Zee Entertainment Enterprises Ltd

NSE:ZEEL

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Q2 FY '23 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. Thank you, and over to you, sir.

[Mahesh Singh, executive]

Thank you, Tanvee. Hello, everyone, and welcome to our Q2 FY '23 earnings discussion. We have with us today our Managing Director and CEO, Mr. Punit Goenka, along with senior management team. We will start with opening remarks from Mr. Goenka, followed by commentary on operating and financial performance by Mr. Rohit Gupta, our Chief Financial Officer. We'll subsequently take some of your questions during the Q&A session.

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.

[Punit Goenka, executive]

Thank you, Mahesh. Good evening, everyone. I hope all of you are keeping well. Thank you for taking the time out this evening to interact with me and my team members on Zee's performance in the second quarter of the financial year 2022, 2023.

As you would have noticed, the underlying impact of the macroeconomic headwinds across the industry continued to spill over in the second quarter of the fiscal year. That said, we have been able to moderately grow our advertising revenues sequentially in the second quarter on the back of our network share gain and focused effort from our ad sales team.

We remain hopeful of a steady recovery in the advertising environment during the second half of the fiscal, given some of the green shoots due to a good monsoon and the onset of the festive season. We are utilizing this period to further strengthen the resilience and fundamentals of our business across all aspects. Our focused efforts and investments in content and user experience enhancements are displaying positive results.

I would also like to quickly apprise you on the progress of the proposed merger with Sony, now called Culver Max Entertainment Private Limited. We have recently received an approval from the Competition Commission of India within their communication dated 4th October 2022 and its subsequent order.

The company also conducted a meeting of its equity shareholders on 14th October 2022 to seek approval on the component scheme of arrangements, in line with the order of National Company Law Tribunal. We have received an overwhelming support for the proposed merger, with 99.99% of the equity shareholders who participated in the process voting in favor of the scheme. We are steadily moving forward with other legal and regulatory approvals required for completion of the merger as per law.

Coming back to the company's performance during the second quarter, in addition to strengthening our current offerings, we are also consistently identifying newer growth opportunities for sustained value creation. We took yet another firm step in this direction by sharpening our strategic vision to build the sports business for the company. The strategic licensing agreement into Disney Star makes Zee the exclusive TV destination for all ICC events starting 2024.

Going forward, all our investment decisions we made the sports segment are compelling value proposition for the company will continue to be taken with a prudent approach.

Our energies remain focused on enhancing the performance across platforms through compelling content offerings and delivering a robust user experience. For instance, our linear viewership share has increased quarter-on-quarter and are key markets like Hindi and Tamil are showcasing an improvement in the performance.

On the digital front, ZEE5 continues to post healthy growth across all usage and engagement metrics, reflecting the successes of our focused investments towards enhancing the proposition of the platform.

Going forward, we remain cautiously optimistic about the overall advertising sentiment, gradual recovery in the second half of the fiscal which will further aid revenue growth.

On that note, I will hand over the session to our CFO, Rohit Gupta, to take you through the final details. I look forward to interacting with you during the Q&A. Thank you. Over to you, Rohit.

[Rohit Gupta, executive]

Thank you, Punit. Welcome, everyone. I hope you've had the opportunity to review our quarter 2 results which have been uploaded on our as well as the website of stock exchanges. I'll focus my remarks on providing more context to our quarter 2 financial performance and our outlook for H2.

Given the weak macroeconomic environment and its implications on our operating context, we are pleased with our Q2 FY '23 performance, which showed a sequential improvement from previous quarters and underscores our team's ability to adapt and execute through challenging times.

It is also important to note that we have continued to make room for investments in strategic areas through this space and are confident of emerging as a much stronger business with marked improvement in underlying health and competitive advantage in our key businesses.

Let me briefly talk about these lead indicators fueling our enthusiasm with respect to our business trajectory. Firstly, our linear business, we have gained 30 bps network leadership share in quarter 2 FY '23 and continue to be India's strong #2 TV entertainment network. In our assessment, our quarter-on-quarter viewership gain during quarter 2 FY '23 is ahead of every other TV network in the country, reflecting result of our focused efforts to gain network share.

Specifically talking about 3 key channels which we are going through a lean path. In Zee TV, we are now seeing consistent performance in viewership share over the last few quarters. Zee Tamil has turn the corner in quarter 2 of FY '23 with share gains, and we expect to maintain that momentum, while Zee Marathi is still in the process of rebuilding with series of launches and interventions planned throughout FY '23 in order to stabilize and regain our network share.

On digital side, ZEE5 is continuing to gain healthy traction in usage, stickiness and engagement metrics. Our quarter 2 FY '23 views are highest ever. Original content is being well received and ZEE5 app user experience has been significantly improved, with ZEE5 becoming highest-rated OTT app on both iOS and Android.

ZEE5 iOS app ratings have gone up from 3.9 in early April to 4.8 levels now. Android app rating has gone up from 3.7 to 4.6 for the same period. All of these are strong affirmation of our investments in content, technology and marketing.

ZEE5 has blocked a revenue growth of 28% year-on-year during quarter 2 FY '23, reflecting early traction and adoption.

Now specifically coming to the financial performance, total revenues for quarter 2 FY '23 are up 10% quarter-on-quarter and 2.5% year-on-year, aided by growth in ad revenues, subscription revenues and other sales and services. Our ad revenues for the quarter grew at a healthy rate of 4% Q-on-Q, but are lower by 7% year-on-year.

On year-on-year ad revenue, in addition to the macroeconomic [indiscernible] strong spending coming out of COVID and Zee Anmol FTA ad revenue, which we withdrew from 1st April 2022.

While macro environment in quarter 2 remained challenging, our quarter-on-quarter growth was a result of network share gains and focused efforts from our ad team on garnering higher shares from active spending categories, solution-lead deals and other levers such as right client mix to minimize the impact with the sales. We are cautiously optimistic for ad spending to revive in the second half of the year, as demand picks up with onset of festive season.

Subscription revenues for the quarter grew by 7.7% year-on-year and 4% quarter-on-quarter. Q2 FY '23 subscription revenues were aided by catch-up revenue from previous quarters in linear business and underlying organic growth in music and ZEE5.

From TV subscription revenue outlook perspective in September [ 2022], TRAI has again extended the deadline for implementation of NTO 2.0 to 28th February 2023. In the absence of a clear way ahead of NTO 2.0, near-term outlook for subscription growth remains uncertain and muted. We will continue to monitor NTO 2.0 guidelines and will be prepared to implement the same for improved, longer-term revenue outcome.

There is also a temporary issue with collection and recognition of our subscription revenues from Citi ending a legal proceeding.

Zee music company saw 65% year-on-year growth in video views, highlighting strength of ZMC music catalog and library. YouTube subscriber base of ZMC increased to 89 million from 78 million in the last 12 months. ZMC continues to be #2 music channel and have very young and new age catalog with very high consumption.

This quarter, we have also reassessed the useful life of music content, looking at our own revenue profile and catalog usage as well as benchmarking the useful lives with global and domestic peers. Our current definition of useful lives of music, which until now was 3 years as per management assessment.

Based on the outcome of reassessment and benchmarking process, we have now revised the useful live of the music content to 10 years. The total impact of the change of useful live of music asset was positive INR 32 crores on EBITDA.

On a recurring basis, impact is not going to be that material as our music inventory and [indiscernible] music acquisition is relatively small compared to the overall inventory and investment. This reassessment aligns on how music is currently being monetized on a much longer life with more predictable annuity revenue streams.

Coming to the movie business. During the quarter, Zee Studios released 10 movies, 4 Hindi and 6 regional aided by these theatrical releases and other syndication deals.

Q2 FY '23 other sales and services were up 92% year-on-year. While there has been a good pickup in revenues from theatrical in and movie, content performance of movies generally has been softer than expected and this has caused a drag on margin.

During the quarter, we have seen inventory increase quarter-on-quarter, mainly due to movies acquired for linear and digital business. Our content inventory and advances stood at INR 78.9 billion in quarter 2 FY '23, and the majority of this pertains to movies. In H2, we have a strong pipeline of movies under different stages of production.

Switching gears on cost and profitability. During quarter 2 FY '23, our EBITDA margins came in at 14.7% quarter-on-quarter, improving by 110 bps, but still lower by 610 bps year-on-year. We continue to be focused on optimizing costs across the businesses and are hopeful that when macroeconomic environment and ad spend improves, our margins will recover from these levels.

ZEE5 EBITDA losses for the quarter stand at INR 2,769 million. Losses were high year-on-year and quarter-on-quarter, as we continue to invest in strengthening our ZEE5 value proposition in line with our investment strategy.

Also quickly touching up on receivables from Dish and Citi. As you will recall, we had agreed the payment plan with Dish, and we have continued to collect as per schedule receiving current collections along with receiving a part of the old outstanding. This outstanding has substantially reduced from INR 5.8 billion as of March '20 to INR 1.5 billion in September '22.

On Citi, as we had mentioned earlier, we have been recognizing revenues to the extent of collection on a conservative basis. On account of a pending legal proceeding, amounts aggregating to INR 525 million are yet to be collected and accounted for.

PAT for the quarter came in at INR 1,128 million. The cash and treasury investments of the company as of September '22 stood at INR 9.0 billion. The cash and treasury investments include cash and bank balance of INR 3.1 billion, fixed deposit of INR 5.7 billion and NCDs worth INR 255 million.

To sum up, quarter 2 has shown some sequential improvement in challenging backdrop, which is encouraging. However, we still have a lot of ground to cover and expect our financial performance to gradually improve in H2. Growth revival is our key focus and Q3 will see recovery from Q2 levels given the festive seasonality. However, key factors we are working is how sustained and strong that underlying macro recovery is beyond the festive seasonality. We will provide you more color when we speak during Q3 earnings.

Back to you, Mahesh.

[Mahesh Singh, executive]

Thank you, Rohit. We'll now proceed for the Q&A session. I request the moderator to take the discussion forward.

[Operator]

[Operator Instructions] We'll take the first question from the line of Vivekanand S. from Ambit Private Limited.

[Vivekanand Subbaraman, analyst]

My two questions on the merger. So one is, if you can provide an update on the timelines of merger completion? Related point is with respect to the number of days that your share will [indiscernible] that's point one. Second...

[Operator]

Sorry interrupt, Vivekanand, your voice is breaking up in between. So the audio is not very clear.

[Mahesh Singh, executive]

Vivek, if you can just confirm...

[Vivekanand Subbaraman, analyst]

Is it better?

[Mahesh Singh, executive]

Yes, it's better, Vivek. Can you just confirm your second question, was it number of days for, just repeat that bit.

[Vivekanand Subbaraman, analyst]

So once the merger approvals are in place, how many days will be share delisted? Do you have clarity on that?

And the related question in this context is, have you engaged with your institutional shareholders who have to report -- they report their mark-to-market on a daily basis. So what's the status from their compliance teams to understand whether they will be able to hold on to the shares comfortably? And how does it work from their reporting perspective?

[Punit Goenka, executive]

So for the time line of the merger completion, we are working with a target that it should be completed within this financial year. And as you will know, this is something that we are [indiscernible] on a daily basis because this regulatory approval is required. We can't give you one final date.

Number of days for delisted in -- company remaining delisted, our expectation is it will be about 5 to 6 weeks. And engagement with the institutional shareholders, Mahesh?

[Mahesh Singh, executive]

At this stage, Vivek, we haven't had specific concerns or feedback on the time line. Of course, as things progresses, we will continue to remain d engaged and will continue to articulate this. But at this stage, there's not anything which we've gathered which is overly significant to talk about.

[Operator]

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

[Abneesh Roy, analyst]

My question is on ZEE5. So one part is on the significant improvement in rating in both Android and iOS. What does this translate in terms of impact on, say, revenue or the subscriber base or -- it's good to see that number, but isn't content the most important thing?

Second bit is, last year, the run rate -- quarterly loss run rate was more like INR 190 crores to INR 200 crores. Now this quarter, it's around INR 276. So is this the number we should build for the balance 2 quarters also in terms of loss?

[Punit Goenka, executive]

Abneesh Roy, the improvement in ratings what it does is that it gives you immediate downloadability of the app. When a consumer comes and sees a rating of below 4, the likelihood of downloading of the app is low. And therefore, that is the first hurdle that we can cross.

Of course, after that, content is the most important thing for the consumer to convert from just the download to actually becoming a subscriber. But ratings on the app store is very, very important and crucial.

And on the run rate of the -- for the current year, yes, that's I think what we should factor in. But obviously, post this next year, we expect it to flatter and then come down.

[Mahesh Singh, executive]

Also Abneesh, this is Mahesh. Just to add on the content rating as well when you look at -- and I think both Rohit and PG alluded to it, a lot of our recent shows content performance has also been very healthy when you look at on ZEE5 something like Saas Bahu Achaar or something like Rangbaaz or Tripling. So it's -- so there is equally sort of recognition and validation of content as well when you look at the ratings on third-party rating websites as well.

[Abneesh Roy, analyst]

My second question is on the viewership ratings, good to see. Finally, it's turning around and 30 bps. It's a reasonable start, but still versus pre-COVID, there is still a lot of gap available. I wanted to understand on the Tamil and Hindi, now are you fairly confident? Or are these very initial days, we need to wait a bit more? And you also mentioned on Marathi, it is still WIP. So if you could tell us what has done well in Tamil and Hindi? Is that possible to replicate in Marathi to reverse there also?

[Punit Goenka, executive]

So both in Tamil and Hindi, it is basically implementation and picking the right shows that has worked for it. And Hindi, particularly both the fiction and nonfiction have done well for us. Tamil is still largely fiction-driven. And we are pretty confident that these will now continue to grow from here. They have stabilized at this level and now we should see more growth coming.

In Marathi, as I mentioned in the earlier calls also, Abneesh, it was the implementation issue and a team issue. A new team has been put in place about a quarter back. They are working on the plans for getting their turnaround happen in Marathi also. I'm quite hopeful that in the next couple of quarters, we'll see something turn around there.

[Abneesh Roy, analyst]

Sir, one follow-up was on the NTO 2 in your opening remarks. So that has kept on getting delayed. So what was the reason for delay this time? And industry is quite capable of putting -- viewpoint being the fourth estate. So why we are not seeing any success, any resolution here either way? So when can we see this getting normalized, because then only you can start thinking of normalcy and growth in this part of the business?

[Punit Goenka, executive]

NPO, reasons for delay, I don't know what TRAI was planning to do. But as I understand it from informal sources that they were trying to build consensus among all the stakeholders. And as you understand, consensus in this industry between broadcasters, cable operators or DPOs is not easy to build. I think that is largely reasons for delay.

My view is that they have finished with all the discussions and everything so we should see the NTO guidelines come out any time now. And as Mahesh mentioned that 28 February is deadline we have kept. And we are quite confident that they will not miss this deadline.

[Operator]

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

[Kunal Vora, analyst]

My first question is on the ICC events rights. Can you talk about the amount you'll be paying and the returns that you expect and which channels the intent will be broadcasted on? Also the cash which the MergeCo will have? What's the plan to deploy that?

[Punit Goenka, executive]

So ICC, the amount is confidential. We are not in a position to declare it right now. But as and when we have the clearance from ICC, we will share that with you.

If the merger happens, Kunal, then you know that we will have a formattable sports network in the MergeCo. And there's no reason why we will not use that as the platform.

In the unlikely event that the merger does not take place, we will have to launch sports channel.

[Kunal Vora, analyst]

Okay. And my second question is on inventory. We've seen a further increase in the first half. It's gone beyond INR 7,000 crores. Where does it -- what level does it stabilize? When do you expect it to start moderating? And also in terms of accounting policies on inventory, have you engage with Sony and are there any differences in the inventory accounting? Is there a possibility that you might have to write it down at some stage? That's it from me.

[Punit Goenka, executive]

I let Rohit answer the first part. I'll take the second one.

[Rohit Gupta, executive]

Yes. So the inventory increase like I said in my opening remarks, primarily is on account of the movies that have been added during the quarter. So number of movies have been added and the monetization is going to take place now.

To your question whether the levels will remain, I think for at least a couple of quarters, yes, we will keep -- we'll have to invest into digital content. But like I said earlier also, we want to actually have the inventory additions only to be explained that we amortize, so that the inventory actually stabilizes at a certain point.

Regarding the policy with Sony, maybe...

[Punit Goenka, executive]

Yes. So on the accounting policy with Sony, I can confirm that there are differences. And the differences are largely on the movie side. KPMG -- that is doing the entire work for Sony and Zee, is engaged on that exercise as we speak. Closer to the merger getting completed, we will come back to you as to what in the quantum of that value.

[Kunal Vora, analyst]

Okay. Okay. Just one last question, if I can. On ZEE5, your costs have increased almost 50% year-on-year. What are -- what's been the main area of investment? And how should we look at the cost increase going forward?

[Punit Goenka, executive]

There are only 3 areas of major increases in ZEE5, Kunal. This is basically technology, content and marketing.

[Kunal Vora, analyst]

Yes. But what kind of increase should we expect going forward? Because while the revenue is increasing, the cost is increasing at even higher pace. So when do we start to see costs stabilize and revenue continue to move up, driving improvement in performance?

[Punit Goenka, executive]

As I said earlier to -- on my earlier question that I answered that for the next couple of quarters, the loss revenue will be where it is at quarter 2. After that, it will platter for some time. And then you'll start to see it falling.

[Operator]

The next question is from the line of Sanjesh Jain from ICICI Securities.

[Sanjesh Jain, analyst]

First on the ad revenue. I just wanted to understand now that this time the festive reason were early, and we had a positive rating improvement as well. I understand the headwinds from not having the FTA channels. But I thought that the tailwinds from the H2 were much even stronger and despite that there was a decline on a Y-o-Y basis. Do you still think that the sentiments are weak enough? And how should we see them for the H2? Because I think some part of the festive season already started in the Q2 itself. That's my first question.

[Punit Goenka, executive]

You are right, Sanjesh. The sentiment was still weak in Q2, and this is largely driven on the back of the CPG or the FMCG companies taking a hit on their volumes because of the pricing of the input costs. So therefore, it was weak in the Q2 itself. Yes, you're right, Q3 started out very well with the October month being good. But there are headwinds again that we are seeing in the month of November, et cetera.

[Sanjesh Jain, analyst]

Sir, this overall scheme of things, do you think we will have a flattish to this year in terms of advertisement revenue?

[Punit Goenka, executive]

I think we will see some marginal growth, Sanjesh, in this year.

[Sanjesh Jain, analyst]

Great, sir. Second, on the capital allocation towards movie, till now Hindi movies are not performing very well. And we also mentioned in our initial remarks that we are dragging a bit on the margin. Are we rethinking on our capital allocation towards movie? What's thought process there?

[Punit Goenka, executive]

We are rethinking or we are studying our movie portfolio strategy and maybe revisit the capital allocation within that. So instead of spending a lot more on, let's say, Hindi, for example, do we want to spend a little bit more on the regional languages, which are doing much better than the Hindi side. But will we completely look at reducing capital allocation to movies, no, that's not in the thought process.

[Sanjesh Jain, analyst]

Got it. One related day, correlating with the inventory, I thought we were investing a lot more in the movie so we have to buy lesser movies from the market, but our movie inventory within the inventory continues to rise. So how should we see this? The movies which we are making and buying so much of news from the market, it's more to feed the digital or it is to fill the rating. So what's driving that kind of investment in the inventory as well?

[Punit Goenka, executive]

It's predominantly digital, Sanjesh. If you look at our last quarter, on the ZEE5 platform, we released almost 60 films across languages. So that is the element that we have to feed, and that's what is driving the movie inventory.

[Sanjesh Jain, analyst]

Great. Great. So A&P spend rise this quarter sequentially also is because of the movie launches we have done or -- what's driving that cost line item?

[Punit Goenka, executive]

Yes, yes. You're absolutely right. It is the movies that is driving that.

[Operator]

The next question is from the line of Abhishek Kumar from JM Financial.

[Abhishek Kumar, analyst]

Actually, most of my questions have been answered. A couple more. So one on the ZEE5. I think we have taken a price hike last quarter, if I'm not wrong. So -- I mean, how much of the growth can be attributed to the price in season? How much of it is actually [indiscernible]? That is question number one?

And second, on music, I think in the opening remarks, Rohit, you mentioned INR 32 crores is a impact on EBITDA. So I just wanted to understand a bit more, is it a change in amortization? That is the case, then probably incrementally also we will have some impact. And if you take that out, it looks like on a Q-o-Q basis also the margin is flat. So how should we look at the margin going forward for the second half and probably if you can give a direction of when can we go back to normalized levels?

[Punit Goenka, executive]

So the ZEE5 price hike, the contribution of growth to that is miniscule Abhishek because we account for the revenue on a realized basis, not on a receipt basis. So even if you take INR 100 price hike, that will be attributable very limited on a 1-month basis. So therefore, the growth on the ZEE5 subscription is pretty much coming on the back of new subscribers.

I'll take the last one, but then music, I will tell Rohit to answer. So on the margins, I think this year, we should not expect any normalization of margins that we used to have 25 -- at 24%, 25% level. This year will be subdued in terms of margin. Because unlike last year, when the margins came under pressure, we significantly cut costs and that has further impacted revival of our channel market share. So this year, we have consciously taken a decision not to cut the cost down to the bone and leave some meat on so that we have a healthy entry into the next year when things are more normal. Rohit, music?

[Rohit Gupta, executive]

Yes, so Abhishek, on the music, like I mentioned in my opening remarks, we were actually estimating and amortizing the music inventory in 3 years. And like how we reassess all our investments periodically, we've also reassessed music. We have benchmarked with various Indian companies and global companies. And we've seen that most of them are -- actually the amortization happens between 10 to 25 years. And therefore, we have changed this from 3 years to 10 years. The impact of that, onetime impact in this quarter is INR 32 crores. There will be some impact, but it will not be -- of course, it will not be that substantial in the coming quarters.

[Abhishek Kumar, analyst]

One last, if I may. What is this exceptional item in the P&L?

[Rohit Gupta, executive]

Yes. So I'll take that one. See the exceptional item has 2 components to it. So the one has been continuing provisions that we make for the guarantee that has been given for Citi. Whatever the amount becomes due every quarter, we'll continue to provide for it and then disclose it every quarter in our quarterly accounts. So [ INR 15 ] crores is that.

And then secondly to, obviously give the right disposal, whatever merger-related expenses are there, that also we account for separately and show it as exceptional items.

[Operator]

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

[Jinesh Joshi, analyst]

Yes. I have a question on the FTA withdrawal size. I think this was the same quarter post FTA withdrawal. Can you highlight where are the terms of revenue recruitment, especially on the subscription side. Given that this was an FTA channel, prices would have been lower as content would not be as fresh. So does this type of content finding acceptance on the Zee TV side. I just thought of asking this because, I mean, ad revenue loss from FTA is also one of the reasons is to why our overall EBITDA margins have been slightly lower over the last 2 quarters. Your thoughts on that.

[Punit Goenka, executive]

Yes. Jinesh, so the FTA channels that we're running, they were running -- we run so far pay channels. Because the FTA universe doesn't get the pay channels, for them it was like fresh content.

The movement we just put this content on the pay ecosystem, the audience has already seen it or it's dated. It's dated by almost a year. Therefore, it's not finding any traction there. And therefore, I don't think that would have had any impact on that side.

You're right that a large part of the FTA revenue flows directly down to the bottom line and has an impact on our EBITDA.

[Jinesh Joshi, analyst]

In case if we are not able to find a recruitment on the subscription side, what would have been the reason of withdrawing it from the FTA circuit as such?

[Punit Goenka, executive]

Jinesh if you plot the subscription -- subscriber numbers for the DTH industry over the last 2 years, you will see the rapid fall that they have witnessed. It has gone from 58-point some million subscribers down to 53-odd million subscribers. This was the sole reason for us to withdraw because we were seeing a lot of the deep subscribers migrate to DTH.

[Jinesh Joshi, analyst]

I just need one small clarification. I think this was explained previously as well. This is with respect to this INR 32 crores of EBITDA bump-up, which we have seen in this quarter due to change in the accounting policy from 3 years to 10 years, but if you can just highlight the reason behind it because earlier it was 3 years [indiscernible] happened over that time frame and now it will happen over a 10-year time. So how does this actually lead to a bump in EBITDA?

[Rohit Gupta, executive]

Yes. So I just actually responded to this query before -- let me repeat it, Jinesh. So for the -- like I said, for the music investments and the songs that we acquire, we were actually amortizing them over 3 years. And when we have benchmarked this with all other players and also seeing the revenue profile and how the revenue accrued, we realized that 3 years is actually not the right time frame. And therefore, we have -- we have now changed it to 10 years. So there is -- because there is an opening inventory, so there is a onetime impact that we have of INR 32 crores in this quarter. And that's why this has been disclosed.

Going forward, the impact -- because we do not add that much music inventory as compared to our other movies and so on, the impact will be much lower.

[Punit Goenka, executive]

Jinesh, it is also the fact that because we were new entrance into music business, we did not know what the global practices were. And this -- then discussed with our auditors. They did an extensive exercise and told us that the natural amortization for music is between 10 to 25 years. So we have taken the lower of what the global standard is.

[Jinesh Joshi, analyst]

So basically, to sum it up, inventory adjustment has led to this EBITDA bump, right?

[Punit Goenka, executive]

Yes, you can see that. Yes.

[Operator]

[Operator Instructions] The next question is from the line of Aditya Chandrasekar from UBS.

[Aditya Chandrasekar, analyst]

A couple of quick questions. So on the subscription side, after we withdraw from FTA, have we seen a reduction in churn as in terms of users moving from Pay TV to FTA, not necessarily for the Zee but for the industry as a whole sense, all broadcasters have kind of pulled out of FTA.

And a related question, so we have a 7% Q-o-Q increase in subscription revenue. So is that mostly coming from digital? Or has linear side also grown a little bit?

[Punit Goenka, executive]

No, significant -- maximum part of it is coming from digital. Linear is not showing any growth. What we have seen on the first question on the reduction in churn, absolutely, the churn has been reduced. The subscriber base is not stable at the 53-plus mark. In fact, in September, if I remember, I saw 53.8. So it's a healthy sign. We were hoping it will increase, but that has not translated yet. The industry is going to wait and watch before we take a decision what where we want to go.

[Aditya Chandrasekar, analyst]

Got it. I'm sorry, one more question. I dropped off for a few minutes, so I missed it. How many days will the stock be delisted for in the merger process?

[Punit Goenka, executive]

5 to 6 weeks.

[Aditya Chandrasekar, analyst]

5 to 6 weeks?

[Punit Goenka, executive]

That's the SEBI norm. I'm just quoting what is in the policy.

[Operator]

The next question is from the line of Arun Prasath from Spark Capital.

[Arun Prasath, analyst]

Punit, my first question is on synergy benefit so, I'm sure you have touched upon this many times quantitatively. But qualitatively, what is the culture of getting from, say, your distribution partners or advertisement agencies and advertisers? Can you give some update on that qualitatively? And on which of those areas we will be prioritizing?

[Punit Goenka, executive]

Yes, Arun, it will be largely revenue-driven, and we are expecting about 6-odd percent synergy benefit of Zee revenue, Zee alone revenue. And if you look at it on a combined basis, it will be between 3% and 4% of the combined MergeCo's revenues.

The area, obviously the most lucrative area is the advertising side. And based on how the new NTO shapes up and how we bring the 2 bouquets together, will determine whether even in a subscription we can see a bump up. But right now, we've not factored that in. This is largely driven from the international markets, digital business and the advertising.

[Arun Prasath, analyst]

And on advertising, it is more on the yield side or the inventory filling? How we should look at it?

[Punit Goenka, executive]

Combination of both.

[Arun Prasath, analyst]

Understood. And my second question is on the movie production in line with the previous participant's question. I'm sure that it's a contentious decision because it's always a build versus acquire. But unlike other markets in India, we have -- we don't have that much dependence on the Hollywood and we have no that of companies which are producing movie in this country. So wouldn't it make sense -- more sense to buy rights [indiscernible] we only pay for the content that is like the audience at large? And how we should look at it quality versus quantity balance? Isn't it more towards quality? And how would that impact so far your acquisitions -- user acquisition of Zee facing?

[Punit Goenka, executive]

Unfortunately, the industry doesn't work that way because the movie gets sold even during production. And if we were to wait for the film to be released in theater and then take the chance of buying the film, there is a risk to that as well. So therefore, the industry is behaving in a manner that it does, and therefore, we have to participate and play the game as per the industry.

And our view is that we would also like to continue to build and buy as little as possible. At times, that's not possible, but we are working on that strategy.

[Arun Prasath, analyst]

Okay. So what will change this scenario? What will make you to revisit this movie production business? Because a lot of capital seems to be getting locked in this business and it is also dilutive in terms of margin?

[Punit Goenka, executive]

Well, that is being -- it will be dilutive to margins, we knew always. That is not the factor which will make us decide whether to be in this business or not. I think what we will decide is what kind of films that we want to participate in? And what kind of language and what is our capital allocation to languages based on how the box office is performing, market by market. So that is what will help us in realigning or rethinking our portfolio.

[Operator]

The next question is from the line of Himanshu from Dolat Capital.

[Himanshu Shah, analyst]

Sir, can you just let us know the contribution of 3 channels that we will let go of in terms of their viewership share and contribution to ad revenue?

[Operator]

Himanshu, we have lost your connection. Yes, please go ahead, Himanshu.

[Himanshu Shah, analyst]

Sir, can you just let us know the contribution of 3 channels that we will let go of as part of merger, their contribution to our current viewership share and ad revenue contribution?

[Punit Goenka, executive]

The ad revenue part, I cannot share, it is a bit confidential in nature. As you understand, we have to still go and divest these channels. The viewership share is about 1% all in revenue.

[Operator]

Thank you. That was the last question for today. I now hand the conference over to Mr. Mahesh Pratap Singh for closing comments.

[Mahesh Singh, executive]

Thanks, Tanvee. Thank you, everyone, for your interest, and thanks for joining us today. We hope all your questions were answered. Should you have any further clarification or questions, feel free to reach out to us. Thanks again, and look forward to speaking with you post of Q3 earnings.

[Operator]

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