Martin Nielsen, the chief executive of music streaming platform Mdundo, has what he considers a perfect solution for music piracy: don’t fight it. Instead, the industry should develop affordable and attractive alternatives to illegal downloads.
“It makes more sense to invest in growing a legal industry than trying to kill an illegal industry,” he says.
And he ought to know a thing or two about the local music industry. For the last four years he has been running Mdundo, a local music download and streaming platform that is trying to find the mix of attractive, affordable and profitable that will finally woo Kenyans away from illegal sites while making money for artistes.
The formula is to provide free downloads and earn revenue from advertising. It seems to be working well enough that Mdundo has 1.5 million users every month and, recently, Mr Nielsen signed a deal with American music giant Warner Music Group.
Under the agreement, Warner will make available its catalogue on Mdundo’s platform for offline streaming. Mdundo’s focus has been African music, building a catalogue of 40,000 artistes from 37 countries. Now, however, customers can shuffle between Zilozopendwa and Bruno Mars on the Mdundo app.
The Warner deal, argues Mr Nielsen, is a sign that African streaming companies are not just “some crazy entrepreneurs running around trying to sell music” but businesses that can meet the standards set by their international peers.
The deal is also a pointer to the positive outlook for the streaming business in Kenya and on the continent. Companies like Spotify and Tidal have been slow to make their services available in Africa.
However, deepening smartphone penetration, falling data prices and rising disposable incomes in a youthful population make African countries attractive investment targets for the international music giants.
“I think what really excites us is the fact that we’ve not really turned on the emerging markets when it comes to paid streaming, and when you start to do the maths, when you look at some of those countries with mass populations, that’s very exciting,” said Adam Granite, who heads Sony Music Entertainment in Africa.
The 2017 Global Music Report estimates that revenue from streaming grew 334.2 per cent in South Africa in 2016. While South Africa is an advanced market, data from the rest of the continent suggests similar positive trends.
Consultancy firm PwC had predicted that digital sales of music would overtake physical sales by 2015. While it is not yet clear if this has happened, the firm also predicted that digital sales would grow faster than physical ones.
And it is not just start-ups and multinationals that are noticing the potential.
Safaricom #ticker:SCOM, which has long sold music through its Skiza platform, in June announced plans to launch a music streaming application.
But there are huge specks blurring this rosy figures for the future. The first is that even with free services like Mdundo, perception shift would be required to move Kenyans from illegal downloads.
“Legal digital music services face stiff competition from unauthorised services and music that is available online,” writes PwC. Mdundo has a premium subscription service and in the long-term, the company plans to graduate more of its users into becoming paying customers. However, the payment infrastructure that would form the foundation for this remains “tedious,” says Mr Nielsen.
Although digital payments are evolving in Kenya, the journey towards seamless online payments is not happening that fast. In Mdundo’s other markets, Nigeria, Tanzania and Uganda, the payment ecosystems are less developed.
Another hurdle is data. Although prices are falling, Internet access remains expensive for most Kenyans. Adapting to this requires businesses to shift from the traditional streaming to models such as downloads or offline streaming.
The African market is also unique because market power in the music industry is not as concentrated as say in the United States.
So, for instance, while the Warner deal has given Mdundo immediate access to thousands of artistes, a similar deal would not be possible in Kenya or even Tanzania.
“You can’t sign on all Kenyan artistes with one contract. You have to go to each of them,” says Mr Nielsen. Over the last decade, numerous music download and streaming services have come and gone in the region.
Mr Nielsen argues that companies stepping into this business must play the long game, revenues will be slow in coming and profits will even be slower.