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Bharti Airtel’s decision to shut down Wynk Music (Wynk), India’s third-largest music OTT platform in terms of active users, could accelerate the movement of Spotify (market leader) and JioSaavn (second largest) to a paid-subscription business model. Currently, the three market leaders are the only pure-play music OTT platforms offering free streaming services, as the rest of the players have already moved to a completely paywall-driven business model. While these developments could have an adverse impact on music labels like Saregama in the near term due to loss of minimum guarantee revenue, from a medium- to long-term perspective they could immensely benefit from a sharp improvement in monetisation of endconsumers. This is because music labels on average earn significantly higher yields per stream from paid music streaming consumers compared to free streaming consumers. To better factor in the development we lower our near-term music licensing revenue estimates for Saregama by ~1.5% and marginally raise revenue estimates over the medium to long term. We maintain ‘BUY’ with a revised DCF-driven TP of INR 580 (implied Sep’26 PER of 40x)

* Reduced competitive intensity can accelerate industry transition to paid subscriptions: Music OTT platforms Amazon Music, Apple Music, Gaana, Hungama and Resso offer only paid music content access to consumers. However, market leaders Spotify, JioSaavn and Wynk, who together account for ~85% of the active users (refer exhibit 1) in the industry, allow free streaming of content available on their platform in lieu of intermitent advertisements being shown to end-consumers, in their quest to support consumer habit creation as well as to gain market share. But this strategy leads to sub-optimal revenues for the platforms, as they miss out on paid-subscription revenue, in turn leading to significant operating losses. The shutdown of Wynk may not only reduce competitive pressures on Spotify and JioSaavn but could also accelerate their movement to a completely subscription-based business model.

* Near-term pain but long-term gain: Wynk’s shutdown could mean complete revenue loss from the platform for music labels like Saregama in 2HFY25, in our opinion. That said, there exists a possibility that consumers may migrate to competitive platforms, thereby partly offsetting this revenue loss. On the other hand, if the remaining two market leaders were to transition to a paid subscription driven business model, it will lead to music labels moving away from the concept of minimum guarantees and overflows. Instead, the labels would start earning part of the subscription revenue collected by music OTTs basis their content usage share. Historically, it has been observed that the average yields per stream for music labels are far better in subscription revenue compared to INR 0.1 per stream that they earn in the free streaming model. In fact, the yields are so high that they are more than able to offset the negative impact of not all free streaming consumers transitioning to paid subscriptions.

* Reiterate BUY with revised TP of INR 580: We moderate our Consol. Revenue/EBIT/EPS growth estimates in FY25/26 to factor in the near-term impact of Wynk closure. However, our long-term estimates have been raised to factor in the benefits of music OTT industry transitioning to paid subscriptions. Overall, we expect Saregama’s Music Licensing (including Artist Management) revenue to expand at a CAGR of 22% over FY24-27E, which we believe is conservative, as the management is guiding for 23% CAGR during this period without factoring in the transition benefits. At a Consol. revenue level, we are estimating growth of 20% over the next 3 years vs. the management’s guidance of 25- 26%. While new content cost is likely to depress near-term margins, we expect meaningful expansion over the medium term. We retain ‘BUY’ on Saregama with a revised DCF-driven (WACC of 12% and Tg of 5%) Sep’25 TP of INR 580 vs. INR 550 earlier (implied PER on TP of 40x vs. 38x earlier). 

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