Pirates and Profits: Three Reasons Why the Music Biz Can Finally Get Excited About India’s Billion-Sized Audience

Digital distribution has made huge changes to India’s music industry. Until very recently, India reached only a small fraction of its profit potential due to the limitations of physical distribution and rampant piracy. Seeing the Indian digital music scene as a haven for illegal download sites, brands kept themselves — and their advertising dollars — far, far away. A lack of broadband penetration in Indian homes made the switch to the download option even less profitable — no one can buy your product if no one can access it! So, while the rest of the world helped make iTunes the largest music store in the world, the Indian music industry waited for its moment, and that moment is finally here. Here’s why:

• 3G expands consumer audience by 100 million listeners

  Until now, most Indians have not had access to high-speed Internet or a PC. The wired broadband penetration of India stands at about 13 million subscriptions — which is a pittance, especially when you consider that this includes offices, cyber cafés and the like; and including institutions, there are only 50 million PCs in the country. Very few Indians have broadband or a PC of their own; this renders the historical paid download model (to a desktop or to a PC-tethered mp3 player) unscalable.

  Despite the lack of broadband and PC penetration, there are currently 121 million Internet users in India. Guess where they are? Mobile. With the rollout of 3G in India, access to high-speed Internet has become cheaper and more widely available. You no longer need to own a desktop computer to get online or, most importantly, to participate in e-commerce — all you need is a mobile phone.

  The mobile model — and by extension, the mobile music model — scales. It took broadband 7 years to reach 11.5 million wired subscribers. In less than half that time, 3G subscriptions in India topped 13 million, and that number is rapidly growing. There are 884 million mobile users in India, and as smartphones flood the market, more of them will be making the switch, becoming not just first-time smartphone users, but first-time Internet users as well.

  Already, 59 percent of mobile web users access the Internet via mobile only. A study by the Boston Consulting Group predicts that the total number of mobile Internet users will balloon to 237 million by 2015. It is connectivity, now more than ever.

  With the addition of over 100 million Internet-enabled potential users, it’s no wonder the Indian digital music industry is jumping for joy. 3G has brought a new generation of Internet users online, where music can be discovered, enjoyed, purchased and shared.

• Advertisers, rather than end users, are footing the bill

  Is there anything better than free? At last, the dream of ad-supported free music is a reality.

  Brands are embarking on the biggest consumer grab of the century as China’s and India’s multi-billion audiences rise in economic status. Thousands of brands are competing to become the future soda, life insurance and auto brands of this part of the planet. That’s a major influx of ad dollars looking for a scalable way to engage consumers.

  Asking consumers to shell out 15 to 25 rupees for a song online was unrealistic when pirated options were widely available for free. But as legal sites gain popularity and engagement numbers soar, major brands are ready to spend their advertising dollars on digital music Web sites and apps, so music services like Saavn can provide a large catalog of ad-supported music to end users for free.

  The benefits are abundant for the brand advertisers, end users and record labels; the end user gets something customizable and valuable for free, while major brands can finally capture the attention of one of the world’s largest emerging markets. Record labels can now pull in much larger profits from major brands while cutting their own costs of manufacturing, packaging and distributing physical products.

  So what made advertisers change their minds? Piracy. Until recently, the digital music industry in India was completely overrun by rampant piracy — a staggering 97 percent of digital music content was from pirate sites. This means poor quality without options of sharing and discovery for the user, no profits for the record labels and an unwillingness from brands to risk having their names on an illegal site.

  Thankfully for all parties involved, piracy is finally being addressed — in February, the High Court of Calcutta handed down the decision to ban the pirate site songs.pk on major ISPs. This kind of move reinforces for the industry and for consumers that the music pirates’ days are numbered.

  While pirated music is still an issue in India, legitimate and fully legal music streaming Web sites and apps are restoring the faith of advertisers, meaning a huge new audience for advertisers, profits for the music labels from brands with deep pockets and top-notch quality for users.

• Digital means data

  Labels are excited that they can finally reach audiences who are passionate about their niche content, thanks to the kind of targeting that digital platforms make possible from user data. It’s especially great for indie labels, who now have fast entry to market and an opportunity to get in front of the right audience, despite not having the major-label marketing moolah.

  Thanks to the wealth of data digital music supplies, the Indian music industry can get the right music to the right people at the right time. No need to make assumptions based on demographic information or guess what people will like. Data provides the ultimate customization tool for an industry in which customization and understanding the preferences and tastes of the end user is key.

  This is the moment the music industry has been waiting for; it can finally focus on its core business — producing music — while advertisers happily foot the bill. And users get to sit back and enjoy, share and discover for free.

Paramdeep Singh is the managing director and co-founder of Saavn, the fastest-growing music service for South Asian music worldwide. He is also a principal and co-founder of 212Media, a privately-held venture development company, which he helped launch in 2005. Follow Paramdeep @paramdeepsingh on Twitter.