Saregama India Limited (532163) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Saregama India Limited Q3 FY '24 Earnings Conference Call hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Pulkit Chawla from Emkay Global Financial Services. Thank you, and over to you, sir.

Thank you, Tushar. Good afternoon, everyone, and welcome to the Saregama India Q3 FY '24 Earnings Call. From the management, we have with us today, Mr. Vikram Mehra, Managing Director; Mr. Pankaj Chaturvedi, CFO; Mr. Saket Sah, Group Head, Investor Relations and ESG Reporting; and Mr. Pankaj Kedia, Vice President, Investor Relations. Without any further delay, I shall now hand over the call to the management for the opening remarks. Over to you, sir.

Good afternoon, everyone. This is Vikram Mehra. The quarter 3 for the financial year '24 saw our operating revenues of INR 204 crores and PBT of INR 70 crores. I've spent now over 9 years at Saregama and every quarter we are, I think, getting more and more clearer about what business are we in and how we're going to reach our final target. If I have to summarize in a single line our strategy about what we want to do, it is to create IP and then monetize that IP. That's the only business we are in and will continue to be. The IP creation can be across audio and video, which includes music as well as film, series or short-format content. On IP, monetization is primarily done through licensing deals to third-party platforms. Also, we are extending the monetization to launch off the content we are creating but also monetizing the artists who are creating this content by getting brand endorsements for those artists or getting live performances for those artists. So over time, what we create and how we monetize would have got changed, but the focus that we will focus only on creation and monetization, not getting into services business is very, very clear. Secondly, we don't want to sit on the laurels of the past catalog that we have, which if we decide tomorrow that we don't want to invest in new content, we can also very, very easily draw very, very heavy margins. But consciously, as a management team and our board we want to prepare this company for 20 years down the line and not just for the next 2 to 3 years. Let me start with the first vertical music licensing. This vertical has been growing at 23% odd for the last 5 years or so, 23% CAGR. As I have mentioned in our last 2 calls, this year has seen a lot of pressure on the OTT audio side. Many of the platforms being under financial pressure have decided to move from free to paid. This actually in long run is very good news for us. All of our labels have joined hands and are, in fact, helping the platforms in their journey. We have removed our conditions on minimum guarantees for the more and more platform and move towards the paywall. It will make the overall music economy far more healthier. But there are short-term pains because of that. As people have moved to pay the minimum guarantees going away, those have resulted into revenues on the OTT side being under serious pressure. We have been able to balance it to some extent by higher numbers in the other verticals but overall there is pressure on the music side. The good news is that all the pressure is practically going to get factored in financial year '24 itself. After this, we have reached a base whereby all the -- anything from now onwards is going to be positive journey only resulting in back to the growth rates that we all have seen in the past from the music licensing. If you look at the global data, the OTT audio as well as video, which means normal streaming platforms as well a platform like YouTube have grown by 34% in financial year '23 -- in, sorry, calendar year '23. And India finally is showing the highest volume growth globally on audio streaming and audio plus video streaming of Music. And keep this in mind, India's growth is coming only on the back of just 200 million people streaming audio and some 350 million people streaming video. Then we are already touching the highest number. There's still a huge headroom of growth in terms of usage sitting in front of us. All that we need to see right now unveiling or revealing itself over the next 12 to 18 months is this base of the users finally going behind a paywall and generating revenue for the platforms as well as labels. It has happened internationally. It's bound to happen in India. It's happening on the film streaming space in India or series space, streaming space in India. It will eventually start happening out there in the space of music streaming too, just give it 12 to 18 months. This quarter saw the music release of Vidhu Vinod Chopra's 12th Fail, a movie which has won every accolade and the music is doing very, very well. In Tamil, we had Dhanush's Captain Miller's music getting released. In Telugu, we had Venkatesh, the Superstar there, his movie Saindhav's music getting released. In Malayalam, we had more Mohan Lal's Malaikottai Vaaliban's music getting released. We also released a song, one of the rarest songs that Arijit has done outside the film industry called Dil Haareya, which is a nonfilmy song which did very well for us. We had multiple song by Bhojpuri superstar Neelkamal and by Gujarati #1 singer Rakesh Barot. But if you ask me, I think the greatest story for us has been or what I may call as a game changer is a song released by India's biggest rapper called Divine. A few months back, an year back, nobody would have thought that someone like Divine is going to come out and work with Saregama, and mind it, it's not just a song he has released, he has agreed to do a concert tour across India with Saregama. So we have a twin relationship going on with him, on the live-event side as well as on the music side. It's fulfilling the objective that we all have been trying to pursue over the last few months is to make the brand younger and get the young age artists to go and work with us that much more, whether it's a Pocket Aces acquisition, which has really helped us change our image and profile in the market or the fact that we are coming out with the latest Bollywood releases all that is helping. It's not just Divine, we have another very popular rapper in India called Krishna. He went out there and released the song with us in the month of January. The songs of the quarter 2 releases Zara Hatke Zara Bachke or Rocky Aur Rani Kii Prem Kahaani in Hindi, or Kushi in Telugu or RDX in Malayalam continue to do very, very well in quarter 3 also. If I look at our lineup for the next 12 months, which is a litmus test for all of us, are we able to generate enough amount of new content? We don't rely only on our own production studio to create content, we want to work with the best in the market in every major language, a lot of focus on the regional side from our company. Let me share the lineup and you also will believe right now that we have one of the best lineups you can think of. We have 3 Dharma that is Karan Johar's production house, 3 Dharma Production films that are going to get released over the next 7, 8 months. One of them includes Alia's film as part of this line up. Second is a Vicky Kaushal and Tripti Dimri's film. There are 4 Jio Studio films that we will be releasing over this time, including Stree 2 and Akshay Kumar's Sky Force. Ajay Devgan's Maidaan is getting released. Diljit Dosanjh and A. R. Rahman's Chamkila is getting released. In Kannada, we have there too a couple of superstar movies, Darshan's movie Devil is coming out. Sudeep Kiccha's next film is coming out, the music is sitting there with us. In Malayalam, we have Mammootty's Bazooka's music coming out. In Tamil, we have Suriya's fantasy, Kanguva, which is creating lot of hype and publicity there. The music is sitting there with us. And I think one of the biggest will be the Telugu film, Game Changer, which has got Ram Charan. It's a Shankar's film which has got Ram Charan and Kiara Advani. Ram Charan is doing a big film after RRR, which just recently became his biggest film. And Shankar is making a film after a very, very long time. Then in Punjabi, their #1 star Gippy, 2 of his film's music is sitting there with us, Warning 2 and Shinda Shinda. As you heard the lineup from my side, you'll realize that we are not just a Hindi Bollywood music company, we people are playing wide in all the major languages, especially wherever there is still music. We want to dominate all those regional languages, which will give us a good negotiation position when we talk to all the platforms. But yes, with all the investment that we people have been making, the content charge off which includes just the content charge off and the corresponding marketing has gone up by 54% year-on-year. I'll repeat, we are in a transitional state. Our content spends are not going up in a linear fashion. Post QIP, we people were clear, we are going to step up in -- not in an incremental fashion, but in a step jump fashion, our investments in content, which means in the short run, the investments will go up very, very strictly, which will result into the revenues, just about matching the content charge-offs that we are taking. Given another 18 months or so, and you will start seeing that the incremental revenues we are getting from these investments will start far outweighing the charge-offs that we are taking corresponding to the newer content. Because if step function jumps are needed only for 2, 3 years, we went from a company which were not investing in content to a company which is now taking a pole position in primarily all the languages. So this is the transitional time that we are going through. The absolute numbers on profits are never going to go and dip. They may, in the short run, continue to go up, but they will go up far more steeply after another 18 months or so. With all the new investments we are holding to our internal guideline as well as guidance to you that the payback periods have to be 5 years. They cannot exceed 5 years. The language mix is decided keeping in mind a payback period of 5 years. And post that, you have another 55 to 75 years left in front of you to keep on making money from these songs. Remember, Lag Jaa Gale is already a 60-year-old song, and we are still making money from it. While we invest in new content, we continue working on our catalog, both on promoting our existing songs using Instagrams or ensuring those songs are made available in some of the newer movies that are coming in, using technology in a very big fashion right now to push these songs. And also, we are creating a lot of versions of these songs. Whether it's the tech-based lo-fi versions or asking the new age artist to reimagine and recreate the songs and put it on and then promote these songs using Instagram. All this is giving a fresh life to the catalog, and this work will continue happening. There are enough amount of precedences that we see at the global level done by some of the biggest music companies whom we very closely follow and learn from. And we are realizing a lots of money can be made from the catalog. If I go by the last 3 years' track record, our catalog has been comfortably growing at 12% per annum, and I don't see any reason why it will get hit over the next 12 to 18 months once the OTT platforms start moving behind the paywall, I see a catalog easily managing the 14% to 16% growth. The new vertical under music licensing, music monetization, is artist management. There, we are making various -- we have signed up artists and then we make them popular by placing them in our IP releases. Majority of them are music, but we are also using the power of our IP releases on the short format side, which is housed in the Pocket Aces or maybe putting some of them under Yoodlee Films. Once the artist is made popular, we then monetize these artists by getting brands for them who want to use them for the reach these guys have created on Instagram or YouTube and also place them in various live events. And whatever money the artist makes, Saregama gets a share of it. So it's an interesting model. We are making songs with them, songs are anyway paying for themselves. But rather than using random people right now for our songs, we sign up artists and work with them only in the songs. So the money comes not only from the songs, but by also monetizing the artist itself. We currently have some 123-odd artists, which are sitting under Pocket Aces and on 15, which are sitting under the Saregama side. As the investment in newer IP becomes more and more, we see these artists as a result of it becoming bigger and bigger, allowing us to make more money. Remember, digital advertising is growing at 31% per annum and we believe a large chunk of this investment, which is moving on the digital side will finally start following artists/influencers. And you know who will be the biggest beneficiary in Saregama because Clout, our artist management, influencer management business that we have under Pocket Aces is the #1 player in this market. In fact, recently, they won the most innovative marketing agency at the Entrepreneurship Awards of 2023. And with Saregama and Pocket Aces coming together is going to give us a massive edge because compared to every other artist management agency who just manage the artists, we are the only people who can give breaks to artists in our own content, which means if an artist joins works with Agency X, they may agree to give a margin A to them. But if they work with us, we can get, in fact, 2A margin from the artist because we are also aligning the artist to feature in the video that we people are doing. None of the other artist management agencies have a content business going on. Net-net, with a stated goal of acquiring 25% to 30% of all new music which is getting released in India, we are very confident that our music licensing business, that vertical should be able to double their revenues in the next 3 to 3.5 years. And all this new content that we are talking about is going to be funded through our internal accruals or the QIP money. Let me now shift gears and move to the video vertical, where we make films under the brand name Yoodlee. Digital content under the brand name of Dice, which is a vertical at Pocket brand on the Pocket Aces. On Instagram, we make content right now under the brand name FilterCopy and Nutshell. It's the explosion in the smartphone penetration and the relatively cheaper data, which is the biggest driver of this vertical. We are still in very early stages of video. Online music where we have got over 120 years of experience now. The video vertical is a very, very new vertical for us. We believe over the next 5 years, we should be able to grow this vertical at a CAGR of 25%, and in a stable state should be able to give us a 15% margin. The way our deal structuring is done in terms of cash inflows and outflows, what I'm very happy to share with you that a 15% margin will result into a 21% IRR on this business. And the only capital actually you need out here for this is more in the nature of working capital, which again is going to be managed through internal accruals or maybe a small working capital line. Quarter 3 saw the release from the Pocket Aces' side of Crushed Season 3 and Half Love Half Arranged series. They all came under the brand name Dice and we released on Amazon. They were part of -- they were released by Pocket Aces before 11th of November, and the financial numbers you are seeing right are now are only Pocket Aces numbers post-11 November have been taken in. So we don't have the benefit of the revenues of these 2. But it's also -- just to -- I'm sharing this information just to tell you how strong our other business of Pocket Aces is. FilterCopy, the biggest youth Instagram channel that we people -- that are owned by Saregama through pocket Aces, actually completed over 1 billion views on Instagram between January to November of '23, making it by far the biggest thing that you're seeing on Instagram today. What is it resulting in, it is resulting into lots of brands, now chasing FilterCopy to get their products integrated into the video, and we see this business going up multiple fold. There were not too much of action happening on the Yoodlee side in quarter 3. Quarter 4, we'll see 2 Malayalam films and 2 Punjabi films getting released. The live events business of ours whose primary objective is to go and support the music business saw a successful Australia tour of Diljit Dosanjh. And we also did a show with a Javed Akhtar saheb on the stories behind the biggest songs that had ever been released. Everywhere, it's a music element, which is important working with them, whether it is Diljit Dosanjh or Divine, also helps us to go out there and get into deeper relationships with these artists, which facilitates more and more of their music coming across to us. Last call, I had spoken to you people about the music learning app that we people plan to launch, which will teach music fans how to sing or play instruments using artificial intelligence. All the hits songs of Saregama from Lata Mangeshkar, Lag Jaa Gale to Arjit Singh's what Jhumka of Rocky and Rani Kii Prem Kahaani, will be taught using this app. And the best part is the people who are -- who do well in these courses, which are all going to be paid courses will be given a chance to release a song or an album with Saregama, something that nobody else in the market can go back and support. Just like what we did many years ago with Carvaan, this will be a one more way for us to monetize our incredible music library. We are hoping to launch this app sometime in March or April this year. And the way the app is being built, it seamlessly integrates with every other vertical we have in the company. Just on the topic of technology, we are really going very heavy on converting all our older songs which were recorded using that times' technology into Dolby Atmos or spatial audio. Some over 2,500 songs have already been converted. The good news is a lot of platforms like Apple are actually now incentivizing labels who are putting up their content in the newer format. Also, a presence in these newer formats means that many more younger people are more open to the idea of listening to the older songs. Carvaan saw a marginal decline in revenues this quarter. Though the unit sale numbers have gone up, we are seeing more and more -- we are selling more and more of the lower-priced units. This is a very conscious effort from our activity happening from our side. We have significantly in this quarter reduced -- further reduced sales and marketing expenses that we are making on Carvaan. We are comfortable with the Carvaan revenues going down. In fact, the general thought in the company is that as we move ahead, more and more, we are going to move Carvaan from a retail product to only an e-commerce selling product. Over the next 3 years, we should be 3, 3.5 years, I would say. We should be investing over INR 1,000 crores in new content, all coming out of our internal accruals and QIP money. This will not only contribute to the immediate growth but also put company on a long-term growth path. The only reason that our numbers or we are #2 today and not #1 in the music market is because we did not invest enough between 2000 to 2018, 2019. We want to go back and correct that and invest heavy. While we are investing heavy, we will for the first 12 to 18 months hold on to our absolute profitability. After 18 months, you will start seeing a steep increase in profitability. And from year 3 onwards, you are then looking when the step function jump and investment will go away and a linear increase is going to be happening, the profitability should go up in a significant fashion. If I look at overall revenue for the company, excluding Carvaan, please keep Carvaan out for the time being. We expect overall revenue of the company to continue growing at over a 3- to 5-year period at 25%, 26% CAGR. And the overall profitability of the company, PBT of the company to double in the next 3 to 4 years. Both the music vertical and the video vertical are going to contribute to this. Having -- and I'll again repeat, it's easy for us to stop all investments and just focus on short-term profitability. We have taken a conscious call that's not the track that we are going to follow. We will invest heavy on content while ensuring right now that we maintain a short-term profitability but in the midterm, we keep on putting -- increasing our profitability and in the long run this company will be much more stronger than what this company is today. You have just touched the tip of the iceberg. As subscription economy starts taking off in the next 18, 24 months, you will see lots of money being made. That's what is happening in every other part of the world. India -- and it's happening in -- from the video space in India also, it is bound to happen and the company, which is investing heavy, company that is using Artificial Intelligence to go out there and make the right content selection and has got technology to ensure there's no revenue leakage that's going to be happening in the company, which is going to have the last laugh. And we are very, very confident that we are on track to be in that position. Lastly, I'm thankful to the Board, which has declared a 400% interim dividend. This is both way of thanking our investors for the faith and confidence they have shown in the company. Thank you, and I'll be happy to take questions now.

[Operator Instructions] The first question is from the line of Pulkit Chawla from Emkay Global Financial Services Limited.

So just wanted some understanding in this transition of movement to a paid platform. Now assuming that these key players that have actually transitioned to the complete paid platform would not have had a major market share, the impact on your revenues seems to be quite decent. And particularly, your competitor hasn't really seen any impact there. So is there any difference in the way they deal the structure here? So could you throw some color round this first?

So let me not talk about competition, that's wrong on my part. All I can tell you is that we people have a significant part of our revenue from all these platforms. Unlike some of the other overall music industry players listed and unlisted, Saregama wasn't -- had gone out there and struck relationships with all the 9 platforms and got that efficiency level 2.5 to 3 years ago. Some of the other guys have been able to do it over the last 12 months. So we already had a step jump that we had seen in our revenues in the past. So there was no new platform coming in my life. We've already had -- were running on a full efficiency there. The impact was a little bigger on us. These 3 people were significant, Resso, Gaana, and Hungama. The impact you are seeing on the revenue, we have been able to counter it. So I think as we are comfortable, we have been able to counter it significantly now through increasing revenue from the other verticals. The good news is that come quarter 4, the entire thing will be factored in. After that, we will -- and that's why I'm assuring you right now, we will be back on track to go out there and at the company level start achieving 25%, 26% revenue growth.

That's helpful. Second, on Resso, I think now that Resso has started to move to India, do we see any financial impact here or these users that transitioned to a different platform and consequently, like a company like ours, it's not hit at all?

Completely Resso had moved from a free to paid. Revenue had come down to -- had come down dramatically, and that has been factored in for the last -- this is the third quarter in which that has been factored in.

Okay. And do you also foresee some -- that some more players might shut shop and maybe consolidation in the industry?

So see, shut shop doesn't -- right now, who are the players that are left here. On the paid side, you have Apple, Amazon sitting in, who are the big players that are sitting in here. You have YouTube premium, which is sitting here. All significant big players, nothing is going to happen there. You have on the paid side, Gaana and Hungama. The movement they went to the paid side, minimum guarantee went away. So the revenue -- the adverse impact on revenue has already completely got factored in. If anything, the numbers are going to go up if as and when the pay business starts taking off. The other 3 big guys who are there left, which is Spotify, Wynk, and Saavn, if they move to paid, the overall industry is going to go up and jump on the OTT side by 2, 2.5x in revenue. We're just waiting for these 3 people to go and turn paid.

And finally, just a plan for the remaining QIP funds, is it to be used for more acquisitions or just for picking up new content?

So it will be used for strengthening our position in the space of music. Both organic and inorganic are being looked at as and when an opportunity rises. It will be only and only for music. We have no intent to use it for a video vertical.

And the next question is from the line of [ CA Garvit Goyal from NVEST Analysis Advisory LLP ].

First question is on the guidance side. So is the guidance that we have been provided for this year, it remains intact or not?

So you need to clarify what guidance are we talking about, which guidance are we talking about?

Our top line guidance, sir? Like we were targeting a ballpark number of INR 930 crores, INR 940 crores for FY'24.

I've never given that guidance. So sorry, I'll have to...

We have given in terms of CAGR, right, 22% to 25% CAGR.

I'll again go back on this. What we people have said in the beginning is that we expected music part to grow, licensing part to grow at 23%. At the corporate level, we have not given a guidance. We are maintaining our part that on a 3-year basis, we see our 25% to 26% CAGR at the corporate level.

Then this 25% to 26% CAGR is on an overall basis or for the music segment only?

Corporate level, we are giving a guidance of 25% to 26% CAGR over the next 3 to 5 years.

Understood. And sir, you mentioned like Q2 onwards, the growth will be there in the music segment like the older pay is factored in. So I need to understand by growth, do you mean like the benefit in the terms of the subscription model is likely to come in from FY '25 only? Or it will take some time to ramp?

So let me further qualify, when I'm saying 25%, 26%, please, you have to remove the Carvaan revenues out of it completely. And in end of the year, we always end up declaring right now what the Carvaan revenue is. Carve out the Carvaan revenues. On the remaining base which is the core business of the company, we are looking at 25% to 26% growth. First, that's a point. This growth that we are seeing is basis the business being the way it is today. It's just a new content strategy, which is going to help us achieve this. As and when the business -- OTT business starts turning towards pay in 18 to 24 months, our growth and our profitability can become even better.

Understood sir. And sir, you also mentioned like Spotify, Wynk and Saavn going behind the paywall. So is there any expected time lines or the negotiations happening? Or what is the scenario right now for them.

I'm not saying they're going behind paywall. I am nobody to go and declare that. I'm saying they are the only ones who are left, who are not gone behind a paywall. When they go behind the paywall, it will result into the entire industry behind a paywall and the revenues that music labels make from OTT platform should go up by 2 to 3x. My personal belief is in the next 12 to 18 months, you will end up getting these guys also moving. A year back, we had maintained a stand that in 2 to 3 years, industry will go behind the paywall. During this -- in last 1 year already 3 have moved. Hopefully, the second part of the -- my projection or hope is also going to come true.

The next question is from the line of [ Nitin Sharma from MC Pro Research ].

So 2 questions. First of all, this INR 1,000 crore content investment, is there a broader breakup in mind to how much will be spent on different categories and also some visibility on the event segment will be helpful.

So on music part, we will -- this investment that we are talking about right now is going to be spread between both Hindi and Regional with a large share going on the Regional side. We believe that Regional music ends up giving you a better return on investment. The competitive intensity out there is also on the lower side, and we are very, very strongly placed to take pole position in all the regional languages of the country. Also, we are realizing that over the last 10 years, the consumption pattern of people is changing from -- on entertainment side, both video and music, it's changing from listening only to Hindi or English music to consuming more and more of content in their own languages, the local languages. And we are just trying to take benefit of this change in the culture. Now your second part was on the live event side. See live event side, we are just an year old on the live event side. We are still testing waters. We have not gone out there and done any massive investments. And actually, there is no investment needed in live event. It's literally a working capital that gets stuck out there for a month to 45 days at any particular time. Our focus is to primarily work with the top singers, allowing us to build a deeper relationship. Till now, we have worked primarily with Diljit Dosanjh, resulting into Diljit Dosanjh giving us a song for the first time. Diljit, as you may know, is one of the -- is the biggest non-film singer in India and getting a song from Diljit is a very big thing, which speaks just the strength of our relationship courtesy the live event business that we ended up releasing a song with Diljit in the first week of January this year. And with Divine, who's the biggest rapper, something similar is happening. We are doing the work on the live event side, which already has helped us release a song of Divine. So we will use live events in a more strategic fashion to just go and build, cultivate relationships. Will live event become a loss leader? No. Give us a year or so for us to stabilize this business. And we believe right now that there will be some amount of margin up. It will be single-digit margin business, but a much higher IRR because the capital gets locked out there for a very, very short time.

So is there any thought process in terms of how many live events you would have in a particular...

Very early in the day. All I can tell you, our live event business will be limited only to music. We are not competing with other people right now who do live events. We are focusing only and only musical concert or musical plays and nothing else. We will go and grow this in a very slow and steady fashion and not in a big-bang approach.

Understood. And my second question is a bookkeeping one. So what is the other noncurrent financial liabilities and what it is like at the end of December?

I'll request Pankaj, please, if you can take that.

Yes, sure. So we have recorded the investment in Pocket Aces. So when the same has got consolidated, we recorded investment in the stand-alone books as well as there is a derivative liability for the future acquisition. So basically, that's all gone in the unallocated bucket. This is the purchase price allocation that we have done for our valuation of Pocket Aces investments.

And the next question is from the line of Lokesh Manik from Vallum Capital.

Vikram the first question is on your thesis that given in 18 months, we see many people go behind the paid wall. So just to play Devil's Advocate. We've seen this in the global markets. In India, here we are quite lower on the per capita income front. So just want to get a sense of what gives you the confidence that people will shift towards prepaid economy. That is -- that was the first part. And the second is...

We don't break the chain of thought here. The growth projection that we have been giving right now, which is that we will be able to grow the company minus the Carvaan numbers, excluding 25%, 26% and should be able to double our profits in the next 3 to 4 years. This is independent of OTT business turning, going behind the paid wall. I want to make that point very clear. As and when we move behind the paid wall, that's a cherry on the top. The second part is what gives us the confidence. I was asked a very similar question in 2006 when I was part of a different company. On the DTH side saying that what was giving us confidence that DTH will ever take off in India when the rates of DTH was twice that of cable in 2006. And here, you had not 1, not 2 at that time, 3 platforms going away, very big. And even today, they are at a very, very significant scale in spite of having a rate which is higher than cable. If you start looking at the video OTT platforms, whether it's Jio or it's a Hotstar or it is a Voot, Sony Liv, Zee5, Netflix, Amazon, the numbers are significantly high. So it's not that Indians don't want to pay. But if you -- you need to give me a value and you'd need to stop somewhere the availability of free, then people are ready to pay for entertainment. The other way -- so the key part is the 3 guys who were giving it free have to go behind the paid wall. Piracy is dying in the larger cities. So somebody sitting in Bombay, Delhi, Bangalore, Calcutta, Lucknow, Jaipur, if we go back and shut the tap on the free side, the customer will go back and go behind a paid wall as long as the pricing is a reasonable pricing. It is not a INR 500 per month market also on the music side. But a double-digit number on a per monthly subscription is something most Indians will be very comfortable paying. So yes, I'm very confident that these 3 players, as they start moving more aggressive on the pay side and start putting their content completely behind a pay wall, which as music labels, we will very strongly support, you will see that economy taking off in a very big fashion. If you already see on the biggest platform already as Spotify, they made the free experience reasonably bad. It's still available free, but the amount of breaks and advertising and the gaps that they started putting in here is pushing people towards the pay side and you will see this number growing up significantly.

Vikram, my second question was on live event vertical. So globally, what we are seeing is Music is dominated usually by the non-film music and single artist. Is that a trend you're seeing in India or you would have some statistics in terms of what percentage is film-music and non-film music?

I'm not very clear, but you said -- your voice right now was echoing. In the international market, we see what?

In the international market, Music is dominated by non-film music. There is no film music in the international market. You have the independent baskets, like I say...

So the live event business -- a live music business is based on all the non-film artist only. The 2 names I gave you with whom we have been working at this juncture, Diljit Dosanjh, the biggest non-film artist coming out of India; Divine, the biggest rapper coming out of India. We are in this quarter 4 which I'll talk about and then we talk about quarter 4, 3 months from now, have just launched a new vertical under the talent management called Saregama Talent whereby we are now grooming young kids, who are very talented or musical prodigies to become great performers with a eye not only to make their music videos and songs big, but also to start pitching them for live concerts and shows. So that 3, 4 years from now, Saregama becomes a label, which has Tailor Swift or Justin Bieber equivalent artist coming out there from our stable, who will become big, both on recorded music circuit as well as the live circuit.

I'm sorry to interrupt. My question was actually, are you seeing a trend change in the industry where you are seeing non-film music picking up in India versus film music?

I think I've answered -- by seeing that trend. That's why we are investing on these artists.

Okay. So what percentage would this be? Any idea?

I think that's getting -- see granular -- in general see film music still dominates. There is nothing that compares with a Ranveer Singh and Alia Bhatt dancing to Tum Kya Mile or What Jhumka; there's a magic, it is something very, very different. We're a movie crazy country. But the younger generation is also very open to listening to non-film music. And that's why we want to strengthen our relationships with all the major non-film big artists across languages, whether it's Hindi or Bhojpuri or Gujarati or Bengali or Punjabi and also start creating some of the artist of our own.

And the next question is from the line of [ Govindarajan from CSIM ].

I have 2 quick questions. First, you said the industry has done away with minimum guarantees. Is this limited to these 3 players who have gone behind paid or the minimum guarantees are done away for Spotify, Saavn and...

So in general, minimum guarantees are taken out for the guys who have gone fully behind paid.

Okay. So the other 3 are still with minimum guarantees?

I can't comment on that part. But the one who have gone behind paid walls don't have minimum guarantees.

Okay. But you're not telling me whether the others are with minimum or they're not?

There are all kinds of model, you're getting into a very specific path right now, and there are only 3 guys left. So I'll leave it there. But the pay guys are all now sitting without minimum guarantees. There we get a percentage of actuals, which is the way business is done in all other parts of the world.

Sure. The reason I ask is there's been a big disruption to revenues because of these guys going away from minimum guarantee and that could happen with the other 3 as well.

So the beauty part is that other 3, the moment they go behind the paid wall, the pay economy takes off because then user has no option. Right now, we are in the worst phase as a company, is that 3 people are -- have gone behind paid wall. So money from [Technical Difficulty] has stopped, which were there, significantly there in financial year '23 has become 0 in financial year '24 for us. While the pay hasn't taken off because the other 3 continue to be there on the free side. Though consumer has been able to shift to those guys, the moment those 3 also goes and everybody goes behind a paid wall and then the pay economy takes off, which is 2 to 3x higher revenue paying than the free guys. For us, the redeeming feature is that unlike some other people, we had a significant revenue coming from these guys in the FY '23 revenue base. That's why we are -- on a like-to-like basis, FY '24 is under pressure. But in FY '24, you don't have revenues from any of these people now. So starting base right now from 1st April, you will once again see a very significant growth coming in.

Okay. I get that. Second, you had mentioned the total acquisition -- music acquisition of about INR 1,000 crores. I mean, you're roughly talking about INR 300 crores a year. If I look at your cash flow statements for the 9 months, you've invested about INR 160 crores in new music, spent on new content. Is that the equivalent number that we are talking about, INR 160 crores over the 9 months going to INR 300 crores a year?

Say roughly, yes. Broadly, yes.

Okay. And given your accounting policy, content charges should go to INR 300 crores in about 3, 4 years. It should catch up with the regular spend in 3, 4 years once we...

So the previous year, in any year, marketing expenses are charged off immediately, just keep that in mind and market deep ratio, marketing to content vary from language to language. There are languages where marketing is pretty high, while there are languages, the marketing is very, very low. So depending on the mix, year-on-year basis, right now, the marketing gets charged off immediately. And then you take the first year charge-offs of that year's investment and the second or the third or fourth year charge-off of the previous year's investments.

Yes, sure. A few -- I think a couple of years back, you'd mentioned generally, marketing is about 25% of the spend.

Yes, it is. On an aggregate level, yes, it is.

Okay. I'm just a little confused on the one statement that you made that you expect to hold on to profitability in the next 12 to 18 months. Are we talking about percentage margins? Or are we talking about absolute profits?

The absolute numbers -- hold on means there will be an improvement in profitability going all throughout. What you will see that the revenue will grow at a rate slightly faster over the next 18 months, then the rate in which profitability is growing. But over a period of 3.5 years right now, you are talking of profitability also doubling as revenue also comes close to doubling.

Yes, it's a tricky period because this is when your content charges will go up a lot from INR 25 crores...

But the absolute numbers, you will never have a situation. The growth rate on profitability may be lower than the growth rate in revenue, but the growth rate is going to be a significant positive growth rate. I hope I'm clear.

Okay. Yes, yes, I understand. And lastly, for the 3 guys who haven't moved to paid, especially one of them who has made -- Spotify, you mentioned has made free not so attractive. Are we seeing any change in the mix of paid with the subscriber?

Yes, we are. I'll just leave it there. Yes, we are. The green shoots are there all across. So we are happy with the way things are moving.

The next question is from the line of [ Keval from DSP Investment Managers ].

So first of all, sir, can you throw some light on how are the payment terms different under free subscription and paid wall?

So on the -- typically on the free side, we get paid on an average INR 0.10 per stream. If then somebody listens to our song say 3 customer, on an average, we get paid INR 0.10. And if it's a paid customer, we get a share, which is roughly 50% of what the customer is paying. We get a share of that 50% based on actual consumption. So if you have heard 50 songs, so suppose you are INR 100 subscriber, then around INR 50 will be treated as the content pool which will get equally divided across all the songs you heard during the month. So if you heard 50 songs, then every song starts becoming worth 1 Re; if you heard the 100 songs, every songs starts becoming worth INR 0.50. That's a pay part. Free part is INR 0.10 flat on per stream heard. In the case, the platform is offering both free and pay, we charge a minimum guarantee typically. If the platform is only pay, we take away this condition of minimum guarantee.

Understood, sir. So again, a question on that. So let's say, it's up on a paid customer, he listens to 100 songs and he has paid INR 500 for subscription. So now I understand that, that INR 500, 50% of that divides between 100 songs and it's paid to the particular labels. Now in the case, let's say, he hears 1,000 songs for that INR 500 of subscription. So isn't it a double-edged sword that on paid wall, we might even get lower remuneration compared to free side?

Sure. If we get 100 million customers and all of them spend 14 hours a day just listening to music, maybe you're right. In that case, the deal structures are going to get changed once again. But what we're asking is probable part because we are seeing global standards also. The younger segment, which is the early mover segment that comes in is that intense music listing part and they end up doing 100 songs odd on a per month basis. Most people like you and me typically don't get that kind of a time to listen to music on a daily basis, month after month at that significant number. But we -- right now, deals are all done keeping in mind the amount of consumption, which is happening. We are getting data on the consumption basis also. So we know what we are getting with the guys who have turned paid. We believe at this juncture, looking at that data, the value of a song heard by our paid customer is any time between 2.5 to 5x of a song heard by a free customer.

Understood, sir. And sir, last question that you mentioned. Payments from 3 platforms have been stopped. So what is the reason? And how big is the impact of that?

Corrections out here, minimum guarantees are stopped because they have moved from free to pay. And in pay, we don't charge minimum guarantees, their pay business is yet to build up. If 3 had a significant play out there with us, I can't give you the specific now. But whatever it is quarters or 3 quarters have already been factored in, there's only 1 quarter left. After that, the entire impact of these 3 players going out is going to be wiped out. And we people start building right now once again, giving me the confidence that we should be able to grow the revenue of the company at a 25% to 26% CAGR over the next 3 to 5 years.

And the next question is from the line of Udhayaprakash from Value Research.

I want to understand how the performance of movie affects your screening, let's say, after movie release. Can you give in the context of, let's say, an album that hasn't been...

I'm not -- can you please repeat the question?

Sir, I want to understand how the streaming of a particular album or a song continues after the release of a movie happened? How does the reception of the movie affect the streaming -- number of streams going forward? Can you give in the context of, let's say, an album that hasn't been received as well, but movie has performed well. On the other hand, an album that has been received very well but the movie didn't perform well. How much impact does it make? And how does it affect -- because the acquired content based on the story and based on we have our own calculations, payback and everything but performance of a movie, does it change those things. Does it have a huge impact on it?

So see, at a very broad level, a movie performance does impact. But does it impact very significantly? No. If you look at earlier days, 60s, 70s, 80s. If I'm going to give you some of the songs, I can bet that you won't even know the names of the movies but the songs became very, very big. It very often happens even today that songs which are coming from smaller movies suddenly become very, very big. But in general, if the movie is also a hit like a very good example I'll take for you right now is this movie called 12th Fail. Have you heard of the movie? It's a Vidhu Vinod Chopra's movie, which has become a massive hit. It's a very small budget film, which has become a raging hit at this moment. The actors were -- they're not the A category actor, they are amazing actors, but they were not the A category actor. So the moneys that we paid for the movie cum music right now were also on the lower side. The songs opened on the lower side of traction. We released the song before the release of the film. It was not a very big number in terms of streams that we were getting of video views. As the movie became a hit on the theater and has become an even bigger on Hotstar, the performance of the songs on a daily streams have gone up by 8x. So it has an impact. And in the other way also, if you like look at a movie called Zara Hatke Zara Bachke and the producer of Zara Hatke Zara Bachke has gone on record saying that the only reason the movie opened up that big, because the songs became a cult even before the release of the film. So there is a relationship between the music and films, but it's not a complete causal effect relationship. I'll call it a more of a linearity effect out here. There is a correlation between the 2, but not 100% causal effect. So one's success or one's failure doesn't necessarily result into other things also failing or successful. On YouTube, if it's my favorite actor dancing and I like the video of them very, very well, it really doesn't matter right now whether the movie became very hit or not.

So we can say that if the movie is performing well, we'll have a multiplier effect on the album but on the other hand, even if the movie doesn't perform well, that doesn't mean there will be an equal downside, but there will be a slight impact on the performance of the number of streams, let's say, going forward.

What you also realize is that sometimes when the music is not as per our expectations, even if the movie does well right now, does nothing to the song. So it's a combination. See when we pay on films, what we are ensuring is that some of the biggest stars whose face has got a crazy amount of fan following, they get connected to the music of -- or the video of that song. And hence, we get massive amount of sampling upfront, which means the marketing money that we have to spend to make that song popular come down dramatically because every fan is going to go out there and listen to the song at least once or twice. And then the song also start working on its own.

And sir, my second question is on the difference between our approach to, let's say, a big movie and a small movie. When you're approaching a big movie that has big stars and a big production house, [ the 100 C camps ], also we cannot necessarily -- we cannot go ahead and give a number that you will achieve this number of views, but you will know that certain set of audience will listen to the song, but the same cannot be assured or expected for a small movie. So can we say that when we are -- although we are still paying lower amount when we acquire content for small movies which is more of a volume gain, can we say, related to the Bollywood or Regional languages.

So what often happens is when you're working on smaller movies, smaller movies means is not working with the top actors and actresses or directors. At that time, we put up a lot of importance also on the quality on music that's coming out. We definitely -- see there's a whole idea of applying predictive AI to decide whether to take it or not, even with the smaller actors and what is the amount of money we can make from it, that applies to every song that we people acquire in the company. So predictive AI has got a big role there. But after that, on a smaller movie, if the quality of songs is a very decent, we just go and pick it up. If the quality of the music is also not something that we people enjoy, in that case, there are bigger movies, some of the movies that got released recently, we have said no to those movies in the past.

Okay, sir. And my final question is on, sir, we have always been aggressive in the front of marketing -- I mean, for our new release. So how will Pocket Aces come into play in this area, sir, marketing of a new content?

In a short -- I will just give you one start out here in this very, very short period of some 45 days that we people have worked together with Pocket Aces in Q3. We already had managed together reach of 60 million on the digital side for our music using Pocket Aces assets. So it's helping us magnify the popularity of our songs manifold using the footprint that Pocket Aces has. If I remember my numbers correctly, Pocket Aces has added over 110, 120 million to our overall digital footprint. Today, as a company and very few companies can go back and claim what I'm going to be saying next to you. But as a company, if I look at our stuff, we have got over 230 million subscribers/followers on digital media. This is the biggest currency we are investing in. Tomorrow, when customers want to listen to something and brands want to advertise anywhere, this is what's going to help us and put us on a pole position compared to all other players who are playing it out and maybe driving current profitability rather than preparing the company for 3 to 5 years down the line.

And so will the -- right now on significant stake in Pocket Aces and we also use them for marketing our new content. Can we also expect cost synergies in terms of marketing going forward?

There will be. So right now, rather than trying to go out there and just reduce cost, we are saying how can we go there and give bigger growth. Our focus in the cost, there are areas in which cost efficiencies are being driven, not necessarily just to go out and cut marketing expenses. I think the growth opportunity is very much bigger one sitting in front of us. How do I make my songs which are released by the music side become that much bigger using that digital power of Pocket Aces? And how do I make the influencer business that Pockets Aces has become that much bigger using our ability to create music and music videos so that both businesses grow at a much faster pace than they were doing in the past to achieve the synergies. And that's the reason I'm saying we are really growing at 25%, 26% on a sustained basis, that's where all these growth numbers are coming from.

Ladies and gentlemen, the last question for today is from the line of Chirag Shah from White Pine Investment Management Private Limited.

Sir, first, just a basic question of clarification. So for example, YouTube has gone behind paid wall. So even if there is a free subscriber who is listening to YouTube and listening to a particular music, how would you be paid for that? And how different it is? What is the gap versus a paid subscriber over here?

For YouTube, there are 2 services; There is YouTube and there's YouTube premium. On YouTube is a free part. If -- on a YouTube free part, if an ad is presented on any IP that we people control, either on our own channel called user-generated content, if an ad is being put, we get 55% of it. YouTube retains 45% of it. That's a [Foreign Language] business Model.

Yes, yes, I was asking about...

So that's free. If you move to the paid part of YouTube, you are a paid subscriber of YouTube, which means no ads are going to be presented to you. In that case, whatever you're paying to YouTube, it follows a very similar model like audio streaming platforms, whatever you paid to YouTube a percentage of that is earmarked as content pool, which will be divided equally across all the content you consume during that time.

So look, staying on the free part, so you are saying if the ad is played, music is played and the ad is played, whichever, you get 55% of that ad that -- I didn't understand that.

So suppose you are Hindustan Lever, and you have put up an ad, your campaign is going on, you paid x rupee right now for every time your ad is presented behind, before a video and between the video.

Okay. I understood now.

So that money will come to us.

But I presume that would be far lower on a per song basis as compared to what you get in paid. Maybe on the paid subscriber would be 4, 5x and more than this, right? Is that the right way to...

Paid economy, I'll repeat what I said earlier. In general, a paid customer when he or she consumes our music ends up being 2 to 3x more valuable.

2 to 3x more, okay. Okay. Sir, second, a basic query, suppose in the case of a paid subscriber, okay, if the song is downloaded by him in his mobile library. I'm just using a mobile up here as an example. And if he repeatedly hears it when either he is off-line or online, it -- in both the cases, it will be counted a number of times, right? So there are algos, even if they listen to the song off-line...

Contractually, we are protected there. And all these platforms have a technology, whereby at the local cache level in the app, they will be keeping a track of how many times you heard if you are a paid customer or free customer. They also -- when you off-line something, they also often off-line ads along with it. So that when you are watching something off-line also, ads are also presented there. So we get advantage of all that.

Okay. So there are algos or softwares available even if it is off-line. My expectation is you get a full subscriber.

Not now, this is over a 5-year old technology.

Yes, yes, I know that's just. Sir, last thing is, if I have to ask you that the music content acquisition payback, how do you look at it over the next 3 years as compared to past 3 years, maybe for yourself as well as the industry. So has the payback got elongated. And if yes, how much it has got elongated versus what you have seen in last 3 year?

Actually, it has not got elongated right now. When we started investing in newer content, when -- literally, we were buying music in lakhs or INR 1 crore that time also I maintained the policy of 5-year payback period. And if you go through every call of mine over the last 7, 8 years, you will consistently hear that our internal benchmark is 5 years. We buy only content right now where we are confident and we should be able to manage things in pay back periods of 5 years. Wherever we believe that the numbers are going to become on the much longer side that each -- the content is overvalued, we just walk out of those deals.

So you are saying despite there has been some aggression in the industry, because some of this content has even gone for INR 30 crores and INR 40 crores that kind of numbers, wherein the paybacks are not getting affected. That is how...

So I'll give twin answers to this. One, if the value of the content has gone up, then the revenue from that content have also gone up. YouTubes of the world or streaming apps or short format app like Instagrams were not giving you money 5 years ago, the way they're giving now. So content pricing goes in sync with the realization we people are having. Also, on the competitive intensity, in every language, there are only 2 to 3 players. There's nobody else. It's not that the 20 players are fighting this out south because entry barriers are very, very high in music industry. So it's between 2, 3 players.

Okay. So this is helpful. Sir, I was under impression that given the way recent biddings have happened for song or for albums and maybe movie as well, is there a risk that paybacks got elongated?

No, I'll just give you just a number. Something I posted 2 days ago, I'll give you an example of this. We had done a Bhojpuri song an year back on Lal Ghaghara, by Bhojpuri #1 star called Pawan. And that song just two days ago, has crossed 300 million views on YouTube. 100 million was unheard of thought from 4 years ago in our country.

No, I was more referring to movie album, the way...

In movie album, on Rocky Aur Rani kii Prem Kahaani we already 100 million number. I have Badshah song of Pani Pani touching 700 million. I have the songs of Zara Hatke Zara Bachke, 2 of them crossing 120 million. Many of them are crossing -- over 100 million [Foreign Language] number on Spotify alone. So as digital explosion is happening, more people are coming as part of this digital band wagon, the overall consumption has gone up in a significant fashion. I have What Jhumka, which is sitting at over 260 million views on YouTube today. I have Phir Aur Kya Chahiye sitting at 240 million. I have a Telugu song called from the movie Dasara sitting at 210 million, from Telugu movie Kushi sitting at 170 million. So you have a Tere Vaaste from Zara Hatke sitting at 420 million, and movie is not even 1 year old. So the numbers are looking are much, much massive. The key part out here is that the fundamentals that are used to buy music has to be very strong. We have invested very heavily on predictive AI, which is becoming a big aid to us. Second, we have a decentralized decision-taking mechanism so that somebody sitting in Bombay at the senior level is not taking all the decision. Somebody who understands the local languages is taking a decision so that the person -- and that person is taking the decision is also responsible for the revenue numbers that are coming in. Their bonuses are tied to what kind of a payback is the music selected by them giving. So these mechanisms that we have built in the setup of ours, which is 100% professionally driven here is what gives me the confidence that we will be able to sustain this via payback. And on payback even I don't even give you a guidance of 5% to 7%, I'm very clear about it. It can't exceed 5%.

Thank you. Ladies and gentlemen, that was the last question for today. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.