ZEEL’s Punit Goenka says DD Free Dish pull-out strategy is right despite impact on ad rev

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MUMBAI: ZEEL MD and CEO Punit Goenka has defended the strategy to convert free to air (FTA) channels Zee Anmol and Zee Anmol Cinema to pay and pull them out from DD Free Dish platform notwithstanding the dent in the ad revenue in Q1 FY20.

In the Q1 earnings call with analysts, Goenka said that the decision to convert these two channels to pay has affected ad revenue growth by 5-6%. He also said that the ad revenue growth would have been in the 10% range had the company continued with the FTA strategy.

“The total amount of revenue lost on account of FTA channels, the significant piece of the growth comes from there. I am not saying that that’s the only cause, but if I was to just compare, if FTA had remained as it is in our portfolio, this growth would have been more towards the 10% range. Therefore, the attribution is higher there,” Goenka stated.

He, however, stated that the strategy is right as the company has seen a spurt in its subscription revenue. He also stated that the growth in subscription revenue has more than made up for the loss on account of the shift to pay model.

“Advertising revenue is cyclical in nature, whereas subscription revenue is far more secure. And therefore, we have made that conscious decision rightly. It is just that it has happened — the timing of which may not be the best for us to have recovered part of the growth from the big, okay, but that’s part of life. So I’m pretty confident it should come back,” he noted.

He also conceded that the ad market is looking soft but is hoping that things will improve come the festive season. He stated that the domestic subscription market’s growth will be in the mid-20s. Ad revenue, he said, will be soft in the next quarter as well. “But I’m quite hopeful H2 will pick up on the back of the festive season. But rest assured, whatever the industry growth, we will beat it.”

Goenka also pointed out that if one removes the sports genre then the TV ad spends for the industry in the first quarter fell by 6%. For the fiscal, he expects the TV ad spend growth for the industry to be high single digits to very low double digits including the sports genre.

In terms of subscription revenue growth from the South, he noted that the broadcaster was either free in certain markets or pricing was not commensurate to viewership share. Zee Tamil was priced at zero before the tariff order but during the tariff order, the price of the channel was revised to Rs 10. “So that’s how our strategy on pricing, not discounting, has worked. And that strategy has paid off for us.”

He further noted that the subscription approach is evenly balanced between multi system operators (MSOs) and DTH operators though some deals with MSOs are not in place. “It’s pretty much balanced approach right now. The market is pretty evenly split 45-55% in favor of MSOs today. And while we do not have deals with some MSOs, our deals with all DTH operators are in place, but — and at the end, now we are looking at consumers. We are not focusing on DPOs alone.”

Thanks to the new tariff order, the share from the last mile has improved for the entire value chain. “I don’t think it’s just the share from the DPOs. But the last year’s improvement that has happened in the market overall also has benefited.”

When asked on a like-for-like basis, how pay-TV ARPU from DTH compares with cable operators and the gap before the tariff order and what it is now, he noted that this is not a straightforward calculation. Every DPO is selecting either multiple channels or multiple bouquets from my stable. And therefore, you can’t compare that X was the yield earlier from DTH and now it is whatever it may be. So it’s actually become far more complicated in terms of how our billing cycles have changed. So while the cable MSO ARPUs are improving significantly, but so are the DTH also.”

On the financial front, he noted that this year also will not be very high on free cash flow generation. “But next year onwards, you will see a lot more cash conversion from our bottom line to cash. Definitely, this year will improve, but it will not be as bad as the last 2 years, but next year onwards, you’ll see an actual ramp-up in free cash flows.”


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