The stock trend of Gramophone Company of India (GCIL), in the last five months, is indicative of what the market thinks of its future and that of the music industry at large. The transition, from a loss-making entity to its rightful place as the largest music company in India, has been under the wing of the RPG group who took over GCIL and has placed it among the top-10 Asian music companies.
With intangible-asset based sectors in vogue, entertainment stocks were definite candidates for massive price surges. And, a rise from Rs 50 to Rs 380 in a six-month period speaks of a tremendous change in perception.
Catalogue: Catalogue consists of music rights procured in the past, and now available for recycling. The costs on such sales are much lower, which means that a good catalogue is a vital asset for any music company. This has long been a core strength for GCIL. Its brand HMV is among the strongest in music brands.A century of operations has resulted in a phenomenal catalogue in terms of copyrights, span of years, types of music and languages. Its association, as seen earlier, gives this library a sheen. Recycling its archive collection with different combination of singers, stars, music directors, production houses and even timespans has transformed the catalogue into a literal cashcow.
As per GCIL VP (marketing), Harish Dayani, "More than 40 per cent of cassette sales in 1998-99 were from our catalogue. That, along with new acquisitions and our Tamil music foray, will fuel our growth."
Royalty pleases everybody
The market is putting a value on the fruits of the one-time past efforts by the company. As Khandwala Securities’ analyst, Gurunath Mudlapur puts it, "Of its 1 lakh catalogue strength, even a very conservative estimate puts the hit and super-hit titles at around 7,000. Valuing the earning potential of each such album at a reasonable Rs 10 lakh gives its catalogue a value of Rs 700 crore and above. Against this, the market capitalisation is around Rs 25 crore. What kind of upside are we talking about?"
Another royalty source, licence fees, has also been growing from Rs 2 crore in 1996-97 to Rs 10 crore last year. This accrues from overseas marketing of its music by its group companies RPG Music International and the recently formed Saregama Plc. As GCIL director, Mohapatra put it, "We want to use our international distribution as an engine for growth. We have offices in the UK, US, Dubai, Malaysia and 20 to 25 distribution centres and warehouses across the world."
Saregama: A big ace
GCIL’s UK arm, Saregama Plc., represents its proactive stance at international marketing of Indian music. This company will be involved in manufacturing and marketing of ethnic Indian music, music retailing and music e-commerce. Its stock offer of 30,000 shares in the UK was a big success, mobilising Rs 20 crore. This mind-set of an international presence will be a big growth boost for GCIL, especially in increasing mindshare in other genres of music.
Concerns sorted out
There are other harmonious notes floating around, like the financial restructuring and the recent agreement with the international music major, EMI. It has dispelled concerns regarding the GCIL use of the HMV brand. Though details are not entirely clear, it is evident that both parties intend to extend the lease given by EMI on the brand to GCIL.
Similarly, an internal rethink is on about GCIL’s movie production division Gramco Films, which would hopefully draw the line between popularity and profitability.
Discord
There are some disturbances though. The company is moving into areas which are not its core preserve. While it is obvious that film music weightage in the music package is dwindling, the choice of devotional music and Indipop is mystifying. The former is a very low-margin area, where the management claims to protect margins by offering value in the shape of Jagjit Singh and Lata Mangeshkar. But creating brands in a commoditised segment is very difficult. Though profitability may be maintained, as to whether any sustainable value will be created (like in ghazals) is doubtful. Regarding Indipop, growth is possible only if talent is spotted. Associations are no panacea.
Another concern is the group’s investments in the music shop chain "Music World". This investment is inflexible in nature, unlike GCIL’s music bank, which is a mouldable asset lending itself to various permutations. Details were not forthcoming -- it is not even clear as to whether the land will be purchased or leased out. Inflexibility will be higher in the first case. Technically, it would not affect GCIL. But, the investment schedule indicates that the group seems to have an "all for one and one for all" policy in place. That might dampen market sentiment, though it does not appear likely immediately.