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Zee Entertainment Enterprises Ltd
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Good day, ladies and gentleman, and very warm welcome to the Q1 FY '19 Earnings Conference Call of Zee Entertainment Enterprises limited. [ Operator Instructions ] Please note that this conference is being recorded. I now hand the conference over to Mr. Bijal Shah. Thank you, and over to you, sir.
Thank you, Ali. Hello, everyone, and welcome to Zee Entertainment's earnings call to discuss company's performance in 1Q FY '19.Joining us today on this call is Mr. Punit Goenka, Managing Director and CEO of Zee Entertainment, along with senior management of the company. We'll start the call with a brief statement from Mr. Goenka on the first quarter performance. Subsequently, we'll open the floor for question and answers.Before I pass it on to Mr. Goenka, I would like to remind everybody that anything we say during this call that refers to our outlook for the future is a forward-looking statement and must be taken in context of the risks that we face.Thank you, and over to you, Mr. Goenka.
Thank you, Bijal. I would like to welcome everybody to this call and appreciate you joining us for the discussion on the results of the first quarter of fiscal 2019. We're happy with the all-round performance of our portfolio in the first quarter. Our domestic advertising grew by 22% driven by increase in our network viewership share and higher ad spends across categories. Based on our discussions with the advertisers and the visibility on ad campaigns that we had, we believe that the ad growth of the industry could be higher than the initial estimates for this financial year. On subscription front, our domestic subscription revenue grew by 12% during the quarter. In the beginning of the month, TRAI notified that the new tariff order will come into effect starting January 2019. We have started discussions with our distribution partners for seamless transition to the new regime. If implemented as envisaged, the regulation would be beneficial to all stakeholders and could be a catalyst for ARPU growth. Even under the new regime, we will be able to grow our subscription revenue at a healthy pace. Our digital initiatives have started yielding results. ZEE5, our digital OTT offering, is gaining significant traction and witnessing growth across viewership metrics of MAUs, video views and engagement levels. It is already among the top 5 digital entertainment platforms in India. We are confident that the pace of subscriber addition will further accelerate with the rollout of original content and exclusive movie premiers.We have released 14 ZEE5 originals on the platform across 6 languages so far and will be more than -- and will more than double this count by end of the second quarter. We are on track to be the largest producer of original content for digital in the country. We are also integrating the technology of Margo Networks and Tagos Design in our product, which will not only help us in increasing engagement with the audience but also indirectly in content creation. We are committed to make ZEE5 the #1 entertainment destination for digital consumers. Our domestic broadcast portfolio further increased its market share and continues to be the leading television entertainment network in the country. The viewership share increased to 19.2% during the quarter, driven by strong performance across markets. While we were the leader in pay and FTA Hindi general entertainment segment, our performance in regional language markets continues to ramp up, particularly in Tamil and Bengali. We also relaunched our English movie channels, Zee Studio, under a new brand identity, &flix, which will help it position as the premium destination for English movies. We believe that there is still room for monetizing the increase in market share, which will allow us to grow ahead of the market. On movies studios, Zee Studios released 3 movies during the quarter: Parmanu and Beyond the Clouds in Hindi and Nude in Marathi. While Parmanu was well received at the box office, Nude won critical praise and was selected for screening at several international film festivals. The cash and treasury investments for the quarter ended June 30 stood at INR 30 billion. I would also like to use this opportunity to address the feedback we've received from some of our investors regarding the surplus cash fund outside India. A part of our cash and cash equivalents are in the overseas locations, and there are 2 reasons for the same. One, when we had sports business, we required funds outside India to pay different sports bodies for the rights and to run day-to-day entertainment business in overseas currency. Two, receipt of proceeds on sale of sports business, repatriation of cash of overseas subsidiaries attracts tax rate of approximately 17%, which can be offset against dividends, tax payable on dividends declared by the company. Accordingly, we are bringing back surplus cash in calibrated fashion to optimize our tax outgrow, and we are already repatriated large part of the proceeds from the sale of sports business to India in the fiscal year '17 and fiscal year '18. There is requirement of funds in the overseas market for our existing operations and planned global launch of ZEE5. Barring these requirements, surplus cash, including investments in overseas funds, will be brought to India in due course of time. In the past, we had invested a small part of our treasury in high-yield securities to optimize the yield. We have decided to shift these investments into low-risk liquid funds. You will see changes on these lines in our treasury mix over the coming quarter itself. I will now like to open the floor for question and answers.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.
My first question is on ZEE5. Recently, you have cut your annual subscription by half, so what's the reason for that? And in terms of advertising outside network for ZEE5's original shows, are you spending a lot of money? Why am I asking this is when I see Netflix, Sacred Games, I see the advertising across different platforms. And there's a lot of buzz among viewers, et cetera, but I don't see the buzz for your own tentpole, which recently -- currently you're rolling out. So just if you could take us through what's the ad budget for the tentpole program especially. And for the 14 shows which happened in Q1, was there significant advertising backup for the shows on the OTT?
So as far as the first I think the -- your first question, Abneesh, why we have halved the subscription amount. It's a onetime offer up to August 15. For people who subscribe during this 1 month, they can get this special offer of INR 499. It's just a marketing promotion. And the offer is withdrawn effective midnight of August 15. So it's just a marketing promotion that we're doing. In terms of marketing, as you know, we uploaded -- we were waiting for Karenjit Kaur to be ready. And now you will see a significant push on marketing in the next 75 days or over the next 75 days for not just Karenjit Kaur but for the platform and other 14 series also that we've rolled out. Obviously, for the regional market, you'll not see it in Bombay. It will be largely in the local market down south or in Bengal, et cetera.
Sir, a few follow-ups here. You have said ZEE5 is yielding initial results and strong viewership. So is it across all the 6 languages? And in terms of the international launch, is it going to happen by Q3? And have you signed the agreements with the telecom players?
So let's go in reverse order. We've not yet signed any telecom deal for ZEE5 yet in India or overseas. ZEE5 global launching is a phased manner. By end of the fiscal '19, it will be available globally across the world. And can you just repeat the first one again?
Is it successful in all the 6 languages?
Bit different. Vary of success in different languages, Abneesh. I don't have the details by language right now. But it's a good sign for us to see that it's working in most of the languages that we've gone into.
And telecom player deal hasn't happened because you want to do the tentpole and get metrics even better. Is that the reason?
That's a process of negotiations and going forward. So until we don't get the right value of our content, we will not do telecom deals.
My second and last question is on the rebranding of Zee Studio to &flix. So one is you have now 2 channels in that space English movies, so &privé and &flix. And does this rebranding solve lot of the issues? Because I'm sure you've done a lot of hard work in Zee Studio over the past few years. But competition clearly is quite steep there and now with Netflix, Amazon Prime kind of players also being there. Does the rebranding address the inherent structure issue which is there?
No. I think it's nothing to do with -- the structure issue was in branding. What happened was that we got a full library that we had acquired this year, which would have refreshed the entire brand itself. We just felt that the & brand would connect well with the English-speaking audiences as we have seen in the success of &privé and therefore the rebrand. Obviously, you will see the rollout of the titles on the English language, and I'm sure we will grow that market further for ourselves.
And logically, should Zee Café also end up as &Café longer term?
We are debating internally. Yes, we are debating it still, but most likely it will. Also let me give you one more metric, Abneesh. Even today as we speak, more than 50 million viewers are active on English language entertainment on TV.
For the universe or for you?
Universe, universe.
Okay, okay. And what's the differentiation, &privé and &flix, essentially premium and mass, is that the...
So mass premium and super premium. You're answering the question yourself.
The next question is from the line of Sachin Salgaonkar from Bank of America.
I have 3 questions. Firstly, Punit, you did mention about ad growth being slightly better. So just wanted to understand from an industry perspective from a low-teens growth, should we look at mid-teens growth, any comments on that? And who are actually spending per se?
So I can't give you a number because the prediction comes from the industry. While the industry has guided for a 10% to 12% kind of a number, when I say industry, I mean the agencies, they've not reguided for that number. But if you look at even some of the FMCG companies that have put out their results and if you see the advertising growth that you've seen and yet they've expanded margins even after upping investment so much. I think it's safe to say that it will be higher than the 12% number.
Okay. And are you seeing a mix in terms of digital increasing or it remains the same?
You mean digital advertising?
Yes.
Absolutely, it is still increasing.
Okay. Got it. And it's not coming at the expense of TV right now, right?
Not at all.
Okay. So second question is on ZEE5. I saw you -- I mean, there's a comment that it's amongst the top 5 digital entertaining platforms. Is this in terms of monthly active users and is this a third-party data? Can you help us understand top 5 from what perspective?
Yes, yes, it's a third-party data. But if you look at even our scores on App Annie, we've gone from the 90th rank when we launched to today 30th rank. So that's how we look at it. It's on monthly active user basis that we give this number.
So top 5 digital entertaining app in the sense that would you remember which are the first 4 ones actually or which is the exact number of ZEE5 that way?
I...
So Sachin, I mean we'll not like to name other guys. But I mean actually, if you see on Google Play Store itself and if you see top trending and in that look at entertainment category, you'll find the list, and you will see ZEE5 will be featuring there.
Okay, because, Bijal, in Google trends, it's showing as #36 amongst all total apps. Anyways, I'll have a look.
Okay, you have to go for entertainment apps. I mean, we're top 5 entertainment apps, not the top 5 apps in India. So if you go to entertainment segment, you'll find it.
Okay. And third question is, generally, I mean, this entire time line of new tariff order implementation of Jan 2019, do we see any risk to that time line? And how should we look at the overall subscription growth for this fiscal year? Should it be at the same level or you see upside or downside risk to that?
So firstly, implementation risk from a time line perspective is only if there is some more intervention by the courts. Apart from that, TRAI is very clear that they want to implement it by Jan. So unless the courts intervene, it should be implemented. Whether court should intervene or not, that's something I can't comment on. In terms of risk to our revenue growth, I don't see much risk to our revenue growth. We should manage to sustain and get the growth that we've guided.
Okay. So low teens is the directional number we should look at a subscription growth?
Yes. It will be better.
The next question is from the line of Vivekanand Subbaraman from AMBIT Capital.
Congrats on stellar ratings performance in TV. Can you help us understand 2 things? One, you mentioned that the monetization of your market share increases is still pending. So what does that translate into, say, FY '19 growth? Are you trying to highlight that there is more scope to outperform the industry revenue growth on the same ratings' level if you sustain this through the year and how much will that outperformance be? That would be one. Second, what are the key new genres or linguistic markets along with some guidelines where you intend to grow and sustain your network viewership gains over the next year or so? That's on the advertising side. The second question is on the subscription side. You mentioned that you expect to get similar low-teens percentage growth even after the TRAI's regulations are enforced. So what is more important here? Will it be the retail pricing from your end? Or will it be bundles that you roll out? Or will it be the distributors that push bundles to consumers? And on a related note, what is the new percentage of customer payout on subscription that you expect to garner as a broadcast industry after the implementation of the tariff order? Because currently, it's 25% as you've given in your presentation?
Okay. On the advertising side, I will not like to quantify what will be the growth that we're looking at, but definitely we will be ahead of industry for the whole fiscal year '19. It ranges different from different markets, so difficult to give you a number. But you can safely say that whatever the industry growth will be, we'll be ahead of that. On the channel side, we will be launching in Malayalam this year for certain. We are still awaiting the regulatory approval for that. We are evaluating actively other regional markets as well. In terms of existing products, we will strengthen all of our regional content, including Tamil, Kannada, Telugu, West Bengal, Marathi, Bhojpuri, Oriya. So all of these places, we will work -- endeavor to continue to strengthen our share and also enter these new markets. On subscription side, it's still early days. We've just started the conversation with our distribution or DPOs. And I think the share of broadcasters payout will range between 25% to 30% going forward as well. But I think the industry has to work together to see how do we drive ARPU upwards rather than seeing in the short term what kind of gains a broadcaster can make or a DPO can make. I hope that covers your question, Vivek?
Right. Just one small follow-up on the channel launch plans that you have. So how high priority is this for you in the context of your aggressive digital investments? Because if I understand correctly, that is consuming a lot of your margins because had you not...
Our margin guidance of 30% plus factors in all of the regional expansion as well.
The next question is from the line of Kunal Vora from BNP Paribas.
My first question is on ZEE5. If you -- can you provide some numbers, like how many customers you have, what the usage pattern? Are they mostly watching original content? And what's the renewal rate which you're seeing from the initial customers? The second question again on like ZEE5. Like how do you see the customer addition ramp-up? Do you expect it to accelerate once you have a sizable content library? Or like it will be more of a linear growth? How are you looking at maybe your target for breakeven for ZEE5? That's it.
So Kunal, I'm not in a position to share numbers. I had already guided in the beginning of the year that only at the end of quarter 2 I will share specific numbers. We are still in early phase. As you can see, the marketing offers that I talked about will kick in now. And therefore, we can talk more concrete numbers by end of September when we do the second quarter call. In terms of take-up, it's a gradual way it happens. As we keep launching more and more content, more and more consumers will come on to it. There is no that -- if it is launching with Karenjit Kaur today and suddenly I get a spike in my subscriptions and then it dips again tomorrow. The trend I'm seeing is very, very linear in terms of this thing because consumers come in and discover content and then they play around with the apps and figure out more. So the heartening thing is that the time spent is increasing per session month-on-month. So that's what -- while our absolute numbers are also going up, the time spent also per session, per user is going up month-on-month. So these are the heartening things for us. Breakeven time lines, Kunal, I have no idea because we're still in investment mode as an industry, not just as ZEE5. As I had said that generally when Zee invests, we look at a 3- to 5-year horizon for breakeven. In this case, I will like to be little conservative to say that it will be towards the 5 years at least. It will definitely not breakeven in the first 3 years.
Sure, sure. So what I wanted to understand was, Punit, let's say will it work this way that you have, say, 60, 70 shows coming up in year 1, and by, say, year 3 you have maybe like 200 shows. And that's when you are -- you'll be like sort of a mini Netflix in place and that's when the customer be really starts ramping up. Would it work this way? Or how are you looking at the customer number? Like maybe -- like in 3 years' time, do you see yourself at 3 million to 5 million customers? Any numbers that you have in mind?
I will be very disappointed if I am at 3 million to 5 million subscribers.
Okay. So you're looking at much higher numbers in 3 years' time?
Absolutely.
Okay. Sure, sure. And my last question on -- how are you looking at the television space going forward? It looks like there is consolidation which is happening in DTH. In MSO space, there is some consolidation happening. And you have like Jio which is coming in, in FTTA with FTTH, and they're targeting 50 million to 100 million households. So do you see there could be some structural changes as the industry on the other side consolidates?
Well, that will bound to happen. But my view has always been even when DTH came 10, 11 years ago, that all technologies will coexist in the country the size of our -- as big as our country. So cable will also coexist. DTH will coexist, and even fiber will work. So it's all going to be different services at different price points. From a content company, for us, it doesn't really matter because we had all 3 pipes. So as long as my content is relevant, I will still get my value of the consumer payout.
So earlier you were like, say, dealing with multiple parties like DTH. You had 6 players. MSOs have been very fragmented. Like now if you have 4, 5 players which are much, much larger compared to the players which you've been used to dealing with, would that tilt the balance of power?
Yes, Bijal.
Yes, hi. So globally if you see, I mean, it is -- India is very particular case where we have so many players. Globally, people deal with -- broadcaster will be dealing with, say, 2 or 3 distributors until they get 30% to 40% of the final subscription revenue. Whereas in India, we are dealing with so many people, and still we are not getting that kind of number. So we don't think that consolidation is so much of an issue. In fact, we see consolidation as a positive thing because the significant discount at which India is selling its cable and DTH services is a result of the fact that we've so much of competition and so many players into the game. So if there is a consolidation, we think that our focus on ARPU will go up. And in fact, we can see an accelerated growth in ARPU. So I mean, as such, long-term consolidation is, I think, from industry perspective is a very positive development.
The next question is from the line of Naval Seth from Emkay Global.
My question is related to the earlier participant. So what I understand, Punit, from your comments that ARPU growth will be the key for driving subscription revenues in domestic -- for domestic subscription in the new tariff order. What gives you confidence that ARPU increase can happen where consumer has -- where choice for consumer is increasing by the day? And the way Jio has done disruption in telecom market, why he can't do it over here? So what gives you confidence that ARPU increase can happen at a consistent rate?
My confidence comes from the fact that today we are dealing with multiple operators at multiple level, and hence, there is discriminatory pricing that happens to the consumer. Today, in our country, cable TV services are available from as low as INR 100, and they're available for as high as INR 600. Tariff order brings uniformity to the entire tariffing to the country, and that's why we believe ARPUs can grow. ARPUs definitely will have to go up because otherwise the entire value chain of the industry does not work. Today, if you look at on the cable side, you have the LTO that's making disproportionate money. You have the broadcaster making some amount of money, and the DPO is the one that is suffering in the middle. And disruption in a telecom product, which is a one service pipe business versus content, which is so diverse that no one player can control 100% of the content that the consumer wants. And therefore, we have to work together to increase ARPUs rather than just me alone trying to increase it.
Or say because Jio talking about that number of 50 million, nobody knows by when it will reach that. So he becoming so big, and if at all he is able to achieve that number, so again, balance of power, can that shift because multiple parties will go away in terms of 8 million, 7 million household reach of MSOs while this guy at 50 million or say 40 million comes and negotiates with you. So probably -- again your subscription revenue growth, can that be impacted? Or say, if I don't increase -- take into account ARPU increase in the new tariff order regime, will you -- you'll be able to achieve that low-teens growth?
Yes. As long as the content is relevant to the consumer and the consumer wants my content, I am relevant. The pipe has to offer that content to the consumer. Otherwise, what is the proposition of the pipe?
So -- and additionally, as far as the new tariff order, I mean, the new tariff order comes into the effect, so whether it is Reliance or Hathway or anyone, everyone has to pay the same price to the broadcaster. The broadcaster is under obligation to give same terms to all the players. So there is really no reason, I mean, why we should be worried about it. In fact, it will become another pipe, and it will partner with them to reach our customers.
But that 15% clause is yet to be notified by TRAI on the discounting part? Am I correct?
Sorry, say it again?
The 15% arbitrary, which is still pending in the court, that is yet to be notified by TRAI and hence the tariff order will get implemented finally? Or irrespective of that, it will get implemented?
No, 15% discounting cap has been done away with now. So that will not be there when the implementation happens.
And TRAI is not going to renotify on something of that sort over there?
Not to our understanding.
The next question is from the line of Vikash Mantri from ICICI Securities.
And thank you for the commitment on the usage of cash that way. 2 questions, I have. Punit, does the ZEE5 international strategy cannibalize our international subscription revenues? And the second question is giving content to Jio, will it be categorized similar to that of giving content to an ditto equivalent or an ZEE5 equivalent or Tata Sky be very equivalent and, therefore, not come under the gambit of the current tariff order? Just some view on that?
So I think ZEE5 global strategy, if it does cannibalize into our existing subscription revenue of international, I'll be very happy with that. Because that's a direct ownership of the customer that the company gets rather us having it through a distributor. So that's a good problem if it happens with us that way. And that is one of the strategies -- part of our strategy of going global with ZEE5. On the Jio side that you talked about on the tariff orders, how would you circumvent the tariff order in Jio's case? It will act as any other DPO, right? When they go with the Jio fiber to the home, it also gets classified as a DPO.
So currently, what monies you're getting from Jio TV or is not the same as what you're getting from a Dish or Tata Sky that way?
Yes, yes, but that is restricted to their handsets without allowing them any rights to take our content from the handsets and cast it to [ TV ]. That also is restricted. It is married to the sim card. Therefore, we treat them as a very different consumer than a household consumer.
The next question is from the line of Rajiv Kumar from HSBC.
Just couple of questions from my side and just to clarify. This is Rajiv Sharma. So Punit, this whole digital content increasing across the platforms, do you see there is pressure on your traditional TV model as well to -- on the content cost to increase there? And does it -- is it factored in your margin forecast of 30% plus? Second is, Jio has been very aggressive when it came to mobile. And similarly, it is likely to be aggressive in the FTTH space as well. Though the rollout may be gradual, but the pressure on cable industry can be significant. So how worried are you about the fortunes of cable industry in the medium term in the next 2 to 3 years? And how could this put pressure on your subscription revenue growth?
See, I think first and foremost on the -- I have no doubts that Jio will be not aggressive on the FTTH side. They will be aggressive on the FTTH side. And it may be they achieve it over a period of time. Cable industry will come under pressure if Jio is going to take way 50 million or 100 million homes, and therefore, they have to get their act together to offer services to the consumer as per their needs. If they don't, they will be under pressure. How does it change anything in my context? Nothing. It moves from just like when DTH came and took 40% or 40 million homes away from cable, now fiber will come and do that. So it doesn't move the needle from my perspective.
Punit, if I could intervene, so by the way it could play out even though Jio will not be able to supply -- address all the supply side concerns, it will be 2 million, 3 million number with a greenfield. But the pressure on ARPUs could be on 70 million, 80 million cable households or 20 million DTH households. So the pressure on ARPU could be significant, 100 million, though the rollout will be just restricted to 3 million, 4 million. I'm trying to understand your thoughts on that context and that scenario.
I think it -- we have to look at first also Reliance Jio will have input costs of getting to the home, right? There will be content cost that they will have to pay to companies like us for getting the content to roll out. And how long will they want to subsidize the business model is something we have to wait and watch and see what they will do. From my perspective, it doesn't change much. If I'm getting x yield on cable, I should get same yield on whether it is FTTH or it is regular coax cable.
And on the first question, your thoughts, pressure on content cost on TV because of the higher production values on the OTT content?
No, I think, because we -- I agree with you that some of the content being made for digital platforms is very high quality. When I say high quality, I mean, because it is shot all on outdoors and it takes bigger stars and those kinds of things, that's why you think that it's better quality. In terms of quality, I think it's comparable to what television quality is because we use the same equipment that we do. It will not put pressure on the television part because the sheer volume of television content that is being produced and the economies of scale that has been achieved there versus what we are producing for digital, the delta is so far apart that's why the costs look very, very high there. But I don't see it putting pressure on television at least in the foreseeable future.
And lastly, if I could chip in. There is this understanding across the board that with the tariff order, things will move from B2B to B2C as far as broadcasters are concerned. So there could be that cable operators, DTH will have to go and get more consumer choice in place and put that in place. So how do you see this playing out? What it means to you in terms of subscription reach, your channel portfolio, the tail channels, your thoughts on this whole thing?
We are very clear that there is no consumer that's going to do à la carte selection of channels. Even if they do, that number is going to be so tiny it doesn't really matter. Eventually, bouquets will only sell, whether it is broadcaster bouquet or DPO bouquet depends on the construct. And I'm sure all DPOs are smart enough that they will want their packages to sell rather than directly broadcaster’s packages. And hence, that is the way I think it will play out.
Okay, but it will -- the content will no more be a cost for DPOs. So there will be a direct consumer relationship which gets established between broadcaster and consumer, so...
As I said, my understanding is that number has been minuscule. So therefore, it's not really going to be in existence. I mean, theoretically, you're saying there can be close to 160 million bouquets out there, right? Because each individual can choose his own bouquet. There is no SMS system in the world that can handle that kind of traffic on a monthly basis.
The next question is from the line of Jay Doshi from Kotak Securities.
Congratulations on a very good results for the India broadcasting business and some excellent market share gains that you're seeing in Tamil market. Just a quick question on international business. This quarter, we've not seen much -- barely any growth on the advertising front even though the base was fairly low, and even the subscription piece has sort of declined. So how should we think about that business from the next 2- to 3-year perspective?
So the advertising revenue decline is purely on the back of the geopolitical issues we're seeing in the Middle East market. It has further worsened in the first quarter itself, and I don't see how -- because there is no visibility on the recovery of that happening currently. On the subscription side, the impact is largely because of U.K. where until last year, we had a pay channel on the Sky platform. But now in the first quarter, impact is gone. We're no longer a pay channel. It's also TV free, and that is there to remain. So you'll see that continuously going forward.
So the current quarter number is the new normal that is also -- can it further decline?
Correct. No, it's the new normal for subscription.
Sure. Now we've seen significant investments in movies over the past 2 years, but it's sitting in inventory on the balance sheet, so I assume most of those movie rights, you would've already procured. So is that correct understanding? Or whatever is visible in inventory is also sort of -- some bit of it is also advances or the movies that are yet to be sort of telecasted?
Bijal, you want to take that?
Yes. So what is sitting in inventory are the movies which are already with us. And what we've given as advance is for the future rights or movies under production are sitting under advances. So that is how things are, but you might not have seen all the movies already being on our networks. So as a very simple example of that is that we already have a good movie library for Malayalam, but we don't have channel. So that's not on network. In many other market where we want to, we have aspirations to launch movie channel, we might not have exploited all the movies. So I'm mean, good part of the movie which is sitting in the inventory has been exploited, but there is also a reasonable part which is yet not exploited.
I understand. And few questions on digital. Sorry, I got cut off in the middle. So sorry if any question has been repeated. First is you've indicated that you have aspiration to be a #1 digital destination for entertainment content in India. In what time frame do you think you will be able to get there and based on your investment plans and the way you see competitive landscape today?
I'm pretty certain, Jay, that within 18 to 24 months, we should safely be at that position of being the #1 entertainment destination for the viewers.
Understood. Second is your global competitors are spending amount equivalent to what one spends on a movie or TV series, and that has raised concerns in general about inflation for digital content. Now you've produced Karenjit, which I think is a extraordinary sort of well-made show. I had a chance to sample a few episodes. So based on the shows that you've produced so far and the ones that the lineup is for the current quarter, how has content inflation moved versus your beginning of the year expectations? Are you seeing any unusual inflation in digital content? Or are you finding it difficult to get good quality writers, directors for digital content, any?
No, no. In fact, now having seen some of the traction of the original content across the 6 languages, we're only going to further increase our investments in digital content going forward. Because we are not using much talent from the television side in terms of either writers, directors, actors, we still have a long tail available to choose from on the digital front. So we will continue to invest in digital content, and we'll be doubling going forward, in fact.
Sorry, my question was related to content cost and more so from a per series or a per episode basis. Is there any unusual inflation or anything that you are seeing? Or it's pretty much on track or in line with your beginning of the year?
No. Basically, there we don't look at it that way because the content of -- the content is so low story to story. In broadcasting, we what I call [Foreign Language] we make 500 hours of content a week. In digital, I will for the full year do 800 hours. It's not even comparable, right? So from that perspective, we get concepts, we get stories, and we cost those. So there is no per hour concept there. It is all story- and concept-based content cost.
Understood. And the final one is we've not seen any tie-up with telcos yet, and also if you could give some update on what's the progress, what is it that Margo is doing to help content distribution for ZEE5?
As I said, numbers are still early stage. We have -- traction has started happening with Margo. The integration is happening with Margo. And at the end of quarter 2, I'll be sharing numbers with you. On the telco side, as I said earlier, you may have got cut out, Jay. Until I don't get the right value for my content, I will not do a deal with them.
The next question is from the line of Alankar Garude from Macquarie.
Firstly, Punit, our market share trends have been very strong, especially in Hindi GEC, Tamil and Bangla. So can you throw some light on the competitive landscape, particularly in Tamil Nadu and West Bengal? And in West Bengal, especially, have you been doing something differently of late in terms of content?
Obviously, we've done something different -- differently in the content. That's how the shifts happen, right? I mean, it's not -- otherwise, that can happen. So both in Tamil and in West Bengal, our friction strategies have started working, and those have given us the traction there. I mean, is that what you're asking or did I miss the whole question [indiscernible]?
And also apart from the investments which we ourselves are doing on the content, is there anything specific either in terms of distribution or reach or anything to do with the competitors lowering their intensity? Have you seen any of these things in either of these 2 markets?
No, I don't think any competition has reduced number of hours or any distribution issues that we've seen on the ground. Tamil also we have seen significant growth coming in for ourselves, but not that competition activity lessened in any manner. In fact, in other markets like Bengal, Maharashtra, we keep hearing out even new entrants wanting to come into the market. So competition will continue to remain at its peak as it's always been [ around ].
In fact, in Tamil market competition has actually gone up. And despite that, we've been able to increase our share.
Understood. And secondly, you mentioned about launching ZEE5 globally by this fiscal end. So I just wanted to understand whether there are any specific markets which we are -- we want to have a higher focus on, some markets where possibly we have got a lower TV distribution reach. Would we be wanting to target such markets first? Or it's going to be more of a blanket strategy?
So as I said, it's going to be a phased approach by market. And yes, there are certain markets which will be -- which are higher yielding, faster than the others. And that's built into our strategy of rollout.
Is it possible to name few of these markets?
[Foreign Language] don't ask me about strategies on a open call at least.
Okay, sir. And finally, recently we saw a deal about Tata Sky -- between Tata Sky and Netflix. So just wanted to check from you, if at all such an opportunity comes for ZEE5, would we be interested in tying up with TV distribution platforms as well?
Absolutely, why not.
The next question is from the line of Yogesh Kirve from B&K Securities.
Continuing on the regional channels that we are doing well. So wanted to understand how long does this market share gains take to play out in terms of the ad rates and the ad revenues. So for instance, now we are the #1 in West Bengal market. So are our ad rates equal to or approaching the erstwhile market leaders rate?
See, because we sell out our metric or CPRP, our rates are equivalent to them. As we keep expanding and making more gap even in the West Bengal market, our rates will continue to go up. So because we are now capped at inventory levels of 12 minutes, most of our gains that you see coming in are coming from pricing. So what is the limit? I don't know. I mean, if Mr. [ Misra ] delivers 25 shares next year, I will continue to grow further also.
Right, right. So the transmission to ad rates happen instantaneously, right, because of CPRP, you think?
Sorry, say that again.
So the transmission of this market share gains to the ad rates so that happens instantaneously because of CPRP, you think?
No, it's a quarter lag because the yields are done on that basis.
Right, right. That's it. So secondly, this OTTs like Jio TV and Airtel TV have been there for some time. So have we revisited the content charges over what we had signed at -- the deals we would've signed initially? So has there been a revision since then?
Absolutely. As I said earlier, we are still negotiating. We've not closed any deals. So everything is open right now.
So right now, the original deals are still continuing, right?
Yes, because -- until the negotiations fail, I would not like to pull the content out. So that's reason it will continue.
And do you see this mobile OTT adding up to -- so the apps like Jio TV or Airtel TV adding up to a significant revenue for us?
No, it's a minuscule right now. I don't see it growing cumulatively higher also. It's going to remain in this zone at this levels.
Right. And sir, finally, on your film and your music business, could you comment on how those businesses are performing in terms of profitability and the margins, if at all any qualitative comments on this?
So quarter 1 was a bad quarter for the film production business because we had 1 flop, which was Beyond the Clouds, and any money we made on the other 2 or the music business were wiped off. So there is no profit in that division for the quarter 1. But we don't look at it from film-to-film basis in terms of portfolio approach for the year. And we're pretty confident that this business will be profitable. Though low margin, that will be a profitable business for us.
And the music business is currently profitable on a steady-state basis?
Yes, yes, it's part of the film division itself. We've got the music business as part of films.
The next question is from the line of Sanjay Chawla from JM Financial.
I've got 3 questions. First one is you made pretty handsome gains in the regional markets. So just broadly if look at your portfolio, including the Hindi GECs, where do you see the best monetization opportunities where you can easily -- relatively easily charge higher ad rates in a sort of low-hanging fruits?
I think, we're seeing that everywhere happening with a different level of degree. It varies. But all the regional markets whenever we've seen traction in our share, we've managed to grow revenue and monetization. So I can't point out one market which is lower than the others. If you look at all the market, they're tracking pretty high for us.
It's kind of relatively undermonetized vis-à-vis the ratings which we're getting now in that sense.
Well, South as a market is undermonetized than the whole industry in that matter.
Do you rate Telugu and Tamil higher on that list?
In relation to Malayalam and Kannada, you mean?
In relation to your own Marathi and Bengali GECs?
Yes. We are gaining share, so we are growing our monetization there slowly and steadily.
Okay. Second question is on the digital where you mentioned that you would be having 150 exclusive movie across languages over the next 12 months. So what kind of exclusivity are we talking about here? Are you also looking at digital-only release model like no theatrical release model, something which Netflix is doing at a significant scale now?
As of now, we don't look at a nontheatrical release model largely. We got 150 films which have been released in theater, and we have secured the rights for digital as well as satellite. We will be airing these films prior to satellite on digital itself. For example, Padman went on ZEE5 2 weeks prior to going on TV.
So this means exclusivity could be both in terms of digital only and also digital plus satellite TV?
Yes. We mean with the Zee network digital adds [ value ].
Okay. Third question is on -- the last one is on the TV tariff order. You are obviously bullish on the medium- to long-term outlook. But just from an implementation point of view, could there be a near-term impact or any reset in subscription revenues? Because obviously the market will shift from a fixed fee kind of a model to a CPS model and there could be audit-related issues and adjustment issues. So do you foresee any such scenario for first 2 or 3 quarters post implementation?
No, I don't see that -- I mean, there will be implementation hiccups, but the growth trajectory should not get impacted because of that.
But any reset of subscription revenue itself or base itself? And of course, after that growth can take over in a handsome way, but any reset that is possible at a lower level?
Very early to say right now. We are still in dialogue with the DPOs.
Okay. And could you just comment on the timing of the Malayalam GEC launch?
Subject to regulatory approval, we are ready to launch in September.
The next question is from the line of Kapil Singh from Nomura Securities.
I had 2 questions. Firstly, related to inventory levels, I wanted to check, are they currently at a level higher than normal because of the ZEE5 launch going on? And is the digital business structurally going to have similar level of inventory level in the long term?
Inventory levels are running at regular levels of our 12-minute cap. Just because we have ZEE5 launched does not mean we increased inventory on the network. And whatever is being used for ZEE5 is used from the within the inventory over there.
No, I was talking about movie inventory on the balance sheet.
Oh, Bijal, you want to cover it?
I didn't get it. Kapil, can you repeat the question?
What I was saying is that are the inventory levels currently at a higher-than-normal levels because of the ZEE5 launch going on? And in the longer term, is the digital business structurally going to have similar level of inventory or will it be having a higher level of inventory?
So movie inventory is higher on account of a couple of reasons. One is done on the broadcast aside. So broadcast, I mean, we have been more aggressive on movie purchases over the last couple of years. And also, I mean, as we highlighted that we have aspirations to launch movie channel in several regional markets. So that is the reason our movie inventory has gone up. Also is -- and one of the key proposition of ZEE5 is movies. We have expansive library of around 3,500 movies and as Punit highlighted that we already have procured 150 -- 3 movie premiers for digital offering also. So that is the reason why movie inventory is high at this point of time. Now what we've done is that we've actually been more aggressive in buying movies and procure -- and yet also procuring some of the movies in and -- for which rights will come up for renewal at a later date and some of the movies which are under production. So if you think from a medium-term perspective, movie inventory in terms of number of days has definitely come down. It will not come down in next 12 months, but definitely beyond that, it will start coming down. And also since we have bought some of the advanced rights at this point of time, we might not need to buy a lot of movies maybe until a couple of years down the line when those rights become live. So overall on the working capital side, it is slightly elevated, which is more than normal on account of our aggressive movie strategy. And benefit of that, we will see in coming years.
That's quite helpful. The second question is relating to cost related to ZEE5. Are they already at a normalized level? Or should we expect sharp cost inflation from current levels?
No. Apart from normalized levels, we are still ramping up investments in ZEE5, both on the content side and the marketing side.
Okay. So we should expect more cost inflation in the coming quarters?
Yes. On account of [indiscernible].
We will take the last question from the line of Rohit Dokania from IDFC Securities.
Three quick ones from my side. One is can you disclose the launch time lines of your regional movie channels, especially in the South India?
We don't have a time line yet, Rohit, because we're working on the licensing front and the library accumulation front. So as I said earlier, right now, we have a time line for only the Malayalam channel. We are working on the Punjabi and the movie channel, and we'll come back to you in due course with time lines.
Sure, make sense. Any sort of plan of bidding for sports rights just for digital and if you are allowed to do that in terms of the noncompete?
We're not allowed to do that. We're not allowed to bid for any international cricket, any international sports rights, even for digital, until February of '21.
Got it. Last one, which is slightly bookkeeping. If you can talk about the sort of run rate of other income that appears to be low in this quarter, also on the tax rate and also depreciation. Is this the new run rate?
Yes, Rohit, starting with the other income it is likely detailed. So if you don't follow, call me up after this conference call. So there are few things. Number one, on the other income, if you are comparing Y-o-Y or if you're comparing Q-o-Q, in both the quarters, we had something which was not recurring in nature. Last year, we had Forex gain of around -- a significant amount of around INR 500 million. And that is the reason Y-o-Y other income looks lower. In the previous quarter, which is fourth quarter, we had some income tax rate -- interest on income tax refund, and that is why also other income was higher. So that is one thing when you are comparing Y-o-Y or Q-o-Q. Secondly, the other income side, what has happened during the quarter is that there is some change in accounting standards which requires us to put increase in our NAV into other gains -- fair value adjustment. So actually the other income which was accruing in other income line item is actually not accruing there a part of that and which is actually below, I mean, in fair value adjustment. So that is why you are not seeing full other income in that line item, and that is again making, I mean, comparison not like-to-like. Lastly, what we've done over the year is that we've actually moved to dividend reinvestment option on most of our mutual fund. So what is happening is that earlier the income which we were reporting in other income was pretax. However, now it is post tax. So in terms of yield, it looks lower. However, if you look at -- I mean, effective yield, so that is after-tax payment, it is actually higher. So these are the reasons. If you've not followed any of this, I can take you -- I mean, I can take you through entire calculation and everything off-line.
Sure, I will do that. And the other 2 things which is the tax rate, will it be in the range of 35-odd percent for the full year?
Yes, yes. So I mean, the basic tax rate on a quarterly basis is slightly tricky thing. But from an overall annual perspective, it will be around that region. And as far as depreciation is concerned, this is a normal run rate. So you should start building in this kind of number going forward.
Thank you very much. That was the last question. Ladies and gentlemen, on behalf of Zee Entertainment Enterprises Limited, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.