Why music's rocking India's mobile business

Nineteen-year-old Siddharth Kohli is a dream mobile customer. The undergraduate student from Delhi changes his ringback tone every week with the latest Hindi film songs.

On weekends, Kohli and his friends spend hours together exchanging singtones through their snazzy, bluetooth enabled handsets.

He also changes his ringtone every fortnight. Kohli now hopes to convince his father to buy him a Walkman phone on his birthday. "I think it is a cooler way to carry my favourite songs than the iPod," he says, excitedly.

Music is rocking the mobile world, thanks to customers like Kohli. Not convinced? Sample this: industry sources estimate that around 25 million ringtones and ringback tones are downloaded every month by mobile customers across the country.

That figure is expected to double by the end of the year. Online stockbroker Share Khan predicts that sales of these two tones alone will generate over Rs 880 crore (Rs 8.80 billion) by 2007.

That's staggering, given the fact that total music industry revenues actually fell by a third over the past three years to Rs 600 crore (Rs 6 billion) thanks largely to piracy.

Says Airtel vice-president, value-added services, Mohit Bhatnagar: "After SMS (short message services), music will be the next big revenue earner in data services."

Fuelling this surge in demand is the falling price of music enabled handsets. With pricetags marked down by nearly a half in the past 18 months, over 15per cent of cellphones in India are already MP3 enabled (allowing songs to be downloaded from the Internet via a PC) and nearly 40 per cent of all new phones sold are General Packet Radio Service, or GPRS, enabled (allowing songs to be downloaded from the Internet directly).

That's just the beginning. Handset makers, mobile service providers and music companies are banding together like never before to transform the once humble communication device into a veritable digital jukebox. Take Motorola's ROKR model.

Launched earlier this month in San Francisco, the revolutionary handset incorporates features of the iconic iPod, enabling music-lovers to store up to 100 songs from a PC or Mac using Apple's popular iTunes software.

Already on sale in the US (in an exclusive arrangement with telecom operator Cingular), the ROKR is expected to hit shop shelves in India possibly early next year. "Just wait and watch. It will happen very soon," says Motorola India's director for business development, companion products (high growth markets), Narendra Nayak.

Customers who don't want to wait can buy Sony Ericsson's Walkman phone. Launched in India a few weeks ago, this handset has a 0.5 GB memory card that can store up to 125 songs and carries a pricetag of Rs 24,995.

With a 2GB card upgrade, the phone stores a whopping 500 songs.

"Fifty per cent of mobile users are youths -- and that is the market we are tapping into," says Sony Ericsson's general manager, India, Sudhin Mathur.

He isn't the only one. In an attempt to cash in on the cellphone music fever among youngsters, Samsung is planning to launch four new MP3 phones by the end of the year. It also hopes to expand its Samsung Fun Club site so that customers can download complete songs directly onto their mobiles.

Says Asim Warsi, Samsung's head of marketing (telecom): "We expect 25 per cent of our phones to be MP3 enabled. Music will be a key driver of our sales."

Nokia isn't far behind. It is pinning its musical hopes on the N-91 which can store over 3,000 songs and is expected to be launched in India within a few months. "We expect up to 40 per cent of new phones sold in India to be music enabled," says Gautam Advani, Nokia's director , multimedia.

With 35-40 per cent of non-voice revenues generated by music (aggregating an estimated Rs 300 crore (Rs 3 billion) this year), cellular operators are beefing up their networks in response to the growing clamour for music- and video-based services.

Says a senior executive at Hutchison Essar: "In the next two years, music will surpass SMS as the largest revenue earner from non-voice services in the country."

Hutch, for instance, says nearly a fifth of its subscribers use ringback tunes, with a growing number of them buying more than one song every month. Bharti Televentures (Airtel), which pioneered ringback tunes with the launch of Hello Tunes a year ago, has bested all its internal targets.

"We have had 10 million downloads in a year which is way beyond our wildest expectations," says Bhatnagar. Significantly, more than half the subscribers to Airtel's Hello Tunes service comes from non-metros and small towns.

Buoyed by this success, Bharti is now planning to launch a bevy of new services, including videotunes (ringtones with video), and might set up a website offering subscribers a wide range of exclusive music content. The first such exclusive offering -- a song by A R Rehman -- had over a million downloads.

That seemingly insatiable demand has piracy-pommelled music companies dancing a jig with joy at a potentially lucrative new revenue stream. As much as six per cent of music companies' revenues accrue from royalties paid by operators.

Says Vipul Pradhan, CEO of Phonographics Performers Ltd (PPL), which coordinates royalties on behalf of music companies: "In the next 12, months I won't be surprised if 10 per cent of our revenues come from the mobile and non-physical delivery of music. That is also the global average."

Sa Re Ga Ma -- the erstwhile HMV -- is at the forefront of that transition. The company is taking its Hamara CD concept (allowing customers to compile a CD with songs of their choice selected from the company's database, for a fee) completely online. By November, it will have no fewer than 35,000 tracks available on the Net which can be downloaded to a PC, and thereafter to a cellphone.

Singapore-based Soundbuzz already offers over 90,000 Bollywood and regional songs on the Net for download at a price. Says Soundbuzz India general manager Mandar Thakur: "We are also talking to network operators so that customers can listen to samples on the phone itself and be charged for music purchases in their monthly bills."

There are a few sour notes in this otherwise sweet symphony, however. Probably the most jarring is the high cost of handsets with storage space for music.

In order to overcome this problem, Reliance Infocomm takes advantage of the relatively higher data speeds of Code Division Multiple Access (CDMA) technology to stream music and videos.

Says Mahesh Prasad , president, applications & solutions group at Reliance Infocomm: "Seventy per cent of our phones have video players. But only a few customers can afford phones with storage space."

Everyone, however, agrees that buying full songs online using a handset -- popular in the US and Europe -- is still a long way off in India. The reason: GPRS speeds are still too slow.

Clearly, Indian mobile users will have to wait for the launch of Enhanced Data Rates for GSM Evolution (EDGE) or Third Generation (3G) technology-based handsets for the next revolution in music.