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SAAVN'S NEW COMING
The Reliance Jio symphony
Mukesh Ambani’s Reliance Jio is hungry for content. With JioMusic-Saavn merger, it has thrown caution to the wind
28/03/18

VENKAT ANANTH
Close on the heels of Tencent’s $115 million investment into Gaana in February, Reliance’s JioMusic and Saavn announced a merger in a transaction valued at over $1 billion

The JioMusic-Saavn merger is the latest in Reliance’s growing list of recent investments in content, including Balaji Telefilms and Eros International among others

The deal will allow JioMusic to finally step out of the Jio walled garden and compete in India’s open internet

More consolidation is expected in India’s music streaming space ahead of Spotify’s arrival late this year or early next year

Last week, Reliance Jio integrated its music streaming business, JioMusic with US-based over-the-top (OTT) music service Saavn, with the combined entity valued at over $1 billion. The deal will see Delaware-registered Saavn LLC become a wholly-owned subsidiary of Saavn India, and therefore, an indirect subsidiary of Reliance Industries Limited (RIL). The transaction means that RIL would acquire an 81.7% stake in Saavn India in exchange for the transfer of its music business to Saavn India. RIL will pay Rs 805 crore ($124.1 million) for the stake.

The deal would see Reliance acquire a partial stake from existing investors, including Tiger Global Management, Liberty Media, and Bertelsmann for $104 million. The combined entity, according to persons aware of the transaction, will operate under the Saavn brand. As part of this deal, Reliance will also invest $100 million. Out of which, to quote from the media release issued on Friday, the “rupee equivalent of $20 million will be invested upfront, for growth and expansion of the platform into one of the largest streaming services in the world.”



For Reliance to bet on any business to this extent is a big deal. And in its own way market-altering, setting the stage for India’s own Cola Wars in music streaming.

Thanks to this investment, overnight, Saavn has become the #1 music streaming service in India, pipping Bennett Coleman & Co-owned Gaana, which recently had an investment round of its own led by Chinese tech giant Tencent. If the last available App Annie data (January 2018) is considered, Saavn and JioMusic should have a combined user base of 33 million, ahead of Airtel-owned Wynk with 21 million, and Gaana with 17 million. Saavn also becomes Reliance Jio’s first global product, with a subscriber base among the Indian diaspora in the US and the UK, among others. Saavn, as The Ken reported earlier this month, has been an attractive acquisition target, with global companies such as Apple and Spotify showing interest in it. But that interest went nowhere.

The impact of the Jio-Saavn deal cannot be limited to music streaming. As Jio steps out of its walled garden, 18 months after its launch, there’s more coming. Its 168 million subscribers have had access to the Jio brand entertainment but they are clearly hankering for more. Books. Television shows. Music. Movies. Live sports. Social media. Messenger. They want it all. Conspicuously, Reliance Jio is out in the market with an acquisition wishlist and an endless supply of free cash which perhaps only one other investor can match in this space.


The Jio shopping spree
Of late, Reliance has been on a relentless Amazon-like content shopping spree. Different entry points to acquire users, lock them into their ecosystem, and eventually incentivise those users into switching telecom networks to Jio. The endgame, however, remains driving data consumption.

In July 2017, it bought 25% stake in the media company Balaji Telefilms for Rs 413 crore ($63.7 million). This gave Reliance access to content produced by Balaji for its value-added services on the Jio network i.e. JioCinema and Jio TV. In January this year, AltBalaji, Balaji Telefilms’ OTT video service entered into a strategic partnership with Reliance Jio to make its original content available on Jio’s digital platforms. It didn’t end there. TV18, a subsidiary of Network18 (also owned by Reliance Industries Limited), paid $20 million to buy 1% stake in Viacom18 (the joint venture between TV and global media conglomerate Viacom) to raise its shareholding from 50% to 51% (also, a controlling stake). The transaction will essentially ensure “closer integration and alignment with the Network18 group and its affiliates, including…Jio,” as per David Lynn, CEO of Viacom International Media Networks.

Then again, last month, Reliance acquired a 5% stake in film company Eros International for $48.75 million and announced the setting up of a Rs 1000 crore ($154.2 million) media fund with Eros’ Indian subsidiary Eros International Media, to jointly produce and acquire Indian films and digital originals across all languages.

Come next week, when the digital rights for all international and domestic cricket played in India go up for auction at the Board for Control of Cricket in India (BCCI) office, do not be surprised if Jio ends up with the winning bid. Live sport, and in particular, cricket, also one of India’s largest use cases for data guzzling is an integral piece of the Jio content jigsaw puzzle. In the media rights auctions for the Indian Premier League (IPL) held in September last year, Reliance Jio had unsuccessfully bid Rs 3,075.32 crore ($474.3 million) to acquire the digital rights for the next five editions of the popular million-dollar Twenty20 league.

“Jio is clearly trying to be the one destination for all kinds of entertainment,” says a Mumbai-based media professional who requested not to be named. “They are approaching it through multiple ways i.e. they have their own studio, AltBalaji, Eros, Saavn. And remember, it doesn’t stop them from pursuing their own OTT play if they want to,” he adds.


Jio, sources say, is evaluating multiple other formats. For instance, increasingly, there have been signs that Jio is looking at a “content supermarket model”, not just for JioTV. With “app-in-app” partnership like the ones, it has with Hotstar and AltBalaji. “There’s no reason why they can’t do it with Amazon Prime and Netflix. There’s real estate they’re happy to sell. [Read: subscribers] And for these foreign players, they wouldn’t say no to additional traffic coming from Jio users,” the Mumbai-based professional adds. To be sure, other telecom operators, including Airtel and Vodafone, have partnerships with OTT players, such as Eros, Hooq, ALTBalaji, and Hotstar.

Think about it like this. Jio as a pipe, where its users get accustomed to having the best, most recent content on their smartphone. Pretty much what Netflix did to movie studios.

Flying out of the “walled garden”
Up until last week’s announcement, JioMusic was a value-added service, hiding behind a “walled garden”—one had to be a Jio mobile subscriber to access the service. But no more. Saavn is accessible to anyone who wants to use it. This is where letting Saavn function as an independent application is important. “It is a very conscious move to go with the Saavn brand, rather than Jio. Much like Airtel opted for Wynk rather than Airtel Music,” says a Mumbai-based senior music consultant who requested not to be named because of the nature of his work.

But beyond just the brand, Jio will now use its capital to push Saavn out of its own shell—both in terms of marketing and content. Saavn, in its previous avatar, was known to be a frugal spender; it had perfected the “low-investment and sustainable growth strategy”. But now, with some of Jio’s investment pumping its marketing (user acquisition), that too changes. “What gives it the wings right now, is that Jio has the mass reach, whereas Saavn has the so-called ‘cool-quotient’, which it can now leverage to build the brand,” the consultant says.


For now, in terms of organisational structure, Saavn will continue to be run by its founders—Rishi Malhotra, Paramdeep Singh, and Vinodh Bhat. It is not clear if they will be reporting to Akash Ambani.

According to industry sources, where the Saavn deal could be most disruptive is the potential rationalisation it could bring with it. For a start, content acquisition costs go down significantly. “There’s no chance these record labels will be bullying the likes of Reliance on paying what they want. So it is only natural to expect some rationalisation in the minimum guarantee space,” says the consultant quoted above. He adds, “It is now up to them [Saavn] to decide if they will continue to spend on labels, or spend big to acquire artists and create original, exclusive content.”

Saavn, by most counts, also fits into Jio’s overseas expansion strategy, which sources say, it will try and push through its live TV platform, Jio TV. That’s where the subscription dollars are. “Tomorrow, Jio could launch a plan in the US where you pay $10, and get access to both Jio TV and Saavn. This is a realistic possibility,” the media professional quoted earlier says. While subscription revenue generated through such a move could be a drop in the ocean for Jio (in the overall context), it could potentially reinvest the same in original content.

The Cola Wars are here
The Jio-Saavn merger comes at a rather interesting time for the digital music ecosystem in India, especially with Gaana’s recent funding. The result? Two mass market music streaming services going at each other to acquire the next user with aggressive marketing spends and customer acquisition strategies through music festivals, sponsorships, and events.

Could this mean more consolidation in the digital music space? Potentially, say some industry experts. “Tencent could just come in and say, ‘We’ll invest in Wynk’, and eventually try and merge it with Gaana. That looks inevitable in my view, and if anything, this deal could only accelerate Tencent’s interest in Wynk,” says another Mumbai-based media professional interested in the music industry. “Jio and Wynk will never align. Tencent-Airtel will make a lot more sense.”

Skim, and you’ll miss this. In the music streaming business in India now, the two largest players are homegrown. The foreign “device ecosystem” players in India in Apple and Google have seemingly stagnated with their music verticals, fizzling out in driving subscriptions. Amazon, which launched last month, is just about finding its feet. Spotify is yet to arrive in India. However, multiple sources confirm that it has hired the CEO of OLX India, Amarjit Singh Batra, as its country head. A formal announcement is expected in May.

Amarjit Singh Batra

The OLX India CEO who is likely to be appointed Spotify's country head in India

“In the next 12 to 15 months, Jio’s focus, as well as any of their competitors’, will be to try and ensure consistency of usage on a daily and monthly basis. Only then will the monetisation conversations take over,” says Vidya Nath, director, digital media at Frost & Sullivan. “The reason for that is that currently, the churn rates are very high, and Jio is no different. The key will be to translate usage into traffic,” she adds.

Separate emails sent to Jio, Saavn, and Wynk with detailed questions did not elicit any responses.

Airtel Amazon Apple Music Digital Content Gaana Hotstar IPL JioMusic Mukesh Ambani Music Streaming Reliance Jio Saavn Tencent Wynk
WRITTEN BY
VENKAT ANANTH
Venkat is currently in his tenth year in journalism. Prior to The Ken, he was Deputy Content Editor at Mint as part of the newspaper’s digital team. He also wrote in-depth features on the business of sport for the newspaper. His earlier assignments include Yahoo! (as a columnist) and the Hindustan Times, where he began his career. Born in Mumbai, Venkat holds a Bachelor of Mass Media (Journalism) degree from SIES College of Arts, Science and Commerce, Mumbai and a Master of Arts degree in International Studies from Goldsmiths, University of London. He currently resides in New Delhi, where he moved nearly five years ago.

COMMENTS


Devin Kewlani

Media / Mining | Mumbai

Hi Venkat,
Ive been looking at this space and wondering if Amazon won’t do a similar acquisition of Gaana or Wynk ? They normally enter an industry and takeover the scene.
Thoughts?

March 28, 2018 at 2:27 pm  Reply
Venkat Ananth
Venkat Ananth AUTHOR

Staff Writer | The Ken

Nice to hear from you, Devin.

And good question. But for whatever it’s worth, and I don’t know how Amazon’s music strategy will play out in the long-term, I don’t see them acquiring Gaana or Wynk (for now). Especially since they’ve recently launched their own product and would like to grow it in parallel with Prime (as it has always been). Also, assuming Gaana’s valuation to be around $250 million, they can invest the same in other aspects. Tech, content, marketing etc.

Where I see them being slightly disruptive is in the original content space, as they’ve done in markets like Australia and the US. Expect more from them there.

However, the company you and I should be having our eyes on is Tencent. They’re obviously a behemoth in China’s digital music scene (and globally too). They love scale, much like Mukesh Ambani and Reliance. Having invested in Gaana, the logical way forward will be to merge them with Wynk and create a 100-120 million music streaming service. So it wouldn’t be surprising if Gaana and Wynk merge to create Tencent’s music service in India.

It would be fair to say that more consolidation could likely happen in the digital music space over the next 12-18 months.

March 28, 2018 at 3:11 pm  Reply

Vishal Medida

Analyst | Deloite Consulting

Will Jio Music and Saavn continue to exist as 2 different apps? Also will Reliance offer it for free for existing Jio customers? What will this deal mean to the customers?

March 28, 2018 at 1:00 pm  Reply
Venkat Ananth
Venkat Ananth AUTHOR

Staff Writer | The Ken

Nope. The combined entity will function as Saavn. Which means it will be just the one app. They will merge users and everything else at the backend when the deal is over. To answer your second question, from what we know, the existing model will work i.e. free + pro. Reliance could, however, bundle some part of it as part of its data plan. Just as Airtel does with Wynk. You may not need to pay the pro fee for a period of time, or something of that sort. Those options are open.

March 28, 2018 at 1:21 pm  Reply

Pranav C

How is the transaction valued at over $1b? And hows jio music worth $670m?
Shouldn’t these be explained better?

March 28, 2018 at 10:59 am  Reply
Venkat Ananth
Venkat Ananth AUTHOR

Staff Writer | The Ken

The unicorn valuation JioMusic has given itself is also based on Saavn’s existing valuation (based on previous round), which was somewhere between $300-400 million (or if you want me to be specific, around $330 million).

March 28, 2018 at 1:28 pm  Reply
Venkat Ananth
Venkat Ananth AUTHOR

Staff Writer | The Ken

JioMusic’s valuation is based on the 376980 shares it received for slump sale of JioMusic to Saavn India. The number of shares multiplied by a little over Rs 1.15 lakh (per share value) equals Rs 4353 crore or $670 million. These are in the filings made by Reliance immediately after the merger.

March 28, 2018 at 1:18 pm  Reply
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