Ad woes and music license costs continue to hamper growth of internet radio

Despite a high potential, internet radio is still getting bogged down by problems of ad revenues and high music license costs, which will need to be addressed to see any growth in the sector.

e4m by Abhinn Shreshtha
Updated: Feb 3, 2016 8:55 AM
Ad woes and music license costs continue to hamper growth of internet radio

The private FM sector is understandably excited about what lies in store for 2016 as the long awaited expansion under Phase III finally gets under way. Apart from the remnant inventory that was auctioned after last year, players will also be eyeing the auction of the new frequencies, which is set to happen this year.

With 4G entering India and the digital expansion taking places across the country, internet radio is also expected to form an important part of the internet strategy for FM operators. However, tussles with music labels regarding license costs and royalties continue to remain major impediments.

Speaking about the potential of internet radio in a country like India, Prashant Panday, MD and CEO of ENIL, which runs Radio Mirchi, said, “I think there is a very big potential for internet radio in India. With 350 million internet users already, and with projections of that number doubling in a few years, the potential growth opportunity for internet radio is huge.”

Radio City has been one of the earliest entrants in this space with its offering-- Talking about the changes seen in the internet radio space in the last couple of years, Rachna Kanwar, EVP & Business Head (Digital Media and New Business) at Radio City, was of the opinion that the entry of players like Gaana, Saavn and others has been a positive since it has exposed more audiences to internet radio.

“Internet is growing at a staggering pace and it is going to continue to do that. It will enter into rural areas. We are expecting to grow with that. Media consumption in the last couple of years has grown as far as internet is concerned. Music and video are being consumed very differently now. By 2020, 90 per cent mobile content consumption is going to be audio and video. 4G is now a reality and this is going to make a huge difference. The competition is growing and it is quite stiff, but we have carved a niche. Being part of terrestrial radio only helps us,” she said.

And though, there might be some competition in terms of the musically minded audience, there is enough demand for non-music content to make internet radio interesting, she maintains.

However, there is also a flipside, as Vineet Singh Hukmani, MD of Radio One, points out, namely, none of the entities have yet to create a significant revenue stream. Rdio, which announced its entry into India last year, shut shop globally within a few months. Others, like Saavn and Gaana, says Hukmani, are still inconsistent in terms of revenue. “There is an opportunity is to grow the ecosystem with a revenue share of 1 per cent of the digital play or a part of the 2 per cent of the main radio play. Audience size of internet radio is not even 2 per cent of terrestrial radio as content is not compelling enough for people to pay data charges to listen to Indian radio,” he says.

Kanwar also agreed that advertising revenues from digital are still representing a tiny portion.

So, what is the reason for this?

The first major challenge is negotiating the actual music license and royalties. TRAI has promised to set up a Copyright Board to see that labels charge a fair price to operators but as radio operators say, there has still been no movement on that front. In the absence of any directive, most operators have to negotiate their own deals with each label, and this often puts them at their mercy.

“Music royalties is a huge problem. Music companies are unreasonable in their demands for royalties. They give short term licenses (1-2 years) and they increase rates arbitrarily on renewal. They demand minimum guarantees even though there is simply no basis for that. In the absence of a Copyright Board now for almost 5 years, there is simply no restraint at present on labels. Music royalties is one of the biggest costs in internet radio and unless it becomes reasonable, internet radio can never be viable,” argues Panday.

These costs can go upwards of Rs 45 crore per annum for getting access to the libraries of the major labels.

The solution, says Hukmani, is to fix digital royalties as a percentage of revenue. “Internet radio can only grow when the royalties are a percentage of revenue and not fixed. Music companies don’t want to build an ecosystem in India, they would rather milk the radio player,” he said.

Apart from this challenge, the high cost of data in the country, the lack of support from advertisers and with subscription still not popular in the country, monetization opportunities are limited.  

“Internet radio formats allow targeting but the creative units are so constrained that they can never become the primary medium for advertisers. In the West, subscription revenues have become big but in India, that's a difficult proposition,” said Panday.

On similar lines, Kanwar, while agreeing that the situation has become better in recent years, said that advertisers do not always use internet radio in the right manner. “Even ad networks are not using the ad inventory available on internet radio. But I think that will change because there are a lot of new softwares and programs that are coming and we are expecting a lot of audio and video advertising on digital in the coming years. Right now it is a struggle and we are trying to figure out how to use the interactive nature of internet radio,” she said.

One solution to reduce the high costs of operations, she opined is for music labels and operators to figure out how to develop more synergies that go beyond simple licensee and licenser relationships.

With telecom operators starting 4G operations in 2016, the consumption of audio and video content is bound to increase. The expansion of terrestrial FM to new geographies also creates a lot of opportunities for the growth of internet radio. But for this to happen, the twin issues of revenue generation and music licensing costs need to be addressed. 

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