The T-SERIES Story

T-SERIES & MUSIC PIRACY

Initially, Gulshan's cover versions featured only old Hindi film songs. Gulshan got unknown singers to sing these as their rates were low and Gulshan was able to make good margins on the overall deal. Soon, he began making cover versions of new movies as well. Though the cassettes always made it clear in small print that these were not the original recordings, the consumers were not always savvy enough to read the small print.

Things were going on rather smoothly - till Gulshan released a cover version of what was reportedly one of India's biggest blockbuster movie, 'Hum Aapke Hain Kaun' in 1997, violating the three-year waiting period stipulated by the Supreme Court. This time around, the attack on GCI's profits was too strong to be ignored and the company filed a suit against T-Series. In the same year, a few music industry players approached the former finance minister V P Singh, demanding that Gulshan be punished for violating copyright laws and pirating music. However, V P Singh reportedly6 dismissed them saying, "Don't come to me with your hard luck stories. You've no marketing strategies so you haven't discovered the marketplace. Gulshan has. And you want me to punish him for his entrepreneurial ability?"

As the 'Hum Aapke Hain Kaun' case went to the courts, Gulshan was murdered. With Gulshan's death began a period of uncertainty for the T-Series group. The music company was not doing very well as Gulshan had stopped buying music rights from outside7 and the T-Series' films had failed. The other businesses were all relatively new and not yet well established. There were reports of infighting in the family regarding the control of the various businesses. Saregama, Tips and Venus, who had emerged as the leading players in the Hindi film music segment, had also ventured into film production. Though Saregama's movies did not do well, quite a few Venus and Tips movies were huge successes.

The December 1998 Delhi High Court ruling in the 'Hum Aapke Hain Kaun' case, which put an end to the cover version recordings, was the biggest blow to T-Series. The High Court order said that the makers of version recordings relied upon a special provision of the Indian Copyright Act [S 52(1)(j)]. Taking advantage of this provision, the pirates claimed that copyright owners of the compositions and lyrics were only entitled to a statutory license fee. They also said that once the owners received the license fee, they had to allow the fee payers to make sound recordings.

The Delhi High Court held that there was no provision for such automatic licensing and the sound recordings could be made by third parties only after they had obtained permission from the copyright owners. The Court held that under the Copyright Act, assignments and licenses could only be made in writing. They had to be signed by the assignor/licensee. As GCI had categorically refused to grant a license/assignment in favor of T-Series and had also returned the cheque for the royalty amount sent by T-Series, it was able to win the case.

THE UNSOLVED PROBLEM

Though GCI had won this case against T-Series, the problem of music piracy still plagued the industry. The music companies were handicapped by the legal definition of copyright violation wherein piracy was not a cognizable offence. The companies had to prove that cassettes were being pirated before getting a warrant of arrest. According to certain reports, music pirates were always tipped off about police raids in advance.

The nexus between the film/music industry and the Dubai/Mumbai underworld was another problem. The mafia controlled a large portion of the Mumbai music piracy business. This nexus was so strong that after an IMI raid in the early 1990s in Mumbai, IMI officers were beaten up and its Mumbai office was destroyed. After this, all the markets in that area were closed for 15 days in protest against the raid. According to IMI estimates, almost 95% of the distributors and dealers were involved in piracy and on an average, only 40% of the stock was genuine. Analysts claimed that except for giving leads to the police and initiating raids on pirated music vendors, even the music companies had done precious little to curb music piracy.

The problems associated with the distribution network in the music business also substantially helped the pirates. Market observers claimed that around 50 distributors had an absolute control on the music industry's distribution network.

Distribution was the most profitable part of the music business. The average cost of a cassette for the distributors was Rs 19. The selling price ranged from Rs 38 (large retailers) to Rs 44 (small retailers) for a cassette. The retailers added their own margins to the price. The price for the customer thus ranged between Rs 50 and 60. The problem was compounded by the fact that in the case of film music, if supplies were not made available immediately, the demand shifted either to pirated cassettes or to some other album that was easily available. Thus, it was imperative for the music companies to sell in bulk to the distributors.

The companies realized that they had a lot to gain by bypassing this network. The logical solution, though time consuming and costly, was to set up their own music stores. The biggest initiative in this direction had come from Saregama, whose owners, the RPG group had successfully established the Music World chain of music retailing outlets all over the country. The emergence of organized music retailing outfits like Planet M and Internet based stores such as fabmart.com was expected to help the companies improve their performance.

[6] Life in the twilight zone, www.rediff.com, September 2, 1997.

[7] Gulshan had stopped buying the music rights from non T-Series producers, alleging that they were charging
     exorbitant rates. His decision to produce movies was also led by the fact that he did not have to buy the
     music rights for them. However, after his death, T-Series began buying the rights to film music again. The
     company's sales improved significantly with quite a few of its soundtracks becoming successes.

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This case study is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. This case was compiled from published sources.