If you were wondering about why Bharti Airtel decided to set up separate divisions for Mobile Entertainment and Mobile Commerce, here one reason: Deputy CEO Sanjay Kapoor told PTI that “Music Bharti” is the largest music company in India, with more revenues than BSE listed Saregama India. (Hat Tip: NeverClever on Twitter) It is worth noting that Saregama India has not yet announced its financial results for 2008-09, and it earned Rs. 143.7 crores in revenues during the 2007-08 fiscal (FY08). But, according to our calculations, Airtel’s music revenues are significantly higher than those of Saregama.
Much like other telecom operators, Airtel does not produce music, but earns revenues from music distribution via caller ringback tones, mobile radio and music on demand. Along with SMS, Mobile Music is the largest contributor to Airtel’s Value Added Services Revenue. Rs. 481.3 crores of Airtel’s Value Added Services (VAS) revenues in Q4 were not from SMS. This non-SMS component has steadily been growing for Airtel, despite total VAS revenues flattening out over the last 2 quarters. (Details here).
What Kapoor hasn’t talked about, is the sheer margin by which Airtel is ahead of Saregama in terms of total music revenues.
Airtels Music Revenues: A Calculation
Taking a highly conservative assumption that Music accounts for as little as 40% of Airtel’s Non-SMS VAS revenues – it’s probably closer to 55% – we calculated that Airtel had revenues of at least Rs. 708 crores from music distribution in 2008-09 (FY09), up from Rs. 458.4 crores in FY08:
At 55% (chart) of non-SMS revenues, Airtels music revenues in FY09 would be Rs. 973.5 Crores, and with a total of around Rs. 87.8 crores in the first three quarters of 2008-09, Saregama would need a miraculous Q4 to beat that.
Airtel’s A Distributor, Not A Publisher
In all of this – this positioning game – it’s important to note that Airtel aggregates and sells music from many music publishers including Saregama, T-Series, Yash Raj Films, UTV, Rajshri Films, and several publishers from SIMCA. As the largest telecom operator of just 12 operational telcos, Airtel enjoys a lions share of the mobile music distribution space. Keep in mind that Airtel does pay out anything between 30-50% of its gross receipts from music to VAS Providers, Content Aggregators and publishers.
However, this claim and our calculations are indicative of the growing importance of mobile distribution in the music business. Unfortunately, companies like Saregama haven’t given a break-up of digital and non-digital revenues.
Note: In case you disagree with Airtels claims – do refute them in the comments. In case you spot any mistakes with our calculations, please do feel free to correct us. We will update accordingly.
Related:
– Saregama Financial Results: At the NSE
– Airtel Restructures: M-Entertainment, M-Commerce Segments; Manoj Kohli, Sanjay Kapoor
– Updated: Q409 Results: Bharti Airtel Reports Q4 Net Profit Of Rs. 2239 Crores; ARPU, Minutes Of Use Down; M-Banking
– Motorola To Shut Down Digital Music Business Soundbuzz
– WorldSpace Eyes Web Based Services In India
– Q109 Call: Nokia Services Revenues Linked To Handset Sales; XpressMusic Tops The Charts
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16 Comments until now.
Hi Nikhil,
I am not sure how Airtel reports its VAS revenues, but I remember seeing somewhere (maybe one of the IMAI reports) that C2C (people SMSing each other) is by far the largest VAS segment (~40%) and games are also quite big. Therefore, I will not be willing to attribute 40-55% of Airtel's VAS revenues to music. I think it may be in the range of 25-35%… does not change the result though, Airtel Music (or maybe Reliance Music, if there is any such entity) would be the largest music company in India.
AcK
Interesting take..It is the similar scenario to what Google (or other search engines) is to News on Internet, Airtel is to Music industry!
The content providers need to relook at their revenue models…or may be its too late…the bargaining power is already far too much in favor of telecom companies now!!
AcK: I'll correct the table: We've taken Music as 55% of Non-SMS VAS revenues. take a look at the bar-chart above – SMS is the largest component. Games is still appears to be very small. Too much hype around mobile games, imho.
uploading corrected tables. thanks,
You need to understand 2 most important music distribution applications on mobile:
1. CRBT (Caller Rign Back Tone/Hello Tune/Caller Tune etc)
2. MoD (Music on Demand)
There is no issue with handset compatibility and both these apps are piracy proof. They play as stream from telco servers and are never downloaded/stored on the handset – hence no piracy.
Ringtones market is almost but dead – lots of piracy/search/discovery issue. Cost of promotion is more than the revenue.
Of the 2 successful application (CRBT/MoD), the revenue comes in two ways:
1. Monthly subscription – lot of combinations – Rs 1/day to Rs 30/month.
2. Actual usage/activation – when user actually selects the CRBT or listens to the music/songs. For CRBT it is anywhere from Rs 10-15 per activation and for music it is 30p/min to 1Rs/min.
Subscription money is shared between the platform owner (OnMobile/Cellebrum/Bharti Telesoft etc). And rarely any money comes to the content owner. Content Owner/aggregator gets rev share on the usage/activation anywhere from 15%-35% depending on negotiating power/skills (in that order ;)
Now take an example where the user subscribes to CRBT service and changes the tone once every month the revenue will be:
1. 12*30 = 360
2. 12*15 = 180
Total Rev= 540
In best case scenario the content owner/aggregator gets 35% of 180 = Rs 63. That is hardly 12% of telco topline.
Now imagine the worst case scenario where the user changes the CRBT only once in the year (typically the case as the user can't listen to his own CRBT owing to the very nature of the application).
Now see the calculation:
1. 12*30 = 360
2. 1*15 = 15
Total = 375
Rev share to the Content Owner/ Content Provider = Rs. 5.25 ( 1.5% of the Topline of Telco).
Also on the Press (*) to Copy bit – why not enable Pound(#) to Unsubscribe to ensure the services can be unsubscribed easily?
Its interesting to see Airtel claim these numbers on music revenues. But you will be surprised to know that when it comes to VAS services vodafone earns two times more than Airtel, inspite of a lesser subscriber base Simply because it communicates better.
These claims have only been made to get better evaluation :).
Prachi: would this be more of a function of pre-paid or post-paid subscribers? Vodafone doesn't give a number for VAS revenues, or a breakup between SMS and non-SMS, so we don't have much of a base for a comparison
Two things:
1. Ringback tones is a huge chunk of so called "Music revenues"
2. A huge chunk of RBT revenues is actually subscription – which has nothing to do with content. I would say 85% or more of revenue would be subscription, less than 15% would be song changes.
So what?
What is being called "Music revenues" for RBT in particular is actually a service revenue. But the trouble of course, is that it is impossible to separate one from the other.
Now if Nokia/Sony Ericsson/Samsung oould charging you a monthly fee to play your ringtone of your choice as opposed to Tring-tring, imagine how much money they would make.
Did I just give away a huge business idea or what?
Thats the difference between the two. It is applicable to both, post and pre-paid subscriber base.
But isnt that nokia is planning to do with its "comes with series"? :)
I mean to say that Nokia, world over, is trying to make the consumer pay to get rid of the boring "tring tring. Thats why they launched "comes with music" series. Internationally they have failed. They havent launched this service in India as yet. So all that we can do is wait and watch them make or lose money :)
Nikhil I feel this is a story of comparing apples with oranges. Maybe if Airtel produced content or Saregama owned mobile platforms could it have made sense to make this comparison.
Agreed; I just thought we should try and put Airtels claims in a certain context of revenues. If you look at just the topline, a large retailer will always be bigger than a producer, right?
Exactly my point, the context of revenues is not correct. The figures for airtel are so high is for two reasons:first they dont share the subscription money hich is rs 15 per month per subscriber.Secondly they pocket 70% of the revenues on music generated. So my argument still is that the context is incorrect.
Sounds stupid of Airtel to claim this. They are music retailer not music company. Going by their logic: Wal-Mart should be world's largest saving company and food company and so on…
They are (by bunlding one music service subscription forcefully when you use another and so on… ) one of largest music retailers in country and not bigger than probably planetM, Music World or other stores which sell music.
How on earth Airtel CEO make such illogical comment!!
Its interesting that Airtel is becoming like Reliance as time goes by. Claims that just dont make sense and if anything set them up for more trouble.
Firstly, they charge subscription revenues on the back of music which in no way is included as a part of the cost of music almost like what the airline industry does to avoid paying commission to travel agents. They then include it as a part of music revenues.
They are lucky that Bhushan Kumar doesnt like the PPL else there could be serious trouble for the telecom industry.
The Music industry needs to charge the mobile industry for each play on the RBT platform as it is not being consumed by the purchaser but is being used for public consumption hence a violation of terms.
The music industry should band together and shut supply, they may hurt for sometime but remember the "biggest music company" in India will hurt 3 times as much.
How can a Newly established Music Maker Company have a tie up with telecom service providers to take ontheir music as Caler tune or welcome tune…Response highly appreciated….