Sony Music (India)

February 2012. Vivek Paul, Director of Digital Media Initiatives at Sony sat with Shridhar
Subramaniam, President, India and Middle East, Sony Music Entertainment, in his Santa Cruz,
Mumbai office and mulled over the remarkable changes that the music industry in India had witnessed
over the past few years. With the rapid growth in Internet penetration and usage, technology was
driving music production, access and consumption. Sales from digital platforms had surpassed sales
from traditional physical formats, such as CDs and tapes. With the distribution of digital music in India
largely skewed towards the telecom business, music was increasingly being accessed via mobile
devices, including smartphones and tablets.

Artists were reaching out to consumers directly through many innovative platforms, and live
performances were gaining more traction. Independent (indie) artist business models were rising in
popularity and creating further fragmentation in the market. Overall, the role of the recording company
seemed to be diminishing. While some of the leading companies in the music industry were testing
the waters in the digital space, new players, including technology companies, were quickly entering
the market with various new platforms and services. Distribution, in the form of music streaming
services and e-commerce sites, was changing the way music was being bought and consumed.

As Head of Digital Media, Paul reflected on the role of Sony Music India, a large music recording
company, in the new age of digital music. In spite of there being a multitude of players, he felt that
very few music specialists existed in that space. In a US$1 billion mobile music market, with music
copyright owners such as Sony operating in a 25-30 per cent segment, there was a huge opportunity
to build the next stage of the business ecosystem. It appeared that the best way to shape the highly
fragmented market was to create a compelling product strategy and develop the business.

Mirroring Pauls thoughts, Subramaniam observed, The Indian digital music market is now at a
stage that offers unique opportunities for a content company like ours to build out music services that
can shape the future of music consumption.

Paul believed that Sony was in a position to embrace technology, create sustainable revenue
streams and impact the industry at large as the dynamics and fundamentals of the business
landscape changed in the digital economy. He pondered over what form Sonys digital platform
offering should take and how different it should be from the competition.

Professor Deepa Mani and Geetika Shah prepared this case solely as a basis for class discussion. This case is not intended to
serve as an endorsement, a source of primary data, or an illustration of effective or ineffective management. This case was
made possible by the generous support of the Srini Raju Centre for Information Technology and the Networked Economy, ISB.
This case was developed under the aegis of the Centre for Teaching, Learning, and Case Development, ISB.

Copyright @ 2013 Indian School of Business. The publication may not be digitised, photocopied, or otherwise reproduced,
posted or transmitted, without the permission of the Indian School of Business.
Should the response of the company mirror its parent in the West? How different was the Indian
music landscape? Should the company enter into partnerships with a wide range of technology
vendors? Should it sell exclusively through its own site? How would this impact the companys
relationships with its traditional retailers? Should the company launch a separate organization to
manage its digital business?

EVOLUTION OF THE MUSIC INDUSTRY IN INDIA

The history of Indian music dates back centuries, but the history of recorded music in India began
only in 1901, when London-based Electrical Musical Industries (EMI Music) entered the Indian
market, establishing the Gramophone Company of India Limited (GCI, now Saregama) as its Indian
subsidiary.1 By 1916, there were more than 75 record labels or brands in the Indian market. However,
over time, very few of these survived, while many others merged with GCI, which went on to
monopolize the Indian music industry well into the 1960s.2
Hindi film music, the primary music available during this era, was consumed via cinema, radio and
records. The recording industry purchased the rights to films from the film producer and derived their
profits from the sale of recordings. Up to the early 1970s, when compact cassettes made their foray
into the Indian market, the control and production of the commercial music industry was concentrated
in the hands of a corporate oligopoly comprising GCI and some prominent music film directors.
The economic liberalization policies introduced in 1978, coupled with the boom in the Indian
consumer electronics industry, aided the spread of cassette technology in India in the early 1980s.
With the low cost of production, many new players entered the market and piracy became
widespread. As a consequence, this period was characterized by intense competition. By the mid-
1980s, cassettes accounted for nearly 95 per cent of the recorded music market. The spread of radio,
and later, television also had an impact on the music industry, providing a platform for recording
companies to promote their albums.
Compact discs, or CDs, made their appearance in the Indian market in the early 1990s and proved
to be yet another game changer. Though initially priced high (around INR 350), the price of CDs
dropped with increased competition. Apart from established players such as Saregama, T- series,
Tips and Venus, international players like Sony, Universal and EMI began to enter the market around
this time. Major production houses such as Yash Raj Films, Rajshree Films and Mukta Arts also
launched their own record labels.
Cassettes and CDs were mainly sold through distributors and retailers across the country, from
small gift and electronic goods stores, to local music chains. As retailer margins were quite high in the
industry (around 40 per cent), many of the large recording companies set up their own retail stores.
Large corporate groups also opened exclusive music retail outlets, for example, Music World by the
RPG group, which owned Saregama, and Planet M by the Times Group. These showrooms offered
customers a superior consumption experience, and at the same time, gave recording companies
direct access to their customers, thereby allowing them to maximize their profit margins.
The early 2000s saw the emergence of digital music. Globally, the advent of peer-to-peer (P2P)
networks3 such as Napster4 and Kazaa allowed for the free exchange of music files between
consumers. Music was also accessible through mobile phones, beginning with mono ringtones5 in
2003, and later, other formats such as polyphonic ringtones,6 true tones,7 ring back tones and caller

1
http://www.saregama.com/portal/pages/music.jsp, last accessed on February 8, 2013.
2
Chandvankar, Suresh. Indian Gramophone Records The First 100 Years, Musical Traditions, November 25, 2002.
http://www.mustrad.org.uk/articles/indcent.htm, last accessed on February 8, 2013.
3
A peer-to-peer (P2P) computer network allowed each computer in the network to share content such as audio, video
or data in digital format. Napster was the first peer-to-peer file sharing system.
4
http://www.napster.com/, last accessed on February 8, 2013.
5
A monophonic ringtone was a type of ringtone which consisted of a series of notes, one musical note at a time. It
is capable of playing only one sound at a time.
6
A polyphonic ringtone consisted of several musical notes at a time.

2| Sony Music (India)

ID tones. With the increase in Internet penetration and growth of the telecom industry, digital music
revenues began to contribute increasingly to music industry revenues.
Thus, not surprisingly, the traditional Indian music market, which relied predominantly on sales of
physical products, including CDs, started to decline. The high initial costs of acquiring music rights,
sparked by the introduction of a competitive bidding model in the early 2000s, combined with
declining royalties over time, were also contributing to the diminishing revenues of recording
companies. Such costs were further exacerbated by films doing poorly at the box office.
Toward the end of the decade, more than 260 recording companies were producing music in 20
languages and very few were making money. By 2007, these national and regional labels represented
more than 75 per cent of the legitimate industry output; Saregama, with the largest repertoire of
music, had a 17 per cent market share.8 In addition, overall industry revenues shrank from INR 13.5
billion in 2000 to INR 8.53 billion in 20109 (see Exhibit 1). During this same period, global music
industry revenues declined from US$37 billion in 2000 to US$16 billion in 2010. 10
At this time, some of the more prominent companies began to acquire smaller labels to
consolidate and expand their catalogues. Many recording companies began to include film VCDs,
DVDs and product merchandising in their product portfolios. Some, like Saregama, ventured into film
production. It was becoming increasingly clear that emerging formats of digital delivery and
consumption of music would alter relationships in the value chain, industry dynamics and the structure
of competition in the music industry (see Exhibit 2).

THE TRADITIONAL VALUE CHAIN IN THE MUSIC INDUSTRY

A complex value chain characterized the Indian music industry (see Exhibit 3) and was quite
different from the international music business value chain. In the international realm, the traditional
recording companies engaged in manufacturing, marketing and distributing cassettes, CDs and other
music media. They bore the album production costs up front and also spent a sizeable amount on
promotion. Yet, a very small percentage of new album releases went on to become hits. Therefore,
the recording companies bore a large part of the risk of breaking new artists.
While the international music business was primarily driven by artists and bands, revenues in the
Indian music industry were driven by the film industry, and recording companies were largely focused
on acquiring film soundtracks. Hindi film music constituted nearly 60 per cent of total music industry
revenues.11 Movie producers financed the production of the film and hired a music director or
composer at a contracted price to compose music for the film. The music director employed the
musicians, lyricists and playback singers. The revenue sharing arrangements between the music
director/ composer and the film producers were usually fixed. Once a song was composed, the rights
to its ownership and use belonged to the film producer, who would then sell the distribution rights of
the song to recording companies at five to seven times the remuneration paid to the artists. The
recording companies, in turn, would convert the music to CDs or cassettes and distribute them
through retailers and broadcasters. Traditionally, the recording company and the retailers shared
margins on the CDs sold, with retailers charging about 40 per cent, and the remaining 60 per cent
resting with the recording company. Radio companies, on the other hand, paid royalties at an hourly

7
True tones or full music ringtones were capable of playing a song with complete vocals and all
musical accompaniments.
8
Butler, Susan. Business is Blooming, Billboard, February 2007.
http://books.google.co.in/books/about/Billboard.html?id=thMEAAAAMBAJ&redir_esc=y, last accessed on February 8,
2013.
9
Indian Entertainment Industry Focus 2010: Dreams to Reality, CII-KPMG report.
http://www.kpmg.com/IN/en/IssuesAndInsights/ThoughtLeadership/Focus%202010-%20Dreams%20to%20Reality%20-%20CII-
KPMG%20Indian%20Entertainment%20Industry%20Report%20(April%202005).pdf, last accessed on February 8, 2013.
10
http://www.ifpi.org/content/section_news/press ,-list-2012.html, last accessed on February 8, 2013.

11
http://www.indianmi.org/national.htm last accessed on February 8, 2013.

Sony Music (India) | 3

rate of about INR 850 per hour of broadcast12.
Thus, the recording companys role included, but was not limited to the following:
Mixing and mastering songs
Manufacturing the physical CDs, cassettes, etc.
Packaging, artwork and creative marketing (some of these functions might be outsourced)
Distribution
Licensing and publishing
Marketing and promotion
Collection of revenues
Reporting sales and other data

Traditional Industry Economics

Depending on the type of sales transaction, recording companies would either purchase the rights
to the songs up front or enter into a revenue sharing model based on royalty. Film producers
generally preferred an outright sale of the music rights. If the movie did not perform satisfactorily at
the box office, their risk would still be covered. On the other hand, if the movie turned out to be a hit, it
would be the music company that would stand to gain.
The success rate of film albums was similar to breaking in new artists in the West 90 per cent
misses and 10 per cent hits.13 Typically, for a big, Bollywood movie soundtrack, the movie producer
created the music at INR 10 million and then sold it, in perpetuity, to a recording company at five to 10
times the cost (INR 50-100 million). The recording company then had an entire copyright period to
recover the costs it had incurred through licensing for digital music, physical sales, publishing
revenues, song video licensing and exploitation of imagery content. In addition, it had a sizeable
media budget that could range from INR 10-30 million across media to promote the soundtrack. All
revenues accrued by the recording company were offset against the investment in the soundtrack.
Broadly, this was how the model worked; however, these numbers were variable and could
incorporate multi-tier deal structures.
For non-film music, the value chain was a little different. Artists or bands were signed on by
recording companies, and the nature and duration of the contract between the two varied from one
artist to the other, based on the degree of involvement of the recording company in the music
creation, production, mixing and mastering process. In the 1990s, on average, a recording company
would invest close to INR 1.5 million in making an album, INR 0.5-0.6 million toward recording the
album and about INR 0.8- 0.9 million in creating the videos. A further INR 1.5 million would be spent
on creating copies and the overall packaging of the album.14 Once the song or album was created, the
recording companys functions were similar to that for film music, with a few additional responsibilities,
such as artist management, handling contracts and legal frameworks, live performances, etc. The
artist was paid a royalty share on the profits from every CD sold in the range of 15-20 per cent, after
any advances, and recovery of production and marketing costs by the label (see Exhibit 4).
The contractual arrangements between the artists and recording companies could be very minimal
in some cases. According to SurojitDev, drummer for the Indian rock band Them Clones, 15 Counter
Culture bore the costs of production for their first album, Love. Hate. Heroes, which was released by
a collaborative effort between Counter Culture Records16 and EMI,17 with EMI serving purely as a

12 Copyright Board Reduces Royalties in Radio on Intl Criteria, Business Standard, August 26, 2010.
http://www.business-standard.com/india/news/copyright-board-reduces-royalties-in-radiointl-criteria/405872/, last
accessed on February 8, 2013.
13
Pande, Shamni. Sony: Great Music Ahead, Business Today, March 21, 2001.
http://archives.digitaltoday.in/businesstoday/20010321/cf.html, last accessed on February 8, 2013.
14
Iyer, Anita. Is the A&R Era Back? Part 1, Soundbox, June 4, 2011. http://www.soundbox.co.in/is-the-ar-era-
back-part-1/3/, last accessed on February 8, 2013.
15
http://www.themclones.com/, last accessed on February 8, 2013.
16
http://www.last.fm/label/Counter+Culture+Records, last accessed on February 8, 2013.

4| Sony Music (India)

marketer and distributor for 20 per cent of the royalties (the CD retailed at INR 200). Them Clones
was classified as an independent band and was not on the EMI roster.
Music Publishing in India
Music recording and music publishing are two distinct businesses in the international music
industry; however, in India, the music publishing business also was managed by recording
companies. The role of music publishing businesses, internationally, was to coordinate licensing and
royalties on songs. The revenues to the publishing companies would be in the form of mechanical
royalties (royalties paid by a recording company to the songwriter and to the music publisher for the
use of a song); performance income (the amount paid for the right to play a song on the radio or
television, or at a concert); and synchronization fees (fees for the use of a song in films, television
shows and commercials).
Within the Indian publishing business, a song typically had three royalty structures: (a) song
recording royalty, which was the share of the label; (b) public performance royalty, which was
managed and collected by an independent body called the Indian Performing Right Society (IPRS);
and (c) the publishing royalty, which paid the lyricist and author through a publisher, but accrued
within a record label because the rights to the soundtrack were transferred from the composer to the
film producer to the recording company.
Indian copyright laws allowed for ownership rights to be largely vested with recording companies
that had bought the rights from movie producers. The Copyright Amendment Bill, which was
introduced on April 19, 2010, sought to amend The Copyright Amendment Act of 1957 to create rights
of music ownership for lyricists, artists and composers. These individuals would now retain
ownership of their songs.

Copyright Societies
The Indian Music Industry (IMI) was a national recording industry association that protected the
rights of its members, which included most of the major record companies. Royalties collected from
radio broadcasters and other end users such as restaurants, clubs, discotheques, etc. were managed
by independent licensing bodies, such as Phonographic Performance Limited (PPL), 18 an arm of IMI;
IPRS19 and South India Music Companies Association (SIMCA).20 However, due to insufficient
manpower and funds and the lack of the needed infrastructure to manage and collect royalties, the
role of these royalty collecting bodies had been minimal and their collections meagre.

THE DIGITAL REVOLUTION

The music industry earned its revenue from four major streams: physical sales of music, digital
sales (Internet and mobile), radio and television broadcasting royalties and royalties from public
performances. The year 2010 saw physical sales of music surpassed by digital sales in India. While
physical sales comprised 81 per cent of the total Indian music market revenues in 2006, this number
declined to 38 per cent in 2010. Physical sales were estimated to be INR 3.2 billion in 2010,
compared to INR 4.5 billion the previous year, reflecting a decline of 28 per cent. On the other hand,
digital sales of music through downloads or streaming, including the Internet and mobile phones, grew
by 57 per cent. It was estimated that physical sales would drop to six percent of the total market in
2015, a declining CAGR of 18 per cent. The digital segment was expected to be the largest
contributor to the music industry in India, and was estimated to grow at a CAGR of 29 per cent from
INR 1.1 billion in 2006 to INR 14.8 billion, or 79 per cent of the market, in 201521 (see Exhibit 5).
17
http://www.emimusic.in/clientHomepage.php, last accessed on February 8, 2013.
18
http://www.pplindia.org/pplweb/index.aspx, last accessed on February 8, 2013.
19
http://www.iprs.org/cms/Home.aspx, last accessed on February 8, 2013.
20
http://simca.org.in/, last accessed on February 8, 2013.
21
Hitting the High Notes FICCI-KPMG Indian Media and Entertainment Industry Report 2011,
http://www.kpmg.com/IN/en/IssuesAndInsights/ThoughtLeadership/FICCI-KPMG-Report-2011.pdf, last accessed on
February 8, 2013.

Sony Music (India) | 5

Worldwide, digital channels accounted for an estimated 32 per cent of record company revenues in
2011, up from 29 per cent in 2010.22
Indias wireless market comprised 771.2 million mobile phones and 548.7 million active mobile
subscribers at the end of 2010. Not surprisingly, mobile access to music outpaced PC access. Nearly
75 per cent of the Indian music industrys digital sales comprised ringtones and caller ring back tones
(CRBT) on mobile phones.23 The proliferation of smart phones and tablets, combined with 3G
services, provided a boost to online music streaming and access. With 150 million mobile phones or
other portable music players bought in 2010, music dominated the value-added-services (VAS)
revenues of the telecom industry, accounting for 56 per cent of VAS revenues.
The number of broadband wireline connections was expected to grow 25 percent annually from 14
million in 2010 to 51 million by 2016.24As Internet penetration and usage looked set to increase
fivefold from 88 million active connections to more than 400 million by 2016, recording companies,
including Sony, knew it was imperative to respond to the forces of digitization. While the new
landscape provided opportunities for new revenue models and diversification in existing revenue
streams, it also brought with it many challenges. A careful assessment of both the opportunities and
the challenges was a necessary prelude to an effective response.

Opportunities of Digitization
Digitization of music was as much a disruptive force in the Indian music industry as it was in the
West. However, the Indian industry had the benefit of learning from the upheaval of the recording
industry in the West. Hence, it appeared to be better poised to respond to these changes by
leveraging the manifold opportunities of digitization.
New Consumption and Revenue Models
Digital music was being monetized using two main consumption models: ownership and access. In
the ownership or download environment, consumers purchased an album or a track that could be
downloaded a limited number of times and stored the song or album on their devices. The Apple
iTunes store and Flyte from Flipkart were examples of this model. However, in the subscription or
access model, a track was played or listened to several times and generated a royalty stream each
time. Though such a streaming model generated smaller individual payments per track, the total
payments generated for a track over a longer timeframe would be much larger. International players
such as Spotify, Deezer and Rdio, and Indian portals like Gaana.com and Saavn.com were examples
of this model.
With these shifting consumption patterns, revenue streams were being rapidly redefined. While
physical retail was a one-to-one model with the production of each CD mapping to a single sale, the
digital space entailed a one-to- many model with digital content being produced once but monetized
over a variety of channels over a longer timeframe. Recording companies, as rights owners to large
catalogues, were either digitizing their content themselves or selling the digital rights to content
aggregators, who in turn converted them to digital formats. These digital formats were being turned
into better offerings for the market with improved user experience. They also were made available to
a broader base of end consumers through partnerships with technology/ Internet service providers
and mobile/ telecom companies. In this evolving value chain, content usage revenues were shared by
the ISP/ mobile service provider, content developer and the content/ copyright owner (the recording
company in most instances).

22
Digital Music Report 2012 Expanding Choice. Going Global, IFPI Digital Music Report
2012.http://www.ifpi.org/content/library/DMR2012.pdf, last accessed on February 8, 2013.
23
Spotlight on Indias Entertainment Economy, Ernst & Young Report, October
2011.http://www.ey.com/Publication/vwLUAssets/Entertainment_economy_of_India/$FILE/Indias-Entertainment-
Economy_Oct_%202011_.pdf, last accessed on February 8, 2013.
24
Digital Dawn The Metamorphosis Begins, FICCI-KPMG Indian Media and Entertainment Industry Report 2012.
http://www.kpmg.de/docs/FICCI-KPMG_Report_2012.pdf, last accessed on February 8, 2013.

6| Sony Music (India)

As with physical music, investments in digital retailing formats were high, as the retailer had to pay for
building and maintaining the technology platform, hiring engineers, creating bandwidth and data
storage, being a financial payment gateway, etc. However, unlike physical sales, where advertising
and marketing costs could be to the tune of 25 per cent, digital players could effectively promote new
content through innovative use of social networking sites for free.
In the case of digital music sales, the royalty split was slightly more skewed toward the artist, as
the recording companys involvement was extremely minimal and the end user price was decided by
the service provider, whether desktop or mobile. While full track digital music generated a 60 per cent
royalty, a derivate digital product for the mobile market (30 second file) earned 30 percent.
The desktop business worked on licensing of content and guarantees. Service providers decided
the end user price and paid a minimum guarantee (MG) to the copyright owner to seek the license for
content on an annual basis. This was in addition to the royalty structure on content outlined above
and recoupable against sales. If sales were lower than the MG, the MG was applicable for the period
of license. If sales were higher than the MG, royalty was applicable.
In the case of mobile sales, recording companies reached their end consumers via telecom
operators as they controlled the point of sale and decided the pricing and revenue sharing. In
addition, at the telecom operator level, there was a subscription charge on IVR (interactive voice
response) music that was not shared by the telecom carriers. In contrast to global norms where
content providers typically had the majority share, Indian mobile operators were able to negotiate
higher margins (50 per cent) in the overall mobile VAS value chain25 (See Exhibit 6).
Freemium Models
Many players in the music industry were adopting a freemium business model, wherein they
would offer customers a threshold of service for free (as in an acquisition model), and upgrade them
to the next level of service for a premium payment.
Music Videos
Music videos were highly popular, and globally, many music companies had entered into licensing
arrangements with YouTube to distribute music videos and earn revenues, either on a per user view
basis or from a share of the advertising revenues. Various music companies in India had also entered
into partnerships with social networking websites for promotion activities. In.com partnered with Sony
Music to live stream Shakiras single SheWolf. Ibibo.com entered into partnership agreements with
Sony Music, Saregama, EMI and Warner Music. 26
Music from the Cloud
Streaming from the cloud allowed music to be stored on the Internet with the ability to access it
from just about anywhere using any device. This transformed the way consumers stored and
accessed their music. In November 2011, Apple launched its iTunes Match service, which allowed
users to access their music files stored on a cloud from a range of devices for a fee of US$25 a year.
This led music companies to have device agnostic offerings with the licensing of their catalogues to
allow consumers to transfer music files purchased from an online player to any other device.
Physical as Premium
The physical product was also acquiring premium status, which was evident in the vinyl revival.
According to Nielsen Soundscan, the official music sales tracking system in the United States and
Canada, in spite of the onslaught of digital media, vinyl album sales grew 39 percent in 2011 with

25
Spotlight on Indias Entertainment Economy, Ernst & Young Report, October
2011.http://www.ey.com/Publication/vwLUAssets/Entertainment_economy_of_India/$FILE/Indias-Entertainment-
Economy_Oct_%202011_.pdf, last accessed on February 8, 2013.
26
Digital Paves Way for Indian Music Industry, Soundbox, April 14, 2011, http://www.soundbox.co.in/digital-paves-
way-for-indian-music-industry/, last accessed on February 8, 2013.

Sony Music (India) | 7

about 3.9 million albums sold.27 With high margins ranging from 30-35 per cent, vinyl records retained
their popularity among collectors, loyalists and audiophiles. For instance, Radiohead announced the
release of their album, In Rainbows, as an exclusive download from their website where consumers set
their own price for it. Radiohead also offered consumers a deluxe box set of the album for US$80 which
contained an LP vinyl record, two CDs with extra tracks and a book of artwork and lyrics.
Disintermediation
The Internet had made it easier for artists to reach out directly to customers. According to Sridhar
Ravichandran, solo artist and product manager at Soundcloud.com, 28 It has become so much
cheaper and easier for independent artists to record and release their own material out of their
garage. The marginal cost of producing a song is almost negligible, which is why a lot of independent
artists today give their music away almost for free. Sridhars album Afterward, released in 2011,
was available for free download from his website29 on a pay-what-you- want model. The direct
connect to the fans through online portals also offered more opportunities for merchandising.
ArtistAloud.com, an initiative by Hungama Digital Media Entertainment Private Ltd., was a
pioneering Indian digital platform that provided an opportunity for independent artists to showcase
their music. At the same time, it allowed fans to sample the physically unreleased music. It offered
more than 500 songs spanning 33 genres by 155 musicians.30ArtistAloud also organized webcerts
and launch casts, providing a platform to reach thousands of fans. 31Hungama shared 35 per cent of
the revenue earned from the end user with the artist/ composer after deducting its expenses and
taxes. As of early 2012, ArtistAlouds estimated monthly revenue was US$650. 32 The allure of DIY
(Do-It-Yourself) models was that they allowed artists to retain a larger share of the pie.
The traditional role and investment of the recording company in the industry value chain had been
to seek and groom talent, break new musical formats and find partnerships to create revenues. This
role of the recording company, with its intuitive A&R (Artist and Repertoire) team and upfront
investment and promotional power, was going to grow significantly as the clutter in digital music
increased. In the DIY environment, the focus of recording companies was shifting from artist
management to performance management. They were looking at becoming service providers that
invested in marketing artists who wanted to make a greater impact through a full range of services.
Like Madonnas deal with Artist Nation, more and more artists were signing 360-degree deals in which
the record company took care of all aspects of their record releases including publishing, touring,
merchandising, fan clubs, etc.33
Music Curation
In the physical world, music curation and stacking, i.e., choosing a select set of songs/ albums
from the vast variety available in various genres of music and making them available to consumers,
had been the purview of retailers and store owners. For recording companies, it was an expensive
and time-consuming investment. However, with the availability of new technology platforms, it was
much easier for recording companies to go directly to the consumer. Either directly or with partners,
music curation and analytics were slated to become premium service business models for recording
companies.

27
Sharp, David. Record Store Day 2012: David Bowie, Paul McCartney, The Misfits And More Release Vinyl,
Huffpost, April 20, 2012. www.huffingtonpost.com/2012/04/20/record-store-day-2012_n_1439916.html, last accessed
on February 8, 2013.
28
http://soundcloud.com/, last accessed on February 8, 2013.
29
http://get.sridharsmusic.com/album/afterward, last accessed on February 8, 2013.
30
Ojha, Abhilasha and Surabhi Agarwal. Recognizing Firms Tapping Social Medias Potential, LiveMint, September 21,
2011.http://www.livemint.com/2011/09/21230222/Recognizing-firms-tapping-soci.html, last accessed on February 8, 2013.
31
Iyer, Anita. Is the A&R Era Back? Part 2, Soundbox, June 4, 2011.http://www.soundbox.co.in/is-the-ar-era-back-
part-2/4/, last accessed on February 8, 2013.
32
http://www.statshow.com/artistaloud.com, last accessed on February 8, 2013.
33
Waddell, Ray. Update: Madonna Confirms Deal with Live Nation, Billboard, October 16, 2007.
http://www.billboard.com/news/update-madonna-confirms-deal- with-live-nation-1003658914.story#/news/update-
madonna-confirms-deal-with-live-nation-1003658914.story, last accessed on February 8, 2013.

8| Sony Music (India)

Separation of Music Publishing from Recording
The passing of Copyright Amendment Bill in April 2010 was expected to result in a paradigm shift
in content ownership and give more power to original composers of music in all genres, including film,
who would be able to directly reach consumers from emerging DIY platforms. This, in turn, would
reduce the bargaining power of recording companies. Film producers would likely think twice about
making an outright sale of publishing rights to recording companies and instead take on the mantle of
publisher themselves. In essence, it would significantly broaden the scope and size of the Indian
publishing business. Increasing popularity of cover song recordings and unconventional methods of
distributing music, such as in video games and toys, would also increase the power of publishers, in
effect, record companies. It would also ensure that both radio and television broadcasters paid
royalties to copyright owners every time their work was broadcast. According to Vinit Thakkar, Senior
General Manager of Digital and Publishing, Sony ATV/ Music, While music labels will continue to
focus on developing and monetizing the original recordings, the publishers core focus will remain on
opportunities like licensing, synchronization, lyric reprint, live performances, etc.34 It was estimated
that the size of the music publishing business in India would be close to INR 50 million by 2014-15.35

Challenges of Digitization
Piracy
Piracy had long posed a challenge to the music business. With the advent of new technologies
and increasing use of online and digital formats, piracy became rampant. The losses to the industry
due to piracy were estimated to be as high as 75 per cent.36
The online music segment, which comprised paid music downloads from various legal portals, was
estimated at INR 0.09 billion in 2009 and had grown at a rate of 27.9 per cent to INR 0.11 billion in
2010. Most music providers had online portals that provided legal music at minimal charges.
However, listeners were attuned to a culture of free music and were not willing to start paying for legal
downloads. The lack of strong cyber piracy laws in India exacerbated this issue. Pre-release piracy
was another big concern as online leaks ended up hurting actual music sales.
More recently, mechanisms such as Digital Rights Management (DRM) and secure digital formats,
wherein a record label defines rules for usage and technology provides the necessary locks on usage,
had begun to facilitate better license and piracy management. Innovative pricing mechanisms and
services were also useful in enticing users to consume music from legitimate sources. Finally, the
Indian Music Industry (IMI) had also begun to step up its efforts to curb piracy; the organization
regularly conducted raids and registered cases to reduce piracy levels. It was expected that all of
these efforts would contribute to reducing the piracy epidemic.
Investing in Metadata
The passing of the copyright bill meant that recording companies needed to recognize the original
creators of the music in the ownership of the intellectual property. They would need to invest in
metadata and update their catalogues to ensure accurate identification of the lyricists, authors and
composers for the accrual of royalty.

34
Ahuja, Poonam. Sony/ATV India Head Vinit Thakkar: Publishing is the Most Important Facet of Music
Business,Radioandmusic.com, April 12, 2012.http://www.radioandmusic.com/content/editorial/interviews/sony-atv-
head-vinit-thakkar-publishing-most-important-facet-music-business#story, last accessed on February 8, 2013.
35
Sony Music to Acquire Music Publishing Rights for Sony/ATV JV, The Economic Times, September 25, 2011.
http://articles.economictimes.indiatimes.com/2011-09-25/news/30200782_1_music-market-shridhar-subramaniam-
sony-music-india, last accessed on February 8, 2013.
36
Digital Dawn The Metamorphosis Begins, FICCI-KPMG Indian Media and Entertainment Industry Report 2012.
http://www.kpmg.de/docs/FICCI-KPMG_Report_2012.pdf, last accessed on February 8, 2013.

Sony Music (India) | 9

Managing Micropayments
With the availability of single tracks downloadable from the web at INR 10 or even less, the size of
an online transaction had become small. The management of these small financial transactions called
micropayments posed a challenge for online players who had a pay-per-download model,
particularly as Indian consumers were yet to widely embrace the use of debit and credit cards in web
transactions.
Entry of International E-tailers
Industry experts predicted that iTunes and Spotify would enter India by 2014-15. These players would
carry experience and clout from the international context where they had been already successful. 37

The New Digital Music Competitive Landscape in 2012

With the drop in physical music sales, traditional recording companies in the Indian music industry
such as Saregama, Tips, T- series, and Universal, along with Sony Music, entered the digital arena,
investing in digitizing their content and offering online streaming services themselves. Content
aggregators such as Hungama Music also appeared on the scene. By taking licenses from all the
major labels and storing music in one place, these content aggregators offered customers the
convenience of searching through music without having to know which artist was available under
which label. Telecom and mobile companies such as Bharti Airtel and Nokia were becoming dominant
players in this area. Several technology platforms that allowed for streaming music were also
increasing their footprint in the market and the entry of iTunes and Spotify was on the horizon.
Globally, players like Apple and Amazon were moving towards storing music on the cloud as it
provided music protection and division of ownership/ access, i.e., download or stream (see Exhibit 7).

SONY MUSIC (INDIA)

Sony Music, a global recorded music company, was a wholly owned subsidiary of Sony
Corporation of America. It traced its origins to the American Record Company, a U.S.-based record
company founded in 1929, which eventually became Sony Music after many mergers and acquisitions
and the eventual buy-out of Columbia Broadcasting System (CBS) Records by Sony Corporation of
America. One among the big four record companies, Sony Music supported a broad array of local
and international artists, sourced from premier record labels cutting across genres (see Exhibit
8).Sony Music made its foray into the Indian market in 1996. In spite of being a multinational
company, Sony came with a mandate to participate and grow its share in the local music market and
debuted with the successful release of Maa Tujhe Salaam in 1997. In 2002, the industry witnessed a
shakeout with film companies such as Yash Raj Films and UTV entering the industry as music
companies and the mobile market grew. Also, television had an increasingly regional focus, and
music companies in markets like Punjab, Andhra Pradesh and Tamil Nadu became important players.
In spite of these concerns, Sony Music was not adversely affected. The company had a spate of
successful releases with hit music in films such as Kal Ho Na Ho, Kuch Kuch Hota Hai, Lagaan,
and Kabhie Khushi Kabhie Gham. In a largely fragmented industry, aiming for aggressive growth
targets, Sony expanded its market share from five per cent in 2002 to 10 per cent by 2007-08. The
company began scaling up and initially focused on two or three core businesses, gradually becoming
a successful music and video company in India.
While other players were exploring various avenues such as film production, Sony decided to
concentrate on music content, specifically Bollywood music, its Western music catalogue and select
regional markets. In 2010, Sony set up an office in Chennai to make inroads into the Tamil music
market. By 2011, Sony Music was one of the largest labels in Bollywood, with a 25 per cent share of
that market and over 65 per cent share of the Tamil music market. Sony also ventured into other

37
Iyer, Anita. Does India Need iTunes?, Soundbox, July 16, 2012.http://www.soundbox.co.in/does-india-need-
itunes/, last accessed on February 8, 2013.

10| Sony Music (India)

regional markets and entered the indie music and Hindustani classical segments as well, with plans to
reach out to the Telugu, Malayalam and Kannada markets.
In 2009, Sony Music partnered with IODA (Independent Online Distribution Alliance) to offer Indian
artists and labels the ease of global distribution and marketing in an easy and transparent manner by
connecting them to blogs, Internet radio stations, social networking sites and music websites. Sony
signed around eight to 10 labels under IODA and brought in almost 50,000 songs to the global
network of distributors. This also helped artists to digitize their content by creating metadata for their
songs.
Sony also forayed into the talent management and music publishing verticals and began working
with indie artists. The company also established genre-specific music labels: Folktronic for folk music
and Zomba for hip-hop music. In 2011, the company partnered with a global music publishing house,
Sony ATV Music Publishing (jointly owned by the Michael Jackson family trust and Sony), to allow
Sony Music to represent Sony ATVs 750,000-plus global music assets in India. Sony ATV, in turn,
would represent Sony Musics works internationally. Both entities would collect royalties on behalf of
each other in their respective markets.
Sonys digital presence was significant, with 40 per cent of the companys sales accruing from
sales of digital products. Of this, revenue from mobile platforms was 90 per cent, while revenue from
desktop platforms was 10 per cent (see Exhibit 9). Sony had a strong presence on Facebook, with a
million fans on its international Hindi and Tamil pages. The company spent between 15 and 25 per
cent of its overall marketing budget on digital products. By choosing an innovative digital launch for
the Tamil-English song Kolaveri di, the company broke new ground and the song went on to
become a viral hit. With 40 million hits on YouTube and versions of the song in various languages, the
company filed for trademark registration of Kolaveri di.38
Aiming for a 30 per cent market share of the music segment by 2015, it was eventually looking at
becoming an entertainment company with recording as its core area. Commenting on the expected
revenues from India, Richard Sanders, Sony Music Entertainments international president and head
of global marketing said, We are targeting to grow our revenues in the country to US$50 million in the
next three years.39 In an effort to keep up with global digital trends, Sony Music India was in the
process of transforming its strategic business model from physical sales-based to license- and
services-based, moving into every vertical in the music industry, from technology, rights and artist
management to video. Going forward, the company was poised to grow annually at 20 to 25 per cent.

Music Unlimited
Launched in December 2010 in the United Kingdom and Ireland, Sonys Music Unlimited, was a
cloud-based, digital music service that provided unlimited music access across a wide range of Sony
devices including PS3, PSP BRAVIA TV, PS Vita, Blu-ray disc players and home theatre systems, as
well as iOS and Android mobile devices, including Sonys upcoming S1 and S2 tablets, VAIO and any
web connected PC.
The subscription-based package gave its users access to millions of songs from many of the major
record labels, including Universal Music Group, Sony Music Entertainment, Warner Music Group and
EMI Music as well as some of the leading independent labels. By 2011, it was live in 14 countries and
allowed users to sync their music collections into the cloud to enjoy on any Qriocity enabled device.
According to Tim Schaaff, President of Sony Network Entertainment, Today, the Music Unlimited
service reaches more countries than any other digital music subscription service, and well continue to

38
Joshi, Aparna and Anita Iyer. Everything is a Large Niche Now, Soundbox, February 2012.
http://www.soundbox.co.in/february-2012/, last accessed on February 8, 2013.
39
Ambwani, Meenakshi Verma. Sony Sees Indian Revenues Growing to $50 Mn in 3 Years, The Economic
Times, June 10, 2011. http://articles.economictimes.indiatimes.com/2011-06-10/news/29643020_1_digital-music-
music-segment-universal-music, last accessed on February 8, 2013.

Sony Music (India) | 11

roll out the service in new territories and add new features and devices.40
Motivation
Although Sony Music was a dominant player in the Indian music industry, it needed to revamp its
organization from a conventional record label to a comprehensive music and entertainment business
in order to grow its market share and to keep up with trends. This would require a transition from the
traditional transaction-based physical sales business model to a licensing administration and services
business model, such as publishing, live events, talent management and administration of digital
distribution. In such an environment, it appeared that Sony would do well to focus on a dual strategy
involving rights management and distribution.
With no clear industry leader identifiable in the Indian market, it was becoming increasingly clear
that a company that had a presence in the movie and indie music businesses, and which could
support digital innovation while enabling both streaming and downloading services across a wide
selection of genres, would take the lead. A clear platform strategy that considered mobility, ease of
access and the right mix of on-demand services was going to be crucial for sustained success.
According to Paul:
The conventional music business is morphing into a digitally driven business, so it is
important to have the tools of distribution in control. The objectives are similar to the
physical business and its distribution ecosystem. The beauty of the digital economy lies
in aggregating customers, connected commerce and long-tailed revenue streams
through the single asset creation model.
Given the above, it appeared that the time was right for Sony to consider launching its own music
platform (Music Unlimited) in India to tap into the growing market. Many questions pertaining to
Sonys offering raced through Pauls mind. Should it run from the cloud and offer both streaming and
downloading? Should the music consumption model include unlimited streaming, with an option to
buy based on a subscription charge? What should be the price? Should Sony look at supporting the
platform with secondary consumption models such as publishing, live music, branded music and a
DIY platform? Should they have a separate division to spearhead this? One thing was clear: the
market dynamics in the music business were changing rapidly and even the smallest delay in devising
their strategy could cause severe setbacks. He needed to act and act fast.

40
Sony Network Entertainment's Music Unlimited Service Live in Canada, PR Newswire. March 15, 2012, Retrieved
from http://search.proquest.com/docview/928038959?accountid=26511, last accessed on February 8, 2013.

12| Sony Music (India)

 B007

EXHIBIT 1

MUSIC INDUSTRY REVENUES OVER TIME (INR BILLION)

16
14
12
10
8
6
4
2
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Compiled from Indian Entertainment Industry Focus 2010: Dreams to Reality, CII-KPMG
report.http://www.kpmg.com/IN/en/IssuesAndInsights/ThoughtLeadership/Focus%202010-
%20Dreams%20to%20Reality%20-%20CII-
KPMG%20Indian%20Entertainment%20Industry%20Report%20(April%202005).pdf, last accessed on February 8, 2013
and Hitting the High Notes FICCI-KPMG Indian Media and Entertainment Industry Report
2011, http://www.kpmg.com/IN/en/IssuesAndInsights/ThoughtLeadership/FICCI-KPMG-Report-2011.pdf, last
accessed on February 8, 2013.

EXHIBIT 2

MARKET SHARES

Segment Market Share

(2011)*

Major Labels with International & Domestic Catalogue (Sony, Universal, EMI) 25%

Local Majors (Saregama, Tips, Venus, T Series) 60%

Indie Labels (including Regional Labels) 10%

Independent Artist and DIY Content 5%

*The respective labels have different market shares within the segments.

Source: Industry estimates

Sony Music (India) | 13

 EXHIBIT 3

TRADITIONAL VALUE CHAIN IN THE MUSIC INDUSTRY

Source: Shared by the company.

EXHIBIT 4

TRADITIONAL RECORDING COMPANY ECONOMICS FOR A CD PRICED AT INR 99

Retail Price INR 99.00

Retailer Margin 39.60
Wholesale Price 59.40
Manufacturing of CD 3.96
Distribution and sales 8.91
Marketing and promotion 14.85
Overhead and other expenses 5.94
Royalty payments 19.8
Total Expenses 53.46
Operating Profit 5.94

Operating Margin 10%

Source: Industry estimates.

14| Sony Music (India)

 EXHIBIT 5

MUSIC INDUSTRY REVENUE BY SEGMENT

14 Total
16 Digital
Rbi
llio
(IN

n)
12
8
10
enu
Rev

60
Physical
2011 2012
2013 2014 2015
4 2005 2006 2007 2008 2009 2010 p p Public performance
p p p

2 Radio and Television

Physical 7.25 6.34 5.6 4.9 4.5 3.2 2.6 2 1.7 1.5 1.2
Digital 0.86 1.11 1.4 1.9 2.6 4.2 5.2 7.3 9.1 11.8 14.8
Radio and Television 0.21 0.26 0.3 0.4 0.5 0.7 0.6 0.8 1 1.1 1.4
Public performance 0.03 0.07 0.1 0.2 0.2 0.5 0.6 0.8 0.9 1.1 1.4

Total 8.3 7.8 7.4 7.3 7.8 8.5 9 10.9 12.7 15.6 18.7
Source: Compiled from Media & Entertainment Industry Projected to Grow at 12.5% over Next Five Years to INR 1052
Bn: FICCI-KPMG report, http://www.kpmg.com/IN/en/Press%20Release/Press%20Release-%20FICCI%20Frames.pdf,
last accessed on February 8, 2013 and Hitting the High Notes FICCI-KPMG Indian Media and Entertainment
Industry Report 2011, http://www.kpmg.com/IN/en/IssuesAndInsights/ThoughtLeadership/FICCI-KPMG-
Report-2011.pdf, last accessed on February 8, 2013.

EXHIBIT 6

MOBILE VAS VALUE CHAIN IN THE INDIAN CONTEXT

Source: Compiled from Connect with Consumer Value Added Services 2011, PWC Report
2011, http://www.pwc.in/en_IN/in/assets/pdfs/publications-2011/vas_landscp.pdf, last accessed on February 8, 2013.
 EXHIBIT 7

THE NEW DIGITAL MUSIC COMPETITIVE LANDSCAPE

Player Features Catalogue Content Distribution Revenue

Model
Recording Companies and Content Aggregators

Sony A major international label in India; catalogue 400,000 songs Download, PC, Mobile,
Music cuts across international music, film across Streaming Web
India soundtracks, Indie-Pop, regional, classical repertoire
and independent music.
Saregama Largest catalogue of music in India; About 48,000 Radio and Desktop CD, LP,
introduced its digital content in stores, e.g. albums and Download subscription
iTunes, MSN Music, Napster, etc. in 2004; 300,000 songs and mp3 sales
launched website Hamara CD enabling CD in 14
customization globally; among the largest languages
digital music aggregators in India; launched
online genre-based radio channel with
Timbre Media.
T-Series Major player in the industry; struck deal with Owns more Download Desktop and Deal with
Hungama Mobile making them the exclusive than 200,000 Mobile Hungama
global licensee for all T-Series content in the songs and
digital space. 30,000 music
videos

Tips Has the highest number of platinum and gold Owns a library Streaming Desktop Ad supported
discs; has given licenses to 10 websites to of over 3,500 free streaming
stream music. titles

Hungama Leading content provider with expertise in Digital library of Download Desktop and Three plans
mobile content, mobile marketing and mobile over 100,000 Mobile single
media; powers 75% of all mobile songs download,
entertainment content in India; provides value pack and
content to consumers in 32 countries with unlimited
142 global partners. downloads

Telecom and Mobile Companies

Music Part of Bharti Airtel, services include hello & More than 50 Streaming To mobile Subscription
Bharti call-back tunes and music-on-demand; million tracks & via Airtel and per track
largest music distributor with largest Indian download network
music catalogue.
Vodafone Launched IVR-based radio service Vodafone Library of more Streaming To mobile Subscription
Music Music Junction; offers library of songs at INR than 150,000 via
Junction 30 per month (total listening time of 30 songs Vodafone
minutes). network

16| Sony Music (India)

Nokia Ovi Music Unlimited available on Over 4 million Download Desktop Device
Music music.ovi.com/in, Nokias Ovi India store. tracks &Nokia integrated and
Subscribers can download a years worth of mobiles Subscription
unlimited music (and keep it) on buying an
Ovi Music Unlimited enabled device.
Samsung Device integrated subscription based music Over 3 million Streaming Galaxy Device
Music Hub app. songs smartphones Integrated and
(not , Smart TV, subscription
available tablets, Blu-
in India) ray, Home
Theatre
systems

Streaming Music Websites

Gaana Online music streaming site launched by Over 10 million Streaming Browser Ad based
Indiatimes, the Internet and mobile business songs
of the Times of India group; offers a media
player app that streams legal music via a web
browser; has a user base of over 3 million
unique visitors.
Saavn Started by New York-based 212Media, this Catalogue of Streaming Desktop & Ad based
service offers free streaming music. over 200,000 mobile
Hindi songs
Google Streaming music service for India allows Access to Streaming Browser None
users to search for legal music and catalogues of
downloads. In.com, Saavn
and Saregama
Dhingana Social music streaming service accessed by Collection of Streaming Browser Ad based free
millions of users in 250 countries every 250,000 songs streaming
month.
In.com Portals Music page allows visitors to listen More than Streaming Web Portal None
to songs from numerous albums, artists and 100,000 songs
labels through their music widget; allows
personalized song dedications and playlist
creation.

IndiaOne Service cum app offered by Next Media Streaming Mobile app App sale
Works targets Hindi and Tamil language
music lovers.
Meridhun Users can personalize songs and mobile Download Desktop & INR 99 per
greetings based on songs or download a mobile customization
song-based ringtone for a customization fee
of INR 99; offers to permanently store these
sounds on the user account for retrieval at
any time.
Artist Launched by Hungama Digital Media in 2009 Over 500 DRM free BSNL, INR 10/ track or
Aloud as an exclusive digital platform for songs across Mp3 iTunes, 4 tracks for INR
independent artists to showcase their 33 genres from Amazon etc. 20
unreleased music. over 155
musicians

Sony Music (India) | 17

MyBand Web outlet for Indian bands across genres; Download Desktop Singles &
showcases new artists; has mp3 store that albums
sells singles and albums of established
bands; helps manage events and promote
merchandise.
Digital Music Stores

Flyte Announced by Flipkart in Feb 2012 as a legal 1 million songs Download Desktop INR 10-15 per
music download service offering DRM free track
mp3 downloads for INR 10-15 (US$0.20-
0.30).
iTunes Online digital media store launched in 2003 Over 28 million Download iPhone, US$1.29, $0.99
store(not by Apple; earned US$1.4 billion in revenues songs, videos iPod, iPad and $0.69 per
yet in Q1 of 2011; sold 16 billion songs by 2011. and apps and PC track
available
in India)
Services on the Cloud (not yet available in India)

Spotify Music streaming service offering digitally Over 13 million Streaming Desktop and Free with ads;
restricted streaming of selected music from a songs Mobile US$4.99 per
range of major and independent labels month for web;
(Sony, EMI, Warner Music Group, US$ 9.99 /
&Universal); available in 13 countries; 2.5 month for web
million paid and 10 million free subscribers as and one mobile
of 2011. device

Rdio Ad-free music subscription service launched Over 15 million Streaming Desktop and US$4.99/month
in August 2010; available in more than a songs Mobile for web;
dozen countries. US$9.99/month
for web and
mobile
Amazons Launched in Mar 2011, offers unlimited music
Cloud storage at US$20 per year.
Drive
Google Launched in May 2011, offers free storage of
Play up to 20,000 songs.

Apples Launched in Nov 2011, allows users to match

iTunes their music collections to high quality songs
Match on its servers.

Sonys Launched in Jan 2011. 15 million Around US$15

Music songs per month
Unlimited

Source: Compiled from company websites and online resources.

18| Sony Music (India)

 EXHIBIT 8

SONY CORP SALES BY SEGMENT FOR YEAR 2011

6% Consumer Products & Services

10% Professional Device & Solution

Pictures
6% Music
8% 50% Financial Services

20% All Other

Source: http://www.sony.net/SonyInfo/CorporateInfo/qfhh7c000000lpn1.html, last accessed on February 8, 2013.

EXHIBIT 9

REVENUE COMPOSITION FOR SONY MUSIC INDIA

2% Physical

8% Digital

10% 40% Song Video Licensing and Publishing, Brand

Marketing a nd Live Music

Music Publishing

40%

Public Performance

Source: Shared by the company.

Sony Music (India) | 19