Digital Music: The Distribution Game

Low PC penetration is one of the primary constraints of digital music
distribution in a developing market like India. If one excludes the enterprises,
small offices and SME segments, PC penetration in the home segment is very
small. Internet penetration in home segment is even lesser.

Another major constraint that stifles the growth of digital music
distribution is the time taken to download a song through the Internet. Whether
you download through wireless connections such as GSM or CDMA or wired broadband
connections such as ADSL, 60 minutes of music will take anywhere between 40-90
minutes to download.

Another factor that needs consideration is, how many people who otherwise use
the PC and Internet for chatting, e-mail etc, would prefer to come to their PC
to listen or manage their downloaded music content.

So when one combines all these factors, it is clear that digital music (using
current business models) can never become a mass-market phenomenon.

That is why, all players are looking at digital music distribution as a
premium-play value added service, addressed to the top most cream of the market.

A New Approach

While the population of India is 1000 mn, atleast 500 mn of these are
potential consumers of music. The mobile subscriber base in India has already
touched 100 mn. It is growing at a robust pace. Many entry-level mobile
instruments already have FM Radio capability. So, adding a flash memory based
MP3 player isn't going to add to the cost much. Stand-alone MP3 players can
also be made at low cost for non-mobile users.

So, the market potential for digital music distribution in India is between
100 mn to 500 mn.

The Revenue Potential

The average revenue per user in the mobile market is now approximately Rs
400 per month.

Like in the mobile phone market, here too, the actual revenue per user could
vary widely between Rs 50 per month to Rs 1000 per month. However, making a safe
assumption that for music alone, the average revenue per user could be
approximately Rs 200 per month at 100 mn consumers and Rs 100 per month at 500
mn consumers. That works out to a market size of Rs 20 bn to Rs 50 bn (per
month) or Rs 240-600 bn a year.

To put it in perspective, the current total size of the Indian music industry
itself is just about Rs 6 bn per annum. So, a new business paradigm as proposed
here, could grow the Indian music industry 50-100 times its present size.

Key Drivers

To tap in to this enormous opportunity there are a few key drivers that we
need to have in place.

User Devices: The
primary reason why low cost portable MP3 players (or entry level mobile phones
with MP3 capability) have not taken off in India is because its usefulness is
tied to the PC and the Internet. If only we could liberate consumers from this
unreasonable demand of having a PC and a broadband connection, the market for
these devices will explode.

A mobile phone to some extent liberates the consumer from the PC, however,
the cost and more importantly the time to download music is too prohibitive to
be of any relevance in the mass-market context.

Server Side Content:
The market cannot take off unless popular content is available at an
attractive price. This requires a tie-up with all music label companies and if
required direct tie-ups with film producers. The packaging and pricing of the
content should be flexibly varied, depending on the demographic profile of the
consumer.

Music Vending Machine (MVM):
It is now obvious that driver 1 and driver 2 are absolutely useless,
unless there is something in between to bridge the gap between the consumer and
the content. And, that bridge cannot be and should not be a PC or Internet
connection for reasons already explained. A music vending machine with hard disk
can deliver a 45-minute music album through its USB port or Bluetooth to the
consumer device in less than a minute.

A music vending machine with hard disk can act as a stockist of popular
content. The consumer can instantly choose and download what he wants. Here the
options could vary from ready to download packaged content, or individual
selection of assorted songs from different categories.

A music vending machine with hard disk can dynamically change what its stocks
and what it does, depending on the shifting preferences, trends and
geographical, demographical profile of its consumers.

For example, an MVM installed in a mall will stock different content from a
MVM that is put up on a public bus stand. Similarly what is moving fast today,
could become dead stock a few weeks later and hence has to be replaced with
faster moving content.

This dynamic change in stock position across the market comes without any
risk of material wastage as it happens in the case of cassettes and CDs.

The stock at each MVM can be managed and updated through a virtual private
network on Broadband Internet, mostly using off-peak bandwidth that is lying
idle during the nighttime.

A music vending machine can also capture detailed consumption patterns across
demographical, geographical segments and the data can be shared with content
owners and creators of music. Thus, a network of music vending machines can act
as a “virtual repository for the content owned by the consumer” (by looking
at the purchase history of the consumer from a central server).

This means that the consumer has the assurance that he need not to pay again
for listening to the same music that he has already bought once.

This is the killer application that will finally liberate the consumer from
owning a PC or any kind of media, because ownership of content is
dematerialized. It is held virtually in the server database against the consumer
account.

This will also liberate the consumer from the limitations of MP3 players that
have limited memory. The consumer can buy music into his/her player, but can
later overwrite them to listen to something else, because he or she is always
assured that his/her owned content can be accessed anytime anywhere on the MVM
network.

Standards: Since
there will be different types of devices in the market, and there will be
multiple music distributors operating to serve the huge market of 100-500 mn
consumers, we need some standards to complete the picture:

MVM to User Device-Handshaking Protocols

The MVM should be able to recognize the make and type of the device held by
the consumer so that downloads are allowed only on approved models. The
interface is through USB or Bluetooth.

Three levels DRM Standard linked to pricing should be set dynamically at the
time of delivery, by the MVM. The DRM should be enforced through the firmware of
the MP3 player. The pricing of the content should be dynamically decided at the
time of delivery based on the type of DRM standard chosen and the type of device
connected by the consumer.

• Download from MVM, upload to any PC or other devices and do what you want.
• Download from MVM, cannot upload/transfer to any other device but hold
  content in the device as long as you want. Overwrite content with new one if
  the space is full. Can refill previously purchased content free of cost from
  any MVM.
• Download from MVM, cannot upload to any other device. Validity limited to
  no of “plays” or no of “days” as required. (Subscription model)

Virtual Repository

When there are multiple operators selling music in the market, we would need
a few virtual repositories that hold the consumer's account details and
purchase history. All operators can access these repositories.

Common Smart Card

It would be ideal if a consumer can use a common smart card to access music
sold by multiple operators. Cash could be loaded in to this smart card by paying
at the retail outlet where the MVM is located, or could be transferred in to the
smart card-online from the consumer's credit card or debit card account. The
MVM will double up as an online payment collection point for this.

A network of hundreds of thousands of music vending machines could not only
revolutionize music distribution, but could also be used for distributing video
content, games etc. In that sense the MVM will become a DVM (digital vending
machine).

Ramkumar RS

consultant, Strategic Marketing and Organizational Development,

MEL Systems and Services

vadmail@cybermedia.co.in