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Zee Entertainment Enterprises Ltd
Earnings Call Analysis
Q1-2025 Analysis
Zee Entertainment Enterprises Ltd
Zee Entertainment Enterprises Limited has demonstrated a resilient performance in the first quarter of FY '25 despite facing numerous challenges. The company's advertising revenue growth is experiencing a slump, partly due to rural recovery lagging and market dynamics created by major sporting events along with the general elections. However, efforts to instill a culture of frugality and optimization are beginning to bear fruit, which helped maintain a healthy growth momentum on the margin profile.
The firm is proactively building a solid financial foundation, aligned with its long-term goals aimed at enhancing shareholder value. They've initiated a fundraising exercise that intends to bolster their financial resources, giving them fuel for future growth prospects. This alignment is particularly important as the management plans for sustainable profitability while navigating through volatile market scenarios.
While the advertising environment remains challenging, with a subdued recovery noted specifically in the rural segment, there are signs of optimism ahead. Discussions with key FMCG clients suggest that advertising spending is likely to recover in the latter half of the fiscal year, coinciding with the festive season. The management remains cautiously optimistic about improvements in the macroeconomic environment, reflecting their vigilance on advertising trends.
On the subscription side, the outlook appears promising. The implementation of the National Tariff Order 3.0 is expected to catalyze subscription revenue growth. Management anticipates that linear subscription revenue will gradually improve, correlating with inflation rates in the coming quarters. The dual revenue model from traditional TV and digital platforms like ZEE5 is generating balanced revenue streams, which underpins a positive revenue profile.
Recent efforts to streamline operational costs have led to significant reductions in EBITDA losses, particularly in the ZEE5 segment. The company remains committed to further rationalizing costs without jeopardizing growth potential, ensuring that technological and content investments align with monetization opportunities. This cautious approach is being monitored continuously as the competitive landscape shifts.
Management is keenly aware of the necessity to balance margin expansion with growth initiatives across their platforms. Although they have experience some declines in OTT revenues seasonally, they view this as part of a temporary cycle and expect to see improvements as the year progresses, particularly in their digital business.
The management conveyed a vision​ of driving forward revenue profiles with prudence and resilience, keeping a close eye on the costs as they look for growth opportunities amidst stabilized expense structures. With strong fundamentals demonstrated during this quarter, the company shows a promising outlook despite facing unfavourable conditions in some market segments.
Zee's management confidence in their operational strategies to counterbalance stiff competition remains strong. With more focus towards enhancing digital capabilities and content offerings, they believe they can withstand pressures from advertising, distribution, and content areas, thus solidifying their market position.
As initiatives around fundraising continue, the management articulates a forward-looking optimism centered around improving margins and opportunities for organic and inorganic growth. With adequate resources and strategic planning, they are well-positioned to capitalize on the imminent recovery trends in the media and entertainment sector, especially as key festive seasons approach, shaping a well-diversified and resilient business model.
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Ladies and gentlemen, thank you for your patience, and good day, and welcome to Q1 FY '25 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.
Thank you, Nitika. Hello, everyone, and welcome to our Q1 FY '25 earnings discussion. Thanks for standing by. We have with us today our Managing Director and CEO, Mr. Punit Goenka, along with senior management team. We will start with the opening remarks from Mr. Goenka. Post this, we will subsequently open the floor for questions and answers. Mr. Goenka has to leave a bit early today but the team will stay back for the remainder of the call and take all the questions.
Before we get started, I'd like to remind everyone that some of the statements made or discussed on today's call will be forward-looking in nature and 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 Mr. Goenka for his opening remarks.
Thank you, Mahesh. Good evening, everyone. I trust all of you are doing well. Thank you for joining us this evening to discuss the company's performance in the first quarter of the new fiscal, FY '24, '25. I will take you through the key aspects of our earnings during the quarter, and then we can proceed to the Q&A session.
The median quarter of the new financial year commenced with an improving operating performance for the company. The results of several strategic steps implemented in the previous quarter are being witnessed gradually, and we continue to maintain a sharp focus on frugality, optimization and quality content across business. Timely and action-oriented intervention, centered around these 3 key tempos, have enabled us to achieve a healthy growth momentum on the margin profile.
Compared to the previous quarter, our margins continue to display considerable improvement sequentially, and we aim to drive this positive momentum higher as we move forward into this fiscal.
Over the past few months, we have put in concerted efforts to formulate a strategic and an aggressive growth trajectory for the company and the fundraising exercise is a firm step in this direction. We have taken the necessary steps to create a robust financial foundation in line with our long-term plan of delivering higher performance and enhancing the value accretive capabilities of the company in the interest of all our shareholders.
Coming back to the company's performance during the quarter. Despite seeing some green shoots in the last quarter of the previous fiscal, the advertising revenue growth still remains subdued with rural recovery yet to pick up entirely. In addition to the softness in demand, this quarter was also sports-heavy, coupled with general elections, which further took the share away from general entertainment advertising spends. These factors have impacted advertising revenue during the quarter. However, this challenging environment, our prudent cost discipline across the business helped offset the headwinds.
Our conversations with large FMCG clients indicate the pickup in advertising spend in the second half of the fiscal and with the onset of the festive season. That said, we remain cautiously optimistic of the macroeconomic environment improving and growth momentum picking up as we move forward in the fiscal.
We are encouraged by the scheme and initiatives proposed by the Finance Minister in the Union budget announced last week to help spur demand and boost the rural economy growth rate in mid to long term.
On the subscription side, the outlook remains steady, and we have continued to benefit from the implementation of the National Tariff Order 3.0, which is driving subscription revenue growth. With a conducive policy framework in place, we are hopeful of registering our gradual growth in linear subscription revenue in line with the inflation in coming few quarters as well.
This, coupled with the steady growth of ZEE5 subscription is resulting into a balanced and healthy revenue profile from the linear and digital segments. During the quarter, the TV entertainment viewership across the industry witnessed a marginal impact due to sports and elections. The magnitude of the impact on our network share was much lower than some of our peers during the quarter.
Furthermore, in July, we have already regained the viewership share and are well placed in our key markets. The underlying fundamentals remain strong, and we continue to invest significant time and energy to enhance our delivery of quality content to further consolidate our viewership share gains.
On the regional front, I had mentioned in the previous quarter that our near-term focus is to achieve a balanced cost structure to drive profitability for the long term. The teams have put in immense efforts during the quarter to optimize and arrive at a balanced financial profile for ZEE5, and I'm pleased to note that we are already on the path to achieve a healthy cost structure for the business, which is evident in the significant reduction in the EBITDA loss this quarter.
As we progress in the phase towards our targeted cost objective, the digital business growth rate witnessed a marginal slowdown, but we expect it to rebound in the second half of the year. ZEE5 remains well positioned in the digital landscape and has seen healthy quarter-on-quarter growth in usage and engagement metrics underscoring its strong fundamentals.
With the platform's strategic focus on good quality content, language markets, targeted investments and an exciting content lineup, we expect ZEE5 growth momentum to sustain.
In the movies and music business, we continue to drive synergy benefits across our portfolio to enhance the overall contribution to the top line. During the quarter, ZEE Studios released films like Maidaan and Mr. and Mrs. Mahi in Hindi. We believe that both the businesses have been displaying signs of gradual growth trajectory, enabling the country to launch a well-diversified entertainment portfolio.
During the quarter, our EBITDA margin has seen an improvement of 500 basis points year-on-year, and this is a testimony of our effective cost management in an otherwise challenging operating backdrop. We also witnessed an uptick in the profit after tax from continuing operations during the quarter to INR 1,257 million.
On the balance sheet, our focused efforts have enabled us to further strengthen our liquidity and financial position. During the quarter, we have generated strong free cash flow, and our content inventory has also continued to decline, driven by optimized acquisition and movie releases. As the true potential of the media and entertainment sector gets unlocked with intensified competition and the advent of newer revenue streams.
We remain guided by our strategic priorities in order to appropriately capitalize on the emerging growth opportunities. We are committed to achieve our targeted aspirations for the future and our efforts in the subsequent 3 quarters will be focused towards enhancing our revenue profile with prudence and resilience at the forefront. The action-oriented steps implemented earlier have resulted in the company maintaining a firm grip on its cost, and we aim to continue posting a healthy margin improvement rate.
As we move forward, we remain optimistic of recovery in the overall macroeconomic environment on the back of good monsoons and an oncoming festive quarter.
On that note, I would also like to hand over the session to Mahesh to open up the Q&A round. I'm also accompanied by Mr. Mukund Galgali, who has recently assumed responsibility of the financial vertical. Thank you very much. Over to you, Mahesh.
Thanks, Mr. Goenka. Before we proceed with the Q&A session, I'd like to request everyone to please restrict yourself to a couple of questions. You can always join the queue back. With that, I request the moderator to take the discussion forward for Q&A.
[Operator Instructions]. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Nuvama.
My first question is on the fund raise. So fund raise by TV broadcasting companies is quite rare. So wanted to understand deployment, where do you see and what are the time lines? And what is the thought process behind this in terms of doing it now?
I will request Vikas to step in and answer that.
Yes. So this fund raise was undertaken mainly to ensure availability of funds which can act as a growth capital for our growth plans, both organic as well as inorganic. As we speak here, the team is currently working on those plans. They are fine graining those plans and very soon, we'll be ready with our deployment plan, but that's our work in progress.
The idea was to ensure a pool of capital at this stage so that we are ready not only for the shifting dynamics of the sector but also the shifting dynamics in the competitive dynamics, which is being -- which is undergoing right now. So that was the idea why we went for this fund raise, wanted to fortify our balance sheet, and very soon, we'll be ready with our deployment plans. Also, we are working on that as now. We have a broad sense of it, but we -- just some more work is left on that front.
And last question will be on overall competitive intent -- overall competitive intensity, if you can comment. And given the consolidation is happening between the 2 large players and currently regulatory approvals, et cetera, are happening.
So my question is, 1 year down the line, when say all approvals come and most of the current properties go to the joint entity, how do you see costing pressure? How do you see pricing pressure? That would be one.
And second is because of so much cost cutting within the company, if you could comment on talent pool, how it is? How is the morale of the team? Because so many things that happened in the company in the last 1 year, merger got called off, then cost cutting. Now margins are recovering, which is a good thing. Overall, if you could address the HR aspects, that will be useful.
Sure, Abneesh. Punit here. So you're right that a lot has happened in the company in the last 6 to 8 months. But we are working overtime to make sure that the morale of the organization remains upbeat. Of course, whenever there is this magnitude of correction that happens in the HR side, there will be some level of disappointment and fear that sets in.
But as I stated that we are working overtime to ensure that remains upbeat and regular communication with the entire organization is taking place. I am personally in fact, traveling to all the centers to make sure that I meet people on a regular basis to ensure that the organization is still behind them, and we will come out, emerge victorious in this time line.
Secondly, on the competitive landscape, my view, Abneesh, has always been that we have competed with largest of the organizations in this market, in the media and entertainment market. And by virtue of just 2 players coming together, while they will have a lot of synergistic benefits, which we also talked about, when we were trying to do our merger, does not restrict or make us less capable of competing with them as a joint entity.
So I think me and my team are pretty confident that they will continue to work on the entire portfolio and deliver on the expectations that you and the shareholders have from us.
So -- and in terms of the team, while we've had some churn as you would have seen, a large part of the churn has actually happened in the tech center, a large part of which was due to the fact that the platform has already reached a certain stage of operations. And we think actually, they have become a bit redundant, those people, and therefore, it happened.
On the television side and other sides, the talent, this thing has been pretty decent. And most of the talent is still with us. And therefore, we are confident on delivery on the business. Everybody wants [indiscernible].
The next question is from the line of Abhishek Kumar from JM Financial.
My first question is on fund raise again. I was just curious about the FCCB route. Any logic, any rationale for selecting this instrument over any other instrument? Because [indiscernible] by exposing us to foreign currency variations. So any thoughts on this?
Yes. So we went for the FCCB because we wanted a flexibility of drawing in funds over relatively a longer period of time. As I said, the whole idea was to fortify our balance sheet and be ready with enough resources at disposal, but we would be very prudent in deploying -- or we want to be very prudent in deploying these funds.
And FCCB is an instrument which was giving us the flexibility of drawing in or having multiple drawdowns in line with our deployment plan over a longer period of time. And that was the reason why we selected this over other instruments. There were other instruments, which were giving us flexibility, but there were limitations, at the best we could have got 18 to 36 months only out there. And that was the reason why you went for FCCBs.
Okay. That's helpful. Second question is on business. Can you -- the worry is while we are reducing costs, is there a fine line between cutting the fat and cutting into growth muscle -- lowest muscle of the company? We have seen sequential decline in OTT revenues [ this time]. I'm not sure if it is seasonal or if it is because we are spending less on content, et cetera. So how should we balance margin expansion with our growth aspiration?
So Abhishek, it's a combination of both what you said. It's a sequential reduction in revenue because of the heavy nature of the events happening during the quarter, like sports and the general elections, which have caused this to happen.
As you know that we are a very heavy channel entertainment-led network, including our OTT is very general entertainment-led, and that's the reason that's happened. I can truly believe that we have not really cut into the muscle or the bone yet. We have only cut the fat. And if required, once we see that we need to fortify again by getting in talent for the organization, I think we are capable enough to bring talent back, as and when needed, as and when we see the macroeconomic situation improve for the company and for the various verticals.
Just to add to what Punit mentioned, Abhishek. I think when you specifically look at digital and the sequential decline you're referring to, keep in mind that we had a bit of bump in Q4 because there was ILT20 and some of the other things. So that [indiscernible] the [ revenue ].
Also, as Punit alluded in the opening remarks, even sequentially we've seen the number of paying subscribers, the engagement, et cetera, has gone up. So it's not something it's structurally concerned about from the health of business standpoint. It's just a phase, like we alluded a couple of quarters back, we expect H1 to be soft because at this point in time, our priority is to get the unit economics and cost base right.
But as we go into the back end of the year, we are hopeful and confident that the growth will pick up even in the digital side of things. It's just a conscious choice we have made. And internal of the business, in terms of both subscribers and engagement, it still remains very healthy.
The next question is from the line of Jinesh Joshi from Prabhudas Lilladher Private Limited.
In the ZEE5 business, we have seen a considerable reduction in EBITDA losses. So where exactly have you seen the rationalization come through? I mean apart from the manpower cost, which you mentioned.
Has some bit of rationalization also happened on the content technology or marketing side? And if you can comment how sustainable it is.
And also a related follow-up is that on the back of lower losses we also feel that growth has slowed down a bit. I obviously refer to the comments which you mentioned that, back-ended, the growth will be better. But in the digital business expected to see some kind of a growth [indiscernible] ensure reduction in losses.
Jinesh, just -- I'll take the second part first. As I just mentioned to Abhishek, that this is also seasonal in nature because of the events that were happening, like sports and the general election, et cetera. That's the reason you've seen some slowdown in the -- and what even Mahesh was saying earlier that Q4, we have sporting [ properties ] and we have events like Zee Cine Award, et cetera, on our network, which aids the level of growth for Q4. I would not read too much into that as such.
In terms of the cost that you talked about, our digital business, it has largely come on the manpower side. That is also from the tech center. And then marketing, based on whatever the needs are on the content that we are offering and done on that basis. We don't -- we have not taken into cut the content and requirement for ZEE5 but we are going to optimize the content requirement for ZEE5. That's what we are trying to do.
Sure, sir. And just one last question from my side. Has full rationalization on the employee cost already happened? Because if I look at our 1Q number, the employee cost is down by about 13% to [ INR 25 crores ]. So is this expected to kind of rise a bit in the second half? Or is rationalization already happened?
The largest part of the rationalization in terms of people has already happened. In terms of cost, I'll ask Mukund to step in any respond to that.
Can you repeat the question, please, on the call? .
So that question was, on the employee cost side, has full rationalization already happened? Or are we going to see some kind of increase on the second half side, given the fact that we are expecting some back-ended recovery on the top end front?
No, as Punit mentioned, the large part of the restructuring has been achieved. And we will always focus on maintaining an optimal structure to suit the business requirements and which will be an ongoing exercise. But having said that, a large part of the exercise is already achieved.
Sure.
Jinesh, just one last one. You also made a comment in your previous question about the sustenance of ZEE5 EBITDA reduction to some extent. And while Punit covered it, just to sum it up. Look, when you think of ZEE5 trajectory from here on, there are 2 phases to think of. There is still some bit of room which is left in the cost structure. And then the second phase starts, which is really the operating leverage growth driven sales as the revenue accelerates back. So that's kind of 2 levers as we think of and that's where we believe that there is still going to be room to further drive improvement in this line item.
Be prepared like we've guided you in the past as well for some quarter-on-quarter volatility depending on how we respond to certain seasonal factors. But we believe that there is still room for us to further drive improvement in ZEE5 when you really take a medium- to long-term view of cost structure.
The next question is from the line of Umang Mehta from Kotak Securities.
And congratulations on reducing ZEE5 losses. My question is on the core business. So if we exclude the ZEE5 losses, it seems like the core business EBITDA has declined by 10%. While I understand ad growth was negative, was there any other element as well which led to this decline?
So there are 2 parts there, Umang, as you think this true. One, as you rightly alluded, linear business is quite exposed to operating leverage sensitivity around ad revenue, and that flows through. The second bit is a bit of mix, right? I think when you exclude digital, you're basically looking at legible business which does -- which just doesn't have linear it also as movies, right? And movies have, depending on how they flow through, over their life cycle, they make healthy margin. But for a period depending on how you account for them, theatrical, et cetera, could cause volatility.
So that's clearly what has happened which is why the picture gets a bit muddled. But it's not something which is structurally different or structurally something which has deteriorated in linear, it is quite actually healthy and like Punit alluded, as we will come out, I mean, the July our viewership share is actually quite healthy and things are looking quite positive. Of course, the ad revenue sensitivity plays out, and then there's a bit of a mix change because of linear and movie.
Understood. That's helpful. And my second one was on the FCCB. So given that you have received approvals from RBI understanding was that you would have to give some drawdown schedule to them. So broadly, could you share some details like, deployment of fund, or drawdown schedule, minimum lock in to exercise the call option and end use of fund.
Yes. On that, just give us some time. As we have said in the earlier part of this call, the team is working and fine graining that particular plan of drawing the -- of having the drawdown schedule finalized. So just give us some more time. We are working on it. We have a have quite a broad sense of where the opportunities are and where -- and we have kind of pocketed that -- those areas, but we will need just a couple of days more to finalize the deployment schedule.
Understood. But just one clarification. On end use there is no restriction in terms of RBI ECB norms for you to acquire any company rights, just clarifying that because it seems like there's some regulation on ECB. but I'm not sure about FCCBs.
So FCCBs are governed in the same regulatory framework in a way, Umang, so it's ECB guidelines does apply to that extent, yes, whatever the ECB framework's raised we will have to operate within the realm of that framework and regulatory guidelines.
[Operator Instructions] The next question is from the line of Arun Prasath from Aveda Spark.
My first question is, once again, touching upon this competitor intensity and -- so Punit, you mentioned about how you are prepared. But -- so competition, especially the bigger one that we are talking about and basically hurt you on 3 avenues. One is on the advertising, they can reduce the rates or mop of -- more of the -- they can dominate or they can more efficiently on distribution. And third is on the content and talent. Out of these 3, which one you are more worried about, actually? Obviously, you will have confidence to tackle all this. But according to you, which one do you think [ cannot ] fix and it can be -- they can play bigger in any of these avenues. .
Mahesh here. I'll take this, Punit has just stepped out. So look, I think between the 3, we, of course, watch and study everything, but there's nothing we would lose sleep over or we're all overly concerned about. Let's take them one by one, right.
Ad rate. Ad rate is a function of viewership, right? At the end of the day, if you have the viewership, you will get your corresponding rate and you have your pockets of strength in terms of general entertainment, in terms of specific regional languages. So really is a very micro conversation channel to channel, genre to genre, language to language. And we are quite confident with the viewership share we have and the relevance we have in those markets, we will get our share of ad revenue.
When you look back in your channel checks and market channel checks, we've always commanded revenue share ahead of our viewership share to that extent. That's really been the history and that's really come because the construction of the viewership share is very relevant in terms of market-to-market prime type and so on. So that's on the ad share.
On the distribution, again, it's basically a fair -- I mean, it's a fair market for everyone, that is equal playing field and to that extent, we have trust in regulatory strength and oversight that this will remain a fair playing field in that sense. So that, again, is something we're not overly concerned about.
And then the third question you asked about talent and content. Talent, Punit addressed in detail when he responded to Abneesh's question. But on content, again, it really is genre to genre. We don't really compete aggressively in, let's say, sports or high-budget ticket movies and so on and so forth. And if someone wants to be aggressive in that market, it really doesn't hurt us.
But when it really comes to making general entertainment across Hindi, across different genres, it's something our core strength. And we think within that ecosystem, given the deep relationships we have with producers, with content ecosystem, the ability to having done this over 20 years at a very frugal cost structure will help -- will keep us in very good stead. So yes, I think we are watchful about competition. And regardless of this outcome, we've been watchful about competition for the last 20 years as we run the business.
It's not something we're overly concerned about. Of course, we'll have to see as the competitive intensity unfold and response rate is that something which is really alarming. But that's really what our initial view is.
Okay. Mahesh, I think from what you have said, I think what I can infer is that distribution is there probably you will have a tough fight, but the fund raise doesn't solve, even help you in fighting in that avenue. So once again tying back to the fund raise, not very clear how the 3 problems, the 3 avenues, how the fund raise will solve any of these issue. Maybe it will create a buffer. But beyond that, any expectation from the fund raise, how it will help you in addressing these issues?
No. I think it's not necessarily true, Arun. So take an example of fund raise and take an example of the second point you made about distribution. If you take a view and deploy some of the funds a lot more on the digital side of it. Actually, in digital, you short circle the distribution altogether, right? Because it allows you to go to a consumer directly unlike what the linear world did it. So it's not necessarily true that you can't really make -- like I said, you can't really make it micro battles sector to sector and compete with it.
Okay. right, right. Okay. Secondly, on this -- on the ZEE5 you mentioned the sequential reduction is seasonally. But [indiscernible], our revenue mix is balanced between ad and subscription. The seasonal impact should not be -- seasonally, it should not impact us, right? So are we saying our mix is much more balanced instead of subscription maybe?
Yes. I mean I wouldn't -- I mean when you say balance you're implying 50-50, I wouldn't say -- I wouldn't give you the number, but I'll only leave it with saying, look, advertising is a reasonable part of the portfolio to that extent, and ILT20 is a decent property. So some of those factors could cause volatility. That's one. And keep in mind that also every quarter-on-quarter, your mix change is not just between [indiscernible] which you alluded to. It would also change between customer mix, between B2B, B2C and all of it. So there are multiple factors which play out. And given you're talking about much smaller base, that kind of volatility of low single-digit kind of swings can come in on a sequential basis.
And just last clarification, our most of subscriber base in the annual plan or a monthly plan?
Annual plan.
The next question is from the line of Karan Taurani from Elara Capital.
My question is a related to....
Sorry, your voice is echoing a bit. It's slightly unclear.
Is it fine now?
Yes. Better.
Yes. So I had 2 questions. One was on the regional genre performance. So of course, you see acceleration in terms of ad revenue in the first 6 season. But do you also foresee potential market share gain in the regional genre. I mean, what is the update there in terms of comparable density? And where do you stand in the larger regional genres, like Tamil, Telegu, and the smaller ones, like Marathi, Bangla, Malayalam, yes.
I think we have had decent momentum in regional markets, Karan, like we've spoken. We've -- historically you've spoken Marathi, we were focusing on and Marathi has been consistently building up on that strength as we -- Tamil had recovered as well and sort of solidifying its position. So generally, I would say, the portfolio there are bright spots in regional markets.
There will always be a market which will go through a cycle. But beyond that, I think we're well positioned in most of those regional markets to take advantage of festive spending coming along. And I think like Punit alluded, our July share already seems very encouraging. And September, October, as you head into festive season, we feel quite good about it across the portfolio. .
And that applies to regional markets as well. And we continue to focus on each market in a very targeted manner in terms of making content changes or distribution adjustments and so on and so forth. So feel good about where the setup is heading into festive season across the regional portfolios.
And in terms of ad revenue, not asking for any kind of guidance, but if you look at the other traditional medium sized print, [indiscernible] put together, do you see a big flip because of election and sometimes they are pretty ahead as compared to pre-COVID in terms of absolute numbers. .
TV is one segment which is kind of in a struggling phase, and specifically even the broadcasters in the [ YouTube ] side. So say, on the [indiscernible] term, say on a medium-term basis, what is the kind of ad revenue that would expect in a steady state for the linear TV business? Of course big TV will be separate. But for the [ mini ] TV side is it mid-single digit, high single digit, want the kind of ad revenue that one should calculate?
Karan, it's difficult to put a number, but like we've said before, we think -- we strongly believe that there is still a reasonable headroom for the growth on the linear side of portfolio given that there is still sort of a fair bit of brand building, which is happening from large FMCG companies and today, the kind of reach TV provides with a 750 million plus 800 million kind of reach versus, let's say, any digital revenue mix. TV very relevant in the brand building and overall spending.
So to that extent, when you layer that kind of reach advantage and where the relative penetration and cost of ownership in the country, we think there is headroom for the TV revenues to grow at a healthy pace.
Given where we are coming from and not really put a number to it in terms of mid-single digit, high single digits, et cetera, but we think wherever the industry growth is, given the kind of work we have done on our sort of viewership share, we would sort of continue to grow ahead of the market in the foreseeable future.
The next question is from the line of Kunal Vora from BNP Paribas.
Mahesh, can you talk about the distribution industry landscape and how it is changing? How many cable and DTH subscribers do we have at the industry level now? How many have shifted to Free Dish? And how is your linear fee in subscriber base standing?
Kunal, the numbers would vary a little bit, will give you a high level sense of it. I'm requesting Vikas to come in and address that.
So there around -- you talked about -- let me start with the Free Dish. So they are on -- given any report, they are close to 45 million Free Dish subscribers today that the FDA universe today. Over and above, they would be close to around 120 million to 130 million paid subscribers. So this is the universe which we are looking at.
There is still around pretty significant chunk of TV dark homes today, which are yet to be converted into TV. Now we need to see whether they direct -- I mean whether the graduation happen through TV and then through connected TVs or this straight away jump to connected TV, is that something which every broadcaster is working on today. But that's a general sense of how the subscribers in this country are stacked up.
And how would your customers, [ paid ] customer base on the [indiscernible] side? [indiscernible] how many 120 million, 130 million are paying right now?
Our reach in almost all the major channels which we broadcast is pretty much in line with all the other major broadcasters. So there it will be fair to say that we don't have a reach problem. It varies from channel to channel, but thematically on an overarch -- if I need to make an overarching statement, we pretty much reaches more than satisfactory for all our major channels.
And second is on Free Dish, this number used to be about 20 million, maybe 4, 5 years back. It's now 45 million, number seems to be increasing. How are you looking to address it? Because we've seen over the years, many flip flops, you were on Free Dish, remote channels from Free Dish, but what's your strategy now to monetize your content on the Free Dish side?
So I think we've been out of this for last -- more than a couple of years now, Kunal, I think we have been consistent in what we've said, look, our focus at this point in time to strengthen and grow Pay TV ecosystem because in our belief, the sort of payback, what you get is much higher on the Pay TV ecosystem side of things. And it's something which largely major broadcasters have sort of also been -- sort of followed the similar strategy in the last 2, 2.5 years now. .
Even on the Free Dish if you look at last few quarters, that number has sort of stagnated in that sort of range. We will continue to monitor this on an ongoing basis. So from a strategy standpoint, it's not something we've turned a blind eye on or we have parked it forever. But at this point in time, our focus or our energies are really focused on growing the Pay TV ecosystem and taking our share out of that, of revenue.
Understood. And lastly, on ZEE5, what should be the trajectory of losses from here? I mean, we've seen significant, let's say, reduction in losses. But is there a path to profitability? How many years we might take to breakeven and like what kind of improvement can we expect on an annual basis from here?
Look, Kunal, we're not giving any guidance from a breakeven standpoint. But like we alluded 4 quarters back, we alluded saying ZEE5 is already at its peak cost structure and we have backed that and demonstrated that quarter after quarter as we've got the losses lowered.
With our vantage point where we sit, we think, as you look out from a longer-term standpoint and what I mean by longer term is not just quarter-on-quarter. But if you look out, let's say, from where we are to where we would be 3, 4 quarters out and where we will be another 3, 4 quarters out, you would see this number continue to sort of trend down.
We would keep some flexibility. The only reason we're not providing the guidance here is we want to keep some flexibility to be able to respond depending on how the competitive intensity plays out, depending on how our growth versus profitability objectives aligned, to be able to reinvest in certain areas a little bit more aggressively and so on and so forth.
But it's suffice it to say that with where you are, the kind of reduction you've seen in this quarter, one; is sustainable, and second; from a directional standpoint, if anything, you should work with an assumption that medium to longer term, that loss number would continue to trend down.
And I will let Mukund add little more flesh.
Yes. So Kunal, I would just like to add to what Mahesh said, that ZEE5 has positioned itself in terms of the niche content offering. And as far as content goes, it has sort of established itself as providing a kind of content, which it is unique. And we will continue to -- while the costs will trend downwards, we'll continue to invest wherever required if there is adequate monetization opportunities. But that will be a tactical call taken from time to time.
And as you look to lower losses from here, do you see a higher opportunity coming from increase in revenue? Or is there a potential to further reduce costs?
Yes. I mean our focus will be, of course, to look at expanding our revenue. And while we will also keep a close watch on the costs.
Ladies and gentlemen, due to time constraint, the next question will be the last question. The next question is from the line of Sameer Deshpande from Fair Deal Investments.
Congratulations on a good set of numbers. And despite the questions commentary in Q4, you really did well. And the good thing is you mentioned about the operating losses of Zee5, which have been contained significantly. And going forward, they are also sustainable. So that is definitely a good thing going forward in improving our operating margins of our targets.
I had one question regarding the -- in the notes on accounts, it is note #8 where there was an investigation committee which was appointed, independent investigation committee, under the Chairmanship of former judge of Allahabad High Court. So have they completed the investigation?
Mr. Deshpande, the committee is in the process of completing their work. I mean they have appointed experts to review and that work is on. And as soon as it is completed and placed before the Board, it will be made available -- it will be announced. .
Okay. So -- but I think it is about -- now about 6, 7 months, I think it was in February, we had -- so it is almost nearing completion now?
It's at an advanced stage Mr. Deshpande. At the moment, we can confirm that.
Okay. And regarding the fund raise, as you mentioned that the things are yet to be -- terms, et cetera, is not yet disclosed, but -- and it could be done in tranches as and when you feel there are opportunities. So we are not going to raise the money upfront, maybe INR 1,000-crores-odd et cetera, because we already have some INR 1,300-odd crores of cash. So any fund raise at this point is not basis unless there is any inorganic opportunity or there a big outflow. Is that correct?
So I think Mr. Deshpande, like -- yes, I mean, without getting into specifics, it is fair to presume that, yes, like you said, we would not really be getting the money upfront at this point without very clear line of sight, and that was one of the considerations which went into how -- what's the best way to structure the fund raise and so on. So yes, it will be in tranches like I said.
And the last question is, this subscription rates under [indiscernible], we were not allowed to raise under book, et cetera. So there is something in the pipeline which is expected to allow us to raise our subscriptions to the levels we want? Is there any such proposal before TRAI?
Now the -- like I alluded before, now the policy framework has been quite conducive in terms of how we think of pricing. Of course, heading into election, we had sort of held up some of the price increases, which will now starting to implement back and so forth. So that's really where what Punit mentioned in his opening remarks that we think linear subscription would continue to sort of grow at an inflation-linked kind of pace as we go forward.
That really is a function of us taking periodic sort of price increases to offset our cost from an inflation standpoint.
That will be a much needed respite because the pricing has been controlled for a long -- substantially in the longer period. So that should definitely help us also increasing our margins.
Yes. And as we make those considerations, we'd also balance both pricing and churn objective because it's -- you'll have to look at effectively. So that's really the balancing that we play as we make those choices, Mr. Deshpande.
Thank you very much. Ladies and gentlemen, I now hand the conference over to Mr. Mahesh Pratap Singh, Head of Investor Relations, for closing comments.
Thank you, everyone, for your interest, and thanks for joining us today. Should you have any further queries or if your question was unanswered, please feel free to reach out to us. We'll be happy to engage. Thank you again, and look forward to speaking to you again soon next quarter.
On behalf of Zee Entertainment Enterprises Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.