The deal had been drafted, and Rakesh Goswami, the Artistes & Repertoire (A&R) head of the music company DoReMe, was itching to have it inked into force. It was a deal with Jay Films for the exclusive right to market the original motion picture soundtrack of its forthcoming release, Paan. And DoReMe was to fork out Rs 1.1 crore, a bid that trumped at least two other music labels that had bid only in lakhs, for it.

Going by past precedent, even Rs 1.1 crore was quite a steal-it was at least 60 per cent less than what a similar deal would've cost just 12 months ago. The market was in the dumps, which had hurt the music industry's capacity for risk. The gloom was palpable. According to industry figures, legitimate Indian music sales had crashed from 190 million cassettes and 10 million CDs worth Rs 1,085 crore in 2000-01, to an estimated 138 million cassettes and 7 million CDs worth Rs 670 crore in 2002-03. Did this signify a jump in piracy? Or an overall decline?

Both, feared analysts. Hindi film blockbusters, which were hot sellers in spite of the pirates' most frenetic copying efforts, were becoming scarce. And this was very worrisome. Riding a sudden 4-5-million-copies tsunami of sales, all within a couple of months (before tin-shed pirates had the chance to churn out copies in such large volumes to feed demand), was becoming less and less feasible.

The good news, perversely, was that these grim market realities had moderated the demands of film-makers. Just three years ago, a hot team could command Rs 5 crore for soundtrack rights-on the expectation of sales crossing 5 million copies, at an average Rs 50 per copy. These days, a team with similar credentials considered itself lucky just to get past the one-million-copies post. Betting on sales lower than that was viable only as part of a small-audience, high-price strategy (say, Rs 120 per cassette), something better suited to Indipop than film music. Bollywood, after all, was in the business of mass audiences.

Goswami was an experienced A&R man, and had specific reasons to be bullish on the mass appeal of Paan. The videos? Striking. A cute new face and refreshing art direction. The sound? Experimental. It combined the old and the raw, in terms of lyrics, instruments, music direction and vocals. It blended the talent of established industry stalwarts with that of an Indian rocker-turned-film-buff, and the result, he felt, was distinctly melodious without any loss of youthful edginess.

"You won't even guess that the team has such divergent musical influences," exulted Goswami, looking hopefully at Mahesh Chaturvedi, DoReMe's Vice-President, who was poring over the deal's details. That he was having last-minute jitters, was evident.

Just the other day, Chaturvedi had been impressed enough to consider a bold 'snap-up' strategy. This meant pricing the soundtrack at just Rs 45 per cassette, with a launch production run of half a million copies-to hit shelves a week after the sound-samples hit airwaves (TV and radio). If the music were to catch on, DoReMe could run three high-speed mass copiers at its new plant and put out an additional million copies within a fortnight. And yet another million if the wave didn't subside. And yet another.

Now, however, Chaturvedi was less enthusiastic. "Rakesh," the Vice-President said, with a deep breath, "I've never doubted your A&R skills. If you say this has the pulse, it has the pulse. But new findings have come up, suggesting that the fm radio rage of the past few months has altered the prospects of our business."

"But..." protested Goswami.

"I know," responded his boss, "the Indian market is simply refusing to follow the developed market pattern of radio boosting album sales. At least, so far. You see, DJs are playing the entire score-and the hit music is getting disproportionate airplay."

"Isn't that great news for us?" asked Goswami, "Isn't that a sign of passion? And don't people want to own their passions?"

"Also," continued Chaturvedi, "there are these mp3 downloads. And digital copying makes a mockery of all our analog speed advantages. It takes just one-eighth the effort to create a digital copy-for a fake CD or computer disc storage."

"I still think the good old rules hold," said Goswami, "a hit is a hit is a hit. If the music possesses the listener, the listener must possess the music."

"Possess, fine, but pay for?"

"Yes, pay," said Goswami, "Digital piracy is a very yuppie-preppie thing in India. This is largely a country of technophobic romantics who just want good music at a decent price. One dollar, for goodness' sake-it will sell. We can make good money on this, Mahesh."

"Maybe a dollar too much," said Chaturvedi, "And digital is no longer fringe, by the way. Do you know that the street price of CD and mp3-playback hardware has come down to below Rs 1,500, courtesy Chinese imports? The penetration level of these devices, even in smaller towns, is witnessing a geometric progression."

"What about the export market?" asked Goswami.

"Yes," replied Chaurvedi, "But that's scattered, and the digital pirates are just too fast for us. We're geared only for concentrated distribution in India."

"I thought the West has managed to tackle piracy," persisted Goswami, "and now some acts are even using decoy files and encryption devices. At the end, of course, we have to persuade people that cheating artists of their due will only deprive them of the music they so love. Listeners have to be patrons too."

"For now," said Chaturvedi, "our job is to face current realities. Together, radio airplay and digital piracy can drive down our value-capture ratio so badly that our primary target of 1.5 million copies may need to be lowered-which means re-negotiating the deal."

"We could lose the soundtrack," cautioned Goswami.

Chaturvedi didn't seem too perturbed. "We have other revenue streams," he explained, "such as TV software."

The A&R chief sat with his lips pursed, thumbing absent-mindedly through the deal's docket. "Film-makers are aware of how tightly we're getting squeezed," he said, with an air of resignation, "And if they're not willing to share risks now, they'll never be. This may be just the time to shift from lumpsum deals to a royalty system."

"Revenue sharing?"

"That's it. Say, we pay Rs 50 lakh for this soundtrack, and then 20 per cent on every sale past the half-million mark. We'll have a foolproof accounting system to pre-empt doubts of our under-reporting sales."

"We've tried it before," said Chaturvedi, "but we found film-makers rushing off to the labels that were fine with their take-it-or-leave-it way of operating. Royalties work well overseas, where music labels are intimately involved in the creative process as well. But here in India, the terms of trade aren't the same because we're still creatively dependent on the film industry. Be warned, it won't be an easy concept to sell."

Question: Should DoReMe tear up the old deal and press for a royalty agreement?

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