Tell us a bit about yourself. Why and how did you join the music industry?
I am a Chemistry Graduate and a MBA in Retail Management. Soon after I completed my MBA, I noticed the emergence of music outlets and retail chains all across India. Also like any other music industry professional, I was very fond of Old Hindi Film Music & Indian Classical Music. I was and am a very big fan of HIP – HOP artists. So my love for music and my education in Retail Management compelled me to explore the opportunities in the Music Retail Scenario back then in the 1990. So I got employed at Universal and I have continued and grown with my first employer since the past 19 years.
As an Associate VP – Sales & Catalog Marketing what are your current responsibilities?
Everything that has to do with revenues from the Physical Sales falls under my purview. So be it revenues from institutional sales, merchandising, LIVE shows, etc.
Can you elaborate a bit on Catalog Marketing?
At Universal we have 3 different approaches to marketing a particular product. Frontline, Television Marketing and Catalog Marketing. So if we release an international product like Eminem or Black Eyed Peas we term it as a Frontline product. Such a product after 18 months becomes a Catalog Product. So Eminem’s old album is a catalog product and the new album is a Frontline release which will again subsequently become a catalog after 18 months of the release date.
Let me cite an example. We are planning to release an album titled ‘The Best Of 2009’ which will be released soon. Again we have another album awaiting release called ‘Music On The Go’. In International too, we have a lot of compilations wherein we pick up popular tracks of artists’ package it well and give the consumer a special price. This is called TV Marketing.
Now a product which is 18 months old and is not sold with an attractive pricing or packaging then it is termed as an old catalog.
Tell us the basic structure of the Universal Sales Team?
All over India we have a total of 15 people in the Sales Team. Amongst them we have 4 regional heads i.e. North, South East and West. Again under them we have 4 regional managers who in turn have executives under them. Sales representatives form the final tier of this structure. In addition to all of them we have a Distributor Sales Representative (DSR). The DSR’s main responsibility is to liquidate the Distributor’s stock, collect orders, refill orders, etc. So even though they are under the payroll of the distributor they report to us.
Please share with us a bit on the distribution structure that you possess?
65% of our business and revenues comes from International Music. Now a major chunk of this 65% business comes from the key accounts, which are retail stores like Music World, PlanetM, Odyssey, Reliance, Rhythm House, etc. For the domestic business we depend on the trade or popularly known as the wholesalers. Again for the domestic business we depend on these retail outlets or key accounts.
What is the percentage of business contributed by the key accounts?
More than 50% of our International Music Business comes from the Key Accounts. Key Accounts as I mentioned earlier are Large Retail Stores which have more than 10 outlets across India. So for example Planet M is a key Account since it has more than 250 outlets all over India. In Mumbai alone they would be having around 50 plus music stores. Most of these accounts have their head offices in any of the 4 metros. This gives us the flexibility of dealing with a single point of contact but distributing our content to multiple stores all over India. Most of these key accounts have appointed a dedicated Manager for International Repertoire and similarly an expert Manager for the Domestic repertoire.
Talking of Domestic Repertoire what is your distribution set up like?
For the Domestic Music Business we usually rely on our wholesale distributors in the major cities who then distribute it to the interiors.
What are the volumes sold by a single key account in 6 months in case you have just launched a HIT album? Lets take for example a Planet M
If it’s a HIT album Planet M would sell around 10,000 pieces in 6 months.
What volumes would you sell clubbing all your sources of distribution for an Internationally HIT album over a period of 6 months?
Approximately 20,000 units but again a lot depends on the pricing. Universal is the only music company which has kept a very high pricing of Rs.395 and above. If you compare us with a Sony Music or EMI, they have a price point of Rs.199/- We do not have a price point of Rs.199/- at all. So if you take the recent chartbuster of AKON – FREEDOM our MRP is 425/-
Is it true that you do not have any presence in the South?
Yes it is true. It is because we do not have that kind of a back catalog to service the markets in the South. Also we do not have any new releases to cater to the market in the South. But we have focused ourselves in serving the customers down south with our International Catalog.
What is the percentage increase in volumes you see when you drop such high prices?
If we drop the prices we do see the volumes rising up by 40% but then it affects our profitability. Hence after a lot of research based on market feedback we have come to the conclusion that Rs.395/- is the best price for our products.
What was the last big International HIT that you sold?
Universal usually dominates 60% of the charts of most of the retailers like Planet M. Take for example the last week. Out of 20, 13 titles belong to Universal in the International Chartbusters. Enrique, AKON, a few Disney Products, Hannah Montana, etc. Enrique Iglesias sold approximately 45,000 units. I think that would the last big International HIT that we sold in large volumes in a span of 6 months.
A large chunk of this quantity came from the key accounts.
What would be the case in terms of a non film domestic album?
It’s a very good question. When we look at a non film domestic album volumes are determined by the pricing. For example we had just launched PANCHRATNA, a Marathi Music album. We sold around 300,000 units which is a substantial number considering the scenario nowadays. Normally its very difficult to cross the 100,000 mark. We achieved these numbers because we priced the product very aggressively at an MRP of Rs.65/-
How much volume of a FLOP product do you sell?
Maybe a 1000 units.
What is the last FLOP product that you sold?
See we do not usually get into the numbers game when we know that it is a FLOP product. For example we know that western classical does not sell in India, so we import about 400 to 500 pieces and immediately liquidate it. So there is never a question of Universal burning its hands in a flop product.
Who takes a call on that? Who decides that a particular product will work in India or not?
The Product Manager usually decides what will work and what won’t work.
Tell us a little about the tax structures levied in India?
In India we have the local tax (Sales Tax) which is 4% and a Central Sales Tax (CST) which is 2%. In a few states like UP there is a 12.5% tax. In Gujrat it is 5%. So overall all across India the average tax levied is 4 to 5%.
Help us understand a bit about your manufacturing costs and your operating margins?
Let me give you an example - If we are working on a Rs.100 MRP, then we pass a 25% margin to our distributor. 30% or approximately Rs.20 out of Rs.75/- goes towards the productions costs.
Shall we assume Rs.20/- is the manufacturing cost before you load any taxes, transport or margins?
I haven’t considered the A&R costs, Royalties, Special Packaging, etc. which all depends from title to title. But Yes. That is our operating margin.
Coming back to the previous question of your distributor network, I am just curious to understand why haven’t you appointed a dedicated sales team to service the interior parts of a state in India considering the volumes these could bring would be humongous?
If we were to service the interior markets of states like Assam, UP or Gujrat we would have to send someone from our regional office. Instead of bearing such high costs of travel, boarding and lodging at the same cost we can hire a person in these interior markets. We are working on appointing such people who will be a bridge between us and our distributor.
Are you saying that you have distributors in the remotest parts of India?
No I am not saying that. I am saying that we have a substantial number of distributors all across India.
How many distributors do you have on an all India basis?
We have about 125 customers which includes key accounts as well as wholesalers. 40 would be key accounts and the others would be non key or wholesale accounts.
Let me revert back to my previous question of standard margins to the dealers and distributors?
The standard margin to wholesalers is around 25%. To the key accounts it is 29%.
Is there a change in those figures when it is a HIT product or does it change when you want to push a FLOP or a non moving product?
I wouldn’t say it changes exactly due to those factors. Sometimes to push the particular product we have a retail reward plan. Herein the dealers gain on incentives in case we aim for a higher visibility of the product.
Do you have sales targets from your global head office when you are at the launch stage of a particular International album?
Globally we work on budgets. For example in October 2009 we have to submit the budget or the funds required for our operations of 2010. So it is not a value target. It is a target strictly based on budgets which we expect. When we submit our budgets they give us the list of artists they intend to launch on a worldwide basis. Out of this list we pick and choose the artists who we think might work in India. Besides this we have a target of introducing new breaking acts in per year.
Why a target of Breaking Acts?
Its very easy to sell a Eminem and Black Eyed Peas because they are popular and well accepted by most world markets. Comparatively it is very difficult to sell a new artist.
Coming back to our previous question what are the major parameters that determine your annual budget?
Some of the major parameters under consideration are our production costs, operational costs, cost of promotions, etc.
So how does this budget then decide on your targets?
This yearly budget is then split into quarterly, monthly and weekly budgets. Once we have these budgets our product managers start working. They will start signing up artists and planning the launch of their products. At Universal India besides the Sales Team the Product Managers also have a target. A Sales guy cant sell unless he has the requisite quality product. Our sales team ensures that the product is available everywhere at the time of the launch of the product or in industry jargon “The Product should be available when the Media Promotions are on” As the sales head My responsibility at this stage is to ensure that the right numbers are manufactured and launched. The right numbers means the numbers we will be able to liquidate and wont come back. Once the product reaches the store then a lot depends on the marketing and promotions. One big factor is also the packing of the product. Last but not the least a lot depends on the price point and the content of the album.A product becoming a HIT or a FLOP is not the sole responsibility of the Sales Team. It depends on a lot of the above parameters and all those departments as I just mentioned.
Does the format in which you sell also determine the volumes that you sell?
Absolutely. Nowadays the formats on which a product is launched also greatly determines the numbers it sells. We have 5 formats. Cassettes, CD, VCD, MP3 &DVD. Sometimes releasing the product in the right format in the right market hugely decides on the numbers we sell. For example if you ask me to sell CD’s or DVD’s in Punjab it wont happen since Punjab has a very good market for audio cassettes. The same is true when it comes to selling in the interiors of UP or Bihar since these states have a reasonably good music cassette market. Again there is no market for music cassettes in metro cities like Mumbai.
How do you estimate the launch quantities of a particular album? Let’s say in the case of a HIT artist like AKON, how do you decide on your launch quantities?
First and foremost we listen to the product. Once we are convinced that the product will sell in the Indian market we check for the sales of the artist’s last album. Also a lot depends on the trend in the market at the time we plan to release our album. So lets take an example of AKON. Hip Hop we know is the latest trend and it is working. So we launched AKON with 7500 quantities.
Like I have been continuously saying it a lot depends on the pricing of the product. If we have an aggressive price clearance then we launch the product in better volumes.
Who takes the decision on this launch quantity? Is it solely a sales head’s decision?
No it’s not. All the department heads sit together to decide on the launch quantities. First we study the marketing departments promotional plan for the product. Then the product manager comes up with the timing for the launch. It is only after this the Sales head estimates the launch quantities after completing his exercise of past sales records, pending inventory, stocks lying with the distributors.
What are the approximate launch quantities incase where you are launching a HIT?
In the case of an International HIT Album we usually launch with 25000 quantities subject to the fact that we have sold 20% higher in the past for the same artist.
Do you pressure your buyers into a minimum volume commitment when you launch ambitious quantities?
I wont say that we ever pressure our buyers. Lets assume we have to launch a product in the market in the next month. So this month we would send our buyers samplers and posters and ask them for a feedback. These dealers then revert to us with their comments on the packaging of the product, the marketing strategy, the acceptance of the pricing, etc. This market intelligence helps our product managers to change the strategies even at the last minute. Our Sales team updates product managers and the marketing team about the requirement of the market and finally the requirement of the end consumer. Once we have worked in sync with our marketing departments for a months period at the launch stage we would have products that satisfy all the requirements of our buyers.
We do not believe in pushing excessive numbers of a product onto a buyer who does not believe in our product.
It has often been alleged that there is a meticulous system of ‘Stock Dumping’ in the Indian Music Industry? If so please explain this phenomenon?
Sudhir, nowadays there are a lot of music companies which are buying music rights at obscene prices. These companies do not analyze the scope of physical business and the strength it presents to their product. Based on their gut feel these music companies purchase rights at phenomenally high costs and then end up not selling it cos the markets do not react as per their gut feel. The product flops and people don’t end up buying it. In all of this what happens is that the product is dumped in excessive quantities onto the distributors who return the volumes when it fails to sell. The returned volumes finally lie as a waste in the warehouse.
Let me once again define the market term ‘Stock Dumping’ – The Sales department of a music company ambitiously launches a product in excessive volumes. These volumes are then dumped onto the distributor with the respective over billing done, despite their feedback on the poor quality of the product. The distributor is assured by the concerned sales staff that if the product doesn’t sell it can be returned back. Meanwhile books of accounts are manipulated to show very high sales and the same is reported to the Head Office of the respective Music Companies. The Sales department then picks up the excessive / returned quantities from the market. Trade insiders say there is a well kept market secret – Quantities to the tune of a 10% of the next HIT sold can be picked up back from the market by the sales guys. Due to the excess billing thus done and the books thus manipulated the company ends up showing high sales and profits on books but also shows huge outstanding balances to be paid by the dealers which are eventually pushed deep down in the books by converting these into dealer credit notes, etc or by some way waiving these balances off. Your Comment.
Firstly let me clarify that such things do not happen in a company like Universal which does not have back to back new Bollywood films. We are basically into the International Market. I think this might be true in the case of companies who have back to back Hindi FIlm Music releases and have invested heavily into Bollywood Films.
Besides nowadays dealers have become very smart. They do not accept those kind of quantities. It is very difficult to pressurize dealers in these times and bill for quantities they know would be returned. Besides in Mumbai they have very limited space and with phenomenally high space costs most dealers do not take such risks. I don’t think all this still happens.
A highly placed source from the industry revealed that when a particular dealer does not accept these excessive quantities due to warehousing issues, companies themselves go ahead and rent out spaces. They pass credit notes to the dealers to this effect who uses the same to pay the rentals. Moreover the stock is also insured with the same credits passed to the dealer. How true is all of this?
I think all of this is a very old story. Nowadays nobody is willing to accept these products.
What is the system adopted by Universal for accepting returned quantities?
We have a MoU with any accounts key or non key. This MoU specifies Trade Terms where we clearly mention the return quantities, terms and conditions, payments etc. As per the trade terms we allow 100% return quantities on new releases not on catalog. Whenever any dealer wishes to return any quantities of a particular product he writes a mail to the concerned Sales Staff at Universal who is handling that territory. The mail would usually specify the catalog number, name and quantity alongwith the purchase details. Once we get the mail we check it with our policies and approve it accordingly. The approval note alongwith the quantities are then returned to Universal warehouses.
When the stocks leave your warehouse you obviously account for taxes alongwith the billing? How do you do a reverse accounting when the returned quantities enter your godown back? How do you waive this tax before you get it back from the Sales Tax departments?
This is the reason we ask the dealers to send us the billing details. Once we have this we have an automated system which takes care of this and within six months we get a refund of the taxes paid from the Tax department.
What do you do with this excess inventory? Does it go as a wastage in your warehouse?
Whenever we have a new release we usually increase the price of the product by Rs.50. We then strategically club these returned CD’s alongwith the new ones and offer it as Freebies to the customer offering him a better value for money deal. So instead of a customer purchasing 1 CD for Rs.395 ends up buying a 2CD pack for Rs.450
The inlay cards of the returned quantities are usually scrapped. The jewel cases is usually recycled into the next product manufacturing cycle.
Basically you are saying that never is there a possibility of a 100 % wastage?
No there is a possibility of a wastage when it comes to audio cassettes. When the cassette business was on a decline we were left with huge inventories which had to be scrapped a 100%.
Do you think this excessive dumping of CD’s is a global phenomenon?
I think this is a phenomenon that is happening even in the other industries apart from the music industry. Take for example a case of the FMCG industry. Sometimes a particular product is launched with an ambitious Media campaign and great marketing strategies. Any company at this stage envisions good sales projections and is ready with a sizeable volume of the stocks so that they can capture the market. But one gets the real feel of the product only when it hits the stores. At this stage if there is no consumer acceptance because of maybe the packaging or the quality or the pricing of the product then obviously the company is left with no Options but to accept the rejected quantities from the distributors and dealers.
So it’s a calculative risk every business takes and so does the music industry.
Lets’ say for example if I have signed on a movie investing Rs.10cr. then obviously I must be prepared to bear a loss of Rs.1 cr incase if the product flops. This is the only way I can build my ability and capacity to recover my investment.
Then why have you pulled out from the Bollywood Film business? Since the past 5 years we haven’t seen any major Bollywood Film Music release from the Universal stable. Why? Is it because after pulling out from the Bollywood space Universal has suddenly become profitable?
Yes definitely. Our profits have increased after exiting the Bollywood music space.
Also the reason for our exit was that the price of the film music rights is not reasonable these days. The advent of new players and the irrational prices being paid by the present players is too high. One has to sell a minimum of 200,000 to 300,000 units to recover that sort of an investment which is not possible in the present market conditions. In a span of a year, probably there is only one film which crosses the 500,000 quantities mark.
I do not think that it is a viable business model at all.
Lets consider the example of your competitor T-Series. T-Series purchases film music rights at obscenely high costs. To recover these costs they obviously must be selling well because they seem to be buying not just one movie per year but have a line up of more than 10 films per year. I am sure this investment must be running into hundreds of crores of investment per year.
What is their recovery strategy?
Is it true that they sell more volumes of film music than all the MNC’s in India put together?
Let me address your question in parts.
Distribution Network – They have an excellent regional distribution network which reaches out to the remotest villages in India. They developed this since they established themselves as a company with regional and devotional products. Hence the reach. So they leverage this same distribution network for the film music as well sell. Hence they sell about 15% more volumes than us.
Low Cost Production – They have their own factory and their own production house.
Low Cost Of Buying Media Space – They have bought out huge chunks of Media space in Television or any other form of media. Since they have negotiated on large chunks obviously they have got the best pricing. Hence the per product promotion cost is very low.
Retailers – They have to satisfy their retailer with new releases to recover oustandings.
Digital Revenues – Due to their excellent and huge back catalog they have a fixed source of revenue from the digital players who pay a minimum guarantee amount for buying licenses of their music. These revenues propel them to buy more film music rights.
All of this put together creates a massive cyclic effect of high margins due to low cost production, promotion and considerably high volumes. This when coupled with fixed revenue sources from the digital players which is increasing by the day makes up for a good business model for investing in film music. This cyclic effect is the advantage that T-Series has which it utilizes to invest hugely into back to back film music.
When you sit down to gamble or play cards you cant expect to make money in the first round and walk away. You have to play atleast 5 games to recover what you have invested before you exit the game.
It does not make business sense for any music company to invest money into buying music of the first few films and expect super normal profits. If one expects profits then one has to be in the Bollywood Music Space and invest keeping a long term vision.
Digital Sales will overtake Physical Sales in the next 5 years. Do you agree to this statement?
No. I do not agree to this statement in the context of the Indian market. With more and more retail outlets opening up in various parts of the country I think we will still have a sustainable physical sales in this country.
Can you elaborate on the Physical : Digital ratio?
Physical sales still accounts for 65% of our revenues whereas Digital Sales have been growing at 35%
Can you tell us the geographical consumption pattern of the Physical Sales in the case of International Music?
I would say most of the consumption and sales is in the top 10 towns in India. Apart from the 4 metros B towns like Pune, Bangalore, Hyderabad, Ahmedabad, etc have become equally important for us.
Early June I was attending a conference in Hong Kong where the Senior Vice President of Universal made a very bold statement and I quote “A Few years from now Music will not be sold, Music will be FREE”. Assuming that you are facing such a situation in India what do you think will happen to these tall claims of Physical Sales and all the strategies revolving around Digital Sales?
I think this will be a very damaging decision since the Indian market still has a lot of potential for physical as well as digital sales. Besides I think that statement is incomplete. I think Music will be available for FREE in certain formats or certain digital modes. I do not think Universal will ever sell FREE CD’s to the end consumers.
Assuming that what you are saying would happen even then if Music is available for FREE on most digital mediums why would anyone go and purchase a Music CD?
Let me give you an example – Old Hindi Film Songs might be available for FREE at some website or downloadable on mobiles. But the end consumer who really cherishes Old Hindi Film Music will always buy a genuine CD regardless of the price. In such cases the CD does not just serve as a physical medium of music but is also a symbol of ownership. It is like a precious gemstone one preserves with his valuables. The physical CD market for such genres of music will never die down at least in India.
From the stand point of a Physical Sales Head of India's biggest Music company, have digital mediums like Radio and Online Music websites reduced the physical sales of CD including the genre you have mentioned above or has it boosted the sales?
Firstly I do not believe that Radio can ever boost the physical sales of an album or a song. Radio only plays popular music. Why doesn’t Radio play western classical music. If it were to then I am sure we would have seen some effect on the already slumped Physical Sales of Western Classical Music genre. Radio only helps us when it comes to Breaking Acts. It helps us in launching new artist.
Due to the Radio channels continuously playing popular film music we have seen a sharp fall in the sales of our compilations. Most other companies in the Bollywood Music space have seen a sharp drop in sales of new releases. I think Radio must definitely compensate this to the music industry. If we were to gain on better revenues from the Radio Industry then this drop in sales wouldn’t have really mattered.
What is the next big thing up Universal India’s Sleeve?
Merchandising. We are working on this in a huge way since we believe that, Merchandising will give an impetus to our existing line of products as well as our new releases.
The Last question. And I must ask you this – What was Universal India’s last year’s Sales Turnover?
Last year, physical and digital sales together accounted for 25 to 30 crores (Approx 6 million USD) of revenue.
