Thanks for the excellent analysis. 3 years later, and your thesis has definitely panned out. Do you have an updated view on the business based on today's valuations?
My question here is - Just like during Initial days Netflix showed movies from other film production houses on its platform. But as it gets to know the taste & preferences of the audience, they started making their own content successfully. Do you feel same can be a threat from streaming platforms like Spotify to the music labels in the future?
It is a possibility. Spotify has already started putting up own content in the form of Podcast. Till now they have not gone into mainstream music, but lets see. It could be years before that happens.
Great article, Ankush. I am invested in Tips from slightly lower levels and am basically betting on subscription revenues for streaming platforms rising non-linearly over the next few years.
This is anecdotal ofcourse, but that aside, have you come acrosss there any estimation / trends on rates of increase in subscription revenues that streaming platforms in India may see in the future, and if this pace likely to accelerate / decelerate going forward.
Hi Ankush, Great insight and classical analysis on the Music industry and TIPS as a company. it would be good to see your thoughts on the quality of management of TIPS and the ability to execute non-linear growth. Thank you once again.
Hi Ninad, judging management quality at the moment would be very hard because management quality is proven by their execution & actions over many years. In case of TIPS, there is hardly anything to judge given that the company has practically done nothing much in last 20 years and was kind of written off atleast from the market's perspective. Same was the case with Saregama as well except for the buzz they created with Carvaan.
Good part here as been that it has been a consistent dividend paying company; but the shadow of that murder case would always be there on the management.
On non-linearity, I don't think for non-linear growth to happen here the management execution would be that important. The industry itself is going to see non-linear growth in profits and companies like TIPS that has old music rights are going to benefit from the same.
One good part that I like here is the management's strategy to focus on finding new talent and acquiring the rights of such new talent, rather than spending large sums to buy top music rights. They either way do not have that kind of muscle power.
I personally believe that ROI on new mainstream music acquisition would be quite low and it would be something that anyone with enough money can do. The real talent of the management lies in identifying talent early on and get music rights for cheap, so that if the artist becomes popular later on, then they will make huge profits.
Brilliant response and crystal clear. Thank you, Ankush. Based on the reading of your articles, I think that the business model is far more important than sectors or management. Though the sector and the management do play a role in the growth the real foundation should be the business model. please suggest if this understanding is accurate or needs a change. Thank you once again for providing good insights. Sincere gratitude to you.
See it depends on company to company and one's preference as well. I personally have been good at identifying good business model and thus i prefer those investments. Identifying and taking bets on management is more hard i think, but there are many examples like Deepak Nitrite wherein the business model is nothing great, but the management's execution has been so great that it makes for a great investment opportunity.
1. Zee Music is very small part of overall Zee's business. In their annual report they have not mentioned how much this business contributes, but they did mentioned that the music business has turned profitable in FY20 only. Plus, there are multiple issues with Zee's other business and Zee as a company, so market is valuing Zee not for its music business, but for its legacy business which is the dominant part of the company.
2. Zee Music is relatively new company in the space, they started in 2014 and now has ~7000 songs. Even though they have quite a good share of new songs, but the real value is in companies that has old songs bought at pennies, new music rights are very expensive.
Do u think there is still chance to make profit at current valuation after the demerger news. Or do u think there will be some opportunity after demerger to make some investment
I don't think market would wait for actual demerger to happen, markets are forward looking in nature and this quarter's results has given market some peek into the kind of profitability that is there in the Music business.
Do u think it's wise to make fresh position in tips . As already have position in saregama didn't have any position in tips because of its film business
One Question Ankush - Tips has already seen a strong re-rating in the last 12 months - Stock having delivered 700% and the last Year PE improving to 48 from 3 Yr Historical PE of 18.
Do you think there is more value creation opportunity here?
On Tips, you will have to look at market cap of TIPS and profits of Music business to gauge the valuation. Seeing P/E in isolation with combined profits that includes loss of Films business would not give the true picture.
Mixed thoughts here. The idea is good that you want to move from a product business to a platform. But consider this, most streaming platform are loss making even though as a platform they provide way more value addition to everyone.
In case of Carvaan as a platform, the value addition for a user is limited for them to be able to pay any kind of subscription fees, coz it would largely be limited to Saregama's content + some other that they might be able to attract, but that will also come at a cost. On the advertiser's front, will they look to pay top dollar to advertise on a limited set of user base?
Hi Ankush, Very insightful article! Wanted to ask - isn't Saregama the better invt opportunity then? Since it has 4x the #of songs, but only 3.5x the market cap?
Also is it reasonable to assume that Saregama also makes 80% margins in this business ? They have mentioned they made 280cr revenue thru licensing in FY21.
Hi, Saregama is definitely is better in terms of content- both acquisition and monetization.
But this will not reflect well on the consolidated numbers of Saregama, due to other businesses. Carvaan is 25% gross margin business and Music licensing is only half the business. So my understanding is that a pure play music business like Tips will get better valuations than Saregama and the point you have made of 4x songs but only 3.5x market cap reflects that I think.
If growth continues, everyone would be surprised by the Non-Linear profit growth here.
But a lot depends on new content acquisition and monetization strategy which needs to be explored in detail. Recent deal with Warner can push things for them, they have been trying for sometime to list their catalog on Spotify and Apple Music, and these are the two biggest royalty pools in Streaming.
Excellent post. Extremely well researched. Saregama seems to be better placed vis a vis Tips. Large long only investors like Malabar India, Abakkus have already moved into the stock. Many more are likely to line up.
Thanks for the excellent analysis. 3 years later, and your thesis has definitely panned out. Do you have an updated view on the business based on today's valuations?
Continued to hold and an active recommendation in research service.
Valuations are reasonable given the relative growth, ROE & ROCE and cashflow profile.
Billion dollar expectation is more clear than ever.
Excellent Article Ankush!!
My question here is - Just like during Initial days Netflix showed movies from other film production houses on its platform. But as it gets to know the taste & preferences of the audience, they started making their own content successfully. Do you feel same can be a threat from streaming platforms like Spotify to the music labels in the future?
Thanks again!!
It is a possibility. Spotify has already started putting up own content in the form of Podcast. Till now they have not gone into mainstream music, but lets see. It could be years before that happens.
Very interesting and informative presentation Thanks for sharing and compiling the information 👌
Great article, Ankush. I am invested in Tips from slightly lower levels and am basically betting on subscription revenues for streaming platforms rising non-linearly over the next few years.
This is anecdotal ofcourse, but that aside, have you come acrosss there any estimation / trends on rates of increase in subscription revenues that streaming platforms in India may see in the future, and if this pace likely to accelerate / decelerate going forward.
Hi Ankush, Great insight and classical analysis on the Music industry and TIPS as a company. it would be good to see your thoughts on the quality of management of TIPS and the ability to execute non-linear growth. Thank you once again.
Hi Ninad, judging management quality at the moment would be very hard because management quality is proven by their execution & actions over many years. In case of TIPS, there is hardly anything to judge given that the company has practically done nothing much in last 20 years and was kind of written off atleast from the market's perspective. Same was the case with Saregama as well except for the buzz they created with Carvaan.
Good part here as been that it has been a consistent dividend paying company; but the shadow of that murder case would always be there on the management.
On non-linearity, I don't think for non-linear growth to happen here the management execution would be that important. The industry itself is going to see non-linear growth in profits and companies like TIPS that has old music rights are going to benefit from the same.
One good part that I like here is the management's strategy to focus on finding new talent and acquiring the rights of such new talent, rather than spending large sums to buy top music rights. They either way do not have that kind of muscle power.
I personally believe that ROI on new mainstream music acquisition would be quite low and it would be something that anyone with enough money can do. The real talent of the management lies in identifying talent early on and get music rights for cheap, so that if the artist becomes popular later on, then they will make huge profits.
Brilliant response and crystal clear. Thank you, Ankush. Based on the reading of your articles, I think that the business model is far more important than sectors or management. Though the sector and the management do play a role in the growth the real foundation should be the business model. please suggest if this understanding is accurate or needs a change. Thank you once again for providing good insights. Sincere gratitude to you.
See it depends on company to company and one's preference as well. I personally have been good at identifying good business model and thus i prefer those investments. Identifying and taking bets on management is more hard i think, but there are many examples like Deepak Nitrite wherein the business model is nothing great, but the management's execution has been so great that it makes for a great investment opportunity.
Doesn't Zee Entertainment falls under the same bucket, it also holds similar licenses to songs
Why there is no rerating or crazy run up similar to tips and saregama
There are multiple things here-
1. Zee Music is very small part of overall Zee's business. In their annual report they have not mentioned how much this business contributes, but they did mentioned that the music business has turned profitable in FY20 only. Plus, there are multiple issues with Zee's other business and Zee as a company, so market is valuing Zee not for its music business, but for its legacy business which is the dominant part of the company.
2. Zee Music is relatively new company in the space, they started in 2014 and now has ~7000 songs. Even though they have quite a good share of new songs, but the real value is in companies that has old songs bought at pennies, new music rights are very expensive.
Do u think there is still chance to make profit at current valuation after the demerger news. Or do u think there will be some opportunity after demerger to make some investment
I don't think market would wait for actual demerger to happen, markets are forward looking in nature and this quarter's results has given market some peek into the kind of profitability that is there in the Music business.
Do u think it's wise to make fresh position in tips . As already have position in saregama didn't have any position in tips because of its film business
One Question Ankush - Tips has already seen a strong re-rating in the last 12 months - Stock having delivered 700% and the last Year PE improving to 48 from 3 Yr Historical PE of 18.
Do you think there is more value creation opportunity here?
On Tips, you will have to look at market cap of TIPS and profits of Music business to gauge the valuation. Seeing P/E in isolation with combined profits that includes loss of Films business would not give the true picture.
thanks for your answer. i agree that P/E should not be seen in isolation.
Great article btw. REquest that you keep writing articles on the Complexity,
Non - Linearity and Optionality framework and examples
Is it better to buy Tips after demerger?
Not really, because demerger is already approved and market can discount the same even before actual demerger takes place.
Here is an interesting link on Saregama, They are planning to create their own platform, will wait for your comments on that:
https://www.businessinsider.in/advertising/brands/article/the-almost-120-year-old-saregama-is-ready-for-the-future-here-is-how-it-is-transitioning-to-stay-relevant-for-the-next-few-decades/articleshow/82944754.cms
Mixed thoughts here. The idea is good that you want to move from a product business to a platform. But consider this, most streaming platform are loss making even though as a platform they provide way more value addition to everyone.
In case of Carvaan as a platform, the value addition for a user is limited for them to be able to pay any kind of subscription fees, coz it would largely be limited to Saregama's content + some other that they might be able to attract, but that will also come at a cost. On the advertiser's front, will they look to pay top dollar to advertise on a limited set of user base?
So not sure how they will generate revenues here.
Thank you for your insightful comment. Yes, revenue generation from Carvaan platform seems difficult.
Hi Ankush, Very insightful article! Wanted to ask - isn't Saregama the better invt opportunity then? Since it has 4x the #of songs, but only 3.5x the market cap?
Also is it reasonable to assume that Saregama also makes 80% margins in this business ? They have mentioned they made 280cr revenue thru licensing in FY21.
Thank you!
Hi, Saregama is definitely is better in terms of content- both acquisition and monetization.
But this will not reflect well on the consolidated numbers of Saregama, due to other businesses. Carvaan is 25% gross margin business and Music licensing is only half the business. So my understanding is that a pure play music business like Tips will get better valuations than Saregama and the point you have made of 4x songs but only 3.5x market cap reflects that I think.
Nice post Ankush....Do you think they'd be able to generate 100-120cr annualized profit in the next few years
If growth continues, everyone would be surprised by the Non-Linear profit growth here.
But a lot depends on new content acquisition and monetization strategy which needs to be explored in detail. Recent deal with Warner can push things for them, they have been trying for sometime to list their catalog on Spotify and Apple Music, and these are the two biggest royalty pools in Streaming.
Great insights brother.!!
Excellent post. Extremely well researched. Saregama seems to be better placed vis a vis Tips. Large long only investors like Malabar India, Abakkus have already moved into the stock. Many more are likely to line up.
Another gem post after Suven & IEX. Your regular reader & subscriber. :)
Great well articulated post! Well done