dhingana-thumb.gifThe shutdown of streaming music startup Dhingana is perhaps the first of its kind to expose problems in the industry, which make it tough for startups to bring streaming music to consumers.

Picture this: You pay a hefty licensing fee or minimum guarantee fee (MG) upfront because music labels won’t have it otherwise. Now you sell this to the end consumer through telecom companies who treat you as a value added service provider. Telco payments take their own sweet time (3-6 months at least).

Boy, aren’t you in a fix!

In the last 3-4 months, Dhingana has been trying to monetize its services. But there have been many hurdles. Dhingana raised $ 7 mn from Lightspeed Venture Partners in 2012. With over 10 million Minutes of Usage (Dec 2013*), it was the first to launch subscription services with carrier billing. This obviously didn’t go very well for the business.

Rohit Bhatia the chief executive officer of Dhingana tells me that the company is planning a comeback but isn’t ready to talk about it yet. In the mean time, he remains optimistic about the future of digital music startups in India.

“We are the only parallel market to the US where there are many home grown digital music services,” he said. “There is money on the table. But it’s going to pirates,” he added.

In February last year, when Swapnil Shinde, one of the company’s co-founders told us that they were looking for alternatives methods to monetize music, it was pretty clear that their advertising led model wasn’t working well enough.

The equation with record labels

Digital Vs Physical
Digital Music Vs Physical Music (Rs cr)

Clearly, record labels have a stronger say on the table. Digital music aggregators threaten their proximity to the consumer. And in turn, their control over the market. Moreover, they even seem to be of the view that startups are “fly by night operators.”

This is very similar to how the book distributors used to treat Flipkart in its early days. Distributors asked Flipkart to pay cash every time they bought a book. Basically: no credit. The company even had to go to the warehouse and pick up books.

What worked in Flipkart’s favor was the speed at which users took to buying from them. It completely changed the game. These days, Flipkart gets better terms from distributors. As volumes picked up, the company’s margins on book sales have also improved steadily and it even gets a 3-6 months credit line.

For music, consumers seem to be happy downloading content from the Internet for free.

Regulations Aren’t Favorable in India

Indians pay very little for music. Regulations around downloading pirated content are not strictly enforced. After a crackdown on illegal file sharing, Sweden (where Spotify was born) saw a massive rise in music sales

Record labels are pointing to the dramatic rise in music sales in Sweden, just months after the country introduced anti-piracy laws, as evidence of what a similar crackdown in Britain could do to the flagging market. (Via)

Need Deep Pockets for Global Play

Spotify, which leads the on demand music industry now, has raised over half a billion dollars to fund operations. In 2012, the company lost $77.9 mn on a topline of $577.1 mn. The company is also planning a global roll out (India is most likely to be on the map).

Online radio service Pandora which went public in 2011 (valued at $2.6 bn then) has been struggling in red for a very long time. The company, which has over 70 million active users, lost $28.6 mn in the first quarter of 2013.

Net-net, no one’s really making big profits yet. And it looks like you need to play the volume game to get the record labels to sit up and take notice. For that, you need deep pockets, as is evident from the massive amounts of money raised by Spotify & Pandora.

* In comparison, Gaana had 100 million minutes in 2012.