Streaming revenue push Saregama profits to record levels

Saregama’s annual results

Saregama, India’s largest record label and an emerging force in the digital video space, looks all set to breach its pre-COVID revenue and profit numbers in the current financial year due to rising demand for streaming music.

The company’s operating revenue had set a record in the year 2018-19 at Rs 544.7 cr, but declined for the next two years.

In FY20, the year before COVID hit, the company was able to report sales of only Rs 521.5 cr, which was 4.3% lower than the previous year.

In the next year, which ended in March 2021, revenue fell by another 15.3% to Rs 442 cr due to the impact of COVID-19, particularly on the sales of its Carvaan jukebox.

However, in the latest quarter (July-September 2021), the company has posted a strong top line of Rs 145.1 cr, which — on an annualized basis — implies a full-year income of Rs 580.4 cr for the full year — a record.

However, the first quarter (Apr-Jun) was impacted by the second wave of COVID, and managed to generate only Rs 105 cr of revenue. Hence, the full-year number is likely to be around Rs 550 cr — a jump of around 24% over last year.

But what is more interesting than this growth is the changing revenue mix of the company, and the impact that it has on its profitability.

Due to the sudden pick up in broadband connectivity in India, more and more of the company’s revenues are being contributed by high-margin licensing deals, rather than lower-margin items such as the sales of the Carvaan jukebox and CDs.

This can be seen in the COVID-impacted financial year ended in March 21.

During this year, the company’s revenue fell by a whopping 15% to Rs 442 cr.

However, its music licensing revenue — most of which comes from streaming services — jumped by a whopping 21% to Rs 236.1 cr.

While this increase of Rs 41.2 cr in music licensing fees could not fully offset the sharp decline of Rs 120 cr seen in its other revenue streams, this — along with lower expenses on other business streams — was enough to boost its profits to record levels.

During the COVID year, the company’s operating profits — which excludes non-cash, non-operating expenses such as depreciation, content amortization and interest costs — almost doubled to Rs 145.1 cr, up by Rs 68.8 cr compared to the previous year.

Besides the jump in licensing revenue, the jump in profitability was also aided by a fall of Rs 148.3 cr — or 33% — in its operating expenses to Rs 296.9 cr.

In other words, the move to largely IP-driven revenue is boosting the company’s margins to unexpected levels.

This is not surprising. According to third-party estimates, streaming is expected to be contributing about 65-70% of the total revenue of Indian music industry at present, while sales of physical media — such as CDs — account for only about 15% and performance rights for another 10%.

Saregama’s music licensing partners

As India’s largest record label, Saregama provides its music to almost all streaming apps and platforms, including Gaana, Youtube, Jio Saavn, Spotify, Wynk and Amazon Prime, and business has never been better.

The company pointed to the burgeoning sales of smartphones and the ever increasing penetration of broadband as the reason behind this unprecedented growth of streaming platforms.

“While India-based Audio OTT streaming services may have gathered over 150-200 Mn monthly active users, the overall paid subscribers are estimated to be around 1%, thus offering a huge headroom for growth,” it pointed out.

The company, therefore, continues to be very bullish on the music business.

“The Covid19 related hiccups notwithstanding, we expect music industry to grow by 12-14%, and Saregama’s licensing revenue to grow by 22-25% annually over the next 3-5 years,” it said, adding that the key drivers will continue to be the popularization of data services in the country.