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ZEEL’s sale of sports biz to shave Rs 630 cr off annual revenue

MUMBAI: After selling its sports broadcasting business to Sony Pictures Networks India (SPNI), Zee Entertainment Enterprises Ltd (ZEEL) will face a revenue fall of over Rs 630 crore a year. This will include nearly Rs 400 crore of subscription revenue.

In FY17, ZEEL’s sports business posted a revenue of Rs 630.1 crore. In the previous two fiscal years, revenue was almost same at Rs 631 crore. The challenge thus will be to find new revenue.

zeel Q4 fy17 ZEEL’s sports business 01

Sans sports, ZEEL’s subscription revenue will get trimmed. In FY17, the company’s sports segment posted subscription revenue of Rs 393 crore. ZEEL’s total subscription revenue was Rs 2,262.9 crore in FY17, translating into a growth of 10% over the year-ago period.

“ZEEL-owned Ten Sports channels were kicking in strong subscription revenues. The network will still have a strong spread of entertainment channels in Hindi, English and regional languages. The sports channels, however, will be missed,” the head of a TV distribution company said.

This is the first time ZEEL has revealed financial details of its sports business. In FY17, advertising revenue from the sports segment stood at Rs 107.2 crore. Other sales and services amounted to Rs 130 crore. The sports segment incurred an expenditure of Rs 620.5 crore.

zeel Q4 fy17 Sports Business Financials
After selling its sports business, ZEEL will look to augment revenues from its existing channels while preparing the ground for new channel launches. Out of the company’s total revenue of Rs 6,434.1 crore in FY17, sports contributed Rs 630.1 crore.

“The company will hope to bridge the gap through growth from its existing channels and new businesses,” a media analyst said.

The impact will be particularly felt on the subscription revenue side. In FY17, subscription revenue from sports accounted for 17.4% of the company’s overall pay TV revenues. While total subscription revenue stood at Rs 2,262.9 crore in FY17, pay TV income from sports was Rs 393 crore.

Advertising revenue will have a much lower impact. Out of ZEEL’s total advertising revenue of Rs 3,673.5 crore in FY17, sports accounted for just Rs 107.2 crore.

zeel Q4 fy17 REVENUE STREAMS

Punit Goenka, MD & CEO, ZEEL“We have completed the first phase of sale of sports business during the quarter (Q4 of FY17). While this had an impact on revenues, our focus is to strengthen national and regional channel portfolios, along with growing new businesses,” stated ZEEL managing director and CEO Punit Goenka.

The shaving off of sports business impacted ZEEL’s subscription revenues in the quarter through March 2017. In the fiscal fourth quarter, subscription revenue declined 6.1% to Rs 558 crore compared to Rs 594.4 crore a year ago. ZEEL said consolidation of only two months of sports business impacted subscription revenue in the quarter.

Domestic subscription revenue in the fourth quarter of FY17 fell 2.8% to Rs 455.4 crore. International subscription revenue, on the other hand, declined 18.7% to Rs 102.6 crore.

In the fiscal fourth quarter, ZEEL’s subscription revenue from sports stood at Rs 78.9 crore compared to Rs 83.9 crore a year ago. Advertising revenue was just Rs 9 crore from Rs 61.2 crore in Q4 of FY16. Total revenue in the quarter ended 31 March 2017 was Rs 106.6 crore, down from Rs 160.1 crore a year ago.

Though ZEEL’s revenue could see a dip after exiting from the sports business, analysts are of the view that operating profit would improve. The sports segment, after all, has been mostly loss-making.

ZEEL earned a small operating profit of Rs 9.6 crore from the sports business in FY17. In the previous two fiscal years, however, the sports business had posted losses. While in FY15 operating loss was at Rs 26.6 crore, this had widened to Rs 34.9 crore in FY16.

zeel Q4 fy17 Total revenue in the quarter ended 31 March 2017

The sports segment in Q4 of FY17 was marginally profitable (Rs 1.7 crore) compared to a loss of Rs 23.6 crore in the year-ago period.

“The sports business has been traditionally loss-making. Despite turning around in recent times, the segment’s operating profit is still very small. By exiting the sports business, ZEEL’s EBITDA would improve,” said a media analyst at a broking firm.

In August 2016, ZEEL signed an agreement with Sony to unload its sports broadcasting business for $385 million (Rs 2,578 crore). In the first phase of acquisition, it pocketed $330 million from Sony. The first phase of the transaction included the sale of ZEEL’s entire stake in Taj India and transfer of major part of sports broadcasting business of Taj Mauritius. The second and final phase of the transaction is expected to be concluded within the next few months, subject to certain closing conditions.

Flushed with capital from the sports sale, ZEEL can take the acquisition route, launch new channels and up programming costs. The focus will be to expand its footprint in the entertainment broadcasting space across genres and languages. Operating profit is also set to strengthen.

The acquisition game has already begun. A few months after the Sony deal, ZEEL inked an agreement with Anil Ambani-promoted Reliance Broadcast Network to buy out its TV broadcasting business comprising two operational GECs (namely Big Magic and Big Ganga) and four other TV licences. A separate deal was signed by Zee Media Corporation Ltd (ZMCL) to snap up Ambani’s FM radio business.

As part of its new strategy, ZEEL has identified five verticals, namely broadcast, digital, films, live events and international business, as growth drivers. Within broadcast, faster growth is particularly expected from regional-language channels and the free-to-air (FTA) market.

For pushing digital growth, Zee has made some structural changes. It has incorporated a global digital organisation named Z5X that is to become the hub of all the digital properties. Chamli Tennakoon has been appointed chief executive officer of the new organisation, in addition to his existing role of chief digital officer, Essel Group. Among many other changes, dittoTV business head Archana Anand is made digital head of Z5X (India).

ZEEL has digital properties that include over-the-top (OTT) service dittoTV and advertising-led video-on-demand (VoD) platform OZEE.

The movie business is being scaled up. ZEEL’s advance amount towards investments in movies stood at Rs 446.1 crore at the end of FY17. Advances are paid for acquisition of future rights and advance purchase of rights of movies under production. Incidentally, ZEEL has a portfolio of 11 movie channels across Hindi and regional languages.

“ZEEL has several growth engines and it will expand into new areas. It will add the TV channels of Reliance Broadcast Network after the acquisition gets the necessary regulatory approvals. The movie business will be scaled up while the live events vertical will be built. We will also see more channels launched in the global market,” a senior company official said.