Q3 has turned out well for M&E sector due to growth in ad spending: Punit Goenka

The faster recovery rate during the pandemic’s third wave ensures that business and services will not take a big hit and the markets will resume activities sooner, said ZEEL MD & CEO Punit Goenka. He was speaking during the Q3 earnings conference call.

Sounding a note of caution, Goenka said: "The third wave and the surge of infections at the start of 2022 could potentially have an impact on the fourth quarter, although it is still quite early to predict the outcome."

However, the ZEEL chief also expressed confidence that the network would end the fiscal with strong growth across verticals. "The faster rate of recovery during this wave assures a quick resumption of services and activities across markets. We remain hopeful that we will end this financial year by posting steady growth across all aspects of the business."

Goenka also asserted that the third quarter of the current fiscal has turned out very well for the industry due to growth in ad spending by clients. "Before the third wave, Q3 augured well for the media & entertainment sector due to the reopening of business and leisure activities. An improvement in advertisers’ spending and consumer sentiments during the quarter led to a significant boost in demand, and we see the strength continuing as we move forward," he added.

In Q3 FY22, ZEEL’s operating revenue dropped 3% to Rs 2112.6 crore from Rs 2178.1 crore. The Q3 FY21 numbers have been normalised for one-off syndication deal revenue in other sales and services of Rs 551.2 crore and the operating cost stands at Rs 473 crore. While the ad revenue has dropped 3.16% to Rs 1260.8 crore from Rs 1302 crore, the subscription revenue was down 6.14% to Rs 790.2 crore from Rs 841.9 crore a year ago.

"If you compare the growth witnessed in the previous fiscal in terms of advertising revenue from the second quarter to the third with the one experienced in the current fiscal you will see that it was relatively lesser. One must note that in the previous fiscal, the recovery was from a nationwide lockdown unlike this time resulting in huge pent-up demand," he noted.

The price embargo and the delay in implementing New Tariff Order (NTO) 2.0 have proved to be a dampener for ZEEL's subscription revenue. Goenka said it was too early to predict NTO 2.0's impact on the FY23 financials since the implementation has got pushed to June.

"On the subscription revenue, the embargo on pricing has significantly impacted the overall growth across the industry. With the NTO 2.0 implementation being pushed to the next fiscal, it is still early to predict how FY23 will look. We will see some changes for a quarter or two in the next fiscal, and we will factor it in our plans for FY23," he said.

On the merger deal between the company and Sony Pictures Networks India (SPNI), Goenka said teams on both sides were working hard to complete all the legal and regulatory formalities. Zee and Sony had signed definitive agreements on 22nd December 2021 to merge the two companies.

"Further to the definitive agreements inked between the two companies on 22nd December 2021, the teams are working towards completing all the necessary processes in accordance with the law. The key documents pertaining to the scheme of arrangement between the two companies have been shared with the stock exchanges. That said, it continues to be business as usual and both the companies continue to function independently until we receive the regulatory approvals including the approval of the Competition Commission of India (CCI)," he said.

According to Goenka, ZEEL is making investments in all its key businesses to remain strong in a highly competitive market. "This is a market that is increasingly witnessing quality content as a superior viewing experience being delivered to the consumers. Having experienced the disruption in content creation caused due to the various restrictions and lockdowns, our teams are now better prepared and have been consistently serving original content to consumers."

ZEEL's investments are having an impact on its operating margins in the short term, he further said. "There have been significant investments in content this fiscal, which in turn reflect in our margins in short term. This is in line with the content strategy implemented across various geographies."

ZEEL is launching new shows across markets to drive viewership on the linear side even as the digital business is posting strong growth across user metrics. ZEE5, Goenka said, has been sequentially over the last year both in terms of monthly active users (MAUs) and daily active users (DAUs).

"For the first time, we have crossed 100 million MAUs which is a great testament to the investments made, and the efforts put in by the teams. The watch time on the platform has also increased significantly improved to cross 200 minutes on the back of a compelling slate of content launched during the quarter and overall enhancements in the user experience," he averred.

On the movie business front, Goenka said Zee Studios has a strong movie slate across languages for the year ahead. "Overall, there were pandemic-induced headwinds faced by the movie business. The partial reopening of theatres across the country and the release of big-ticket films augured well for the industry at large. Our studio business has a very strong pipeline of films across languages for the year ahead, and we are hopeful that the third wave of the pandemic will subside soon encouraging consumers to return to the big screen. That said, we have noticed the overall sentiments and underlying trends in the recovery of theatrical revenues, and we remain hopeful of improvement in subsequent quarters."