Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Zee Entertainment Enterprises Ltd (BOM:505537, Financial) reported a significant improvement in EBITDA margin by 500 basis points year-on-year.
- The company has seen a reduction in EBITDA losses for ZEE5, indicating better cost management.
- Subscription revenue growth remains steady, driven by the implementation of the National Tariff Order 3.0.
- The company has generated strong free cash flow and has optimized its content inventory.
- Zee Entertainment Enterprises Ltd (BOM:505537) has a balanced and healthy revenue profile from both linear and digital segments.
Negative Points
- Advertising revenue growth remains subdued, particularly due to rural recovery not picking up entirely.
- The quarter was sports-heavy and included general elections, which impacted general entertainment advertising spends.
- There is a sequential decline in OTT revenues, partly due to seasonal factors and reduced content spending.
- The company has undergone significant cost-cutting measures, which may impact employee morale and talent retention.
- The competitive landscape remains challenging, with potential pressures on advertising rates, distribution efficiency, and content costs.
Q & A Highlights
Q: My first question is on the fund raise. So fund raise by TV broadcasting companies is quite rare. So wanted to understand deployment, where do you see and what are the time lines? And what is the thought process behind this in terms of doing it now?
A: This fund raise was undertaken mainly to ensure availability of funds which can act as a growth capital for our growth plans, both organic as well as inorganic. The team is currently working on those plans and very soon, we'll be ready with our deployment plan. The idea was to ensure a pool of capital at this stage so that we are ready for the shifting dynamics of the sector and competitive landscape.
Q: Given the consolidation happening between the two large players, how do you see costing pressure and pricing pressure? Also, given the cost cutting within the company, how is the morale of the team?
A: We are working overtime to ensure that the morale of the organization remains upbeat. Regular communication with the entire organization is taking place. On the competitive landscape, we have competed with the largest organizations in this market and are confident in our ability to continue delivering on expectations. While there has been some churn, particularly in the tech center, most of the talent is still with us, and we are confident in our ability to deliver on the business.
Q: My first question is on fund raise again. I was just curious about the FCCB route. Any logic, any rationale for selecting this instrument over any other instrument?
A: We went for the FCCB because we wanted flexibility of drawing in funds over a relatively longer period of time. FCCB is an instrument which was giving us the flexibility of having multiple drawdowns in line with our deployment plan over a longer period of time.
Q: In the ZEE5 business, we have seen a considerable reduction in EBITDA losses. Where exactly have you seen the rationalization come through?
A: The reduction in EBITDA losses has largely come on the manpower side, particularly from the tech center. We have also optimized marketing based on content needs. We have not cut into the content requirement for ZEE5 but have optimized it.
Q: Has full rationalization on the employee cost already happened?
A: The largest part of the rationalization in terms of people has already happened. We will always focus on maintaining an optimal structure to suit business requirements, but a large part of the exercise is already achieved.
Q: My question is on the core business. If we exclude the ZEE5 losses, it seems like the core business EBITDA has declined by 10%. Was there any other element as well which led to this decline?
A: Linear business is quite exposed to operating leverage sensitivity around ad revenue. Additionally, there is a bit of mix change due to movies. However, the linear business remains healthy, and our viewership share is quite positive.
Q: Can you talk about the distribution industry landscape and how it is changing? How many cable and DTH subscribers do we have at the industry level now? How many have shifted to Free Dish?
A: There are close to 45 million Free Dish subscribers today. Over and above, there are around 120 million to 130 million paid subscribers. Our reach in almost all major channels is more than satisfactory.
Q: On Free Dish, the number seems to be increasing. How are you looking to address it?
A: Our focus at this point in time is to strengthen and grow the Pay TV ecosystem. We believe the payback is much higher on the Pay TV side. We will continue to monitor this on an ongoing basis.
Q: What should be the trajectory of losses from here for ZEE5? Is there a path to profitability?
A: We are not providing specific guidance, but the reduction in losses is sustainable. We will continue to focus on expanding revenue while keeping a close watch on costs. The directional trend is towards further reduction in losses.
Q: Regarding the fund raise, is it correct that we are not going to raise the money upfront?
A: Yes, it is fair to presume that we would not be getting the money upfront without a clear line of sight. It will be in tranches.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
