Lending a helping hand to struggling Zee Entertainment Ltd which has recovered only slightly from plummeting ad sales, Essel Group’s Zee News has decided to transfer six of its regional entertainment channels through a share swap deal. The deal is expected to be court approved and effective by April 2010.
Zee News has witnessed a 9.7% rise in consolidated net profits to Rs. 131 million in the quarter ended Sep 09 compared to the previous quarter ended June 09. They are up 13.91% from the corresponding period last year. Its revenues grew sequentially by 17.69% to Rs. 1612.3 million. EBITDA
Advertising revenues are up 17% to Rs. 1279.8 million while subscriptions are up only 3.96% to Rs. 275.9 million. Expenses also rose 19.7% to Rs. 1385.1 million sequentially.
EBITDA was Rs. 258 million for the quarter ended September 30, 2009, an increase of 21.8%
as compared to the corresponding period last fiscal.
The Channels DeMerger
Channels to be transferred to ZEEL include Zee Marathi, Zee Bangla, Zee Talkies, Zee Telugu, Zee Kannada and Zee Cinemalu (a recent launch). Regional channels have been high performers for Zee News, with local advertisers finding it a good medium to reach their targeted audience. Zee News was already profitably operating these channels.
Regional general entertainment category channels are popular: Zee Marathi had 38% viewership share in the quarter, Zee Bangla has 29%, Zee Telugu has 20%, Zee Kannada has 16%. They are high-growth businesses: In the first half of this fiscal year, profits from R-GEC channels have already amounted to Rs. 489 million over revenues of Rs. 1,868 million and an EBITDA of Rs. 597 million. Last financial year, the R-GEC channels by Zee News witnessed revenues of Rs. 3,403 million with advertising accounting for 84% of 2009 revenues while subscription was 9%. How will this fit in with ZEEL‘s recent re-focus on subscription led sales?
Zee News To Focus On News Vertical; Regional News
The decision to demerge regional channels has been taken keeping in mind that they were more synchronised with national entertainment channels run by ZEEL.
So Zee News plans to grow its news business and target advertising on regional and Hindi news. Regional news attracts Rs. 3 billion of a Rs. 15.5 billion market and is growing at a consistent 25%. The company believes this market has huge potential and will be discussing a three year plan to tap into it at its next board meeting.
Besides the 6 R-GEC channels, Zee News also owned Zee News U.P., Zee 24 Gantulu, Zee Tamil and Zee News, Zee Business, Zee 24 Taas, Zee 24 Ghanta and is set to launch a Malayalam channel this year. Zee Tamil, a recently launched channel, was facing distribution issues and not growing fast enough. Now it is being converted into a predominantly news channel.
Zee Entertainment: Ad Sales Up 25%; Net Profit Up 21%
Ad sales are back on track and ZEEL‘s quarter saw robust growth with net profit rising 21.44% to Rs. 1109 million over a 13.57% rise in revenues to Rs. 5405 million. Operating profit margin for the quarter ended September 2009 has improved by 331 basis points to stand at 27.9%.
Expenses have grown 6% to Rs. 3897 million due to new initiatives in selling, distribution and marketing.
ZEEL owns Zee TV, Zee Cinema, Zee Premier, Zee Action, Zee Classic, Ten Sports, Zee Sports, Zee Cafe, Zee Studio, Zee Trendz, Zee Jagran, Zing, ETC Music, ETC Punjabi, Zee Motion Pictures and Zee Limelight.
Ad Sales Up 25%; Subscription Sales Remain Stagnant
Contrary to what we saw last quarter, ZEEL‘s ad sales grew 25.08% sequentially to Rs. 2,476 million in the quarter ended September 2009. It is still 13.15% lower that the corresponding period last year, but comes as a positive sign of the macro ad environment returning to normalcy. With the addition of six general entertainment channels and their assets from Zee News, the company can expect ad sales to grow strongly henceforth.
ZEEL had turned to focus on subscription instead but we see that revenues from subscriptions have barely flickered (1.05%) from the previous quarter. At Rs. 2,435 million, subscription revenues were up 8.51% from Sep-08.
Key Corporate Developments In The Quarter
- Zee Cinema held 32% of the market share in the movie genre during the quarter. Among its marketing efforts was a mobile game developed for Bollywood titled Cinema Ke Baadshah.
- Zee Cafe, an international English channel, held 17% market share in the English general entertainment space.
- Zee Studio acquired rights to various blockbusters including movies Vicky Christina Barcelona, Cassandra’s Dream, The Wrestler, Fireflies in the Garden, Lust & Caution etc.
- Music and lifestyle channel Zing (previously Zee Music) will soon launch 2 new shows – Made in Bollywood and Yo Zing!
- Films division of the company released two movies this quarter – one Hindi & one Marathi.
Its sports channels raked in revenues of Rs. 1060 million, but incurred an operating loss of Rs. 49 million. Costs totalled Rs 1,108 million in the quarter ended Sep 09. The company claims in a presentation that Zee’s sports channels own 47% market share with competitors Star Cricket (36%) and ESPN (9%) lagging behind.