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(Bloomberg) -- The world’s largest music streaming service has secured deals with many of the major rights holders in India over the past few months, clearing one of its final hurdles to entering the country of 1.3 billion people, according to people familiar with the pacts.
Spotify Technology SA is preparing to introduce its service as soon as the first quarter of 2019, said the people, who asked not to be identified because the information isn’t yet public. Variety previously reported on the agreements, saying Spotify will launch in India within six months.
The expansion provides a major test of Spotify’s ability to lure customers in what it calls the “rest of world” markets -- a group that spans from Australia and Japan to Israel and South Africa. Though Spotify is the largest paid streaming service globally, it is largely limited to three regions: North America, Latin America and Europe. Those areas, which account for less than a third of the world’s population, contribute more than 90 percent of Spotify’s paying customers. India is one of the fastest-growing music markets.
The Stockholm-based company had about 8 million subscribers in the “rest of world” markets at the end of September. India may help change that. Spotify itself has told partners that it plans to launch in India in the first quarter of 2019, but hasn’t committed publicly to a timetable and declined to comment on it for this story.
“It is a high-growth area,” said Vivek Paul, a digital media consultant in Mumbai who used to work at Sony Corp.
Faster growth in Asia also would help Spotify placate a restless investor base. The company’s stock has dropped about 30 percent since its peak in July -- even temporarily slipping below its listing price for the first time. While much of the decline is due to unease with all technology stocks, investors have been underwhelmed by Spotify’s subscriber growth.
The company has been laying the groundwork in India for some time. It previously hired a head of communications in the country and poached an executive from a rival service earlier this year. An editor at the company will create playlists of local music before the service’s debut.
Spotify’s India campaign has faced some challenges.
As part of a broader dispute that erupted after Spotify began acquiring song rights directly from musicians, some major record labels threatened to withhold rights for India, according to reports at the time. The streaming service has pushed ahead regardless, making deals with many, though not all, of the largest labels.
The push into India “is a major positive for supporting CEO Daniel Ek’s global growth ambitions,” Matthew Harrigan, an analyst at Buckingham Research Group, wrote in a note to clients.
Bhushan Kumar, the managing director of record label T-Series, confirmed that his company is working with Spotify. “Our deal with them is on,” he said in an interview.
T-Series operates the most-watched YouTube channel in the world and puts its music up there before it appears anywhere else. Other record companies, including Sony Music, declined to comment.
Spotify is stepping up its international expansion, and just introduced its streaming service to 13 territories in the Middle East and North Africa. But none of those will provide as large a market as India, one of the three largest music markets in which Spotify does not yet operate. (The other two are South Korea and China.)
Just how many Indians will be willing to pay for music streaming remains an open question. Streaming services have about 100 million users in India, but a tiny fraction pay for the services. The most popular online music source in the country is YouTube, which offers a bottomless supply of music videos at no charge.
Spotify plans to rely heavily on its free tier to lure new customers and then convert them to paid subscriptions, a strategy that has worked in other markets. But major labels try to rein in Spotify’s use of the free tier, hoping to direct as many customers as possible to the more lucrative paid one.
Prospects for growth in paid streaming are being helped as hundreds of millions of Indians have gained access to high-speed Internet on their phones in recent years. The cost of that Internet service has plunged as carriers like Reliance Jio Infocomm Ltd. offer cheap data plans to lure users.
Still, Spotify has been delayed by hurdles unique to India. Music from Bollywood films accounts for more than half of sales in the country. Other popular genres include pop, folk and devotional music, often sung in more than a dozen different languages.
As such, music rights are more disparate in India than most other countries. Of the world’s three largest record labels, only one -- Sony -- has a sizable presence in India.
“India specifically is a very fragmented marketplace with lots of different local labels, lots of different local publishers,” Spotify Chief Executive Officer Daniel Ek told analysts in November.
Ek’s engineers have their own challenges. Bollywood fans often search for music by the name of the character rather than the actual musician. Spotify is optimized for people to search based on song titles, artists and its own popular playlists, but not for movie characters.
And even when Indian consumers find the proper song, they might not be able to pay. A small percentage of Indians own a credit card, forcing Spotify to look into alternatives like prepaid cards and partnerships with local phone operators.
Two of those operators, Bharti Airtel Ltd. and Reliance Jio, already own a music service. Jio Music, which merged with fellow service Saavn, has a catalog of more than 40 million songs and has expanded into original audio programming with South Asian comedians, producers and artists. The service is the second-most-popular online music service in India, according to Nielsen.
(Updates with comment from analyst in 10th paragraph.)
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