Saregama India Management Discussions


The digitisation trend has amplified in recent years, and Fiscal Year 2023 was no exception. The extended lockdown periods led to a significant shift in consumption patterns, with digital content becoming more entrenched in peoples lives. The consequent surge in advertising and subscription revenues is a testament to this paradigm shift. Given the robust growth of the Indian economy, we foresee an accelerated expansion in the entertainment sector in the forthcoming years.

Saregama experienced a promising fiscal year, marked by an upswing in catalogue music consumption and robust returns on our new content investments. Moreover, FY23 was a pivotal period for the company as we laid the groundwork to elevate our Films & Series business.

We also ventured into new domains, launching operations in Live Music Events and Artiste Management. In line with our commitment to stay ahead in the ever-evolving industry, we continued our strategic investments in emerging technologies.

One of our key differentiators is our preparedness to harness the power of Artificial Intelligence, both predictive and generative. This proactive approach not only ensures our adaptability to the rapidly-changing tech landscape but also solidifies our position as an industry front-runner. With these initiatives, Saregama continues to strengthen its leadership role in the music industry in India.

media & entertainment industry

According to FICCI, Indian M&E sector grew 20% in 2022 to reach Rs. 2.1 Trillion and is further expected to grow

at a CAGR of 10.5% to reach Rs. 2.8 Trillion by 2025.

High smartphone penetration, growing societal comfort with digital consumption, falling piracy, advertising revenues moving from traditional media to digital and steady increase in subscription business are the big growth stimulators for the content economy. Content consumption in terms of views and streams is going up rapidly across all digital verticals including music streaming, video streaming, short format content apps etc, and with advertising and subscription monies trailing it.

Both Digital Advertising, which grew by 30% last year to Rs. 499 Bn, and Subscription are contributing to this revenue growth.

Content streaming is now both accessible as well as affordable, and were still at the tip of this iceberg.

There is still a large growth potential in terms of new customers coming into streaming (only 200 Mn of the 750 Mn smartphone customers are currently using music streaming apps), existing customers streaming more songs, and the revenue model shifting from ad-driven to paid subscription. Globally, ~600 Mn subscribers pay for Music streaming. Even in India, 5 out of 9 music streaming platforms have recently announced plans to fully go behind pay wall. This movement from free to paid subscription will be a big revenue booster for all music IP owners.

The film industry saw a rebound last year, with film releases at 200% of 2021 levels, and gross box office revenues crossing Rs. 100 Bn, for only the 2nd time in Indias history. We are seeing a sharp change in the

audience preferences post-pandemic, with rooted relatable stories as well as massy escapism finding favour as audiences have matured with greater exposure to regional and international films. Star-driven films are being rejected by a demographic that wants something new, which has led to regional films finding that elusive "pan-India" success at a greater rate than ever before. Also, video streamers are all beefing up their regional cinema offerings as they chase subscriber growth in smaller towns. As Bong Joon-Ho, director of South Korean film Parasite said at the Golden Globes in 2020, "Once you overcome the one-inch tall barrier of subtitles, you will be introduced to so many more amazing films."

Another heartening rebound has been seen in Live events, which have grown by 129% in 2022 and expected to grow at a CAGR of 22% over the next 3 years. The oft-quoted wisdom of valuing experiences over material possessions seems to be in vogue, and can be seen by the fact that there is an increase in the share of ticketed event revenues vis-a-vis sponsorships in the live segment.

The other contributor is the changing family dynamic wherein its increasingly acceptable for different members of the family to watch different content on their respective devices at the same time. This means not only are more hours of content being consumed per family, but also the consumed content is more varied, creating space for both traditional and new-age story content creators. The same is true for music too, as every member of the family listens to their own kind of music.

Content creators who are well-funded with strong delivery processes and the backing of an existing IP bank will be well-positioned to take advantage of this opportunity.

The other positive change is the slowly rising popularity of Indian content across global audiences. This is triggered by the easier availability of Indian content across all global digital streaming platforms, and an increasing willingness to watch content with subtitles. Here, its not just the

A-lister films, but smaller thematic films, regional films and Indian music thats getting appreciated.

Great news for Indian content owners/creators as it will ensure higher value for every minute of content owned/ created. Though theoretically speaking, the platforms can create content themselves, but in reality, the sheer volume and quality of content will ensure that most platforms work with high-quality Content Creators.

With its century-old experience in multiple languages Music, over twenty years of creating hit TV series, proven track record of making high-concept tight-budgeted films and in large numbers, existing relationships with leading digital platforms, TV channels and film production studios, across all Indian languages, Saregama is uniquely placed in the Content Creation ecosystem, both in audio and video.

Add to this, the Companys strength in product development, marketing, investments in data analytics and 20k+ strong retail network, and you get the most unique Content Company in India.

Saregama is pinning its growth ambitions on 3 pillars: monetising the existing IP, creating new IP, and the direct-to-consumer retail business.

ip content monetisation

Global Music Industry continues to grow in 2022 on the back of growth in streaming revenue to reach US$ 26.2 Bn.

Mirroring the global trend, Indian Music Industry is also growing since 2015 due to increased digital revenues, performance rights and synchronisation rights. The Indian music segment grew 19% in 2022 to reach Rs. 22 Bn and is further expected to grow at a CAGR of 15% to reach Rs. 33 Bn by 2025. The surge in digital adoption across countries like Nepal, Bangladesh, Pakistan, Sri Lanka, etc. has led to increased uptake of popular international platforms like TikTok, YouTube, Instagram, etc. where Indian music is popularly used. The digital video business has also been growing by leaps and bounds, thanks to higher advertising spends on platforms like YouTube and faster adoption of subscription-driven platforms like Netflix, Disney+ Hotstar etc. Another big trigger is the declining content piracy, which is the result of both carrot (millions of curated songs available free at click-of-a- button on digital platforms like Spotify, Wynk etc.) and stick (joint anti-piracy initiatives between Government and Industry).

The underlying theme of Saregamas journey of the last few years has been to prepare itself to take advantage of the digital explosion happening globally. The Company has not only digitised its catalogue of 150K+ songs, but also painstakingly built rich meta data behind it. The Company has set up a special department for creating derivatives or cover versions of songs in various forms such lofi, trap mix, acoustic, etc. This dedicated effort helps the Company give a fresh life to its older content and increases popularity of catalogue. About 7k+ such songs were released in last year. Digital has allowed us to put our music everywhere, unfettered by the constraints of the conventional brick and mortar distribution network. Catalogue distribution is no longer restricted to India and extends to every corner of the world where there are Indian music fans. The Company also used this time to build a robust data analytics tool with around 100 Bn annual song usage data points. The predictive models built on the back of data analytics help sharpen our ability to pick the right song at the right price from the market.

The result of these initiatives is here for everyone to see: 11 of our songs released in 2022 crossed 100 Mn mark on our official YouTube channels: Music Licensing business has been growing at >20% p.a. for the last five years.

The continuous growth of digital infrastructure has paved the way for a massive growth in audio streaming. This is coming both on account of growing customer base as well as higher usage per customer. Currently, Saregama charges platforms on a per stream basis plus a share of advertising revenues for the advertising-based free service. This revenue has been growing steadily over the last few years. The experience of DTH in India and music services in USA, Europe, China tells us that as the consumer evolves, they move from an advertising-led free service to an ad-free premium paid service.

Also, as the music streaming platforms evolve from driving valuation to profitability, they will start pushing for more paid subscriber base. Platforms have started exploring the subscription-only model. Even if they can convert 10% of their active users to a paid service, the resultant digital revenues can propel the Indian music market towards 20% growth. This will result in a much bigger revenue opportunity for Saregama, as it contractually also gets a share of subscription revenue from the platforms.

Another equally fast-growing revenue segment for Saregama is Music Publishing, where licenses are given for our music usage (including lyrics and tune) to social media platforms, video sharing apps, general entertainment TV channels for reality shows & serials, new films (for background sync & remixes), 5-star hotels and event managers for playing music in public spaces and so on.

With the rising popularity of video streaming in India, platforms like Netflix, Disney+ Hotstar, Amazon, Zee5,

Alt, etc. are aggressively investing in Indian content. Most of these new shows license Saregama-owned music, for the global territory, thus creating a rapidly-growing revenue stream for the Company. The Company has built a browser-based search functionality, using the song metadata, helping content creators find the best song fit for their situation.

Simpler technology is leading to more user generated Content being created and uploaded on platforms like YouTube, Facebook, Instagram Reels, Moj, ShareChat etc. Most of this content ends up using Saregama IP (song, lyrics), thus ensuring a publishing license being taken by these platforms.

ip content creation

While Saregama thrives on its legacy music catalogue, it is fully aware that it has to keep investing in new content in order to continue staying relevant even 25 years from today.

The New IP creation strategy is built on the twin planks of:

• Focus on Regional Content: Along with acquiring music of big Bollywood movies and creating Hindi digital series, Saregama is also focussed on creating content (music and films) in regional Indian languages. This emanates from our belief that the next wave of digital growth in India will come from the smaller cities, which have traditionally exhibited a tendency of leaning towards content in their own languages.

• Profitability: Saregama works on an internal guideline of 5-year payback period for all the music bought in a financial year. In case of films and series, our guideline is 15% margin post charging off the entire cost of the asset in year 1.

To this end, the Company has invested in data analytics in order to take educated decisions while investing in new content, as also in building processes that ensure "within- budget/on-time" completion of its movies and series.

NEW MUSIC

After a long break, the Company once again started acquiring new film music of Hindi and Tamil films in 2017. Since then, the Company has acquired new music content in an aggressive fashion. The strategy of new music acquisition is based on the principles of target payback period of 5 years, diversified languages and selection of content basis current audience taste. The strategy was to build up the slate over time. With the cost of new music rising, the Companys acquisition strategy is meticulously

planned, taking stock of the stature of the films, past- track record of the associated artistes, quality of the music and optimum pricing, among other factors. This has culminated in a strong pipeline of releases in FY24.

The Company also invested heavily in non-film songs to encash on the growing popularity of independent music. It launched multiple high-profile Hindi, Tamil & Punjabi songs under the brand Saregama Originals, helping to grow both OTT streams and YouTube views.

Of the Companys focus markets, it gained no. 1 position in Telugu, Malayalam, Bhojpuri and Gujarati new music markets. It is actively competing in Hindi, Tamil, Bengali, Marathi and Kannada markets. Saregama has also signed deals with one of the biggest artistes in the country,

Arijit Singh, for original non-film songs. It continues to enjoy healthy and mutually beneficial relationships with other prominent artistes such as Khesari Lal Yadav, Diljit Dosanjh, Shreya Ghoshal, Arvind Akela, Pawan Singh, Ammy Virk, Adnan Sami, Baadshah, Rakesh Barot & Kajal Maheriya, Anupam Roy, giving it a competitive edge in the market.

During this financial year, Saregama acquired worldwide audio & video rights of 1,000 plus new film and non-film songs, in perpetuity, with their monetisation kick-starting immediately via music streaming platforms, music video licensing, social media platforms etc.

Performance of the Companys music content:

The Companys music licensing revenue grew by 23%

YOY on the back of strong performance of its new content and a steady growth in catalogue. About 48% of the licensing revenues of FY23 is contributed by 21st century content. This is a very happy position to be in which the new content investments are paying off along with catalogue growth ranging from 9% to 19% across songs of different decades. We are proud to share that 11 songs of the Company released in 2022 featured in the 100 Mn YouTube views club. The success of these songs led to 31% growth in YouTube subscriber base and 54% growth in YouTube views. Success of our music content was also witnessed on the OTT platforms with our songs consistently featuring in the list of chart busters across different languages. We have shared details in the corporate presentation.

Films & Series

The last few years have been favourable for the Indian film industry with the growth coming not only from domestic box-office collections but also overseas theatrical releases. Indian consumers have taken to online video viewing in big way. As per E&Y, the country is expected to become the second largest online video viewing audience globally.

This exponential growth of video consumption over digital media has encouraged the large global digital video players to launch their platforms in India. To gain a foothold in Indias highly competitive OTT segment, a frenzy among the global players to partner with local content makers in order to expand their content library, is being witnessed. They are investing heavily in original content to meet the audiences demands.

Capitalising on this growing video boom, Saregama, in 2017, decided to launch into the promising business of Digital Films under the sub-brand, Yoodlee Films.

Yoodlee is a fully integrated film production studio that uses innovative strategies to make films and web series in Hindi and other Indian languages.

The focus is on talent discovery, methodical decisionmaking in story selection, transparent processes and profit-sharing with talent.

The Companys rich music catalogue, coupled with our ability to partner with the best of local composers and singers, ensures high quality music becomes an integral part of these films and series.

In films, the current strategy is to develop long-tail IP in regional languages. The investments in this are hedged up-front by licensing Satellite and Digital rights of the films to platforms in advance of the films theatrical release. These films are selected basis the story, actor and director after analysing the returns on their earlier projects. In FY23, we released films in Malyalam and Punjabi languages in theatres as well as on digital platforms. Our films such as Oye Makhna, Padavettu and Kaapa garnered a very good response. FY23 saw another milestone as we released 2 web series "Hunter"

and "United Kacche" to great acclaim. Both shows were trending in ORMAXs top 10 most viewed series when they were released.

These series are made only after obtaining a licensing order from a platform which allows us to control risks. Franchise potential with subsequent seasons of a developed show is an enticing model for greater revenues in the future.

tv serials

Saregamas TV serial vertical has been producing immensely popular shows for 21 years now and has over 6k hours of TV content produced for Sun TV. The nature of the contracts with the broadcaster allows us to retain the IP of all the shows produced, which further enhances and future-proofs our library. This content is being increasingly monetised on various digital platforms. Our South TV YouTube channel garnered more than 2 Bn views in FY23.

New TV serials "Iniya" & "Ilakkiya" were launched in Q3, replacing Roja and Chandralekha that completed 2,000 plus episodes. The new shows have received a very good response in terms of TRPs. Iniya has in fact already become No. 3 rated TV Serial in prime time across all Tamil channels.

new initiatives

Saregama is an "artiste first" company.

While we pay homage to the musical virtuosos who shaped our storied past, we hold steadfast faith in future talents set to fortify our standing. This year, weve launched two strategic initiatives, creating a comprehensive platform designed to support singers, songwriters, and composers at every stage of their artistic journey.

Our first venture is a dive into the dynamic world of Live Music Events. Under the banner of "Saregama Live", we debuted with a spectacular world tour by Indias premier live performance star, Diljit Dosanjh. In FY23, the concert

series spanned across diverse cities in India, the US, and Canada, totalling 14 concerts.

Further embellishing our event roster, we ventured into stage adaptations with Bollywoods classic film, Disco Dancer, which premiered to enthusiastic audiences in London. In FY23, we hosted six live shows that received widespread acclaim from spectators and the film and music fraternity alike.

We maintain a steadfast belief that live performances serve as an effective conduit for artistes to interact with existing fans and cultivate new ones. Especially in an era where content creation is rapidly merging with generative AI technologies, live shows provide a meaningful way for artistes and audiences to connect and foster relationships.

As the event producer, Saregama primarily monetises through ticket sales, supplemented by sponsorships and the exploitation of video assets across various digital mediums. With the sizeable Indian diaspora paving the way for further growth, a robust events vertical enables Saregama to attract and retain the countrys premier musical talent.

Our second strategic initiative involved the launch of an Artiste Management vertical, dedicated to identifying, nurturing, and promoting emerging talent, as well as representing established artistes. This vertical synergistically works with our other revenue centers - music, film, and live events - empowering the talent we cultivate to realise their maximum potential and reach. This initiative also allows us to spotlight untapped talent, contributing to the enrichment of the industry as a whole.

In addition to the artist management vertical, Saregama actively provides opportunities for aspiring talents by allowing them to upload their creations on a dedicated channel, "Saregama Open Stage". This platform allows us to acquire content with no upfront costs while offering artistes a share in the revenue generated by streaming their songs.

direct to consumer business

The most talked about product innovation coming from India in the recent times is Saregama Carvaan.

Carvaan is a product borne out of extensive consumer research done by the Company which resulted in the highly successful combination of convenience and nostalgia in a digital audio player.

A series of highly innovative and award-winning marketing campaigns positioned it as the most coveted and talked about gifting and music brand in the country.

The Company has built a robust consumer insight-driven product development team that constantly works on newer concepts and existing product enhancements, many of which were launched this year, including Carvaan Mobile, Music Bar & Carvaan Mini Kids. We have built our own pan-India distribution network across consumer electronic, mobile handset, gifting, car accessories, and e-commerce stores etc. for retailing Carvaan. This is essential because Carvaan being a new product category, favours from a touch-and-feel experience by the customers. All this helped us to sell around 5.6 Lakhs units in FY23, registering a YOY growth of ~40%.

With retail networks and e-commerce deliveries opening up and increasing customer footfall in retail stores, Carvaan sales grew this year. Consistent with its strategy, the Company will continue operating this business with tight cost controls to optimise costs and bottom line.

The genesis of Carvaan was in innovation, and evolution remains the DNA of the product.

Now, the Company plans to extend Carvaan from being just a Product offering preloaded Saregama songs to a Platform supporting 3rd party music and podcasts through streaming.

We believe that Carvaan, the platform offering music and podcasts, can be optimally positioned as the preferred entertainment device for this age group. This will build on the gifting value of the device and also make it more of a personal entertainment device.

As the base of Carvaan grows, the platform will be utilised for building advertising and subscription revenue. It will become a highly trackable and sharply positioned way for brands to engage with high-disposable income 35+ yr consumers who are generally not found on traditional media services and platforms.

Conclusion

Using our greatest strength of an enormous and irreplaceable catalogue of music, we are combining a talent for innovation with a deep understanding of the entertainment industry to become a future-ready content IP company. We, as Saregama, are confident of further strengthening our position as the partner of choice for platform businesses as well as consumers in the days to come.