Why this Hyd-based digital entertainment startup has hit the goldmine with its IPO

A four-year-old digital entertainment startup ‘Silly Monks’ saw an overwhelming response to its initial public offering (IPO), when it listed at a 20% premium on January 18.

With a turnover of Rs 12 crore and a profit of Rs 1.48 crore for FY17, it is the first digital entertainment company to be listed on National Stock Exchange’s (NSE) Emerge platform, which is the stock exchange for small and medium enterprises (SMEs) to list.

Ever since it listed, it has been in the upper circuit, opening nearly 10% up on January 23. The investor response has been phenomenal ever since the IPO opened for subscription.

Why are investors so bullish on Silly Monks? Why has this Hyderabad-based digital entertainment startup hit the goldmine on the stock markets?

It all started with Sanjay Reddy’s dream to start a television channel back in 2012. But at a time when television was beginning its downward slide, no one was ready to pump in the kind of funds (roughly Rs 250 crore) required to start a satellite channel.

That’s when Sanjay decided to tap into the future – digital entertainment – and started Silly Monks along with his friend Anil Pallala in 2013.

The potential of Digital Entertainment

And why not. Today, the media and entertainment industry’s growth is being led by the digital space. With the adoption of 4G and cheap mobile data tariffs, video streaming has become the biggest beneficiary. According to a KPMG report, video streaming apps have seen roughly a 336% increase post Jio’s launch. As per Nielsen estimates, the average time spent by an individual on streaming videos has increased by nearly nine times.

Besides this, digital advertising too, is estimated to grow at 30.8% and reach Rs 18,000 crore by 2020.

According to Shripal Shah, Director, Aryaman Financial Services, investors on the street are today looking for something new that can break barriers. It may become big or might even die down, but those investing on the SME exchange -- High Net worth Individuals (HNIs) – are ready to take that risk with a disruptor.

“I’m a user of entertainment and I don’t go to theatres anymore unless it’s a magnum opus release. For a small romantic comedy film, I prefer to watch it at home, pause when I want to at my convenience. Digital entertainment is going to disrupt how entertainment is viewed. If a company is saying I’ll do this all my life, as an investor, I’m interested.”

The Street is of the belief that digital entertainment is disrupting how we consume entertainment and Silly Monks has poised itself to benefit from every aspect of the industry’s growth.

What does Silly Monk do?

A lot of things.

Silly Monks wants to be the last mile player in everything connected with digital entertainment. Currently, there are four large pieces of what rakes in revenues for the company. And most of it revolves around content.

Silly Monks aggregates, buys and distributes content, apart from also having a role in digital promotions for brands, event management and music with the focus currently on South India.

The biggest chunk of its revenue comes from the content it aggregates and acquires for its over 990 YouTube channels. This happens in the form of content generators it brings on board, or content it generates in-house. At present, Silly Monks generates roughly one billion viewing minutes per month on YouTube alone.

The next big chunk comes from being a distributor. Silly Monks syndicates content to OTT players such as Netflix, Amazon Prime, YuppTV and others. It works with over 40 producers in South India, where it takes the movies they produce and distributes it to the OTT players for a fixed fee, either exclusively or non-exclusively.

The third pie of Silly Monks consists of commissioning content. What this means is, instead of being an aggregator, it works with OTT players to generate content for them. It becomes a production house for them, helps generate content and shares revenues with them.

Digital promotion is the next big thing of what brings in the bucks. Silly Monks works with producers, celebrities and brands for digital promotions and digital asset management on a retainer basis.

With the money raised through the IPO, Silly Monks now wants to start owning content rather than aggregating and distributing it.

“We either aggregate or we buy, own copyrights for it and sell it wherever we want since we know how distribution works. That way we get to retain all the revenue we earn. It helps the bottom-line (net income). But we will still be a distributor also because we can’t buy rights for a Baahubali. Being a distributor for it adds credibility and top-line,” Sanjay says.

Expanding horizons

It is also slowly making a foray into events, merchandise and music. While merchandising is a step it will slowly take, it is betting on events and music to add to the growth of the company.

Under events, it has created two boutique events ‘Kidnap the party’ and ‘Monkeytown Music Festival’. Sanjay says that the potential for music festivals is enormous. It will also do corporate events on the side to keep the house running.

The other subsidiary is music. On the one hand, Silly Monks is acquiring audio rights for movies while on the other, it is looking to work with independent music artists. “It was a huge space a decade ago. We want to revive the space and discover new talent and take them to the next level. We are investing in this space and expect it to give us big results,” Anil says.

Potential

While it may sound like Silly Monks has too many irons in the fire, the company has structured its business model in a way that allows for several avenues of revenue generation. With its main focus on aggregating, distributing and generating content, it is also present in smaller segments with large potential.

Sanjay and Anil attribute the stellar response to its listing, to the industry they are in and the track record of the company. “Everyone wants to be associated with the media and given that we are making money, investors also saw a chance to make a lot of money and came in. We did anticipate some interest but 17 times was overwhelming,” Anil adds.

And unlike the other digital entertainment companies in the market, Silly Monks has been generating profits. And unlike most startups, it is frugal in its spending.

Agreeing with Sanjay, Shripal of Aryaman says that the company has a vision of going from zero to the last mile, which is disruption. “They have executed a lot with very little yet. This is a four-year-old startup with not more than Rs 2-3 crore funding until now. If they now get five times that amount, they should be able to multiply fast,” he adds.

Looking ahead

Ask Silly Monks why it chose the IPO route and not traditional ways of funding, the founders say that it is because they want complete control over how they steer the company to the next level, without being pressurised to spend unnecessarily.

Sanjay and Anil want to now go beyond the southern languages and enter Bengali, Marathi and Hindi over the next year. Hindi is the biggest challenge since they are many competitors are in this market. Sanjay says that they will tread carefully but do want to eventually venture into the Hindi market.

It also wants to test foreign shores, especially the Southeast Asian markets where its content can be dubbed and used.

The scope is infinite. So is Silly Monks’ vision. It wants to own the first and last mile when it comes to the digital space. As Anil puts it, they want to become the Yashraj of Digital.