Zee Entertainment Enterprises Limited – Q3FY20 Earnings

Q3FY20 Highlights:

• Total revenue for the quarter was Rs. 20,487 million, decline of 5.5% YoY.
• Advertising revenue for the quarter was Rs. 12,308 million, decline of 15.8% YoY. Domestic advertising revenue declined by 15.7% YoY to Rs. 11,570 million. International advertising revenue for the quarter was Rs. 738
• Subscription revenue for the quarter was Rs. 7,137 million, growth of 15.4% YoY. Domestic subscription revenue grew by 7% YoY to Rs. 6,317 million. International subscription revenue was Rs. 820 million.
• EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) for the quarter declined by 25.0% to Rs. 5,658 million and EBITDA margin stood at 6%.
• ZEE5 recorded a peak DAU (Daily Active User) base of 11.4 mn in the month of
• ZEEL’s television network had an all-India viewership share of 18.2% during the
• 3 channels – Zee Punjabi, Zee Thirai and Zee Biskope, launched in the month of January

The Board of Directors in its meeting held has approved and taken on record the unaudited consolidated financial results of Zee Entertainment Enterprises Limited and its subsidiaries for the quarter ended December 31, 2019.

For the third quarter of FY20, ZEEL reported consolidated revenue of Rs. 20,487 million. Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) was Rs.5,658 million with an EBITDA margin of 27.6%. PAT for the quarter was Rs. 3,494 million.

Punit Goenka, Managing Director and CEO, ZEEL, commented, “Third quarter is normally a strong growth period for us, however, the tough macro-economic environment led to a decline in our ad revenues. Most of our advertisers are going through a slow-growth period and that has led to a cut in advertising spends. I believe that the worst phase is behind us and we will start seeing an improvement from the next quarter. The proposed changes to the tariff order by TRAI are being challenged in the court and we are awaiting the final verdict. However, I am confident that our strong portfolio of channels across markets will enable us to navigate any regulatory changes in the most efficient manner.

Despite the slowdown, we continue to make investments in businesses where we see potential for growth. Working with our strategy to entrench ourselves deeper into the regional markets, we have launched 3 regional channels that will make our content more accessible to audience across the country. India’s first Punjabi GEC will surely help further strengthen our viewership share and brand in the north Indian markets. With the addition of two new regional movie channels, we now have the biggest movie channel portfolio in the country. We are preparing for the launch of two more channels over the next few months. We also continue to invest in original content for ZEE5, to create a rich content library that will make it a really compelling offering for consumers. These investments will help us grow ahead of the industry once this transient slowdown phase has passed.”

Business Performance
Domestic Broadcast Business
During 3QFY20, our television network had an all-India viewership share of 18.2%. While our regional portfolio increased its viewership share, share in the Hindi speaking markets declined.

Zee TV maintained its weekday prime time leadership, but lost weekend prime time share and was the #3 channel in the pay Hindi GEC segment during the quarter. Our Hindi movie cluster continued to be the #1 movie portfolio in the pay Hindi movie genre.

ZEEL’s regional portfolio has been strengthened by the launch of 3 channels – Zee Punjabi, Zee Thirai and Zee Biskope, in the month of January. Zee Punjabi, hybrid GEC and movie channel, aims to become the entertainment destination for the Punjabi speaking audience of Punjab, Haryana, Himachal Pradesh, and Delhi. With the launch of Zee Punjabi, ZEEL’s regional footprint has expanded to 9 languages. Movie channels – Zee Thirai and Zee Biskope, will enhance ZEEL’s regional movie portfolio in the markets of Tamil Nadu and Bihar, respectively. The network is preparing for the launch of 2 more regional channels in the next few months.

Our regional portfolio had mixed performance during the quarter. We maintained leadership position in the Marathi, Bangla and Kannada markets, with Zee Kannada further strengthening its leadership position, widening the gap over the nearest competitor. Viewership shares in Marathi and Bangla markets declined during the quarter. While Zee Tamil improved its viewership share, Zee Telugu witnessed a marginal decline. Zee Keralam, continued to gain share in the Malayalam market establishing itself as a strong contender for the number two position. Zee Sarthak regained leadership in the Odiya market towards the end of the quarter.

Digital Business
ZEE5, one of India’s leading digital entertainment platform, continued to delight audience with exciting and innovative content

• ZEE5 recorded a peak DAU (Daily Active Users) base of 11.4mn in December 2019
• ZEE5 users watched an average of 140 minutes of content every month on the platform during the quarter
• 26 Original shows and movies in 6 languages released during the quarter
• A refreshed ZEE5 Progressive Web App (PWA) was released in December to enable a seamless user experience on mobile web
• ZEE5 was launched on Tata Sky Binge, further widening the distribution reach of the platform

ZEE5 continues to be the largest producer of digital original content in India. During the quarter, ZEE5 launched 26 original shows and movies, of which 14 were in regional languages. After the success of first season, second season of Rangbaaz was premiered in December. The show was an instant success, garnering the highest video views and viewers on the day of launch for any show. Digital premieres of movies like Jabariya Jodi, Judgemental Hai Kya, Dream Girl, Saandh ki Aankh brought new users to the platform. In the regional space, Kaale Dhande in Marathi, God of Dharmapuri in Telugu and Karoline Kamakshi in Tamil were critically acclaimed and received positive reviews from users. With a strong content line-up across genres and languages, ZEE5 is on track to release 70+ originals in FY20.

To enable a fast, engaging and immersive user experience, a refreshed version of ZEE5 Progressive Web App (PWA) was launched in December, leading to improvement in user engagement metrics across all parameters.

ZEE5 is one of the most widely available entertainment platforms due to extensive partnerships with telecom operators, OEMs, ISPs, and e-commerce platforms. During the quarter, ZEE5’s partnership with Tata Sky Binge and IRCTC went live, accelerating subscription growth. ZEE5 is the only OTT platform integrated with IRCTC. To leverage the rapidly growing penetration of smart TVs in India, ZEE5 has inked deals with leading smart TV brands for placement of hotkey on their remotes.

ZEE5’s international expansion is seeing initial signs of success in the APAC and MENA regions which has close affinity to Indian content. A mix of high-decibel marketing campaigns along with partnerships with local telecom operators in key target markets like Bangladesh, Sri Lanka, UAE, among others is helping increase the platform’s reach.

International Business
During the quarter, ZEEL’s International business revenue was Rs. 1,665 million. The advertising and subscription revenues declined by 18.6% YoY and 17.4% YoY, respectively. Break-down of international business revenues for the third quarter is as below:

• Advertisement Revenue of Rs. 738 mn
• Subscription Revenue of Rs. 820 mn
• Other Sales and Services Revenue of Rs. 107 mn

Movies & Music Business
Zee Studios, our movie production and distribution business, distributed 2 movies in India and 5 movies in the international territories during the quarter.

Zee Music Company, our music label, continued with the library expansion of both Bollywood and regional music. The music label registered ~7.3 billion views on YouTube in Q3. Zee Music Company is the second most subscribed Indian music channel on YouTube with over 49 million subscribers.

Live Events
Zee Live extended its Supermoon IP to music events with shows featuring one of India’s most promising music artists around the country. The second edition of Zee Educare, held in Mumbai, engaged with students through panel discussions and workshops on alternate career choices.

Condensed statement of Operations
Consolidated operating revenue for the third quarter of FY20 stood at Rs. 20,487 million, recording a decline of 5.5% on YoY basis. EBITDA for the quarter ended December 31, 2019 was Rs. 5,658 million, translating into EBITDA margin of 27.6%. Profit After Tax (PAT) for the quarter was Rs. 3,494 million.

The following table presents the consolidated financial statement of ZEEL and its subsidiaries for the third quarter of FY20:

Revenue Streams
ZEEL has three sources of revenue – advertising, subscription and other sales and services. Other sales and services include revenues from our movie production business, music label, content syndication, and commission on sales amongst others. The following table contains break-down of consolidated revenues.

Advertising revenues
During the third quarter, ZEEL’s consolidated advertising revenue declined by 15.8% YoY to Rs. 12,308 million. Domestic advertising revenues declined by 15.7% YoY to Rs. 11,570 million. Domestic advertising revenue was impacted by the continued slow-down in key consumer sectors. As the volume growth for most consumer companies did not see any uptick during the quarter, they cut advertising spends to protect their margins. While the festive month of October saw a pick-up in advertising spends, the growth slumped post that. The growth was also impacted due to a higher base and the effect of conversion of two channels from FTA to pay in March. We believe that the worst phase is behind us and the growth should revert to normal trajectory from next fiscal.

Subscription revenues
ZEEL’s consolidated subscription revenue grew by 15.4% to Rs. 7,137 million during the quarter. Domestic subscription revenue grew by 21.7% YoY while the International subscription revenue declined by 17.4% YoY. The domestic subscription revenue growth rate saw a sequential decline due to the impact of a higher base and reduction in a-la-carte prices of some of our channels during the festive period. During the quarter the regulator announced changes to the Tariff Order which are proposed to be implemented from 1st March. All the major broadcasters, under the aegis of IBF, have challenged the proposed regulation in the Bombay HC. While the case is sub-judice, we are confident that our strong bouquet of channels, which has multiple content offerings for audience across the country, will enable us to navigate these regulatory changes in the most optimum fashion.

Expenditure
ZEEL’s total expenditure in Q3FY20 stood at Rs. 14,829 million, higher by 5.0% YoY compared to Q3FY19. The following table gives the break-down of costs.

Considering the weak revenue scenario, the Company took measures to control cost during the quarter which resulted in only 5.0% YoY increase in total cost, despite 6.2% increase in programming cost. The programming cost increase was led by content cost for ZEE5 and higher movie amortization costs for our movie channel portfolio. Other expenses have a one-time expected credit loss charge of Rs. 376 mn due to the expected delay in receiving payments from some of the distributors.

Corporate Developments
During the quarter

• Two Independent Directors and one Non-Executive Director resigned from the Board and three new Independent Directors were appointed in their place effective November 25,
• In compliance with the requirements of Regulation 17(1B) of SEBI Listing Regulations, Subhash Chandra, Non-Executive Chairman resigned as Chairman of the Board on November 25, 2019 and continues as Non-Executive Director.
• The Chief Compliance Officer and Company Secretary resigned effective November 25, 2019 and a new Company Secretary was appointed w.e.f. November 26,
• The Company had on November 11, 2019 issued and allotted 1,470 Equity shares upon exercise of Stock Options granted under ESOP Scheme resulting in increase in the paid-up equity share capital of the Company to 960,483,235 Equity shares of Re1/-
• In November 2019, Brickwork Ratings India Pvt. Ltd. revised rating of the Company’s Listed Preference Shares from BWR AAA (Outlook: Credit watch with Negative Implications) to BWR AA+ (Credit Watch with Negative Implications). The said revision was further revised to BWR AA (Credit Watch with Negative Implications) in December.

BCS Bureau