The IMI-Deloitte Report on the Indian Music Industry: Can Piracy Still Be a Problem in a World of Free Music?

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The Indian Music Industry (IMI) which is the primary lobbying arm for the music industry, along with Deloitte’s consulting arm, has recently released a report on “The Economic impact of the recorded music industry in India”. The report is an attempt to place a value, not on the music industry, but its contribution to the economy by valuing its contribution to the various industries which use music as a “raw material”. As per the report, the music industry created a value of Rs. 8,660 crores for partner industries like television, radio, live events, films and streaming apps. For example, the contribution of the music industry to the radio industry was valued at Rs. 2,170 crores. This is apart from the value created for brass bands which perform for marriages, malls, restaurants, non-ticketed events and performances, which were not valued by the report.

As with all industry reports advocating the industry interests, the figures in the IMI report should be taken with a pinch of salt. However, such reports are always interesting because they provide an insight into the thinking of the industry and can help identify the key policy challenges as self-identified by the industry.

In the case of the Indian music industry, the key challenges identified by the report are: piracy, the increasing value gap, public performance rights compliance and conversion of free services to subscription services.

Can Music Piracy Still Be a Challenge?

On the issue of piracy being a challenge to the music industry, I am rather skeptical because music today is accessible for free as long as you have an internet connection. Gone are the days where everyone used to line up at to download music. There has been a veritable explosion of free streaming services like Saavn, Gaana, Spotify and of course, YouTube. All you need is an internet connection and you can access high quality music for free. How can you “steal” something that is free?

According to an older report of the IMI, the main grouse of the music industry appears to be “stream-ripping” wherein some users use special software to rip music off websites like YouTube to covert it into a downloadable format that can be played without having to stream content by using expensive data services. A previous IMI report (on Page 8) has very helpfully provided a list of services which provide stream-ripping services.

There is no real way for the music industry to figure out how just how many people are using such software to indulge in “stream ripping” of music and it is even tougher for the industry to actually prove that such stream ripping is hurting the music industry.

My guess is that the only reason people were using these stream ripping services was because of the cost of data services or because of the poor quality of internet services in parts of the country. With the price war launched by Reliance’s Jio, internet prices have crashed. If people are still using stream-ripping services it is because of poor connectivity in parts of the country and I doubt whether that small sliver of users is causing enough harm for the IMI to classify piracy as its number one threat.

We should be constantly wary of the piracy rhetoric from copyright owners because terrible things have been done in India in the guise of fighting piracy. We are one of the few countries to permit preventive detention for the offence of copyright infringement. We are also one of the few countries to allow the police to search premises and arrest people on suspicion of copyright infringement without any warrants from a court of law. These are draconian measures for non-violent criminal offences.

The Value-Gap

The second gripe of the IMI, is the value-gap due to legislative measures such as Section 31D and safe harbor protection for internet intermediaries. I am much more sympathetic to the Indian music industry on these two issues.

Section 31D basically allows the radio and television industry to apply to the Copyright Board (now the IPAB), for statutory licenses to broadcast music owned, by the music labels, at a rate fixed by the tribunal. The last time the Copyright Board decided one such compulsory licensing dispute in 2010, it fixed the royalty rate at 2% when the music industry asked for a rate of 20% of ad revenues. An appeal against the badly reasoned order of the Copyright Board has been pending for the last 9 years before the Madras High Court. I think it is time to evaluate whether India should be adopting the statutory licensing regime or whether it should take the route of competition law to take aim at the dominant music labels abusing their power. Smaller music labels or even big labels playing by the rules should not be forced to license their music at rates fixed by tribunals. Of course, if the music industry is going to form a cartel under the aegis of a copyright society like Phonographic Performance Ltd. and negotiate with the broadcast industry, it should be penalized under competition law.

Regarding the ‘value-gap’ argument due to safe harbor protection for giants like YouTube and Facebook, there is some merit in pushing back against the present legal regime. Due to the present safe harbor provisions, intermediaries are not required to take down material for a period more than 21 days unless the music label is able to get a court order. This relieves intermediaries of the responsibility of actively monitoring their platforms to take down infringing content. This decreases the bargaining power of music owners because the risk and threat of potential lawsuits is the greatest reason for intermediaries to take licenses from the music industry. With safe harbor protection that risk is largely minimized which in turn reduces the ability of the music industry to negotiate higher licensing rates. This is the theoretical argument that was used to spur a pushback in Europe recently, to do away with safe harbor protection for platforms like YouTube. There are strong reasons for Indian policymakers to rethink the safe-harbour protection introduced in Indian copyright law in 2012.

Public Performance Rights Compliance

The IMI-Deloitte report then lists the difficulty in enforcing public performance rights as the next big challenge. This basically requires the music industry convincing event managers, hotels and other businesses to purchase licenses for the music they play for members of the general public. In my many conversations with the event management industry, I have learnt that they are usually ready to pay up because the clients usually have a budget for music, but most of the event managers are extremely unhappy with the lack of transparency and ghoulish tactics used by the thugs employed by the music industry to extort money for licenses. From the stories I have heard, the music industry has lost the trust of most people in the event management industry. If the Indian music industry wants to extract its legitimate value from the event management industry, they need to get more professional and build trust. To begin with they cannot be hiring thugs for their enforcement actions.

With regard to the hotel and hospitality industry, from what I understand there are services sprouting up that are providing specialized streaming services/packages. This is one of the reasons that some coffee shops play the same music in a loop, every day.

Converting to Subscription Services

One of the final challenges identified by the IMI-Deloitte report is the challenge for their OTT streaming services to convert their listeners into paying customers who subscribe and pay for music on a monthly basis. This would increase the size of the pie allowing for music labels to demand more royalties from the OTTs. According to figures presented in the report, the conversion rate is at merely 1% of 150 million customers who currently stream music. Contrast this to the 232 million subscribers for Spotify and 60 million subscribers for Apple Music in the global market. Clearly, the Indian market has some distance to go, although I am not sure if the Indian music listener will behave in the same manner as his counterparts in the West. The Indian market is very unique on several counts and it is possible that India needs a radically different business model.

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