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 18.2 0.2 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 14.2 0.3 0.3 0.4 0.4 1.4 1.6 0.3 6.6 14.1 3.7 1.4 1.8 0.3 2 1.9 0.4 0.6 4.7 3.9 1 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.