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Zee Tele: Attempting to regain glory
Jun 22, 2002

There was a time when Zee TV was holding the top position in TRP ratings. But Star and Sony entered the entertainment market with vengeance and Zee lost the battle. The Zee Network is currently fervently working with its restructuring strategies to gain back its score. The channel, which reaches to 225 m viewers globally in 80 countries, is in a revamp mode and is eyeing the Pay TV market to offset the sluggish ad revenue growth. The channel has been in a transition phase since the last one year. The network’s large number of subsidiaries is the primary concern, which it has realized and aims to bring down the subsidiaries to 12 by 3QFY03 from the current 23. This exercise will not only make it simpler to understand its structure but it will also bring in advantages of operational efficiencies. The subsidiaries, which are likely to be merged with the company, include E-Connect India, PATCO, Elzee, Kaveri Entertainment, Dakshin Media, Zee Multimedia Worldwide and its foreign subsidiaries. Reducing the number of subsidiaries would also aid Zee in attracting potential strategic investors.

On the content front, Zee has been constantly trying to make changes but its efforts are yet to pay off. It launched several new soaps and serials on prime time on its flagship channel Zee TV. Some of the new launches include Ramayana, Saanjhi and Jeena Isi Ka Naam Hai (JIKNH). It also took initiatives in simplifying the programming menu and bringing in more interactivity. In April 2002, it launched three major shows. These include, Khelo Number Khelo, Sa Re Ga Ma Pa and Kitne Kool Hain Hum (comedy show from Balaji). However, according to Tam Media research, for the week ended May 18, while JIKNH scored 4.3 amongst all the programmes aired on Zee, it ranked the 48th amongst the top 100 programmes across channels. Star Plus dominated the top 20 programmes with its family soaps (Kyunki Saas Bhi Kabi Bahu Thi and Kahaani Ghar Ghar Ki) with TRPs of 16.6 and 15.9 respectively.

Nevertheless, Zee has not given up. It has started India’s first online lottery show, which has been created by chatterbox, UK. The game show has been interlinked with Playwin, Superlotto. In a move to improve its TRP ratings, the company aims to leverage on this online lottery show. It has launched a slew of programs woven around the lottery show timings and hopes to garner higher viewer ship out of the live telecast of the lottery draws. Playwin is reported to be selling over 9-10 m tickets a week, which effectively means a captive audience of about 7-8 m households. Zee’s strategies to attract viewer looks attractive. However, it depends on the long-term success of the online lottery business, which is relatively new in India.

Also, considering Zee’s recent failure, it would be tough to comment if the channel will be successful in snatching away some market share from Star and Sony. Zee had earlier pulled out two of its interactive shows, Aap Jo Bolein Hain tho Hain, Aap Jo Bolein Na tho Na and romance adventure Aap aur Hum, from its channel. It had expected these high-profile shows to attract good viewer ship. The shows however, failed to attract high television rating points, as interactive shows are yet to take off in India. Also, strategy of revamping its entire programming bouquet and launching 24 new shows at a stretch in August 2001 had done little to improve ad revenues.

Among other new developments, the company has started uplinking some of its channels from India including Zee News and channels under the 'Alpha' brand. This will help the company in adding revenues and lowering of cost due to better operating efficiencies. Its operating margins have already shown a sharp rise to 30% during the fourth quarter of FY02 from 19% in the comparable previous quarter. The margins would rise further once the company implements corporate restructuring plans. Ad revenues on the other hand, are likely to suffer in the short term amidst lacklustre response of its new launches. Zee has already indicated a difficult year ahead for this stream of revenue, which account for 60% of its total revenues.

Zee Telefilms (Consolidated)
Revenue mix 4QFY01 4QFY02 Growth* FY01 FY02 Growth
Advertisement 70.2% 64.4% -7.3% 70.9% 60.3% -7.5%
Subscription 16.4% 32.7% 101.7% 20.8% 31.7% 65.5%
Other sales & services 13.4% 2.9% -78.1% 8.3% 7.9% 4.1%
Total 100.0% 100.0% 1.1% 100.0% 100.0% 8.7%
* Growth in revenues

As if the competitive pressure was not enough, the new concern for the channel has come up with the proposal to implement conditional access system (CAS). The channel could be forced to go free-to-air in the short term, which could impact ad revenues.

With advertisement revenues not showing signs of improvement, Zee is depending on converting its driver channels (Zee TV and Zee News) into pay mode. Its pay revenues recorded a growth of 225% in FY02 to Rs 987 m, accounting for 9% of total revenues. In the coming year, the company plans to focus on regional channels under the brand 'Alpha' to tap the full potential of the pay market.

While, in the domestic market, Zee is sailing in rough waters, its overseas business has shown satisfactory growth. Its international subsidiaries recorded a 9% rise in revenues in FY02 with operating profits of Rs 223 m (FY01 Rs 18 m). Revenues from US are increasing while in Africa and UK the channel’s response remained sluggish. In April 2002, Zee has also started a separate encrypted broadcast beam for ‘Zee TV’ in Middle East, Pakistan, Bangladesh and Nepal to strengthen its advertisement revenues and enhance pay revenues. The advantage of separate beam is that it allows the company to tailor content to coincide with prime time in different markets.

Performance of International subsidiaries
Revenues (Rs m) 1QFY02 2QFY02 3QFY02 4QFY02 FY01 FY02
Zee Tele International 8 9 33 21 174 72
Asia TV, UK 230 233 274 304 965 1,041
Asia TV, Africa 18 21 19 22 138 80
Zee TV, US 193 238 252 245 663 929
Software Supplies Int. 6 9 28 45 83 88
Total 455 511 606 637 2,023 2,209
Operating margins 1QFY02 2QFY02 3QFY02 4QFY02 FY01 FY02
Zee Tele International 56.3% 65.6% 84.8% 69.0% 92.9% 74.4%
Asia TV, UK 5.0% 3.4% 4.4% 10.2% -21.7% 6.0%
Asia TV, Africa 4.4% 0.0% -43.1% 75.4% 10.1% 12.0%
Zee TV, US 13.2% 20.4% 17.7% -11.3% 7.3% 9.8%
Software Supplies Int. 8.5% 4.3% 9.7% 7.3% 4.6% 7.9%
Total 9.4% 12.3% 13.1% 6.0% 0.9% 10.1%

Its recent acquisitions of ETC Network and Padmalaya Tele (PTL) are also not reflected in its financial performance. Zee acquired a 57% stake in ETC for Rs 250 m to increase its presence in hindi music genres. Although, Zee has no plans to merger the two channels, ETC Music and ETC Punjabi, it aims to convert them into pay mode during the current fiscal.

PTL on the other hand, has diversified revenue model with TV software and distribution being the major contributors. It is one of India’s leading entertainment software houses having library of 300 movie rights and over 1,500 hours of television software. The company has recently received commitment from Europe for US$ 80,000 per episode for its animation project, Jataka Tales to the tune of 52 episodes. PTL is expected to get a 50% share in US$ 60,000 profits per episode. Considering Zee’s 63.3% stake in the company, it will add gains of about Rs 49 m to Zee’s bottomline. This is just considering the European region. PTL is in the process of marketing the same in US and expects commitment to the tune of US$ 100,000 per episode. Since the animation products are age-less projects, if the Jataka Tales becomes a hit in the international markets, the opportunities can be huge. With PTL in Zee’s stable, the company aims to develop world-class animation capabilities in the next 3-5 years

Zee’s constant endeavour to improve content quality and consequently its ratings, has failed to bring back audience from Star and Sony. This is likely to keep its ad revenues growth restricted. However, Zee’s restructuring efforts (reduction in number of subsidiaries), coupled with good potential for subscription fee growth and its recent acquisitions could bring back a smile on the face.

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