Mumbai: There’s little music in this year’s Budget for the nascent Rs1,200 crore mobile content industry which provides ring tones, wallpapers and movie clips to India’s 160 million mobile telephone subscribers. Content providers will now have to pay service tax and the education cess, which will total to around 12.24% on all services provided. Consumers generally bear these costs, but mobile content companies aren’t sure whether this will work in their case.
The average revenue per user (ARPU) for Indian mobile phone companies is Rs300-350 a month, indicating that customers don’t—and wouldn’t like to—pay more.
“Any price increase is bound to have an effect on consumers,” says Abhijeet Saxena, president and CEO, Digital Media Convergence, the mobile content arm of the Essel Group. A price increase could discourage users from downloading content which, in turn, will hurt the content providers. “The share we receive from mobile phone service providers is already pathetic,” says Saxena.
By most accounts, in any deal, 50% of the revenue goes to the service provider, 30% to the content copyright holder and the rest is marked for content providers—companies such as Digital Media Convergence, which buy rights to content from movie production houses, media firms and music companies, repackage them for use on mobile phones and market them.
The mobile content industry also have to live with another problem: according to a report by the Internet and Mobile Association of India (IAMAI), a large proportion of India’s mobile users are opting for low-end handsets that don’t support the products content providers offer.
The proposed tax hampers a scenario envisioned by the IAMAI—that Indian content providers consolidate and, through greater bargaining power, force mobile operators to share a greater percentage of revenues. Just what their Chinese counterparts have done.
Sunil Wadhwani, director of T-Series—which provides music clips, ring tones, and wallpapers to telcos—says the tax was unexpected and that at first sight, it doesn’t seem right. “We provide music content on CDs and cassettes—a physical format—for which there is no excise duty. Now if I provide the same thing directly to a mobile-phone company and there’s a service tax, it’s an anomaly,” he says.
But the biggest casualties of this tax could be mobile phone service operators themselves. According to the report, fierce competition has brought down profit margins, and several telcos are dependent on mobile content for a large chunk of their revenue.
“It’s a disappointing step,” says Arpita Pal Agrawal, associate director, telecom practice, PricewaterhouseCoopers. “The new tax on content, if passed on to subscribers, will slow down usage and the take-up of such services at a juncture when mobile phone operators are counting on increased ARPU from mobile content-based value-added services to shore up revenue per user,” she adds.
As for the content companies, they do not know which way to turn. “The mobile value-added services industry is so young, it doesn’t even have a formal industry body (to lobby for it),” says Saxena.