Sebi and the roiled stock market

Sebi and the roiled stock market

The Securities and Exchange Board of India (Sebi) has put restrictions on the use of participatory notes in the capital market. This is welcome even at this late hour. But in a real sense, this is too late because the market had already jumped to the 19,000 mark, which reflects a more than 30% increase in one quarter. This initiative will certainly have a drastic effect on small investors. Foreign and big investors will withdraw and book huge profits. These investors have made big profits. Why did Sebi and the Reserve Bank of India (RBI) not react at the appropriate time? RBI and the government will have to put their fingers in their teeth after witnessing the shock that investors, especially the small one’s, will receive from the bullish market.

—P.N. Kumar

This is with reference to Café Economics, “A band and its business", Mint, 17 October, on the innovative pricing model of a rock band. Radiohead, the band, seems to have identified what several large content and media companies have failed to understand about the new digital economy —shifts in the value chain that have redefined value-extraction opportunities.

Recently, while browsing at an electronics store, I came across audio CDs of two new movies, Saawariya and Om Shanti Om. Both were selling for Rs160, a price that I felt was exorbitant, particularly when dozens of websites would allow me to download these songs for free! Good quality MP3 versions, which can be played on digital devices, are available within days of any music being launched.

What causes even honest persons to turn to “piracy" when it comes to content such as music, movies and books? Rs160 for good quality music is not unaffordable; most of us also clearly understand the concept of intellectual property and the need to protect it.

Yet, we choose to accept piracy. The Indian music industry, which is about Rs500 crore in size, loses an additional Rs500 crore to “traditional" piracy. The size of the digital piracy market is probably larger.

In urban areas, the market for music is increasingly shifting away from audio cassettes and CDs. Given the increasing popularity and affordability of MP3 players (within mobiles as well as stand-alone), and half a dozen FM stations playing the latest, popular songs several times a day, the business case for audio CDs appears bleak. Yet, the music companies price their audio CDs at Rs160 and expect thousands of consumers to buy them. Tighter anti-piracy laws or more frequent police raids on “pirates" will provide no more than an illusion of something being done.

Internet and digital technologies will provide newer and innovative ways of beating the laws and enforcement agencies. Music companies can only tackle piracy by making their offering better and more valuable to customers.

Selling audio tracks as singles through various digital distribution systems (websites, digital content kiosks, mobile downloads, etc.) at reasonable prices (say, a Rs9.99 equivalent to the 99cents i-tunes pricing) would be a good start. But like Radiohead did, new sources of differentiation or value will need to be discovered. For instance, the Om Shanti Om CD came with an autographed Shahrukh poster.

Exclusive deals with FM stations/TV channels and higher royalties could be a new source of value (FM and TV have traditionally been used to “promote" the music in anticipation of CD sales).

Live events and sale of innovative products (toys or games that incorporate popular music) could eventually get more rewards than basic content itself.

The music industry can continue to crib and try to tug at our moral sense by putting full-page ads flaying piracy, or reinvent its business model to be more in tune with the times.

—Srinivasa Addepalli