March 27, 2018

Breakingviews: Mukesh Ambani’s music deal could get a remix

by Breakingviews.

Mukesh Ambani is playing a new tune. India’s richest man, through his flagship conglomerate Reliance Industries, is merging two music-streaming services into one worth $1 billion. Reliance is following a well-trodden path of telecom operators dabbling in music, movies and other entertainment to attract subscribers. As his oil-to-retail giant starts to throw off cash, the tycoon could take his content ambitions to another level.

Ambani’s upstart telecom operator has attracted 160 million subscribers in barely 18 months. Its super-fast network has more than half the combined data capacity of the top three players, well ahead of incumbents Bharti Airtel and Vodafone India, Kotak reckons. The bank thinks telecoms now account for more than one-third of the enterprise value of the $87 billion conglomerate.

The new deal combines Reliance’s own JioMusic with Saavn, the home of a big recent Anglo-Asian hit, “Bom Diggy” by Zack Knight and Jasmin Walia. It also follows a string of other media purchases. Reliance already owns 5 percent of Eros International, India’s largest movie producer, and a stake in Balaji Telefilms, another Bollywood outfit. Four years ago, Ambani bought Network18, one of India’s largest media companies. These deals echo the acquisition of Dailymotion by France’s Orange  or even U.S. giant AT&T’s bid for Time Warner.

Reliance is paying $104 million for a big chunk of Saavn. If this is, say, a 40 percent stake, that would imply a valuation of $260 million, or nearly $12 for each of its 22 million monthly users. In turn, that implies the bigger JioMusic has more than 55 million listeners, a Breakingviews calculation suggests. Assuming limited overlap, the enlarged group will have about half the user base of Spotify. Of course, rampant piracy and low incomes limit the potential rewards from streaming services in India compared to richer markets.

The flurry of deals suggests Ambani has larger ambitions as a media and entertainment mogul. Reliance Industries is likely to turn free cash flow-positive this year, giving him a warchest for further expansion. So he could have even larger content acquisitions up his sleeve. India’s media industry will be watching closely.


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