Vijay Nair Only Much LouderIn conversation with MediaNama, Vijay Nair, the founder of Only Much Louder, an independent music business, and music streaming website and event NH7, explains how very large music labels in India operates, how it is similar to a media buying, and the dependency of the business on Caller Ringback Tones:

MediaNama: How has one label become so dominant in the Indian industry?

Vijay Nair: I think some of the larger labels in the country, apart from the part that they have the cash to bid for music rights for some of the biggest films, also hold media inventory.

Assume that a movie X has released, and they want to buy outdoor media and television spots. If you look at it, for a majority of the big TV networks, their spots are full of movie promos. Instead of the producers directly buying this inventory, the music label ends up buying a lot of it, because they have a lot of TV inventory sitting with them. This inventory is sometimes bought at dirt cheap prices from the network, because they don’t charge the networks for playing their music. Say you have a label, say fictional Label Q. If a TV channel, for example an MTV, wants to play a certain amount of music from Label Q, because they want to use it in programming, for cutting spots – they get a blanket license to do all of that, and in return they give a certain amount of TV inventory to the music label, or at a very subsidised cost. This is used by the Label Q to give TV advertising inventory to the producers at either the same subsidised cost, or at a bit of a profit. Even then, for the producers, it is a massive gain, because by spending Rs 10, they can get value worth Rs 30 or 40. This is the incentive for the producer to give the rights to a particular company, apart from the money – because they say that they will invest in a certain amount of promotion. (Editor’s Note: promotions become important because around 70% of a movies earnings in theatres come during the first weekend, which can make or break the movie)

No one can really stand up to the biggest labels in the media buying game. In a classic sense it is what a media buyer like Mindshare does for FMCGs, but in case of music Label Q, this is done purely for entertainment spots.

MediaNama: So how much of a producers budget is allocated to promos?

Vijay Nair: Lets say and artist has to produce for a big Bollywood banner. He will have to make 8 songs, and gets paid Rs 20 lakh a song. He gets Rs 1.5 crore flat, and all the rights are bought from that artist. The producer has to recover that Rs 1.5 crore and make money on top of it, so he would want to sell it to the highest bidder.

A movie now can go for between a Rs 7 to 12 crore odd, but an average would be between Rs 2-4 crore. This is done with between the producer and the record label. The record label bids for the rights, and whoever bids highest gets it. The advantage some labels have is that apart from putting in money, they come with a lot of promotional power behind it, which is worth cash for the producer. That negotiation that happens between the movie producer and the composer is out of it.

This is an industry standard that has been followed for 30-40 years, when digital never existed, and rights were given out for contracts. Every music contract has this incredible thing called Future Rights, which is whatever future formats come, which is whatever future formats come, and it will be a part of it. Digital automatically fell under that, which is why composers feel that they should get royalties. As far as the labels are concerned, they own everything.

MediaNama: How has digital & mobile changed things, in terms of the music labels ability to buy more rights? How has mobile impacted the ability of, say the largest label, to buy more rights?

Vijay Nair: Come to think of it, what has ended up happening is that you have a content aggregator who goes and pays an up-front amount for everything that particular music label will do. They will buy the rights upfront for everything that label has for Rs 100 – 125 crores. That leaves the business with a lot of cash in hand, which in any business is a huge deal. These kind of advances never used to come from any other medium – retailers didn’t give minimum guarantees to music labels – only on how much product they’ve sold. This enabled a lot of cash in hand, and there is no physical cost to it. Once you buy it, and give it to an aggregator, if a song takes off, people will keep downloading it and churning it. it’s not as if you need to keep producing CDs over and over again.

MediaNama: So if RBT (Caller Ring Back Tones) gets hit, I’m assuming that the ability of an aggregator to pay a minimum guarantee is going to get hit, and this might have an impact on a value chain? The TRAI issued a regulation recently, where they’re putting in place a mechanism where every user who subscribes has to send an SMS confirming subscription, and auto renewals are going to stop, and the bottom might fall out of the RBT business.

Vijay Nair: There are two different parts to it: if a mobile company hypotheticlaly makes Rs 9000-10000 crores from music related VAS, the music labels only get 1000-2000 crores. The difference is because an RBT is subscribed for Rs 30, but when the user calls and he’s trying to pick that song, the IVR is charged. There is a subscription for using RBT as a service, which is Rs 16-30 based on net worth.

All that money accrues to the operator, nothing to the aggregator. Something like this happening, that top line also falls down for the operator, and will have a trickle down effect. I subscribed to an RBT at some time, and it still gets charged because I don’t bother to remove it. I don’t even know where to unsubscribe, and it is just there. There are plenty of users there, just paying.

(Photo: courtesy OML.in)