Financial Daily from THE HINDU group of publications
Sunday, Oct 20, 2002
Corporate - New Projects
Saregama may enter reel life again
NEW DELHI, Oct. 19
AFTER a brief hiatus, Saregama India Ltd (formerly HMV) is once again turning to film production.
The company is planning to set up a separate division for this business and will produce three-four films a year. The business is expected to take off next year.
"This is part of the recommendations made by McKinsey which had identified production of television software and films as growth areas for the company,'' said Mr Abhik Mitra, Managing Director, Saregama India.
This is not the first time that the company is in the film production business. It had produced the National Award Winning movie `Godmother', but had suspended the business a couple of years ago.
Television software production is another area that the company is focusing on. "We already have a daily and two weeklies on Sun TV. We are planning to get into Telugu and other South Indian regional languages. We will get into production of Hindi programmes once we understand the business,'' Mr Mitra said.
Saregama India hopes to break-even by the end of the current fiscal and turn profitable in financial year 2002-03. The losses for the first quarter stood at Rs 13 crore with revenues of Rs 22.26 crore. This has been attributed to the poor performance of the film industry and the high acquisition rights paid by music companies.
"The future is looking better because the cost of acquisition has come down to realistic levels and people are trying to make better films,'' Mr Mitra said. The acquisition costs have come down by about 40-50 per cent and Saregama has renegotiated deals as a loss control measure.
According to Mr Kalpesh Parekh, Senior Analyst, Sushil Finance Consultants, music companies such as Tips and Saregama have bled due to the high prices paid for acquiring the rights. The success ratio of music released has been less than 10 per vent. ''Only nine out of the 82 films whose music was released in the current year reported surpluses, while the rest failed to cross the minimum acceptable level of five lakh cassettes,'' he said.
However, music companies are now moving away from outright purchase to minimum guarantee contracts (which are revenue and risk-sharing contracts).
Among the other initiatives, the music company is looking at CDs to drive growth. CDs have grown from 2-3 per cent to 10 per cent of the units consumed. This is likely to go up to 15 per cent in the next one year.
The share price of Saregama India is currently hovering between Rs 83 and Rs 84, close to the 52-week low of Rs 81, down from a high of Rs 235.
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