Strong ad & subscription revenues buoy Zee’s operating profit in Q3 FY17

Zee Entertainment Enterprises Ltd (ZEEL) reported consolidated revenue of Rs 16,391 million for the third quarter ended December 31, 2016. Profit After Tax (PAT) for the quarter was Rs 2,549 million. PAT margin was 15.6 per cent. 

Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) for the quarter stood at Rs 5,158 million, registering a growth of 20.1 per cent over Q3 FY16. EBITDA margin stood at 31.5 per cent. 

ZEEL’s consolidated advertising revenue for the quarter stood at Rs 9,554 million, recording a growth of 3.4 per cent over Q3 FY16 despite the impact of demonetisation and the high base formed by 26.8 per cent y-o-y growth in Q3 FY16. Advertising revenue growth during first 40 days of the quarter, that is, pre-demonetisation was similar to the growth seen in H1 FY17. Domestic advertising revenue grew at 3.7 per cent to Rs 8,737 million, while international advertising revenue stood at Rs 817 million. 

Total subscription revenue in Q3 FY17 grew by 13.7 per cent to Rs 5,935 million. Domestic subscription revenue stood at Rs 4,818 million, while international subscription revenue stood at Rs 1,117 million. The strong growth in domestic subscription revenue is attributable to closure of content deals with a few large distribution platform operators during the quarter. Accordingly, Q3 subscription revenue includes catch-up revenue for the previous quarters. The strong growth in subscription revenue in nine months of FY17 is due to finalisation of several content contracts in Q2 and Q3 in this financial year as compared to finalisation in the second half in previous financial year. The outlook for full year growth in domestic subscription revenue remains unaltered. 

During the quarter, the ZEEL got into an agreement with Reliance Broadcast Network Ltd (RBNL) to acquire its television broadcasting operations. On conclusion of the transaction, RBNL’s two channels – Big Magic (Hindi GEC) and Big Ganga (Bhojpuri GEC) will form a part of ZEEL’s portfolio, along with four television broadcasting licenses. 

Dr Subhash Chandra, Chairman, ZEEL, remarked, “Government’s decision to demonetise high value currency had an impact on businesses across sectors. Notwithstanding the short term disruption caused by demonetisation, we believe that it is a step in the right direction. Demonetisation, along with implementation of GST and push towards cashless economy would help country’s long term growth.” 

Commenting on the results of the company, Dr Chandra added, “The results once again demonstrate our commitment towards profitable growth and enhancing shareholders’ wealth. Despite the impact of demonetisation, we have delivered growth in advertising revenues and growth in subscription revenues remained strong. We believe the adverse impact of demonetisation is transient and with a strong portfolio of national and regional channels, we are confident of delivering sustainable growth.” 

Punit Goenka, Managing Director & Chief Executive Officer, ZEEL, said, “We are happy to deliver another quarter of strong profit growth in a challenging environment. Despite the impact of demonetisation on our advertising revenues, we have improved our EBITDA margins. This highlights our ability to manage costs to drive profitable growth on a consistent basis.” 

He further said, “The deceleration in our advertising revenue growth during the quarter is largely attributable to demonetisation. Advertisers’ willingness to invest in their brands remains intact. However, the timing of spends has been re-calibrated to an extent to suit the change in dynamics due to demonetisation. As economic situation is normalising, ad spends have already started moving up from December levels.” 

“Acquisition of the broadcasting business of RBNL is in line with our strategy to expand our offering in key genres and focus on regional space. BIG Magic, a comedy channel, will complement our Hindi GEC portfolio. BIG Ganga, the leading Bhojpuri channel, will give us entry into the attractive Bhojpuri market. We are confident that these two channels will benefit immensely from the strength of our network,” Goenka added. 

Broadcast Operations 

In the preceding quarter, ZEEL Network’s viewership share excluding sports was 15.9 per cent. Q3 FY17 saw the launch of HD feed of three regional channels – Zee Marathi HD, Zee Bangla HD and Zee Talkies HD – taking the count of non-sports HD channels to nine. The viewers can now watch Zee Marathi, Zee Bangla and Zee Talkies in HD. 

ZEEL’s two Hindi GECs – Zee TV and &tv – had a combined share of 20.8 per cent in the pay Hindi GEC genre. Flagship Hindi GEC, Zee TV, saw some decline in viewership, while &tv improved its viewership marginally. 

In Hindi movie genre we continue to retain leadership position through our five channels. Our latest offering Zee Anmol Cinema for FTA movie market has been well received and is ranked number 2 in its category. 

The key properties in ZEEL’s Sports channels bouquet during the quarter included telecast of the Zimbabwe vs Sri Lanka, South Africa vs Australia and Pakistan vs West Indies cricket series. The sports business revenue in the third quarter of FY2017 was Rs 1,411 million, while the cost incurred in this quarter was Rs 1,334 million. 

International Business 

ZEEL’s International business continues to perform strongly, driven by global demand. For the quarter ended December 31, 2016, the international business recorded:

• Advertisement revenue of Rs 817 million
• Subscription Revenue of Rs 1,117 million
• Other Sales and Services of Rs 596 million
• Total Revenue of Rs 2,530 million