From Inception,
Capital Raises to Strategic Acquisition
In this second interview of the July special issue, BCAJ Editor
Raman Jokhakar talks to Matthew Emerman, CFO of JioSaavn. The company recently
underwent a merger valued at $1 billion and was widely reported. Matt joined
Saavn since its inception in 2007 and has seen it from inside as its CFO and
Global Head of Corporate Development. This interview walks the reader through
an amazing journey of 12 years from early start up days and culminating in a
merger with one of the largest companies in India.
In a free
flowing interview, Matt talks about initial idea of Saavn and how it filled a
market void at that time, challenges of early stage funding, addressable market
and selecting Jio as its partner in the next leg of its journey. Matt has been
a member of the founding management team and has seen the challenges that a technology
driven startup goes through.
Q. Can you tell us a bit about Saavn the
company and its journey from its founding in 2007, to acquiring rights to about
50 million music tracks and 100 million active users – and to the recent deal
with Jio Music?
A. When we started in the US it was a B2B
distribution company. We were taking Indian movies, bringing them across the
cable services in North America and the UK. We realised that there was a void
in the market for Indian music when a lot of it was not digital.
Historically, it has always been mostly pirated music. So we started licensing
content exclusively from the likes of T-Series and Saregama and distributing
these to different services like iTunes and B2C platforms. When the users
started downloading say from iTunes, Indian music was difficult for consumers
to discover or search for the specific songs they were looking for. Services at
that time were not designed for Indian music. Many a times users looking for
content didn’t really know what they were searching for – they would know the
movie name, they would know the actor’s name but they would not know which song
they were looking for. So a lot of the metadata that was there was not designed
for digital.
So we worked really closely
with Apple and Google at that time and we decided internally that the future
was to move the business to a more direct to consumer focused model. At that
point of time we worked really closely with Google who was creating a new
Operating System that we know today as Android. And we realised that for us to
really move into the future, direct-to-consumer was the best path.
We started our
direct-to-consumer business called SAAVN (South Asian Audio Visual Network).
This new business model approach led to us raise our first institutional
funding in June 2011 from Tiger Global. That funding really put us on the map.
From 2011 to 2017 we raised well over a hundred million dollars of
institutional funding. Over that period of time we raised capital from world
renowned institutional investors such as Bertelsmann, Liberty Media, Wellington
Management, Steadview Capital. We also
attracted investment from some of the top global artistes and managers,
including Guy Oseary, U2 and many other top global musicians. We have been
really lucky in our journey in terms of having incredible people who believed
in us.
We were in a very difficult
space – in terms of having global investors that really understood India and
especially the content and entertainment eco-system. It was hard for investors
to understand the growth opportunity which was there. Building a service for
the Indian market also has a lot of challenge from a regional perspective, from
a language perspective, device capabilities and historically connectivity was
always an issue.
We saw the shift, this
inflection point in September, 2016 when Reliance Industries launched Jio. For
the first time, cellular streaming eclipsed Wi-Fi. This is really a systemic
change in the entire digital eco-system across the country. And we saw that
everything changed after this – our user base and our engagement increased with
introduction of 4G throughout the country.
In terms of how we thought
about our partnerships we have had long conversations with almost all the top
tech companies and others. India has a lot of headwinds but when you think of
the tailwinds, Jio was really doing something amazing of having 0 to 300
million subscribers till today in a short time frame. They are adding 10
million subscribers each month. We had
20 million users at the time of the transaction that has multiplied many times
over and now we are the largest music streaming platform in the country.
There were various factors
which were at play. Innovation in the way they think about building businesses,
the way they truly appreciate this market and all the dynamics that are there.
Then there are regional dynamics and challenges, you have people coming online
for the first time, how do you really understand the consumer, how do you
target the consumer by saying that now you are not going to go for the pirated
experience but are going to go online, going digital and going online with
digital payments. It’s a completely new experience. When we thought of what was
that next level for Saavn, it was this $1 billion transaction.
Q. Way back in 2007, how did the founders come
up with this idea of Saavn? Were they trying to solve a certain problem and was
it that something like this never existed at that point in time?
A. Almost everything in life is about timing. Lot
of it was an opportunity where there was a void. Cable companies in the US were
losing a lot of subscribers to satellite. And we thought we want to have a
South Asian video on demand channel. There was a void in the market and
consumers were very hungry for this content. So how do we bring movies to North
America, US and UK so that cable companies have a competitive offer? People
were paying $60 – $70 per month for the services to experience the content they
were used to when they were back in India. So that is where the genesis of the
opportunity existed and slowly realising that there is a void from a music
perspective.
Q. You seem to have started by taking Indian
content to the other side – and now you have brought the entire thing back
here! Do you still have that set-up back there in the US?
A. Yes we are really a global company. We have
offices in New York, California and that is really important from a talent
perspective but also from a global tech perspective. We have an incredible engineering team based
in Mountain View, CA. That’s a very interesting perspective that we bring to
the market.
What separates us from
anyone else is the data that we have. Since the launch of our streaming
services way back in 2010-11, we have terrific data of the consumers. This
(data) is in terms of their listening behaviour, patterns of listening when it
comes to music specifically, when it comes to Indian music from a regional
perspective and how that is curated is what makes our algorithms, our
technology, our backend really unique. Everything is customised and built
inhouse, nothing is outsourced. We have incredible engineering, product and
design teams split across India and the US.
Company
communication is so important for us, because we are working all round the
clock. And we have been really lucky from a point of view of having an
incredible culture. How we as an organisation ensured that everyone was an
actual owner of the business and incentivise the team members to be a part of
something. That’s part of the journey and it’s really important for people.
It’s happening more and more where companies are offering equity incentive
plans to their teams. There is such incredible talent that is here in India.
And what we are seeing for the first time here. Historically, from a tech perspective, there has been brain drain. Some of the brightest
minds have historically moved abroad to work at tech companies like Microsoft,
Google, Apple, etc.
From a
recruiting perspective, we are getting incredible talent from the IITs. We have
a first day recruiting programme with all the IITs and it’s been phenomenal. We
are also seeing a shift in executives who have got incredible experience in the
US, want to come back because of what is happening in the eco-system here.
Q.What was the trigger for the alliance with
Jio?
A. Like I said everything is timing. If you look
at the music space in the market you have Apple music, Spotify, Amazon, YouTube
music is here. There are local players like Gaana and Wynk. So there is a lot
of noise and a lot of perception vs. reality. There are people that make these
press announcements. And then there is a certain standard kind of matrix that
is there – industry standard like monthly active users, and streams. Some of
these press announcements give a feeling about perception vs. reality whether
you are a private company or a public company, the difference about what is
happening on the ground is different.
So we looked at the notion
of saying that we have brought the business to a certain level of user base and
scale. To really get to the platform where you have 200-300- 500 million users,
it was really important for us to find a strategic partner who has the vision,
who has patience from a capital perspective and a longer timeline than
institutional investors. And that from timing perspective made a lot of sense
for us. And like I said before we know and respect all the major companies
globally that are there in the music playing technology space. But there was no
better partner for us. From the founding
team that is leading this initiative and from Reliance perspective, when you
think about the digital services business, it was important for them to find an
incredible group of entrepreneurs, a team and culture that would really fit
within the eco-system.
Q. What were some of the elements that you
looked for which helped you determine that this strategy and this partner would
really work and that this is someone you want to have an alliance with?
A. I think a lot of it is looking at just the way
they built Jio and looking at what they built in terms of the digital services
business. If you use some of the services apps that are there, they have such
an incredible team, and they have done an amazing job of building what they
have built. You walk on their campus in RCP in Navi Mumbai you feel like you
are in any large tech company’s campus in California. It’s really incredible
when you talk about any large tech companies worldwide. So when you think about
that stage that they are in, it made a lot of sense. From a strategic
perspective we have an incredible team of brilliant minds collectively working
together on how do we achieve this kind of targets that we have in our
business.
It’s also the notion of the
actual current addressable market in India. You have 1.3 billion people here
and how do you not have 700-800 million users? You have Tencent Music which has
over 700 million users worldwide. These numbers are staggering. I think there
is the reality of what is the actual addressable market that is here. For
example you think about the users in the amount of subscribers that Jio has
today, and so it was something that we really took a lot of time to think about
what was the aspiration that we have as a business.
We also thought from the
perspective of giving access to content. Not just from music perspective but we
have over 50 million tracks, and from having worked very closely with all the
music labels these 10 years. We were the pioneers of other forms of audio
content – in terms of podcasting, and other shows, and original music. We were the first ones to start doing
original music and giving the community and independent artistes’ a platform.
Historically, music consumption in India has been film based. And there are so
many incredibly talented bands and musicians that that never had a place for
the music to be heard. So we were able to give a platform to independent
artists. There has been an explosion of independent music scene here over the
last few years.
Q.You spoke about the valuation of over a
billion dollars and also spoke about how it worked out in terms of number of
customers and so on. Do you want to tell us a little bit more about arriving at
the value for a transaction like this one?
A. In this case it is a combination of value of
an existing business and of JioMusic and then looking at it from a value per
user basis. Generally for this type of business, and if you look at other tech
companies there is per user value that is attributed to that. There is
traditionally DCF and all that but that doesn’t generally work for technology
companies. Multiples are very different for technology companies when you
compare them to traditional companies.
All investors have their
target ownership, what’s been invested to date in the business on both sides,
value that is there on both sides and then the intangibles, the brand names
that are there, the consumer confidence in the businesses, all of these are
very important. All of these come together and then at the end of the day it’s
like in any other deal – negotiations.
We had some incredible
advisers and the deal was closed in record time of under 2 months. It required
incredible coordination amongst our legal counsels and tax advisers from both
sides.
It’s so
important having people you can trust in the market. We have an international
corporate structure and so we have to think how to structure this kind of a
transaction especially when it involved a public company in India. So there was
a lot of consideration that was there. Having trusted advisers by your side and
I would actually call them trusted partners. Because of the time zones that
were involved we had to be very flexible, late IST calls and early morning EST
calls. We worked Saturdays and pretty much on all Sundays. Seven days a week
throughout the transaction for six weeks or so and that takes incredible
relationship to close a deal of this magnitude in this period of time.
It was
a great learning experience. And what’s so important is to really have your
advisers and team members by your side from day one and that they have context
to your business.
Q. Would you like to share something about
what you learnt which makes a deal like this work on both sides? Especially
since it all happened within two months? Attributes that each side displayed
which you think made a deal like this work?
A. Incredible communication – of being able to
work so closely with people. We were partners even before the deal was closed.
It’s also very telling in terms of what the future is going to be like. If you
can close something of this size in such a short span of time imagine what you
can build together.
And again every deal has
its moments of complexity, there is no question about it. I think communication
across the board on both sides was important when we had aggressive timelines.
In hindsight it is really communication. As a CFO you can’t miss anything and
have to ensure full communication with teams at all times. The passion everyone showed, seven days a
week. That’s when you talk about people feeling like an owner of the company,
part of something, you can’t teach that.
I think that’s something really incredible.
Q.Coming to the wider canvas of the
music-streaming world and all its bits and pieces, how do you see it going
forward? You have a vision and your perspective of the market – and you are
perhaps creating some of it. How do you see this whole thing evolve from what
we see today?
A. I think what you will see especially from the
India perspective is consolidation. I think one thing that you are seeing with
companies like Netflix is that consumers are really willing to pay for good
content. And I think that’s what is so unique.
Then there
are challenges from infrastructure point of view. Like you go to see a big festival in India,
you know three days before it was an empty field. So that is something that is
really changing. Especially, things like Jio Garden or Jio World Center which
is completely world-class state of the art facility that will be opening
shortly. I think there is going to be a new consumer experience that is going
to happen. This is really important and people are really hungryfor it.
Q. On the technology landscape, do you feel
that some of this is going to get disrupted? What will improve further, or is
something else going to come up in the future in place of what we have today?
A. I think what is happening more and more is
curation. From the data that we have of a user that comes to the app – we know
what kind of music he would like to listen to. Based on certain patterns – are
they in the gym in the morning and what they listen there, do they listen to
devotional content in the morning and what do they listen to when they are
driving to work for forty five minutes. So you kind of track the pattern and
from an AI perspective and Algorithm technology perspective you are delivering
a service where a consumer goes WOW – this understands me. It’s intuitive
And when you look at a
million peoples’ apps every user experience is customised and is unique to that
person, their behaviour and what they are listening to.
This is what is happening
now. And again music is so emotional and so in the core. When you think about
incredible moments in your life there are songs for them. You might watch a
movie for a few times but you will listen to the same song hundreds of times if
not thousands of times. So music has a different way of connecting us
individually with ourselves but also connect us to our friends. Look at
playlists sharing.
Q.Can you share some takeaways from the last
12 years? Did you ever think when you started out with Saavn that this day
would come, that you would go through what you have gone through so far?
A. I think it’s been an incredible journey. I
love spending time with entrepreneurs. But it’s that kind of resilience. It
takes special individuals to go through hundreds of VC pitches. And it not just
an individual but teams to go through that. It’s not easy to do it. Like
raising institutional funding, building a business, these are challenging
things. Having resilience, having really good advisers by you, it’s so
important.
We also found that
leadership development training and personal and professional development is
critical for the growth of teams. I
think people really take it for granted that more you are able to invest in
people the more you are able to get out of them.
But besides
that what keeps the founding teams and the people together is resilience. The
notion of being positive, having a sense of humour and having the conviction
that this will work out. The people you surround yourself with, who gave you a lot of inspiration
and advise. It’s ok to not have all the answers. I think you are really in
trouble when you think you know everything because that’s when you are going to
be taught certain lessons which you thought you are never going to experience.
So it’s really important to be really humble. And kind of being able to
appreciate what you are able to do every day! And when you are able to do that
you find things that start to come your way. Those times that were the
hardest building the business were the most humbling and those were some of the
greatest things and greatest experiences that we know.
