Saregama,Tips Industries Strike Right Chord: Why Indian Music Stock Delivered A Sound 20X Returns Over The Last 5 Years

A five lakh investment in the shares of Saregama India Limited and TIPS Industries five years ago would have turned into a crore today. In comparison, the same investment during the same time period in the index would have just doubled your money.

The rise in music stock prices is a result of the streaming boom that has moved beyond traditional music apps into social media as well.

The Turnaround

With increasing piracy, and the advent of YouTube, the music industry appeared to have been in a state of perpetual decline for years. According to a CNN report, in 1999, the US music industry brought in $14 billion in revenues, which declined to $6 billion in 2014.

But, since 2014, the music industry has been on a rebound and has grown for seven consecutive years. While physical records have been rendered obsolete, streaming is the white knight for the music industry. A report by the International Federation of the Phonographic Industry (IFPI) said that growth has mainly been led by streaming services.

Spotify had 12.4 crore paid subscribers in 2020. Similarly, Amazon and Apple Music have several around five to six crore users each. In addition, there are a large percentage of unpaid listeners as well. Streaming allows users to carry their entire music collection everywhere and gives them access to global music in return for a small monthly fee.

And the boom isn’t limited to a few countries but appears to be a secular trend across countries and continents, according to the IFPI report.

As a result, the music industry has seen a new wave of large Initial Public Offerings. Universal Music Group and Warner Music Group listed on the markets in 2021 and 2020, respectively. The Universal Music Group IPO saw a strong reception from investors. Even before the IPO, its valuation rose six times in five years. Clearly, investors are thoroughly impressed by the boom.

Beyond Streaming Apps

The rise of social media apps such as TikTok, Instagram, SnapChat and others, which stream music for various shorts, reels and stories, have further added to the royalty revenues of record companies. The consumption of music on social media has had a huge impact, with several social media sites tying up with record companies.

“With an expanding number of partnerships including Facebook, TikTok, and Snap, among others, social media is already a meaningful nine-figure revenue stream for us and is growing at a faster rate than subscription streaming,” Steve Cooper, CEO of Warner Music said.

Globally, streaming has come to represent around 62 per cent of the revenue pie of record companies.

How did the Indian Music Industry Fare?

Listed music major Saregama said that its musical intellectual property (IP) was used 85 billion times in financial year 2021 alone. It licenses its IP to gaana.com, Spotify, Amazon Music, Hungama, Wynk, Saavn and several other popular apps.

The segment has grown by 40 per cent year on year for FY21. Further, several video streaming platforms use music owned by Saregama as well. In addition, its views on YouTube have grown from 0.5 million to 940 million in just five years. The company has signed deals with social media platforms as well.

“Last year Saregama signed licensing deals with Facebook and short-format video sharing apps like Instagram, Josh, Triller etc,” said its 2021 annual report.

The business owns the intellectual property licenses to a large library of extremely popular music. These licenses last into perpetuity, allowing it to earn royalties on the music for years. In addition, it has also been acquiring new music, both film and non-film. According to its annual report, in FY21, it added video and audio rights to 162 new songs.

In total, licensing contributed to around 64 per cent of the company’s consolidated revenues.

For Tips Industries, licensing contributed to 100 per cent of the company’s revenues for FY21. The company has been tying up with streaming and social media platforms as well, according to its annual report.

“With regard to music, The Company has signed two global deals in the year 2020-21. Distribution deal with WARNER Music 22 Tips Industries Limited to distribute music to international streaming platforms like Deezer and Anghami, and another global deal with social media giant Facebook to license its music for videos and other social experiences across Facebook and Instagram,” said the Tips 2021 Annual Report.

As the streaming business matures, platforms are expected to hike prices as the focus moves away from driving penetration and adoption to profitability. Spotify has already begun increasing rate in some areas.

As streaming platforms undertake price hikes, royalties could rise as well, allowing companies to grow their licensing fees. With digital consumption rising rapidly in India, companies that have access to IP are likely to do well for themselves.