A discussion I had after a Nokia Music Connects session was a bit of a revelation about what music labels in India were doing to hold on to power. During the session on live streaming, I’d asked the labels on stage about why the music industry can’t standardize licenses and allow startups to license musics easily and (I know this sounds cliched, but) let a thousand flowers bloom. A top music industry executive – the head of a copyright society, no less, walked up to me somewhat irked after the session. The executive pointedly explained why Flipkart’s online music store Flyte was shut down: “You know what they were trying to do? Sameer Nigam and Jaidev Iyer (who were leading the effort from Flipkart’s side) were trying to create a black box that would control us, control our distribution. How could we let that happen? We couldn’t let that happen. They had to be shut down.”

Reasons for why Flyte shut down are still not known, but MediaNama’s sources had put it down to an unexpected and unreasonable hike in licensing fees. What today’s shut-down of Dhingana’s services suggests is that labels are going to continue to be mercenary about it: we had expected that with Mobile VAS revenues declining, they would have tried to help create an alternate revenue stream on the Internet – on both the web and mobile Internet/apps, but that hasn’t happened yet.

Instead, it appears that the growth of the YouTube ecosystem in India has helped address some of the potential woes: we’ve heard that for one big music label in particular, the minimum guarantees allegedly promised by YouTube have been exceeded by quite a margin.

The money coming in – once from mobile VAS related Minimum Guarantees – allows the label to buy more rights. This helps increase its ability to negotiate deals with TV channels (especially  music channels) for buying marketing at a lower cost (by supplying music). For film producers, music labels perform the very important function of a media buying agency (like an aggregator). Music is how Producers promote their movies, and it’s critical for them to achieve as much distribution and buzz as possible, since around 70% of the money a movie makes is made in the first weekend (or week) of its release.

(read: OML’s Vijay Nair on How A Very Large Music Label In India Is Like A Media Buying House)

Why labels hold disproportionate power over multiple platforms is because of their catalog of rights: producers need to work with them for the marketing, and the rates that they can get from TV channels, while online streaming companies need them for the music. Their catalog allows them, as aggregators, to exercise control on both the supply and demand side of music. They’re in a position to demand exclusivity from producers (pushing them to give up copyright over music), and from distribution companies (via minimum guarantees).

However, if you look at the role of labels today, you’ll realize that many of their functions can be replicated by others in the digital ecosystem. Physical distribution of music is now more or less history, and the future lies in a number of digital services like online music streaming, CRBT (it isn’t dead yet), digital downloads, and distribution in partnership with handset makers, YouTube, mobile operators, among others. The other function that labels are critical for – marketing of films via music – is something that is perhaps possible today using YouTube, Facebook and Twitter, as well as online marketing. Destination sites like Gaana, Saavn and Hungama can perhaps be lent on to market films via music, provided they’re given some incentive.

This is where Sameer Nigam’s Mime360, which Flipkart acquired, was ahead of its time: while it was independent, it acted like a content delivery network (CDN) for labels – it allowed them control over distribution versus aggregators who were perhaps not being entirely truthful about number of streams played. Saregama’s music, for one, was being streamed by Mime360 to multiple partners.

How To Disrupt The Music Business

While producers are dependent on labels, they’re clearly unhappy with them. A clear case in point is the lack of support that Abhay Deol received for the film he produced, because of differences over contracts. (Read thisthis and this)

Take the platform approach. This can be done in two ways: One, take what Mime360 was doing, and instead of labels, offer it directly to film producers, with added marketing spends and tools for them to control their own marketing. The icing on the cake is that you can allow them to retain the copyright for the music. The second option: do what  Soundcloud and Youtube have done, and create an independent destination that allows content creators to control their own destiny (to some extent).

An alternative to this is for services like Ganna and Saavn is to create self-serve platforms and allow producers to manage their own libraries. Do what YouTube has done for video, and Soundcloud has done for independent musicians. In fact, one possible approach would be to solicit YouTube Multi-Channel Networks (MCN’s) to help build this ecosystem: they’re keen on licensing distribution rights from content producers and aggregators for YouTube, but the only difference with music streaming sites is that they’re challenged for monetization. What is key here is marketing support, which is where perhaps Gaana is well positioned to take this up, given that the Times of India group can offer producers advertising units as barter. It ‘s still very tough, since the moment labels see someone trying to go over their heads and reach out to producers directly, they are likely to pull their catalog out. It’s not going to be easy.

What Music Labels Should Do

Music labels need to clean up their act and help build the music ecosystem online. They own a catalog, and they need to standardize licensing at the distribution end. It appears that deals on the supply side (from content creators) are all different and complicated: this was one of the reasons I was given at Nokia Music Connects when I had asked about standardization of licenses. That complexity, frankly, doesn’t need to be reflected in contracts that are signed with distribution partners. One of the strangest things I’d heard a music label executive say once, when I’d asked about why they don’t support music startups with lower licensing costs was, “why should I let any fly-by-night operator come and take my music?” That is myopic at best.

In my opinion, 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.

Create an ecosystem where music proliferates, instead of sticking to myopic short-term revenue goals and minimum guarantees. Allow startups to license music easily, without fear or favor, and let them compete to deliver the best consumer proposition.

P.S.: If you think this is a promo for Mime360, it’s defunct as far as I know. Always thought it was a great idea, with great potential, and I still think it is.
P.P.S.: This is just a theory from someone watching the ecosystem from the outside. Comments, critique and counterpoints are welcome.