Agreed , as of today tips has almost touched 660 levels. Business is solid , fair valuations & a debt free Business.
Thank you for the detailed explanation. So, how does it work for the music industry? You can buy the rights to new music albums or projects. The returns of that music will depend upon the hit ratio and its popularity. However, which song/ tune will become popular in the future is impossible to predict, and therefore, the cash flows generated. Under such uncertainty, how does one calculate the payback ratio?
1 Like
Great question! The music industry is indeed different from traditional investments because of its uncertain and unpredictable cash flows. Calculating the payback period for music projects requires making assumptions and projections based on historical data, industry trends, and the expected performance of the music portfolio.
Hereās how it works in the music industry:
1. Understand the Cash Flows
ā¢ Initial Investment: The cost of acquiring the music rights, which may include upfront payments to artists, marketing, production, and distribution costs.
ā¢ Cash Inflows: Revenue sources include:
ā¢ Streaming royalties (Spotify, YouTube, Apple Music, etc.)
ā¢ Licensing fees for movies, ads, and shows
ā¢ Physical and digital album sales
ā¢ Live performances and merchandise tie-ups (if applicable)
These cash flows are uncertain and depend on how well the music performs over time.
2. Estimating Cash Flows Under Uncertainty
Since itās impossible to predict which song will become a hit, you typically rely on probabilistic models and historical performance data:
ā¢ Portfolio Approach: Spread your investment across multiple songs or albums to diversify the risk. Some may flop, while others may turn into big hits, balancing out the returns.
ā¢ Historical Analysis: Use data on past releases to estimate the average revenue generated by similar songs or albums over a period.
ā¢ Scenario Planning: Build different scenarios like āHit,ā āModerate Success,ā and āFlopā to estimate potential revenue streams.
3. Calculating Payback Period for a Music Investment
ā¢ Cumulative Cash Flows: Add up the cash inflows from streaming, licensing, and other revenue sources year by year.
ā¢ Adjust for Risk and Delays: Account for the fact that music projects often generate most of their revenue in the first few years after release, but hits might see long-term royalties.
Example:
Suppose you invest ā¹1 crore in acquiring music rights, and you project the following revenue:
| Year | Projected Revenue | Cumulative Revenue |
|---|---|---|
| Year 1 | 25,00,000 | 25,00,000 |
| Year 2 | 35,00,000 | 60,00,000 |
| Year 3 | 30,00,000 | 90,00,000 |
| Year 4 | 20,00,000 | 1,10,00,000 |
ā¢ In this case, the payback period is approximately 3.5 years (you recover ā¹1 crore during Year 4).
Challenges in Calculating Payback Period for Music Investments
-
Unpredictable Hit Ratio: Even experienced labels cannot guarantee which song will become a hit.
-
Delayed Revenues: Some songs gain popularity years after release.
-
Streaming Dominance: Streaming royalties are often small per play, requiring massive volumes for meaningful returns.
-
Seasonal Variations: Revenue can depend on festivals, movie releases, or viral trends, adding further uncertainty.
How to Mitigate Risk?
-
Diversify: Invest in multiple songs, genres, or artists to reduce dependency on a single hit.
-
Data Analytics: Use AI and predictive models to analyze trends and audience preferences.
-
Focus on Catalog Music: Acquiring older, proven music catalogs with steady royalties can provide predictable cash flows.
-
Build Long-Term Revenues: Licensing songs to films, ads, and TV shows can provide a stable revenue stream over time.
In conclusion, while calculating a payback period for music investments is challenging due to uncertainty, it involves projecting cash flows based on probabilities, analyzing trends, and diversifying investments to spread risk. The goal is to ensure that the cumulative revenues over time recover the initial investment and generate profits.
4 Likes
Please read this thread to understand how the Music business works - Music Labels - The Most Profitable Internet Business and an Emerging Asset Class
1 Like
Why Tips Music share price is falling? | Tips Music stock analysis ft Akshay Jogani
Explained very nicely here - https://youtu.be/pywOlgt4vZw
1 Like
The juggernaut continues. Another quarter with 30% growth. Looks very attractive after the cool off
1 Like
Tips Music Q3FY25 Results - While the overall economics, business model, and return ratios remain steady & solid, I am disappointed by the 19% Y-o-Y Sales Growth. This was expected to be the largest qtr of the year. For possible reasons, we must study the management commentary in the post-earnings conference call. FII holding is going up.
3 Likes
I was looking at the tips channel views growth on youtube, it is up 70% YOY for the quarter, while revenue is up 20% YOY, if YouTube is even 50% of the revenues ex of warner, then it means the realizations for old music are lower or shorts is driving the major growth and monetization has not yet started? Does anyone have any clarity on the same?
3 Likes
Tips predicted PAT for this year ending march 25 is 165cr (assuming they do 30% bottomline growth as guided by management) on a equity capital of 200cr
The ROE comes out to be a humungous 165/200 = 80%
Paying 50 PE for a businesss with 80% ROE that is growing at 30% every year seems like a pretty good deal.
And the moat of music licensing is so deep that itāll take decades for someone with deep pockets to catch up to them
3 Likes
Tips Industries: A Hidden Gem with Exceptional Potential
Tips Industries stands out as a remarkable stock in the current market, characterized by its free cash flow business model and exceptionally high Return on Equity (ROE). The company consistently delivers 30% growth, sustained free cash flows, and boasts a long-term moat that makes it extremely difficult, if not impossible, to replicate its business model.
A business with such strong fundamentals deserves a valuation reflecting its uniqueness. It wouldnāt be an exaggeration to argue that such a stock merits a Price-to-Earnings (P/E) ratio of 100, considering its sustained growth and cash-generation capabilities.
In contrast, many consumption-based stocks are trading at P/E multiples of 70+, despite exhibiting only 5-10% growth annually. Tips Industries, with its significantly superior growth rate, free cash flow generation, and unique positioning, represents a vastly undervalued opportunity.
Why Tips Industries Deserves a Premium Valuation:
- Unmatched Business Model: Its asset-light model and revenue streams from music licensing ensure consistent cash inflows with minimal incremental costs.
- Long-Term Moat: The music rights industry creates a powerful moat. The existing catalog of evergreen songs ensures recurring revenue from digital streaming, licensing, and new content creation.
- Consistent High Growth: Achieving 30% growth consistently in a competitive industry underscores its operational excellence and market dominance.
- Non-Replicable Nature: The music library owned by Tips Industries cannot be easily replicated, creating a long-lasting competitive edge.
- Cash-Driven Growth: The business is self-sustaining, reinvesting its free cash flows into future growth without reliance on external funding, ensuring long-term stability and shareholder value.
In a market that often overvalues slower-growing consumption stocks with high P/E multiples, Tips Industries offers a compelling mix of high growth, profitability, and irreplaceability. Investors looking for a growth-driven, high-ROE, and moat-based business should consider this stock as a rare opportunity to invest in a business truly built for the long term.
If a consumption stock with low growth can command such high valuations, Tips Industries certainly deserves a premium valuation reflecting its stellar financials and unique business model.
6 Likes
Stock has corrected sharply post results and now at 600 levels. Is it a steal now at 47 PE (30% PAT growth, 70-80% RoE) or am I missing something?
Also, when I compare youtube channels of TIPS vs Saregama, while TIPS have 7.22cr subscribers vs Saregama at 5.21cr, Saregama songs have much higher views (almost 10x of TIPS on average). I know Youtube is a key platform, but not the only one, for music industry. Does Saregama have an edge now over TIPS in terms of future growth given they have highest content acquisition of recent songs? Sorry for this lame question, but would like to understand business driver before entering the stock.
2 Likes
if you see new content of saregama in last 1 or 2 years and their future plans , they are very much invested for growth, but in tips , i see the new content is low also their content acquisition strategy is a bit slower than saregama.
can someone let me know how tips is growing more than saregama in last year when saregama has been acquiring more songs than tips !?
Below are my view(i may be wrong) ,
At 47 PE its steal (but in bull market only or when sentiments are high ), but since we are observing major correction happening in small cap. I wonāt be surprised if it reaches 40 PE or even lower. Since, Itās always relative pricing.
Saregama is from my understanding betting for growth majorly and spending more on both content music+films and not much concerned with pricing(compared to Tips music)
TIPS(only has music as they demerged film business), has more focus on regional music content and more conscious about cost of music acquisition and have better ability to monetize older content.
Depends on what strategy works long term
2 Likes
I think, they are leveraging there older content much better and focused only on music.
Also doing more partnerships for global distribution for expanding reach.
Saregama on other hands is focused on more verticals music +films+ tv+ digital+ live events+ artist management+ apps+ caravan and
Also they are focusing on there own distribution channels as well and doing less partnerships. Upside is, if it works then they can keep more profit shares compared to tips but if not itās a cost and missed opportunity.
3 Likes
actually it is not a missed opportunity as we can tips films this way tips shareowners will not miss the opportunity
Acquiring music should be cautious decision. Every album have an intrinsic value ( sum of all future cash flows discounted at targeted IRR). If one buys an album at higher price than this intrinsic value then he is destroying value to shareholders. In this sense, acquiring music is double edged sword. This is where I like Tips management. They are very cautious in aquiring new music. At the same time new music is very important for maintaining the competitive edge and better negotiations with distributors.
6 Likes
Please go through the thread once, comparison has been done previously
1 Like
I agreeā¦
But being too cautious would lead to business degrowth in future. As listeners will reduce. Same has to be reflected in intrinsic value of business.
You can give 50 PE for such business, if downside protection is guaranteed. Secular growth.
But if we cannot predict cashflow 10 years from now. How do you invest? What value would you assign?
2 Likes
Can someone explain me the recent sony deal with a practical example?
428212c8-085b-4850-8e9f-8010290a5ad4.pdf (1.3 MB)
1 Like
(Courtesy ChatGPT)
Current Situation: Tips Music already has a presence on YouTube, where they upload and share their music videos and other content.
New Announcement: The recent partnership with Sony Music Publishing includes a specific focus on YouTube as a global platform (excluding India).
Key Points of the Announcement:
Enhanced Global Reach: The partnership aims to promote Tips Musicās content more effectively on YouTube outside of India. This means their music will be strategically marketed to a broader international audience.
Better Monetization: With Sony Music Publishingās expertise, Tips Music can optimize their revenue from YouTube through ads, YouTube Premium, and other monetization methods.
Content Management: Sony Music Publishing will help manage Tips Musicās content on YouTube, ensuring better copyright protection and handling of unauthorized use.
Strategic Promotion: The partnership will involve more targeted and strategic promotion of Tips Musicās content on YouTube, potentially leading to higher engagement and viewership.
In essence, while Tips Music is already on YouTube, this partnership with Sony Music Publishing aims to enhance their presence, protection, and profitability on the platform, especially for audiences outside India.
5 Likes