MUMBAI (NewsRise) -- Reliance Industries deepened its foray into entertainment by purchasing a stake in Indian music streaming service Saavn, a move that will significantly expand the digital content offered by its wireless venture and could lift demand for data.
The conglomerate said it is buying a partial stake in Saavn from existing shareholders, including New York-based investor Tiger Global Management, Liberty Media and Bertelsmann, for $104 million.
Following the deal, JioMusic, an app available on Reliance Jio Infocomm's phones, will be merged that of Saavn, which now offers some 36 million tracks in 15 languages, and has more than 900 label partnerships, including with Universal and Warner Music.
Reliance will hold an 82% stake in the combined company while the existing shareholders will also retain a share. According to Reliance, the merged entity will be valued at $1 billion, including JioMusic's implied $670-million valuation.
"The deal will combine the streaming media expertise of Saavn with the connectivity and digital ecosystem of Jio," the Indian company said in a statement on Friday, after announcing the deal.
Reliance will also invest up to $100 million, $20 million of it upfront, to grow and expand the platform, the company said. Saavn reported revenue of 424 million rupees ($6.5 million) in the fiscal year ended March 2017.
The integrated business will be developed into a media platform with global reach, an independent marketplace for artists, and one of the largest mobile advertising mediums, Reliance added.
India's surging music-streaming market has drawn the attention of many global players, including Apple, e-commerce giant Amazon, and China's Tencent Holdings.
In February, Amazon said its Prime Music would be available in India at no extra cost to members of its Prime program.
Amazon's announcement followed close on the heels of a $115-million investment by Tencent and Indian firm Times Internet in Gaana, a major music streaming app and competitor to Saavn. Gaana was founded by Times Internet, a unit of Times Group, the publisher of the Times of India newspaper.
Although analysts are unsure of JioMusic's value, given the lack of disclosure on its user base and profitability, they are optimistic about the prospects of the combined company.
While online music and video streaming services are hugely popular in India, making money solely through subscription remains a challenge.
"It will be expensive to run a music streaming service without any additional source of revenue," said Satish Meena, analyst with Forrester Research. "Jio makes revenue from its data business, while music is just an offering to build a customer ecosystem," and encourage spending, he added.
"We maintain our view that online consumption of media will continue to grow at an exponential rate given improving broadband infrastructure," analyst Rohit Dokania of IDFC Securities wrote in a report Monday. "Reliance continues to build a formidable media empire," as it believes bundling content with data is the best way to build user loyalty and ensure high data consumption, Dokania said.
Reliance Jio, which rolled out services in September 2016, has been a major driver in growing India's wireless market as it offered data at cut-price rates, forcing established operators to follow suit.
Over the past year, parent Reliance, which is backed by billionaire Mukesh Ambani, has expanded Reliance Jio's digital content at an accelerated pace in a bid to push users to spend more on data.
Reliance's deal with Saavn comes barely a month after it agreed to buy a 5% stake in the U.S.-listed film company Eros International to jointly produce and consolidate content across India.
In 2014, it acquired a majority stake in Network18 Media & Investments, a media group that runs business news channels, a news portal and other news and e-commerce websites. Last year, it bought a 25% stake in movie and television show producer Balaji Telefilms.
--Dhanya Ann Thoppil