For music apps, expanding user base, not revenue, is the focus area
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Bengaluru/Mumbai: There’s no such thing as a free lunch. Someone forgot to tell Rithwick M. that.
The Hyderabad-based engineering student taps the Saavn icon on his cellphone for its vast music collection and the convenience of music on the go. But like other non-paying users, he encounters frequent ads.
“I bear with the regular interruptions,” he says.
He has to; for Saavn and others of its kind that provide music-streaming services, there are only two ways to go about it: one, charge a monthly fee and two, serve ads to non-paying customers and generate some advertising revenue. Rithwick and millions like him have picked the second option.
Saavn isn’t the only one facing thrifty users in India’s music streaming market, estimated by consultancy firm Deloitte Touche Tohmatsu Ltd to touch 273 million users by 2020. Others jostling for space include Times Internet Ltd-run Gaana, Hungama Digital Media Entertainment Pvt. Ltd, Saregama India Pvt. Ltd and even global names such as Apple Music, Rdio Inc. and Guvera Ltd.
India’s oldest music label Saregama India Ltd also has Internet radio on its website, and has recently launched a mobile app to stream Indian classical music.
Last September, India’s largest telecom operator, Bharti Airtel Ltd, launched Wynk Music, competing for the same set of ears.
The music industry has been turned on its head in the last decade-and-a-half. Audio CDs and magnetic tape cassettes made way for digital music after Apple Inc. in 2001 launched its online store iTunes that let listeners buy individual songs instead of entire albums.
The ease and security of Apple iTunes convinced the sceptical music industry of the future of digital music. Then followed music-streaming services, such as Pandora and Spotify,that let subscribers select or create online playlists and listen to them over an Internet connection, instead of downloading them.
As smartphones and the app economy evolved, music streaming migrated to mobile phones. That’s great news for music lovers and a significant opportunity for music-streaming services, but revenue is another story.
“Since the business is at an early stage, we are really focused on growth, and we want music labels to work collaboratively with us to stem piracy,” said Pawan Agarwal, business head at Gaana.com.
ShamikTalukder, general manager and India head at Rdio, agrees, stressing that piracy was one of the biggest challenges his company faced in Asia’s third-largest economy and ending it depended on making music purchases as frictionless as possible, to tempt users away from pirated tracks.
Saavn and Hungama did not respond to Mint’s requests seeking comment for this story.
The potential of the online music-streaming market is tempting enough to let go of piracy worries and revenue considerations for the moment.
Music-streaming firms point to the potential of generating ad revenue from scaling up their user base and the fact that the number of paying users is growing fast, even though it’s currently small.
Gaana’s Agarwal said that paid -user revenue rose 10 times in the last year but did not reveal the exact number of paying users out of its 15 million users.
Like many other Internet businesses, music-streaming services are backed by venture capital and private equity firms, which are betting that these start-ups will find ways to monetize their vast bases in a meaningful manner at some point in the future.
Not surprisingly, increasing user base is the cardinal rule for all these companies, especially since most users do not pay.
“For music streaming to work for both record companies and artistes, the business model needs scale with lots of users. India (as well as China) is arguably the best market to achieve such scale,” said Simon Dyson, practice leader (music) at Ovum Ltd, a research firm.
The ad-supported business model, however, does not make as much money for these companies as subscriptions, which is the second way for music-streaming services to monetize.
Users can pay a monthly subscription fee and their access to music is ad-free, with offline access over multiple devices.
Apple Music charges start from Rs.120 a month, while for Saavn, Gaana and Hungama, it is from Rs.99 a month. In India, though, the current penetration for the subscription music services is less than 1% among all online music listeners, according to Deloitte.
Although their business models are similar, the subscription services could potentially differentiate themselves, based on their levels and accuracy of curation, said Smita Jha, leader of the entertainment and media practice at PwC India, a professional services firm. Saregama’s app for classical music is one such initiative, clocking 50,000 downloads in two weeks of its launch.
Founded in 2009, Saavn Llc, which claims to have 18 million active monthly users, raised $100 million from venture capital firm Tiger Global Management Llc in July. Gaana.com, launched in 2011, has received an undisclosed strategic investment from Micromax Informatics Ltd, Mint reported on 15 October.
Apple Music started streaming music to 100 countries, including India, in July. Analysts expect other international streaming services, such as Spotify AB and Deezer to follow suit, triggering consolidation along the way.
Others such as San Francisco-based Rdio and Australia-based Guvera are already in India.
“India is a major focus for Guvera and will receive significant attention from the group to get this right and deliver an equally significant impact for music in India,” said Guvera’s Asia business development head Ananya Amin.