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Saregama India Ltd
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Ladies and gentlemen, good day, and welcome to the Saregama India Limited Q2 FY '23 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Bhupendra Tiwary from ICICI Securities. Thank you. And over to you, sir.
Thank you, Seema. On behalf of ICICI Securities, we welcome you to Q2 FY '23 results conference call of Saregama India Limited. From the management, we have: Mr. Vikram Mehra, who's MD; Mr. Pankaj Chaturvedi, who's the CFO; Mr. BL Chandak, Executive Director; Mr. Saket Shah, Head, Investor Relations; and Mr. Pankaj Kedia, Vice President, Investor Relations.
We'll start with the opening comment by Vikram, post which we'll take the Q&A. So over to you, Vikram.
Thank you, and good evening, everyone. Quarter 2 of the financial year saw our operating revenue of INR 189 crores and a PAT of INR 46 crores, which basically means 30% year-on-year increase in income and 36% year-on-year increase on PAT side. If I look at the data at a half-yearly basis, then both revenue and PAT have grown by 43% on a year-on-year basis. Remember, this is a continuation with our last year's growth number of 31% in operating revenues and 35% in PAT. And this is something I've been saying quarter after quarter, year after year, that the growth story that we are on, is there to stay, and there are reasons for it.
The entire -- in our country right now, the growth in the digital consumption which is happening, both on account of new customers coming in and for the first time consuming audio or video or digital media, and then the existing customers post-COVID consuming that much more of content -- these days it's almost impossible to find a person of any socioeconomic strata -- actually, if he or she is free even for 15 minutes, you will find it difficult to see those people not picking up their phone and watching something or hearing something. That's a reason why the digital consumption is going up in a substantial manner.
And with that in mind, I think Saregama's growth story is going to remain pretty stable in the medium to long-term. I'm not even saying short to medium, that's given. Even on a medium to long-term basis, the next 15, 20 years when you look at it, I think it's going to be India's growth story, and digital is what's going to be driving it, and we sit at the center of it being a core IP company. Technologies may come, technologies may go, platforms may come, platforms may go, but the companies which hold a large chunk of valuable IP will always remain pretty profitable, both from the top line and the bottom line perspective.
The other advantage that we as a company have now is that, we are not overdependent on any one revenue stream. There was a time 8 to 9 years ago where our entire revenue used to be dependent on just telecom and music, and that also only telecom. We have come a long way from there, that we are not dependent -- we are making a decent amount of money, whether it's from music streaming apps or from video streaming apps or short format apps, television channels, films, TV series, digital series, live events. So even if there is a downturn happening on any one area, the other pillars still hold us pretty steady. That's why we are very, very bullish both on a stable nature of our revenue as well as bottom line. Our operating income before content charge, interest and depreciation was INR 69.9 crores this quarter, which grew by 31% compared to the last year.
The biggest highlight for the quarter was our music business, which showed its highest quarterly revenue ever at INR 150.9 crores, and this is going to see growth both on the music licensing side as well as our retail business, which is primarily Carvaan.
Let me start with music licensing, our core business, which, again, in this quarter, has grown at a rate over 20%. It was the beginning of a big quarter for us because some of the regional language films that we had acquired have started coming out, and Q2 saw some of these films, whether it was Chiranjeevi and Salman Khan starrer Telugu film, Godfather, or Punjabi superstar, Diljit Dosanjh film, Babe Bhangra Paunde Ne, or a Hindi Balki film, Chup, or Dhanush Tamil film, Naane Varuvean, or Kalyan Raman's Telugu film, Bimbisara, or Malayalam superstar's Manju Warrier Film, Ayisha, and again Hindi film, Anurag Kashyap's Dobaaraa, and many more. In our presentation, we have shared a list of some of our high-profile films that we released.
Our strategy remains that we will not concentrate only in Hindi, but will have -- take leadership position across all the major Indian languages. We also released many originals and recreations both in Hindi language and some of the other languages, including a new song from Adnan Sami in Hindi. This is a very big quarter for our Bhojpuri music where the Bhojpuri #1 star, Pawan Singh, releases very, very big album song for us called Lal Ghaghra. This, in fact, is the fastest Bhojpuri song to reach 50 million number on YouTube.
We are an equally big hit right now coming from the other very big star of Bhojpuri, called Khesari Lal Yadav, called Bondhu Teen Din, and this also was reaching out there in the top trending songs of the country. Punjabi super successful song from a artist called Satinder Sartaj, while Bengali had song from Anupam Roys and the Usha Uthups of the world. I am taking only a select few names. These are all high-profile songs. They did extremely well right now during the quarter for us.
We also recently announced a strategic long-term tie up with Arijit Singh, both for creating original songs as well as the recreations across multiple languages.
Our strategy of investing in new content is clearly paying off. It is giving us a greater leverage with all our partners, because we are no longer the biggest catalog company now, we are also taking leadership position in new music, and we define new music as anything which is less than 18 months old. Anything beyond that actually starts moving towards catalog. With more and more of our songs coming out, the song selection done basis data analytics, which allows us to get the higher quality songs at hopefully better prices, which allows me to maintain the ROI position as well as allow us to get to the market leadership position across languages, whether it's Bhojpuri or it's Gujarati or it's Malayalam or Telugu or, hopefully, very soon, Tamil and Hindi too.
We have raised -- many of you people have asked us about our INR 750 crore that we had raised through QIP last year. That money was used while we picked up the -- apart from the issue expenses, only for Mango Music catalog, and that money is kept secure, primarily looking at inorganic purchases. Right now, our internal accruals are more than enough to take care of all the organic purchases that we people are doing. This money is invested in high-quality debt funds and fixed deposits, so it's safe and secured. And as committed to you, this money will be used only and only for music business of ours.
Our reliance on data mining and using predictive models and reducing our dependence on individual -- or centralized individuals, who in other corporates may end up taking decisions across music. In a company like ours which is investing now in multiple languages, that kind of system does not work. So we rely far more on data analytics and a decentralized decision-taking process, helping us now get -- move much swifter, much faster than anybody else, and reducing the dependence on an individual base [indiscernible] call.
Many of the films whose music we have acquired, will start getting relief from the quarter 4 of this year, and may go to Q1, Q2 of the next financial year. Some of the big films maybe Karan Johar's next directorial film, Rocky Rani Ki Prem Kahani. There's another Dharma Production film called Rola. There's a Vicky Kaushal-Sarah Ali movie called Zara Hatke Zara Bachke. There's Vijay Deverakonda and Samantha's Telugu film called Kushi. There's Prithviraj Sukumaran, the Malayalam Superstar, his next film Kaapa, or the big star from Punjabi, Ammy Virk's next film, Oye Makhana. There are lots of these films that are coming out with [indiscernible] and sitting there with us. And the regional language slate has already started coming out. Hindi hopefully should be out from Q4 onwards. We will continue investing in all the Indian languages and take leadership position across all.
This quarter saw an upswing in the Carvaan numbers. We touched 156,000 sale compared to 103,000 sale in the same quarter last year. And all the sale is coming courtesy customer pull. That's the power of the brand Carvaan that's still there in the market. The latest variant of Carvaan was Carvaan Mobile. This is the product that we had launched to get a lower price point for Carvaan. It actually replaced one of our existing similar product called Carvaan Go, which is now being phased out and is being replaced by Carvaan Mobile. In the smaller towns, it is allowing us to get a Carvaan at INR 2,000 and INR 2,500 price point, which is lower than the price point of Carvaan Mini also.
Two, please keep in mind, while the increase in the revenue -- the increase in the number of units sold is 50% odd compared to last year, that revenue increase was not that much because you have to sell 2.5 Carvaan Mobiles to become equivalent to literally close to 1 Carvaan. So the average realization per unit sold has come down, but the overall revenue still has grown out there in a handsome fashion, though not as high as 50%. We have not been promoting or spending any marketing monies right now on above the line for Carvaan, and the strategy will continue even in Q3.
The interesting part is, we have been stating all throughout that Carvaan helps a lot to become the marketing tool for retro catalog of ours among the younger age segment. We knew empirically right now that this is happening. All our research were telling us is this. We recently also carried out an exercise to find out the growth of the songs which have been retro songs. Growth in terms of numbers on both streaming platforms and YouTube, growth of those songs which have been put in Carvaan versus those which have not been put. And we are seeing the songs which have been put out there in the Carvaan devices seem to be growing at a faster pace than some of the songs we had decided not to put there in Carvaan, which is -- now actual data is coming out and telling us that Carvaan is working out as a great marketing tool to help a music licensing business also.
This was a slow quarter for Yoodlee with no significant releases happening here, which is expected. Most of our releases, as stated in my last call, also will be Q3, Q4. Our TV serials on Sun TV continue doing pretty well in terms of TRPs. We launched a new Tamil TV serial called Ilakkiya. This is the one which replaces one of our existing serials called Chandralekha, which had actually completed 2,300 episodes on Sun TV, a program that we are extremely proud of, our partnership with Sun TV that we're very proud of. We hope right now that the newer serial that's come in, will continue following the same successful path that Chandralekha had. It has opened to very decent TRPs, and we hope they will continue.
We launched our new business vertical called Live Music and Events during the quarter 1, wherein we had done concerts of Diljit Dosanjh in Canada and India. We continued with that in quarter 2 with 6 concerts of Diljit Dosanjh in U.S. Both in Canada and U.S., the concerts got more number of tickets sold than any of the other contemporary artists have ever done in the recent times. We are very happy and proud of the way we have been able to pull off the live events business. It is a very, very low-margin business, and we are aware of it. We still believe it's an essential business for us to protect a music licensing business because this gives us great opportunities to build relationships with our artists and promote the songs that we may be working with that artist on.
Overall, a successful quarter 2. But for us, when we look at it, we just see it as just another step in the journey that we people started a few years back, where quarter after quarter after quarter we are solidifying our position both in revenue, on profitability side, on all the verticals of ours.
That will be all from my side. Happy to take questions, please.
[Operator Instructions] We take the first question from the line of Savi Jain from 2Point2 Capital.
Yes. I just wanted to ask you about how YouTube is trending. Because they came out with their results, and they saw a decline in ad revenues in a long time. So is that visible for us also? Is there some growth there or some slowdown?
Where did you see degrowth in Saregama numbers? Sorry, you've lost me here.
[
No, not in Saregama numbers, but specifically YouTube, year ago.
No. So again, remember, the numbers for YouTube globally in India are very, very different. Nowhere else in the world right now are these -- the corporate results as good as we people are showing in India, and which is resulting into YouTube numbers still being very, very steady, as we people go forward in our country. So actually, there is no -- and we have gone out there and shared our overall YouTube [ views ] numbers also. There is no degrowth that we are seeing here in our country. So I don't know where have you got this impression.
[
I'm not saying degrowth, maybe a slowdown in growth, is that visible?
Still going out -- showing you the revenue numbers, they're coming from somewhere. And the biggest revenue contributor for all our labels are music streaming audio and music streaming video, which primarily means that the music OTT apps, YouTube and the Metas of the world. So we are seeing a pretty healthy number. Yes, was July a little bit of a pressure overall? It was. But I think there have been very smart recoveries that have been made.
[
And on the views, I see that there's a significant increase year-on-year. Is this more user-generated content, or is that what is driving some -- lot of this growth?
No. Remember, for us, that actually doesn't matter whether user-generated content or our own channel content, because we get paid almost equal amount of money. So they are independent of that because -- when you say user-generated content, remember, there's a lot of people who will take a -- or Gangubai song, original Alia Bhatt song and upload it on their channel. So that is also user-generated content only because it's not uploaded on my channel. So for us, it really doesn't matter whether it's coming from my channel or somebody else's channel. So first, let me get that clarity out.
Specific to your question, for Saregama, we are seeing over the last 4 quarters, our channel numbers are -- our own channel numbers are growing at a much faster pace than the user-generated content. And if you study my YouTube, all the channels combined, we have multiple channels here in the YouTube space for -- almost for every language, there's a channel sitting in. If you see my views, and they're all in public domain, you can find it out, we are growing -- our views on official channels are growing faster than any other label. And for the simple reason -- it's not that there's anything magic happening. We are investing much more on newer content than anybody else's.
[
Did we see a negative impact of the -- there was a period when there was no deal with META for some time. Did that have a negative impact in the quarter?
Sir, I cannot go back and comment on individual deals. The final number for the quarter are there in front of you. And I'm very sure you'll be proud of the numbers that we people have written both on the top line and bottom line.
[
Yes, of course. Just wanted to know if the numbers would have been even better if that deal was there for the full quarter. Also, that YouTube Shorts deal, that is not there in this quarter, right?
No, sir, YouTube Shorts deal was done as part of this quarter. They are also there.
We take the next question from the line of Aditya Nahar from Alpana Enterprises.
Just on this Reels and META and YouTube sort of deal, I don't want to know the specifics, but were they at better terms than we had earlier? Was the deal…
You are asking me -- you have to read in between the lines. I cannot comment on specific deals. But yes, if we are showing growth coming in on a substantial fashion, it happens because the deals become better. And deals are becoming better not just because we are some special people. It's as simple as that, the quality of content we are bringing to the table, especially the newer content. It's the strength of that content.
So you're saying, is -- because of the trend of content, you're in a better position to negotiate?
Yes.
With larger players now. Correct?
It's the leadership position -- See, we always were the kings of catalog. Right? We are the largest catalog in this country, but we had a weak position in newer content, and I've always accepted and acknowledged that till, what, 18 months ago. So we built our position on catalog, and now we are building our position in a very aggressive fashion on new content. And when we say we are getting leadership position on #1 or #2 with all multiple languages, that is helping our negotiation position.
My second question is on Open stage. How is the response and if you can just talk about that? Or is it too soon?
It is too soon, and it's one of the multiple specific initiatives we people carry out. So all this is a way to go back and make more money from catalog. Open Stage is nothing but people coming out there and contributing their derivative remixes, Lo-Fis, trap mixes, recreation, cover versions of our catalog music. So whether it's Carvaan which is helping us promote it, whether it's playlisting which is helping us promote it, whether it's going to outside people and saying, why don't they send their own versions, all that is working towards promoting catalog. So you see the final impact of that right now on the growth numbers.
I just want to say congratulations on getting the Arijit deal. I'm sure it's a great deal for the future as well. And my last question is for actually Pankaj, if possible, Vikram. Any update, Pankaj sir, on the timeline of the demerger, et cetera? If you could give us an indicative timeline?
Yes, sure. So in this quarter, we got the approvals from the stock exchanges, SEBI. Post that we have filed our application with the CLT Kolkata. It does take normally 4 to 5 months, this whole process. It moves through various stages. We are hopeful and we are pushing for getting the final order and the demerger complete by March '23. So that's going to be our endeavor.
We take the next question from the line of Mr. Swapnil Potdukhe from JMFS.
So just wondered -- there are 2 or 3 questions. The first one is a clarification actually. So you mentioned that some of the big budget content will be released in 4Q or early next year. So will that, by any chance, mean that we are revising down our CapEx guidance for FY '23?
No, we are not. We maintain 22% to 25% growth in music business -- music licensing business.
And with respect to the investments guidance, which would be -- which was around INR 220 crore to INR 230 crore broadly, will there be lower investment there for this particular fiscal year?
At this juncture, we are not changing any of our guidance. So what we need to do, even if some of our Hindi movies got delayed by a quarter -- like Rocky Rani Ki Prem Kahani, our biggest movie was supposed to release in February, but because of the -- one of the lead -- the lead actress for the film is going through her pregnancy at this moment, so the movie had to get delayed. Now that gap has to be plugged in by other content, which we are plugging in.
Secondly, when I look at your P&L, some of the cost items such as employee expenses, royalty expenses and other expenses, they seem to have grown at 20% quarter-on-quarter. Now my earlier sense was that, your top line is -- it grows around 20% to 25% because -- may not grow at the same rate., and there will be some operating leverage play there which would support our margin improvement, which for some reason has not happened. So any particular reason you will follow?
Sir, which cost lines are you talking about?
Employee expenses, royalty expenses and other expenses.
Sir, employee expenses -- you're talking about quarter 2, right?
Yes, quarter 2.
So quarter 2 -- compared to every other quarter, our appraisal system happens in quarter 2, and all bonuses of the employees get given in quarter 2. So quarter 2 always, for many years -- you can go back and check it out -- will have the highest employee expenses because bonus expenses get booked at that time. On a -- if I look at -- on annual basis, the expenses that we people are talking about right now, the employee expenses, we are actually over time and been able to bring it down.
In fact, Swapnil, just to add, our employee expenses is a percentage to revenue because that is one of the parameters that even we watch very closely. They have come down to about 11% as compared to more than 13% in the same quarter last year. So absolute expense, yes, they will grow as the business grows, but we are watching our margins very closely, and we have been able to improve cost as a percentage to revenue on this line.
And any particular reason for royalty and other expenses?
The royalty expenses are directly linked to revenue because royalty expenses -- the money that you end up paying for the older content that we are taking, which is 60s and 70s and 80s content which are all royalty expenses. So the more revenue we make, as a percentage that number doesn't change that much. But the movie we make, the higher the expense will be, they are in the range typically between 10% to 15%.
And what about other expenses? Sorry?
That -- it's a purely variable expense, sir. If we make revenue, we pay royalties, otherwise there is no royalty.
No. I'm asking about other expenses which have grown to INR 23.5 crores versus INR 19.7 crores last -- 1q quarter. And last year same time, it was INR 14.5 crores.
Let these guys comment right now.
So as a percentage to revenue, Swapnil, it is not growth. We still -- clarify the same to you. Just give us a moment. You're talking the last line, other expenses?
Yes.
Yes. So these are some of the expenses -- as we have grown our volumes on Carvaan, there are some expenses which are incurred upfront on the logistics side. So that is contributing to the increase in other expense. But even if you look at -- on a Q-o-Q basis, it's around 12% to 13%, which is in line with our top line growth.
See, Swapnil, let me put it -- this is, philosophically, for a couple of years, you will see expenses moving at a similar pace of revenue. Once we pass that hump in a step function basis, then you will see that the growth in our expenses will slow down compared to the growth in the revenue side. But initially, to get the engine moving from stationary to the first and the second gear, requests some amount of fuel consumption. Just the content. That engine was not there. But -- so hence, you will see expenses and revenue moving in a similar direction. You will -- over time, right now, you will end up having -- getting advantage on the margin side. And I'm not saying long run, I'm talking about short to medium run.
And just sir last question from my side. I would like to understand your events business. How big is it right now? What are your plans for the business over the next 1 or 2 years? And are we burning any cash right now? In the near term, we will end up spending some amount on that?
No. Let me put it this way. The individual events right now is combined with the films and television, so I can't give you events individual numbers. But events as a concept is a low-margin business. I've stated in the past also that once the business gets stable, it will be a 5% to 10% margin business. It's an essential business to manage my music business. If I'm in the newer content game right now, to differentiate myself vis-a-vis other guys, and to build relationships with the artists, being in this business is very advantageous part. But we are, and we will not be burning cash.
We take the next question from the line of [ Mr. Nikhil Moriani from Valiant Investments ].
Vikram, I just wanted a confirmation from what you told the earlier speaker. The event revenue is not part of the music licensing revenue. Right?
No, sir. It's -- part of this juncture we're combining with the films and TV business.
And one more thing. Would it be possible for you to give us a breakup between revenue from catalog and new music?
No, sir. That becomes -- this is very confidential information.
No, sir. Maybe not for this quarter or for the current financial year, maybe for the last financial year or previous financial years?
Sir, I think the closest we can get to you -- give an answer to you, if you look at my last corporate presentation, it very clearly shows how much revenue do we make from which decade of music. And you will see -- if you see the same presentation 2 years ago, majority of our revenue was coming from 20th century music. Now over -- as of last year, 40% of my revenue was coming from 21st century music. And then 21st century, majority of the investment is the last 3, 4 years only. That will give you a perspective.
No, because as investors, we want to track how are we doing on getting our paybacks. So this number will be really helpful.
Sir, that is an extremely confidential and competitive -- sensitive information. Because if you -- if I'd give you that -- all the information is out. Then, cost anyway one has an idea. You have a revenue also sitting in, and when I go out there and do my negotiations with the outside people, what am I left with.
We take the next question from the line of [ Mr. Priyankar Sarkar from Famy Ananta Capital ].
Vikram, just want to understand the YouTube Shorts business. Obviously, it must be going at a phenomenal pace. But what I wanted to understand is that, is there a minimum number of seconds that it has to play for us to get the revenue share?
Sir, on YouTube Shorts?
Yes, please.
Sir, I can't [indiscernible] globally is -- they pay a fixed fee. It's not a variable model yet. None of these guys have been able to crack a variable model yet. I expect that to happen in the next couple of years. At this juncture, they work on a payment model, which, as a company, some are renegotiate literally with [indiscernible] every year. On -- YouTube is a variable model, which is a more evolved model now. On YouTube, we -- every time an ad gets presented, whether it's at the beginning of the song or it's an overlay that comes on the song, middle of the song, if there is an ad that is presented [indiscernible] at 55%.
And Vikram, the second question I wanted to ask is about this cash balance. So while you said that it's about [ INR 931 crores ] of cash, and it's been a year since you raised the capital, so is there like [ more ] deals as such available over the last 12 months that we could acquire new catalogs, or how is that -- it's been a year, right? So just wondering on that front, please?
Sir, that's -- at the end of the day, we are confidently debating between picking up and doing a utilization of that capital which is lying there with us, and also getting our catalogs at a multiple that starts making logical sense. Some of the cases we reached a position right now, but we could not close that deal because we didn't find the valuation to the right quality. On some of the cases we didn't like the paperwork which was behind that -- the catalog owner. So we are in conversations, but the reality of -- is, at this moment, we only have one deal. I'll be honest with you. We are -- just because we've collected money, we don't want to go out there and blow the cash by buying catalogs at [indiscernible] now. We want it to come at a multiple that makes logical sense.
We take the next question from the line of [ Nitin Sharma from MC Pru Research ].
A couple of questions, if I may. First of all, can you help us understand what caused the surge in the other current liabilities this quarter? I think it's up INR 100 crores or so.
Yes. So these are -- our discussions that happened on all the licensing deals, we do get revenue in advance on the licensing deals. However, our accounting happens on an accrual basis spread over the deal period. So it is purely of that nature It is not a liability in a sense wherein it needs to be repaid. These are all income received in advances.
Secondly, is it a right assessment that if I -- let's just say, your Carvaan sales are on an average, if I pick, 4K for this quarter. It seems that prices have gone up recently. It is contributing around 30% to 35% of the revenue. Correct me if I'm wrong here?
Can -- we can give the breakup of the music licensing and Carvaan business on an annual basis. So at the end of Q4, we will share the numbers once again.
So I'm arriving at a pure music licensing, mean it has seen some bit of slowdown sequentially?
Sir, I'm telling you going on record emphatically, saying it has not.
And lastly, one question just to understand. You mentioned on the previous question that there were some Carvaan logistic related costs. So has it also affected the segment margin for the music business? It has come down [ specifically ].
Sir, the -- when you're saying it has come down, you're talking on a percentage basis?
Around 3 percentage points in the segment margin.
Because the Carvaan business is a breakeven business even now for us. Very, very -- in this quarter, very low margin business, but typically fluctuates between a breakeven to a low margin business. So if you look at an adequate level, the percentages will always look down if the Carvaan umbers start shaping up. Again I'm telling you this, and you will see the numbers when they come out in Q4 and we release the numbers, that the music growth numbers are not slowing down. In fact, they are steady. That's why I'm ready to maintain a projection of 22% to 25% growth annual basis. I'm not changing that numbers out. Neither is the -- our pitch going out there and making any change in our projections on the margin side.
We take the next question from the line of Mr. Ankush Agrawal from Surge Capital.
Vikram, firstly I want to understand like in terms of, say -- if you are spending, say, INR 100 on new content, what would be the broad range of amount that will be going towards royalty-based deal versus the fixed deal, a broad range [ would be fine ].
That breakup I can't give you at this moment. What I can tell you is that if there's a INR 100 deal, on an average, 80 bucks go towards content and 20 bucks go to [ artist ].
That is understandable. What I'm trying to say is, sir, if you're spending INR 100, say probably half of the new deals that you're making out are fixed deals and half of the new deals that you're making are royalty-based deals?
So the moment -- telling you how much am I spending on Hindi films and how much I am spending on others, I can't give that breakup, sir, unfortunately. Because the only thing where you're looking at royalty-based deal is Hindi films.
Rest everything you're saying is fixed deals.
Yes.
Again, on this royalty level, so like you have mentioned that earlier -- that the older content is 10% to 15% kind of royalty. So would it be possible to share what be the higher range of the new deals? Because you've have already mentioned that the new deals have a higher level of royalty versus the 10% to 15%. So on the upper side like -- it's like 40%, 50%, some kind of level that you can highlight?
Sir, I -- our focus on all times is to be on Hindi films side, royalty that we people have to -- If I give you the highest possible number, everybody is going to come to me and start telling me to give that percentage to them also. I can't share this information. But what I'm telling you is that, we believe, in an aggregate basis, when we look at catalog and newer music, this number should not change that substantially because a lot of our music is going to be not paying royalty because it's a fixed fee. Somewhere we are paying royalty. So the -- overall is -- the business level between catalogs, Hindi film new music, non-Hindi film new music overall, it still will remain in this 10% to 15% as we go forward.
But this 10% to 15% is including the revenue from the fixed fee -- the denominator is the full...
I understand, it doesn't answer your question directly, but it's sensitive information. So once a film producer knows what is my higher rate, they all want…
No, I can understand. The explanation that you give make sense. Another thing Vikram over here, so if I look at your presentation on the content chart, you mentioned that we don't include the royalty which is paid after the minimum upfront amount is recouped. So I was wondering why don't we include the subsequent royalty into that because in the end it's the content cost. So if you're breaking this up, that -- the content charge that you're showing only includes the royalty upfront amount and not the royalty rate that you are paying after the recoupment of advance. It doesn't give a good understanding of what is the actual content, sir. Because -- now it's fine because we don't have a lot of royalty, but I think given the kind of content that you're requiring, a couple of years down the line, the royalty component, that would be hitting the other expense and not the content charge would be substantial.
Do understand how the deals are. Like for a Hindi film, the deal maybe that we will pay them INR X crore upfront, thus INR Y crore of marketing, and the music becomes ours. We then start coping this X plus Y. On top of that, typically, there is a hurdle rate which is put. Once we have recovered X plus Y plus a hurdle rate, then we start paying royalties to them. So royalty part right now then -- and will start hitting your royalty expenses part. For all the movies where we people have fully recouped the initial money that we had paid and the marketing and the hurdle rate, those expenses are going into royalty expenses.
Yes. That is understandable. What I was suggesting is that, in the end it is a cost attached to a content, right? So if we include that in the content charge, it would give a better understanding. That was just a suggestion, but either way. Lastly, Vikram, one thing I wanted to understand. So if I look at a quarterly royalty number, it's about INR 15-odd crores, right? And if I calculate based on what you have mentioned that the royalty expense is somewhere around 15-odd percent.
So that comes around INR 100 crores of revenue, right, which is broadly the entire cost we have on our -- the entire revenue that we have on the license side broadly. So the thing is not adding up, because if you say the older content is 10% to 15% kind of royalty, and if I assume that is sort of major part of royalty expense, and if I calculate, that would be indicating that entire revenue on the licensing front is coming through that kind of music, right, which has a royalty attached to it. So not sure like I've put it on the right sense, but it's not adding up the number.
So I'll just take this question. Probably the way you are calculating has too much of approximation, the number of music licensing revenue that probably you are calculating. So that number has a mix of many parameters. As Vikram explained, the royalty expenses that we account for -- under the head royalty, they start kicking in after we've recouped the initial amount paid plus the hurdle rate, et cetera. And there are royalty-based deals in Hindi, but the other languages don't have these kinds of deals. So there are too many variables in it.
[Foreign Language] Carvaan also has a royalty expense. Keep that in mind. That's a big assumption because [Foreign Language] sitting and I have to pay royalties there.
We take the next question from the line of [ Mr. Varun Arora from SaFe Enterprise ].
Vikram, my question is regarding OIBCID margins. At the beginning of the year, you had indicated 33% margins. If I look at last 2 quarters, we've been doing 38%, 37%. So just wanted to check, I mean, are we sticking to that? And what's the reason for that lower guidance? What will be the moving parts which will kind of drive this margin?
Sir, right now, I'll still stick to a 32% to 33% OIBCID margin number. I know in the last 2 quarters we have done better than that, but for this year, I continue with that number. Let's have this chat in the end of quarter 4, sir.
And what will be the moving parts here, Vikram? I mean, the reason you want to stick to this guidance? Is it because of...
Because I have a much better control right now going and sitting in, on the music licensing part. But the moment you are looking at the events business, which at this juncture being in the first 6 months, it's going to be a very, very low margin business. And if I suddenly end up having a large event coming in of INR 20 crores, INR30 crores, INR 40 crores, that, if it has to come down to 2%, 3%, 4% margin, certainly changes my entire mix. That's the reason I – had it been only music business, I wouldn't have had this issue, I would have given you higher projections. So because the events business is a relatively newer and uncertain business on which we don't have full control.
Second, the films business is growing in a very, very aggressive fashion. A lot depends -- film business is a 15% to 20% margin business. I don't know exactly what all releases will finally happen in Q3 and Q4. So I will continue maintaining a 32% to 33% path. It's just a mix game and nothing else.
Second question is, Vikram, regarding the content acquisition costs. Now I understand like during the pandemic, there was no content which was coming out. But now I mean, the last few quarters, I mean, would you say that -- I mean we can kind of look at last few quarters, our number has the place on which our content acquisition cost should kind of come going forward since, I mean the past few quarters are more normalized quarters in terms of content coming out.
Sorry, sir, I'm not clear about your question. So are you saying that our content [ will ] go up?
No. So I mean during the pandemic, there were no movies which were coming out. So naturally, you were not acquiring new content. Right? But last few quarters, we've seen like movies are coming out. You are acquiring content. So I'm saying the base that we have seen in last 2 quarters, the content acquisition cost that we've seen in the last 2 quarters, now would you say that it's reached like the normalized levels? Obviously, they're much higher compared to last year levels. But numbers that we are seeing in Q2 and Q1, that's the more normalized content acquisition cost that we should see going forward?
No, sir, it will go up because the bigger films, which are the Hindi films, have -- our Hindi films haven't started coming out. We started acquiring bigger Hindi films more from the early stage of this year, just immediately after QIP. And Hindi films, there is typically a -- from the time the music basic agreement happens -- because music is something which get finalized first in most of the films, before anything else gets finalized. [Foreign Language], and that's the time we come in so that we get involved in it. It is a lag of 12 to 18 months.
So you will be finding the bigger Hindi movies coming from quarter 4 or quarter 1 onwards. So the numbers will be a little higher. But for you, the better part to look at it is our earlier guidance we had given, that the new content coming out in the market is in that space around INR 800 crores. Our aim is to pick up anything close to 30% of that content roughly, which gives you a number of what worth content are we going to pick up. We've also given the guide on what our charging policy is. Our marketing cost gets charged off, immediately the rest of the cost is getting charged off at 15% Tier 1, 10% Tier 2, blah, blah, blah. That will give you a very decent idea where the year will end.
We take the next question from the line of Mr. Devanshu Sampat from Yes Securities.
Few questions. So your artist management business, can this take up a sizable chunk of your investment going forward?
No, sir. Artist management business is -- It actually requires very, very low investment because our -- when you go and sign an artist, what you're doing right now primarily is investing in a song, which any way we need to invest as part of our music business. So I always see artist management part as an offshoot or a byproduct of a core business of music licensing. It isn’t going to be taking large investment, and neither is it going to become a game changer in terms of increasing our revenues or profitability. It's one of the very essential things that you need to protect your core business of licensing.
So just to understand what all is involved here. So if you are signing a new artist, like the marketing cost and the video tours and everything that happens, is something that will essentially be done by a label, right?
Sir, that I anyway need right now. I -- instead of going to this artist, I may have gone to somebody else in the market, paid him her large amount of money for them to do an original song for us. We are saying rather than investing in somebody else's artist, pick up a talent that you believe in, right now start investing in that artist. So the -- it's literally an [ SP ] -- anyway licensing company was doing it, part of our business was doing it for the last couple of years. We're just saying, if you are doing it, might as well sign up an artist and do it with them so that at least there's a chance that if the artist becomes big, there's some additional money we can make of him.
So another question to do with something you mentioned in your opening comments, right? So you spoke about our data analytics [indiscernible] and stuff. So is it possible you can help with understanding the share of new users and their streaming contribution and how they are growing versus existing users or who have been around, say, for a year or so? And how -- what is their contribution? And what is that growth coming from them?
Please understand, the data that I have and analytics I run right now is at the song level, not at the user level because I don't own the user. Users are owned by Spotify, Gaana and Saavans of the world. What we get on a yearly basis is data about how every song of mine consumption is happening across every platform. On YouTube, I know every competitor -- every song daily numbers, we've invested in technology to start tracking that. So that is all giving me a very rich data of my own content and outside people's content. What I don't know is whether it's you streaming it or is it Vikram Mehra who is streaming it. That data we rely on our partners.
And you'll get the mix between a paid subscriber versus…
Yes, I get a clear understanding that these number of streams came from paid subscribers versus these many number streams per song came from free subscribers. That data we have.
Can you give a sense of what it is right now?
Sir, it is still a free world. The paid numbers are still very, very slow. But I've said this, and I keep on mentioning my neck out here and saying, you give it another 18 to 24 months and you will see India moving towards a paid economy. It's happening on video OTT platforms in India. You are seeing increasing -- we all were laughing that the numbers are not really big for video OTT. Month after month, the position is improving. People are moving from their cable and DTH platforms to video OTT platforms. We have seen on the audio OTT, everywhere else in the world, the numbers are pretty decent. In fact they are close to 525 million to 540 million paid subscribers globally. I see the same thing happening in India. It's just a matter of time now.
Sir, just another question, just to understand how this works, right? So if there is suppose a person who is very famous on YouTube, for example, for a dance channel, but they use your music, so how will the split work over here?
Sir, anybody who is using any part of our song, whether it's the original song or the lyrics of the song or the music composition -- So you take Lag Ja Gale song, the composition is the same but you changed the lyrics, all those IPs are owned by us. If you create any content using this on any social media platform, then Saregama has the right either to strike it down or -- what we typically do is to ensure right now that all the advertising money that's going to flow on that new video that you have created, actually flows to Saregama.
So the incentive for the person owning the channel would probably be some other way of...
What happens, a lot of artists end up using a huge catalog of ours to make fresh versions of it so that they get popularity, they become big right now on the [ live ] circuit. So easiest part, if you are a new singer, is to go out there and take a Baadshah Paani Paani or Kishore Kumar, Mere Sapnon Ki Rani Kab Ayegi Tu. Because the cut through it much faster. People really know that song. You go out there, you do a version of that song, you put it on YouTube. Saregama makes all advertising money, but the artist becomes big and then gets maybe at a small stage a chance right now to perform in a restaurant. If the artist becomes even bigger, he may perform at a [Foreign Language].
And then at which point do you start making money from their live performances?
That's what we were lacking until now. So now we are saying, other than somebody else doing it, let our own artists do it, and then I'll get a share of that too. That's where we are moving.
And sir, just last question. Any update on the land bank that is sitting on our books in terms of value unlocking a monetization?
Whenever there's any development out there, all I can tell you, it does not take any investments from our side for a longest time now. If there's any development, we'll inform you people.
I understand. But I mean, in terms of market value, it seems like a pretty sizable chunk. So I was just wondering from that angle.
It's a value to be unlocked someday, sir. It's only good news whenever it comes.
We take the next question from the line of Kishan Amarchand from Polar Ventures LLP.
I have 2 questions basically. I just wanted to know in the demerged company that will happen, the segmental revenue shows music, films, television, event and publication. So what all will go into the demerged company out of these 3?
So it is going to be on the non-core business of Saregama that gets moved out, which means the non-exclusive distribution of our retail, the publication side as well as some of the investments which are non-core to Saregama. So they get to the new resultant company. They move out.
Does that mean -- non-core would mean, the real estate part as well will go into that?
No. Non-core means the publication side that I just mentioned, and yes, some of the investments that we were handling, but not the real estate.
The second question is, when this - what do you say, the Carvaan that you have launched, the newer version of the Carvaan that is the mobile version, is that going to be more margin than the earlier Carvaan version which was -- what do you say, radio kind of a business, radio kind of a Carvaan?
Sir, the margin percentage is similar across all the Carvaan variants, from the Radio Carvaan to Mini Carvaan to Carvaan Mobile or a music bar. That's something we are very particular about. But the [indiscernible], Carvaan gets sold at INR 6,000, while Carvaan Mobile is between INR 2,000, INR 2,500. So the absolute margins are lower. But what it allows us to do is to ensure that it goes deeper into the smaller towns, which really helps us sell more Carvaan. We are clearly seeing, as I mentioned earlier, -- as Carvaan, our Carvaan Mobile reaches homes of people, people start listening to the music which is stored there. Those older songs again become top of mind, and then often people -- other members of the family end up consuming their content on YouTube and OTT also.
So this Carvaan that you're making, will also go to the demerged company?
No, sir. The Carvaan remains out there as part of Saregama. The demerged company will have a nonexclusive right to sell that Carvaan on digital platforms, within Carvaan, within Saregama.
And is Carvaan a profitable business? Or is it still we are burning cash into it?
No, sir. I think I've been stating this after financial year '20. In '20, we people had lost money on Carvaan. That's the only we year we ever lost money on Carvaan. After that Carvaan during COVID time was a breakeven business, and that's a commitment we keep on making. It will remain between breakeven to a very thin margin. For us, we have hoped that the overall numbers will improve and our margin percentage will improve. But the most important part is, it worked as a literally free marketing for the music licensing business in a very big fashion.
we take the next question from the line of [ Anika Mittal from West Research ].
Sir, what other risks do we see in near term or mid-term for our business, like any kind of cyber risk to our IP properties and all these, sir?
Sir, actually, the great thing about IP is even if you steal my song, the ownership still sits with me. So there is -- in that sense, it's not a physical product. We are stealing that.
That -- actually we would have seen that way. I was asking from view of hacking and all this stuff, like hacking of YouTube channels and all this stuff, sir.
Sir, the good part...
What are the internal measures we are taking on that?
When you say -- we need to be -- its ownership cannot be stolen. What can be stolen is, can you listen to a song of Saregama without Saregama getting paid for it? That's the risk, right? Now the good part is, ever since the world after 2015 onwards has moved closer to the app world than the browser world, what do I mean by that? Up till '15, '16, also, many of us used to consume content on our laptops and desktops. But we have seen '14, '15 is the watershed mark where the top -- there are far greater population of the world which now consumes content only on their phones and not through -- by typing www dot something.
Now the good part about app world is that it's controlled primarily by 2 companies, Google and Apple. Sir, if there is any app sitting on a Google store or an Apple store, which is infringing our content, we take the help of Google and Apple to throw that app out of that store, which is allowing us to control piracy to a great extent. We may still have piracy happening in the smaller towns whereby consumers go to the Pan wala shops and may ask sideloading of some of the songs onto their mobile phones. We believe the way this problem has gone away from Bombay, Delhi, Bangalore, Calcuttas of the world, eventually it will get eradicated from the entire country.
And sir, one more thing. You were talking about some big movies getting delayed from quarter 4 to quarter 1 next year. And you are also saying the other content will set up the same. So that content, will that be big -- to set up the same, sir?
So sir, it may not be exactly match -- It's very difficult to match up Karan Johar's Rocky Rani Ki Prem Kahani. [ There is no ] director of this stature in this country, unfortunately. He is the only one. So we have to do -- but we have to go out there and keep on maintaining our market share and increase our revenues. So we are finding -- it may not be film music, it may be non-film music. So the recent tie-up we have done with Arijit Singh, we will ensure right now that at least one Arijit song keeps on coming -- comes out in quarter 4 and we promote it and make it big.
We take the next question from the line of Himani Shah from Alchemy.
Most of my questions are actually answered. Just one question is on the asset management side. Can we say that Diljit in -- since you're making like new -- signed agreement with Arijit Singh for new content, that they are also guys that we would be managing on the artist management side?
No. We are not -- both in the case of Diljit and Arijit, we are doing specific projects with them, which are long-term projects, but we are not managing those artists. Our endeavor at this junction of artist management is to work with newer artist.
Any names, Vikram, that you can actually...
Himani, at the right time I'll go back and disclose it. We are still -- we have identified, we are working on the individual. At that right time we will announce.
We'll take the next question from the line of Mr. Ravi Naredi from Naredi Investments.
Sir, how much money we have debited towards the content charges in quarter 2 and H1?
Sir, I can tell you the total content charge in quarter 2 is INR 17 crores. On the H1 basis it's INR 34 crores.
As we are bigger in music and main revenue earnings are -- we may say our bread and butter comes from music, can you tell in longer run, say, 3 to 5 years, film will be also a substantial part of earnings?
Yes, sir. We believe film business will continue growing now at a 25% year-on-year. So it has -- but the music business has a huge head start. Last year films and TV business was sitting at INR 100 crores, while films was sitting closer to INR 370 crores. So music is far bigger, but we see films and series also becoming substantial in the days to come.
And sir, how 5G help our business?
How?
5G.
Anything that allows consumption to go up -- [Foreign Language] Anything that gets them closer to their phones means we have better scene going on. Now 5G is -- another very interesting phenomenon happening in the country is, earlier TV channels were supposed to be used only for DTH and TV sets. On TV sets we used to watch only DTH and cable TV channels. Now many of us have started watching our Netflix and Amazon on Hotstar on those TV.
Strangest part is that it seemed for many of the platforms like YouTube, the fastest-growing segment now is the smart television. Because people have started consuming that also on their television sets. Which means the content owners like us have got a large library sitting now on YouTubes of the world will now get one more avenue where the 70-year-old dadi and nani were sitting at their homes [Foreign Language]
5G is going to enable all this because the speeds are going to be that good that it can power a 42-inch or a 55-inch television. [Foreign Language]
If you go out there for a walk any time, you'll realize every autowala, taxiwala which has parked on the road, is glued onto their phone. You travel in Bombay trains, anybody who's standing is listening to music, people who are sitting are watching something on their phone. We don't know what day dreaming is. We are constantly glued to device to consume content. It's a great news for IP owners like us.
So we may assume there will be -- tailwind will be for a longer time in our business?
I'm very clear about this, is, people think [Foreign Language] Music industry is very small in our country itself. We've got a very long way to go. It's the entire problem of piracy which had killed us earlier and got our industry to that need. Now with piracy going away, companies like us investing heavy in technology to control it, I think we have serious tailwinds behind us. And we all -- one thing we all are agreeing, in next 10, 20 years, belongs to our country.
And so there will be money coming in, better devices, better laws protecting right now. IP, if you see, judiciary is constantly taking judgments in favor of IP owners. So they take serious IP infringement in today's time. And age -- we don't have to wait for 5 years to get a judgment, we get judgements fast enough. So judiciary has also realized that the large investments happen on IP.
IP is also soft power with which India can go back and influence things at a global level. If America could do it with Hollywood movies, we know we do a lot of job with Bollywood and music. So I think everything at this juncture is falling in the right place. Companies who are investing in data science, on technology and new content, I think, are going to do pretty well.
And can we say the next 10 to 20 years, not for India, even our company will grow too much, right?
Sir, I have no doubts about that. I have to put -- and I have put my bet on it. It's -- any company which is investing correct and is doing -- other things are equally important, sir. In today's time, you cannot just say [Foreign Language] Those days are coming -- people have to invest in data science in a big fashion. Now we're reaching a field where we can go back and say scene by scene of a movie, where do people lose interest and can we change that, what are the kind of scenes that do well.
Same thing we're doing with music. Every second of the song that goes out, we start tracking the performance of the song is a delight, which are the places where people drop out, and what is it that is resulting for people to drop out so there's -- a next set of songs can be better. So people who invest in all that part, I think this is a good story.
Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management for closing comments.
Thank you, everyone. Thank you for this patient listening. We -- I'm often asked right now that, is the best part of the journey already over, and we keep on reiterating this, that all you have seen is that music industry was literally a barrel land, has started showing some offshoots now of growth. There's a full tree that needs to get planted, both on the music side and as the same piece on the video side. So as a company, we will continue investing on IP, and we believe in the days to come where more and more people start watching content on smartphones, they watch more content per day than what we are watching at this juncture.
The IP has got a very long story waiting to unwind.
We maintain, as we go forward, our bullish stance on music licensing, 20% to 25% growth year-on-year on a short to medium run basis. We continue with our content investments on film side on Hindi, Tamil, Telugu, Malayalam, Punjabi, a bit of Bengali, and on the non-film side on Hindi, Bhojpuri, Gujarati and some other languages, including devotional in a big fashion.
We continue with a cautious approach on Carvaan. Carvaan is a great marketing tool for a music licensing business. We understand the power of it, but we will always ensure that Carvaan is breakeven or a lower margin. We believe in the days to come, even the margin percentages can go back to those 2019 times.
Our films and series and television business right now, we expect it to grow around 20% to 25% on a year-on-year basis with a 15% margin there. Events business will build up slowly, but it will always remain right now a low margin business, which is a crucial business to have as part of armory, because, one, it gives us a shield if ever advertising business takes a hit, because we have other sources of revenue coming in where customers pay for these services directly, and also is very, very crucial for our music licensing business.
So overall, we are happy with quarter 2, and we remain a bullish stand on the entertainment industry and Saregama's future, both from the top line and the bottom line perspective in the days to come. Thank you, and look forward to talking to you guys at the end of Q3.
Thank you. On behalf of ICICI Securities, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.