audio streaming service. The can be broadly divided into two types:
form of advertisements. However, service providers offer bundled 01. Transactional: This is purely pay and
consumers can enjoy an ad-free pricing to their consumers for own model. These platforms allow
experience by paying a subscription core telecom services with access consumers to pay, download and own
fee. to value added services, including the song forever. Apple’s iTunes store
audio streaming services. is an example of this model.
02. Subscription based: These platforms
provide audio OTT services based on
a fixed monthly/periodic subscription
fee. The song is encrypted on the
audio OTT platform app and never
downloaded or owned by the user.
All music files reside on the cloud or
encrypted to the music app. Payment
of subscription fees allows the user
unlimited; and in some cases, offline,
access to songs.
23Audio OTT Economy in India – Inflection Point
Key players within the audio OTT operators have licensed music from
industry music production houses to provide
In an intensely competitive market where content on their audio OTT platforms.
more than 15 audio OTT service providers This was done with a dual motive to
have launched in India, investments are tackle competition from audio OTT
pouring in from all corners, including providers and to improve the value
telecom operators and media companies. added services offered to the telecom
Over the last few years, major telecom subscriber base.
Figure 14: Some of the major audio streaming service providers within India and their business models
Players Ad Paid - Paid - Bundled
supported downloads subscription
Amazon Music 1 1
Eros Now
Gaana
Google Play
Hungama
iTunes (Apple Music)
JioSaavn
Teluguone
Vodafone Music
Wynk Music
Source: Industry discussions
24Audio OTT Economy in India – Inflection Point
Figure 15: Different features available in free versus paid subscription models
Features Free User Paid User
Sound quality while streaming Low High
Number of songs streamed per month Limited/Unlimited - varies by platform Unlimited
Offline Streaming Not Available Available
(play without internet)
Advertisements Typically after every 3-4 songs No advertisements
Access to features / content Limited access Complete access
Source: Industry discussions
Figure 16: Customer journey for different business models
Bundled
Telecom operators or User is charged for Telecom operator
ecommerce players data pack only, and the or E-commerce Music label gets %
offer streaming content services at the player pays INR Y from the content pool
services along with discounted price as per per user out of the based on respective
data pack or retail the chosen data pack subscription charges label's streaming
membership at are deducted from data to the "content pool" share
discounted rates pack charges of music label
Download Scenario
User pays to After the payment Now, user can
download the and download, user move the file and
track from app or owns the audio track play it anywhere
website
Ad-supported / Paid Streaming Scenario
Consumer
Consumer On registration, Post trial period,
is shown
downloads the app the app grants consumer
advertisements
from phone's app few days of converts into
and urged to take
store and is given premium paid user or
subscription for
unlimited free songs subscription, as opts back to free
uninterrupted
to stream a trial usage
streaming
Source: Industry discussions
25Audio OTT Economy in India – Inflection Point
Audio OTT pie within
digital revenues in
India
Based on the trends discussed in the
overview section, it is evident that
digital consumption is increasing due to
increasing smartphone penetration and Subscription (Paid/bundled)
low-data prices.
Ad supported
Mobile personalisation
Video streams
Downloads
26Audio OTT Economy in India – Inflection Point
The broad revenue split from the different audio OTT business models:
Figure 17: Indian digital music revenues by format (2017)
(US$ million)
0.97
1%
Subscription audio streams
26.03
25% Ad-supported streams
33.73
33%
Mobile Personalization & other digital
13.81 In India, 60 percent of digital
Video streams
14% revenue comes from ad-
27.59 supported and subscription
Downloads
27% streams.
Source: IFPI Global Music Report 2018
Of the five digital music revenue streams
in India, 60 percent of the revenue comes Therefore, to inculcate the habit of paying
from streaming. According to IFPI’s Global for music among consumers, it is critical
Music Report 2018, total revenue from ad that audio OTT platforms actively try and
supported and subscription streaming convert free users and bundled users to
is US$ 61.32 million where ad-supported paid subscriptions. Currently, bundled
is US$ 27.59 million (45 percent) and users pay for music streaming services
subscription stream is US$ 33.73 million as part of the data pack charges levied
(55 percent). by the telecom service provider. For
Paid subscribers provide a stable source the same purpose, the concept of 'Trial'
of revenue, but unfortunately in India bucket can be encouraged, where an
less than 1 percent of the subscribers audio OTT player offers 15 days or one
are paid users and nearly 14 percent month free on a paid platform to all free
subscribers are bundled users; the users, and subscriptions are charged
remaining 85 percent of users are on after the free period, if user continues on
free subscription34. This implies that, 15 the paid platform.
percent of the subscribers contribute to
55 percent of streaming revenues, where The overall number of music streams
as 85 percent of subscribers contribute by Indian consumers is poised to grow
to the remaining 45 percent of streaming further due to the improving smartphone
revenues (i.e. ad-supported streaming as well as internet penetration in the
revenues). For free platforms, revenue country.
earned from ad spots helps to recover
cost of operation. Currently, the cost
of a 10 second advertising on music
streaming apps ranges between INR 150
and INR 250 CPM (cost per thousand
impressions).35
34
Industry discussions
35
https://www.financialexpress.com/industry/music-streaming-apps-why-it-takes-a-telco-to-tango/1141906/
27Audio OTT Economy in India – Inflection Point Key trends emerging from the global recorded music market and their implications for the Indian recorded music market 28
Audio OTT Economy in India – Inflection Point
Emerging trends Case study to highlight the
said trend
Evolution of music consumption from physical to U.S.
streaming
Local artists covering the global stage Latin America & K-pop
Curbing piracy China
Local players taking a dominant position in the country China
Each of these trends has widely Figure 18: Timeline of digital music Sales growth in the U.S.
influenced the way the global recorded
music industry has evolved over recent 2018 Streaming revenues further increase on
years and are likely to further shape the account of paid music subscriptions
industry. From these trends, it can also
be inferred as to how the Indian recorded
music market industry has evolved and
continues to change under the effect of 2015 Streaming revenue overtook digital music
prevailing global trends. downloads revenue
U.S. Case Study: Transition from
physical to downloading to streaming
For several decades now, the United 2012 Digital album sales up 15% through August,
States has been one of the largest and on pace to set a new record
most influential music markets in the
world. Despite a few other countries
beginning to gain significant influence
within the industry, the U.S. market 2011 Consumers purchased over 100 million digital
currently remains the largest. The global albums for the first time
recorded music industry generated
around US$17.3 billion, in 2017, with
around US$ 5.92 billion of that coming
2009 Digital accounted for nearly 40% of total
from the United States alone.36
album sales
Over the past few years, streaming has
become a massive force in the music
industry, especially among the younger 2008 For the first time ever, consumers purchased
consumers. Just as downloads displaced over 1 billion digital tracks
physical album sales around a decade
ago, streaming has now replaced digital
music downloads as the most common
method of music consumption in the U.S. 2007 Digital’s share of total album sales reached 23%
Streaming overtook downloads as the
U.S. recorded music industry's primary
revenue source back in 2015, and each
year it has continued to account for a
greater share of the industry's revenue. 2004 Digital made up less than 1% of total U.S.
album Sales
Source: Deloitte analysis, The Nielsen Company & Billboard’s 2011 Music Industry Report
36
IFPI Global Music Report 2018
29Audio OTT Economy in India – Inflection Point
The overall market trends in the H1 2018 year-over-year to US$ 3.4 billion38, during
consistently continued to reflect the the H1 of 2018. Retail revenues refer to
U.S. music industry’s rapid and dynamic the total revenues collected by music
transition from unit-based physical and labels inclusive of record labels', retailers'
digital sales to streaming music sources. and digital service providers' respective
Total revenues from recorded music in revenue shares. Wholesale revenues
the U.S. grew by 10 percent reaching refer to revenues collected by music
US$ 4.6 billion at retail37 and revenues labels after adjusting for retailer and
from streaming music grew 28 percent digital service providers' shares.
Figure 19: U.S. music industry retail revenues (H1 2018) Figure 20: U.S. streaming music retail revenues (H1 2018)
(US$ million)
3% Synchronisation
10% Physical
Digital
12% Downloads Paid
Subscriptions 2550
Digital &
75% Streaming Customised Radio 528
Services
Ad-Supported On-
Demand (Audio & 369
Video)
Source: RIAA Music Revenues Report, Mid-Year 2018 Source: RIAA Music Revenues Report, Mid-Year 2018
Ad-supported to paid audio OTT platforms – Spotify
Launched in 2008, Spotify is one of the major audio OTT platforms available today in several countries across the
globe. With more than 207 million39 monthly active users in December 2018, the audio OTT platform provides
music OTT services using the ad-supported as well as subscription business model. Similar to other music
OTT platforms, the freemium model at Spotify allows users to access millions of soundtracks, curated
playlists, artists-radio at no cost, with audio and display ads during music streaming. Spotify
Premium allows users to subscribe for ad-free, offline and high quality music streaming at ~
US$ 9.9940 monthly subscription cost. As at December 2018, the audio OTT service had nearly
96 million41 paid subscribers to its service. As seen for majority of the audio OTT platforms,
the ad-supported version provides its users with free but ads-inclusive and low quality/
resolution access to its library of soundtracks. The ad supported model can act as a
catalyst for users to sample the service and convert many to paid subscribers. Ad
supported services have also been a lever in combating piracy as consumers get
free access to vast libraries on demand.
37
RIAA, RIAA Music Revenues Report, Mid-Year 2018”, September 20, 2018
38
RIAA, “RIAA Music Revenues Report, Mid-Year 2018”, September 20, 2018
39
https://www.forbes.com/sites/monicamercuri/2019/02/06/spotify-reports-first-quarterly-operating-profit-reaches-96-million-paid-
subscribers/#4fc141225dc9
40
https://www.spotify.com/us/premium/ - Jan 2019
41
https://www.forbes.com/sites/monicamercuri/2019/02/06/spotify-reports-first-quarterly-operating-profit-reaches-96-million-paid-
subscribers/#4fc141225dc9
30Audio OTT Economy in India – Inflection Point
Figure 21: Streaming Channels
Subscription services
(such as paid versions of Spotify, Apple Music,
Amazon, TIDAL, and others)
Ad-supported on-demand Digital and customised radio
streaming services (such as YouTube, services (such as Pandora, and
Vevo, and ad-supported Spotify) other internet radio)
The U.S. music market has seen a Figure 22: U.S. paid music subscriptions (H1
substantial growth in subscription of the year average) (million subscribers)
revenues over the years due to adoption 46.4
of the latest technologies, continued
user adoption, and changing revenue 31.5
landscape from physical to digital. Paid
20.3
subscriptions have become the largest
format for music in revenue with a 9.1
growth rate averaging an increase of
more than 1 million subscriptions per
month.42 H1 2015 H1 2016 H1 2017 H1 2018
Source: RIAA Music Revenues Report,
While streaming revenues continue to Mid-Year 2018
increase; the gains were partly offset by
a fall in sales of downloads and physical 2018, offsetting a 13 percent increase
units. Revenues from downloads declined in revenues from sales of vinyl albums.
27 percent in H1 of 2018 to US$ 562 Revenues from shipments of physical
million, the lowest in more than a decade. products made up just 10 percent of the
Individual track sales revenues were industry total in H1 of 2018.44
down 28 percent year-over-year, and
digital album revenues fell by 26 percent. Overall, the U.S. music industry seems to
Downloads accounted for a relatively be healthy and consistently growing.
small share of 12 percent of the total On average, Americans spend over 32
industry revenues in H1 of 2018.43 hours every week listening to music and
this number has grown by over 35% in
Shipments of physical products the last two years 45. The developments
decreased steeply, in terms of revenue, and innovation in technology have
by 25 percent to USD 462 million in H1 also allowed music to be shared and
of 2018, a much larger rate of decline discovered more easily through social
than in recent years. Revenues from media platforms.
CDs declined by 41 percent in the H1 of
42
RIAA, “RIAA Music Revenues Report, Mid-Year 2018”, September 20, 2018
43
RIAA, “RIAA Music Revenues Report, Mid-Year 2018”, September 20, 2018
44
Statista, “U.S. Music – Statistics & Facts”.
45
https://www.forbes.com/sites/hughmcintyre/2017/11/09/americans-are-spending-more-time-listening-to-music-than-ever-before/#a7eac0c2f7f8
31Audio OTT Economy in India – Inflection Point
Implications for the Indian With nearly 374 million internet users
Growth of digital
recorded music industry currently, the industry is poised to grow
revenue in the Indian
US$ 102.1
further with continuously increasing
recorded music million
As an industry that has long been smartphone and internet penetration
industry
dominated by physical sales, the Indian across the country. Unique mobile
recorded music industry is now well on subscribers in 2017 were reported 2017
the digital path. Physical sales of CDs as 53 percent of the population by
has dropped steeply from 35.5 million GSMA intelligence in their report The
in 2013 to 0.4 million units in 201746. Mobile Economy 2018, a figure which is
Audio OTT platforms have been a key expected to increase to 63 percent by 2016
driver of growth, with digital revenue 2025.48
increasing from US$ 74.4 million in 2016
to US$ 102.1 million in 201747.
US$ 74.4
million
Latin America case study: Local artists Figure 23: U.S. Latin streaming music revenues (H1 2018)
going global
The Latin music market has continued its
outstanding transformation in the H1 of
2018. Latin music seems to have become
a worldwide phenomenon, driven by a
diverse streaming market and Latin labels
making intelligent investments to support
59% 21% 20%
and promote their local artists’ global
ambitions.
The Latin music business consistently
grew in the H1 of 2018, largely driven Paid subscriptions On-Demand Digital and customised
by paid streaming. Revenues grew 15 Ad-Supported radio services
percent, totalling US$ 135 million, while
Source: RIAA Mid-Year 2018 Latin Music Revenue Report
streaming represented a remarkable
91 percent of the entire market.49 A 49
percent increase50 in streaming revenues among others) were both, the largest YouTube, Vevo, and the free version of
in Latin America and the worldwide segment of the Latin music, and the Spotify) was up 30 percent year-over-year,
success of 'Despacito', second only to Ed primary driver of revenue growth. contributing US$ 26 million to revenue.
Sheeran's 'Shape of You'on the Global Top Revenues from paid subscriptions grew For Latin music, revenues from ad-
Ten Digital Singles List in 2017, made for a at a fantastic 70 percent to US$ 72 million, supported streaming sources made up
"double whammy". and consisted of 59 percent of the total a larger portion of the total, while those
streaming market by value.51 from unit-based sales such as digital
Paid subscriptions (a category that downloads and physical product indexed
includes services such as Apple Music, On demand ad-supported streams (a lower relative to the overall US market.52
paid Spotify, Amazon Unlimited, Tidal, category that includes services such as
46
IFPI Global Music Report 2018
47
IFPI Global Music Report 2018
48
The Mobile Economy 2018, GSMA intelligence.
49
RIAA, “RIAA Mid-Year 2018 Latin Music Revenue Report”, September 20, 2018
50
IFPI, “Global Music Report 2018”, March 2, 2018
51
RIAA, “RIAA Mid-Year 2018 Latin Music Revenue Report”, September 20, 2018
52
RIAA, “RIAA Mid-Year 2018 Latin Music Revenue Report”, September 20, 2018
32Audio OTT Economy in India – Inflection Point
Two of the most popular streaming including India.
platforms in Latin America are Spotify Besides 'Despacito', several songs have
(46 percent of total Latin American users also crossed barriers and are being
of streaming services) and Deezer (12 consumed by people across different
percent of total Latin American users countries. A few examples include
of streaming services). Of its global 170 'Gangnam Style', 'Mi Gente', and 'Kolaveri
million active users, Spotify reports Di', which appeal to a variety of audience,
having, after the first quarter of 2018, a inspiring each region to reproduce the
substantial 21 percent (25.7 million) as songs in their local language. 'Despacito'
Latin American users. inspired covers ranging from Indian
classical to Bharatnatyam. There were
Amidst the ecstatic tone of the IFPI report many renditions of this song in Hindi,
in reference to Latin America, music Marathi, Telugu, Tamil, Malayalam, and
company executives cite continuing several of those videos have garnered
financial challenges, more specifically millions of views of their own.
involving the problem of suitable
payment solutions for subscription Parallels with K-pop
services in a region where phone In 2018, K-pop won an increased audience
ownership and internet access are still not just in South Korea, but also in other
relatively limited, and many people do parts of the world ;YouTube views of
not have credit cards. K-pop music videos are an indication of
their popularity.
Diminishing boundaries of language
and region In India, Korean artists have not yet
Music videos are transcending become household names, but their
geographical and cultural boundaries popularity is increasing daily. Some of
because of factors like YouTube’s wide the trends of K-pop are showcased via
reach and efforts from music labels. In YouTube views of the popular K-pop
August 2017, the video of Spanish song artists from 2017 to 2018.
'Despacito' became the most watched
video on YouTube with five billion views.
It had set every single milestone in
record time (viewed 28 million times per
day53). The video of the song became
the most viewed video in 45 countries,
Figure 24: K-pop – Country-wise growth in YouTube views
2018 2018 2018
1.63 billion 1.29 billion 183 million
2017 2017 2017
966.8 million 582.8 million 46.9 million
South Korea USA India
69% 122% 290%
Source : https://www.allkpop.com/article/2019/01/which-k-pop-artists-received-the-most-views-on-youtube-in-2018
53
https://www.news18.com/news/buzz/what-indians-have-been-watching-on-youtube-for-the-last-10-years-1699627.html
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