MUMBAI: The Subhash Chandra-owned media conglomerate Zee Entertainment Enterprises Limited (ZEEL) reported robust growth in the third quarter of FY 19, beating analysts’ expectations. Apart from the stellar growth in both domestic and international advertising revenue, ZEEL’s over-the-top (OTT) platform ZEE5 maintained its forward march posting healthy monthly active subscriber numbers. Buoyed by the response to the streamer, ZEEL now intends to increase its investment in ZEE5.

The company’s growth was up 21.7 per cent and 23.3 per cent y-o-y in  terms of advertisement and subscription revenues respectively. The reported ad revenue for Q3 2019 stood at Rs 1,462.57 crore as compared to Rs 1,202.02 crore in Q2 2018. Subscription revenue for the period under review was Rs 618.48 crore as compared to Rs 501.69 crore in the corresponding year ago quarter.

Satisfied with his organisation’s performance, ZEEL MD and CEO Punit Goenka, during an earnings call, covered a wide range of subjects including the content strategy for ZEE5, the much-debated TRAI tariff order, and the broadcaster’s foray into regional language markets.

Ambitious plans for ZEE5

Within one year of its launch, ZEE5 has quickly climbed up the ladder, competing with the best in the business. Outlining the content strategy for the OTT, Goenka said ZEE5 would target 72 shows for the upcoming fiscal year. The plan is to release six web-series each month in the six languages. The platform will be focusing on more tentpole shows rather than releasing one every quarter. Besides original content, ZEE5 will ramp up content sourcing from Hollywood and other segments of the international market.

Goenka stated that the company made course corrections based on learnings from consumptions trends by dropping some shows that were under process. Having set out to produce 90 shows combining multiple formats by March 2019 (and delivering 31 until 31 December), ZEE5 has now repositioned its content play.

In the second quarter, ZEE5 struck deals with telcos, the most notable being an exclusive three-year tie-up with the Gopal Vittal-led Airtel. According to Goenka, the platform has already begun booking revenues through these deals. It must be noted that ZEE5 contributed to the 21 per cent domestic advertising revenue growth.

While ZEE5 works on a freemium model, its subscription service was launched back in July. When asked about the pricing strategy, Goenka argued that it is too early to evaluate.

“I think it is too early for me to start questioning whether it is the right price point or not. The feedback from consumers helped us in launching this regional pack strategy and that also is aiding the growth of subscription take-up in the market. So we will track it for another two quarters before coming to that discussion, internally also,” he remarked.

 While subscription revenue has started trickling in, Goenka believes substantial traction needs to be delivered on that front over the next few years.

“I think there is a long way to go for us to drive that to a significant number for the company over the next three to five years that I have guided for. But having said that, we will be investing back all of the revenues as well as more cash flows behind the ZEE5 content and marketing,” he added.

The media conglomerate has big plans for ZEE5 globally as well. After a soft international launch, the OTT’s first commercial foray will take place within the fourth quarter in the Asia Pacific region. Post that, the streaming service will enter other markets, except the US, in Q1 of FY 20.

According to Goenka, a combination of subscription and advertising revenue will lead to profitability of OTT platforms. With digital not matching the reach of television anytime soon, it isn’t possible to build an OTT on the back of advertising revenue, he opined.

Optimistic about new regulatory framework

In stark contrast to the approach of several broadcasters, who expressed reservations about the Telecom Regulatory Authority of India’s (TRAI) new tariff order, ZEEL has been an early backer of the regulator and its new framework. Commenting on ZEEL’s readiness to adapt to the new norms, Goenka said the broadcaster is closely working with all the distribution platform operators (DPOs). He agreed with the industry experts’ view about there being some hiccups for the next three to six months due to the radical change. However, he was quick to point out that cable and DTH operators have accelerated their efforts to put together channels bouquets and packs.

When several stakeholders losing sleep over how the migration to a new framework will play out, Goenka is of the view that the real picture will only emerge on 31 January midnight or 1 February morning. He recalled how consumers had swung into action only after the blackout of channels during the DAS implementation. There could be a repeat in that pattern of consumer behaviour, he said.

“I do expect that large conversion to happen only post switch-off, and that's in-line with our DAS strategy also that we had gone with,” Goenka highlighted.

The veteran executive, however, is optimistic about ARPU growth due to the new regime.

ZEEL’s potential strategic partner

In November 2018, the promoter group of ZEEL announced the decision to sell or divest up to 50 per cent of its equity stake in the company to a strategic partner, aiming for a stronger global media-tech play. According to Goenka, the negotiations for the deal are being conducted with a few players and not a large set. In line with the earlier announcement, Goenka is confident that a concrete arrangement would be arrived at by March- April.

“We do have significant production capabilities within the ecosystem. And while we do leverage it on our own platform, but it will be available, even for the strategic partner if they wanted us to create content for them, which necessarily does not go on our platform, it goes on their platform. We will be happy to do it for them,” he pointed out.