Box office collections only means the revenue garnered from sale of tickets in cinemas. You have not taken into account revenue from TV and internet media into your calculations.
So, if Amazon and Netflix start buying new inevntory (not bothering about inventory and working capital etc), it will be bad for Shemaroo
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doesn’t revenue from TV and internet , mobile & other media etc form the other 5% ( 95% being box office revenue) where Shemaroo participates i.e the second cycle?
Yes that’s the main negative of holding content which are quite old and not too attractive for the new generation…
Also a 5-7 years wait period means all their content are pre 2010 movies … this inventory might not be too attractive for the new generation…
This according to me is the main worry point and something to think on before investing…
Any insights or reasoning on this would be helpful…
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Thanks ashwini for sharing. Very insightful.
Dharma productions has a very popular youtube channel . is it possible to get a sense of how much revenue they are generating out of it ? whats the CPM/RPM they are getting ?
Shemaroo’s youtube revenue numbers seemed unrealistic to me as i highlighted in my earlier posts . Given the backdrop of Eros fiasco where they were accused of lying or exaggerating about their streaming services revenues and users , this is somewhat concerning and a bit of red flag on this otherwise promising story.
Dharma , given that they have hot and fresh content and get relatively higher number of views should be making much more from youtube than Shemaroo and hopefully with Dharma’s ballpark we can reconcile what shemaroo has been reporting.
On rights , Yes All the big production houses who can afford big stars or have a track record of consistently delivering box office hits have either their own channels ,streaming apps or tied up with amazon.The list of production houses whose rights that shemaroo might find difficult to acquire is getting longer :
Yashraj
Dharma
Eros
Vishesh Films
T-Series
Viacom
Sony
Fox Star
UTV
possibly balaji and excel.
Shemaroo is essentially scrapping the bottom or middle of the bollywood barrel . i think management has also admitted as much as they look beyond top 20 or top 40 movies .Major part of the strategy is buying movies cheap enough from cash strapped independent producers or smaller production houses and even if the movie itself is a dud find some bits or pieces of even the worst of bollywood they can monetise. If one takes their reported new media revenues at face value they seem to be getting good at it.
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In 2015, Red Chillies Entertainments Pvt Ltd partnered with Shemaroo Entertainment to distribute its films library on TV platform. The companies have inked an exclusive deal for a dozen of blockbuster films of Shah Rukh Khan. The list of films includes
Main Hoon Na
Om Shanti Om
Chalte Chalte
Phir Bhi Dil Hai Hindustani
Kabhi Haan Kabhi Naa
Asoka
and few more…
Talking about the deal, Hiren Gada, Director, Shemaroo Entertainment said, “We
are excited to join hands with Red Chillies to distribute its content
on TV platform. This is just the beginning of a synergic relationship
with them and we hope to go a long way ahead. The catalogue that we have
acquired is definitely a value addition to our library as Shah Rukh
Khan is the superstar of the industry and his movies have mass appeal.
Also these films are across different genres and connect with all age
groups.”
The number of subscribers are shown on you tube itself. So how can that be unrealistic?
@sta Subscribers can be faked easy. I am in the internet marketing industry and YT subscribers are very very easy to fake. Even YT views can be inflated with bots. Not saying that Shemaroo is doing either, but telling you that it is possible to do so and infact it is darn easy to do it.
I messed up!!
The events of the last 3 days has left someone like me (who writes only sporadically) dazed.
It is tough to find a value play in current markets. Sharing this perception of a value play was my way of giving back something to the Community. I apologise to the VP Community - that I couldn’t contain my enthusiasm while describing how I perceived the Shemaroo business 2-3 years from here - especially for using 2 superlatives “NO BRAINER” and “HUGE GAP” - no matter whatever facts/figures or connecting…the…dots picture used as justifications.
To give credit where it belongs @manish962 our (eternally vigilant) Moderator immediately warned me (privately) about the superlatives, but I took a day more to edit them out. But by that time the damage was done.The damage is that the Community did not get the chance/time to assimilate, come to informed conclusions, and investigate further as this got broadcasted/hyped at various places (not our doing) and probably many first-time or novice investors may have got pulled in (nature of our markets)!!
There is no gainsaying that the proof of the pudding is of course in the business performance. Sooner than later Mr Market will evaluate how things play out and restore the right balance.
We are all learning here. We can be wrong. I can be completely wrong. I (and most VP TopContributors) have only grown by sharing our learning and perceptions about a business - essentially asking why we should not be excited by this? What can kill this? And taking that quest forward. This episode has taught me in a very hard way - the need to be extremely careful about what to articulate and how, and curb my natural enthusiastic style, while going about that quest. That freedom is no more.
Having said that - Giving back to the Community is a given - that is at the heart of VP, and should be at the core of every TopContributor. We have some ideas on how we can better structure the “giving back” so that we DO NOT have a repeat event of this nature, but are still able to do justice to our quest/goals.
Will announce a couple of initiatives hopefully soon on that. Once again I apologise for slipping up!
Meanwhile good to see folks taking this in the stride and taking the discussion earnestly forward. A request - please do not respond to this post - it will only end up cluttering an otherwise splendid discussion flow. Let’s get back to business.
Cheers
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So, Viacom and Balaji - these two are definetly going out of picture. My connect mentioned these guys will do a firesale sooner or later.
I guess, now we need to start reading Annual Report of competitors to check more data
Most of the thesis centers around two key things:
- The company’s “reported” net profits are growing fast, as per the trend.
- Management says the right things and reports that they aim for a conservative IRR of 18%
The net profits are invested back into buying more rights, whose break-up is unknown. There is lot of opportunity to use black money in this business and we’ve seen abuse by Eros. Therefore it’s super easy to game the net profit figure and show whatever numbers you desire to show.
The reason why this continues to be a small portion of my portfolio is because I’m not able to validate (1) & (2).
Are there reasons why you feel confident about those central building blocks of the thesis?
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Some notes on Viacom18 Media Private Limited (VMPL)
This is a 50:50 JV between
- MTV Asia Ventures (India) Pte Ltd (a Viacom Inc. group company) and
- TV18 Broadcast Ltd. (TV18 - a Network18 group company)
VMPL operates GECs such as – ‘Colors’, ‘Colors HD’, ‘Rishtey’, ‘Comedy Central’ (English), music channels such as –‘MTV’, ‘VH1’ and ‘MTV Indies’ and entertainment channels for kids such as, ‘Sonic’, ‘Nick’ and ‘Nick Jr.’. VMPL also has presence in movie production & distribution business under a division viz Viacom 18 Motion Pictures.
VMPL has an alliance with Paramount Pictures, the leading Hollywood studio, to distribute and market its films in the Indian subcontinent.
VMPL and TV18 are joint venture partners in IndiaCast Media Distribution Pvt Ltd (IndiaCast) to consolidate distribution functions and drive monetization of content for channels of TV18 and VMPL
Attached is the Annual Report of India Cast (throught which Viacom does business)
http://www.network18online.com/reports/Financial%20Results/2015-16/n18-subsidiaries/Indiacast%20Media%20Distribution%20Private%20Limited.pdf
Notice Note No. 16 - Revenue, even they are growing Online Business by 30%+
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This Report by KPMG is one of the best detailed reports available ;
Head to page 132 - Digital MediaArrived
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Hi Ashwini,
Didn’t understand firesale with respect to Balaji? Firesale of what and how?
Asking this as when it comes to film production business then one can just exit it (although Balaji said they don’t have any plans to exit now).
And Balaji itself has big plans for its digital foray for which it had raised funds from Atyant Capital and few other FIIs few months back. Balaji would be launching its own digital OTT platform called ALT digital by Q4 FY17. It also intends to make this business its core business over the long term.
Therefore could you please shed some light on this firesale point.
Couple of links:
http://www.televisionpost.com/television/balaji-telefilms-plans-to-launch-ott-service-in-q4-of-fy17/
Cheers.
@Donald @desaidhwanil Thanks for giving enormous learning to the community. This has been one of complex stocks for me where I could not make up my mind due to two reasons. Would like to know your views(the intent is to find flaws in my own thought process), how you get confidence on these 2 points:
1.Considering the complexity of accounting on revenue and expense side and also historical record of poor accounting in this industry, what gives you confidence in shemaroo? I think Dhwanil jee, you had spoken up to few people in industry. Is it that ground level feedback or there are accounting validation studies you have done which gives you confidence. Personally, I am poor at accounting and hence have stayed away and will stay away till i do not get clarity but want to pick up your brains
- A company playing on 2nd life cycle of content. What stops 1st life cycle content owner to re-own content if the content can generate 18 ROCE? Is it the ability to bundle the content from multiple producers or ability to leverage subscriber base which they have built. Is it a strong entry barrier or business model which can not be disrupted considering the severe fight digital space is going to have with companies fighting for customer mind share by leveraging technology and advance analytics? Does shemaroo has enough management ability to fight this digital war with companies like amazon,star etc.(broadcaster,aggregator everyone in digital industry is internally beefing up their technology and captive analytics stack and workforce).?
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I presume everyone on this board are looking for an Indian version of Disney. Well, Disney’s properties largely cut across age, national, language and cultural boundaries. Mickey Mouse and Donald Duck (no pun intended here!) can be monetized again and again which is not possible with the film library owned by Shemaroo. Movies from the 1950s and 1960s have some traction. Except for a Sholay, which of the movies made in the 1970s and 1980s resonate with the people?
Moreover, Shemaroo only caters to the Hindi-speaking people. Most of the South and East are totally left out so we are only looking at a small target audience.
I am not Bollywood buff, so I am biased against the Hindi movie biz. I am biased against two-wheeler companies also, so passed up Eicher Motors years ago. 
So please take my comments with plenty of salt!
I agree that the business model is slightly difficult to grasp especially from accounting perspective as accounting treatment and its connotations for investors are not as obvious as in some other business models that we know. In terms of comfort, one thing that I look for on the accounting aspects is whether the accounting gives a realistic/conservative picture of economic reality of the business or not. I think in Shemaroo, the accounting policy meets my expectation on that count. Take for example…way they book their cost of buying a title…for limited time period title- they book 90% of the cost in 1st year of the cycle when they monetize…promptly reflecting the economic reality of the business where they would receive the entire amount for 5 years contract from broadcasters in the first year of monetization. Remaining 10% is amortized over 5 years for digital rights- now we know that the digital proportion is much higher than 10% and hence the amortization proportion over 5 years is for lesser value which is a conservative treatment. Similarly, for perpetual titles, they book 100% of the cost in 10 years while the benefit of the same continue to be derived for much longer period. This again I feel is conservative accounting.
In terms of promoter background and integrity, I did talked to few people in the industry and they had good things to say about the promoters, their business practices and integrity. However, that said, we shall always keep in mind that these opinions that we get are subjective and sample size may not be enough too…so take this with pinch of salt. So, I attended AGM and interacted with the management and BoD, all very humble, down to earth and extremely hands on people. Just an example…we as shareholders got coupons for getting tea/coffe- snacks which we had to submit to counter- to my surprise even management carried coupons and exchanged it at counter to get tea/coffee- snacks. This is a very little thing…but such softer aspects do reveal what lies beneath!
On your second question of why the players in first cycle of monetization may not be a competitive threat- I think it is quite a difficult task for traditional media business because you need to have catalogue of 100s of films to offer spread across genres and timeframes. No single production house would have such critical mass to meet this need. Hence, it is very difficult to displace aggregators like Shemaroo. For new media business, I think large production housed with decent library and continuous flow of films may compete them for sure. However for smaller production houses/individual producers is quite difficult because the real gain from digital stream will come if you are able to monetize the same content on multiple and ever increasing platforms. As management explained in one of the the concalls…each platform comes with its own nuances and one has to understand the same to get the optimal returns. This will also involve different post-production work, curation of content, setting up customized systems/backend for various business models to make the front end work (billing, revenue, costing, accounting). Thus, one will need large amount of content to get commensurate remuneration from the monetization through digital medium. We also have to keep in mind that cash flow from selling rights…is important for smaller production houses/individual producers to keep the wheel moving…i,e, invest again in new movie etc.
Hope this helps.
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Hi dhwanil,
Thanks for the immense analysis and knowledge shared on this company.
I had one query where I need some inputs from you… Given their business model … Their inventory of movies are all pre 2010… so is that inventory good enough for the new generation … Would really want your views on this front…
Do the company also have plans to get some new movies in their inventory?
Just saw this on the net.
If this could be extrapolated in the opportunity size.
Regards
Divyansh