Our new strategy for ZEE5 is showing early signs of success: Punit Goenka

ZEEL MD and CEO Punit Goenka has said that the company's new strategy for its video streaming service ZEE5 is showing early signs of success, with the Monthly Active User (MAU) base seeing a sharp jump.

In recent times, ZEE5 has made several big bets like the digital premiere of Salman Khan-starrer 'Radhe: Your Most Wanted Bhai', the India premiere of 'Friends — The Reunion', and the content deal with TVF.

Apart from bolstering its content line-up, the platform has also reworked its subscription pricing by launching the Rs 499 annual pack in order to reduce churn and grow the subscriber base.

"Our new strategy for ZEE5 is showing early signs of success on expected lines. This quarter we launched two big properties, Radhe and the much-awaited episode of 'Friends - The Reunion'. This led to a sharp jump in app users in the MAU base," Goenka told analysts during the Q1 earnings conference call.

He also stated that a strong content push along with a better user experience is resulting in improved net promoter score (NPS) and top of the mind recall for ZEE5. "We have built a very strong content line-up for ZEE5, and we are confident of building further on these improvements," Goenka noted.

ZEE5 is also betting big on the US (United States) market, which holds a significant South Asian diaspora population in the world. In the US, ZEEL will use ZEE5 to make inroads into the younger demographics as well. Goenka expects the US market to become a key revenue driver for the streaming platform.

"ZEE5 has been expanding in global markets over the past year, starting with the APAC. This quarter we launched in the US, the largest market for the South Asian diaspora. ZEEL had a long association of over two decades with the US market, bringing to our viewers the best of Indian entertainment through our channels," Goenka said.

He continued, "With ZEE5, we look to offer to this audience as well as the younger demographics access to a much deeper and wider choice of content. We are delighted to note the response we have received and are confident that US would become an important revenue driver for ZEE5 in years to come."

Goenka also noted that the second Covid-19 wave impacted the recovery that was happening since the impact of the first wave receded. "After the disruption experienced at the start of the previous year, the business was steadily recovering in the second half. However, the second wave of Covid-19 has reversed this recovery and our performance in the first quarter has been significantly impacted by the pandemic and consequent lockdowns," Goenka noted.

ZEEL's consolidated revenue in Q1 FY22 increased 35.3% YoY to Rs 1,775 crore as ad revenues grew 120% YoY to Rs 927 crore on a depressed base. The QoQ decline in ad revenues is 17.5% and is 22% lower than pre-Covid-19 levels (Q1FY20), owing to the impact of the second wave.

"Though the fall in the advertising revenue has been much lesser than we had experienced in the first quarter of the previous year, it was still a sizeable loss," Goenka averred. He also said that the recovery in advertising spends has been slower than the initial estimates, as the lockdown and restrictions on economic activities in several states are continuing well into the second quarter.

Goenka said that the company's business suffered a double whammy in Q1 as the ad revenue dipped while the production costs increased due to shifting of shooting to other locations. "As audiences remained confined to their homes, they were spending more time watching television. We continued production of our original shows by moving the shoots to cities which had relatively lesser levels of restrictions and to resorts. This increased our production costs even as the advertising revenue dipped."

Commenting on the impact of the New Tariff Order (NTO) 2.0, Goenka said that the amended tariff framework will cause disruption in the market for a couple of quarters before settling down. "As we have previously discussed the implementation of NTO 2.0 can cause disruption for a quarter or two but once it settles we are confident of recovery reverting to subscription revenue growth," he noted.

The Bombay High Court upheld the NTO 2.0 while setting aside the second proviso of the twin conditions, which mandated that the channels included in a bouquet cannot be priced more than three times the average price per channel. The Indian Broadcasting & Digital Foundation (IBDF) and other broadcasters have challenged the verdict in the Supreme Court.

"While we are awaiting the verdict, we have parallelly started working on the revised pricing," Goenka informed.

He also conceded that the recovery in the advertising market is slower than anticipated, as advertisers are waiting for the risk of potential third wave to abate before increasing their spends. "However, we remain confident that as and when the spends of normalcy returns and the fear of lockdowns recede, advertising spends would bounce back as the underlying demand for inventory remains healthy. Our confidence stems from the fact in the previous year, once the Covid-19 surge was behind us, we saw an instantaneous jump in advertising spends."

Despite slower return on advertising revenues, ZEEL has decided to continue to invest in both its core businesses that is broadcast and digital. In broadcast space, the primary focus is to improve market share in Hindi, Marathi and Tamil markets with the launch of new shows, high-impact non-fiction properties and increase in number of programming hours.

"We would be launching 30+ new shows in Q2 alone across the network. In digital, we continue to offer differentiated shows and blockbuster movies. These investments would drive our market share, putting us in good stead when the recovery takes place," Goenka asserted.