The media major, Zee is betting on opening up of the domestic PayTV markets, upgrading content, reducing the convergence capex and tightening costs to improve the bottomline growth. Zee’s flagship channel ‘Zee TV’ contributes 30% to consolidated revenues and 64% to consolidated profits.
During the year, Zee Network took major initiatives in converting its entire bouquet of channels from analogue to digital mode as well as transforming most channels from free-to-air to pay mode. However, FY01 was the year of intense competition, which led to a discontinuation of its major game show. There was also a significant churn in viewership of the company's mainstream channel, as new players launched a number of channels.
Nevertheless, the new initiatives of the company in programming with customers in focus has already led to improved viewership. The channel, ‘Zee TV’, which now has 5 out of the top 10 programmes amongst all channels. The company’s two leading channels ‘Zee TV’ and ‘Zee News’ have become pay from June 10, ’01. It will charge Rs 30 per month as cable subscription fixed for the entire Zee bouquet (15 channels in all). Zee is eyeing Rs 1 bn total subscription revenues (7% of consolidated revenues) by encrypting its popular channels and converting some of them into pay mode in FY02. The company has already completed digitization of most of its channels.
Given the over 15 million household reach of these channels and assuming a disclosure level of 25%, Zee would easily be able to generate revenues of Rs 1 bn. The charges of the company for pay channels are in line with its competitors. Star has priced its bouquet of 7 channels at Rs 28 per month and Sony is planning to convert its flagship SET channel into pay mode shortly.
In the current scenario of increasing competition and pressure on ratings of Zee’s programmes, pay revenues could aid the company’s bottomline growth. Apart from India, Zee is also planning to charge subscription fees for ‘Zee TV’ from viewers in the Middle East Asia, Pakistan, Bangladesh, Indonesia and South East Asian countries.
Zee has targeted to grow its advertisement revenues in FY02 by about 30%. This will be achieved by restructuring its leading channel ‘Zee TV’ by mid August by investing large funds in content improvement. Its ‘Alpha’ channels and UK operations are also expected to break even in the current fiscal. If everything goes well, Zee’s consolidated profits are expected to grow by about 25% in the current year.
At the current market price of Rs 127 Zee is trading at a P/E of 23 times FY02 projected earnings (consolidated) and a PEG of 1x. Zee’s future valuations depend on the success of pay channels, improving TRP ratings and inducting a strategic partner.
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