In the last few years RPSG Group-owned Saregama, the erstwhile HMV has diversified its business beyond music to live events, web series, and films, besides products such as Carvaan, among others. In line with this diverse product offering, the company last week acquired a majority stake in the digital entertainment company, Pocket Aces. “We have been looking for such a strategic partner to fuel the next scale of growth. We feel that we have found a complementary partner. With this acquisition, some of our investors have gotten a full exit and a bunch of our investors have gotten a partial exit,” Aditi Srivastava, co-founder and CEO, Pocket Aces, told BrandWagon Online.
Srivastava will continue to remain the CEO, post the acquisition. According to Saregama, it will acquire 51.8% shares for Rs 174 crore with a clear path to further acquire the remaining 41% equity in the next 15 months at pre-agreed multiples. The transaction is an all-cash deal. For Avarna Jain, vice chairperson Saregama, this acquisition signifies the confluence of tradition and innovation. “While we have always been leaders in the realm of music and media, this partnership with Pocket Aces will add new dimensions to our business as we tap into the burgeoning young digital audiences,” she added.
A diverse portfolio
In the last few years, Saregama has been building its product offering. From web series to films and live events, it has added many new verticals in an effort to diversify its earnings. The company’s revenue from operations declined just one percent to Rs 163.3 crore, for the quarter that ended on June 30, 2023, from Rs 166 crore during the same period in the preceding year. While profit after tax rose 3.5% to Rs 43.3 crore in Q1, FY24 from Rs 41.8 crore in Q1, FY23. At the end of the first quarter, the company reported that films and series vertical did not have any releases. “We just had the TV serials on Sun TV. Q1 is traditionally our weaker quarter from an advertising perspective because most advertising goes into IPL (Indian Premier League). So in Q1 every year, we go through the same pressure. This quarter was no different. We have one movie of ours, which is getting released in Q2. For Q3, and Q4, the lineup is very strong. There are lots of big titles that are coming, both on the Malayalam and Punjabi sides,” Vikram Mehra, managing director, Saregama India, said during an analyst call.
While music accounted for the majority of the revenue at Rs 149 crore, the company earned revenue of Rs 12.2 crore from the films and television serials segment and another Rs 2.7 crore from events in Q1,FY24. During the call, Mehra added that the company is holding its guidance on the films and movie side of a 25% growth in revenue and a 15% margin. “Looking at the Q1 numbers, some of you may have doubts about how you’re going to go and achieve it. We are very confident with the lineup, which is sitting in Q3 and Q4 that on an annual basis, we will achieve a 25% revenue growth number with a 15% margin. While the total capital allocation will always be maintained within the upper limit of 18%,” he explained.
Pocketing the right fit
There are many ways Pocket Aces perhaps fits in the game plan of Saregama. To begin with the company’s focus on ramping up its digital offering. For example, its music product Carvaan is transitioning from being just a device with only a one-time margin to a platform for music lovers with recurring advertising, transaction and subscription revenue. “The YouTube revenues have gone up substantially. And for us, it’s disproportionately higher numbers that are coming in. Remember, traditionally, the music that we people own, we had only the audio rights. Now content is coming along with the video rights here. If you check out all-India trending on YouTube at any particular time, out of the 20, 30 songs
that they show on the all-India trending list, we typically, as a label, have anything between seven to 10 songs sitting in that particular list and it also has a direct implication on the revenues that we are making right now from the video side,” he noted.
Furthermore, the acquisition is expected to strengthen Saregama’s strategic ambition to take a leadership position in new music across all Indian languages. Pocket Aces, a youth-focussed digital content creator and publisher, currently has an IP catalogue of over 3,000 content pieces ranging across web series, sketches, music videos and reels on its channels FilterCopy, Nutshell and Gobble, and releases over 30 new pieces of content every day. “ I think everything gets a boost and music is something that has not been there in our portfolio. Our long-form business is very complementary to Saregama because it does regional, mostly movies and we create web series. Our channels have over 95 million subscribers. Mostly Saregama’s audience are aged 40 years and above, while our audiences are between the age bracket 35 years and below. So that’s basically a huge IP and distribution synergy,” she explained.
Moreover, Pocket Aces also has a talent management arm, Clout which manages more than 100 digital influencers, and its long-form studio, Dice Media, has created relatable youth-centric web series across OTT platforms such as Netflix, Hotstar, and Amazon. “Via Clout we manage about 130 influencers and now music talent will be added to our own channels and these influencers who we manage will have access to a younger audience,” Srivastava noted.
Pocket Aces clocked Rs 104 crore as revenue from operations in FY23. It has witnessed a growth of revenue by 34% CAGR over the last 4 years and is expected to grow even faster in future.
As for Saregama, the company has continued with the campaign to keep on inviting more and more entries from budding talent. “Whether it’s a bathroom singer or it’s a talented guy who has won a contest in a smaller town like Bareli, all of them keep on sending their cover songs across to us, in return for which
we share 10% lifetime royalties with these people. This is allowing us once again to grow revenue without spending money and also to improve the popularity of our catalogue music,” Mehra said.
Saregama has further beefed up its publishing side of the business. Mehra added during the call, that it is getting more aggressive in terms of giving licences for its music to various films as well as brands and creating songs specific to particular brands. “Until now, brands used to have their advertising and they used to have a song in their advertising. Now we are proactively going to the brands and
saying, why not we develop a song which is completely suited to their brand, which helps them in their marketing while we can also go out there and monetise that song?” he added.
While this acquisition has provided both Saregama and Pocket Aces to further grow the business; Loco, a gaming and esports platform, is not part of this acquisition deal. “We raised capital from a different set of investors that were focused on gaming investments,” Ashwin Suresh, co-founder, Loco and Pocket Aces, clarified.
Interestingly, the duo claim that Loco seems to be benefitting from the current goods and service tax (GST) crackdown on pay-to-win online games and the plan is to grow this business separately. “We are already seeing an inbound interest from investors who are looking to participate in the game because the pot Covid gaming story in India is extremely strong and robust,” he said.