- The transformational change in the fortune of Saregama tells the story of Indian consumer habits, which is actually the tailwind behind the company’s excellent performance
The non-stop streaming of popular songs sung decades ago by Lata Mangeshkar, Asha Bhonsle, Mohammad Rafi, and Kishore Kumar has turned fortunes at Saregama, the most prominent owner of recorded film music in India. For years, the Kolkata-based R P Sanjiv Goenka group company’s share price barely caused a flutter in the market. However, the pandemic turned out to be a watershed moment. People heard more music on their devices than ever before. The company’s revenue through streaming music and the sale of Caravan, a music-playing device, soared. The share price sky-rocketed from the bottom of ₹27 in May 2020 to ₹430 now. Unlike the modern-day valuation theories of future profits, the current underlying performance of Saregama shored up the value. The company reported on Monday revenue from music licensing at ₹358 crore for the year ended March 2022, or 70% of the total revenue.
Now, the company is diversifying into films and television, a new area for it. Will the forays be instantly successful or is another long haul in the offing, as was the case with the intellectual property Saregama owned for decades in the form of songs before it all started delivering revenues with the rights getting monetized in recent years?
Saregama has raised ₹700 crore through a qualified institutional placement in 2021-22. The company’s music business generates healthy revenue and needs little additional capital. After the March 2022 quarter results, the company’s management announced that it struck licensing deals for movies and television shows produced with video streaming services like Netflix and Zee5. The idea seems to be to replicate the success of music in other streams. Something that is easier said than done. The production of television shows and movies needs more capital than owning and maintaining a portfolio of songs and music. The production cost is much more than creating music and distributing it. That means there is a good chance the company could put the new money into non-music businesses.
For the film and television production business to generate value at the same pace as music is hard. The profitability is also dependent on the success of the few films a production company makes in a year. If film, television production and ownership of a library was remunerative, Walt Disney Co would not trade at the same price today as it had in May 2015. From a peak in November 2021, shares of streaming company Netflix are trading at a third of that value. Listed Indian companies in the film business like Zee Entertainment and Network18 have not created as much value as Saregama or Tips Industries, another rival music label company. Eros International Media, a pure-play film content company in the Indian market, trades at less than a third of the price it listed 12 years ago.
What goes in Saregama’s favour is that the revenue from licensing and music streaming can only increase. There are no signs of any music industry slowdown. For example, downloads of the retro music library owned by Saregama (that accounts for 56% of all the music it holds in the library) were at 141 billion in 2021-22 against 34 billion in 2017-18. The licensing revenue for Saregama showed growth even when the pandemic hit all other businesses.
There are other positives. The transformational change in the fortune of Saregama tells the story of Indian consumer habits, which is actually the tailwind behind the company’s excellent performance. The rapid adoption of mobile internet and smartphones and feature phones help play licensed music as against pirated copies. This also tells about the success of streaming services like Spotify, Apple Music and Amazon Prime Music in India. Then, there are other services like gaana.com and Jiosaawan. All of these expand the market for Saregama’s music library. YouTube, the video streaming service of Google’s parent Alphabet, is also a significant contributor to the revenue Saragema makes every minute.
The company’s music business is in a sweet spot with multiple enablers giving the business a tailwind. While there is volume-led growth in streaming, the company has the potential to create more value. The market for streaming music in countries like India may be growing faster than the rest of the world. If anything, the revenue generated is small compared to the rest of the world. The total music licensing and streaming global revenue stands at $16.9bn in 2021, according to the IFPI survey. At ₹350 crore, or $50 million per annum, Saregama is barely scratching the surface. For as long as its music business is going strong, the company is placed well to experiment with other long-gestation businesses such as its TV and film forays.
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