4 Reasons Why Flipkart Shut Down Digital Music Business

flyte.jpg, the poster boy of Indian ecommerce shut MP3 download from its digital store Flyte yesterday. So what went wrong for Flipkart?

Did they shut the service down because of low consumer adoption and piracy? To some extent yes, but the deeper reasons seem to be different as other players in the space are still bullish about digital music distribution in the country. “We see immense opportunity in both formats streaming and downloads,” says Siddharth Roy, CEO, Hungama.

Here are a few possible reasons why Flyte decided to pull the plug from MP3 or digital download business

1. Lack of consumption and piracy: Indian consumers aren’t very forthcoming when it comes to paying for song downloads. Most digital consumption is driven by piracy.

2. Expensive partnership with labels and loss: Flyte had partnered with labels like T-Series and Saregama. However, it wasn’t making enough money to justify the investment.  “I can imagine that with this hugely lower consumer traction in digital music download business, it did not prove to be an economically sound proposition – given that the music industry was likely to have extracted minimum guarantee revenue requirements from them,” says Mahesh Murthy, Founder and CEO, Pinstorm.

3 Decline of interest: Flyte was launched almost a year back, and it had created an initial buzz, however it failed to retain that interest. Also, Flipkart didn’t do much activity to market Flyte except for once when the company gave away free music. Analyzing Flyte on Google Trends gives sense about company facing decline of 45% interest on it over the past three months.

4. Focus on core business: Flipkart core business is online retailing, and it has recently hopped onto marketplace model and added categories such as apparels including private label. Moreover having digital store seems to be adding more burn rate to the Bangalore based company. Over the past 3-4 months Flipkart have been trying to minimize the burn rate. Last month it had reportedly fire more than 1000 employees, and industry watchers see it as cost cutting measure for the Tiger Global backed company. “In the end the economics were going from bad to worse, and it probably was a decision to stem the losses at the company that led to them taking this call,” added Murthy.

In fact, if you look at this – Flipkart created a massive backend (acquired Mime360) and a team of  about 25-30 members with an average annual salary of say Rs 10lakhs probably doesn’t justify ROI.

Is digital music not big enough in India?

In 2013, digital music had touched Rs 640 cr in revenues compared to Rs 220 cr from physical music sales with 80-85%  revenue coming from mobile. Currently, besides Flyte around 10 players including Saregama, Hungama, Flipkart’s Flyte, Saavn, Gaana, Dhingana, Hungama, iMusti, NH7, and recently launched Apple’s iTunes, distribute music digitally  in India

Digital music has immense potential in India and Hungama has been witnessing exponential growth in past 12-18 months. Dismissing the micro payment as challenge to the business Roy of Hungama said: “We don’t see it as impediment to growth as consumers at Hungama are not wary to pay via various payment methods such as net banking, debit card and telecom operator network”.

Digital music is huge in India – especially if you look at the revenues numbers behind services like Hello Tunes and such – but companies have to be careful how they can manage the monetisation and control leakage.

“Given the relatively free availability of tracks from pirated sites and the lack of differentiation offered by Flyte, it was going to be a tough call to turn this into a viable business,” said Murthy.

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