Some people must have frowned at this headline (here). Pyramid Saimira is entering an industry which grew by 1% in 2007 and holds a CAGR of merely 3% for the last three years. And by S Saminathan 's (CEO and MD) own admission, retail sale of music is minuscule and, music on the Internet & mobile phones generate more revenues than physical stores. This seems quite an ill-planned venture by the mid-cap company. From a value investor's understanding, there are evidences of destruction of shareholder wealth.
Interestingly, this announcement by Pyramid Saimira came one day after, Apple iTunes went past Wal-Mart in music sales in the US (here). A survey in the US now puts iTunes market share at 19% while Wal-mart music sales are 15%, for the first 2 months of the year. iTunes has sold over 4 billion songs in MP3 digital format to about 50 million customers. Some further digging shows an even more interesting trend in the UK - sales of digital singles jumped 47% last year to reach 78 million while the physical CD singles sales tumbled by 42% to 6.6 million. In other words, 90% of all singles sales are now made online.
Additionally, David Bryne in an excellent article in the Wired magazine (here), writes about the music business. Two interesting things, he says in that article -
1. Today less music is being purchased and most of what's being purchased is digital 
2. More than half the money from the sale of the CD goes towards overheads and marketing. The entire value chain is described in the picture below.
It will be interesting to see Pyramid Saimira's music foray. My best guess is that it'll use up previous cash and resources in the company, than the return (on investment) it can generate. The Indian music industry is certainly not in a growth phase and is facing problems similar to anywhere around the world. Entering a non-growth, competitive industry with a secondary business model (in case of non-digital) ... although the Indian equity market may commend the move, it does not get my vote for smart business !
2 comments:
You are very right; but i heard from the interview md gave in tv and as well as interview in business standard they are planning basically to cash on music from their existing production ( 52 filoms) andd some part of portfolio of films of third party they distribute ( almost 9 films a month). They also admitted that they have not factored any big revenue.
These guys are somewaht different and daring ; let us see what happens
Hi Umasuresh,
Agreed. Pyramid Saimira is doing a number of different, new things .. a bit like the Future Group. Hopefully they will not end up wasting previous cash in the pursuit for diversification.
I am reminded of an excellent quote by Peter Lynch around this. It goes something like -
Wall Street seems to favour restructuring these days, and any director or CEO who mentions it is warmly applauded by shareholders. Restructuring is a company's way of ridding itself of certain unprofitable subsidiaries it should never have acquired in the first place. The earlier buying of these ill-fated subsidiaries, also warmly applauded, is called diversification.
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