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Why Flipkart Shut Down Flyte Music


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Flyte Music

Why is Flipkart shutting down its online music store Flyte Music a little over a year after launching it? While the company is unwilling to comment on it, beyond saying that there are issues related to music piracy and lack of easy micro payments, industry sources told MediaNama that there is more to it than just that. The questions that we were trying to find answers to – Flyte is just over a year old, so why shut it down so soon? What lessons are there in this for content businesses?

Flyte Music had struck deals for India based music downloads on web and app by paying music labels an aggregate minimum guarantee (MG) of around $1 million (Rs 5.5-6 crores) for the year, multiple sources told MediaNama. Given the advent of music streaming services like Gaana*, Saavn and Dhingana, where users could stream music for free, but more importantly, the prevalence of piracy, the number of users willing to pay for a-la-carte music was fairly limited. Revenues from song downloads were fairly low – not even 50% of the minimum guarantee amount (only around Rs 2-3 crore is what we heard), and the ARPU was around Rs 9-12 per user, which made it difficult to justify the minimum guarantee, and any significant customer acquisition costs.

More importantly, revenues from Flyte Music grew in a linear manner, unlike Flipkart’s physical goods business, which was growing exponentially, month-on-month. Flyte, with low revenues and low growth, remained a low priority business, and it never got the marketing support needed to push for an increase in sales. A couple of people we spoke with repeatedly emphasized the lack of marketing support as a key reason for Flyte’s lack of success – Flyte built traction almost entirely on word of mouth, while the physical goods business got all the marketing spends. It’s not that Flipkart did not know about issues of piracy and payment mechanisms before it got into this business. “Until you at least test the waters with some marketing spends, how will you ever know?” one of the sources said.

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In fact, the only big marketing activity that Flipkart conducted for its digital goods business was on Flyte’s first anniversary, when it gave away 100 free albums from 10 genres free every day for a around week, till Feb 28th 2013, when it turned one. One internal source says that the only reason this was done was because this was music that had already been paid for: the dues to most labels had not hit the minimum guarantee mark, so they decided to give it away for free.

But why is Flyte being shut down now? Well, most minimum guarantee deals expired around February-March. Readers will notice that, for example, there is no Saregama content on Flyte Music as of now (we couldn’t find it), and no music store can really be a success without the Saregama catalog. T-Series – a deal which was perhaps inked later – is still there.

One industry source suggested the conspiracy theory that one competitor with close ties with labels was trying to sabotage Flyte’s renewals, but what we heard most often was that labels were asking for higher minimum guarantees, and the decision was Flipkart’s – given that revenues weren’t justifying the minimum guarantees.

Deals were not renewed.

*

Update: Just to clarify, it wasn’t the minimum guarantees that did it. While there actually shouldn’t be minimum guarantees for an a-la-carte pay-to-download service for music, Rs 5.5-6 crores is fairly small amount. When there is adequate monetization (mobile VAS), there are companies which pay in multiples of this amount to labels or their aggregators. The real issue was the lack of consumer uptake for a single track model, which many people we spoke with put down to lack of marketing spends. The company would have probably supported a loss making business with great consumer traction.

That said, while the people we spoke with at labels knew that Flyte was shutting down, within the company, it was quite sudden.

*Disclosure: Times Internet, which owns Gaana, is an advertiser with MediaNama

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  • Sandeep Amar

    This had to happen, You may remember we had a discussion on this in which we discussed how jazz, blues and rare music may be paid for, but bollywood music no chance! And there will be few takers for subscription services of other music streaming services in India.

  • There is no need to go into the intricacies of the Minimum Guarantee system. People in India will not pay for content. People will just download it off the many free download or Torrents or get them sideloaded through SD cards or Bluetooth. And as we all know, not only is this not frowned upon, but is also considered perfectly normal. Unless this changes, content business has got no chance in India.

    I did buy a lot of music from Flyte – mostly metal stuff you won’t get in India. And I don’t listen to Bollywood stuff. The experience was quite good. Sad to see the service go.

    • Karthik

      Really? The mobile RBT business is the highest revenue source for all music companies. “Indians” pay around Rs.45 for each song. How do you explain that?

      • RBT is something very different from music download. Though both may be clubbed under the “music” vertical, both are different as products and as to how they are used by consumers. No one buys RBT for personal consumption per se, in the way one would use MP3 songs. How many people do you see buying original music CDs or DVDs?

        I was ridiculed no end when I bought the original DVD for the movie “Inception”. “Dude, are you crazy wasting money like this? Just download the torrent no?” This is the reality, accept it.

  • Yesterday I decided to purchase my first track from Flyte, so imagine my surprise when I came across this news!

    This business model was always going to take time and marketing spend to gain traction, and I am sure Flipkart knew this all along. If only they had the financial wherewithal to stick to their guns, they could have had a huge first mover advantage when it finally took off; especially as a larger portion of India’s youth grows older and earns enough to be bothered more about convenience than the micro-price.

  • Karthik

    I hear a lot rubbish from people saying Indians don’t pay for music. Really? The mobile RBT business is the highest revenue source for all music companies. “Indians” pay around Rs.45 for each song. The problem is the mode of payment. Most Indians don’t have credit cards to buy music online. And they do not want to buy music CD’s as the only music device they own is a mobile phone.

    • Yesterday morning on the way to office I saw a guy sitting in the bus transferring songs he downloaded to his mobile for listening. This was a person who has credit cards and was educated and could afford a Samsung Galaxy something phone. Still he downloads from torrents. Why? But yes, Indians do pay for content. You can buy a 2GB SDC loaded with songs from vendors at as low as Rs.100 for around 500 songs. If someone can tap this market, it might work.

      And RBT is different from Consumable MP3 music.

      • ravi_sharma

        mindset is not ready boss…it will take 2 generations to get legally “educated”

    • you really don’t want to go there.

      the RBT business was largely fraud – people billed and subscribed without their consent. it came to a point that when people had zero balance on their connection, subscriptions were still faked to create a negative balance. When people recharged, it was cut from the recharge amount. This is all being contained now. We’ve covered the RBT scam extensively.

      Yes, there are people like me who have subscribed to RBT, but millions did not.

      • What was/is the size of the RBT market minus the fraud billing?

        • Karthik

          Yeah, about the fraud business. In Airtel they have introduced double consent, meaning a 3rd party application has to take another confirmation. Due to this the fraudulent activations are almost 0%. The revenue in airtel has fallen drastically,yet the genuine(honest) vendors are still making a living off the revenue.

        • By what percentage did the revenue decline?

      • ravi_sharma

        you are very right Nikhil…right on spot

  • rohitverma

    Low revenue shares may have caused heart burns and forced Content owners/partners to indulge in over charging. Now that Operators are giving 60-70% rev shares, it does make sense for Content guys/distributors to build a brand of their own, market their products thru Mobile advertising. India is a 900 mn strong market and music lovers just need right packaging / easy to use products and right price. Mobile Advertising (like vserv.mobi) taps into billions of impressions on off deck media….touching DND users, repeat users and gives healthy ROI. Better days ahead…

  • ravi_sharma

    It surprises me that no discussed breaking even the minimum royalty required to pay record labels. This is extremely high when you sum up T-series and saregama. Mime360 previously too closed their own portal Manorama for the same reason. Downloading rights require minimum royalties to be paid. looks to me that closure of songs.pk did not affect sales of flyte as I was hoping that the ban would probably boost the sales from flyte. so what can be concluded – probably its a timing issue for india shining ? it will still take 10 years for this business to at least gear up in india. And yes dont refer to FICCI’s report published by kpmg …the stories there are just too good to be true and is an organised corrupt adjustment to make good stories written from the consent of record labels

    • Mary D

      Annual Sales from Flyte < MG of $1 million ; or royalties to be paid were 70% of the total selling price.

  • Mary D

    Indian Record labels are thinking short term and pursuing non-sustainable roadmap where they are charging attrocious royalties and MGs…now Rediff , Flyte, and many others to go in the pipeline. Bhushan Kumar has rethink his tactics and Saregama will have to follow his tactics blindly to further lower MGs. When you’d talk to these record labels they only give references to Spotify and iTunes and would never mention their india based customers….”Indian”mindset is the problem in every link of value chain in this Monkey Business. Wait for few years when India will have 60 MBPS internet and there will be a rampant piracy on the GO

  • abcd

    Classic example of a failure because an organization thought of having a business model even before having a strategy in place. Indian music industry was always plagued by the piracy, yet if an organization thought of selling it online, then the strategy needs to be questioned…:-(…

    Indian ecom still holds a lot of potential and going to grow but u got to have a right strategy with the right product mix and you will see ur business soaring. Learn from kiraana store. They knw their target market and their requirements, we might be missing it somehow.