It seems that it is back to square one for Zee Telefilms, India’s largest media and entertainment company. Mr. Subash Chandra, the promoter of the company, is back in business of managing Zee. Through a number of new programme launches, the company hopes to turn the tide. Will it manage a turnaround this time?
Consider some of the positives first. The country’s total advertisement spending is estimated at Rs 79 bn, of which television accounts for nearly 36%-40%. The interesting aspect is that television is slowly eating into the market share of the print medium, which has one of the largest and direct reach. But due to increased urbanisation and higher TV sales each year, the number of cable subscriber is also on the rise (estimates range between 38 m to 40 m). This is a crucial growth driver.
Just to put things in perspective, we sell around 6 m TVs on an average in India every year. BPL’s latest balance sheet highlights that penetration of TV (currently at 15%) is higher in urban region at almost 65%. But in rural areas, it is as low as 6%. Therefore, the potential is significantly large for broadcasters in India, both in terms of advertising and subscription revenues.
One of the key problems faced by broadcasters like Zee is that local cable operators understate the actual number of subscribers. This has two serious implications. One is that the bargaining power of broadcasters like Zee is lower, as the actual viewership details is not available. Secondly, local cable operators retain a lion share of monthly subscription revenues paid by customers with themselves. This is a direct loss of revenues for Zee.
The situation could change significantly once the conditional access regime falls (CAS) into place. Under this system, broadcasters like Zee through ‘Siticable’ will install set top boxes at the viewers end and offer bouquet of channels depending upon requirement. As a result, Zee will be able to circumvent local cable operators and thus enables the company to offer a combination of services that could actually maximize revenues from a single viewer. The bargaining power, in this case, increases significantly. We expect this as one of the key long-term growth drivers for the industry as a whole and Zee, in particular.
On the other hand, there are serious threats from competitors like Star, Sony and regional broadcasters like Sun and Enadu. As witnessed in the last two years, Zee has lost significant slots in the Top 50 programmes that are determined on the basis of TRP ratings. While the recent initiative of ‘Thursday Blockbuster’ has received a good response, it remains to be seen whether the management has the capability to deliver results on a consistent basis. The involvement in the recent stock market scam and significant dues from the promoter have tainted image among retail investors. Reportedly, a number of senior officials have also exited the company. As a result, the risk profile of the company increases significantly.
Zee currently trades at Rs 98 implying a P/E multiple of 18x FY03E earnings. Growth in revenues and profitability will be highly determined by the success of new programmes in the medium-term. But in the long-term, CAS regime could change the facet of the Indian media industry.
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