Zee looks to ‘derisk business from broadcasting’

Having built network dominance, the question now is whether the broadcaster will successfully build more revenue drivers in digital and films

The ~66.5-billion Zee Entertainment Enterprises is on a roll. Last year, it dethroned Star India to become India’s largest broadcaster by audience size on the back of its Hindi, Tamil and Marathi programming and the acquisition of Reliance’s Big TV. The ~110-billion Star India has occupied the top position for about 15 years. Zee’s film business has finally hit a sweet spot, bringing in an estimated 10 per cent of its top line this year.

Secret Superstar, which grossed ~90 million worldwide (a bulk of it in China), Qareeb Qareeb Single and Sairat are among the most profitable films made in recent times. The stock market loves its “higher than industry average” ad growth and its 30 per cent EBITDA (earnings before interest, taxation, depreciation and amortisation) margins. Its market capitalisation has risen 2.6 times in five years and there still is a buy recommendation on the stock from almost every analyst. (Note that Zee is the only large Indian media firm that is listed. The other big ones — Star, Times Group —aren’t)

What, then, could go wrong? There is Zee5, its fourth attempt at online launched earlier this year without sports programming, a big driver in digital. On the other hand, arch rival Star India owns every marquee sports event there is and is using it to push Hotstar, its streaming service. And there is the inherent risk in films.

“The last five years were spent de-risking the broadcasting business. The next five years will be spent de-risking the business from broadcasting,” says Punit Goenka, managing director and CEO, Zee Entertainment Enterprise. Broadcasting is the mainstay but Zee5 and films (fodder for both digital and broadcast) are the building blocks for the future.

The broadcasting machine

“From 12 per cent (in 2006) our network share has moved to 20 per cent. Broadcasting now is a well- oiled machine. There are some languages we need to get into — we are looking at Malayalam, Punjabi. There is a lot of genre expansion possible within languages. There could be movie only channels in Marathi, Bangla, Telugu and other markets,” says Goenka.

On audience metrics, Zee dominates the ~660-million television industry that reaches over 900 million Indians. More than 20 per cent of the people who watched TV this year were on one or the other of Zee’s 37 channels against 19 per cent for Star’s 52 channels, going by Broadcast Audience Research Council’s (BARC) data. (See Most watched).

You could argue that this was because Star has lost share. Or because Zee’s 2016 acquisition of Reliance Broadcast’s Big Ganga and Magic added 1.2 percentage points to its share. Or because BARC’s measurement system now reaches more markets across the length and breadth of India. So the dominance of Zee Marathi or the twofold rise in Zee Tamil’s audience share is getting captured in the data. Remember that, “As a portfolio we have seriously invested in regional (since the nineties),” says Punit Mishra, CEO, domestic broadcast.

All of it is partly correct. But as Shailesh Kapoor, CEO, Ormax Media, put it, “It is not one show. It is about what happened over a period of time.” Zee’s clutch of channels is simply bigger and better, so much so that it hides disappointments like &TV.

“Our spends on the Zee Network have gone up in the last couple of years because of their performance across the markets, including the south,” says K Satyanarayana, senior vice-president, R K Swamy Media Group.

“Network market share is the panacea for all ills,” says Rohit Dokania, senior vice-president research, IDFC Securities. He is right. Network dominance has a cascading effect across everything — the ability to launch more channels, get better distribution on direct-to-home and cable, higher pay revenues and to experiment with programming like the newly launched Ishq Subhan Allah.

But what could work in broadcasting might fall flat in films. Since 2016, Zee has been producing anywhere between four and six films a year in Hindi, Marathi, Punjabi, Tamil or Kannada. Goenka reckons that for anything over ~200 million, it will look for co-investment and co-ownership of the IP (intellectual property). “It won’t do more than ~1-1.5 billion a year on films because it is a risky business. For a company that is generating ~16 billion in EBITDA, that’s ok,” says Dokania.

While the investment figure on digital is not as clear, Zee5 has the whole Zee Network with all its languages behind it. Will the diversity carry it through? “We have now consolidated both Ditto (the subscription service) and Ozee (ad-driven). By March 2019, we should be the number one entertainment app on traffic (minus sports). So if Hotstar is 70 without sports, I should be more than 70,” says Goenka. Every channel in the Zee network is a profit centre. How long will digital be subsidised? “For the next two years at least nobody can predict. If in five years, there is no turnaround, maybe we will sit down and say ‘let’s do a Hulu,’ or we will go to Netflix,” quips Goenka. Hulu is a streaming service launched by a clutch of American broadcasters together.

About a fifth of Star’s viewership in the first week of the Indian Premier League this month came from Hotstar. Does Zee regret giving up on sports? (It sold Ten Sports to Sony last year). Goenka shrugs that the numbers simply made no sense for Zee as a listed firm. However, “If the economics of the business change, if Mr [Uday] Shankar [CEO Star India] manages to make it pay off, then why not (re- enter sports),” says he.

“THE LAST FIVEYEARS WERE SPENT DE- RISKINGTHE BROADCASTING BUSINESS. THE NEXT FIVEYEARS WILLBE SPENT DE-RISKINGTHE BUSINESS FROM BROADCASTING” PUNIT GOENKA, MD and CEO, Zee Entertainment Enterprise