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Zee Entertainment Enterprises Ltd
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Ladies and gentlemen, good day, and welcome to Q4 FY '22 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. Thank you, and over to you, sir.
Thank you, Margaret. Hello, everyone, and welcome to Zee Entertainment's Q4 FY '22 earnings discussion. We have with us today our Managing Director and CEO, Mr. Punit Goenka, along with our 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 will subsequently open the floor for questions-and-answer session.
Before we get started, I'd like to remind everyone that some of the statements made or discussed on today's conference call will be forward-looking in 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 hand the call over to Mr. Goenka. Thank you.
Thank you, Mahesh. Good evening, everyone. Hope you're doing well. Thank you for joining us this evening to interact with me and my team members on the company's performance in the final quarter of the financial year 2022.
The media and entertainment sector overall has certainly seen a fair share of ups and downs in FY 2022 due to the COVID-19 pandemic. The fourth quarter also witnessed a quick disruption due to a sudden resurgence and then decline of the third wave, which led to minimal impact on the industry at large.
Before we discuss the company's performance during the quarter, I would like to share a quick update on the proposed merger process. As you will recall, the definitive agreements were inked between the 2 companies, that is Zee Entertainment Enterprises Limited and Sony Pictures Networks India on 22nd December, 2021. The teams have been working independently and are progressing steadily towards seeking the necessary approvals as mandated by law. We have filed the scheme of arrangements between the 2 entities, along with the key documents with Bombay Stock Exchange and National Stock Exchange in January 2022. We are currently awaiting approvals from the stock exchanges.
In addition, we also made a prefiling with the Competition Commission of India in February 2022. Basis the guidance received on our prefiling, we have made a formal filing with the CCI for the proposed merger in April 2022. In line with prescribed process with scheme of arrangements, we expect to submit the application to NCLT after receiving the necessary approvals from the stock exchanges, following which NCLT will call for the shareholder meeting to approve the scheme in due course.
Coming back to our discussion on the company's performance in the last quarter, let me quickly share a brief overview of how the quarter shaped up for us and the industry overall, post which our CFO, Rohit Gupta, will take you through the financial and operational performance of the company in a granular manner.
From the time the cases have waned, the economy has been seeing spurts of green shoots as a result of improved business activity across the nation. In quarter 4, the biggest comeback for the media and entertainment sector has been the movies business, spurred by the complete reopening of the cinemas across the country in the latter part of the quarter.
At ZEE as well, our studio business performed phenomenally well during the quarter, with films across languages, including The Kashmir Files and Valimai, garnering an extremely positive reception at the box office. In fact, The Kashmir Files went on to gross over INR 200 crores at the box office, making it one of the few films to achieve this feat, post the impacts from the pandemic.
As we have discussed in our earlier calls, Zee Studios and the movies business is a very strategic part of our portfolio, and it plays a very synergistic and complementary role in the success of our linear and digital businesses. As we step into quarter 1 of the financial year 2023, some of the finest movie titles will be streamed on ZEE5.
Similarly, and less often talked about, but equally important part of our portfolio is the music business, which has steadily built scale and leadership. Zee Music consistently has maintained a leadership position in new Hindi movie acquisition and is also poised for stellar growth ahead as a result of the rise in video views of platforms like YouTube and Facebook. Zee Music's YouTube subscription stand at around 83 million, resulting from a new age catalog that enjoys very high consumption on these platforms. The label has been adding 1,500 to 2,000 songs annually. And coupled with the strength drawn from our other businesses, Zee Music has a competitive advantage.
The music industry has been on an upswing globally on the back of increased digital revenues, which are predictively recurring revenue streams. We are well placed to capture a large part of this value creation opportunity in India.
Switching gears to our linear and digital businesses. Advertising revenues remained overshadowed due to several factors that continue to stress the FMCG segment, which is the largest category on TV in terms of ad spends. The sharp rise in inflation, coupled with a higher input cost for this segment, impacted the marketing spends, which, in turn, had a cascading effect on the sector.
Moreover, the ancillary effects from ongoing conflict between Russia and Ukraine and the larger economic factors around the same will continue to impact advertising revenues in the near term. That said, we are hopeful of advertising revenues returning to positive growth levels in financial year 2023.
On the linear side, we continue to focus our energies on sharpening our content offerings to reflect the changing consumer preferences and significant efforts have been directed towards the key markets, including Hindi, Marathi and Tamil. We have strong teams in place for each market that have been deriving unique solutions to address the concerns, and I remain confident in their ability to help regain our share in each of these markets very soon.
The embargo in pricing continues to impact the linear subscription revenues. And as a proactive measure to propel the Pay-TV ecosystem, we have withdrawn our Hindi GEC from the Free Dish. While this may lead to some short-term impact, we do see it as an accretive step in the long term.
Significant growth from ZEE5 continues to drive the subscription revenues from the digital side. We have been witnessing positive growth in operating and financial metrics consequentially, and we are happy to see our investments to enhance the content and the overall user experience pay off in this direction. The conversion and engagement rate display the robust growth of the platform, and we aim to keep building on this positive momentum.
Overall, the media and entertainment sector has immense potential to display strong growth in the year ahead. Companies will be focusing their investment more on a seamless blend between content and technology to serve consumers effectively across all platforms.
Furthermore, with the subsiding fear of the pandemic, we expect minimal business disruption quarter-on-quarter. As a result, business and consumer spending should revive completely. Amidst this, our aim will always be to steadily grow in the industry across all aspects, and we will be investing significantly to support that aspiration.
On that note, I would like to hand over the call to Rohit to take you through the [indiscernible] aspects of the company's performance during the quarter and provide some color on the financial year 2023.
I look forward to engaging with you during the Q&A session. Over to you, Rohit. Thank you.
Thank you, Punit. Welcome, everyone, on our Q4 earnings call. I will take this opportunity to provide more color on our financial performance for the quarter and full year.
FY '22 was overall a healthy year for Zee Entertainment, marked by recovery across all key segments. We have continued to invest in the enhancement of our capabilities across content, digital and technology to better serve and delight our customers.
We continue to be India's strong #2 TV entertainment network. The viewership share for the quarter declined marginally by 20 bps to 17.1%. During the quarter, we launched 20-plus new shows and for full year, 90-plus shows. We saw share gain in Zee TV, Zee Telugu, Zee Sarthak as well as our new forays with Punjabi, Bhojpuri and Marathi movies. We are sharpening our content strategy in order to further improve our network share in Hindi, Marathi and Tamil GEC market with a series of launches planned in FY '23.
ZEE5 strategy outlined in previous quarter is well on track, and we have started seeing a robust growth in operating as well as financial metrics. MAUs and DAUs as on March stands at 104.8 million and 10.5 million, respectively, with watch time of 214 minutes. This is 80 minutes more than last year and around 13 minutes more than last quarter. Further, MAUs has also shown -- has also grown by 44% year-on-year. This strongly affirms our investments in content and technology, which will further strengthen the business.
During the quarter, we released 64 shows and movies, including 13 originals. Over the last 12 months, despite the COVID wave affecting production, ZEE5 has released 45-plus originals. For FY '22, ZEE5 has clocked the revenue growth of 31% year-on-year, reflecting healthy traction and adoption.
Now specifically coming to the financial performance, total revenue for the year grew 14.1% year-on-year to INR 81.893 billion. Quarter 4 revenue grew 18.2% year-on-year to INR 23.2 billion. The full year growth is largely driven from higher ad sales and theatrical business. Ad revenue for the year grew by 17.3% year-on-year to INR 43.9 billion. Q4 ad revenue remained flat year-on-year at INR 11.2 billion on back of soft performance in key markets.
Subscription revenue for the year remained flat year-on-year at INR 32.5 billion. Q4 subscriptions grew by 6.4% year-on-year on back of double-digit growth in ZEE5. As we have discussed in the past earnings call, embargo on channel pricing due to NTO 2.0, legal challenges continue to impact subscription revenue growth.
In the last couple of years, we have also witnessed TV penetration growth being primarily driven by free-to-air services due to pandemic situation, and that trend has also been a headwind. And that's the reason for the degrowth we have seen in the linear subscription revenues.
Zee Music Company saw 57% year-on-year growth in video views, highlighting strength of Zee Music catalog and library. YouTube's subscriber base of Zee Music increased to 83 million from 73 million in the last 12 months. Zee Music continues to be #2 music channel.
Coming to the movie business, we saw encouraging response from movie releases, especially Kashmir Files released in last quarter was a blockbuster success. This movie itself clocked a record sale of over 1.25 crore tickets. During the year, Zee Studios released 22 movies, 10 in Hindi and 12 in regional. In the quarter to come, we have a strong pipeline of movies under different stages of production.
Talking of our music and movie business, we are excited with how these 2 businesses have scaled and now are very meaningful part of our portfolio. As we have discussed in the past, we realized significant synergies in both cost and revenue due to our presence across markets and platforms. Content created for market or a platform travel to another increasing its economic value and not only allowing us to manage the content creation and acquisition cost better, but also enabling cross-platform marketing.
With our continuous focus on investment in technology, platform, content in digital and linear business, coupled with increased marketing costs on account of new launches, the full year EBITDA margin is at 21%, lower by 280 bps year-on-year.
ZEE5 EBITDA losses for the full year stands at INR 7.5 billion. And for quarter 4 FY '22 EBITDA losses were at INR 1.9 billion.
The exceptional expenses incurred during the quarter are related to 3 key items. There is a onetime bonus as part of talent retention plan payable in 2 tranches to the extent of INR 733 million; legal expenses of INR 73 million, in connection with the proposed scheme of arrangement. Towards DSRA liabilities, we have estimated and accounted additional amount of INR 196 million in quarter 4, and the corresponding amount for the full year is INR 527 million.
Also, quickly touching upon the receivables from Dish and Siti. As you will recall, we had agreed a payment plan with Dish, and we continue to collect as per that schedule. The overall outstanding now is considerably lower, and we have been receiving current collection, along with receiving the part of the old outstanding. Dish outstanding has substantially reduced from INR 5.8 billion as of March '20 to INR 2.4 billion in March '22.
On Siti, as we had mentioned earlier, we have been recognizing revenues to the extent of collection on a conservative basis. During the quarter under review, that is Q4, amounts aggregating to INR 189 million on a net basis is delayed in receipt and hence not accounted for due to pending legal proceedings. We are confident of resolving this matter soon.
Profit after tax for the year grew by 31.7% year-on-year to INR 9.6 billion. For the quarter, PAT came in at INR 1.8 billion. The cash and treasury investments of the company as of March '22 stood at INR 13.1 billion. The cash and treasury investments include bank balance of INR 8.2 billion, fixed deposit of INR 4.5 billion and NCDs worth INR 337 million. During FY '22, we also redeemed final tranche of preference shares.
As we step in FY '23, we are very excited about growth opportunities ahead of us. Media and entertainment industry in India is still in its relatively infancy and is on the cusp of a strong phase of long-term structural growth, backed by rising consumer demand and improving macro enablers, such as digital reach and content accessibility.
At Zee, we are driving our business to capture a significant share of this growth, and we will continue to invest aggressively in FY '23 to support our growth ambitions. Our successes so far have given us confidence to be front footed in our investment approach to improve our longer-term relevance as -- and as we scale our investment, we will still continue to be very focused on driving returns from these investments with fiscal prudence, which has been a DNA of Zee.
With that backdrop, we expect FY '23 to be a year of investment, and this will also be a year where we need to navigate near-term headwinds like inflation that Punit alluded to. We will do our best to balance near-term financial profile of the business, while making room for longer-term investments.
Overall, while we do expect our margins to be healthy, a meaningful recovery from current levels will be more gradual due to combination of these factors. Having said that, this does not reset our medium-term margin aspiration or range that we have spoken about in the past. It just brings forward a lot of investment, driven by our desire to build for future and hence pushes our margin recovery a bit far.
Let me talk about some key themes we are navigating in FY '23 to provide you better frame to contextualize our FY '23 outlook. These themes pertain to investments largely aligned to turbocharge our digital/OTT ambitions and some of the headwinds we will navigate through FY '23, while making these investments.
Number one. Zee has always prided itself on its content DNA, and we will aggressively invest in content to create a differentiated value proposition, particularly in digital OTT space. We are increasing our investments with a focus on regional content and scaling up our partnership with global studios, independent creators and premium content production houses across regions.
Additionally, we will continue to launch new TV shows across markets to drive share gain in our broadcasting business. As we bring more original content and shows, we will also step up aggressively on marketing to augment our content expansion with brand marketing and broader reach.
Second area of investment is going to be technology and product. With a sharp focus on delivering world-class entertainment, we have endeavored to constantly upgrade our product and technology capabilities to deliver unmatched experiences to our consumers globally. We believe there is an opportunity to personalize content and delivery, thereby increasing our reach across platforms. To support that ambition, we are making investments through towards broadening and accelerating our digital platform road maps and driving superior consumer engagement.
As Punit mentioned, we have also consciously rationalized our presence on free-to-air segment to shape and grow our pay ecosystem, and it will have a near-term impact on our ad revenues. We believe this will be a more transitionary impact, and we will eventually be able to recover this as intended benefits accrue on pay side of the business.
Lastly, as all of you would be tracking, India's annual retail inflation has inched up towards an 8-year high in April at 7.79%, and elevated inflation scenario does create headwinds for us on both revenue and cost front. It causes moderation in ad spend by brands to counter increased costs, putting pressure on our ad revenues.
We are beginning to see some early signs of that in this quarter. Elevated inflation also impacts our cost adversely across programming, wages, et cetera. These 2 inflation induced headwinds on revenue and costs will impact profitability in the near term.
In FY '23, from a quarter-on-quarter progression perspective, we expect the margin profile to improve as we progress through the year. Q1 will have most immediate impact of inflationary dynamics, free-to-air drop, accelerated investments and some of the seasonal costs it takes like wages increments, et cetera.
As revenues scale up in subsequent quarters, we will expect margins to start inching up in the later part of the year. We are not providing a precised margin guidance at this stage, given there are many factors in play and impact of some of those macroeconomic ones is difficult to forecast.
I will add here that our confidence in medium-term margin outlook is strong, and we will provide a more specific update when there is more stability in the operating environment.
Back to you, Mahesh.
Thank you, Rohit. We'll now proceed to the questions-and-answer session. I'd request the moderator to open the Q&A queue and take the discussion forward. Over to you, Margaret.
[Operator Instructions] The first question is from the line of Vivek Subbaraman from AMBIT Capital.
I have a couple of questions. The first one is on the IPL rights tender. There were media reports that highlighted that the rights are being split. And of course, the bidding is on 12th of June. So I have a couple of questions in connection to this. One is, before the -- since bidding is happening now, at a time when we haven't yet received the $1.5 billion capital injection, would there be -- does the current balance sheet allow us to bid for IPL at all in the first place? That's the first question.
The second one is -- related to IPL, the second one is, the rights are also being split as per media reports. Any comments on that? Because there are multiple variants of rights that are being talked about in the media, like TV only, TV plus digital rights for the league matches and so on. That's question one.
The second question really is on the competitive landscape. We are seeing that there are pressures on the TV viewership share. Your investments seem to be increasing, and you are now saying that the spending that you will do on regional content and new launches in ZEE5 that will intensify. But there is also more competition coming in the form of Bodhi Tree, RIL investment in Viacom. What are your thoughts on the operating landscape and the capital needs in this business?
Thank you, Vivek. So your first question on our ability to participate in the IPL tender, on our own, it's fully -- we can participate on our own. We have a very healthy balance sheet with 0 debt. And certainly, we have the qualification to participate in the tender.
In terms of your second question on the deals being split by genres or by platforms, yes, you're right, that's what the ITT speculates, but it doesn't preclude us from bidding for either part or all. So we are evaluating our options as to what is the best strategy for the company going forward. And you will hear about that shortly after the bidding is over.
And on the competition landscape, Vivek, this sector has been always heavily competitive. So it's not something new that we are witnessing. I think Zee has the capability to compete with both deep pocketed as well as international brands, and we have demonstrated that several times over in the past. And I don't believe that this time there will be anything lagging.
Also keep in mind that when more content is created, more consumption happens and therefore, more monetization. So we welcome competition because it always keeps us on our toes and makes us do better.
Punit, that was good. Just one follow-up. So you say that you have -- even now you have room in your balance sheet for bidding and participating in the IPL rights. Does this mean that there could be a temporary situation where we might even look to take debt in order to bid for -- or in order to take on the IPL rights? Or is that completely ruled out?
Vivek, as I said, we are studying all our options right now. It's very premature for me to comment on how we'll fund it and all those things. You should know that we don't have to pay any money or not a large sum of money upfront. It's only when the rights start you have to pay further. Until then, there are only instruments like bank guarantees, et cetera.
The next question is from the line of Sanjesh Jain from ICICI Securities.
Three from my side. First, on the ad revenue side, Rohit did mention in his opening remarks that we are looking at a positive FY '23, despite all the inflationary situation and despite that we have removed the channels from FTA. One, what gives us this confidence in such a difficult situation?
Number two, why there's a flip-flop on the decision of going on to FTA or not going on to FTA? This is the second time we are coming out of it. It will be really helpful if you can provide what's our strategy on FTA on a steady-state basis? That's on the ad. On the subscription side, the growth looks quite subdued considering that it also has revenue coming from ZEE5 as well as the music business, which if I adjust it looks like the subscription revenue is declining. Is cost cutting started to hurt us in an absence of the ability to take price hike or the embargo on the price hike? So these are the 2.
On the investment side, Rohit did elaborate on all the avenues we are looking to invest. It will be also really helpful if you can provide what is the quantum of money we are looking to invest on the linear, nonlinear, movie, music, all those cost fronts as well as technology? So these are the initial questions.
Yes. So on the advertising side, it's still early days to say what it's going to look like for the industry overall, but we do expect that it will be better than the last year. So there will be growth. How much it's going to be? We are going to probably give you a better color after Q1 passes. So we are also working on that with the advertisers and the agencies to predict what's going to happen in the full year to come.
On the FTA side, it's not a flip-flop strategy, Sanjesh, because what we did was a strategic call when we exited the first time. But due to the pandemic and due to the degrowth we were seeing in the pay ecosystem during the pandemic, we looked at it as a short-term opportunity to reenter and try and make up for the loss that was being seen on the advertising front. And therefore, that was the strategy. And this time, again, we were very clear well in advance from the bidding that we will be exiting because we need to arrest the growth of -- sorry, the decline of the linear Pay-TV ecosystem.
So -- and to your last point, yes, you're absolutely right. There is a decline in the linear subscription income. What's the reasons? I just told you. And this is the -- not just our attempt, but the industry's attempt to now start working on creating the -- a healthy pay ecosystem on the linear side back.
On the investment, I'll pass it on to Rohit to -- I'll just have one comment that certainly, we will not let our margins deteriorate further. It will only be stable or improving.
Thanks, Punit. Sanjesh, so we have already stepped up our investments in FY '22. And the point I made in my opening remarks is that these investments will continue in content, technology and on the key markets that we have outlined; Hindi, Tamil and Marathi.
So these investments, both in content, will continue. Also in marketing will continue. But like Punit mentioned, we will not let our margins deteriorate for FY '23.
And what will be the investment on movies and music put together?
So movies, we have been -- we already said we are scaling up. And we have a reasonable, good slate planned for FY '23. We expect that now that the cinemas have reopened, we see that this will go on. So the -- we expect that we will do more than 20, 25 movies in this year as well.
And the number on the movie side is already issued in the presentation that would have been said to all of you.
Fair enough. Just one last bookkeeping question. In this quarter, what was the movie revenue and the cost, which has been recognized in the P&L?
So we have already -- I mean, this quarter we had movies like Kashmir Files and a few other movies, which got released. But the way we recognize revenue is it's part of Zee only. I mean, there is no separate disclosure that we have for our movie business.
Because like these movies will also get monetized not only in theatrical, but also in digital on the OTT side and on the satellite. So we have now Kashmir Files already coming on ZEE5 as well, and we are seeing good traction there. So they are part of the overall EBITDA number that I already given to you. And whatever monetization that we see in quarter 1, that will be reflected in quarter 1 results.
Just a fair assumption, Rohit. Just wanted to understand that movies positively added in this quarter, purely. I know there is a future value still left in the movie. But was there a negative contribution or a positive contribution from these movies to the EBITDA for Q4?
There is a positive contribution to the EBITDA.
The positive contribution.
Yes.
The next question is from the line of Jay Doshi from Kotak Securities.
I'm sorry if this was addressed in the opening remarks. It is around...
Sorry to interrupt you, Mr. Doshi. Your voice is not clear.
Is it better now?
Yes. We lost you, if you can repeat yourself.
Yes. My question is around the merger time line. Back in December, January, we were expecting exchange approvals in 2 to 3 months, and it's almost 5 months, but approvals are still awaited. So what's essentially delaying the approvals from exchanges, which should not -- and does this mean that the original time line of 8 to 9 months is at risk now? And should one be expecting more like 12 months from the day of announcement?
Yes, Jay. So firstly, very difficult for me to comment on what's the delay -- reason for the delays. I think the stock exchanges don't give us that answer very easily. But my speculation is that because this is a very large merger, there has been significant amount of queries that we have been answering to the stock exchanges.
As of 2 weeks back or 10 days back, we have satisfied all of their queries and nothing further has come to us. So we are hoping that the process should be smoothly done now. I'm still positively inclined towards the 8- to 9-month time line that we had talked about at that point in time.
The next question is from the line of Sachin Salgaonkar from Bank of America.
I have 3 questions. First question, can you, Punit, give a little bit more color on ad spends in the quarter? I mean, between the key spenders like FMCG, auto, Internet, BFSI, who are the guys who spend, who are the guys who curtailed in a meaningful manner?
So there is no significant change in the [indiscernible] ad spending quantum, Sachin. FMCG still continues to be the highest spender on television in the category, followed by all the others that you named will be in the range of 7% to 8% each, whereas FMCG will be more in the 53%, 54% range. That remains pretty much stable as of now.
Of course, we have seen a lot of advertising coming from the new age businesses on the digital platforms, which generally is low on television, but we are starting to see that coming on the digital platforms. Though small still, but the advertiser list is expanding as we speak.
Got it. And Punit, are already 2 months into the next quarter, and any color in terms of how things are moving in terms of -- is basically the mix the same? And are we seeing some massive curtailment across the board?
There have been cuts across the board, especially in the FMCG sector. But I can tell you this much that we are tracking the industry numbers, and we are pretty much in line with them or ahead of them.
Got it. Second question, I wanted to understand your thoughts on ZEE5 losses. We've seen some good revenue growth, but your losses continue to remain high. And we're already seeing companies like Netflix curtailing their aggression in spending. And Rohit did talked about aggressive investing by you guys in content. So just wanted to understand how should one look at ZEE5 losses going ahead?
So as I had said earlier also, this is the peak year for losses for ZEE5, but this is going to be the peak investment year. You will see losses go up. But after that, as revenue scales, you will see losses coming down. We do believe that there is still a lot of room left in India for this business and for the Indian diaspora across the world for this business. So there's huge room for growth. Therefore, I don't feel the need that we need to start cutting our investments so early in the day.
Got it. And lastly, on the Zee-Sony merger, any risks you see right now for the merger not going through?
No. I don't see any risk.
The next question is from the line of Ankur Periwal from Axis Capital.
Two questions. First on ZEE5. With the INR 750 crores EBITDA loss and INR 550-odd crores revenues for the full year, FY '22, can you help us, one, breakup of the revenue, how much it is coming from advertisement and how much from subscription? And similarly, almost INR 1,300 crores of cost, so broad breakup between the core content and the other overheads?
So this is a highly sensitive information, Ankur. We can't share that granular detail so early right now. But let me assure you that the revenue is largely subscription-led currently, not so much advertising-led. On the cost front, we have 3 large buckets of costs, which is content, marketing and technology. These are the 3 things that make up the lion's share of the cost.
Will it be fair to say content will be probably 70% plus here? If you can give -- or maybe plus-minus 5% is okay?
No, no. I can't give you that number. But rest assured that that content is the biggest cost.
Yes. Okay. So where I was coming from was, if I look at the subscription revenues, we are largely flattish. And Zee Music would have contributed here. And obviously, ZEE5 would have also contributed here. So the cut in subscription is largely led by the loss of subscribers here. And given an embargo there, probably this trend will continue going ahead. Will that be a fair assumption?
Actually, we have early signs to see that the cost cutting has actually slowed down after the GEC channels have come out of the Free Dish platform. And I'm quite hopeful that the resurgence in the Pay ecosystem will return once quality content starts to go away from the Free Dish platform. But you are right that so far, the decline has been because we have been losing subscribers. The good thing is we are not losing subscribers to digital. We are losing subscribers from pay linear to free linear.
Okay. Okay. Second part, here on your commentary that FY '23 EBITDA margins or, let's say, FY '22 EBITDA will be probably bottoming out here and probably the margins should improve. Unable to understand the math here, because on the revenue side, probably first half will be slightly soft. There will be some impact of FTA. Subscription revenue doesn't look like it's growing significantly. At the same time, your commentary on content investment remains very strong. So am I missing something here? Or is it only the movies business, which will be driving the incremental contribution?
So Ankur, I'm an optimist. While the movies business will drive part of our growth, you know that there is a consultation paper out by TRAI on the NTO. And we are looking at -- that needs to be answered by 30th of May.
I understand that there could be some lift on the embargo that was put on the NTO and therefore, that will also start to translate. We are going to try and make back some of the free-to-air losses on our Pay ecosystem with our market share gains. So it's a combination of multiple things that make me bullish, and that's where we will be targeting.
Okay. And lastly, if I may, on the content investment side. So we have OTT, wherein, obviously, we have pretty strong outlook there in terms of content investment. TV, again, market share is stabilizing at 17%. But as you mentioned, Hindi, Tamil, et cetera, languages, Marathi, you'll be investing there. Movies, again, we are investing. And then IPL is also there, where we are sort of looking to maybe bid over there as well. How do you prioritize your capital investment share in terms of content?
No. I think -- yes, the way you are reading it is that what we are investing in linear today will be significantly increasing that. That's not how to look at it. The overall increase in the linear business investment will be inflationary in nature. It's not that suddenly if I'm producing 500 hours of content last year, I'm going to up that to 1,000 hours of content every week in the coming years. So it's not like that is going to double.
Our investments in the digital business are already paying us returns. That will be yes. We will be losing money there. The film business, it's a fast rotation working capital business. As you put in the money, films release, that also releases a lot of the capital. So it's not suddenly capital going and getting stuck for a long period of time.
IPL certainly is a big taker there. And we are evaluating what our options are and what the right strategy is there. So just to clarify, when we say investment, does not necessarily mean we are going to erode margin.
Look -- actually, where I was coming from was, our working capital has been elevated because of these content investments over the last few years. And it doesn't look like it is going to go down in a hurry. So -- which is where I was just seeking your views in terms of how are we looking at...
I think on the content side, on the -- especially on the film side, please look at it from this perspective that while on linear business we are [ running ] -- the amortization over the -- for so many decades that in the digital business [ has not ] even started so far. So therefore, we have not completed the first 5-year cycle. And that's why every inventory just keeps getting added until unless the first 5-year cycle is completed.
Thirdly, on the movies business, it has elevated because of the pandemic. As soon as the theaters have opened up, we have started releasing the movies and that inventory will start getting freed up from being in our working capital and start rotating much faster. So I do not see that having too much [indiscernible] except for digital, which will continue to keep going up.
The next question is from the line of Jinesh Joshi from Prabhudas Lilladher.
Sir, I have a question on our movie acquisition strategy on the digital side. So for instance, we have RRR on ZEE5 now. And given that this would have been a high-priced asset for us, how do we analyze the success and failure of such decisions? Basically, what I want to know is that what kind of metrics do we use to calculate ROI of such assets and then internally decide that this is -- this has clicked for us or not? So that's the broad question.
The 3 metrics we evaluate [indiscernible]. One is that how many new subscribers did this piece of content get us, who were not paying to my subscription and have come on to our platform and watch this as the first piece of content because that is our metric to determine. This is the trigger for them to buy the subscription.
Second trigger for our [indiscernible], of my total subscriber base, how many people consume that content, which means that acts as a retention tool for me. And third is, how many people actually completed the content because it was engaging enough or not. Did I make the right purchase? Did people come in, watch for 15 minutes and leave it or did they complete the movie? And that we track over a 7-day period, 14-day period, 21-day period. So various metrics we track it on.
Sure, sir. And secondly, if I recollect, in the opening remarks, it was mentioned that we launched about 90-plus new shows in the entire year. But if I look at our viewership share, it has been on a constant decline over the last 3 quarters. So your comments on the acceptance of our content. That is one.
And secondly, also, it was mentioned that because of FTA headwinds, our subscription revenue is under pressure. So if you can just highlight, I mean, during COVID times, how many households shifted from pay to FTA? And given that we are now out of COVID, are we seeing those subscribers coming back to the pay genre.
So on the second part, it's still early days because we went off the air only on 1st of April. There will be some lag to see whether those subscribers come back. As I mentioned, the uptake of the free DTH has slowed down since the 4 networks have come out of Free Dish. So that's a positive sign for us. On the first question...
On the network share.
So network share when we talk about 90 shows were launched, this doesn't mean 90 new shows. They were replacing some other shows here. And we have a metric here also as to what was the earlier show doing and what has the new show achieved in terms of slot ratings, et cetera. I can tell you that 43 of the 90 shows were successful, about 20-odd were moderate successes, and yes, 20-odd failed.
Ladies and gentlemen, I have to leave for a flight, but Rohit and my team is here to take any further questions. Thank you very much. All the best.
The next question is from the line of Karan Taurani from Elara Capital.
My first question is basically on ZEE5. So one good thing is that the investment into the tech cost, which has led to a better UI. But any kind of change in the content strategy there because you are making close to 70, 80 shows every year but do you have any plans to kind of make 4 to 5 marquee shows, which can be -- which can have a good franchise value and a good recall value and probably be very high in terms of budget as well. So any plans of [indiscernible] for ZEE5?
Yes. Karan, so -- you're right. We have been investing in content and technology in ZEE5. And even in content, we have a content strategy where we are looking at user preferences. We are looking at what kind of shows are doing well. And we're also looking at apart from Hindi investments in regional shows.
So there is -- definitely, there are some very marquee content that we plan to bring out in FY '23, not only in Hindi, but also in regional. And I must say that some of our regional shows in the past quarter have done well and that has given us the confidence to invest in the regional shows as well. So we do have a good slate coming in FY '23 for ZEE5.
Right. So these would be very large marquee shows on the likes of global platforms, which are very high in terms of cost, right?
We have a good mix. So there -- some of them will be category A shows and then we have obviously category B and category C shows as well.
Right. My second question is, again, pertaining to the movie business. So Zee Studios, you pointed out last year around that you've been making close to 20, 25 films every year. Any indication you can give in terms of the split in terms of the number of films? How many of them would be a large budget or a medium small budget kind of film?
So -- I mean, theatrical is a significant source of revenue for us and for the studio business. And as cinemas are opening, we are certainly -- good for this sector overall. So like I said, we will do about 25 plus. And out of that maybe about 6 to 8 will be large, and the balance will be mid-to-small movies.
Right. So don't you think there could be a possibility of change in mix there as well because a lot of these small, medium budget kind of films aren't doing well on box office on Hindi and regional both. I think the frequency is going up only for films, which are very large scale in nature. So any kind of change expected there as well?
It also depends on the availability and the time line and so on because, I mean, it does take 6 to 9 months for a film production. So yes, we are evaluating our full portfolio approach. And like I said, we invest -- because on the flip side, if you invest large sums of money and they don't do well, then you have to take that loss as well.
So we have a good strategy, portfolio strategy where we are looking at a certain percentage of films in being on the large side and the balance on the B and C categories, and then both in Hindi and regional as well.
So we had movies in Punjabi and movies in Tamil also which we have launched. And let me tell you one thing, Kashmir Files was not a very large investment, and it has given us a significant return. And like I said, it grossed more than INR 250 crores. So it's not always that only big budget movies are giving us returns. Even small budget movies, when they do well, give returns as well.
That would have been more sort of a one-off basis of footfall numbers. That's fine. But third, last question, would be on the regional genre front here. Specifically, you are the leader as far as regional is concerned in genre like Marathi. You've made very good inroads in terms of Tamil, Telugu.
Right now, what we are seeing is that the competitive intensity in regional is growing substantially and players like Star and all are doing phenomenally well because of the aggressive content strategy. So firstly, anything new that you are attempting there to combat competition from Star. And secondly, players like Sun TV are virtually kind of stable or are losing share in many of the genres like -- Tamil, they are stable. But yes, Telugu and other genres, they are losing shares in South. So anything you can do there to make up or probably gain viewership share over there in those markets?
Definitely, we have a large focus on these markets like Tamil and Marathi. And as you know, in Marathi, we were leaders for about 6 to 7 years. And we have been -- now we have -- obviously, we have lost the leadership there, but our focus on regaining leadership in Marathi remains. Even in Tamil, like I already mentioned in my opening remarks, there is focus. We are looking at content, which is now purposeful for the audience there. And definitely, we want to regain our market share in both these key markets. Some of the other markets like Bangla and Kannada [indiscernible] we are the leaders there. We have been strengthening that as well.
Yes. But the question was basically more to do in terms of content because what happens in these Southern markets is that there is still a lot of big amount of demand for the reality shows and the marquee kind of shows. So again, are you trying to get into that segment because that is the only way you can combat the likes of Star Vijay?
Definitely. I mean, we are looking at our content as well. And last year, if you remember, we had launched Survivor, which was a reality show in Tamil. So that was one of the first ones that was launched by Zee. So similarly, like I said, we are making many such content changes as are required.
The next question is from the line of Yogesh Kirve from B&K Securities.
One question from my end. So if I look at your admin costs, I mean, [indiscernible] on the other expenses, that tends to be quite volatile on a quarterly basis and this quarter it was quite low, almost similar to the pre-COVID quarter. So any sense of what was [indiscernible] savings during the quarter? And any sort of ballpark guidance or indication regarding what should be this figure on annualized basis?
Yes. Just one, I think -- see, more or less, the admin cost has remained stable. We have been -- last year, due to pandemic, we had obviously made changes and all that. But I think this year, this quarter specifically, there is a CSR provision that we have made, which is part of the admin cost. So there is -- that's why probably there is a phasing that you can see.
So my question here is actually most probably non-COVID quarter, the cost used to be sort of INR 170 crores to INR 200 crores and this quarter is INR 146 crores. So my question is more on why it was so low in this quarter?
Just give us a second, Yogesh.
Yes. So this quarter, we had some reversals. And yes -- so there were some provisions for doubtful debts, which were made in earlier quarters. And because we have collected those money, those reversals are actually -- they have been accounted for. And therefore, you see -- and those are accounted for in the admin line. That's why you see the lumpiness in this quarter.
Okay. Any sense regarding the quantum of the amount?
We're not specifying or commenting on that, Yogesh.
Okay. And second question related to ZEE5. Obviously, there was a bit of a discussion related to the losses. But just wanted to understand how important are the subscriber acquisition cost or the marketing and promotion costs? I understand a lot of the costs and the losses will be related to the content investment specifically related to acquisition cost and promotion are though also significant sources of losses at this point?
So I think a lot of our investments, like Rohit alluded, is content marketing and technology. And within marketing, a lot of investment is actually around promoting specific shows and so on. There's not a whole lot which we invest in sort of customer acquisition and installs and so on. A lot of marketing, which we alluded to, is to be focused around brand and promoting the shows.
The next question is from the line of Arun Prakash (sic) [ Arun Prasath ] from Spark Capital.
Sorry to interrupt you, [ Mr. Prakash ] (sic) [ Mr. Prasath. ] Your audio is quite low. May I request you to increase the volume on your phone or come closer to the phone.
Sure. I hope I'm audible now. So on the FTA withdrawal, so given that the spend from the FMCG category is also low. And now that we are also withdrew from this category, are we -- and unlikely in the short term that the subscription revenue is going to make up for the loss in the ad revenue from this segment. So is it fair to say that we will be growing lower than the industry?
The FTA withdrawal has just not been isolated situation to us. Four other leading GECs have channels have also done the same thing. So I think this is not specific or isolated case to us.
And also, let me add here. As we had mentioned earlier in this call, we are tracking how the industry ad revenues are. And this quarter as well, we will either be in line with the industry or do better than industry average as far as ad revenues are concerned.
Okay. But the point is that we are trying -- what I'm trying to understand is this -- probably, the FTA revenue is -- the marginal cost of this revenue is probably very low. And does it mean that the margins will be significantly lower than the '22 numbers?
I already mentioned that. So right now, we are not -- there's no specific guidance on any margins as such. But you're right, I mean, we have taken a strategic decision to pull away from the Hindi GEC from the free-to-air category. And -- so there will be an impact, which will be there. But again, we will see. We are looking at these headwinds. We'll see how much the impact is. Over the full year, we expect that our margins will not deteriorate than what we have now.
Right. Only one additional question, on the ZEE5 cost, on the reported costs, how much of that is direct cost and how much is the allocated cost? If you can give you some kind of a breakup to that number?
We're not providing detailed breakup at this stage, like Punit alluded, given the sensitivity and confidentiality. It suffices to say that a large part of that cost is actually direct.
We'll take one last question from the line of Aditya Chandrasekar from UBS.
Just a very quick question from my side. Of your 105-odd million MAUs, how much would be direct subscribers versus subscribers through telco deals? Any rough percentage?
So these basically are all [ AVOD ] subscribers. And we don't actually -- quite frankly, we don't give a split between B2B and B2C. But whatever growth we are seeing is happening primarily in our B2C segment.
So these are direct subscribers coming into the platform, right, and not through basically telco kind of plans?
So like I said, the increase is happening more in the direct subscribers.
Our base has both of those customer segments you alluded to, but our growth is largely being driven by subscribers who are coming directly to the platform.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Singh for closing comments.
Thanks, Margaret. Thank you, everyone, for your interest. We hope all your questions were answered. Should you have any more queries, please feel free to reach out to us. Thank you again for joining us today, and we look forward to speaking with you again next quarter.
I'll hand it over back to you, Margaret, to close the call.
Thank you, sir. On behalf of Zee Entertainment Enterprises Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you. On behalf of Zee Entertainment Enterprises Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.