"The film industry should be convinced into going in for a more realistic valuation of what music can contribute to its total revenue stream" Vijay Lazarus, President & Managing Director, Universal Music (India) Ltd

Doreme should press for a royalty agreement. DoReMe should also calculate the upfront risk, based on the current market scenario for a similar kind of project. The company should limit its expenses to the extent of bearing the cost of recording and promoting the music, and that too, subject to a maximum amount of Rs 50 lakh per album. In return, it should seek a share of the revenues (net of direct cost) after the primary breakeven is achieved.

DoReMe's Vice President Mahesh Chaturvedi is correct in being worried about digital formats such as video compact discs and mp3 file downloads, since these are capable of seriously undermining his company's value capture ratio.

Further, the non-performance of films at theatres, due to quality of content and visual piracy, has compounded the problems of music companies in such a way that the post-film release volumes are just not enough to yield reasonable returns, unlike in the past, when a good 70-80 per cent of the audio volumes used to ride on the success of the film.

Even the revenue stream from the sale of video CDs, which are quite the rage in India's smaller markets, has come under threat, with piracy making the format increasingly unviable.

One possible solution to these woes of the music companies could be that they make out a case for the film industry making a more realistic valuation of what music can contribute to its total revenue stream.

The film industry needs to understand that for music company, the upfront risk is not limited to the minimum guaranteed acquisition cost. It includes the support cost that it bears for promoting the music, the benefit of which is reaped by the producer and film distributors, plus other direct costs such as material, distribution, infrastructure and taxes.

The film industry also needs to improve the quality of content and work closely with the music industry to fight these threats before it is too late.

There is a parallel between the situation in early 1980s, when video piracy had put a serious question mark over the survival of the film industry, and DoReMe's current predicament. The company can best get out of it through improvements in music content quality and sustained anti-piracy efforts.

"The ever-present menace of piracy, MP3 format, internet downloads, and re-runs in the electronic media have strengthened the case for royalty deals" Suresh Thomas, Managing Director, Crescendo Music

Doreme should tear up the old deal and press hard for a royalty agreement. A one-sided deal can never ever work, no matter what the business, and more so, the record business, especially as it exists in India. It is the only business that has the ridiculous system of a '100-per cent returns' policy. This means that dealers enjoy the privilege of returning unsold stocks to a record company even after a year or two or more.

Why should a record company risk taking on a music soundtrack on an outright basis over which:

It has no creative control whatsoever on either the music or the film.

It has no clue (nor does the producer) as to whether the music or the film will be a hit.

It does not have a share in the success of the film- the producer takes it all even if the soundtrack goes for a toss.

It alone has to bear the brunt of additional tax levies, production, marketing and distribution costs, return of unsold goods, and the lack of guarantee of a film's timely release. In nine out of 10 cases, the producer fails to honour his commitment of releasing the film on the projected date. The reasons could include a lack of funds resulting in an inability to complete the film, shooting cancellations, problems with the censors, bad release timing, distribution-related uncertainties, and printing delays.

There are other risks too. The producer could time the release of his film in a manner that affects the sale of the music. Movie releases are determined by a host of unfathomable factors. Their timings could be determined by reasons ranging from an appropriate lull, with no other movies being launched, to the financiers pressing for a return on their investments in a film.

Another risk involved is that producers often fail to deliver sound tracks of the music on time after signing deals and pocketing the money.

The above factors-plus the ever-present menace of piracy, mp3 downloading from the internet, overexposure through frequent re-runs in the electronic media-have contributed to the fall in music sales, strengthening the case for royalty deals.

Royalty arrangements entail sharing the risks as well as the gains from a particular venture. This is fair, and can work well, provided a fine balance is struck here between the interests of the film producer and those of the music company. This is the only way forward for a company like DoReMe.

"What is badly needed is good music. Once the music is good, everything else will be sorted out. Yesterday's hits are being recycled because today's music is not able to catch listeners' imagination" Hoshang S. Billimoria, Vice Chairman & Managing Director, Tata Infomedia

The music industry went though an irrational phase in the last three years or so. Music companies outbid each other and ended up paying unrealistic prices for music rights. What we have now seen is a correction. The unrealistic prices of yesterday could never have been sustained. Please note that these prices were being offered with the full knowledge that piracy was eating into music company revenues. After all, piracy has not started today.

Piracy, of course, needs to be controlled and greater efforts need to be put in this direction. What we badly need, however, is good music. Once the music is good, everything else will be sorted out. Yesterday's hits are being continuously recycled because today's music is not able to catch the imagination of the listener.

That said, a 'royalty only' model for music is still a little premature for India. To our knowledge, no music director is willing to work on a royalty basis. Moreover, asking the film producer to bear the overall cost is not fair. Again, music companies buy music rights for long periods of time; there have been complaints in the past that very often royalty statements are not sent on time and royalty, where applicable, has not been paid.

"The approach that DoReMe could take is to work with filmmakers by sharing risks (royalties), taking joint control of content creation and striking a partnership in marketing" Abhik Mitra, Managing Director, Saregama India

Doreme should enter into a royalty agreement with the producer. If it is seen to be necessary because of the pressures created by competition, DoReMe should agree to an advance royalty clause.

The reason DoReMe should go in for the above-mentioned course of action is that in a business of 'hits and mixes', having a high minimum guarantee, as unfortunately was the situation earlier, places the entire music business model at severe risk.

Mahesh Chaturvedi's understanding of the actual business situation is right in that the combined impact of fm radio, mp3-based piracy, and alternate forms of entertainment have resulted in a large portion of the business of new sales music actually moving away from music companies.

In addition, the performance of films at the box office, which is an important driver of music sales, has been very poor. The approach that DoReMe could take is to work with filmmakers by sharing risks (royalties), taking joint control of content creation, forming partnerships for marketing and working with film producers to combat piracy.

Also, in view of the prevailing crisis in the music value chain, a music company like DoReMe could also choose to produce films on its own, by which it would have control over the creative and business processes as well as be in a position to exploit related revenue streams.

Also, I believe it is necessary to explain to the film producer in question the business model of the music industry, especially the business of acquisition-based new recordings and how the royalty system works globally, even while demonstrating to him the transparency and commitment of DoReMe in the marketing and distribution of his film's soundtrack.

It is also necessary that DoReMe convince the film producer of the competency it has in the field as well as the advantages it offers over others in the field, especially in terms of how an arrangement with it will help him earn more money from royalty, than he normally would through a minimum guarantee, as well as give the film the advance exposure and publicity it needs to make it big on the box office.