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.
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