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One of the finest experts in industry and business of Music in India, Blaise Fernandes, President and CEO, Indian music industry (IMI), has written an indepth paper that makes a strong case for free market economics to unleash the full potential of India’s recorded music industry, which for no logical reason has a different licensing regime from that of the film industry, even though both are symbiotic.

Blaise says that had it been allowed to operate with free market values, the ₹1,277 cr Indian recorded music industry, which was ranked 15th globally in 2019, would have been worth approximately ₹3,332 cr to ₹4,107 cr in 2019*, placing it in the top 10 music markets in the world. Instead, the Indian recorded music industry is hampered by potential revenue losses of around ₹2,016 cr to ₹2,791 cr annually and a consequent decline in investments.

In the report titled ‘A case for free market economics in the Indian recorded music industry,‘ Blaise examines why there is a wide variation in the growth rates of the recorded music industry and the film industry that have up to 70% in common. The paper also aims to determine the reasons for the phenomenal growth of the film industry and contrast it with the stunted growth of the recorded music industry. 

As per the report, 70% of recorded music in India is film-based; the other 30% is largely classical, devotional, folk, and independent, and in India’s southern and eastern states, the ratio is around 9:1.

Considering 70% of recorded music in India is film-based, the growth of the film industry should have led to the growth of the recorded music industry. However, despite this symbiotic relationship, today the film industry is valued at ₹ 19,100 cr, while the music industry is valued at a mere ₹ 1,500 cr.

This phenomenon of cinema and recorded music is so deeply entrenched that a new trend of content for OTT Video platforms is emerging where recorded soundtracks embedded in OTT content are becoming popular and making it to the national charts.

The report outlines that the reason the two Industry didn’t grow synchronically could be a cumulation of Archaic laws compounded by unwarranted and unnecessary regulatory interventions, especially in the rapidly developing digital marketplace as well as exemptions from Public Performance Rights, due to policy gaps point to the wide revenue gap between the recorded music and film industry. 

IMI estimate around ₹2,016 cr to ₹ 2,791 cr annually is lost by the recorded music industry due to obsolete laws eroding the fair value of the copyright, safe harbor provisions under Section 79 of the Information Technology (IT) Act, 2000, leading to a value gap between the copyright holders and platform and exemptions from Public Performance Rights that continue to debilitate the growth of the recorded music industry in India.

Key Highlights:

A comparative analysis of the growth rates of the film industry and music industry

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As per FICCI’s report, in the year 2019, the valuation of the film industry stood at ₹19,100 cr. whereas the valuation of the Music Industry was only ₹1,500 cr. While the cumulative growth of the film industry from 2005 to 2019 surmounted 186%, the growth of the music industry was only 81%.

If on average, an Indian film features 4 soundtracks, the 2446 films produced within the country would mean 9,785 film soundtracks would have been released in the same year. Further, theatrical reach in India was 10.5% of the population in 2019.

On the other hand, recorded music is largely consumed online as 79% of the recorded music accounts for digital consumption.

However, despite remarkable digital developments like increased internet penetration accounting to 50% as compared to 27% five years ago, 9 cheapest average costs of 1GB data in the world ($0.09), 10 low average costs of a smartphone at ₹ 11,500,11, etc., have experienced slow growth compared to the film industry.

Industry Growth (in ₹ bn)
Year Music Film
2005 8.3 66.9
2006 7.8 81.7
2007 7.4 96.4
2008 7.3 109.3
2009 8.3 104.4
2010 8.6 83.3
2011 9 92.9
2012 10.6 112.4
2013 9.6 125.3
2014 10 126
2015 11 138
2016 12 122
2017 13 156
2018 14 175
2019 15 191

In the year 2019, the valuation of India’s film industry stood at ₹ 19,100 cr. whereas the valuation of the music industry was only ₹ 1,500 cr.  While the cumulative growth of the film industry from 2005 to 2019 surmounted 186%, the growth of the music industry was only 81%.

Factors in the recorded music industry that inhibit the growth trajectory 

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Non-voluntary Licensing 

The foremost reason for the recorded music industry not achieving the potential the film industry has reached is the existence of non-voluntary licensing of recorded music which was initiated in 2001 to support the then-nascent radio industry.

Exemptions from PP Rights 

Another key factor depriving the recorded music industry of fair compensation is the waiving of the Public Performance fee for the non-traditional parts of Indian weddings. 

Today, a wedding is an expensive affair with a multitude of non-traditional events attached to it for the purpose of entertainment. Music is an integral part of these non-traditional events like the cocktail and sangeet.

Copyright Law under Section 52 (1) za exempts from the purview of infringement, the use of copyrighted work only in religious/traditional ceremonies associated with a marriage. However, a public notice18 issued by the Indian Copyright Office in August 2019 wrongly extends the exemption even to non-traditional events associated with marriage. 

The non-issuance of PP license due to the confusion caused by this notice results in an annual estimated loss of ₹723 cr. to ₹ 1,000 cr.

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Intermediary Liability and Digital Music Piracy

With the increasing penetration of the internet and non-stop consumption of digital content globally, online intermediaries have observed a favorable growth. 

The double-edged sword of digital developments has led to a high music piracy rate in India. Usage of pirated music content was 67% of the surveyed music listeners in 2019, compared to a global music piracy rate of 27%. 

Music pirate activities are against free market values as it inhibits fair competition in the recorded music market by allowing rogues platforms to reap benefits of the hard work of others labour. 

As a result, the motivating factor of fair remuneration is absent and does not encourage innovation to gain a competitive edge. It is estimated that visits to illegitimate websites and apps lead to revenue losses of ₹217 cr. to ₹300 cr. annually to the recorded music industry.

Intermediaries, especially, short-video user-generated content (UGC) platforms like Likee, which predominantly rely on music to create content and keep users engaged, have proliferated in the digital market.

Further, various social media platforms such as Facebook and Instagram, have introduced similar features which allow their users to generate short-form video content to post on their platforms.

Technology companies that own such intermediaries or platforms which run on the back of the recorded music industry’s output enjoy high valuations and investment flows into their platforms.

On the other hand, the Indian recorded music industry has been affected adversely. These online intermediaries engaged in hosting user-generated content have been reported to monetize the services through utilizing user data and generating advertising revenues at the cost of unauthorized use of copyrighted works.

Moreover, under the existing legal framework, short-form video platforms shield themselves using Section 79 of the IT Act, 2000, and are therefore not held liable for unauthorized content uploaded on their platform, therefore, resulting in a revenue loss between ₹145 cr. to ₹200 cr.23 annually to the recorded music industry.

The current legal framework contributes to platforms going scot-free, creating a large value gap in revenue realized between various online intermediaries which enjoy high valuations and the recorded music industry.

This discourages the stakeholders, essentially creators and investors in the recorded music industry. Such lax laws do not encourage creativity and innovation.

The wide value gap as a result of the inadequate policy which allows for the unrestricted usage of unauthorised copyrighted music has prevented the recorded music market from operating in a free market and led to an estimated annual revenue/investment leakage of an additional ₹506 cr. to ₹ 700 cr.

Over time, these factors have had a negative impact on the overall growth of the music industry. The breakup of the potential loss to the recorded music industry is summarised from the factors above:

  • Protective music licensing regime of the radio industry has resulted in a loss between ₹ 163cr. to ₹225 cr. to the recorded music industry.
  • The amount of loss due to exemptions in Public Performance Rights is ₹723 cr. to ₹ 1,000 cr. and an additional loss of ₹264 cr. to ₹366 cr. from pending status grant as a copyright society to PPL.
  • Potential revenue loss between ₹506 cr. and₹ 700 cr. due to value gap as a result of intermediary liability provisions and a further, revenue loss of ₹361 cr. to ₹500 cr. attributable to digital music piracy as well as unauthorised content on short form UGC apps.

The flywheel effect of free market economics on the value chain of the film industry

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Applying the ‘invisible hand’ theory of Adam Smith, the examples of free-market policies in the film industry are:

  1. Voluntary licensing between all stakeholders ensuring the copyright owners a fair price for their product.
  2. Fair collection of public performance license fees.
  3. Deregulation of ticket prices and withdrawal of draconian taxes levied on the film production and distribution process by the introduction of Income Tax Act, 1961 and Income Tax Rules.

These policies led to the exponential growth in the revenue collection at the box office, and the following flywheel effects:

The growth of the multiplexes 

  • Free ticket pricing expanded box office collections attracting more investments from investors like INOX
  • As a consequence of large investments, the number of multiplex screens increased -playing a key role in India’s infrastructure development. The number of multiplex screens has increased close to fourfold from 925 in 2009 to 3200 in 2019. Further, an estimated annual capital expenditure of ₹ 20.8 bn in 2019 was spent on multiplexes alone.
 

Year

 

No. of multiplex screens

Estimated Annual    Capital Expenditure (in

₹ bn)

2009 925 14
2011 1225 28
2013 1500 34
2015 2100 74
2016 2450 110
2017 2750 155
  • From standalone multiplexes, multiplexes made an entry into malls. Their importance to footfalls in the malls has had such an impact that they are now usually the anchor tenant in all malls.
  • An expanded box office has ensured that the improved benefits are not restricted to big stars but extends to all talent both on and off cinema sets. For instance, the spot boys on sets who were paid ₹. 750 in 2010 today make ₹. 1500 per day.
  • Further, an expanding box office not only ensured investments from Hollywood but also resulted in the making of better quality films that travel far and wide.

Economic benefits to the smallest stakeholders

Free market economics in the film industry has not only led to fair remuneration to rights holders but also delivered benefits to the smallest stakeholders involved in film production stages, from the spot boy to the cameramen to the drivers of film stars.

The cost per shift for a spot boy and a star driver was ₹ 750 and ₹ 5000 respectively in 2010, while in 2020, the respective cost per shift increased to ₹ 1500 and ₹ 15000, respectively.

In the ’70s Hair and Make-up artists were paid ₹ 150 per shift. During the first decade of the 21st century, Make-up artists were paid ₹ 10,000 per day. The salary of a photographer has seen a steady increase each year from ₹ 35,000 in 2008 to ₹ 71,600 in 2017.

The Multiplier Effect – Film Production rises

The free market conditions in the film industry introduced a positive multiplier effect in the number of films produced in a year. As per reports by Central Board of Film Certification (CBFC) of India, there has been a rise in the number of Indian feature films released from 943 in 2002 to 2446 during the financial year (FY) 2018-19.

 

Year

Films Certified (Indian Feature Films)
2001 1013
2002 943
2003 877
2004 934
2005 1041
2006 1091
2007 1146
2008 1325
2009 1288
2010 2126
2011 2162
2012-2013* 2621
2013-2014 2751
2014-2015 1912
2015-2016 2336
2016-2017 2480
2017-2018 N/A
2018-2019 2446
Calendar year (CY) figures from 2001-2011, FY figures for following years. *Figure includes number of films certified from Jan-March 2012

 

The multiplier effect further resulted in additional employment generation – with the number employed in the industry rising from approximately 1,60,800 in 2013 to 24,86,000 in 2017.

Given that the film industry and the recorded music industry are symbiotic, there is no reason why they should have different licensing regimes.

Had the recorded music industry been allowed to operate with free market values, the ₹ 1,277 cr. the recorded music industry would have been anywhere between 1/5th to 1/4th the size of the ₹ 19,100 cr. the film industry, approximately ₹3,332 cr. to ₹4,107 cr. in 2019.

A revenue of ₹ 4,107 cr. would place the Indian recorded music industry in the top 10 music markets in the world, at around the 6th rank.

The factors that lead to potential losses of around ₹2,016 cr. to ₹2,791 cr. annually to the recorded music industry:

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A deficit of ₹163 cr. to ₹225 cr. royalties denied to the music industry by Broadcast Radio thanks to archaic laws such as Compulsory and Statutory Licensing which were introduced when Broadcast Radio was at a nascent stage. Today per the same FICCI FRAMES Report Private Broadcast Radio is at ₹ 3100 cr. when compared to recorded music at ₹ 1500 cr.

The Office Memorandum (OM) issued by DPIIT inaccurately includes internet-based services under the scope of broadcasting organizations, resulting in huge potential losses, considering 73% of the recorded music industry revenues are attributed to streaming. The withdrawal of the OM would allow for investments in I-pop plus other regional genres as well as impact 53% of the recorded music industry revenues

A ₹723 cr. to ₹ 1,000 cr. the deficit is from public performance revenues at wedding ceremonies, vide a notice the westernized celebrations at wedding ceremonies are exempt from procuring public performance licenses for use of recorded music while the GOI imposes a 3% GST on Mangalsutra the most sacred element of an Indian wedding. Further, an additional loss of ₹ 264 cr. to ₹366 cr. due to the pending status of PPL’s reregistered application to be recognized as a copyright society.

A revision to intermediary liability provisions under Section 79 of the IT Act would help the recorded music industry realize the ₹ 145 cr. to ₹200 cr. revenue leakage coming from short-form video content apps that are now proliferating the market in India and content uploaded by users on BIG TECH platforms, these platforms monetize the user-generated content via ad sales. The BIG TECH platforms enjoy higher valuations in large users and ad base, this value gap between the recorded music industry leads to further annual losses of ₹506 to ₹700 cr.

Music piracy on digital platforms costs the recorded music industry ₹217 cr. to ₹300 cr. in revenues.

Case study: Video Industry in Indonesia

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Indonesia’s Video Industry is a key example of a market that has reaped the benefits from the actions, in particular, anti-piracy actions employed by the government as well as from the collaboration of the industry. 

Between August, 2019 to Jan 2021, Indonesia reported a major decrease of 72% in context to consumers accessing illegal streaming sites or pirated sites.

The following tactics have been deployed by Indonesia to thwart piracy:

  1. Collaboration b/w the govt and the creative sector
  2. Rolling site blocking 

As a result of free-market economics and limited government involvement, legal services grew by 30% around 2019 and 2020

This led to a massive reduction in consumers who accessed pirated websites by 55% between September 2019 and June 2020, while 28% of online consumers admitted to accessing pirate websites compared to 63% in September 2019. 

ISD (Illicit Streaming Device) usage in Indonesia also fell from 29% to its current levels of 6% – the lowest in Southeast Asia.

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In conclusion the research paper puts forth some strong arguments that if considered for implementation, would indeed strongly empower the Indian recorded music industry.

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With the film industry the flywheel effect eventually led production houses to invest in and reap rich dividends from new genres of films such as 3 Idiots, English Vinglish and Bahubali. However, in the case of the recorded music industry, due to the lack of free market economics, there has been no incentive to invest in new genres. Those who invested in new genres despite all hurdles have not been able to effectively monetise their investments.

The contributing variables to successful growth in both the industries depends primarily on financial fuel i.e., investment. When free-market conditions prevail, investors tend to take on high risks as can be clearly seen in the case of the film industry. However, if the free-market economy is disturbed, it would affect fair market values negatively, leading to a decline in investments as is evident in the case of the recorded music industry.

The export potential is huge for the recorded music industry, a song can travel far and wide in the digital era.

A liberal economic policy for the recorded music industry and its ensuing flywheel effect would result in:

  1. Greater employment generation: This goes beyond singers there are also authors, composers, publishers, sessions musicians, record labels, platforms like Spotify and GAANA.
  2. Increased earning on the periphery of the organised music industry: Once songs are created there are members of the local music cottage industry like the Nukkad DJ ‘S and the Brass Bandwallas who also
  3. Higher Infrastructure development: expect AIG, and Ticketmaster to create venues like the O2, Staples, Madison Square
  4. Increased export earnings and growth: Brazil’s music revenues are around US$ 313 million of which it is estimated approximately 50% comes from

The Government of India needs to let free market conditions play in the recorded music industry for it to experience the film industry’s revenue growth. The recorded music industry in turn is ready and willing to support the Government of India on All India Radio (AIR) and Prasar Bharathi (PB) in the interest of promoting social good.

Further, given that the film industry and recorded music industry are symbiotic, there is no reason why they should have different licensing regimes. Had it been allowed to operate with free market values, the ₹1,277 cr. Indian recorded music industry, which was ranked 15th globally in 2019, would have been worth approximately ₹3,332 cr. to ₹4,107 cr.62 in 2019, placing it in the top 10 music markets in the world.

Instead, the Indian recorded music industry is hampered by potential revenue losses of around ₹2,016 cr. to ₹2,791 cr. annually and a consequent decline in investments.

Since India’s linguistic heterogeneity — 22 languages recognised by the constitution of India and 19,569 local dialects — mirror the cultural diversity of Continental Europe, it is plausible to believe that India can aim to be on par with the size of the European music market in a decade.  This will happen mainly on the back of the currently 448mn smartphone users growing up to 973 million by 2025 compounded with the lowest data pricing in the world currently at $0.09 per GB of data.

In addition, the 700 million unique bank accounts, swift moves towards digital transactions — around 2.3 billion UPI transactions happen in a month — and the Government of India’s Bharat Broadband programme BharatNet will bolster progress. The World Economic Forum predicts the Indian Middle-Income population to be 386 million by 2030 compared to 293million in 2018, the same report indicates that in 2030, 77% of India’s population will comprise of Millennials and Gen Z.

The digital advertising market has been growing at a CAGR of 24.12% from 2016-20 and in 2020 was ₹21,726 Cr. Assuming the CAGR follows a similar growth pattern over the current decade, the digital advertising market is estimated to be ~₹1.66 lakh cr. by 2030. A digital regulatory system being built around JAM (JanDhan – universal basic income, Aadhar – unique identification program and Mobile) controlled by the state which is promoting an interoperable ecosystem, to prevent a winner takes all situation, thereby enabling a number of digital services to co-exists and the market to bloom.

As per the IFPI GMR 2020 Report, the recorded music revenues for Europe accounted for $ 6,105mn or ₹42,997.5 Cr. In addition, the Live Music Revenues were more than $8,882mn (₹62,555.9 Cr) and Publishing Revenues were $6085mn (~₹ 42,861 Cr.) in Europe for 2019. If these archaic laws are removed, India surely has the potential to be among the top 5 markets by 2031.


Blaise Fernandes, President and CEO of IMI (Indian Music Industry), the apex body that represents the recorded music industry in India. He has headed Warner Bros., as CEO — for 20 years, and has over 33 years of experience in the entertainment industry. Formerly CEO, he currently serves as a Director on the board of Gateway House, a foreign policy think-tank. Blaise also sits on various committees at trade bodies like CII and FICCI.