In a precedence setting order, the Competition Commission of India has ordered music label T-Series to stop imposing minimum guarantees in its agreements with private FM Radio Stations in India, calling “minimum commitment charges” (MCC) unfair and discriminatory. The commission has fined T-Series a mere Rs 2.83 crores as penalty, but more importantly, it has directed the music label to modify “the unfair condition of MCC imposed on private FM stations in India in its existing agreements within 3 months of the date of receipt of this order.”

An investigation by the CCI DG revealed that MCCs (or MGs) were “distorting the competition in the relevant market. On one hand it increases the cost of music for FM radio stations as they are forced to pay extra money even if they are not playing songs of the opposite party (T-Series), on the other hand it also forces FM stations to play at least the minimum guaranteed needle hour even though there is no demand of such songs from the listeners.”

What the CCI said about Minimum Guarantees

– Uncertainty not a justification: The Commission notes that T-Series cannot justify MGs on the grounds that MGs reduce the uncertainty that content owners face, particularly since it is the only player in the market that is charging MGs (in Radio).
– Exploitative and exclusionary: The Commission notes that an MG, “irrespective of whether it is 30% or 50%, is exploitative and exclusionary in nature. It is exploitative as it forces the customers to pay for music that it may not play. Exclusionary conduct is characterized by improper strengthening of market power by the dominant enterprise.”
– Anti competitive: The imposition of MGs “has an anti-competitive effect on the market as it forecloses other competitors from a substantial share of the market. Since the private radio station is contractually bound to pay the opposite party a minimum guarantee, they are likely to broadcast the amount of music that they have already paid for. Therefore, a certain amount of music playout on private FM radio stations is already fixed for the opposite party. This results in the opposite party’s competitors not being able to compete for and being foreclosed from broadcasting their music on this prefixed playout of 30-50% reserved for the opposite party.” T-Series had imposed a compulsory minimum committed needle hours of 35%, with 20% complimentary.

The brilliance of this approach was explained by HT Media in its submission to the CCI:

“a radio station which was already paying for 40% of the opposite party’s airtime would naturally play 40% of the opposite party’s music. In addition, where a radio station achieves MCC target, it is provided an additional 20% of free airtime of the opposite party’s music. As a result of the 20% of free airtime granted, a radio station would face the same choice between zero additional cost the opposite party music as against the positive additional cost songs of all other music channels. As a result, whenever possible the opposite party’s song would be substituted for a non-opposite party song. This business model or scheme ensured that the opposite party’s content is a must-have content for radio stations.”

– Used to maintain dominance: “the obvious purpose behind imposing the condition of MCC is to protect its dominance in the relevant market and to maximize its profit. In the music industry, nobody is sure about the popularity of a song unless it is released and played in the market. By way of ensuring the minimum play out, the opposite party also gets advantage in procurement of music from film producers.”

T-Series said that minimum guarantees and high pricing is a means of addressing the decline in physical sales of music:

t-series-physical-sales

What About Digital? MGs should go

 

While this order is applicable to FM Radio stations only, we wonder if the precedence set can be used for addressing the impact of minimum guarantees in the digital domain – both in case of Mobile VAS and online streaming. Our stand on MGs is clear: exclusivity and high cost of access to music means that there is lower competition in terms of improving the consumer benefit. Earlier this year, we had outlined the ideal scenario from a consumer point of view:

…music labels should become music operators: like mobile operators, adopt a prepaid system for usage of services. Set up the black box (Mime360 again), standardize licensing, and allow anybody to come and deposit money, and license music. Make this frictionless – no negotiations, no minimum guarantees. Put money in, and license a standard number of streams. Choose a different option, and license music downloads for your store. If a brand like MTS (which has done some great work associating with independent music online) wants to set up a music streaming service portal with their own catalog, or license music for rewarding their customers for signing up for a mobile data plan, or host a contest with an album as a prize, it should be easy. Fight piracy by getting rid of the friction that prevents consumers from consuming music.

Not excessive pricing

Note that while the CCI has been critical of minimum guarantees, its investigation did not find the pricing itself to be excessive or exploitative, in the absence of cost data. The investigation revealed three rates prevailing in the market:

(i) rate of PPL as per the Second Order of the Copyright Board. HT Media in 2011-12, paid Rs 404 per needle hour
(ii) rates negotiated by FM channels with other music companies like YRF. HT Media in 2011-12, paid Rs 450 per needle hour in 2011-12.
(ii) the rate that the opposite party (T-Series) charges, which have been found to be the highest rates in the radio industry. In 2011-12, it charged Rs 661 per needle hour.

T-Series President Neeraj Kalyan, “has admitted that rates charged to the Government FM stations is approximately INR 400-450 per needle hour”.

However, “The Commission notes that in the absence of the cost data it will be difficult, neigh impossible, to term the price charged by the opposite party at 661 INR per needle hour as unfair being excessive solely on the basis that it is higher than the price charged by the competitors of the opposite party. In view of all factors discussed in the preceding paragraphs above, the Commission holds that a case of excessive pricing has not been made out against the opposite party.”

The CCI had conducted the investigation following a complaint filed by HT Media, for its FM radio business Fever 104.

Notes from the CCI order:

1. T-Series is four times the size of its competitors: “As compared to the opposite party, which has a turnover of approximately 400 crores, incomes of competitors like Sony, SaRaGaMa and TIPS are almost one-fourth or less than the size of the opposite party’s turnover, which is an important indicators of the economic strength of the opposite party”…”The royalty income of PPL for the last 3 years as well as the turnover of PPL shows that it is the opposite party’s biggest competitor”…”The fact that the revenue of PPL is close to the revenue of the opposite party in itself does not detract from the market power of the opposite party because PPL is a copyright society which has over 200 members and collects royalties on behalf of their members, and then distributes it to them. On the other hand the opposite party is a single entity which is directly earning such revenue.”

2. T-Series music gets played the most: “As per DG, the data provided by the opposite party itself shows that as per AirCheck Top 100 and Top 20 songs/ music broadcast on radio, the opposite party owns majority of the music labels and that it has 58% share of the top 100 songs played on private FM channels.”

3. Radio Revenues:

radio-t-series

4. Bollywood dominates music:

“The DG further observed that India has a vast range of music but the most popular is Bollywood music which accounts for about 70% of music sales in India, and that it is an established fact that out of 240 FM channels about 80% of the channels are largely based on Bollywood music and it is also established that more than 200 channels
play the music of the opposite party. The DG also found that the maximum music played on more than 200 channels is Bollywood music.”

5. T-Series dominates radio: Evidence provided by T-Series itself “demonstrates that the market share of total songs played on 210 radio stations is between 32.5% and 34.1%. Evidence provided by the opposite party also demonstrates that it owns the rights to approximately 46% of the top 100 songs played in category ‘A’ cities between July 2011 to June 2012.”

6. The Indian music industry: is just Rs 750 crores in size, as per the order.

Update: We’ve deleted one point questioning the CCI calculation. Our calculation was incorrect. That has been corrected. Our apologies.