Dharma-Saregama saga: Consolidation may be filmmaking's surprise hit

There is no confirmation that RP-Sanjiv Goenka Group’s Saregama is acquiring a majority stake in Karan Johar’s Dharma Productions. The stock has been steadily rising since the rumours first broke in August. In a letter to BSE on Tuesday, the company said, “At this stage, there is no material event/information that requires disclosure.”

Reliance Industries (RIL) Jio Studios and Adani Group, also reported contenders for Dharma, have not made any statements. WhatsApp messages to senior executives in these firms elicited no response. With Rs 1,044 crore in revenues for the year ending March 2023, Dharma is among the top three studios in India. Aditya Chopra’s Yash Raj Films, with Rs 1,523 crore, and Bhushan Kumar’s T-Series, with Rs 909 crore (from the film business alone), are the others.
 

Saregama, which recorded Rs 803 crore in revenue for the year ending March 2024, derives 84 per cent of its top line and a bulk of its profits from music. 

 

Films drive 70 per cent of that business in India. However, they are increasingly tied to studios like T-Series and Yash Raj Films, which are not selling their music rights. In recent years, streaming and its portable music player Carvaan, launched in 2017, have driven Saregama’s revival and growth. In its search for new growth avenues, it acquired digital entertainment firm Pocket Aces last year.
 

Analysts say Dharma would provide Saregama with a steady pipeline of big films and their music, pushing it up the value chain. It also fits with the $4.3 billion RP-Sanjiv Goenka Group’s recent penchant for glamorous businesses, quips an industry insider. The group has interests in information technology, power, and retail, among other sectors. It recently launched The Hollywood Reporter in India, publishes Open, Fortune, and Hello!, and is set to launch Esquire. The group also

holds a majority stake in Vikram Chandra’s news aggregator, Editorji.

For Johar, “the deal is not about working capital. It is a stage-of-life thing”, says one observer. While the valuation is anyone’s guess, even at 1x top line, a 50 per cent stake sale would net Johar a cool Rs 500 crore. This allows him to encash his equity. He is the creative nerve centre of Dharma. He has directed some of India’s biggest hits, from Kabhi Khushi Kabhie Gham (2001) to Rocky Aur Rani Kii Prem Kahaani last year. His talk show Koffee with Karan has run for eight seasons on Star TV. 

 Some specifics of this analysis may change if the buyer is RIL or Adani group. Business Standard has learnt that much of the discussion is happening at a “family level, not a corporate level”, as one insider puts it. That means it is an Ambani or a Goenka in direct talks with Johar. 

Does this mean that the Rs 19,700 crore film business is in distress? 
 

“There is no question of distress; this is a cyclical business and sometimes cycles are longer,” says Siddharth Roy Kapur, founder and managing director, Roy Kapur Films. He points to the hit horror-comedy Stree 2. “It has crossed the business that Pathaan and Jawan did in 2023 without a Khan, Kumar or Kapoor. The numbers are telling us that people are coming back to the theatres in even larger numbers than pre-Covid, for content that is compelling,” he says. The consumption side is not an issue. “Netflix, Amazon Prime Video, none of the large global platforms can enter China. India is where it will all play out in the years to come,” he says.
 

On the supply side, “there is a structural change underway”, says Ajit Andhare, chief operating officer of Viacom18 Studios. A film’s profit-and-loss account factors in revenues from three key sources: Indian and overseas theatrical (60-70 per cent), television (TV), and over-the-top (OTT) rights. While TV and OTT help cover costs, theatrical brings in the profit. The pandemic temporarily knocked theatrical revenues. Then, with TV reeling from slowing advertising growth, the price it pays for film rights dropped by anywhere from 30-50 per cent. For some time, this didn’t matter, as OTTs were pouring money into films. In 2023, just as the box office came to life, nearly all the major streaming platforms pulled back on content costs. The fact is, the buying end is getting consolidated, with mergers like PVR Pictures-Inox Leisure and RIL-Walt Disney. But the production end is not. “A studio must have four to five production engines. In the West, studios fully or partially own boutique firms, giving them a pipeline. Disney has Lucasfilm, Pixar, and Marvel, among others. Consolidation is a natural step in the evolution of this business,” says Andhare.