‘NTO 2.0 price hike will offset any revenue shortfall due to weaker demand for bouquet’
Under NTO 2.0, channels that are priced above Rs 12 cannot be part of a bouquet, and so, big broadcasters have removed their driver channels out of bouquet and priced them above the cap of Rs 12
ZEEL MD & CEO Punit Goenka has said that the price hike undertaken by the company as part of revised tariff declaration for New Tariff Order (NTO) 2.0 will offset the anticipated loss of subscription revenue due to lower bouquet demand. He also said that the company has taken into consideration all the factors before coming up with the new pricing.
"We have taken all that into account before deciding our pricing. So, in our experience and wisdom that should work to offset any revenue shortfall that we may have. But time will tell once we go to the market with it as to whether we are right or wrong. But in our wisdom and experience, this should be something that will work," Goenka told analysts during the Q2 earnings conference call.
It is pertinent to note that big broadcasters like Zee, Sony, Star, Viacom18 and Sun TV have removed their driver channels out of the bouquet and priced them well above the MRP cap of Rs 12. Under NTO 2.0, channels that are priced above Rs 12 cannot be a part of the bouquet. There is a possibility that bouquets will not see enough demand since driver channels are out of the bundle.
At the same time, the broadcasters have not been able to hike channel prices due to the impasse over NTO 2.0 implementation. As a result, the subscription revenue of broadcasters has not seen enough growth in the past two years. The Telecom Regulatory Authority of India (TRAI) has pushed the NTO 2.0 deadline to 1st April 2022.
"The impasse around subscription revenue on the linear side of the business continued during the quarter leading to a marginal decline. That said, we had announced our channel pricing in October in line with NTO 2.0. But I would like to inform you that in the latest communication that the TRAI has allowed broadcaster’s time till 31st December 2021 to revise and publish the RIOs. The revised implementation date is now 1st April 2022. Like I have maintained earlier as well, after the initial few quarters of disruption post implementation, we will be back to delivering healthy growth in subscription numbers," Goenka stated.
On being asked about the subscription revenue trend in FY23, Goenka said it is too early to predict what 2023 will look like since the implementation has got delayed. "Because until we go to the market with the plan, we will not know the outcome. But I still believe that we will see some disruption in the maybe a quarter or two, and then things should stabilize and growth should come back. And I have always maintained that post the disruption, the growth will be back to the high single digit kind of number for the industry."
Speaking about the progress made by ZEE5, Goenka said that the streaming platform's revenue is scaling up quarter-on-quarter. "I can't comment from one quarter to another quarter. But certainly, on an ongoing basis, you will see the revenues of ZEE5 growing leaps and bounds."
As part of its growth strategy for ZEE5, the company is on focusing on user experience/interface, and the content line up. "Both have worked well for us, for us to have delivered these kinds of numbers. And this growth is not just in this quarter. If you look at we have been growing sequentially over the last three-four quarters consistently both on MAUs and the DAUs," Goenka informed.
Responding to a question about the growth in international subscription revenue due to ZEE5 roll-out, Goenka said that the company has different strategies for different markets. "It is not one glove fits all. For example, in United States we have taken a conscious decision that we have got off the largest linear platform and focusing purely on ZEE5. So, there certainly our endeavour will be to move towards ZEE5 strategy. The other markets we have a complimentary strategy of continuing the linear distribution, as well as the digital business."
ZEEL CFO Rohit Gupta said that ZEE5 has a very healthy content slate for H2. "Actually, the number in H2 will be higher than H1 and because of Covid-19, some of the originals got pushed to H2. So, the number will be more than 13, and it will be about 17 to 18."
Goenka said that the struggling channels will start registering viewership growth due to the ramp up in content offering. "I am quite certain in the coming quarter itself you will see that rebound happening on the flagship channel and the other challenge as well. We will endeavour to grow faster than the industry normally does. So, the turnaround will be as usual in the Zee style. But certainly first we have to get the content right. You must have already seen the kind of content line-up we are bringing including SaReGaMaPa and some of the other key properties that we have lined up for not just Hindi, but even for the regional languages. So, I am confident that in the coming quarters you will see a significant improvement," he elaborated.
With advertising seeing a rebound, Gupta said that the company is working on growing the yields. "Like I said, we are clearly seeing ad revenues coming back in the second half of this quarter, and we are also working like on the ad yields as well. And H2 of this year, we should see a growth both over FY20 levels of H2 and FY21 levels of H2."
Asked about cost inflation for FMCG companies and its impact on ad spends, Goenka said that every company wants to have its share of voice. "I mean, if one sector or one advertiser from that sector goes after share of voice, others will have to follow. But I don't want to double guess their business strategies etc. As of now we have no indications that they are going to be pulling back. We are getting all the indications that they do want to come back spending to the pre-COVID levels, if not higher than that."
On the movie business, Goenka said that Zee Studios has a very healthy pipeline of film releases lined up in the H2 of this year. This includes a very healthy skew towards the regional languages covering both the Northern region and the Southern regions. "Also the slate is from A+ movies down to even mid-size, low-budget films. We do expect that it will be very healthy returns for us in the coming H2 from the Zee Studio business."
He also denied that the company is re-prioritizing its business towards the studio model at the cost of the ZEE5. "No we are not going to do anything like that. We are focused very much on ZEE5, that remains our top most priority as a company, and we will continue to focus on that. Zee Studio business as an independent plan and we believe that both will co-exist, and Zee Studios is a very critical strategy in the success of ZEE5 and the linear business. And therefore, these are very complimentary to each other rather than against each other."
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