We are increasing our investments with focus on regional content: Rohit Gupta, ZEEL
The Chief Financial Officer of ZEEL said during the Q4 FY22 earnings call that the company was scaling up partnerships with content studios
The media and entertainment industry in India is still on the cusp of a strong phase of long-term structural growth due to rising consumer demand and improving macro enablers such as digital reach and content accessibility, said Rohit Gupta – Chief Financial Officer, ZEEL. He was addressing analysts during the Q4FY22 earnings call.
“We will continue to invest aggressively in FY23 to support our growth ambitions. Our successes so far have given us the confidence to be front-footed in our investment approach to improve our longer-term relevance and as we scale our investment, we will continue to be very focused on driving returns from these investments with fiscal prudence which has been a DNA of Zee.”
According to Gupta, the company expects FY23 to be a year of investment for the network. He also mentioned that this would be a year where they need to navigate near-term headwinds like inflation. “We will do our best to balance the near-term financial profile of the business while making room for longer-term investments. Overall while we do expect our margins to be healthy, a meaningful recovery from current levels will be more gradual due to a combination of these factors. Having said that this does not reset our medium-term margin aspiration or reach that we have spoken about in the past. It just brings forward a lot of investment driven by a desire to build for the future and hence pushes our margin recovery a bit far.”
He talked about some key themes that they are navigating in FY23. These themes pertain to investments, largely aligned to turbocharge their digital/OTT ambitions and some of the headwinds they will navigate through FY23 while making these investments.
Gupta shared that Zee has always prided itself on its content DNA and it will aggressively invest in content to create a differentiated value proposition, particularly in the digital OTT space. They are increasing their investments with a focus on regional content and scaling up our partnership with global studios, independent creators and premium content production houses across regions. Additionally, they will continue to launch new TV shows across markets to drive share gain in our broadcasting business. “As we bring more original content and shows, we will also step up aggressively on marketing to augment our content expansion with brand marketing and broader reach.”
The second area of investment, Gupta said, was going to be technology and product, with a sharp focus on delivering world-class entertainment. “We believe there is an opportunity to personalize content and delivery thereby increasing our reach across platforms. To support that ambition, we are making investments towards broadening and accelerating our digital platform roadmaps and driving superior consumer engagement.”
Gupta mentioned that they have also consciously rationalized their presence on Free-to-Air segment to shape and grow their pay ecosystem, and it will have a near-term impact on their ad revenues. “We believe this will be a more transitory impact and we will eventually be able to recover this as intended benefits accrue on the pay side of the business,”
Lastly, they would be tracking that India's annual retail inflation has inched up towards an 8 year high in April at 7.79% and elevated inflation scenario does create headwinds for them on both revenue and cost front. “It causes moderation in ad spend by brands to counter increased costs putting pressure on our ad revenues. We are beginning to see some early signs of that in this quarter. Elevated inflation also impacts our cost adversely across programming, wages, etc. These two inflation induced headwinds on revenue and costs will impact profitability in the near term. “
According to Gupta, in FY23 from a quarter-on-quarter progression perspective, they expect the margin profile to improve as they progress through the year. “Q1 will have the most immediate impact of inflationary dynamics, free-to-air drop, accelerated investments and some of the seasonal costs it takes like wage increment etc.”
He further added, “As revenue scales up in subsequent quarters we will expect margins to start inching up in the latter part of the year. We are not providing precise margin guidance at this stage given there are many factors in play and the impact of some of those macroeconomic ones is difficult to forecast. I will add here that our confidence in the medium-term margin outlook is strong, and we will provide a more specific update when there is more stability in the operating environment.”
