OLD is GOLD for Music Stocks!

If you’ve been whiling away the hours listening to legends such as Lata Mangeshkar or Kishore Kumar, you’re not alone. And as you returned to yesteryear classics, so too have stock markets gone back to two companies that own the rights to these and thousands of songs. SAREGAMA India and TIPS Industries have seen their stocks hit new highs after 20 years. 

Image Source : Saregama Website

SAREGAMA and TIPS own the rights for thousands of songs from the 90s. SAREGAMA owns the rights for over 1.3 lakh songs, TIPS owns rights for nearly 25,000 songs.

The two stocks have gained 10 times in the last 1 year!

So, why the sudden revival of old music? A few developments appear to have led this trend.

• An increased demand for streaming music, thanks both to the explosion of such platforms and cheap data, and from the effect of the work-from-home development.
• Legal developments that worked in favor of licensing rights of the music IP owners
• Companies signing licensing deals with streaming platforms.

Quite apart from these, the fancy for these stocks could also be that markets were picking up on work-from-home beneficiaries! Please note that this is not a review or a recommendation on the industry or the stocks. This is simply a quick take to explain the trend in music stocks.

Music and video streaming platforms

Cheap data and high smartphone penetration are driving demand for music through streaming platforms. The music segment now contributes significantly to the total revenue for the Indian music recording industry. The demand for music also appears to have jumped as millions working from home turned to increased streaming. A survey conducted by Nielsen for Spotify concluded that audio-streaming apps are among the top five ways Indians discover new music.

The OTT music streaming segment is highly competitive with domestic music platforms like Saavn, Gaana & Hungama, as well as international streaming platforms like Apple music, Amazon Prime, Google Play, Spotify & others.

Internet broadcasting & copy right laws

Two, an interesting development on the legal side seems to be working in favor of these companies. The Spotify Vs Warner legal battle in India appears to be leading to favorable thinking in terms of rights and licensing requirements. 

The need for licensing agreements pursuant to an interim order by Bombay HC in a recent legal battle points to better pricing deals for IP right owners in future.

Music stocks – business boost

So, how has this helped Tips and Saregama? Well, they are licensing their IP rights on their song library to various platforms. The shift in the way people consume music as well as legal developments have helped companies combat the piracy and licensing issues that they struggled with in the past. This is helping them monetize their IP rights on a significantly larger scale. 

SAREGAMA, for example, has inked licensing deals with both domestic and global players including Facebook, Spotify, ShareChat, and Triller, as well as big platforms such as YouTube and Amazon Music

For SAREGAMA, licensing revenue has doubled in last 4 years from Rs. 138 crore in 2017 to Rs. 283 crore in FY2021. This jump comes even as the company reported a decline in revenue from Rs 544 crore in 2019 to Rs 442 crore in 2021. It now wants to invest Rs.200 crore for acquisition of new music over the next two to three years to capture 20% share of new music. 

Similarly, TIPS has inked licensing deals with Facebook, YouTube, ByteDance’s Resso, JioSaavn, and Amazon Music. The company, which is also the largest producer of Punjabi films, has initiated a demerger exercise to separate music and film businesses, suggesting that it sees enough promise in the music industry to let it stand alone.

Of course, how steadily these revenue sources can scale up for the companies bears watching.