Saregama India Ltd Management Discussions.

Covid-19 and Entertainment

As the Pandemic slowly draws to its endgame and we start to see the proverbial light at the end of the tunnel, the mood turns upbeat. This is reflected in bullish trends seen in stock markets worldwide, which are seen as a barometer of optimism in the future.

Saregama is uniquely poised to take advantage of 2 factors at play here - optimism and celebration mean a directional return to pre-pandemic consumption - with the demand for entertainment going up, while the enforced stay-at-home rules have accelerated the rate of adoption of digital entertainment.

As a pure-play content company, Saregama is both recession-proof as well as bounce-back friendly.

Media & Entertainment Industry

According to FICCI, the Indian M&E sector was growing @ 9% till 2019 and expected to reach INR 2.23 Tn by 2023.

All was on track till Covid-19 impact adversely hit parts of the industry, some short-term (advertising dependent businesses) and others medium-term (out-of-home experiences). But it also gave a huge fillip to in-home consumption (Films, Series, Music, Gaming). The gainers have been the digital platforms (Video and Music) who have seen tremendous growth in both first-time users as well as time spent per user.

But amidst all this, the biggest beneficiary has been Content. There is more content getting consumed by more number of people in the post-Covid era than the pre-Covid one.

The digital revolution has been knocking at the door of entertainment industry for some time but is now set to boom. This is courtesy multiple infrastructural and social changes happening across our country. The foremost is the explosion of smartphone ownership which has put a smart TV screen in the hands of 700 Mn people in the country. The next driver is the low cost of data which is taking away the cost barrier from the minds of customers while they are streaming content.

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

The other contributor is the changing family dynamic wherein itRss 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 kind of music.

The digital revolution has other implications on the content economy. On-demand content makes it imperative for creators to use every available trick in the book to ensure the audience stays with them and does not switch to something else. We are seeing a trend of popular music being used to drive narrative and emotion in many of the recently successful shows such as Aarya (Disney+ Hotstar), Delhi Crimes (Netflix) etc. which have used SaregamaRss music extensively.

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, itRss not just the A-lister films, but smaller thematic films and Indian music thatRss getting appreciated.

Great news for Indian content owners/creators as it will ensure higher value for every minute of content owned/ created.

Changing Media Consumption

In a single decade, the way in which we consume media has shifted dramatically. Everyday mobile use has skyrocketed, underscoring the move away from offline media

Over the next decade, over two dozen well-funded video and audio OTT platforms will fight amongst themselves and with the existing 900 TV and 360 radio stations in India for the consumerRss time and money, and the weapon of choice in this war will be Content

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 Music, twenty years of creating hit TV series, proven track record of making high-concept tight-budgeted films 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 Company strength in product development, marketing, investments in data analytics and 30k+ strong retail network, and you get the most unique Content Company in India.

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

IP Content Monetisation

Music Industry has been on an upswing globally, on the back of increased digital revenues

Global recorded music industry revenues 2001-2020 (US$ billions)

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Mirroring the global trend, Indian Music Industry is also growing since 2015 on the back of increased digital revenues, performance rights and synchronization rights. The digital video business has also been growing leaps and bounds, on the back of 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 Gaana, Spotify, Hotstar etc.) and stick (joint anti-piracy initiatives between Govt. and Industry).

The underlying theme of SaregamaRss 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 digitized its entire catalogue of 130,000 songs, but also painstakingly built rich meta data behind it. It also on-boarded its songs on every major music platform in the world. Digital has allowed us to put our music everywhere, unfettered by the constraints of the conventional brick n mortar distribution network. Its 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 around 100B 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. SaregamaRss Music Licensing business has been growing at >20% pa for the last three years.

The continuous growth of digital infrastructure has paved the way for a massive growth in audio streaming. Leading platforms like Gaana and JioSaavn now estimate 150200 Mn monthly active users. With millions of potential customers stuck at home during Covid-19 lockdown, the sampling of these services went up. 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 at 40% over the last three years. The experience of DTH in India and music services in USA, China tells us that as the consumer evolves, they move from the advertising led free service to an ad-free premium paid service.

If the paid subscriber base of music streaming apps in India move from present 2% to 5-6%, the digital revenues can propel the necessary growth to push the Indian music market towards 20% growth. This will result in much bigger revenue opportunity for Saregama, as it contractually also gets a share of subscription revenue from the platforms.

An equally fast-growing revenue segment for Saregama is Music Publishing, wherein 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 etc.

As more and more video content will get created to satisfy the ever-growing demand from customers sitting at home, there will be more and more opportunities for Saregama to sync its music. This is even truer for the digital video platforms like Netflix and Hotstar creating hundreds of hours of premium content.

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

The recent months have seen a lot more players coming in the fray, thus improving SaregamaRss future revenue potential.

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 remain relevant 25 years from now.

The company decided five years back to ramp-up its investment in new music, digital films and serials in a gradual and systematic fashion.

The company has invested in data analytics to take educated decisions while investing in new music, and also, in building processes that ensure "within-budget/ on-time" completion of its movies and series. Also, the company believes that the next big wave of consumption will come from the regional language content, and is investing heavily both in regional music and films & series.

New Music

After a long break the company once again started acquiring new film music of Hindi and Tamil films in 2017. The strategy was to build up the slate over time. With the cost of new music rising, the company has planned its acquisition strategy meticulously in terms of stature of the films, pack-track record of the artistes, quality of the music and optimum pricing.

With very few films getting released last year, Saregama relied primarily on non-film music to grow its market share. It launched mutiple high-profile Hindi & Punjabi songs under the branding RsSaregama OriginalsRs, helping it grow both OTT streams and Youtube views. One of the focus markets this year was Gujarati music, where the company has moved from bottom to top 3 position in just 12 months. The other focus market was Bhojpuri, where company managed to cross 450M views on its Youtube channel in its first year itself.

During this financial year, we added audio & video rights of 162 new film and non-film songs, for global territory and in perpetuity. The monetization of these songs started immediately through music streaming platforms, music video licensing, social media platforms etc.

Films

The last few years have been favorable for the Indian film industry with the growth coming not only from domestic box-office collections but also overseas theatrical releases and escalation in satellite rights values. Indian consumers have also 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 entry of large global digital video players by launching their platforms. To gain a foothold in IndiaRss highly competitive OTT segment, there is a frenzy among the global players to sign content licensing deals with local content makers to expand their content library. They are investing heavily in original film content to meet the audience demands.

To capitalize on this growing video boom, Saregama decided in 2017 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 many innovative strategies to make highly thematic films aimed at the growing digital-first audiences.

The focus is on talent discovery, methodical decisionmaking in story selection, transparent processes and profit-sharing with talent as well as keeping line- production fully in-house to prevent budgetary overruns. The Company ability to get better composers and singers allows it to make music an integral part of the films, while also leveraging the rich catalogue of songs to enhance them.

In the last 42 months, Saregama has licensed 10 of its films to Netflix for the global territory, making it the only non-major studio to do so. Three of these films (Brij Mohan Amar Rahein, Music Teacher and Ashcharyachakit have been taken by Netflix as Originals).

In FY21 Yoodlee delivered 2 movies to Netflix (Axone and Chaman Bahar) and both trended at #1 on the platform. We also delivered 1 movie to Disney Hotstar (Collar Bomb), 1 to Zee5 (Comedy Couple), while our film KD won the prestigious National Film Award

An equally impressive achievement was that each of the 16 films delivered so far has been completed "within- budget and on-time". This has been achieved by taking individual discretion out of script selection and turning the entire production and post-production activity into an assembly line process with benchmarks for costs and timelines set using all the films data, thus ensuring faster releases, greater credibility with partners and lower cost of capital.

Looking at YoodleeRss enviable track record, multiple video platforms have shown keen interest to partner with Yoodlee for digital series.

We believe that all Yoodlee processes can be scaled up easily to produce 12-15 films and digital series a year, with each carrying a combination of new as well as catalogue music, and thus create a strong future-ready company in terms of new IP.

TV Serials

SaregamaRss TV serial vertical has been producing immensely popular shows for 20 years now, with the number one rated show Roja in the highly competitive Tamil broadcasting market.

With over 6k hours of original programming, we have created an impenetrable niche for ourselves in Tamil.

The nature of the contracts with broadcasters allows us to retain the IP of all the shows produced, which further enhance and future-proof our library.

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 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 a Karaoke Carvaan and Carvaan Mini for 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, demands touch-n-feel by the customers before buying it.

With retail networks and e-commerce deliveries shut for many months, Carvaan sales took a beating this year. Company tried to neutralize this negative impact by cutting down on operational and marketing costs.

The emphasis was to rely primarily on customer pull than sales push. Company plans to continue with this approach till lockdowns based uncertainity completely goes away.

However, 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.

In the post Covid-19 era, we believe that elderly and middle-age people will be the most adversely affected in terms of going out of home. Their susceptibility to infection will ensure that most of them will opt to Stay-at- Home to the maximum extent possible. This will result in greater friction between grand-parents, parents and kids for home entertainment devices.

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 can be utilized for building advertising and subscription revenue. It will become a highly trackable and sharply positioned way for brands to engage with Rshigh-disposable incomeRs 35+ yr consumers who are generally not found on traditional media services and platforms.

Conclusion

By using our core strength of a vast and irreplaceable catalogue of music, Saregama is combining a talent for innovation with a deep understanding of the entertainment industry to be a future ready content IP company.

While we are concerned about the impact COVID19 may have on the larger economy, 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

ENVIRONMENT, SOCIAL AND GOVERNANCE

Preface

ESG incorporation has emerged as a tool for businesses to become resilient and remain successful over a long period of time along with promoting sustainable development for all. Saregama being IndiaRss oldest music label, understands the extent of impact its business has on the global community and recognizes its duty to conduct business in a socially responsible manner. Towards this, the principles of ESG incorporation in a businessRss philosophy act as a guide through which an organization can enhance its ability to conduct business with transparency and efficiency.

Environmental, Social, and Governance (ESG) aspects refer to the three central factors in measuring the sustainability and societal impact of a company or business.

ENVIRONMENT

Saregama is committed to minimize its impact on the natural environment and conduct business in an environmentally- responsible manner

SOCIAL

Saregama is committed to building and nurturing relationship with all its stakeholders based on the principles of respect, dignity and creation of positive impact for all

GOVERNANCE

Saregama is committed to instil and always uphold the highest standards of corporate governance to promote ethical, professional and responsible business practices within its operations and sphere of influenceProtection and conservation of environment has been identified as the key focus area by Saregama in terms of the Environment dimension of ESG aspects and sustainable development. The Company has undertaken various offsite initiatives and has also introduced measures for the incorporation of environment-friendly practices in the day-to-day operations.

The Company philosophy of being an environmentally conscious business is evident in its product offerings as well. The packaging material of SaregamaRss flagship product "Carvaan" is made of 100% recyclable and biodegradable paper. The concept of reduce, reuse and recycle is adopted for effective waste management practices such as used plastic water bottles are sent for recycling, bio-degradable alternatives are used for product packaging. Moreover, if any product is damaged during the shipping or delivery cycle then repairing the same is given preference over scrapping. All efforts are taken to minimize waste generation at source and the Company strives to utilize each component till the end of its life cycle, subsequent to which everything is sent for recycling.

At Saregama, under the banner of Yoodlee Films, the Company has a zero plastic on set policy and cutlery used is made from recyclable materials. Preference is given to shooting at locations where the backdrop of the story is based on landscapes found in the Indian states of Jharkhand, New Delhi, Varanasi, Maharashtra,

Himachal Pradesh and Uttarakhand to name a few. This practice enables the Company to minimize the creation and usage of artificial sets which have an adverse impact on environment and the existing sets are modified and reused for multiple movies.

Furthermore, Saregama in association with Mumbai Police released an advertisement featuring the environmental issue of noise pollution. The advertisement depicted a traffic intersection with people waiting for the signal to turn green from red, the decibel levels were being monitored and shown on a screen.

To create awareness about the high decibel levels, the signal wait time was linked to the increasing decibel levels due to honking.

The Company has collaborated with partners to ensure compliance with relevant environmental regulations and norms and to cultivate an environmentally cognizant work environment, has installed energy-efficient computers and all electrical equipment are purchased as per the criteria mentioned in the accepted energy conservation guidelines.

100% Recyclable and bio-degradable packaging materials used

Saregama is an equal opportunity employer and has adopted policies, guidelines and procedures to ensure the same. The Company prohibits discrimination based on race, caste, religion, color, ancestry, marital status, gender, sexual orientation, age, nationality, ethnic origin or disability. The Company respects the culture and beliefs of all its employees. Furthermore, we have a zero- tolerance policy towards harassment, whether sexual, verbal, physical or psychological against any employee.

24% permanent women employees in the total workforce

Saregama believes that in order to effectively serve the stakeholders, the Company employees play an integral role. To create value for our stakeholders who come from diverse backgrounds, we need a diverse workforce where employees feel safe, work in an inclusive and supportive environment. The Company places high emphasis on ensuring pay equity among its employees. Also, it has been working continuously on promoting diversity with 64 women employees out of the total permanent strength of 266, which includes three women in management committee out of total eight members. As on 31st March 2021, nearly 24% of the total workforce represents permanent women employees.

Apart from the Company employees, content creators act as the foundational pillar for Saregama to conduct business and venture into new opportunities. Over the years, the Company has given preference to association with people who are new in the entertainment industry and provided them with a platform to showcase their art. This includes associations with folk artists and people from regional entertainment industry and rural areas of the Indian sub-continent to correlate with the background of the story being produced.

Saregama has recently ventured into motion pictures under the banner Yoodlee Films, a growing film business to create awareness about various social causes.

This segment of offerings is more in tune with the Company endeavors towards promoting new talents while supporting the viewing preferences of younger audiences. As our world is constantly on the move, people prefer accessing content flexibly as per their leisure and availability, viewers are more interested in content, which is relatable and speaks about their regional issues along with some timeless themes that can be enjoyed individually as well as in a group. The Company has determined a process, which is followed during the selection of projects and its cast, that is, the people who will be working on it. It is ensured that each project focuses on a social peril affecting the youth of our country and has a theme around which the story will revolve. The Company takes concerted efforts to release contentthat addresses issues such as bullying, racism, political disruptions, caring for elderly and regionalism.

As of FY 2020-21, 16 movies have been released under the banner of Yoodlee Films. Additionally, during the production, Saregama gave an opportunity to five new directors (one female and four male) with no prior experience, a first-time music director and three new cinematographers. The Company has also scouted and trained two child artists who are recipients of National Awards (Best Child Actor). As the Company shoots films across the different locations of India, it is also associated with various Folk music artists who were approached to sing in their regional languages and to maintain authenticity as per the backdrop of the story many smaller, that is, not very well-known actors and non-actors were employed locally from Kashmir, Tamil Nadu, Maharashtra, Chhattisgarh, Madhya Pradesh and North-eastern States of India to name a few.

Saregama also leverages its music catalogues and the Company has launched products catering to various sects of our society in Hindi, English and Indian regional languages such as Marathi, Malayalam, and Tamil, amongst others for better reach and enhanced customer satisfaction. Towards this, the flagship product "Carvaan" which is a pre-loaded, portable music repository of 5,000 vintage Bollywood songs, is designed to reach out to the elderly as the product has nostalgia as its theme. This theme was chosen with a purpose to connect with the elderly and the music genre is enjoyed by all age groups. Subsequent to the positive response and acceptance amongst the audience, the Company has introduced a variant of Carvaan called as Carvaan Mini, a lighter version designed to reach out to the wider audience owing to its compatible size and a lack of dependency on network requirements. Carvaan Mini has different variations to choose from such as for kids, devotional songs, ancient scriptures like Shrimad Bhagavad Gita, classical music, and Rabindra sangeet, amongst others in various languages.

To further reach out to the elderly in line with the theme of nostalgia, the Company, during the COVID-19 pandemic, initiated a social media campaign, where people were asked to share details of various Old age homes and Saregama distributed 150 pieces of Carvaan as a token of positivity during an uncertain time.

Additionally, in the wake of COVID-19 pandemic, to ensure safety of all the employees and people associated with Saregama, the Company has undertaken measures such as mandatory working from home was introduced during the nationwide lockdown, subsequent to the relaxation of norms, 10% of the employees were working from office depending on the type of work with proper temperature checks while others were provided with facilities to support operating from their homes. Office premises were regularly sanitized and gathering of employees at one place was strictly prohibited. Moreover, hourly reminders were set within the premises to ensure frequent hand sanitization along with intermittent RT- PCR tests for employees visiting or working from office. Furthermore, the COVID-19 Vaccination drive was launched at a PAN India level to cover maximum number of employees and their families.

As the COVID-19 pandemic has been an emotionally difficult time for everyone, Saregama organized virtual activities and meetings such as four mental wellness and stress management sessions along with yoga sessions on a quarterly basis. The employees were also provided with facilities where in 52 E-consultations with various experts such as Dermatologist, Dietician, Mental Wellness, Pediatrician and Physician were conducted. Annual health check-up facility at home was availed by 80% of the workforce during the reporting year.

Governance

Saregama is committed to upholding the highest standards of Corporate Governance as we believe in transparency and integrity as our core values. We have an internal code of conduct, which is referred during the day to day operations of the Company. The code of conduct covers all our employees, independent directors and board of directors.

To further facilitate our governance centric approach, we have invested in compliance management tools such as SAP-ERP for accounting transparency amongst other business practices.

Our Board of Directors are responsible for ensuring excellence in corporate governance practices and all our policies, SOPs, Codes of Conduct are regularly reviewed and updated to meet the requirements of applicable laws and regulations.

Additionally, the Company also has set of Suppliers Guidelines which talks about SaregamaRss expectations with respect to how the suppliers can adhere with applicable laws and regulations, mitigate adverse impacts on the environment, incorporate more efficient measures for conducting business and adopt better governance practices.