Digital Music, the African Way

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SERRAVAL, FRANCE -- The music business recently celebrated a milestone in the form of its first annual revenue growth since 1999, but one region, Africa, was unable to join the party. Digital music, responsible for the improvement in the industry's brighter overall outlook, has failed to catch on across much of Africa.

But that may be about to change, as new local and international digital music services open or expand, suggesting that industry executives and investors see potential for profit.

In one of the highest-profile moves so far, Universal Music Group and Samsung announced this month the creation of The Kleek, a Pan-African digital music service. It features music from Universal's international catalog and from local artists like the Power Boyz in Angola, DJ Vetkuk in South Africa and W4 in Nigeria.

In December, South Africans were given access to the iTunes digital music store from Apple. Around the same time, one of the leading Internet streaming music services, Deezer, a French company, expanded across much of Africa. And in several countries, including Nigeria, local digital music operations like iRoking have started to attract large numbers of listeners.

"I think there's a feeling that let's give it a try, where before everyone was saying, 'I'm just going to sit on my ball and refuse to play,"' said Simon Dyson, an analyst at Informa, a research company in London.

While digital music now accounts for more than half of the revenue in the music industry in the United States, and is finally making a substantial contribution to the bottom line in Europe and some Asian markets, the challenges remain formidable in Africa, analysts say.

Piracy is rife, with renegade CD factories thriving and street vendors doing a brisk business selling digital memory cards already loaded with the latest hits. Except in South Africa, there is little or no official music-licensing structure across much of sub-Saharan Africa and often no way for musicians and other rights holders to collect revenue from sales or performances of their work. Even in South Africa, digital music still accounts for less than 10 percent of sales, analysts say.

Broadband connections, especially the fixed-line variety, are unavailable or remain a luxury in much of Africa, so downloading or streaming music or other media to desktop computers is a niche market. So most African consumers listen to digital music on their mobile phones, and in many markets, selling ringtones is the main route to revenue.

Informa estimates that 70 percent of the African music business consists of local repertoire, with international artists, who dominate elsewhere, representing only a minority of what people are listening to. That presents an additional challenge for the major record labels and digital services based outside the region, which tend to generate the bulk of their sales from a handful of hits.

"It's easy to turn on digital services in new markets," said Francis Keeling, the London-based global head of the digital business at Universal. "The difference is, are they going to have local content, editorial teams and realistic pricing, along with active marketing. We looked at the market for a long time and decided that Africa needed its own service, aimed at African consumers."

Universal says it wants to sign other major record companies to The Kleek and has also struck agreements with a number of African labels. Rather than offering downloads, like iTunes, or on-demand streaming, like Deezer and Spotify, another digital service that is popular in developed markets, The Kleek offers a radiolike experience.

Users of the service can choose from playlists consisting of local music or international hits, interspersed with artist interviews, concert reviews and gossip, streamed to cellphones. Because of limited bandwidth, the recordings are short, generally 10 minutes or less.

"It allows you to get a window on what is hip and happening in each territory," Randall Abrahams, managing director of Universal for sub-Saharan Africa, said by telephone.

For now, the service is free, and analysts say it might be difficult to sell premium subscriptions, a business model used by other streaming services, because of low incomes and the wide availability of pirated music in Africa.

While Mr. Abrahams said The Kleek hoped to sell advertising, like Spotify, Deezer and other streaming services, for now it is being sponsored by Samsung; as a result, it is available only on Samsung phones using the Android mobile operating system from Google.

Thabiet Allie, the head of content and services for Samsung in Africa, said that because many people in the region were able to use the Internet only via mobile devices, it was important for makers of telephones and network operators to be able to provide content like music, in order to give them a competitive edge.

"We have a responsibility to give consumers something that is simple, something that is legal," he said.

Other digital music services are also using partnerships in their effort to expand in Africa. Deezer, for example, has agreements with Orange, a mobile operator owned by France Télécom, in Senegal, Ivory Coast and Mauritius.

For now, the main business opportunity in African music comes from reaching consumers in the African diaspora, including millions of people who have settled in Europe in recent decades, said Axel Dauchez, the chief executive of Deezer, in Paris.

Smartphones and wireless broadband remain too scarce and expensive for mobile digital services to gain a mass- market following in Africa, he said, but this could change as more manufacturers roll out low-priced smartphones. Then Africa could make a bigger contribution to the recent improvement in the fortunes of the music industry, which reported revenue growth of 0.3 percent worldwide in 2012, according to the International Federation of the Phonographic Industry, a trade group.

"The real takeoff of the African market will come with the takeoff of adapted devices," Mr. Dauchez said, referring to cellphones and other mobile devices. "This will come very soon."

The rise of the Nigerian digital music service iRoking shows the challenges and opportunities of operating in a region where the infrastructure for digital commerce remains underdeveloped, but where the population of music consumers is young and fast-growing.

IRoking was set up about a year ago by iRoko Partners, a company whose other businesses include digital distribution of Nigerian, or "Nollywood," movies. IRoking offers on-demand streaming, playlists and online radio services, and has signed up hundreds of Nigerian artists, including popular acts like P-Square.

Analysts describe iRoking as the most popular licensed digital music service in West Africa. Last year, IRoko Partners attracted an $8 million investment from Tiger Global Management -- small by Silicon Valley standards, but a huge chunk of venture capital in Africa.

Yet Michael Ugwu, chief executive of iRoking, acknowledged that digital music remained a tough sell in Africa. IRoking sells advertising, but digital ad budgets are tiny in Nigeria. Subscriptions are a nonstarter, given the ready availability of pirated music services. Mobile operators, he says, want a cut of revenue -- typically about 80 percent -- too big to make such deals worthwhile.

To make money with its artists, iRoking relies heavily on referrals to services like iTunes, YouTube and Amazon. IRoking acts almost like a record label, representing artists and signing digital deals on their behalf; previously the musicians uploaded their tunes to the Internet and got nothing in return.

"It's not easy to operate in Africa," Mr. Ugwu of iRoking said from London. "But all the investment that's coming in, it validates the market. It shows that we weren't crazy."

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This article originally appeared in The New York Times.


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