Mumbai: Recent investments by music labels Saregama India and Universal Music in film producers Bhansali Productions and Excel Entertainment, respectively, point more to a larger play in the entertainment sector than consolidation of film production houses, industry experts told ET.

These investments are disparate both in structure, strategy and goals as opposed to the Adar Poonawala-Dharma Productions deal, and they have been triggered largely by the bearish business conditions in the music industry, they added.

"After a few years of bull run of over 20% compounded annual growth rate in revenue from streamers, YouTube and digital sources, labels today are seeing a bear phase as the industry consolidated, streamers merged or shut shop and free streaming is moving towards paid subscription," said a top executive at a leading industry player, on the condition of anonymity.

"Some of these labels seem to grow through reverse consolidation to build acquisition moats and create a robust pipeline. They may end up producing films," said the executive cited immediately above.

Another aspect that has triggered these investments is the fiercely competitive space of buying music rights in the open market.

"These investments ensure consistent availability of new content at a reasonable cost. In the past few years, competition intensity for music rights in the open market has become too high," said Vaibhav Muley, lead analyst, media and entertainment sector, Yes Securities.

Labels pay Rs. 10 crore-Rs. 33 crore per film if they buy music in the open market, shared analysts. A multi-year deal for music with a production house is almost 30-50% cheaper for labels, they pointed out.

Also, these investments are effective from the standpoint of return on capital employed (RoCE) ratio-how effectively a company generates profits using its capital. Analysts shared that monetizing music across avenues provides RoCE of 30-40%, while films generate RoCE of 11%. This shows why buying a stake in production houses is a relatively less risky proposition than directly producing films.

Acquiring stake in production houses is also a win-win strategy, pointed out analysts.

"Today, labels have reasonably good cash on books. They are looking for low-cost avenues to buy music. Investment in production houses is one such route. Production houses get a minimum guarantee amount to start a film and labels in turn get music rights and ownership of films in proportion with their stakes," said an analyst, who declined to be named.

Furthermore, consolidation in the music label industry has prompted incumbents to look for adjacent diversifications.

"Labels are chasing growth. Acquiring labels have become expensive after consolidation (three labels shut shop). Then, there is subdued growth in revenue from streamers due to a shift in subscription mode. These deals reflect these realities," said the analyst cited immediately above.

Industry experts say the distinction between these investments and the Adar Poonawala-Dharma Productions deal.

"These investments do not amount to consolidation among production houses. They are different from Adar Poonawala-Dharma Productions, which is about equal partners. Whereas, after the investments, labels will function as 'strategic investors.' Along with owning music, they will own film rights in proportion with their stakes," explained Gaurav Dagaonkar, co-founder and chief executive officer of Hoopr, a leading platform for music licensing.

Analysts expect labels would integrate talent from their talent management division into the films produced by the production houses more effectively, right from the scripting stage, while also improving the monetization of music assets in these entities.