The following OPED was published on 28th August 2020 in the Hindu Business Line.

Shackles on the recorded music industry will impair its capacity to fund films, for which it acts as a sort of venture capitalist

The Indian recorded music market is special in many respects. But the market, unfortunately, has to operate under the spectre of price controls in some areas of its business, and there’s the threat of such controls extending to newer areas.

The Government should refrain from imposing price control if the Indian music industry is to be an Atmanirbhar Bharat story. Instead, it must review the existing unfair provisions that restrict the growth and development of the industry, and undermines India’s ability to leverage music’s significant soft power potential overseas.

Like every enterprise, the recorded music industry creates economic value to all those connected in the value chain; artists, writers, composers, lyricists, musicians. Recorded music creates economic value and employment in sectors ranging from television, radio, digital distribution, social media, cinema, and live entertainment. Moreover, the soft power component of the industry has a significant value which is hard to quantify. The industry also supports the livelihoods of millions — from brass band-wallas and folk musicians to DJs, makers of musical instruments and hardware manufacturers. No original soundtracks, no jobs for these people.

At a pan-India level, the recorded music industry is always the first outside investor in the Indian film industry, which produces close to 1,000 films annually. One of the first set of rights amortised by the movie producer is ‘music rights’. The record labels play the role of seed investor or venture capitalist when they acquire music rights before the movie starts production.

Music rights

As per various independent industry reports, payments made to film producers by the recorded music industry meets 12-18 per cent of the production costs of the ₹10,000 crore movie industry. An important source of revenue comes from the licensing of music rights — aka original soundtracks or OSTs. The licensing terms and conditions are always based on market dynamics.

According to IFPI (International Federation of the Phonographic Industry), 70 per cent of music content consumed across India is from OSTs. The remaining 30 per cent is non-film music, where again market conditions determine the cost of the soundtrack or album. Acquisition costs of film soundtracks have seen increases ranging from 100 to 500 per cent across India. These increases are due to a functioning marketplace and the increasing demand for music entertainment.

When there is a functioning marketplace in the “upstream market” of acquisition of music content, it follows that the market should also be allowed to work freely in the “downstream” market of licensing recorded music to different sales and distribution channels — including commercial radio. If the government pursues statutory licensing for music, the immediate impact will be on the music label’s ability to acquire/fund new content which in turn affects the film industry’s ability to fund films.

If there are no controls on input costs by way of royalties or acquisition rights paid for acquiring these soundtracks, why should there be control on the pricing of recorded music content by way of statutory licensing? Well, the rationale for introducing statutory licensing was that radio was at a nascent stage, and such licensing would help the industry to take off. Today, however, the radio industry, by its ownestimates, is a ₹3,100-crore industry, which pays the recorded music industry for all the music it plays approximately ₹75 crore.

That amount in no way reflects the value of the music for radios. Here is why. Like the engine that powers the McLaren in the FI race, the engine that powers the radio industry is recorded music, which accounts for around 83 per cent of airtime. A 10 per cent royalty of the radio industry topline for the music that powers the ₹3,000 crore industry would be a fair ask even if radio is regarded as a “social good”.

In comparison, in the TV broadcast industry, the average cost of content is 20 per cent of broadcasters’ revenue, and the TV networks assume to a large degree the financial risk for the content — unlike radio stations that take no risk for the content and cherry-pick the music they want to play.

The 204 active recorded music labels in India are predominantly in the MSME sector and a handful in the mid-cap category. These music labels truly embody the spirit of Digital India, Make In India, and Start-up India. They thrive on creativity and innovation.

Let market forces play out in the recorded music industry, it will be the fertile ground to attract both domestic and international investments and additional employment will be generated. The Korean music industry K-POP is estimated to become $50 billion by 2025. Tencent Music has a valuation of $20 billion on the NYSE.

In India, we have diversity in culture and language, we have many stories to tell via song. For reaching global heights, the price control should be abolished —it’s a relic of the bygone era.

The writer is President and CEO, Indian Music Industry

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