Dog Sense in Jingle Jungle

Ashutosh Pathak wouldn’t look out of place at a rock concert. The ear studs and chamois leather loafers give him an uber-cool look. A sly ability to seduce the guitar suggests Pathak spends most of his time in a music studio. He does that with his band Smoke, but he has also taken upon himself the task of bringing some legal order to the tune world. In his avatar as co-owner of Blue Frog, he runs a nightclub, a jingle production house, a recording label and a live-event management company. “No laws apply to this business of buying and selling musical tunes because it is so subjective and [that] makes it tougher to do business,” he says. This Wild West situation has seen some notable spats in the Rs. 280-crore Indian jingle industry in the last two years.

The most recent one was music composer Ram Sampath accusing music director Rakesh Roshan of taking his ‘Thump’ tune from a Sony Ericsson ad and using it in his film Krazzy 4. Earlier there was a disagreement between Rupert Fernandes, the composer of the ‘You and I’ tune, and Vodafone. Roshan settled out of court and paid Rs. 2 crore while Vodafone finally agreed to pay Fernandes more than 40 times its original offer price.

“Even though after these cases there has been no big case, business has become slow,” says Mohit Kapoor, partner, Universal Legal. That is partly due to the recession but companies have also become more wary. “Most corporations want a ‘no surprises’ contract with their jingle makers but it’s just not happening,” says Pathak. There are two aspects that make jingle valuation a tricky business. The first is creating a contract that indicates what the buyer is entitled to once the seller signs the deal. The second issue is valuing the music as an asset.

A Combo Deal
What’s so tricky about drafting a jingle sale contract? Think of a musical tune as an ordinary pizza. You know the price of the key ingredients. The tune alone costs between Rs. 60,000 to Rs. 75,000. After this, the pizza can be made with combinations. “I can compose the tune with the help of a set of session musicians and that would be done with Rs. 1.5 lakh or I can use a big-shot guitarist and a vocalist and that can take the price to Rs. 3.5 lakh - Rs. 5 lakh,” says Pathak. Once the pizza is ready, it’s time for consumption. “Depending on whether you want to use the music for a year or for perpetuity, the price can vary three to four times,” says Shrinivas Kanchi, marketing head, Blue Frog.
Blue Frog is working on a legal contract that is like a giant combo meal. It entitles the buyer to one of two soups, three pizzas, two out of three toppings and three out of four seasonings. “Unfortunately, we have not been able to push the adoption of this contract,” says Pathak.

Complex Matters
“Music basically is valued on perception and the market value of prevailing prices with related artists. But there are too many matters that bring in complications,” says Atul Churamani, vice-president, SaReGaMa. The reason: Clients think it is limiting. “Corporations say that the ad film-makers, who make the films in which jingles are used, have told them that they don’t want to be limited to options that are there in the contract,” says Kanchi. So it is back to square one. “We are now trying to persuade more and more musicians and vocalists to work with us so that even if the options in the contract are larger they are at least there. Though it will make the contract a bit unwieldy,” says Pathak.
Once an artist has signed a standard contract, the next important step is to figure out payment. This is where questions pop up. At what price should one sign on the dotted line? What made Rupert Fernandes feel a tune was worth around Rs. 25 lakh? Or what calculations did Sampat do to get the figure of Rs. 2 crore before he agreed to settle with Roshan? Ask Rupert and he’ll say, “Gut feel”. Ditto Sampat.

And it is hard to value music. “Some people believe that by looking at [a] client’s marketing expenditure and its relation to sales increase there may be a way but I don’t think so. How do I say ‘Music caused half of the 50 percent sales increase that happened after the ad was aired?’ I can’t,” says Pathak.
Jingle makers are taking the easy way out by selling their music outright to companies so that there can be no further disputes. This way, both the company and the artist are happy and there are no payments in perpetuity or royalties to be given.

But when it comes to valuing a singer who is making a debut with a music company, the method used is completely different. Paying outright is generally avoided. Recently, a big music company purchased the music rights of an Abhishek Bachhan movie at around Rs. 3 crore from film director-producer Karan Johar and actually made a neat packet by selling the music in the retail market.

An Artist’s Worth
Most music companies are now realising that instead of buying rights outright it is better to share revenues with artists. The way artists are typically valued is very similar to how it is done in stock markets: By comparing artists with their peers.

Take the example of Swati, a new Sufi artist who is about to sign a contract. The music company that signed her up had to work on a lot of parameters to arrive at her valuation. The first problem was perception. Being a woman, she will very likely be compared with Shubha Mudgal who charges, say, Rs. 30 lakh for a live show.

Mudgal has built her brand over the last decade. Swati is young and inexperienced but the music company believes that she can make it big. So she will have to do more than twice the number of shows that Mudgal does and charge less than half of what Mudgal charges. Let’s assume Swati does 40 shows a year at Rs. 5 lakh a show. She has the potential to make around Rs. 6 crore in three years. Of this, the music company will take Rs. 3 crore. Assume that the promotional expenses for the new artist in terms of marketing et al will be Rs. 1 crore. The initial expenses will be borne by the music company and for that, it will get into a 50 percent revenue-sharing pact with the singer.
The company will then benchmark Swati against the top selling Sufi album, Sufiana which sold 20,000 CDs. Even if Swati sells 10,000 CDs, the music company is fine with it. At Rs. 100 per CD, Swati will take home Rs. 5 lakh. The other media rights will remain with the music company. The artist can expect a similar deal for downloads and ringtones. The ringtone is a great potential revenue generator. Records of similar downloads will be used to estimate the amount that can be generated by other media. Thirty thousand downloads at Rs. 3 a download will give the artist Rs. 45,000. The total value for the artist is the sum of live shows (Rs. 3 crore), CD sales (Rs. 5 lakh) and downloads (Rs. 45,000) which works out to Rs. 3.05 crore.

If another company decides to buy out Swati and pay her more than Rs 3.05 crore, then it will make losses. But if the company decides to value her at Rs. 1 lakh per show, the valuation comes down to approximately Rs. 65 lakh. If they pay the new artist Rs. 65 lakh upfront, the company has a lot to gain. This is provided music sales are high and live shows can be charged more and the 50 percent agreement with the artist on live shows is still on. As for downloads, the music company will have bought the rights. That’s why an artist can always feel she was taken for a ride. So while the new standard contract format will solve the problem as far as “what is being sold” is concerned, it will not address the question of “what it is worth”. That will remain a contentious issue. But at least once the contract is signed, the scope for filing lawsuits will reduce. And that would be music to everybody’s ears.

Click here to watch the video story