Gaana Raises Money
Chinese internet giant Tencent is continuing to put its money in India and in music streaming services after it agreed to lead a $115 million investment in India’s Gaana.
Gaana is a music streaming service that was started by Times Media, the company behind the Times of India newspaper and tech incubator Times Internet among other things, seven years ago. Gaana didn’t reveal its user metrics, but CEO Prashan Agarwal said the company is “only 10 percent of the way towards building a business useful for 500 million Indians.
Music streaming while great for consumers is a tough business. I wrote in Tabeer, Fanoos and Patari’s opportunity:
Keep this in mind and now think about streaming services like Spotify, Apple Music, and Patari. They have little to no leverage in the whole system—despite all the hype. Because essentially they are just a funnel—a way to distribute music. But so is Google—a funnel. Yes, but Google has the unlimited number of suppliers. Almost everyone writing on the web is a supplier to Google’s funnel. Content creation on the web has been democratized in a way that music has not. When you have that much abundance in the production, the value shifts to the curation. And that’s what Google has been reaping the fruits of.
Almost every streaming service, from day one, is in direct conflict with one entity they are totally dependant on building a great product i.e. record labels. Unlike text, music creation, the sort of which that gains mass traction, is hard. While you can create it on your own. You can’t make it. Artists need record labels and that shifts the power balance to these labels rather than streaming services. Despite the fact that it’s streaming services who own the customer experience. I presented a bull case for Patari in the article to ultimately become the record label itself. But it will be easier said than done. The argument holds true for Gaana and Saavn except the complexity is tenfold. Due to the size of the industry record labels in India are much better positioned than they are in Pakistan.
Netflix Hindi Originals
That begs the question why music streaming services can’t be Netflix? Frankly, I didn’t know the answer till last week. But I was in luck. Ben Thompson answered it while writing about impending Spotify IPO in his newsletter (paywall). There are three key differences between Netflix and Spotify (read Patari, Gaana, Saavn etc):
1. Netflix started as DVD renting service. This allowed them to build their audience without getting into any conflict with film studios. They were operating at the bottom to get even noticed by the studios. The only company they competed against was Borders.
2. Movie industry operates on licensing model. While that makes streaming a movie more expensive, to begin with, it’s actually good for the long run. Licensing is a fixed cost while royalties on which music industry operates is a marginal one. This implies that Netflix could only venture into the streaming business when they have 1) sizeable audience to justify licensing fees and 2) enough cash to pay licensing fees upfront. Because of the licensing model movie titles go in and out of Netflix every month, but they always have enough to retain their customers. Not all but enough.
3. Because of the licensing, and not royalties per stream, model film studios can’t just pull out their content on the basis of Netflix making House of Cards. This means House of Cards improved the quality of the product without endangering the business model.
All this makes the making of “Love Per Square Foot” and other Hindi originals far more easy choice for Netflix than what Tabeer and Fanoos are for Patari. Or whatever Gaana is making on its own. Love Per Square Foot does not endanger the presence of Dangal on Netflix. And by the time the licensing deal with Dangal is over, Netflix might be coming up with their own Aamir Khan original. Besides you can only watch Dangal so much. Not true for a song you love though. Perhaps Steve Jobs was right all along. People don’t just want to listen to music. They want to own it.
Amazon Music in India
From ET Tech:
With this, Amazon Prime Music will compete with music streaming apps Saavn, Gaana and Apple Music in India. As part of the offering, Amazon Prime Music will offer ad-free streaming along with unlimited offline downloads at no additional cost to the existing Prime subscription for users in 10 languages.
India’s digital music industry is expected to reach Rs 3,100 crore in revenue by 2020, with 273 million online music listeners, according to a report by Deloitte last year. In terms of market share, Gaana reported crossing 60 million monthly users in January while Saavn recently reported 22 million users. Industry estimates peg the overall number of Prime customers to be around 10 million in India.
So why Amazon is interested in such a low leverage/margin industry? Amazon music makes sense because Amazon is not intending to make money out of it. For them, it’s mean to sell more Amazon Prime subscriptions. And as ET Tech noted above, its bundled as free to Prime subscribers in India. The same goes for Apple Music. Apple doesn’t have to make money out of Apple Music. You already pay for it when you buy a $1,000 iPhone or $350 HomePod. Yes, Apple Music costs $10/mo but that’s a dime a dozen.