Why Saregama will always dominate the Indian Music Industry: An analysis of Music Streaming Industry

Music is the language of the spirit. 

It opens the secret of life, bringing peace, abolishing strife. 

– Kahlil Gibran 

Ever wondered how we transformed from listening to one song at a time to having access to millions of songs on the go? What made music easily accessible to a huge audience? And why did Saregama’s share soared all of a sudden? We will get back to that, but before that let’s analyze how cloud changed the music industry.

Mysterious cloud and the music streaming apps: 

The year 2013 came with many technological changes, of which the main was cloud computing. Cloud boosted the sales of music streaming apps, and it was during this time when Spotify took charge of the music streaming industry and gained a surplus market share. Now users can carry a million songs on-demand in their pocket at zero or minimal cost. Today, the music streaming industry has witnessed many players entering this space where the industry leaders like Google, Amazon and Apple have also taken charge. 

The music streaming industry witnessed rapid growth in 2012 when the usage of cloud was at its peak, while in 2016, the data prices were slashed, which allowed users to avail cheap internet. This further boosted the sales of the music streaming industry. 

But, Who thought ten years back that telecom service providers might be entering this space? Today Jio has acquired Saavn and relaunched the brand as Jio-Saavn, further one could find that Airtel has launched Wynk music as one of its services in the music streaming industry. 

But why are Telecom Service Providers entering this space?

Well, they want to sell their most essential service – Data. With more apps in use, people will consume more data, and due to this, the telecom service operators might be able to increase their revenues. 

With Great internet comes piracy: 

Can you count on your fingers how many times you have downloaded a song for free, either from torrent or websites like Songs.pk? Well, with internet piracy became rampant in the music industry. 

As we can see in the graph, the size of the music industry started declining in terms of music licensing because of rampant piracy. While the singers were also severely impacted around this time across the globe since they were not able to earn royalties since everyone was downloading the songs for free. In 2013 piracy laws became strict, and the trend for music application came into existence. Phones lacked storage, and people started using mobile apps instead of websites to listen to songs. It became easier to identify fake songs with such apps, and if any app is using a music label’s song without its permission, they could get it removed by lodging a complaint on the play store or app store. But are the music licensing business and music streaming business the same? Let’s look at the value industry chain to analyse further.

Industry Value Chain: 

The first participants in the value chain are the music creators, including lyricists, composers, and singers who create songs and get paid for the same. The music creators partner with music labels which helps them to amplify distribution and enforce Intellectual Property Rights. The second participant in this value chain are the film producers. They use these compositions in films and further sell the music rights to the music labels. They also hire singers and help them get upfront payments for their music. 

Further in this value chain comes Music Label who owns the IPR and licenses the music to various platforms. This is the central point in the value chain. They monetize and distribute the content, own the songs and ensure that the royalties are paid out. Streaming platforms are the last to come in this value chain; they license the content and make it accessible to the consumers. 

Let’s consider the profit pool of the industry. Internationally top 4 record labels drove 82% of the music listening on Spotify in 2019. This shows that the industry is very consolidated, and in general approx 55% out of the royalties generated in the industry goes to the music licensing

companies (Record labels). In comparison, the music publishers take the other 15-20%. Let’s take a global overview to get a macro picture of this industry. 

Global Industry Overview: 

One can witness a consolidated profit pool here also. Almost 32% of the global market share belongs to the Universal Music Group, which includes singers like Post Malone, Coldplay, Taylor Swift etc. In simple words, the UMG group owns the copyright of the songs by these artists. Similarly, Sony music holds 20% while Warner Music group holds 16% of the global industry market share. So in total, these three groups hold 65-70% market share of the global industry, and in the last 5-6 years, this has gone down by just 5-7%. This shows the major consolidation in the industry. 

Well, that’s good, but what about the Indian music industry? 

Indian music industry structure: 

The Indian music industry has grown at a CAGR of 10.3% in the past five years and has witnessed some major folds during this period. Cheap data availability and access to free music was the primary reason for this growth.

This can further be depicted from the chart below, where 11% of the total music listeners prefer free audio streaming to be their primary source of listening to music. At the same time, around 23% of people like listening to music on youtube. Only 21% of people prefer listening to music either by purchasing the song or a paid subscription. Piracy remains a significant concern in the Indian market as 9% of the total music listeners prefer songs by downloading them. 

In the Indian music industry, there are close to 10-12 players, and the top 4 are the national players. These include TSeries which owns the largest share of music since the 1990s, although they don’t have the most extensive catalogue. Second is Tips industries with 29 thousand music libraries and robust content acquisition plans. The third is Saregama Music, which has the most comprehensive catalogue, with around 1.3 Lacs songs. It is currently

spending more on its content and seems to be getting more films now, while the fourth is Zee music which mostly has its independent production music and is more focused on OTT content. Sony Music is also present in the industry, but it is linked mainly with Dharma productions only. 

But let’s see how Saregama is different from others? 

Well, they focus more on retro music. Their catalogue consists of songs from the 1970s-80s. They had not focused much on the songs from the 2000s, but instead, they have refocused on this business. This craze is so much that Saregama launched Carvaan, which is a radio that contains 5000 retro songs. 

Another exciting thing is that retro music is now being used more in remixes or movies than in any other form. Now a typical movie has five songs in general, and assuming if a music label acquires 1000 movies in one year, it will get some 5000 songs in its catalogue. In comparison to this, Saregama already owns 1.3 Lacs songs, each digitized with rich metadata. This extensive and digitized catalogue gives Saregama a competitive advantage over its peers. We have seen that Saregama earns almost 42% of its revenues from songs till 1980. But the critical question is, what is the expiry date of a song’s license? 

The expiry date of a song’s license: 

So there are two types of licenses that the music label companies have: 

● In the first type of license, once a song is published, they have rights over it for 60 years. For example: if a song is published in the year 2000, then the music label will hold its right until 2060. 

● The second type of license is not based on its expiration. Suppose if a song composer or lyricist composed a song in 1980. Unfortunately, they passed away in 2010; then, from that day until 2070, i.e. the next 60 years, the music label company will hold the particular song’s rights. So on average, a music company has rights for 80-100 years for a specific music track.

But how does the music label company make money? 

Consider a situation where I flip a coin, and if the head comes, I win, and if the tail comes, then also I win. An easy and quick way for me to make money. Right? Well, this is the scenario with the music label companies. Let’s see how: 

● The first source of their income is variable fees: Whenever you listen to any song owned by a music label company like Saregama on any music streaming platform like Spotify, then Saregama will earn 10 Paise for each song its revenue. 

● The second source of income is advertising revenue: If you listen to any song on Spotify and any ad is played, then the revenue split of this ad will also be given to the Saregama. 

● Other sources of income: 

1. They earn by issuing a fixed license fee to the TV channels, advertisers and OTT. For example, Saregama issued a license to Marico, Berger, Dabur, Limca etc. and for shows on Netflix like Big day for using its music. 

2. Fixed license fees are issued to social media platforms like Instagram reels, TikTok, Facebook etc., for using its songs. 

3. Music licensing companies also earn royalties from performance rights which includes live concerts or events by singers. 

Trends in the Music industry: 

One thing that is shaping the music industry is the growing usage of mobile applications and cheap internet. Currently, around 46 crore mobile internet users in India spend almost 2.4 minutes on average in-app. The audio subscriptions are further increasing by significant year on year. This number is bound to grow in the future, ultimately benefiting the music industry, which will ultimately benefit the music industry at large.

Another trend is from the side of telecom operators. Until 2017, the telecom operators earned 60% of their revenues from caller tunes. However, this business vanished overnight, and now people can change their caller tunes for free. So the sales of Rs 138 crores that we saw in FY17 of Saregama from the music licensing business was, in reality, 55-60 crores from its internet division. After forging this business, fast-forwarding to FY21, their sales are approx Rs 240 crores which is an increment of 4.5 times. Similarly, the sales of Tips industries grew by 2-3 times during this period. 

The licensing business is an asset-light and high ROCE delivering business. Saregama has a ROCE of 22%, while Tips industries have a ROCE of 70-80%. This is because of no fixed cost involved; label companies just have to pay royalties and profit from the song over the next few years. Saregama is aiming for at least a 25% market share in the next few years. This will prove itself to be a High entry barrier business. 

But, why is music labels a high entry barrier business? 

Almost 300-400 Bollywood movies are released in a year, and each movie has five songs, which means nearly 15 -20 thousand songs are released from Bollywood in a year. If any company wants to compete with Saregama, which already owns 1.3 Lacs songs, they would have to bear losses for the next 4-5 years. Even then, that company might not be able to build its music library compared to the size of Saregama. So this is a long gestation period of almost 20-30 years.

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