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Zee Entertainment Enterprises Ltd
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Good day, ladies and gentlemen, and a very warm welcome to the Q2 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 earnings call to discuss the mid-performance in Q2 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 will start with a brief statement from Mr. Goenka on the second quarter performance. Subsequently, we will open the call for the questions. Before I pass it onto Mr. Goenka, I would like to remind everybody that anything we say during the call that refers to our outlook for future is a forward-looking statement and must be taken in context of the risk 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 second quarter of fiscal 2019.Let me begin by introducing Rohit Gupta, who has joined us as the Chief Financial Officer. Rohit brings rich experience of over 25 years in domestic and international market, managing different aspects of business and financial management. Prior to joining us, he has worked for leading corporations like British Telecom, Bharti Airtel, Virgin Mobile and IIT and BrightStar India. I welcome Rohit to Zee and wish him all the very best.
Thank you.
Now let me talk about the performance during the quarter. ZEE5 has been the fastest-growing entertainment platform in the country. In a little over 6 months, it has become the second most popular OTT platform. With a monthly active user base of 41 million and an average daily time spent of 31 minutes, it's growing faster than our expectations.Since April, MAUs have grown 190% and video views have grown 340%. Despite the strong initial performance, I believe it is just the beginning of a long digital journey for us. In line with the target to be the one-stop entertainment destination, ZEE5 continues to expand its content catalog. The platform has so far released 29 original contents, and the pace of new launches will pick up in the second half.Given our original content pipeline, ZEE5 expects to become the biggest producer of digital content in India. We are also partnering with key players in the digital ecosystem to drive higher reach and sampling for the platform. We have already announced partnerships with 2 of the telecom operators and are actively discussing similar partnerships with other telecom operators, broadband service providers, device manufacturers and e-commerce companies. With a strong pipeline of content and our partnership in the digital ecosystem, we are confident that ZEE5 will become the default entertainment platform for digital audiences.Moving on to the performances of the broadcast business, which continues to grow at an impressive pace as evidenced from the domestic advertising and future revenue growth numbers. We continue to consolidate our viewership share, which is driving our market-leading growth. The viewership share increased to 19.9% during the quarter, driven by strong performance across markets. While we were the leaders in the Hindi segment, our performance in regional language market continues to ramp up, particularly in Bengali and Kannada. And we believe that our broadcast portfolio has potential to further increase its market share, and the launch of new channels, ZEE Keralam, in the next quarter will surely help.In domestic pay markets, we are realizing benefits from digitization of Phase 3 markets. This, along with early closure of contract this year, has driven 26% year-on-year growth in subscription revenues. Driven by strong growth in the first half, we expect our full-year domestic subscription revenue growth to be better than our earlier guidance. Outlook for advertising growth continues to remain healthy.Moving on to other businesses. International advertising and subscription grew by 11.3% and 1.9%, respectively. Dhadak, a Zee Studio production, performed well, grossing more than INR 1 billion at the worldwide box office collections.Zee Music Company continues to ramp up its library and subscribers.EBITDA for this quarter grew by 37.6% to INR 6.8 billion, even as we are investing in digital business.Our margins at 34.2% expanded by 300 basis points, driven by strong performance in the traditional business. We are confident of maintaining 30% plus margins even as investments in digital scale up.The cash and treasury investments for the quarter ended September 30 stood at rupees INR 30.7 billion. During the quarter, the outstanding receivable from SGGD has been settled and monies will be received this month itself. However, as indicated in last quarter 1 earnings call, we have initiated steps to reduce inter-corporate deposits, surplus funds in overseas territories will be repatriated to India in a tax-efficient fashion and the remaining funds will be reinvested in low-risk liquid funds. We will update the market on the status of these steps in the coming quarters.With this, I open up the floor for any questions.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.
My first question is on the very strong bid on the advertising growth. The festive season has been delayed in second quarter, in spite of the 23% ad growth. Is it because of the 70 bps gain in market share quarter-on-quarter? And have the telecom deals, which are getting signed, have they also started contributing in terms of the ad growth?
Yes, thank you, Abneesh. So I think, our advertising growth, as I had said earlier also that our market share growth over the last year has not been fully monetized yet, and we are still monetizing that over the next few quarters. Having said that, the 70 basis points have definitely contributed towards the accelerated growth. The telecom deals do not yet account for any acceleration in advertising growth because we do not separate out the advertising for the telecom platforms independently. But the ZEE5 OTT platform has definitely contributed towards this growth as well.
And so year-on-year maintained that the deals with the telecom players for ZEE5, et cetera, so they will converge to what you are getting from the DTH and cable companies. So today, also that announcement came. So from medium/longer term, have they started already converging? And have you got the analytics bit, which you wanted, in terms of the user analytics?
Yes, that's all part of our deals with them. ZEE5, because it's a B2C service, we use the telecom platform as a retail distribution platform. And as you know, our pricing on ZEE5 is INR 99 a month, currently running on a offer of one plus one free. So it's anyway much about the yields that we get on cable or DTH.
And last question, subscription growth domestic has also been a big positive surprise. Of course, the base was also negative. So is that the reason they are bunching up, or again, some of the new deals which are getting signed with the telecom players? Have they started meaningful contributions?
No, I wouldn't say that because the telecom deals are just going live as we speak. It is the reset of the Phase 3 pricing that I have talked about in the past.
And one follow-up, in terms of Middle East, because the crude oil prices are up, so the international advertising growth and subscription growth, do you see a meaningful improvement there happening at least in the Middle East area?
I'm yet to see that traction come through, but overall, we are quite -- growing quite healthily at the 13% plus mark.
The next question is from the line of Kapil Singh from Nomura Securities.
Congrats on a great set of numbers. Particularly ZEE5's performance is quite encouraging. My question is related to ZEE5. I just wanted to check, firstly, in terms of contribution to revenues, can you share something for -- like, how much it is contributing to ad growth or subscription growth this quarter?
Kapil, still very early to give numbers for ZEE5 standalone. But as I promised in the past, financial year '20 will start giving you the new numbers.
Okay. Okay. And if you can't give for ZEE5, but -- like, overall, what percentage EBITDA margins for the quarter would be getting invested because of which your margins would be affected? Any color on that?
As I said earlier also that we are confident despite all the investment plan for ZEE5 and our broadcasting business, we should be very comfortably above the 30% mark on the margins.
So earlier, like, we talked about the 200, 300 bps was getting lost or reinvested in new initiatives, so that would be the case in current quarter as well?
I am actually happy to report that more than that we are investing back. But the traction we are getting on our traditional business gives us that much headroom to invest more aggressively behind these initiatives.
Okay. Okay. That's great to hear. And would the ad revenues and subscription revenues for ZEE5 ramp up substantially with the telecom partnerships now coming through?
I would hope so, definitely. But it's a matter of when we start receiving the data on consumption, then we can arrive to that. But definitely, I would expect, and that's the reason for us to do the deal, is that we see substantial traction coming in hopefully, in quarter 3, quarter 4 itself.
Okay. It's truly a great performance to have 40 million kind of MAUs without any telecom partnerships.
Thanks, Kapil. Thank you.
The next question is from the line of Aditya Mathur from Citigroup.
Punit, a quick question on the balance sheet. I see that the inventory number is up only by about INR 80-odd crores. Could you just talk to us a little bit about what is your outlook on that? And also, around what the thoughts are around use of cash and dividends, buyback, et cetera?
So -- yes, Bijal, can you take that?
Yes, so the -- I think on the inventory part, see the peak intensity of movie buying is definitely behind us. And overall, what we have said is that, overall investment this year would not even be -- so we -- the inventory increased by around INR 9 million which is on account of investment last year, which is in FY '18. It is a bit difficult to exactly tell you what will be the increase or how it will move. But it will -- this year, the increase will not be even half of what you have seen in FY '18. This quarter, you would have seen that some increase is there in loans that are in advances. That is all towards content. A large part of that will get inventorized during the year and maybe early next year and that will flow to P&L immediately. So overall, as I said that inventory increase or total working capital increase on account of our investments in movies and content will not be even half of what increase we have seen in FY '18.
On your use of cash question, Aditya, I still maintain that as a company we need to queue our INR 1,000 crores or INR 10 billion of cash with us. And my recommendation to my board is always to pay back the additional cash by whatever form they deem fit. If you look at the last 5 to 6 years, almost 2/3 of our net profit has been paid out to shareholders by way of dividends, special dividend, prep shares, buybacks, et cetera.
Right. And secondly, Punit, you also mentioned that you expect the subscription momentum to be better than what you had initially guided to a low teens growth. Are you only talking about the TV business? Or does this also include the ZEE5 tracks -- what you are expecting on the ZEE5?
ZEE5 -- our subscription business only launched 2.5 months back in July. So I'm talking about, right now, TV business and for this year, because we are resetting the pricing in Phase 3. So for this year, I expect that our guidance of low teens will be beaten for sure.
Got it. So basically whatever ZEE5 gets -- comes through will be over and above that?
Yes, because it's still early days. I can't really quantify and give you a number on ZEE5, but we will share next year what the numbers are with you.
The next question is from the line of Sachin Salgaonkar from Bank of America.
I have 3 questions. First question is on margins. Wanted to understand, what stops you guys from revising the margin guidance upwards? I mean, clearly, it's a strong performance here and then 1Q and 2 are strong. And I mean, sort of, follow-up question on the same line is, can you help us understand which line items do ZEE5 cost go in? For example, we are not seeing too much of an increase in SG&A this quarter?
So the reason we are not guiding upward for the margin, if you look at, Sachin, that we just launched on 2nd October ZEE5 in the international market, and we have our plans to ramp up that up over the next 6 months to go to practically all markets other than North America, and that investment is yet to be kicking in. ZEE5 India itself also, we want to ramp up our content investments in a large way, both on film and originals. So these are the 2 factors why we are not revising the guidance on the margins upwards. What was your second question? Yes, Bijal take it.
So see, actually -- the cost is actually in every single line item. So operating cost which is where content cost is going. You are saying A&P has not gone up significantly, it has gone up by 17%. Now just remember that in 2Q FY '18, we had cost relating to brand refresh, and also, we had cost relating to 25-year celebration, which is also going into A&P, and that is the reason why there the fiscal is higher. And that -- those costs are not there. And despite that cost -- I mean, this quarter's cost is up by 17%, so I think that will explain you why it is up only 17% despite investments.
Got it. My second question is on the subscription revenue outlook. Just wanted to understand, is this more like a catch-up? Because in last few quarters you are not, obviously, given the situation on the ground, not getting fully captured into the revenues? Or is this more like some deals being signed upfront, typically what happens in second half? Just trying to understand how sustainable this growth is.
Sachin, as I said, this is reset of the value of undermonetized market. So it's resetting our base. It's not necessarily that this kind of growth can continue.
Okay. Got it. And my last question is on ZEE5. I mean, when I look at the Google Play downloads, I mean, ZEE comes in the category of 10 million to 50 million downloads. And clearly, you have 40 million active users. So this ratio is perhaps the best amongst all the apps out there. Two questions out here: one is, how many of these monthly active users are the ones which are actually subscribed to your INR 99 pack? And second, here, just wanted to understand how you define a monthly active user?
So subscribers of the MAUs is a very small number. Sachin, as I said, we are just about 2.5 months into the SVOD service. We are not disclosing that number yet. Give us some more time to ramp it up, and then we will share it with you.
Yes, Sachin, MAU is a very standard definition. We are using Google Analytics for traffic measurement, and that is a standard tool, and it is a very standard definition for subscribers. So as per Google Analytics, our subscriber base is 41 million. Now you might have felt that ratio is slightly higher in our case of 2 reasons for that: number is -- our app is absolutely new. So as you actually have app for, say, 4, 5 years, then probably there is lot of people who downloaded the app then uninstalled. So that we'll also go through that cycle, that's number one. And number 2, initially, there is good amount of traffic which comes from web also. People sample on the web, and then actually they start downloading. So there are good amount of MAUs right now coming from -- I mean, initially come from web, that is the case with us. So we -- over a period of time, those guys will also start downloading the app, then you'll see a lot of downloads gearing up. And -- so -- then the ratio -- our ratio will also be similar to that of our competition.
The next question is from the line of Ankur Periwal from Axis Capital.
Two questions. One on the subscription revenue. Now you did mention benefit of repricing for a Phase 3 subscriber adding the growth in this quarter. Now one clarification, whether most of the volume-based growth for Phase 3 subscribers is already there in the base? And the pricing that we are charging for Phase 3 now, is it more or less at par to the Phase 1, Phase 2 pricing?
No, no, it's a combination of discovery as well as pricing. And Phase 3 pricing is nowhere close to Phase 1, Phase 2.
So there is still some catch-up there to happen in terms of -- the gap between Phase 2 and Phase 3 is one as well as Phase 3 and Phase 2?
Well, I don't expect Phase 3 to become same as Phase 2 because that's a smaller market, and the paying capacity is also much lower there. Therefore, they may be buying lesser channels of ours and not buying the entire booking.
But will it be fair to -- sorry, go ahead.
I think it's a function of how that market can afford content or not.
Sure. But will it be fair to say that Phase 1 and 2 pricing will be largely similar?
Oh, yes, absolutely.
Okay. And second question on ZEE5, especially on the international expansion, now fair to assume that we will be entering distribution tie-ups over there as well. So any progress if you want to share at that space?
Ankur, we just launched on 2nd October. It's still very early to start around saying any deals yet. But we are in active dialogue with a lot of distribution partners, whether they be telcos, broadband players. OEM deals are being negotiated on a global basis, not just in India or international basis separately. So wherever possible, we are doing deals or negotiating deals, which are encompassing the world, especially on connect devices and smart devices, but yet early to talk about anything yet.
The next question is from the line of Vikash Mantri from ICICI Securities.
On the subscription, sorry for repeating this thing, but the way I understand it, whatever we have got for the first half is reflects the average of what we will continue to get on a quarterly basis. Is my understanding right?
Yes. In absolute terms, you are right.
Fair enough, sir. That's because I don't expect them to. While the contracts would have signed, they will not pay you more than what is required. So the point -- on the balance sheet, now we talked last quarter about improving our treasury operations, but I see that your other current assets, which reflect largely our intergroup number, that has gone up actually.
One second, Vikash.
Can you tell me exactly which line item you are looking at?
Just a second. So your other current -- other financial assets have gone up from INR 179 crores to INR 419 crores. Sorry, that is -- yes, INR 179 crores to INR 419 crores, and that's exactly the number which talks about related party largely.
No, so there is nothing to do with related party out there. SGGD, Punit talked about SGGD in the opening remark. And SGGD settlement has been done. We -- and we are yet to receive money. We are -- we'll be receiving that money in this quarter itself. And as a result of settlement, this item has actually moved from other investments to other financial assets.
And we are receiving the full amount along with interest or what is it?
So Vikash, while this asset was contracted to earn a 17% return, now in effect, once we receive the money, it will be an 11% return to us. There is some sharing that we are taking.
Okay. And the other current assets, which have gone up, and which Bijal talked about, these should finally reflect in the year-end inventory numbers?
Most likely, year-end, some of the investments may not come through year-end because those are production investments -- sorry, advances. But largely it will come through in the inventory and a good part of that will go through P&L also.
Okay. On the Jio front now, we talked about signing a deal yesterday. Could we understand what kind of a deal is this. Does the data in terms of consumer usage -- is it a deal similar to Hotstar, where the end -- the landing page is Hotstar? Is it still ZEE5 a landing or we are giving the entire content which will rest with ZEE?
It's a combination deal, Vikash, as the linear channels will be available on Jio TV, the rest of the content will be available only on the ZEE5 platform.
So they will be linked to your ZEE5, and end-consumer usage and data will all come to you?
Yes, yes, it will all come to us.
And we -- when we talked about Airtel, we had data about minimum guarantee plus usage-based or video-watched-based remuneration. Could you help us what kind of a deal is this? Because when we broke off ties, it looked like we were still happy with it. Now why this reason for coming together again?
Well, obviously, we would have got something in return, right? Otherwise, why would we go and do a deal this thing. So -- while I can't disclose to you the contours of the deal, but definitely, we've got better terms than what we had in the earlier contract.
Okay. Fair enough. Just a feedback, Punit, we would generally want more time between result announced and investor call.
I know, sir. Point noted, yes. But if you have more questions, we can take it off-line.
Yes, you did not give me enough time to absorb the results. That's the problem.
That's why I am saying take enough time, then we will bring it off-line.
Sure. We will do that.
The next question is from the line of Alankar Garude from Macquarie.
Two questions from my side. Firstly, in terms of time spent by a viewer on ZEE5, how much time is being spent on originals? And broadly, how much would be on re-rents or any library content?
So any consumer that comes in, either comes in for the AVOD platform or comes in for the SVOD or both. Obviously, once they -- a paid subscriber spends a lot more time compared to just a free relay subscriber, right? So I can't really give you an answer as to who is -- how much is spending more where. Catch-up is, if I give you just the color that our consumption right now in languages is far higher than in Hindi. So it's very diversified. But difficult to give you a breakdown on paid versus free. So the 31 minutes that I talked about, that's the average consumption per user or per person who comes in on a daily basis.
Understood. So basically, just to clarify, you meant that consumption of catch-up is happening more on regional languages than on Hindi?
No, no. I am saying, overall, for the platform, whether it is paid or free, the regional languages are contributing almost 60% of the viewership. So our strategy of going regional and playing the more local game has paid off, is what I was saying basically.
Understood. And secondly, so compared to most -- or other -- some other platforms, somehow I get the impression that ZEE5 is not spending as much on marketing. So now that we will be launching almost 60 originals in the second half, should we expect a more aggressive ad campaign from ZEE5?
I totally agree with you that we are not spending enough on marketing. The reason, Alankar, you make that statement is because you don't account for what I spent on my own network, right? And some of my competitions don't have networks to spend on. We are spending significant amount of money, but obviously, this will only get up as we keep investing more and more in the content.
The next question is from the line of Rohit Dokania from IDFC.
A few quick ones from my side. One is, can you talk about the industry ad growth in this particular quarter for the television side?
So the industry ad growth in our estimation is still about 12%.
And do you expect that to continue for the full year? Are you seeing any early signs of waning off? Anything -- any color that you can give on the festive season coming ahead as well would help.
Oh, from our perspective, for us, the campaign visibility is very high. We expect that the industry will continue to do 12%. Obviously, you understand that the festive season the bigger content companies will get a disproportionate share compared to the [ long tail ]. And what we don't account for is the potential upside in the political campaigns that the news channel may get in the fourth quarter. I am not -- I am discounting that and still saying that 12% is the normal stake in the couple of -- the current fiscal.
Understood, Punit. Also, if you can -- so I see the employee expense has actually fallen on a Y-o-Y basis. I would assume that it should have increased because you are investing heavily in ZEE5 and all as well. Could you please explain that?
Yes, so Rohit, it is -- I mean, if you remember, in third quarter of last call also, we had this question. There is some bit of reclassification due to which some part of employee expense is now going into other expenses, certain reimbursement-related things. And that is the reason why other expenses have also gone up significantly. This is the probably last quarter when you are seeing this. From going forward, the base would have corrected.
Sure. Understood. Also, on the ZEE5 platform, can you talk about -- can you give us the number of downloads at least on the Android platform for us to understand how the app downloads are? And also, out of these sort of 40-, 41-odd million monthly active users, how many of them are coming from the app?
Rohit, right now, I can't share more details than what I've shared already. But the trend is that the web platform is reducing and the app platform is increasing. So it's a -- it is -- the inflection point has happened already, and you'll see now most of the conversion happening on the app itself.
Sure. Understood. Just one last bit from my side. Any one-offs in this quarter, either on the subscription revenue front that you can call out.
No, now nothing on the subscription front. Bijal, anything?
So nothing in the subscription revenue line item is one-off, but definitely, we have benefited on account of some catch-up from the previous quarter also and some Phase 3 realization.
The next question is from Vivekanand Subbaraman from AMBIT Capital.
Thanks for sharing the usage statistics on ZEE5. Following up on your comments on the app gaining ground vis-à-vis overall consumption there, what proportion of traffic or other monthly active users come from your progressive web app? Is that possible to -- is it possible to disclose that? Secondly, I -- while I appreciate the commentary on breakeven of ZEE5 in 3 to 5 years, it would be great if you can help us understand your vision for ZEE5 in terms of the contribution of that platform to your overall income over a 5-year period. And lastly, with respect to the longer-term trend of monetization, do you think that ZEE5 will follow a similar pattern as your pace business, where 60% of revenue comes from advertising, 30%, 40% from subscription?
Yes, so it would not be fair right now for me to share the details beyond what I have shared in terms of the metrics on ZEE5. Our endeavor, obviously, is to move as much traffic to the app from the web version. Having said that, we will never do away with the web version because that's our funnel for attracting the early -- I mean, people come and sample us there before they move or commit to an app kind of environment. In terms of performance, if, in 5 years, ZEE5 is not 30% of my top line, I'll be highly disappointed. The last part -- Bijal, did you -- can you repeat that again, Vivek?
Subscription versus ad revenue.
The trend will be similar in our view. I don't think the trend will be very different in the digital space compared to TV. So I think it will remain in the same ballpark in a 5-year kind of horizon. Obviously, it will be first -- advertisement will be probably even higher, and then it will start tapering off as subscription builds.
So did I hear you correctly, you said, in 5 years, your aspiration is to get 30% of overall business from ZEE5?
Minimum, right? I mean, if it's anything less than that, then it's quite disappointing. And keep in mind that my overall business also will continue to grow.
The next question is from the line of Sanjay Chawla from JM Financial.
My first question is on the 41 million MAUs that you've reported for September '18. Two parts to this question: can you give us a sense of what is a de-duplicated MAUs with respect to vis-à-vis the 41.3 million that you've reported. And what would be the -- just a rough approximate number, also percentage would be great, what is the average DAUs you had in September? And how it has changed with respect to April '18? That's the first question.
MAUs -- yes, go ahead.
So on MAUs, GA's tool does its own de-duplication, and this is after, I mean, there might be still some amount of duplication, but understand one simple thing that, let's say, 90% of the traffic is coming in India on mobile, and I mean, there is really nothing like one guy buying a subscription and that being shared by 10 people, that kind of thing still does not exist. So largely, this -- I mean, largely number of log-ins and uniques would be similar. There will be some duplication, which has been taken care by GA, Google Analytics, which is the tool, which we are using for measuring our subscriber base.
On the DAUs to MAU conversion, we are still not sharing data, Sanjay. Please bear with us for a few more quarters.
I mean, any broad range would be really appreciated, whether we are looking at the teens or 40% or 5%, something of that sort would really help, if you can share?
Again, Sanjay, I'm repeating, please don't push us. We are sharing data. It's a very new platform, just about more than -- just about 7 months old. I think I have to not put that kind of pressure on the teams that it breaks down. So let us work, and we will continuously deliver to you more and more data as we go forward.
Sure, sure. Appreciate that. When you first shared the average time spent per day, this is based on the DAUs?
Obviously, how will it count, Sanjay?
Yes, okay. And second question is, I missed the earlier part of your commentary at the start of the call, what is the number of original content hours you have planned for this year and maybe next? And would you be accounting dubbed content hours in that as well -- in that figure?
So what we count in original content is the original content that we create for ZEE5 platform. If we dub that content, definitely we count it as original hours. But our without dubbing part itself, our target for the 18 months was about 500 to 600 hours of content, and we are on track for that.
Okay. So 500 to 600 hours you mentioned, this is without counting the dubbed.
Yes.
Okay. And the last question is just on your VOD network content, which is not behind the paywall, in what ways you think your content, VOD network content, is differentiated vis-à-vis your competitors from an AVOD point of view? And the second part is, why -- what are your thought process in keeping live TV behind the paywall?
So live TV is really live. It's probably competing with the likes of the DTH and the cable companies. And because you pay there, hence we have kept it behind the paywall. If you look at the AVOD content, all goes -- only posted being aired live goes out to the AVOD platform. Now how is our AVOD platform different from competition? Not really, because most of our AVOD content is our television content. And the only differentiation is that it's unique to us. So nobody else can have that content on their AVOD platform. My AVOD content is unique to me.
Okay. Okay. Just a last bit related to that is, are you allowing your content to be cast on the larger screen in these deals with the telcos?
If you pay, you can do whatever you want do with it.
The next question is from the line of Jay Doshi from Kotak Securities.
First question, can you give us an update on new channel launches? You were planning something in Kerala market this quarter? And any regional movie channels that you may be planning?
So Jay, as of today, we have only plans to launch ZEE Keralam, which will come in the month of December. For this fiscal, I do not foresee anything else coming in any of the languages, either movies or Punjabi, as I talked about. I think they will all shift to the next fiscal.
Understood. Second is on inventory. So your comments for the full year spend on movie indicate that a re-moderation from previous year. But on the other hand, you also mentioned that solid underlying profitability in the television business will allow you to invest more in movies which you intend to. So there is a little bit of disconnect between the 2. So if you could give us some more color on what are your movie spends likely to be over the next 1 or 2 years the way you see installation right now?
I will cover a part of it, Jay, and then Bijal can complete it. If you look at the inventory that we created over the last 2 years, a large part of that inventory will start passing through the P&L in the coming years itself. But having said that, our revenue on domestic world class business is far outstripping the cost line. Bijal, you want to give the details on that? How -- or explain how the inventory is being -- we are not adding additional inventory going forward.
So Jay, there will be some increase in the inventory, inventory plus advances, on entire working capital, which is deployed for movies -- that, there will be there. What Punit just commented is that we have enough and more headroom to invest if there is a need. So if there is, I mean, there are lot of questions from investors that what happens if there is more intensity in competition in the digital space. So just we are saying that we have more headroom to even invest as our base business or the broadcast business is doing very well. At this point of time, our guidance is that increase in inventory plus working capital relating to movies will not be more than half of what you have seen in FY '18. FY '18, what you saw, was around INR 9 billion kind of an increase.
Right. So just a quick follow-up on that -- or maybe another question. So you mentioned 500 to 600 hours of original content over the past -- over the next 18 months. Now most of your series are about 2.5 to 3 hours -- seasons are 2.5 to 3 hours, the ones that released so far. So if I were to use the same sort of duration, then it translates into 200-odd seasons. So am I missing something? Or do you also include international licensed content in this 500, 600 hours of original content guidance?
So Jay, when you look at, when we say 1 hour, it's actually about 40 minutes of content. So don't go on that technicality of it, because the nomenclature is more TV-centric, right? When you say 0.5 hour or 1 hour, you don't really have content for the full 1 hour. Having said that, there will be longer seasons that will come in. We are yet to get to a run rate of 1 series per month in every -- all the 6 languages. We'll only start hitting that by -- in another 6 months' time. So it will be a lot more churning out in the regional languages compared to where we are today.
Right. On Jio deal, your original content will also be available to Jio users for free? Or it's only the live TV that will be available to Jio Prime users for free?
Only the live channels will be available to Jio consumers for free on the Jio TV platform. All other content, everything that sits behind the paywall on my platform, is available to Jio consumers if they pay for it.
Understood. And on movies, would it be possible for you to give us some indication on the number of digital right -- sort of movie library for digital and television, in terms of number of movies?
So number of movies total in our library is exceeding now 4,100, of which we have digital rights for more than 3,000.
Understood.
And I am talking about exclusive.
Exclusive digital rights of 3,000-plus movies.
Yes. Obviously, you won't see all 3,000 sitting on the platform today but they are being brought on as we speak. It's being populated as we speak. So over the next 3 months, you'll start to see all of the 3,000 titles available on ZEE5.
The next question is from the line of Dipesh Mehta from SBICAP Securities.
Two question. First about the advertisement growth. Punit, do you think now considering the H1 has played out very strong for us and the network market set, any change in your advertisement growth outlook than what earlier you alluded to?
So it will definitely slow down compared to H1 because we are monetizing very, very aggressively. I still expect an H2 to beat the industry growth, but obviously, it will not be at 23% kind of levels. It will slow in H2.
Okay. And what category -- because if you want to look at it from consumer -- some of the consumer companies, it seems to be some kind of moderation is coming into, kind of. So if you can help us overall category-wise your broad outlook kind of thing? How you see overall market?
Bijal?
See, at this point of time, overall market looks pretty decent. And as -- I mean, one thing you need to keep in mind that in first half the base was very favorable because of GST implementation in first half of '18, so that benefit will not be available in second half. But otherwise, we are seeing good traction in FMCG for sure. And other categories are also growing at a healthy pace.
Sure. And last thing, is it possible to, I think, give some data on how much would be movie-related consumption on OTT? Let's say, out of 31 minute, what would be movie-related kind of thing? Is it possible to share those statistics?
Not at this stage, Dipesh. I think still early days. I mean, one side 3,000 movies are populated; 500, 600 hours of original content; then to see that as a trend line will be far more predictable than today.
The next question is from the line of Yogesh Kirve from B&K Securities.
So my first question is regarding to, again, ZEE5. So we have now about 29 original series. So are the series representative of what we are going to do over the next one year, in terms of the episodic lengths or of the mix of data in pool versus the regular properties?
No, it will start getting expanded because we are seeing that we get far more traction for 1-hour episodes than a 0.5 hour episode. Some storylines we will be -- or some genres of content we will be scrapping altogether. We'll be introducing, say, it's still learning. As I said, we only have 2.5 months of data, right? So it's a learning phase for us how all that will happen, as the ZEE5 team is constantly updating their plans going forward.
Right. Right. And sir, we talked about 500 hours of original content, so if you see, right now, the average length of our content per series is, like, 2 to 3 hours, and we are talking about 100 series. So I was sort of not able to reconcile this number. So are we talking about the -- in future, the series would be longer than what we're doing so far?
Yes, we can't have the same yardstick for everything. There will be series which will be even shorter and there will be series which will be longer, depending on the storylines and what we need to do. Unlike television, where it's a factory and we have to fill 260 episodes a year. Here, we don't have any of those benchmarks or yardsticks. Here, an episode can range from 35 minutes to a full-length feature film, which could be also a web series. So there is no benchmark. There is no yardstick for us to go by that this is what it is going to be going forward as well.
So if you leave out our tentpole property, like, Karenjit Kaur, so what are remaining series? Is it fair to assume that the content cost would be similar to that on television?
No. The content cost will not be similar to television, they will be higher. If you leave out the things like Karenjit Kaur, et cetera, I think you can safely assume a 3x kind of a number in your content cost compared to TV.
Right. Right. That's helpful. And sir, secondly, it's more on the strategy. So if we look at the ZEE success in some of the regional market, like in Tamil or West Bengal, or even to some extent on ZEE5 as well, if you're able to gain traction without spending a very lot of amount on the content, right? So given such track record, I mean, if we -- then we look at the investments that we're making in inventory, so where does that fit in? Why there is a need for so much of investments when we are doing much better with a lot lower investment in some of the regional market that we are seeing?
I don't think the word lower investment is the correct word. I think most efficient investment is the right word. Reason for the movie business inventory going up was when we sold our sports business, there was a question to us that how you get that audience base which is unique to sports, which is youth, male, et cetera. And the only genre that we believe can capture that audience very, very significantly and well is the movie genre. And we believe that we want to be the largest player in the film categories, across languages, across platforms and that's what we are working towards.
Sir, lastly, on this, sir. If you are seeing this sort of the inventory investment happen in the last 18 months, so is it -- can you just broadly classify into how much of this is for the film production and distribution? And how much of it is for the satellite rights on -- for television showing on television?
So around -- as we have said that our working capital investment in movie production business is around INR 2 billion. And rest of the increase is primarily on account of movie rights, which is relating to satellite as well as digital. It is not only satellite, it is satellite plus digital. And some amount of investment going into music also.
The next question is from the line of Arti Sawant (sic) [ Bharti Sawant ] from Mirae Asset Management (sic) [ Mirae Asset Global ].
It's Bharti Sawant. Sir, I have a question, wherein you've earlier said that over the next 5 years, you are looking ZEE5 and other initiatives to contribute roughly about, say, 25%, 30%; and at the same time, you also expect the growth rate or the growth momentum to continue in the core business, which is the broadcast business. So are we looking more like a INR 18,000 crore to INR 20,000 crore kind of a revenue? Is that a vision for the next 5 years?
No, I don't know the math how you arrived at INR 18,000 crores to INR 20,000 crores. But definitely, I said that it should be minimum of 30% of my top line, and it can be definitely more than that as well. I think, at some point in time, the broadcast business will -- the growth will taper off and it will continue to grow in my view. But I quite didn't catch the math on INR 18,000 crore to INR 20,000 crores.
So that was just assuming that if you grow, say, at the industry growth rate of about 12%, which is currently there. So if I just assume, 10% to 12%, kind of, CAGR for the core business, and then add value for your new business initiative, if you are assuming that to be 30%, so it takes to INR 18,000 crores to INR 20,000 cores. So just wanted your view? Is that the number that we have in our mind? Or what is the sort of number, say, what is your 5-year vision?
Bharti, I think we can take this off-line. I am a bit lost in your mathematics. Sorry about that. Is it okay if I take it off-line with you?
Sure, sure, sure. Yes, one more thing I wanted to understand is, do we expect -- so you've already said that H2 would be lower, that is also because H2 of last year we had a higher base. But do you -- do we expect commodity-led inflation to really slow down the ad spends by the FMCG companies or most, as an overall, in the industry?
So at this point of time, we are not seeing any pullback in ad spend on account of commodity. However, there could be some margin pressure which are -- that might feel going forward. But this time, slightly situation is different because there could be some margin pressure, but on the other hand, there is -- volume growth remains very strong; they have benefited lot on account of GST. And lastly, for 1, 1.5 year, entire launch pipeline was choked on account of GST and demonetization. And those launches are happening now. So due to this, probably the pullback may not -- if at all it comes, it may not be as severe as probably we have seen in the past.
We will take the last question from the line of Jatin Chawla from Crédit Suisse.
Two questions. One is that on your advertising growth guidance that the industry will grow at 12% and you will grow higher. Does it imply that on a base of 25% growth, we are talking about more like 14%, 15% growth in the second half, on -- even on that high base?
I would look at mid- to high teens, Jatin.
And just a clarification on the Jio-ZEE5 deal. It seems there are 2 parts to it: so one, when a consumer wants to access the paid content, he goes to ZEE5 and then he pays on the ZEE5 platform, he is not paying to Jio, right? So effectively then what Jio is getting there is a distributor commission, which Zee will pay to him rather than the customer paying anything to him?
No, he can pay directly to ZEE5 or he can pay to Jio, and from there, I can get the money. So it's both ways.
Okay. But are you ensuring then that the pricing is same? Because there are platforms where it is almost free for the customers if he is accessing paid content from Jio? And if the customer goes directly, then the pricing is different. So in that case, there is no logic for the customer to directly come to the app?
No, the consumer will come to the app only if he finds value in that content and only then pay for it, right? If that content is available free somewhere else, why would he pay to a Jio subscription?
Yes. So in your case, you are saying the pricing, even if he's paying Jio, the pricing from a -- to the consumer ends up being similar...
Absolutely.
Okay. And then on the live content, you just get paid for the content that you are sharing with Jio. So there are essentially 2 parts to the deal?
That's right.
Thank you very much. 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.