The Big Questions In Streaming Music

Should content licensing be statutory or voluntary? That is the question a Bombay High Court ruling in May this year raises. In a case filed by Ramesh Taurani’s Tips Industries against Airtel’s music app Wynk, it held that Wynk cannot store or use music owned by Tips without its consent. Justice S J Kathawalla held that Section 31D of the Copyright Act does not extend to internet broadcasting — that it only covers broadcasting through radio and television. That means over-the-top streaming services (OTTs) or music apps that want to use say Saregama’s music need to take permission or a license from it.

That would have been the normal course anyway. But Section 31D was created in 2012 as an exception to this general rule in order to allow a statutory licensing arrangement between music companies and radio/TV broadcasters of music. The idea was to protect artistes who were signing away their rights to dodgy agreements. Therefore, under the current rules, a radio station can simply pay as royalty a two percent share of its ad revenues and use Tips or T-Series or any other music company’s repertoire.

“Section 31D was introduced when broadcast radio was overburdened with infrastructure cost and licence fees. Today, it is a Rs 3,000 crore industry but pays just Rs 60 crore in royalty that is distributed among record labels, authors, composers and publishers. It is antiquated and irrelevant,” says Blaise Fernandes, president & CEO, Indian Music Industry. He points out that in almost every major music market — in the US, large parts of Western Europe, South Korea among others — the licensing of music for interactive services is voluntary. Many of these countries have statutory licensing but only for linear broadcasting services, like radio.

Voluntary licensing means that the buyer and seller negotiate and agree on a price — it assumes a competitive market. India’s Rs 1,400 crore music industry is very fragmented and hyper-competitive. On the other hand, there are a few telecom operators, most with their own music apps. So Bharti Airtel has Wynk, Jio has Saavn. Gaana is part of the Times Group, one of India’s largest media firms. Then there is Apple’s iTunes and Spotify. The biggest Indian music companies are a tiny fraction of any of these multi-billion dollar techs, telecom or media firms. It is for all practical purposes a buyers’ market. That explains why a routine negotiating argument between Tips and Wynk landed in court.

To this inequality add another factor.

In September 2016, the Department of Industrial Policy and Promotion issued a memo to the Registrar of Copyrights. It stated that the provisions of Section 31D covered internet broadcasting too. It is just a memo but it opened a can of worms. It seemed that any app could just pick up the music it wanted a la radio broadcasters. The court stepped in to say they can’t.

Almost 70 percent of the Indian music industry’s revenues come from digital or streaming/downloaded music. Digital advertising continues to grow at a scorching 28 percent even as subscription revenues have been rising. In a buyers’ market, if interactive services are allowed statutory licensing at two percent, it takes away all the upside in the growth of digital for music. In the interest of fairness then either the licensing should be voluntary or royalty rates under statutory licensing must rise from two percent to say 10-15 percent.

There is a larger point here besides the wrangling about statutory versus voluntary licensing.

Music is the petri-dish industry for all the changes that the internet is wrecking on media. It is the lowest bandwidth entertainment product, so it is always the first to be hit by any disruption. The biggest was compression technology in the late 90s. Every experiment the music business went through — from criminalizing consumers and litigating with file sharing firms such as Napster — have helped the rest of the entertainment business learn crucial lessons. From over $25 billion in 1999, the global music industry fell to $14.1 billion in revenues in 2014 before bouncing back. Since then it has been on a growth path with more than half its revenue coming from digital.

In India, as both films and television enter a similar phase of disruption with OTT services, a close look at what is happening to music would help.―Business Standard