"The digital content market (other than caller ringback tones) in India has been sub-scale due to large-scale piracy.
Mobile Internet is opening the doors for large-scale monetisation of digital content through paid apps which is expected to grow to become a Rs. 2,000-crore market in the next 3-4 years," Avendus Capital Executive Director and Head (Digital Media and Technology) Ashish Bhinde told PTI.
According to the report, smartphone users in India are expected to grow to 67 million this year and 382 million by 2016.
Similarly, 3G subscriptions are also expected to rise from 11 million in 2011 to 56 million this year and touch 266 million by 2016, it added.
More than 50 percent of mobile Internet traffic and paid content revenues come from smartphones, dominated by Google and Apple app stores.
Google Play and Apple App store revenues are expected to cross Rs. 800 crore by 2016, the report said.
While the average revenue per user for paid apps is expected to come down from Rs. 132 in 2012 to Rs. 78 in 2016, the growing 3G subscription base (11 million in 2011 to 266 million in 2016) will help the overall revenues from paid apps to touch Rs. 2,065 crore.
The report estimates the paid apps market in India to be worth about Rs. 300 crore in 2012.
Five categories that dominate Indian content landscape on mobile phones include cricket, music, news, video and games. Facebook, Google and Whatsapp lead in terms of time share, the report said.
Feature phones with Internet capabilities will too help the apps and games ecosystem to grow.
"Feature phones will continue to play a key role as they continue to maintain a substantial market share. Indian players have a stronghold in this segment and the opportunities for them are in the area of (developing) hyper-local models like browser content, entertainment and m-commerce," the report said.
The number of smartphone users in India was only 36 million as of March 2013, while the number of Internet-supported mobile devices stands at 431 million, the report said.
"While smartphones are driving traffic to third-party app stores, there will still be a significant mobile user base on feature phones going forward, which in itself will provide a large potential market for telco app stores," Bhinde said.