Indonesian Music Industry Landscape (Mid 2011)

Picture 1. Global Music Industry Turnover

As Music Industry turnover is declining globally, Indonesia is also experiencing the same pattern. This drives changes in Indonesian Music Industry, especially from 2009 when RBT (Ring Back Tone) service is introduced to Indonesian customers for the first time. 

BACKGROUND

Music industry in Indonesia is filled with multinational, local, and indie music record companies. Some notable music companies are as follow:

• Mutinational Record Company(s): SMEI (Sony Music Entertainment Indonesia), Universal Music Indonesia, Warner Music Indonesia
• Local Record Company(s): Musica Studios, Nagaswara, Aquarius Musikindo, Trinity Optima Production
• Indie Record Company(s): Masterplan Records

As Indonesia is a developing countries, level of piracy in digital music industry is still considered high. Hence, most artists and music recording companies relied to sales of physical devices (especially Audio CD) through music store chain.

Picture 2. Previous Distribution Model 

Now music recording companies also engage direct sales and collaborative product/service with telecommunication industry. The most common form of the collaboration is RBT (Ring-back Tone). As the music company become more dependant to telecommunication companies as a channel to market its products, growth in telecommunication industry will give impact to music industry as well.

Picture 2. Current Distribution Model

Direct sales, in this case, is that Music Recording Company sells an album through alternative channel. Some examples(15):

• SMEI (Sony Music Entertainment Indonesia) sold Cinta Laura's album titled "KFC Ayo Ngedance Bareng Cinta Laura" (translation: "KFC Let's Dance with Cinta Laura") through KFC (Kentucky Fried Chicken) food chain (about 400 restaurants). The album was successfully sold up to 1 million copies (by last February 2011).
• SMEI sold Gita Gutawa's Album to Bukopin Bank. Bukopin Bank will give the album for free upon opening new account with minimum balance IDR 1 million (about USD 120).

Note: Cinta Laura and Gita Gutawa are Indonesian local music artists.

There are nine mobile telecommunication network providers in Indonesia:

• GSM: Telkomsel, XL, Indosat, Hutchinson 3, Axis
• CDMA Telkom Flexi, Esia, Smart Fren, and Sampoerna Telekom.

The big three (Telkomsel, XL, and Indosat), in total, have about 90% market share(9).

Picture 4. Mobile Network Subscribers in Q1, 2011(11)

Ring-back Tone (RBT) is the song or sound that is heard on the telephone line by the calling party after dialing and prior to the call being answered at the receiving end(1). Music companies provide the song while telecommunication companies sell RBT service to subscribers. An audio CD of a local artist is priced around IDR 40,000 (around USD 4)(2), while RBT costs around IDR 9,000 (around USD 1) per month. RBT is usually only about 40 seconds long. It’s shorter than full track, but RBT gives roughly 40% revenue from production cost that will be shared to music label, artist, and songwriter. In the end, the music company will get 10-20%(3). Total transaction of CD and cassette sales is roughly only one-tenth RBT sales(5). RBT is one solution to battle piracy since it’s a service from provider.

Following the success of RBT, telecommunication companies are trying to market full track songs, some notable milestones are:

1. Telkomsel offers digital music in the form of full track download and RBT service through Langit Musik since 18 January 2010. The service can be accessed by Telkomsel’s subscribers from http://www.langitmusik.com/wap
2. Indosat launched Indosat Backstage in collaboration with Univesal Music Indonesia and Musica Studios. The service is launched on 10 June 2011.
3. Nokia has bundled it handsets with Ovi service which offers local songs (including Indonesian songs). On 4 August 2011, in partnership with three local telecommunication providers (Telkomsel, XL, and Indosat), Nokia Indonesia introduced(6): Nokia Unlimited (unlimited internet for mobile phone), Nokia Internet Messaging Unlimited Package (unlimited messaging), and Ovi Internet Package (unlimited access to Ovi service, including unlimited music download) for IDR 2,000 (about USD 0.2) / day or IDR 20,000 (about USD 2) / month (at this moment, the third service is only offered to customers of Telkomsel)
4. 4. Telkom, bundled its internet service product with music download service in collaboration with MelOn (a digital music sales company originated from Korea)(7). It is hosted in http://www.melon.co.id and it will cost IDR 25,000 (about USD 3) per month for unlimited download(8).

OPPORTUNITIES AND CHALLENGE

In accordance to increasing number of telecommunication subscribers, number of potential subscribers for both RBT and full track download are also increasing. The market has potential to grow further. As an example, Langit Music currently has more than 12 millions subscribers. In 2010 It successfully pushed 72,000 RBTs, 15,000 full track songs, 3,000 mini songs, and 300 music videos to be downloaded from its site. And booked 30% growth compared to the previous year. This year It is targetted to grow 60% or equal to 20 millions subscribers in 2011(13).

The success of Cinta Laura album which offers music with dance genre/beat and the success of new group bands like SM*SH which offers music with similar genre show that Indonesia starts to follow trend in United States. Dance music has boomed in Western area since several years back with the success of artists like Lady Gaga and Rihanna and it's just started here.

On the contrary, full track songs are available to be downloaded for free through torrent or file sharing sites such as 4shared and Indowebster. A non profit organisation, Heal Our Music, recently did a survey. In April 2011, it monitored 15 sites that provide free music download and found out that there were about 104 millions download in that month only(14). While current regulation is considered to still not be able to stop or make people think twice before download pirated songs(11), it also shows huge market opportunities if illegal download activities can be shifted to legal and paid download activities.

Different with RBT which can be enjoyed by others, track download is more personal. This is another challenge due to the fact that Indonesian people like to share and DRM will avoid them to do so. In this state, both music industry and telecommunication industry may just want to see responses from the market and investment will possibly be slowed down until it really shows acceptable results.

SUMMARY

Digital music business in Indonesia is still considered new and potentially growing in at least the next few years. Along with growing market of smart phones (especially BlackBerry and iPhone) and mobile internet service, synergy between music recording companies, mobile phone content developers, and telecommunication companies seems to be the future of digital music industry. Although there are also challanges, efforts and strategies that are (possible to be) pursued to mitigate these risks.

Sources (viewed on 27 June 2011):
1. Wikipedia
2. Disctarra (a local music store chain)
3. RBT Penangkal Pembajakan
4. Menghitung Profit dari RBT
5. DRM Membawa Gairah Baru Industri Musik
6. Nokia Gaet Empat Operator untuk Paket Internetnya
7. Telkom Dukung Speedy dengan Konten Music Digital
8. Speedy Music Unlimited
9. Review of Prepaid SIM Card in Indonesia
10. Prospek Bisnis Full Track Download Menjanjikan
11. Beban per Pelanggan XL Terendah
12. PAPPRI: Tata Niaga Musik Harus Direstrukturisasi
13. Telkomsel Pertimbangkan Akuisisi Penyedia Konten
14. Musik Indonesia di Ambang Kehancuran?
15.  Nyaringnya Penjualan Album Langsung