India could become a Top 5 music market in a decade according to IMI report

 

By Emmanuel Legrand

Just by the size of its population, India should be one of the world's largest music largest market. The Netherlands, which is less populated than the city of Mumbai, is the tenth biggest music market in the world, while India trails behind at 15.

  Blaise Fernandes, President & CEO the local music industry organisation, the Indian Music Industry (IMI), believes that India has the potential to become a Top 5 market in the world within a decade, providing the sector goes through some structural changes.

  The hindrances to the growth of the music market in India have been highlighted in the recent report titled 'A Case For Free Market Economics In the Indian Recorded Music Industry', a research paper by the IMI that tries to understand why there such is a massive discrepancy between the value of the music industry in India and that of the film industry.

 Bring in free markets economics

  Most of the music consumed in India comes from film soundtracks, so it would be fair to assume that one industry would feed the other, but it hasn't been the case. Let's call it the Indian paradox.

  To understand the reason for this situation, the report 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," according to Fernandes, who penned the research paper.

  "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. Further, this paper hopes to establish the need for bringing in free market economics to the recorded music industry to enable the recorded music industry to reach its full potential."

Unecessary regulatory interventions

  Fernandes notes that 70% of recorded music in India is film-based, while the other 30% is largely classical, devotional, folk and independent. For Fernandes, "the growth of the film industry should have led to the growth of the recorded music industry," but if the film industry was worth ₹ 19,100 cr. in 2019 ($2.55bn), the music industry was valued at a mere ₹ 1,500 cr ($200.7m).

  For Fernandes, the revenue gap between the recorded music and film industry is mostly due to "archaic laws compounded by unwarranted and unnecessary regulatory interventions, especially in the rapidly developing digital marketplace as well as exemptions from public performance rights."

  He estimates that around ₹2,016 cr. to ₹ 2,791 cr. ($269.7m-373.4m) are lost annually 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."

Inhibit the growth value of the market

  The report outlines in more details these issues that "inhibit the growth trajectory and the potential value" of the recorded music industry in India.

  > Non-voluntary Licensing
  The report dates back to 2001 one of the "foremost reasons" why the recorded music industry is not achieving the potential the film industry has reached: The existence of non-voluntary licensing of recorded music to support the then nascent radio industry. Record labels, according to the IMI, did not get proper compensation from radio stations for the use of recordings. The initial rate for public performance rights was 20% of net advertising revenues in 2001, to be collected by Phonographic Performance Limited (PPL). But the rate was challenged by radio stations until the Copyright Board passed an order setting a 2% NAR compulsory license rate in 2010, which was still in force in 2020.

  > Exemptions from public performance rights
  One of the key exemptions from public performance rights introduced by the Copyright Board relates to weddings. A public notice issued by the Indian Copyright Office in August 2019 extends the exemption even to non-traditional events associated with marriage. The IMI considers that the exemptions was "wrongly" issued and is costing the industry between $200 and $250m. 

  > Intermediary liability
The report notes that intermediaries or platforms which run on the back of the recorded music industry’s output, "enjoy high valuations and investment flows into their platforms" but these online intermediaries enjoy a legal framework which creates "a large value gap in revenue realised between various online intermediaries which."

  > Digital music piracy
  The IMI also points out that usage of pirated music content "was 67% of the surveyed music listeners in 2019." Music pirate activities "inhibits fair competition in the recorded music market by allowing rogues platforms to reap benefits of the hard work of others labour," reads the report which estimates that visits to illegitimate services cost the industry $26-39m a year.

Encouraging entrepreneurship

  In its conclusions, the reports notes that the ₹ 19,100 cr. value of the film industry "is attributable to free market structure which encourages entrepreneurship and fosters innovation." Thus, the IMI calls for major changes, in particular in the licensing regime.

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

  For the IMI, 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. 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."