ZEEL will increase content spends in FY22: Punit Goenka

ZEEL MD and CEO Punit Goenka has said that the company will increase its content spend in the TV and digital businesses in FY22 besides ramping up movie production. The company's investment focus will be on TV and digital going forward as it sees a huge potential for growth in these businesses.

"We will be increasing our content spends in FY22. Our focus has been further sharpened with the five-year business plan getting implemented. From an investment perspective, our focus will be on two key businesses - broadcast and digital," Goenka told analysts during the Q4 FY21 earnings conference call.

On the performance in FY21, Goenka said that the fiscal was a mix of revenue de-growth and recovery. The first half was impacted badly due to Covid-19 while the second half saw impressive recovery for the company.

"The last financial year was impacted due to covid and the consequent lockdown. That said, the year was also a blend of impact and recovery. Our revenue and operations were severely impacted during the first half of the fiscal. The second half witnessed a sharp recovery with the advertisement revenue growth being close to double-digits," Goenka noted.

While the industry was pinning hopes on FY22 to be the year of recovery and growth, Goenka pointed out that the second wave has impacted ad spends. ZEEL's ad revenue is expected to get impacted in Q1. Goenka is hoping that the lost advertising revenue will come back as the situation improves.

"At the start of the calendar year 2021, the outlook for the financial year 2022 was quite promising but the second wave of pandemic across the country and the consequent lockdown have impacted advertising spend. As a result, even our advertising spends in the first quarter of FY22 will be impacted to some extent. That said it will be significantly better as compared to Q1 of FY21. The underlying demand for advertising continues to be strong. We are hopeful that part of the lost advertising revenue would be recouped in the subsequent quarters provided the lockdown restrictions do not spill over to the second quarter," Goenka elaborated.

He also revealed that the company will improve its network market share through a mix of enhanced content offering, a broad channel portfolio, and an increase in original programming. The network wants to improve its market share in Hindi GEC and win back lost market share in certain regional markets.

"For the broadcast business, we would like to achieve a clear leadership position with an ambition to be India's leading network. In the short-term, our focus is to increase the network share in the Hindi GEC genre and to recover losses which were incurred in some of the regional markets," Goenka added.

For ZEE5, the company has reworked its business strategy by focussing on improving content offering, product development, competitive pricing, and improved user experience.

"ZEE5, which is the youngest OTT platform in India, has been scaling up well but we see significant scope for improvement and our team is working around the clock on the same. Over the past few months, we have reworked the digital strategy and product offering," Goenka noted.

"Our primary focus will be maintained on increasing the value proposition of ZEE5 which will be achieved through a combination of compelling content and competitive pricing while the process of creating a strong line-up of movies and originals."

As part of this strategy,  Goenka pointed out that ZEE5 released its first movie 'Radhe' besides reworking the subscription price. According to Goenka, the Rs 499 subscription will help in reducing churn and increase paid subscriber base.

"ZEE5 will premiere several good movies and original content across languages in FY22. Additionally, you may have noticed that we have reduced the price point of our annual pack to Rs 499. This approach will help us in reducing the customer churn and is in line with our long-term strategy of increasing our share of B2C subscribers," he averred.

ZEE5 is also doing a lot of work on enhancing the user experience, an area where it has been behind the curve, Goenka said adding, "We have drawn up a technology and product roadmap to upgrade our platform to the next level."

Goenka is confident that ZEE5 will see an all-round improvement in performance in the coming few quarters.

The company is also scaling up its movie production business it feeds into the TV, OTT, and music businesses. "We are also in the process of ramping our movie production business. The primary objective of scaling up this business is to realise synergies across television, digital, movie distribution, and music publishing businesses. All these businesses are dependent on our acquisition of different rights of movies," he stated.

He also highlighted that the strategy of co-producing movies with renowned filmmakers will allow the company to build a strong movie catalogue that can be monetised across different businesses. "This strategy allows us to refrain from entering into bidding wars for movie rights on several fronts. The cost of OTT rights for movies has seen substantial inflation," he said.

The ramp-up of investments in the movie business is not that high since ZEEL would have anyway invested a substantial amount of money into buying those rights. "While our investments in the movie production business are going up the incremental investments after adjusting for the various rights that we would have bought in any case for our other businesses is not really that large," Goenka informed.

He also pointed out that the scale-up of the movie production business will lag the company's guidance for FY22 due to the impact of the pandemic. "Considering the opportunities that lay before the two core businesses we are prioritising content investments in digital and TV," he said.

Considering the prolonged uncertainty due to the pandemic which has made the operating environment volatile, ZEEL is re-evaluating its investments in Sugar Box and will be scaling it down for the foreseeable future.

ZEEL will be in the investment phase for the next two years as part of its ZEE 4.0 strategy. This will also have an impact on ZEEL's operating margins which will fall to 25% from 30%.

"We believe that this investment phase of ZEE 4.0 will last for a period of two years and as we have indicated before we will not be able to hold margins of 30% as we invest for the future. During the investment phase, our EBITDA margin would be 25%+. Once this phase is over, we should move back to a 30% margin. During this period, we are targeting free cash generation of approximately 50% of PAT," Goenka stated.

He also mentioned that the impact of higher investments would have been less severe had there not been a freeze on TV channel pricing since the NTO 2.0 is sub-judice. "The impact on these investments on our margins would have been lesser had there not been an embargo on subscription price hikes. The loss of more than a year of subscription revenue growth is one of the most important reasons for the 5% reduction in our margins as we make investments."

Goenka asserted that the company's investment over the next two years will build a solid foundation for the next phase of growth for the company.