Zee Entertainment Enterprises Ltd

NSE:ZEEL

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Q1 FY '24 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. Mahesh Pratap Singh, Head of Investor Relations, Zee Entertainment Enterprises Limited. Thank you, and over to you, sir.

[Mahesh Singh, executive]

Thanks, Ayo. Hello, everyone. Welcome to our Q1 FY '24 earnings discussion. At the outset, I sincerely apologize for the delay in keeping on standby. We ran late, but thanks for standing by. Mr. Punit Goenka is recusing himself from today's discussion, and we have with us our CFO, Mr. Rohit Gupta, along with other members of the corporate team.

We'll start with the opening remarks by Rohit covering operating and financial performance. We realize you may not have had a great time to look at the earnings [ print ], but we'll do our best to talk you through the key highlights and story behind the numbers. We'll subsequently open the floor for questions-and-answer session.

Before we get started, I'd like to remind everyone that some of the statements made or discussed on today's conference call will be forward-looking in the nature, and these must be viewed in conjunction with risks and uncertainties we face. The company does not undertake to update any of these forward-looking statements publicly.

With that, I'll now hand the call over to Rohit for his opening remarks.

[Rohit Gupta, executive]

Thank you, Mahesh. Good evening, everyone. Thank you for taking the time out to join us to discuss the company's performance during the first quarter of the financial year 2023, '24. Before I get into the details of the quarter, I would like to apprise you all on the proposed merger between Zee and Sony.

As you would have noted, the Mumbai bench of NCLT has heard the matter and reserved the final order in its hearing on 10th July. The order has now been listed for pronouncement tomorrow. The merger has already received approvals from the Bombay Stock Exchange, National Stock Exchange and the Competition Commission of India and the shareholders of the company. Our belief in the potential of the merged company to generate immense value for all stakeholders and the media and entertainment industry at large remains firm.

Now coming to the quarter, there are positive signs of growth across the media and entertainment sector at large, and several attractive opportunities exist across segments. Even as the digital ecosystem continues to grow at a steady pace, there remains an exciting opportunity for television in India as well. The headroom for growth of pay-TV households in India is immense, and rising content consumption can certainly act as a catalyst for growth in this segment.

Evolving consumer behaviors and technological advancements are becoming the growth tailwinds for the sector. And it remains well poised to witness robust and orderly growth across all segments in the near future. The new fiscal has started on an optimistic note, with some green shoots being seen in the overall advertising sentiment and the rollout of NTO 3.0 paving way for TV subscription revenue growth.

That said, there remains immense headroom for overall ad environment recovery on the back of improving consumer demand, and we remain hopeful of the next few quarters driving growth.

The focus for us during the quarter has been on strengthening our business and offering a compelling content pipeline across platforms to keep our viewers entertained. This strategy continues to deliver results for us, and I will take you through the operational and performance of the company in detail.

While we continue to see muted ad spending during the good part of the quarter, encouragingly, there were green shoots emerging as we exited the quarter. Q1 started off on a slow note. And with IPL during the month of April and May, ad spending was particularly muted.

However, towards the back end of the quarter, there were early signs of ad spend starting to pick up, led by FMCG. We have seen this pickup continue to do well in Q2 as well. However, recovery is still nascent, and pace of pickup is moderate at this point. Overall, we remain hopeful that the positive momentum will continue, enabling us to drive growth in ad revenues.

There are also very encouraging signs across the TV broadcasting industry. IPL 2023 was biggest ever IPL on television, with staggering 32% growth in television ratings compared to the 2022 addition. Overall, TV will [ shift ] during the quarter, is at its 5-quarter peak. And share of [ PTV ] in the overall TV viewership has also increased at a healthy clip.

In fact, even from the base of Q1 FY '23, when we and other major broadcasters removed our Hindi GECs from FreeDish, pay TV has gained further share in the last 4 quarters. Linear TV plays a very important role in our business portfolio and serves a very relevant purpose for both viewers as well as advertisers. We remain confident about our ability to grow our overall linear TV business revenues.

A testimony of that is visible in our linear TV subscription revenue growth during the quarter. We are seeing benefits of NTO 3.0 translate to revenues, and it will take a couple of quarters for NTO transmission to fully settle down. As we drive NTO rollout, we are also [ ploughing ] back some of this growth in marketing for longer-term sustenance and growth of pay TV ecosystem.

Hence, do keep in mind that while the headline growth in linear TV subscription revenues seems higher than inflationary growth levels we had indicated earlier. From a net contribution perspective, factoring in higher marketing, we will likely end up close to inflationary growth.

In our linear TV, our viewership share performance continues to gain momentum, and we are at a 5-quarter high point with several success stories of winning share back or strengthening leadership position in key markets.

As you look at the viewership share of quarter 1 FY '24, keep in mind that GEC share in Q1 gets adversely impacted by seasonal pickup in sports and kids genre in summer months. Hence, we have also provided you with viewership share for the month of June, which is a better reflection of current trend line of the business momentum.

Our June 2023 share is at a high point in the last 5 quarters. Our viewership share will now be -- on [ relationship ], we will now be providing you viewership share for urban 15-plus age cut as that is most reflective of our current business context.

Historically, we used to report urban plus rural for 2-plus age category. And given Zee Anmol exit and absence of kid channel, that cut isn't very relevant. This quarter alone, for transition and continuity purpose, we are providing you with both the cuts.

One very important takeaway and success story I want to leave you with is that when you look at 15-plus urban viewership share, which is a better view of monetizable viewership, we have gained 90 bps viewership share compared to June '23 with quarter 4 of FY '22.

This viewership share gain is despite the fact that we have switched off signal to Siti Network, and that has adversely impacted our reach during the last quarter. That's a testimony of our team's concentrated effort to win back share and in comparison with every other broadcasting network for the same period, has either been stagnant or has lost share.

What is most exciting, though, is the texture of this performance in each specific market. We are the fastest-growing network by viewership in South. Zee Tamil share is now at a 30-month high. Zee Telugu is at an all-time high. Zee Kannada continues to lead the market by a big margin. Zee Keralam, our Malayalam GEC, youngest of our certain GECs, which we have launched only in 2018, has climbed to become #2 in the market.

In East region as well, we have had gains across all channels, with market leadership in Zee Bangla and Zee Sarthak in Oriya. Zee Punjabi is #1 channel in Punjab, Chandigarh region. We have leadership in Hindi movies and Marathi movies. Amongst all these bright spots, Zee TV and Zee Marathi still remain a challenge, and the team is working hard to regain momentum.

On digital side, ZEE5 had a steady quarter with 21% year-on-year digital revenue growth. There is a sequential moderation in quarter 1 FY '24 revenues, and that is to do with some B2B start-up revenues as we had in quarter 4, along with some ILT20 contribution. Our original content continues to be extremely well received.

As an example, ZEE5 original movie, Sirf Ek Bandaa Kaafi Hai, has received great reviews and appreciation globally and has gone on to become most viewed direct-to-digital original in the last 1 year on ZEE5. Other key impact releases on ZEE5 during the quarter included season 2 of our original show Taj and ZEE5 original movies like Mrs Undercover and U-Turn.

From this quarter onwards, we are not reporting ZEE5 usage or engagement metrics and will request you to anchor to revenue as a measure for growth. Those KPIs were relevant in early stages of business to demonstrate traction. However, now having got to a reasonable scale, these metrics are sort of vanity metrics. We ourselves don't index on these metrics in our internal business decision-making or planning. And hence, we wanted to align external reporting to reflect that as well.

Our usage and engagement metrics remain healthy. And as an additional color, our number of total subscribers have grown both quarter-on-quarter and year-on-year, and watch time has improved from Q4 levels. We are providing this color just for this quarter to address any doubt on health of business, and we will not provide this commentary, going forward. We will continue to evaluate if there are other relevant KPIs which we can add in future as ZEE5 business further matures.

As a business, we are also very focused in optimizing our content monetizing -- monetization potential for the long term and have not hesitated in sacrificing near-term suboptimal monetization for what we believe longer-term true commercial value of our content is. We demonstrated this by taking Zee Anmol off DD Free Dish last year. And very recently, we have also taken our fresh TV content on ZEE5 behind paywall in 4 languages, including Telugu, Marathi, Bengali and Oriya.

As a result of this experiment, we expect more viewers to move to SVOD in ZEE5. And on the other hand, we are also already seeing these regions outperform national average on linear TV side in terms of pay TV viewer stickiness.

Coming to the movie business, during quarter 1 of FY '24, Zee Studios released 7 movies, 3 in Zee and 4 regional, with Kisi Ka Bhai Kisi Ki Jaan, Bandaa, Godday Godday Chaa being some of the headline names. Other sales and services revenues are up year-on-year 42% on the back of higher number of movies produced and released.

This revenue is lower 48% quarter-on-quarter as quarter 4 FY '23 revenue were aided by higher cyclical and syndication revenue for movies like [indiscernible], Mrs Chatterjee vs. Norway. We have an exciting movie content lineup for coming quarters with the much-anticipated Gadar 2 release later this week and [ Maidaan ] to follow later in the year.

On music business, industry is going through a period of adjustment, with few music streaming apps shutting down and some others pivoting from an ad to subscription-based model. These changes will create near-term revenue softness. Zee Music Company is well positioned to navigate this challenging environment effectively and have seen consistent growth in video views and subscribers, highlighting the strength of [ DMC ] music catalog and library. [ DMC ] is #2 music channel and acquired 62% of new Hindi movie titles in the quarter 1 FY '24.

Now moving to cost and profitability. In quarter 1 FY '24, overall operating cost has reduced quarter-on-quarter by 7% due to lower content costs and effective cost management. Resultantly, EBITDA margins have come in at 7.8%, higher by 60 bps quarter-on-quarter. Y-o-Y overall operating costs are up 16% due to higher content costs in linear TV and movies, headcount additions and wage increments, sustained investment in ZEE5 and marketing costs step-up towards NTO rollout.

ZEE5 cost base has been steady quarter-on-quarter, in line with our indication of ZEE5 being close to its peak investment levels. ZEE5 EBITDA loss has increased quarter-on-quarter to INR 342 crores for the quarter, primarily due to lower revenues causing adverse operating leverage. PAT from continued operations for the quarter came in at INR 39 million. Net profit for the quarter and year was impacted by exceptional items outlined in our financial results.

The cash and treasury investments of the company, as of June '23, stood at 5344 million, including cash balance of 3,942 million and FDs of INR 1,402 million. Also quickly touching upon receivables from Dish, outstanding has substantially reduced to INR 622 million as of June 2023.

Moving to the rest of FY '24, we are expecting gradual recovery in ad spends and are optimistic based on green shoots we have seen in the last 6 weeks. We will still need to see traction [ amplify ] in spending and sustain before making any firm prediction on face of recovery. Ad revenues pickup will hopefully be also aided by a longer festive period this year with Diwali being in mid-November.

We will continue to recalibrate our investments and optimize our cost structure while making room for strategic bets. In the revenue pickup, we are hopeful that we will also have more levers to manage profitability as the year progresses. Back to you, Mahesh.

[Mahesh Singh, executive]

Thanks, Rohit. We can now open the call for questions.

[Operator]

[Operator Instructions] The first question is from the line of Vivekanand Subbaraman from AMBIT Capital.

[Vivekanand Subbaraman, analyst]

I shared on a question on the...

[Operator]

I am sorry to interrupt, Vivekanand, but we can't hear you very clearly. If you are on the handsfree, request you to use the handset?

[Vivekanand Subbaraman, analyst]

Yes. Is it better now?

[Operator]

Yes, please go ahead.

[Vivekanand Subbaraman, analyst]

Yes. So I had a question related to the merger. So given that Zee has argued in the NCLT court that Punit's proceedings and the company, they are two different things. How -- if I'm to look at the merger because the merger agreement specifies Punit to be the MD and CEO. If the NCLT approves the merger, would the merger deed need to be modified, given that currently Punit can't hold directorship and key managerial position? That's question number one. And then I have a few questions on the business.

[Unknown Executive]

This is ]. I'll take your question. So as Rohit has informed you that the NCLT is going to pronounce the order tomorrow, so we'll get to know the real color of the order tomorrow. As Punit has already cleared before that there are two different things, his case with SEBI and the merger, and that's how we are looking at it. .

There is no other change apart from this particular clause, where Punit Goenka is an integral part and the MD, CEO of the MergeCo. Apart from this clause, there are no other changes in any other clause, the swap ratio or the valuation. All other clauses are going to be or as it is.

So we are hopeful that just because of this one clause, we don't see any major impediment towards the conclusion of the merger coming. But as we said, it's just a matter of another 24 hours, and we'll get to see the true color tomorrow of the order.

[Vivekanand Subbaraman, analyst]

Understood. Helpful. So great. My next question is on the color of the ad recovery that you pointed out. And thanks for those -- you had given some insights on how June and July are looking. So from an FMCG standpoint, if I understand correctly, half the ad revenue comes from FMCG. And the sensitivity of Zee's linear TV business to FMCG should be very high. Is that understanding correct? So if that is correct, then why is it that recovery in ad spend led by FMCG is only leading to a muted pickup in June and July?

[Rohit Gupta, executive]

Yes. So like I said, we are seeing some green shoots. And in the late June and July, there are some early signs of ad spend starting to pick up, led by FMCG. FMCG does -- is about 60%, as we have always said, of our business. So we are very hopeful and we'll continue to be looking at how this recovery comes up.

But because it is still just a couple of months, at this point of time, we are not in a position to give you a very robust growth picture. But we remain hopeful that the positive momentum will continue. And definitely during the festive season, we'll be able to see ad recovery growing.

[Mahesh Singh, executive]

Just to add to what Rohit said, Vivek, when you look at the quarter performance, keep in mind a couple of other things, right? You also had a quarter where some share of spending did go to things like a very marquee sport property or things go to -- it's a summer vacation, so some spending does go to kids genre and so on. So that's one thing which would have played out when you look at from spender versus receiver in a way.

Second thing to keep in mind is, yes, you're right in the fact that FMCG is one of the highest category, and there is a very high degree of sensitivity. But underneath, there have also been areas which have continued to be sort of soft, right? The whole new edge sort of bucket is it still not really spending a small bit of churn offsets what you get in other parts of the portfolio.

Even for things like consumer durables, for example, the quarter -- the unseasonal rains, summer was quite patchy and all that. So what you're seeing on a headline basis is a combination of FMCG plus several other moving factors, also a quarter where some spending would have gone into sports or kids and so on. So that's the other frame to keep in mind as you compare the commentary you're getting from, let's say, FMCG versus what you're seeing in ad spending.

[Vivekanand Subbaraman, analyst]

Okay. My last question is on the comments that Rohit made on the programming in regional content. So could you explain that better? And secondly, with respect to the viewership shares now that we are disclosing now, what is the key driver of viewership share? Is it more programming hours, more original programming hours? Or is it that the content that's there in prime time, the refresh content that is delivering better results?

[Mahesh Singh, executive]

So let me take a shot at it and to add. The regional comment, the first question you said, Vivek, was that about the share in each of the regional markets? Is that what you were alluding in your first part of the question?

[Vivekanand Subbaraman, analyst]

So actually, I couldn't understand the comments so well, where Rohit mentioned about certain programming interventions in the regional markets and push towards SVOD.

[Mahesh Singh, executive]

So what we were saying was, we were basically making a point about how we are continuing to keep content monetization and getting the true potential or value of the content in every decision we're making.

In that context, Rohit was talking about the fact that typically, what used to happen and what still happens in most cases is if you have a ZEE5 subscription, you come in, we have an AVOD [ tier ], which is ad-supported [ tier ], you could actually see the TV content there. And then there is a paywall, behind which we have all our original content, which are our original shows and movies and so on. So those are the two tiers you get in.

The experiment or the initiative we have done, which Rohit spoke about earlier, the 4 languages, which is Telugu, Bengali, Marathi and Oriya, we've taken our TV content and sort of put behind the paywall, which means if you are historically seeing TV content on an ad-supported tier coming in, when you now come in, you actually see a paywall.

And it's driving two things. These are early days, but it's driving two things. One, we hope that this will drive more people to move to subscription, which is by the SVOD point Rohit made. So the second thing we're also seeing is on the linear TV side itself in these markets, where we have taken content behind the paywall, it's also driving slightly better stickiness compared to national averages when it comes to viewership on the TV side of things.

So that's the point Rohit was making from an intervention standpoint. I hope that's clear. And then I'll move to your second question.

[Vivekanand Subbaraman, analyst]

Yes. Very clear and very interesting.

[Mahesh Singh, executive]

Sure. On the second question, in terms of content, it's largely to do with the sort of effectiveness and quality of content we are making. It's less about a number of hours. Of course, there will be always choices you'll make in terms of programming slots, what goes where, how do you refresh and all of it.

But a lot of this is that the viewership share gain you've really seen is a reflection of how sort of tuned-in our teams have been in terms of consumer and viewer preferences. How has that brought stories to life, what kind of narrative, what kind of protagonist you've taken and shown the content. And that content's really resonating with audiences.

So keep in mind that these are markets where -- I mean, the difficult markets in southern clusters. We've been speaking about something like Zee Tamil, where we were going through a lean page. The recovery has been quite robust. Rohit spoke about market, which is fairly new for us, something like Malayalam, Kerala. And we've gone on to become #2.

So a lot of this is really a reflection of how tuned-in our teams have been in terms of getting a pulse of consumer and bringing this to life in terms of stories we are telling and those stories really resonating with audiences.

[Operator]

The next question is from the line of Abneesh Roy from Nuvama Institutional Equities.

[Abneesh Roy, analyst]

And good to see margins recovering quarter-on-quarter. My question is the market share expansion, which you said in South India, for example, Kerala, you've become #2; some of the other 3 states, you have hit multi-month high; who is losing share? What's driving this? And any learnings from those 4, 5 states in South, which can transplant to Hindi and Marathi, where you have been trying a lot, but somehow, it doesn't seem to be working?

[Mahesh Singh, executive]

Sure. So on the second part, Abneesh, yes, we are doing that. I think we're looking at stories and narratives which are working in a specific market and then seeing how do we contextualize it for a slightly different region and bring this to life. So that's something which is clearly on the card, and we will look at it. Clearly, that's something true.

The share gain is really a market-to-market dynamics. A few of them are fairly sort of multiplayer markets, where there are 3, 4 players; and some of the markets are actually largely 2-player markets. So it's really coming from -- in a situation of 2-player market, it's really coming from the second player largely. But in some cases, there's something like Malayalam, as an example, is sort of multiplayer market where we've consolidated on expense of everyone to some extent.

[Abneesh Roy, analyst]

Right. And in terms of the very high spend in ZEE5, where do you see the balance 3 quarters? Because here, every quarter, there is a negative surprise in terms of the losses. When we see other regional players, global players, everyone is talking of curtailing costs. Somehow, ZEE5 5 is the only listed player whose numbers really come out. But somehow, ZEE5 seems to be the only aberration there. So why you're not going to be cautious just like other players? I wanted to understand this.

[Mahesh Singh, executive]

Sure. I'll take a shot at it. And Rohit, feel free to add. So I think, look, Abneesh, when you look at this quarter, we are actually quite pleased with the fact that the [ core ] cost base has been fairly steady in ZEE5. And keep in mind, this is despite us having to take in effect the increments and wage escalation, which would have come in. So if you look at considering all that, there has been prudent cost management to offset some of these increases and still keep the cost base steady.

Now to your point, yes, what has happened is your EBITDA loss has widened, but that's largely a function of what has flown through the revenue. If you look at the Q4, we were at about INR 220 crore quarterly revenue. And Q1, because there was some catch-up revenues in Q4, Q1 has moderated back to about INR 195 crores odd. And that's the difference, which has largely flown through margins.

But when you really look at revenue plus EBITDA loss and compare Q4 and Q1 from a cost base standpoint, they're very steady and that -- despite taking some of the seasonal increments like wage escalation.

Moving forward, we believe what you're seeing as a cost base in Q4 and Q1 is largely at peak. We will still have to invest in content and some uses-based investment in technology. But we are hopeful that within our cost management and efficiencies in other parts of the portfolio, we will try and find a balance where what you're seeing in last couple of quarters remain largely the cost base of the business.

[Abneesh Roy, analyst]

And last quick question. You are also a significant movie producer. We have seen in the earlier quarters, regional movies doing well generally on -- in the box office. Now what we are seeing the Hollywood movies and some of the Hindi movies are also doing well.

Given that kind of a development, are you recalibrating your movie production? Any changes? Because you had also tried to be a bit cautious on that. But again, because now there is the EBITDA recovery, how do you see in the coming quarters and maybe even FY '25, pipeline of movies, budget size of the movies?

[Mahesh Singh, executive]

So Abneesh, we continue to look at this in a fairly dynamic manner. We start the year with a [ gross ] line, but we'll look at this fairly quarter-on-quarter in terms of where we commit and sort of sign up projects. So you're always going to see some tent-pole or mainstream movies, which we do, and there's going to be a fair bit of regional in the mix.

But it's not something which we get deeply tied into well ahead and commit it. It's a fairly evolving scenario, which will have a mix of Hindi and regional. We'll have a mix of tent-pole properties and mid-ticket small-budget movies, a combination of that. That's where really we will continue to play and balance in our overall envelope.

[Operator]

The next question is from the line of Kunal Vora from BNP Paribas.

[Kunal Vora, analyst]

First is, can you talk about whether all the bank litigations are now settled, and what is the amount which you paid versus the total provision that you have created?

[Mahesh Singh, executive]

Yes. So in respect of the bank litigation, 2 out of the 3 [ Destra ] claims were settled. One has been completely settled in [ Dashen ], and both parties have withdrawn the relevant litigations in that. The second one was with Standard Chartered, which is progressing as per the terms agreed. In respect of the third matter on IDBI, that case was dismissed by the NCLT, and the matter is now sub judice. So that remains to be dealt with.

[Kunal Vora, analyst]

Okay. And what's the total payment which was made for this in the quarter?

[Mahesh Singh, executive]

We haven't disclosed the specifics of these settlements, Kunal.

[Kunal Vora, analyst]

Okay, sure. Second is you've taken some additional write-off...

[Rohit Gupta, executive]

Just to add, I mean, the payments are within the provisions which are there. So...

[Mahesh Singh, executive]

And if you look at, Kunal, the notes to account, SEBI, this does cover about us. There's a specific note, which talks about the fact that what's been accounted for, an adequate provision being in place and all that. So just have a look at that.

[Kunal Vora, analyst]

Okay. Yes, I'll look at that. Second is you've taken some additional write-off for SugarBox. What was the total investment in SugarBox? And is that fully written off? And are you going to realize anything at all on that?

[Rohit Gupta, executive]

Yes. So see, last quarter, we had mentioned that we are discontinuing the operations of SugarBox. And all the investments that we had, roughly around INR 300 crores? Yes, INR 300 crores, we had written down. The -- what you see in this quarter is, of course, the remnants that are there for quarter 1 and all the closure expenses. And I don't foresee any more expenses on SugarBox coming forward.

[Kunal Vora, analyst]

Okay. So total investment was about like say, INR 300 crore, INR 330 crore, and that's been fully written off.

[Rohit Gupta, executive]

So the total investments was higher. Zee has a certain -- it has taken over all the assets and everything what SugarBox had. And the -- there was a valuation of some claims. So out of about INR 420 crores, about INR 300 crores is what we wrote down, and the balance still remains in the Zee stand-alone books. But on a consolidated, it doesn't matter. It's really -- it's a net figure.

[Kunal Vora, analyst]

Understood Okay. And last one is, can you talk about how the business is being managed right now? And were any changes have been done, made in the leadership team, at least in the interim period?

[Rohit Gupta, executive]

Yes. So as you would have seen, the Board, based on the legal advice, they had formed an interim committee. So that's one. Secondly, there are all -- business actually is [ done ] by all professional leaders, senior leaders. So really from that point of view, there is no change and no disruption in the business.

[Kunal Vora, analyst]

So any big decisions which need to be taken, would be...

[Rohit Gupta, executive]

Consulting the -- yes.

[Kunal Vora, analyst]

Board?

[Rohit Gupta, executive]

Yes, Board. For any big decisions, et cetera, we obviously continue to consult our Board.

[Operator]

The next question is from the line of Jinesh Joshi from Prabhudas Lilladher.

[Jinesh Joshi, analyst]

I have a question on the opening remarks made with respect to discontinuing that services with Siti. But I believe Siti was on cash-and-carry to -- any specific reason for discontinuing? And also we have left out [ East ] from this whole setup, so any reason behind that as well?

[Rohit Gupta, executive]

Yes. So we had moved to a cash-and-carry model with Siti a few quarters back. And -- but because there were certain litigations going on in Siti, we were not receiving payments from Siti. And therefore, we were not able to recognize our revenue.

Therefore, we actually had to take revenue on the top line and then make a net provision, and we were disclosing that. We decided that in Siti, and we have mentioned that in the last quarter call as well that we are switching off signal to Siti, and we have. So really, it's a matter of recovering money from Siti.

[Jinesh Joshi, analyst]

And the second part, leaving out [ East ].

[Rohit Gupta, executive]

Sorry, I didn't understand.

[Mahesh Singh, executive]

Jinesh, you're breaking up, sorry. We can't hear you.

[Jinesh Joshi, analyst]

I think the signal is not shutting the East region.

[Rohit Gupta, executive]

Yes.

[Jinesh Joshi, analyst]

Is this is the reason for leaving out that region?

[Rohit Gupta, executive]

So actually, in East, there is Siti and there is certain other providers which are actually bunched together. And there is money coming -- regular money coming in there, plus there is a extensive reach that we get. And because there is money which keeps coming in from there, we don't see any reason to shut off East.

[Jinesh Joshi, analyst]

Sure. And second bookkeeping question is with respect to the merger-related costs. So we have seen this cost since the last few quarters. Sir, can you just share what is the total estimated cost which we are [ advertising]? And how much has been recognized so far?

[Rohit Gupta, executive]

So say it is -- look, Jinesh, it's very difficult to give you an estimate of what the cost would be. Keep in mind that this is a function of -- there are -- I mean, one, we have taken much -- we've taken longer in terms of completion and teams working through it and legal expenses and all that. So unless we really have firm closure or sort of a clear timeline to work with, it's very difficult to estimate something which doesn't have a sort of end timeline in front of us.

[Jinesh Joshi, analyst]

Okay. One last question from my side. I think the BCCI media rights auction is due in a few days. So just wanted to know, are we participating in the auction? And have we purchased the invitation to send that?

[Mahesh Singh, executive]

Look, Jinesh, we -- as a media and entertainment player, we look at every opportunity coming our way, and evaluate that on the basis of what it does and from the prism of value creation and everything. So we will evaluate it. As you can appreciate at this point in time, it's not fair for us to publicly comment,, given competitive sensitivities. But suffice it to say that we look at every opportunity and evaluate on its merits.

[Jinesh Joshi, analyst]

Sorry, if I can just kind of ask one last question, but have we purchased the tender? Can you share that?

[Mahesh Singh, executive]

Yes, we have purchased the tender.

[Operator]

[Operator Instructions] We take the next question from the line of Jay Doshi from Kotak.

[Jaykumar Doshi, analyst]

Look, linear TV advertising for IPL this time declined by 50%, and seems like Star has [ peaked ] significant losses. So given that backdrop, I would like to understand what is the amount that you've agreed for ICC rights, the understanding you have with Star, and whether it is a legally tenable contract that they can enforce? Or there is a room for renegotiation there?

[Rohit Gupta, executive]

Jay, I think -- look -- okay. I mean the 50% seems a bit sort of out of ordinary. It's not for us to comment, given this Star's number, but I think our estimate is much lower than that. .

But keeping that aside, look, we haven't disclosed the specifics of deals between us and Star on this one. And we are bind down by sort of those confidentialities and specifics. So we won't be able to comment on any financial contours of that particular partnership or engagement.

[Jaykumar Doshi, analyst]

So let me confirm that if I understood it correctly, so at this point of time, there is no legal contract between you and Star India for ICC rights, for which Star has kind of agreed, bought a contract for TV and digital for [ $3 billion ], but they don't have a firm commitment from your end?

[Rohit Gupta, executive]

Yes, we definitely have an arrangement with Star, wherein as news have been made public that we are sharing the TV broadcasting rights with them. So the arrangement is definitely there.

[Jaykumar Doshi, analyst]

So in that case, I would urge you to sort of come with appropriate disclosures, but we are talking about a few hundred crores or INR 1,000 crores of losses from what we have seen in IPL, right? I mean, Star is forced to -- from public news, media news, Star is supposed to look for a JV partner in India. I think it's as meaningful as anything else in the business.

So I would request you to take a legal view and provide us with some disclosures in terms of what's the potential cost and what's the legal sort of contract.

[Rohit Gupta, executive]

Noted, and we definitely will be making all those disclosures at the right time. We are -- on all these matters, we always do keep on counseling with our counsels. And at the right time, we'll come back and make all the right disclosures.

[Jaykumar Doshi, analyst]

Because people in industry know, right? So it's unfair for investors not to know something which maybe half a dozen or dozen people in the industry already are aware about. That's one. Second is likewise, I would also request for more disclosures on digital on the cost front because your current quarterly operating cost run rate is now over INR 500 crores, very meaningful.

And also perhaps some breakup in terms of what's the programming cost for digital, what is the technology cost, marketing cost and employee cost, some basics around that starting next quarter or maybe post merger, a request on disclosure.

[Rohit Gupta, executive]

It's something -- point noted and well noted. Leave this with us. We will -- we, of course, evaluate this on an ongoing basis, a fair point, and let us see what kind of granularity or sort of visibility we can provide you. So we will note your feedback.

[Operator]

[Operator Instructions] The next question is from Abhisek Banerjee from ICICI Securities.

[Abhisek Banerjee, analyst]

Again, on the same point that the previous caller was speaking on, in terms of disclosure in the Zee digital business, the MAU number or the number of viewers, these numbers, I understand where you might be coming from in terms of competitive intensity maybe. But it actually does help us to have some idea of when the profit metrics start flowing in. So I would urge you to reconsider on that.

Now moving ahead, in terms of the movie production business, what is the outlook for the next quarter, given 1 or 2 of your big movies are coming out? And if you can give us some clarity on -- and any numbers you can give on the run rate of how ad spend improvement are being seen? Because, yes, as we have been hearing about green shoots for some time now, but frankly, I know -- I mean I can understand the industry is to yet to recover. But if you can give us some numbers, it just gives us some better clarity.

[Mahesh Singh, executive]

So let me take those, Abhisek. Look, point noted on the first one, ZEE5. I think we -- if you've been on our calls even last couple of quarters, you've seen this question come back up. We look at this on an ongoing basis. And as we came into this year, we again looked at it. There are two objectives there. And point taken that we'll continue to evaluate it if there's something else we can provide.

But one point really was that, look, we don't really index on these as much as we did when the business started, right? So to that extent, it's always prudent to align the reporting the way we look at business. And you would remember, we used to get a call and there were questions saying, look, MAU has gone up and down in revenue and how do we correlate to it.

Second thing which has happened is we've had a lot of direct offline one-on-one conversations, investors and analysts would come and say, "Look, this is one number, but I look at ComScore, I look at App Annie, I look at SimilarWeb, this number is there, that number is there."

It's something where there are multiple sources to cut and dice it, depending on who you refer to. And that's where this becomes -- I mean this is a bit of a divided view, but there are a few folks who find it useful, and there are a few folks who find it difficult to reconcile multiple sources. So we thought it's best to align with what we see.

The key driver of the business really remains subscribers and ARPU. And given sensitivities, at this point in time, we, of course, can't disclose. But point noted, we will look at, one, of course, reconsidering what we used to disclose, plus also if there's anything else we can use to give you incremental color.

The second point about -- you had a point on sort of movies, right? And we have the big one coming 2 days later, is Gadar 2. And I think that's a big one. But that's really what I could allude to at this point. And then, of course, there would be a combination of smaller tickets or regionals as the quarter progresses. But that's the big one for the quarter, looking out from a Q2 standpoint.

The third question in terms of any commentary or color on pace of ad and moment recovery, like Rohit said, we're seeing green shoots, but still nascent, wouldn't be able to quantify. I mean there are select clients where we're clearly seeing step-up happening.

But as you yourself said, we'd rather see a trend before really giving any definitive view or prediction on this. So at this stage, what we are seeing is -- clearly, there's a step-up, but it's fairly modest, and we would want to see the sustenance of this as the quarter progresses. So that's really where we are. I won't be able to give you a specific number or trend line beyond that.

[Abhisek Banerjee, analyst]

Understood. So just extending the first question, in terms of the ZEE5 business, is it possible to share something like contribution margins with us, which gives us some idea of how the profits are moving? And on the second one, what would be the approximate proportion of [ NTOs ], which kind of come to you for movie produced by you? And in terms of historical numbers, if you can give us some context?

[Mahesh Singh, executive]

Sorry, the second one who comes to us, you said [ MVO ].

[Abhisek Banerjee, analyst]

What proportion of net box office revenues are accrued to your revenues basically, for movies that is produced by you?

[Mahesh Singh, executive]

It varies market-by-market, Abhisek, a little bit. And then, of course -- I mean, we can take that offline, it will be a longer conversation, but it does vary market to market. There are times we also do just a distribution deal, as an example, and not different models -- different models exist in that sense.

[Operator]

That would be the last question. I would now like to hand the conference over to Mr. Mahesh Pratap Singh for closing comments.

[Mahesh Singh, executive]

Thanks, everyone. Thanks for standing by. And once again, apologies for keeping you waited. I hope the conversation was useful for you to get better color on the performance. Please feel free to reach out to us if there are any follow-up questions as you sort of do a deeper study of numbers. We will be available, and look forward to speaking to you and meeting all of you in-person soon. Thank you.

[Operator]

Thank you very much. On behalf of Zee Entertainment Enterprises Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.