Flipkart is shutting down its digital music store Flyte. The company announced this in an email to its customers on May 29, 2013. For music lovers, Flyte was a one stop shop for almost all kinds of music. From Runa Laila singing Bangla folk to Ilaiyaraaja’s soulful Tamil melodies from the 70s and the 80s. And of course it also had the most obscure Hindi film songs (This writer even managed to locate songs of a film called Shabash Daddy, made by Kishore Kumar, which has some really soulful songs sung by his son Amit Kumar). It did not just cater to connoisseurs. All the latest music was available as well.
At a price ranging from Rs 6 to Rs 15 per song, a lot of good music was available at one place. A winning proposition one would have thought. But things did not turn out as they would have been originally envisaged. And the digital music store is being shut down nearly 15 months after it was launched.
Several questions crop up here. Why did Flipkart shut down Flyte so quickly? How does Flyte compare to Apple iTunes which is more than a decade old and still going strong?
The quick answer is that Flipkart is shutting down Flyte because it was a loss making proposition. And it was a loss making proposition because Indians do not like to pay for their music anymore. Everyone wants to download music for free. Or buy pirated stuff which comes very cheap.
As Nikhil Pahwa writes on www.medianama.com “Flyte Music had struck deals for India based music downloads on web and app by paying music labels an aggregate minimum guarantee (MG) of around $1 million (Rs 5.5-6 crores) for the year, multiple sources told MediaNama. Given the advent of music streaming services like Gaana*, Saavn and Dhingana, where users could stream music for free, but more importantly, the prevalence of piracy, the number of users willing to pay for a-la-carte music was fairly limited. Revenues from song downloads were fairly low – not even 50% of the minimum guarantee amount (only around Rs 2-3 crore is what we heard).”
And if this wasn’t enough the revenues from this business were not growing as fast as from other businesses that Flipkart runs. “More importantly, revenues from Flyte Music grew in a linear manner, unlike Flipkart’s physical goods business, which was growing exponentially, month-on-month. Flyte, with low revenues and low growth,” writes Pahwa.
Then there were other issues. Many people now listen to music on their phones. And a lot of new phones came with songs inbuilt into them. As a report in The Times of India points out “A service like Flyte also faces challenge from companies like Nokia and Sony that allow people who buy their smartphones to download millions of songs for free or at very nominal cost. Though these songs can be played only on specific devices.”
So this was the quick answer to why Flipkart shut down Flyte. Now to answer the second question as to how does Flyte compare to Apple iTunes. Why has iTunes been a viable proposition and Flyte was not? The easy answer here is that Apple is a great company and whatever they do has to turn out to be successful. But this answer is basically unfair to Flipkart, which has literally changed the way Indians shop. We need to get into little more detail.
The need for Apple iTunes came up after Apple iPod was launched in Ocotober 2001. The iPod had two godfathers: the Sony Walkman and the Napster website.
As John Mullins and Randy Komisar write in Getting to Plan B – Breaking Through To a Better Business Model “For Apple, there were some analogues to light the way, starting with Sony’s Walkman… Further, some 26 million Napster users worldwide, sitting around in their jeans and t-shirts sharing their music files, made it clear that individual songs were just as much, if not more, appealing to music consumers than complete albums.”
Napster was a peer to peer website from which music could be downloaded for free. It soon ran into copyright infringement as music companies got their act together and sued Napster and it had to shutdown.
So the Apple iPod had a problem. Like Napster, it could also get into trouble if the music companies decided to sue it, for encouraging the proliferation of pirated music. As Mullins and Komisar write “Apple had officially entered the consumer electronics industry. But to complete the picture, Jobs (then Apple CEO Steve Jobs) needed a way to sell music as well. Let’s use Gillette as an analogue: Apple was already selling razors (the iPod), but Jobs wanted to sell the razor blades (music), too.”
And unlike Napster, Apple needed to do this legally. It needed to create some sort of a digital service, from which those who bought the iPod could download their music legally.
“Jobs personally called individual artists… to persuade them to make their music available on the service. Apple was the first to negotiate and reach agreement with five record companies, allowing Apple to sell hundreds of thousands of songs from artists… In a revolutionary move Apple worked out a deal to sell (not rent) each song for 99 cents. Once they shelled out the cash, Apple’s customers could keep their songs indefinitely, share them on as many as three Macintosh computers, burn them to an unlimited number of CDs, and transfer them to any number of iPod portable music players,” write Mullins and Komistar.
The iTunes website launched in April 2003, caught the fancy of people, and on its first day, sold a million downloads. But it barely contributed to the revenues of Apple. On a standalone basis iTunes wasn’t probably worth the effort. As the authors write, “Of course, no one was really going to fill an iPod with thousands of songs at 99 cents each. Sure enough, by 2007, only about 3% of music on iPods was downloaded or copied from the iTunes music store. The rest was downloaded from other places and was therefore, unprotected and playable on any device. But Apple didn’t care.”
So on its own Apple iTunes did not probably make sense but Apple still persisted with it due to various other reasons. “The iTunes music store completed the user experience, and as long as the critical mass of people bought at least some of their music from iTunes site, Apple could keep itself out of trouble with the Recording Industry Association of America (RIAA). Shrewdly, Apple had turned the traditional “razor and razor blades model” on its head: Apple could make its money selling razors — the growing assortment of iPods — even if customers continued to steal most of the blades,” write Mullins and Komistar.
Cut to 2013, how do things look for iTunes now?. For the period of three months ending March 30, 2013, Apple posted a revenue of $43.6 billion. Of this nearly $4.1 billion or almost 9.4% came from iTunes and other software services. So the share of iTunes in the total revenue posted by Apple has gone up from 3% in 2007 to nearly 9.4% now. If we look at the period of three months ending March 30, 2012, Apple posted a revenue of $39.1 billion. Of this nearly $3.2 billion or around 8.2% of the revenue came from iTunes and other software services.
The contribution of iTunes in the overall Apple business has gone up in the decade since it was launched. What does this tell us? Well people are still listening to a lot of pirated music but a whole lot of people are buying music as well. This may be due to the convenience of finding different kinds of music at one place. Also while downloading from iTunes one is assured of the quality of the song and there are no risks that one might face on peer to peer networks or websites that let users download music for free. Or for the fact that people genuinely want to pay because if they don’t, how are those creating music expected to make a living. If people can pay for books, why can’t they pay for music as well?
Apple iTunes took nearly a decade to start making a substantial contribution to the total revenues of Apple. But during that period it supported the other business streams of Apple. And even though it may not have made sense for Apple to run the business on a standalone basis, it did save them a whole lot of trouble they could have otherwise faced from the music industry. Flipkart’s Flyte did not have the same kind of luck. Neither could it supported by the other divisions.
Also, all new concepts don’t catch on automatically. Some concepts take time to mature. And during that time need to be supported by the company. Of course, that is easier said than done. In case of Apple iTunes that had been possible, but in case of Flipkart’s Flyte it was not. Flyte had to be revenue spinner on its own and if not that at least show some growth potential, which it did not.
Having said that, if Flipkart had found some way of keeping Flyte going, it could have been a potential money spinner in the years to come. Because Flyte is an idea, whose time will come.
The article originally appeared on www.firstpost.com on May 31, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)