Decades ago the non-stop streaming of popular songs sung by Lata Mangeshkar, Asha Bhosle, Mohammad Rafi and Kishore Kumar turned fortunes at Saregama, the foremost owner of recorded film music in India. For years the share price of the Kolkata-based RP Sanjeev Goenka Group company barely caused a stir in the market. However, the pandemic turned out to be a watershed moment. People listen to more music on their devices than ever before. The company’s revenue grew through sales of streaming music and music-playing equipment Caravan. Share price is skyrocketing from below 27 May 2020 to Now 430. Contrary to modern valuation theories of future profits, the current underlying performance of Saregama drives up the price. The company reported revenue from music licensing on Monday 358 crore, or 70% of the total revenue, for the year ended March 2022.
Now, the company is diversifying into films and television, which is a new field for it. Will this campaign be an instant success or is another long haul about to begin, as in the case of Saregama the intellectual property owned in the form of songs for decades, before all but revenue with the rights to be monetized in recent years started giving?
Saregama has picked up 700 crore in 2021-22 through a qualified institutional placement. The company’s music business generates healthy revenue and requires little additional capital. Following the March 2022 quarter results, the company’s management announced that it has entered into licensing deals for movies and television shows produced with video streaming services such as Netflix and Zee5. The idea seems to be to replicate the music’s success in other streams. Something that is easier said than done. Producing television shows and movies requires more capital than owning and maintaining a portfolio of songs and music. Production costs are much higher than making and distributing music. That means there’s a good chance the company could be pouring new money into non-music businesses.
It’s hard for a film and television production business to generate value at the same pace as music. Profitability also depends on the success of a few films made by a production company in a year. If film, television production, and library ownership were profitable, The Walt Disney Company would not trade at the same price today as it did in May 2015. From a peak in November 2021, shares of streaming company Netflix are trading at a third. Value. Indian companies listed in the film business such as 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 film content company in the Indian market, trades at less than a third of the listed price 12 years ago.
What goes in Saregama’s favor is that the revenue from licensing and music streaming can only grow. The music industry shows no signs of slowing down. For example, the Saregama-owned Retro Music Library’s downloads (which accounts for 56% of all music held in the library) stood at 141 billion in 2021-22 as against 34 billion in 2017-18. Saregama’s license revenue grew even as the pandemic hit all other businesses.
Others are positive. The transformative change in fortunes of Saregama tells the story of Indian consumer habits, which is indeed the story behind the company’s outstanding performance. Mobile Internet and the rapid adoption of smartphones and feature phones allow the playing of licensed music over pirated copies. It also explains the success of streaming services like Spotify, Apple Music and Amazon Prime Music in India. Then, there are other services like gaana.com and Jiosaawaan. All of these expand the market for Saregama’s music library. YouTube, the video streaming service of Google’s parent company Alphabet, is also a significant contributor to Saragema’s per-minute revenue.
The company’s music business is in a sweet spot, with many supporters giving the business a tailwind. While streaming has volume-based growth, the company has the potential to create more value. The market for streaming music in countries like India is growing faster than the rest of the world. In any case, the revenue generated is low compared to the rest of the world. According to the IFPI survey, the total music licensing and streaming global revenue in 2021 is $16.9bn. Feather 350 million, or $50 million a year, Saregama is barely scratching the surface. As its music business continues to go strong, the company is well prepared to experiment with its other long-time businesses, such as TV and film.