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Is greed killing the online radio ecosystem?

Is greed killing the online radio ecosystem?

Author | Abhinn Shreshtha | Tuesday, Jun 17,2014 9:22 AM

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Is greed killing the online radio ecosystem?

Internet radio in India is still in status quo as operators and music labels fail to reach any consensus. Online radio operators blame music labels of being greedy and short-sighted. Labels, for their part, claim there is nothing wrong in expecting returns from a legitimate commercial enterprise.

Currently, in India, there are three major online music streaming services—Saavan.com, Hungama.com and Gaana.com. Then you have ‘internet radio’ operators like terrestrial FM operators like Radio City (Planetradiocity.com) and Radio Mirchi, which run their own online streaming services. Apart from this there are independent operators like Radiowalla, Timber Media (which is expected to launch internet radio services soon), etc. In what is likened by Prashant Panday, MD & CEO, Radio Mirchi to the state of FM radio 15 years ago, the current scenario is rife with tussles between operators and music labels over license fees, music royalties, etc.

According to Anil Srivatsa, CEO and Co-founder, Radiowalla, “The license rates are unreasonable and crippling the fledgling internet radio business. They (music labels) see internet radio as a golden goose and are killing it. I wish they played the role of a partner. There is a lack of long term vision.” Another issue, says Srivatsa, is that there is no protection of licensees by labels. “A major label charged us huge fees, but when we pointed out piracy. They did not take action against them and worse, made their music available free in their own website,” he alleges. He stressed that this is counter-productive to the growth of Internet music radio. Some major labels are more in tune with the spirit of partnerships such as Universal and Sony. Others go out of their way to protect one company shutting out the others from growing the business.

Radio Mirchi’s Panday agreed that internet companies that stream music are exploited by music companies. One of the reasons this is possible, according to operators we spoke to is that they (music labels) deal individually, rather than through a central agency. Earlier, the norm was to go through the industry body Phonographic Peformance (PPL), however, these days an operator has to strike individual deals with each music label.

Apart from the “exorbitant fees”, labels offer only short term deals and increase rates arbitrarily every year, says Panday. “They demand minimum guarantees. Why should there be minimum guarantees at all? Besides, they hardly negotiate,” he said.

The affects are plain to see, with most terrestrial FM operators shy from entering the space, calling it “unviable”. The survival of smaller, independent operators is even more under threat. For example, earlier this year Dhingana.com had to shut up shop (It was later acquired by Rdio with plans for an Rdio India launch later this year). One major reason for this was thought to be the current division of music rights for mobile and internet, which made it difficult for the company to monetize on the mobile platform. Basically, operators need to apply (and pay) for two different and expensive set of licenses for internet and mobile, thus increasing their costs.

Another start-up, RadioWhiskey.in, which started operations in 2012, also had to shut down within a short time. We spoke to Madhukar Pandey, Co-founder of RadioWhiskey.in, who blamed the high license rates and a “Big Brother attitude” by music labels. “They were just not willing to budge,” he said when asked about his experience negotiating with the labels. “We even offered them a profit-sharing model but they were not interested,” he said.

The View From The Other Side
If music streaming service providers are complaining about apathy and myopia from music labels, the music labels maintain that they are not doing anything wrong. “We understand the value of our music. It is a commercial consideration for us. We do not interfere with the commercial side of other businesses, so why should they interfere with ours?” said Adarsh Gupta, Business Head of Saregama. When asked about whether they were working with operators on coming out with a solution, Gupta remarked that digital radio is the future with global giants lining up for entry. “If we are going to empower the operators, then we also expect something in return,” he added.

T-Series is another label which has a reputation for playing hardball when it comes to license fees. However, Neeraj Kalyan, President, T-Series put the blame on operators. “They will always be unhappy because they do not want to pay. They are running a commercial business and should be willing to pay. If it is not profitable, don’t get into it. We also pay high prices for acquisitions,” he said. He gave the example of a major Bollywood film released in 2013, which did not perform as well as expected. “To get back the cost of acquisition for it will take us at least 2-3 years. People do not look at our side of the story. We buy music for crores and we also need to recoup it,” he said. He further justified the license fees by pointing out that internet radio is available globally, unlike terrestrial radio, which is available only in one city, thus increasing the scope for the operator.

On being asked about concerns that there is a “protectionist” philosophy among music labels, Kalyan said that similar terms were offered to all operators. “Copyright is an exclusive right. Won’t you go the person who gives you the best value? Why should I base my business according to someone else?” he said, further adding that operators were also given the option of paying for per stream of music rather than per hour. “We have spoken (about finding a solution) with everyone who has approached us,” he said.

However, Pandey feels the argument is hollow. He said, “This would be true in any business which had inbuilt competition. Unfortunately, in the music business, there is an inbuilt monopoly. Rights of a particular piece of music belong to only one label. If that label decides to play tough, there is no other access to that music. This is not true in most other businesses.”

Is Government Intervention The Best Way Out?
One of the main reasons for the current mire that internet music streaming has become is that there is no clear definition of internet radio/music streaming.

“There is no clear policy from government on internet radio; around what kind of licensing fee should be paid, can it co-exist with terrestrial radio, etc. Even the revenue streams are not clear. The current scenario is anti-competitive and till the time the Copyright Board decides the royalty issue, nothing will happen,” said Harish M Bhatia, CEO, My FM.

In 2010, amendment to the Copyright Act introduced the concept of a Statutory License (though it would be 2012 before it was actually formulate into a law).  Under the Statutory License provision, no music label can deny rights to any user that is willing to pay reasonable rates. If rates cannot be agreed, the Copyright Board (CRB) sets them. But will this really help matters?

The radio ecosystem has been a proponent for Statutory Licensing since it was first suggested in 2010 and most believe that enforcing it by creating the long pending Copyright Board will help solve most of the issues related to music acquisition. However, Rahul Ajatshatru, Managing Associate of law firm Anand & Anand cautions that it is not the panacea of all problems, either for terrestrial or internet radio.  “I personally believe that Statutory License is not viable from a programming perspective. Operators will still need to approach and file an application days in advance stating when they want to use the music, in which time slot, etc. I do not see it doing away with freedom of trade,” he suggested.

On the other hand, Kalyan opines that FM operators are just licensed to operate FM stations (terrestrial) and they should not expect to enjoy the same provisions on the internet too. Rachna Kanwar, Business Head, Digital Media & New Business, Radio City, which operates Planetradiocity.com, agrees that there is lack of clarity about internet radio, which, according to her, can only be resolved if both parties sit down and talk.

Despite these myriad issues plaguing the internet ratio space, a speedy resolution does not seem anyway near. Uday Chawla, Secretary General of AROI, the industry body for radio operators in India, admitted that the current priority is to focus on the survival and continuity of FM. However, he did say that the AROI has not yet been approached by any member operator to take up the case of internet radio. “If they approach us we will look into it,” he told us.

With physical sales of music reducing and music moving to the digital space, perhaps it is high time that both labels and operators leave aside their grievances and work towards creating a sustainable ecosystem.

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