"Willingness to pay" for music in India: It's not low, but it's complicated

Bear with me, and imagine the following scenario:

On a summer day in 2020, Universal Music Group (UMG) decides to make waves in the music business by announcing its first-ever expansion into hardware.

The two main motivations: diversify revenue beyond intellectual property, and regain control over distribution in the era of mass-market streaming platforms like Spotify and Apple Music. While UMG does have some control in that it still owns a ~5% stake in Spotify — the largest such stake out of any record label — the major doesn’t actually own most consumption and audience data around its catalog, instead relying on streaming platforms to provide that information to them.

UMG’s somewhat ridiculous solution for fixing this? Opting to own more of their distribution, in both hardware and software form, by launching their own music device.

Cashing in on early-2000s nostalgia (it’s a new decade, after all, which means we’ve wrung the ‘90s-nostalgia cash cow dry), UMG’s new music player takes the shape of the classic iPod. Called the UniForm, the device is equipped with a smaller LED screen and a retro-feeling click wheel for scrolling through content, embracing a much-requested return to analog simplicity.

Moreover, each UniForm comes preloaded with several thousand songs from UMG’s back catalog, dating all the way back from the ’60s and ‘70s to the present day. As with an iPod, users can also import and listen to their own catalog on the device. The starting price? $200 per unit — nearly twice the cost of an annual Spotify subscription in the U.S.

Would you, dear reader, really buy a UniForm? My guess, in this day and age, is probably not. As digital-download sales continue to decline for music, the launch seems to make sense neither for the consumer (who, in the age of the smartphone, has no interest in carrying downloaded files around on a bespoke music device) nor for Universal (which, because of lack of consumer demand, likely isn’t going to make any money from the new vertical).

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Yet, an equivalent device is currently on the market in India, and is growing in popularity at a totally unexpected rate.

The company in question is Saregama — the oldest record label in India, and a publicly-traded company on the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE), with ownership of some of the country’s most popular catalogs across Bollywood soundtracks and regional and devotional music.

In May 2017, they launched a new device called the Carvaan, a retro-looking MP3 player preloaded with 5,000 different songs from Saregama’s catalog. There are over nine models to choose from, with differing characteristics from the exterior color to the regional languages featured in the catalog (e.g. consumers have the option of purchasing a device that plays music only in Hindi, Punjabi, Tamil, Bengali or another language).

For those not interested in Saregama’s songs, there’s a functional FM radio dial, as well as USB and Bluetooth capabilities for importing and listening to one’s own personal music collection. The most expensive model (dubbed “Gold”) also has a Wi-Fi option that gives users access to 15,000 additional Hindi songs and over 150 Wi-Fi based audio stations, through connecting with the Saregama Carvaan mobile app.

At most, that will set you back Rs 12,990 (over US$180), around the same price as the latest model of the iPod touch.

You would think such an over-the-top, relatively expensive device wouldn’t sell particularly well in a piracy-ridden music market like India. But miraculously, Saregama was reporting over one million total sales of Carvaan devices by the end of 2018, and is now selling them at the rate of over 100,000 devices a month.

In interviews, company execs have projected the total market for Carvaan devices in the long run to surpass 25 million units. While that’s not even 2% of India’s national population, that ultimately equates to billions in sales for Saregama, which has additional ambitions to increase sales in the U.S., U.K., Canada and U.A.E.

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What’s the point of sharing this story with you?

It’s a perfect vantage point for examining the complicated, partially false claim that high-piracy music markets like India indicate a “low willingness to pay.”

Many people in the music business share a common assumption about markets with low recording revenues and subscription-streaming penetration, including much of Asia and Africa — namely, that local consumers in these markets “aren’t willing to pay” for music. Of course, part of this in rooted in historical, reliable evidence of high piracy rates. Indian music execs claim that the local industry still loses around Rs 1,500 crore (US$208.4 million) to piracy, stream-ripping and side-loading every year.

The natural reaction to this trend is to think that consumers don’t find value in recorded music. Yet, many speakers at the All About Music (AAM) conference last week sought to dispel this myth, and to reassure the audience that Indian consumers were more than ready to shell out more money for music, if given the right opportunities.

Aside from the Carvaan devices, the ongoing popularity of Bollywood films provides another case study of how people are already paying enough for entertainment elsewhere to justify models like paid streaming subscriptions.

During an AAM panel, Blaise Fernandes, President & CEO of IFPI affiliate Indian Music Industry (IMI), cited a stat from the Multiplex Association of India that there were around 290 million admissions at around US$3 a pop on average to films in theaters in 2018. The cost of an annual Spotify subscription in India is Rs 1,189, or around US$16.50 — the equivalent cost of watching around five Bollywood films in a year.

Hence convincing people to pay for music may be more about framing the experience in a way that already aligns with their existing behaviors and needs, given that they’ve already proven to have enough disposable income on average to get the job done.

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That said, one potential obstacle is that the reasons people pay for music tend to be purely utilitarian (e.g. background and offline listening, low data usage), rather than centered around valuing the deeper, artistic elements of recorded music itself.

Hungama CEO Neeraj Roy claimed during an AAM panel that approximately 400 million people in India “are paying for content but don’t know that they are doing it, because it’s happening through a telco bundle.” Anecdotally, I’ve heard similar stories from others in the local music streaming sector about users being more likely to lean into paying for a subscription for more utilitarian, self-oriented reasons, rather than creative, artist-oriented ones.

Another related obstacle is that new and exciting artists won’t necessarily be benefiting as much from a higher willingness to pay as will older, legacy artists and labels.

Let’s go back to the Carvaan scenario. It’s an extreme example of catalog marketing — pushing out a large range of dormant back catalog dressed in new, literally shiny clothes, instead of promoting new talent. (Sources tell me that Saregama has not acquired any new catalogs recently.)

In this vein, another significant theme at the AAM conference was the notion that even the “non-film music” being released by major labels still sounds a lot like Bollywood music, and features many of the same artists who are already famous thanks to the Bollywood machine.

Mandar Thakur, COO of Times Music, argued during an AAM panel that streaming services should be trying to differentiate themselves as much on content as on utility. Willingness to pay — which then corresponds to revenue growth for streaming services — “should really be a content question, because everything right now sounds the same,” said Thakur. “For a consumer to pay [for music], they’ve got to perceive some form of value beyond just monetary value. How may timeless classics are we really putting out today? What are we actually doing to differentiate content platform-to-platform?”

Finally, I think increasing the willingness to pay for music won’t really mean anything significant if none of those additional dollars end up in the hands of musicians. In the case of India, this would require divesting more from the work-for-hire, Bollywood-oriented model of music production, as well as educating artists more openly about national copyright law, as I mentioned in my previous post.

If there really is a shift in the value proposition of music services from utility to content on the horizon, then a shift in the way money flows from service providers to content owners and creators should follow. Otherwise, the industry will have ultimately oriented the concept of “willingness to pay” in the wrong direction.