Music Labels - The Most Profitable Internet Business and an Emerging Asset Class

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Thank you @Jose for moving the query here.
@sahil_vi and other senior members… Would love to hear your views / assessment on what exactly went bad with Shemaroo.

Regards,
Advait.

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Hello, how did you deduce that Tips is the more efficient player of the two?

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Cumulative Cash Flow From Operations for past 6 years ending FY20 is higher for Tips. Also, CFO is positive every year.

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Thanks for sharing this, but it is behind paywall… Request you to please share a gist of it. Thanks.

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In the latest concall, there was something that was mentioned called a ‘‘step-up’’. Does anybody know what that means?

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Is anyone tracking shemaro
Is it comparable to saregama in terms of valuation and product mix
Pls share your views

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Shemaroo is making losses while Saregama and Tips are profitable. So clearly you are comparing apples and oranges

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Hello,
I have made substantial losses in Shemaroo so I think I am qualified to comment :slight_smile:

My learnings

  1. Don’t buy the poorer cousin. Tbz for titan, care ratings for CRISIL or Shemaroo for Saregama

  2. Shemaroo management lacks focus to the extent I’d call it the ITC of entertainment (you guessed it, I am heavily invested in ITC as well, though haven’t yet realised the losses :slight_smile:

The second point (lack of focus) is what I find common to most of my stock market blunders.

  1. Points already mentioned (leverage, management not forthcoming in concalls, promoters not buying even after prices crashing) and of course decreasing profits
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Amazon buys MGM for USD 8.45bn !!
Two Comments

  1. Content Libraries will see unlocking of value. Film content is valuable!!

Maybe we will hear music deals too…

  1. Content is now officially an internet business!
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Saregama makes clear in various concall they want to be content company, not intrested in launching TV Channels, music app etc.
Tail winds for industry is know to all.
Saregama, comes out of woods, they have done with mistake they did in 2019 and I do not see, they will repeat it now, for spending on Carvaan without addition in bottom line.
Saregama is in music IP mainly, also they have film business, which can be monetized in innovative ways.
I believe company have multiple triggers of growth. They now start buying top tier music IP in Hindi, Bhojpuri and Gujarati.
Problem with Shemaroo is that they get money when some one watch movie. While music company can monetize IP in multiple ways, such as OTT, advertising, cover songs, as back ground songs, themes in movies, web series, reality shows, hardware (Carvaan) etc.
Vikram is jokey of company and he has skin in the game. Promoted by RP Sanjeev Goenka Group ( Group company can me more resiliant in difficult times, as they will have support from parent groups in terms of finance, expertise, processes, networking and many more).
Visit saregama youtube channels, they also launch saregama originals, which are getting good response, what I like personally is that they use original old hindi song, to recreate with new stars that clock 80 M views on you tube ( Apni to jaise taise with Khesari Lal Yadav) that will fuel consumption of old songs.
I can write too much, but I think point here is Saregama is firing on all cylinders.
Disclosure: Invested, views mays be extremely bias.

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So if shemaro becomes a candidate for acquisition it’s valuation should be very high as per the recent transactions.
Hope I am correct.

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I think this is one of biggest lesson of investing…the sooner one realises this and practices it, the better…
Having said above, sometimes the poorer cousin comes from solid background, undergoes restructuring and hence rerating…but very difficult to find such gems where all the boxes of a solid ensuing restructuring ticks…maybe your ITC is one such gem where the key is psychological perseverance…

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An interesting video discussing Saregama, Tips and Shemaroo (what went wrong) briefly.

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Just a couple of questions on longetivity of business/continued prevelance of current tailwinds:-

  1. There are no big Bollywood releases mainly due to COVID. This could have led to demand for alternate music options like Retro where these labels do so well and there is a lot of listening happening currently? Once the releases come in - won’t the listeners/streamers listen to the big new releases more - and hence could this be a spike of licensing revenue versus a sustained growth trajectory?

  2. In the long term - what stops the Streaming companies and tech giants with large content teams to buy directly from the music producers - isn’t there a large value chain of the label that can be comfortably shared between the streaming giants and the content artists? (Sony already buys from Dharma). Does that make the music labels a middle player in the value chain ripe for targeting by thier own customers and suppliers?

  3. What about connectivity speeds and people working from home being at peak right now? WiFi works great for streaming - but does 4G work as efficiently -there could still be pockets with or without good 4G which could interrupt a streaming experience for the consumer.

In essence - we could be seeing a peak in terms of usage of this content and hence subsequent revenues. Global giants like Universal and Werner coming to the IPO table also suggest valuations in the industry could be high due to tailwinds - but are these short term tailwinds or long term?

Discl : Not invested

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Hi…here are my 2 cents…

  1. Retro clientage is usually very specific and is not
    common with modern music…as for the new music…the bigger companies…high on cash (t-series and saregama) have an edge now…since they didnt buy any new music last year and have a fat wallet to purchase new music…sareagama has guidance to buy 25% of all music to be released next year…there is a forecast that industry will be consolidated eventually between 4-7 big players…and will eventually lead to a concentrated profit pool.

  2. Streaming/Platform companies are very asset light and they usually are never interested in spending heavily on content…if they had to start buying content…they would have already started it in the west…where there is more money…
    secondly,the artists/music composers themselves would not want to limit themselves to one app/platform…as signing with a music label gives them more reach and distribution advantages…( as music labels sign with more than one app)

  3. Internet speeds arent much of an issue as most of these apps are designed in a way…that if the internet is slow…the quality of the song decreases but the music doesnt stop…i have personally streamed music at even 2g speeds…it used to work
    just fine

The real risks…according to me are elsewhere…n i’ll list them for u…

  1. Most music Labels started making money after the judgement on tips vs wynk court case as the court decided that the broadcasting rules would
    be different for radio/tv and internet broadcasting…IF IN FUTURE…this act is ever changed…the whole
    business model of these music labels will collapse.

  2. The success of a lot of these streaming apps depends on the penetration of upi/digi wallets …credit cards still havent been able to penetrate to rural areas even after so many years.
    If these upi/digi wallets fail to penetrate…this will hamper paid subscribers of streaming apps and thus will take away the growth potential (which we are forecasting eventually when paid subscribers increase…currently
    at 1%)

  3. If the streaming apps end up in aggressively over competing/price war with each other…(just like telecom players in 2000-2015)…they might just keep content free forever or maybe charge very less

  4. piracy has come
    down for sure…but still remains a concern…
    if pirates find news ways to “steal music”…streaming industry will be hit badly (just like it used to happen pre-2013 )

Disc: Invested at lower levels and so positively biased…and very bullish on the story :blush:

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Bill Ackman is also interested in music.

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Yesterday, Tips Industries Ltd. came out with its results. This quarter’s results make the economics of the music industry crystal clear. Recommend evaluating the same. Attaching the corporate presentation below :

If anybody’s attended the conference call, would like to request feedback.

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Linking to my post on Tips Industries thread

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Interesting article on the music business