Entertainment Network (India) Limited (ENIL.NS) Earnings Call Transcript & Summary

Okay. Can you talk a little bit more on the Gaana competitors, like you said last time that 3 of them have closed down and how the other people -- how they are faring compared to Gaana?

So the way we look at is, we are -- we believe we are a strong #2 in the paid subscription business because we don't offer free service. While there is free available on Spotify and Amazon and JioSaavn, we are only premium paid service in the country right now. In the landscape right now, a lot of push has been done to drive paid subscription. I think the music industry, music labels, if you speak to, also believe the music industry growth can only happen through subscription and not through free service. The free advertising model -- adverting-led model for free subscription is not going to work that everybody believes. And we believe our competition also is driving towards subscription. The subscription numbers are growing. It's growing at a pace than what we would expect, but it's consistently growing. That's a good sign. Even numbers for Spotify, be it Saavn, everybody is focusing on that. And we believe sooner or later, we will see some better growth numbers on subscriber numbers. India is a value-for-money market. It takes time for people to pay for something, which has been available for free. As I've always been saying, it's a behavior change rather than a price issue. So as people look into it and see value in the product, they will pay for it. It doesn't cost much for -- as a spend when you look at the way people are spending money on music concerts, music service surely looks at an economical rate. It is a great proposition. As long as we deliver the right value for the consumer and the right experience, they will give it. So that's the way we look at the business. The numbers are encouraging. It keeps growing. The entire industry believes in subscription now. We have seen some bit of action on subscriber number -- subscription pricing also from competition, which I believe is a good sign for the industry. So the way we look at is to build the cake rather than just take a share of the cake is to build the subscriber numbers, as an industry will only help the industry.

The next question is from the line of Anant Shirgaonkar from Newport Capital.

Good set of numbers. I just had a few basic questions. Last quarter, your radio business was about 58% of revenue, if I remember. So what has the move been in this quarter? And how is it looking the shift from this 58% for radio versus non-radio composition of revenue?

It's almost about 50% right now, Anant. Yes, we would have liked it a little better. So as I said, our ambition has always been the way we planned it was that radio mix should be about 50% in 1.5 years types or maybe 2 years. It's a little -- falling a little faster because of the muted advertising market because that puts pressure on the margin, which I was explaining in the previous question that the radio margins are -- radio contributes a higher margin compared to the non-radio business. So there is a mix of 50% is by design also, but it's fallen a little higher than what our comfort would. We would have liked at least a few percentage points of radio growth rather than a muted single-digit growth on radio side of the business.

Understood. And do you have any thoughts on how this number may look, say, 1 year down the line or 2 years down the line?

So we will look at factors in terms of radio -- as we have always said that we would want to make the radio business more efficient because we believe the media ad sales business will see pressure over the period as we are seeing consumer behavior changing of media consumption. The advertising will also get very fragmented. So the whole idea will always be that the traditional business will have to be very efficient. So we'll have to look at revenue growth and the cost optimization factors also as we go along. So we believe there will be radio ad sales or media ad sales. I don't think it will be a double-digit growth. It will always be a single-digit, mid-single-digit growth as we go on. We believe the next 2 quarters should also be in the same line because there will be some base effect coming in from last year. Plus we saw some green shoots of the GST impact, but let's see how it pans out for all companies. As you know, media always lags all companies' results because if companies do well, they will spend more on marketing. If they spend more on marketing, the media companies do well. So overall economy, overall geopolitical situation will also play a role. We remain cautiously optimistic with the single-digit growth on pure radio business, while our events and digital business will keep showing stellar results.

Understood. And little bit on Gaana. So earlier on, you had mentioned that you expect EBITDA breakeven for Gaana March quarter or June quarter. So is that on track?

Yes. So most likely June, July, there is some action which is happening. So the way we look at is we should be breakeven by June, July of next year. I'm not putting quarter, maybe the month I'm looking at it. That's the way we look at. And maybe if the growth comes in and a lot of action happens there, then we might spend some monies on mainline marketing also. So to give you an answer between June, September next year, we should breakeven. That's what we have been committing on that part.

Correct. Understand. And to the previous question, you had mentioned about how even the industry wants to shift towards subscription. So can you give more color on what is happening from the industry point of view? How are the other players trying to push customers towards subscription? Do you have any data points on pricing or are they giving pain to the customer so that they find value in subscribing rather than going for the ad business -- ad music?

So the way you look at the music streaming, YouTube used to be one big consumption player. Though now with connected TV happening, on YouTube, the music consumption has gone lower than what it used to be. And you see now a lot of ads coming to YouTube, so it's not a great experience. So that's the reason people move to streaming side. Even on Spotify, when you look at a paid consumer and a free consumer, a free consumer is not allowed to download certain set of music. You can't skip music beyond certain levels. So the -- and then there are unnecessary ads which are coming in. They don't get ad business, and that's what I've been always saying the free model, which supported with ad, will not survive. And we see in Spotify also not many ads come in, but they keep playing their own ads, which disturbs the overall experience of a consumer. So they have been pushing subscription by limiting the features for a free consumer. Also recently, which is not for quarter 2, but in quarter 3, they reduced price for a new consumer to drive subscription because they also believe in. In fact, as I speak, that price was about INR 499 10 days back for a new consumer, which came down to INR 399 for a week, which is a limited time offer till 12th November. So it shows that they also believe that with our growth also -- and sometimes I would want to believe, I don't know I'm right or wrong, when a large consumer or a big company drops prices lower to our number, it means there is a subscriber growth happening. They also believe in the subscription economy. Similar thing happened with Saavn. We believe even Amazon Music over a period of time will also look at delinking from Amazon Prime customer. So the overall landscape, I believe, will move towards this. If you speak to any of the music industry veterans, be it Saregama, Tips or T-Series, they also believe the way the subscript -- music business has to go through subscription. It will never be free funded by advertising. Even in past, as I've always spoken, people have spent money on music. People have bought CDs, people have bought cassettes. It's just that for a short time or a few years, free music got streamed, the habits got changed. But as people have always believed music plays a massive role, while you're studying, while you go for a walk, while you're doing a morning course, it will always drive. So that's the value it gives in the life. And the money is not very big. It's a behavior change will happen. And I'm very confident about it that sooner or later, it will change and the numbers will show up. So right now, in 1.5 years -- from last year, it was about 5 million subscribers there, then moved to 10 million. We believe as of today, there are about 15 million to 16 million paying subscribers in India. I hope I answered, Anant, that.

Yes. Yes, understood. And can you also throw some light on how events business is looking for you? Because last quarter, I saw that -- last quarter, there was -- you had mentioned that there are new entrants coming in because the growth is very high. So how is that playing out now in terms of events for ENIL?

So I don't need to talk about events. There are massive tailwinds. I think it's available everywhere, be it -- if you're in Bombay, you see Enrique concert happening in rain, you saw the people being there, people spending money. So there is a massive change post COVID, which has happened of going out. So event business has massive tailwinds. It's a cyclical -- there is always a cycle to it. But as we ride the tailwind because we have been in this business for more than a decade, we understand this business, and we are taking the leverage of that and growing handsomely. So we have grown almost about 106% on event business. What's happening is because ad sales business has been a little muted, a lot of companies are wanting to get the event business to drive growth. They're coming for the first time. They are not sure which business will drive margins. Everybody thinks that the event business is as good as an ad sales business. We have been doing this for 10 years. It takes time to understand the value chain, where the margins are, how do you drive efficiency. So a lot of people burn hands also, but everybody wants to ride the wave of events. We believe we need to pick and choose events. We do almost, as I said, 300 events a year. And we are very, very cautious about it. This year -- this quarter, our margins would have improved a little bit better, had there not been rains. We do a very large Navaratri across countries -- across the country in about 15, 16 cities. The rains have been a bit erratic. So a couple of days of rains in Calcutta, poojas got impacted, which drops your margins. Our margin would have been a little better than what it is right now, had the rains got -- been -- had blessed us better. But that you can't beat it. That's not a controllable. Our controllable are that we believe in a more running, a more efficient and a margin-focused company. Yes, the margins of event will never be like radio, but we believe this growth will continue, not 100% quarter-on-quarter, but we see a lot of tailwinds going forward for the next 2, 3 years. And we are geared up for that business.

Understood. And one last question. Have you disclosed the subscribers for Gaana, current number of subscribers?

We would let it remain confidential. On a one-on-one basis, we can always have a chat. But on this, for competitive reasons, we don't disclose that.

The next question is from the line of Deepan Narayanan from Trustline Holdings.

So firstly, how do we see the digital radio FM opportunity? And what is our plan for auction process?

So Deepan, on the digital radio, it's still on the TRAI recommendation, which has happened. It involves -- we are very excited about it. If you ask me as on the face of it, digital radio will change the radio dynamic because it helps getting radio on mobile phones. So from that perspective, it is a great, great step from the government. Though it involves a lot of stakeholders to come together, it's not just about radio industry to look into it. Yes, radio is the first and foremost stakeholder and the main stakeholder, but it involves the mobile manufacturer and the car manufacturers to get the receivers part of it, which the government is also talking to and it takes a while. So while globally also, like in U.S., HD radio works, while in Europe or largely led by U.K., it's about DAB. Saudi Arabia runs with DAB, but it takes a while for the technology to be adopted both in mobile phones and the car studios. So it will take some time. But on the phase of it, to answer in short, it's a very exciting phase to be in to drive digital radio because that will impact more frequencies, more differentiation in content, a lot of data gets collected, which helps in driving ad sales. So from that perspective, it is a great sign.

Okay. So overall, our market access gets widened and better ad measurement to give us better ad rates so that's what will drive future revenue, right?

Yes. But it will take some time because it's not happening in a hurry. It's not happening next year. I believe it takes some time.

Okay. Okay. Okay. So overall, how radio industry as such viewing this digital radio opportunity? Like industry players are open to it on the try recommendation? Or is there any discussions going on that per se, specifically on auctions, investments on that and also about transition from unlocked to digital per se, how do we plan to do that?

So the industry looks at very, very positive. And always -- there is always a price component. It can't be so expensive that even if the proposition is good, but if it is not financially viable, then people will not look at it. But as I said, on the whole, as a digital thing, it is great. Yes, there have been some guidance on the migration fees which had come in, which we rejected and we had a consultation with the TRAI also. We have sent our -- as the [ ARI ] body, we have sent our messaging to them that at this price, it doesn't make sense that they need to support it because there will be investment also coming in, which government recognizes and TRAI also recognizes it. As I said, it's just a first set of recommendation. It takes some time. And anyways, the next set of auctions can only happen in 2030 when the first renewal happens. So there's still some time available on that for consultation. But it's the right step. To move from analog to digital is the right step for the radio business -- from a radio perspective.

So till this digital gets established, so there will be some transition phase where the analog will be still continued and then slowly the migration process will be a slower process, right, because we'll have to still get. The user base also has to be developed in the digital arena.

Yes. So the way we've been discussing with the government and what even TRAI recommends is, it's in the first phase. Only 13 cities, they are looking at digital. The rest is all analog. And even in the same cities, it will be both continuing. It will be -- over a period of time, there will be a sunset to the traditional -- or the traditional thing. The digital radio will take -- as I said, it's a long transition. It's not happening tomorrow or in a year or 2 years' time.

The next question is from the line of Gaurav Agrawal from Nine One Capital.

Sir, first of all, this INR 141 crores revenue, can you just give me a broad breakup? I know you have given in the presentation, but a slightly confusing one. So how much is coming from radio, how much is from Gaana and how much is from IP and Events, right?

So the way -- ideally we divide generally in 3 verticals. The radio is almost about INR 70-odd crores -- INR 73 crores -- sorry, INR 70 crores, while our media solutions business is about INR 35 crores. The digital business is almost about INR 32 crores. And the international business is about INR 5.5 crores. The total is about INR 135 crores -- INR 141 crores.

Okay. So what is the second one, media? What exactly do we do in media?

So media solutions, I said, it's about IP business and also we do multimedia solutions for our clients. So these are the 2 businesses, which we put in part of media solutions.

Right. So existing will include radio as well as media, then digital will include Gaana and this...

And digital solutions business.

And events go where?

Event goes part of media solutions. So the INR 35 crores includes the event business also.

And how large would that be, sir, event?

Event would be about INR 20-odd crores in the INR 35 crores.

And when you say events, these are like what -- like Enrique sort of an event or like small Navratra events, what kind of events do we do?

So it's a mix of -- we do manage events so from -- ranging from doing concerts to food festival, to Navaratri, to marathons, to corporate activations, RW activations, small activations, school activation programs. So it's a plethora of activities. In a year, we do almost about 300 events precisely because we are present in 63 markets with teams across the board. And that's what places us in the best place in media companies with such a massive presence across the India market.

So sir, yearly revenue will be like INR 80 crores, INR 90 crores for the events. Would that be a good estimate to have?

So last year, we did about INR 75-odd crores. I think it will be much more than that. We generally don't give any guidance, but...

What kind of margin does it make, EBITDA margins?

I would reserve that. It's a healthy margin. Generally, event businesses are -- we outlined the overall general margins in event business, which ranges from concerts, generally, people say it ranges in single digits. Events are in about 10% to 15%. But because we do managed events, when I say management, which is sponsorship led and ticketing, we generally deliver about 20-odd percent.

Okay. And sir, for Gaana, I think last quarter also, you said once it crosses the INR 150 crores revenue run rate annual basis, then it is a breakeven, right? At that stage, it will be expected to the breakeven level. But let's say, beyond INR 150 crores for the incremental revenue that you get from Gaana, how much of that incremental revenue will flow to EBITDA? So someone says INR 150 crores goes to INR 200 crores. For the remaining INR 50 crores, how much can it go to the EBITDA level?

So Gaurav, right now, I would not comment on it. I think right now, immediate for us is to breakeven. I think, globally, also if you look at digital businesses, it takes time to become a breakeven business. So for us, our first milestone is very clear to breakeven. We are a very profitable focused company for us, though it's an investment into the digital business coming from almost 0 revenues on Gaana this year, the way we're looking at and we're doing an ARR level, it's about almost about INR 90-odd crores, INR100 crores revenue coming in this year. To make it profitable is the first milestone. There -- yes, there are multiple factors to profitability. There's a cost of content. Though we are well placed with our contracts, the tech thing depending on how stream. So when you say INR 150 crores, it's a mix of pricing and subscriber. So if we can increase price and less subscriber, then your tech cost may be a little less because the streaming numbers will be less. So it's multiple factors. I have not built a model on for next 3 years thing or 2 years, we -- though we have in mind. But right now, the immediate objective for us is to get it into breakeven. I think that would be a major landmark in our digital business per se to look at. And we have a path to profitability on that. So as we build towards breaking even, we will start looking at and sharing how we look at the margins on the event business also -- or sorry, on the Gaana business also.

Great. And sir, I assume Gaana is 100% Indian, right? We don't have the app outside India.

No. So we have international presence. We present in about 170 countries. We have not focused so much on international business, which we want to do. As we said, we've got 1.5 years. But there is presence for sure. In our subscribers, there is some percentage coming from international also. And it comes at a better rate also because internationally subscription economy is much better in U.S. than in India. We need to focus on those markets, as that's our plan also going forward.

And sir, just last question, qualitatively, not looking for any numbers. So in terms of paying subscribers for Gaana, what kind of growth have you seen on a quarter-to-quarter basis?

So we all only have paying subscribers. I would limit that Gaurav, maybe offline, I'll share that. Generally, we don't share subscriber numbers on...

I'm just looking for a growth...

It's a decent growth. I'm saying it's a decent growth to look at it.

The next question is from the line of Hari Kumar, who is an individual investor.

Just one follow-up question, sir. Yes. We are expecting a positive change in the government policy towards the radio sector since 2 years. What has happened on that, sir?

So yes, we have been doing consultations. Government is looking into it. And we believe sooner or later, there will be some reforms coming in on the radio industry side, which could be beneficial to the industry.

Okay. Okay. Any tentative date, sir?

With government, I think you're asking me [indiscernible] Hari to answer on government behalf.

Yes, sir. We have been waiting for 2 years that's why.

We will take that as the last question for today. I now hand the conference over to the management for closing comments.

Thank you, ladies and gentlemen. It's a pleasure to have you all. We remain committed to driving profitable growth for all stakeholders. Thank you once again for joining this call. And in advance, wish you a very happy New Year and see you in the quarter 3 earnings call. Thank you very much.

On behalf of Entertainment Network India, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.