Why India is a Different Track for Spotify

Amit Trivedi had turned 21 when he began a short chase for British rock band Coldplay's first album, Parachutes, in Mumbai. The Santa Cruz resident knew the shops nearby, which would have copies of the Coldplay tape. "I used to hunt for cassettes," he recalls. But it got harder when Trivedi, a self-professed A.R. "Rahman addict," wanted the music maestro's Tamil albums. That meant going to shops in Matunga, situated four train-stops away. Now, that is a hunt!

"Today it's so convenient, literally at our fingertips," says Trivedi, music director of films like Dev.D and Queen, referring to music-streaming apps on his smartphone. "Music is like air and water."

He isn't exaggerating the ubiquity. The total time spent on music apps in Android software phones has nearly doubled in three years in India. From 800 million hours in 2015, it was up to to 1.5 billion hours in 2018, according to AppAnnie, an analytics firm of global app markets. Android phones have a lion's share of the India market, where 4G data services became affordable—free for nearly six months—with Reliance Jio's onslaught from September 2016 onwards.

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But are listeners in India willing to pay for online music, as Trivedi did at music shops back in the day? The question got mooted in late February when music streaming app Spotify, headquartered in Sweden, launched its Indian operations. Users familiar with the app took to social media to welcome Spotify. They adore its recommendation engine, but will the market pay for its Premium service?

The Premium service is bread and butter for Spotify globally, which is why the question is impossible to ignore in India.

Users familiar with the app took to social media to welcome Spotify. They adore its recommendation engine, but will the market pay for its Premium service?

Streaming Syndrome

Spotify was launched in 2008 from Stockholm as a music streaming service, founded by CEO Daniel Ek and Martin Lorentzon two years before. At the time, most online services, notably Apple iTunes were helping record-companies monetise digital music by innovating and nudging users to pay for downloads.

Last year, Spotify listed on the New York Stock Exchange. It completed 2018 as a €5.3 billion company, which provides user access to more than 40 million tracks in 79 markets, one of which is India.

But here's the thing: globally, 96 million of its 207 million users are paid subscribers of its premium service. That is, 45% of its user base pay for music streaming. In revenue terms, that is €4.7 billion or 90% of the business.

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Music is its core business, as opposed to its competitors globally like Amazon's Prime Music, Apple Music, and Google Play Music. This puts even more pressure to monetise music-streaming in India, where users are averse to pay, and competitors can subsidise their music apps.

"Spotify cannot ignore this market, and so will have to enter (India) and make the right noises and show number of users," says Ronnie Screwvala, founder of UTV and investment firm Unilazer Ventures. "But revenue-wise, India will not move the needle globally for them – for the next 10 years or even 20."

The dire picture also has to do with the competitive landscape in India. The top three music apps in India are run by large business groups whose core businesses are energy, media & entertainment, and telecom respectively. JioSaavn, Gaana and Wynk lead the music apps charts in India, according to AppAnnie data.

JioSaavn is run by Reliance, Gaana by Times Internet, and Wynk by Airtel. Analysts say each of them can afford to run music as an ad-supported service or a bundled service—not subscription services. Time spent by users on music apps spawns data on patterns like devices, music consumed, language preferences, and so on. This data is useful for their other online businesses.

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Similarly, there's e-tailer Amazon's music streaming service, available only to paid subscribers of Amazon Prime, in India. Search giant Google has had a music service, and now a YouTube Music app with a paid subscription option.

In this formidable backdrop, Spotify has to solve three problems: one, herd 150 million users in India to pay using its muscle memory in the music business. Two, catch up in a market, where digital music forms 78% of the $131 domestic market. And finally, find an edge over online video which already has 225 million users, compared to audio streaming's 150 million.

"Spotify cannot ignore this market, and so will have to enter (India) and make the right noises and show number of users," says Ronnie Screwvala, founder of UTV and investment firm Unilazer Ventures. "But revenue-wise, India will not move the needle globally for them – for the next 10 years or even 20."

Will Music find a Way?

"We are solving for the unmet need in the market: personalisation," says Amarjit Singh Batra, CEO of Spotify India, and a veteran of online marketplace businesses like eBay India (from its Baazee days) and OLX. "Our approach is to identify the need, and work the product around that."

When Spotify launched the Indian operations on 26 February, it provided every user a 30-day trial after which they can subscribe to 'Premium' for Rs 119 per month. It has songs in 10 languages, and has curated more than 100 playlists made for India. Within a week, it claimed to have 1 million users registered, though Spotify did not specify how many of these are new users (who were not using the app before its domestic launch).

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"Spotify came up with the freemium model: basically get users for free, and then convert them to pay for music," says Batra, adding that the model will serve the brand well in India. "Our free access to music, great playlists and personalisation takes into account India's multi-language context and multi-device play," says Akshat Harbola, head of market operations, Spotify India. It is also counting on ease of finding songs by assorting tracks based on Bollywood film actors (as opposed to by music artistes only).

When Spotify launched the Indian operations on 26 February, it provided every user a 30-day trial after which they can subscribe to 'Premium' for Rs 119 per month. It has songs in 10 languages, and has curated more than 100 playlists made for India.

Significantly, it has worked on making music accessible even for contexts where there is no data, like for flight passengers, or users in locations with bad data connectivity. The offline listening mode is available to Premium users. "The biggest way to solve each problem is to provide such an amazing user experience that people will pay for it," Batra says.

On the supply side, Spotify will have to build trust locally among music owners, recording labels, composers and singers. Vocalist Shankar Mahadevan suggests that while things have improved in the past 15 years, music streaming apps from abroad have to earn the trust here. "The creators and authors should be given the right to collect royalty in whatever form that is agreed upon by the law of the land," he adds.

Video OTT (over-the-top) apps like Netflix have shown the appetite to produce content for India, notes investor Sid Talwar, partner at Lightbox Ventures. The question facing audio OTT apps is how will they localise content they can own. "It's not enough to be an aggregator because there are so many with similar catalogues," he adds. Rights to sound recordings after licence agreements form over 85% of Spotify's music streams globally. So it will be interesting to see if it will take the road less travelled for India. While India does add many more users for Spotify, it needs to ensure they will buy the music.