Ladies and gentlemen, good day, and welcome to the Q2 FY24 earnings conference call of Zee Entertainment Enterprises Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Mahesh Pratap Singh, the Head of Investor Relations for Zee Entertainment Enterprises Limited. Thank you, and over to you, sir.
Thanks, Anju. Hello, everyone. Welcome to our Q2 FY24 earnings discussion. We hope you've had an opportunity to glance through our earnings. Today, we are joined by our Managing Director and CEO, Mr. Punit Goenka, along with the senior management team. We will start the call with opening remarks from Mr. Goenka, followed by commentary on operating and financial performance by Mr. Rohit Gupta, our Chief Financial Officer. We will subsequently open the floor for questions and answer session. Before we get started, let me remind everyone that some of the statements made or discussed on today's conference call will be forward-looking in nature and must be viewed in conjunction with risks and uncertainties we face. The company does not undertake to update any of these forward-looking statements publicly. With that, I'll now hand the call over to Mr. Goenka for his opening remarks. Over to you, sir.
Thank you, Mahesh. Good evening, everyone. I hope all of you are doing well and are gearing up for the long Diwali celebration weekend. Thank you for taking the time to join us this evening. I'm pleased to connect with all of you as we discuss our company's performance in the second quarter of the financial year 2023/2024. Let me give you a macro-level overview on the industry and our performance during the quarter gone by, post which our CFO, Mr. Rohit Gupta, will take you through the financial and the operating metrics. Before we begin, let me share a quick update on the proposed merger with Sony. As you all must have noted, during the quarter, we received the approval from the Mumbai bench of the Honorable National Company Law Tribunal for the composite scheme of arrangement.
From our perspective, we are committed towards ensuring that all points in the composite scheme of arrangement are duly addressed. We recognize the value that this merger holds, and we are focused, and our focus remains on unlocking the opportunity for all the shareholders. Coming back to the company's performance, let's begin with the movie segment. The second quarter brought in a lot of excitement for the industry at large, with audiences returning to theaters and movies delivering a blockbuster performance at the box office. We witnessed a good quarter on the back of an extremely encouraging response received for our films. These included Gadar 2 in Hindi, Bro in Telugu, and King of Kotha in Malayalam, which boosted our overall performance.
Zee Studios is a strategic piece of our portfolio, and it plays a very synergistic and complementary role in the success of our linear and digital businesses. Our investment focus continues to remain sharp on films across all languages, enabling Zee Studios to emerge as a truly pan-India studio. The industry is going through a rapid evolution, and several changes can be expected at a structural level in the years to come. It is an exciting time for the media and entertainment ecosystem, and the increasing investment and competition will only lead to higher opportunities for growth. Amidst this scenario, our company remains well positioned to capitalize on any shifts and the resultant opportunities with a well-diversified portfolio. What we have built at Zee is truly unique and a valuable asset that harbors the capabilities to continue delivering returns to its shareholders amidst such changes.
As the industry content contends with advertising revenue and subscription revenue recovery, our performance in other key business segments helped offset the slow growth rate, displaying the fundamental strength of our business. The quarter gone by has certainly approved higher value than the previous quarter, and we remain cautiously optimistic of the outlook going forward. We are seeing a gradual recovery in the advertising sentiment, which led to gains during the quarter. But the recovery mode has just begun, and we are yet to witness rural sentiments improve entirely, thereby keeping us cautious on the overall growth. The festive season is expected to spur growth in the third quarter, and we remain optimistic of delivering higher growth, albeit with some caution towards the overall macroeconomic environment.
On the subscription side as well, with NTO 3.0 implementation having stabilized, we find ourselves on a better footing and remain hopeful of sustaining positive growth levels in the coming quarters. We continue to make significant efforts along with the industry to drive growth of DTH, DTH ecosystem in India. We are enthused by the results of those efforts. Where the TV viewership continues to grow, the share of TV, pay TV, is at its peak of the past seven quarters, having increased by nearly 300 basis points in the last one year. Coming to our digital performance, all the usage metrics for ZEE5 continue to remain healthy on the back of key originals and direct-to-digital films, driving higher subscriber acquisition and retention. Our revenues are a suitable reflection of the platform's growth quarter on quarter and are in line with the external, industry reporting standards.
We also witnessed a healthy reduction in ZEE5's EBITDA losses, in line with our indication of the platform already being close to its peak investment levels. Overall, the second quarter has displayed positive signs of growth compared to the start of this fiscal, and we remain hopeful of this sentiment further improving as we move forward. I would now like to hand over the session to Rohit to take you through the financial and operating metrics of the company's performance in detail. I would also like to take this opportunity to wish all of you and your loved ones a very happy and a prosperous Diwali. I look forward to interacting with you during the Q&A session later. Over to you, Rohit.
Thank you, Punit. Good evening, everyone, and great to connect with all of you. We've had a good all-around operating and financial performance in quarter two, and I will briefly touch upon some of the key highlights. As Punit alluded, the industry landscape is transforming, and we are very excited about longer term growth prospects for our broad content portfolio and diversified offerings. We are continuing to shape our business with focused investments for the future, while navigating some of the near-term headwinds around the soft ad environment. During the quarter, while we saw some gradual pickup in ad spending led by FMCG, pace of recovery is still slow. Asia Cup Cricket in September took some share of FMCG ad money.
Our ad revenues were 3.3% lower year-on-year and grew at a modest pace of 4.1% quarter-on-quarter, reflecting nascent pace of ad spend recovery. Looking forward, we are optimistic of gradual recovery to continue in quarter three on back of festive season. However, Cricket World Cup will take some share away. With NTO 3.0 having paved way for TV subscription revenue growth and step up in ZEE5 subscription, our subscription revenues were up 8% year-on-year. On a quarter-on-quarter basis, there is a slight moderation of 2.2% decline, given we had a lumpy base in quarter one for TV subscription revenue, which was the first full quarter post NTO 3.0 implementation.
TV industry landscape remains healthy, and post NTO implementation, we remain optimistic of modest growth in our TV subscription revenues. Quarter two was another strong story for our TV viewership share performance, wherein we have gained 90 BPS share quarter-over-quarter to take our network share to 17.9%. It's heartening to note that this gain is fairly broad-based across several key markets, including Zee TV, Marathi cluster, Hindi movie channels, and southern channels like Zee Kannada and Zee Keralam. We remain market leaders in Hindi and Marathi movies, Kannada, Odia, Bangla and Punjabi. From a competitive landscape perspective, our 90 BPS share gain is highest amongst all major TV networks in India. Overall, we are extremely pleased with team's concentrated effort to win back share and hope to keep the momentum in coming quarters.
Specific to Q3, please keep in mind that [audio distortion] share in December quarter will be adversely impacted by Cricket World Cup. On digital side, ZEE5 had a strong quarter, with 59% year-on-year, and 37% quarter-on-quarter digital revenue growth. We have seen growth in ZEE5 subscription, and a digital syndication deal has further aided the revenue growth. Our original content continues to resonate well with viewers, and we released 22 shows and movies, including four originals during the quarter. Driven by operating leverage and prudent cost management, ZEE5 EBITDA loss has narrowed by INR 882 million quarter-on-quarter. Coming to the movies business, quarter 2 FY 2024 was a blockbuster quarter for Zee Studios, which created new records in terms of footfall and box office collection.
Zee Studios released six movies, two Hindi and four regional, during the quarter, with Gadar 2, Bro, King of Kotha, being some of the headline names. Gadar 2 went on to become the highest ever grossing movie on box office for Zee Studios. As a result of strong performance of theatrical releases and syndication, other sales and services revenues are up 201% year-on-year and 322% quarter-on-quarter. On music business, Zee Music Company is seeing consistent growth in video views and subscribers... highlighting strength of Zee Music Company, new age music catalog with rich library. [audio distortion] is now number two music channel with over 142 million subscribers of YouTube and over 45 billion total video views during the quarter two.
Moving to cost and profitability, in quarter 2 FY 2024, overall operating costs has increased by 23.2% year-on-year and 15.1% quarter-on-quarter due to higher content costs, movie releases and investments in ZEE5. Given strong revenue growth and led operating leverage and effective cost management, EBITDA margins have improved to 13.6%, higher by 580 basis points quarter-on-quarter. Tax from continued operations for the quarter came in at INR 1,299 million. Net profit for the quarter and the year was impacted by merger expenses related to exceptional items, which for quarter 2 stood at INR 118 million. This quarter, merger-related expenses also include a one-time provision for stamp duty with respect to proposed merger scheme.
On balance sheet side, content inventory has declined in quarter two, driven by movie releases and syndication. September 2023 content inventory advances and deposits are lower by INR 2.9 billion at INR 76.7 billion. The cash and treasury investments of the company as of September 2023 stood at INR 5,655 million, which include cash balance of INR 3,649 million and fixed deposits of INR 2,006 million. Also, quickly touching upon receivables from Dish, outstanding balance is at INR 699-INR 691 million as of September 2023. Moving through the rest of FY 2024, we are expecting gradual recovery in consumption sentiment and are optimistic based on FMCG comment, commentary with respect to ad spending.
While quarter three will see some festive pickup, we are still cautious and would monitor how the pace of recovery settles post Diwali. As quarter two has shown, we have a high degree of operating leverage in our business and are confident that as revenue picks up, we will also have more tailwinds on profitability as the year progresses. Back to you, Mahesh.
Thanks, Rohit. We can now open the call for questions and answer session.
Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Nuvama Institutional Equities. Please go ahead.
Yeah, thanks. My first question is on ZEE5. So the sharp reduction in losses quarter on quarter. So what is new here? Is it because of the impending merger, you would like to have a more nuanced look at the merged entity, different overall strategy? Or is it because the competitive intensity from the global OTTs is reducing? Or is it because the overall OTT revenue potential itself seems to be slowing down, much earlier than initial expectation?
Abneesh, this position is not as grim as the three options that you're giving. We are still operating this entity as if we are a standalone three entity, and the pending merger has not any impact on what may have transpired. But the increase in revenue and as we have said, that our investments have peaked in ZEE5 already, as I said in my opening remarks as well. Our investment levels are not going up at that level, and therefore, this trend will continue and you will see only better operating metrics coming in ZEE5.
So one follow-up on that was, and that's also on your movie production business. So Q2, we saw the entire movie industry do really well, multiplex industry at all time, their numbers, and you yourself did well across three different languages and very good numbers. So are there any learnings from what you did, which can be seen as a playbook for your coming movies? Because the same movie industry in October has again seen very tough times. So your comment on that. And second one was, what we have picked up, OTTs now are bidding for movies once they are actually released, so then they'll get a sense of how the movie is, and the rights also, bidding rights also are much more sensible.
How does that impact you, both as a buyer of content and as a seller of content?
I think first and foremost, Abneesh, as I've always maintained, content is king. So if you make the right content and which connects with the hearts of people, it will do well. And then, of course, marketing is the second key mantra behind film. So I think we've had key learnings from-
...Our last three, four films that we have released in terms of the marketing strategy, et cetera, and how that has paid off. So, it's not rocket science, but it's something we have tried differently, et cetera, and that has paid off for us. So we will continue to work on that going forward. It's not the final learning, but we'll continue to work on that. I think you're absolutely right. The OTT market, et cetera, is also settling down now. The pricing wars will end very soon, and things will find, the water level will find its best place for the right content at the right price.
Okay. Last question on the news article, which came today and similar article in a few days also. So I understand you got the reprieve from SAT. So, if you could comment on, is there any disconnect between you and Sony at the, for the regulatory level? Is there a case which can happen to the merger because of this? And what are the timelines you are looking at, given almost all have come, when do you see the delisting and the list, the merge completed?
I'll just take the first part, Abneesh, and the others can take the rest of it. We don't, as you know, comment on speculations that happen in press, so I would not like to comment on that. We are in active engagement with Sony on various parts for the entire scheme to be finally implemented after getting all the approvals that we've got. On the listing part, Mahesh will take. I will ask you to-
Yeah, sure. So on your other questions, Abneesh, right now, we are focusing on implementing the scheme as it was approved by the NCLT, by the shareholders and other regulatory bodies. So we are focusing on that and trying to get that at the earliest. We are putting condition precedents and closing conditions, which we'll have to complete and which we are working right now. So in terms of the timelines, you know, probably we may take a few next weeks in order to complete this.
Sure. That's all for me. Thanks a lot.
Thanks, Abneesh.
Thank you.
Thank you. The next question is from the line of Vivekanand Subbaraman from Ambit Private Limited. Please go ahead.
Hello. Thank you for the opportunity. Punit, I wanted your comments on the competitive landscape that is currently prevalent. Reliance is infusing more capital, but then, Disney globally has been on the back foot as far as the linear TV and perhaps also their ability to tolerate longer gestation in India is concerned. How should one think about the TV industry given the competitive dynamics?
So Vivekana, as I said in my opening remarks, in the last seven quarters, we have seen the TV viewership peaking by almost 300 basis points. So, I cannot comment on the global scenario for television, but I can certainly comment on the Indian scenario for television. It's going to be continuing to be a very healthy environment for television in this country, at least for the foreseeable future. So from that perspective, I think your company and our company is well poised to take advantage of that, and therefore, continue to deliver on what we have promised all the time. As far as the pressures of Disney, what they are facing, I can only speculate on the basis of what I read in the press, just like you.
So I'm sure those press articles are not incorrect, but that will be our speculation. Certainly, we will. We have seen reliance investing a lot of capital behind this business, but I have maintained that to win in the media landscape, capital is not the only thing. We need a lot of creativity, we need a lot of talent that is required to make that happen. So we will continue to be focused on delivering and working towards delivering our market shares and therefore our business from that point of view.
Okay, thank you. Second question is on the OTT business. Currently, it contributes around 10% of your revenue. If one were to think about this business maybe five years hence, what do you expect the revenue contribution of OTT to the overall business, from the point of view of, let's say, the merged entity or Zee alone?
It's difficult to speculate with that, Vivekanand, but, I would, I would say what I would like, and not what I think it will happen. What I would like, and I'd be happy with, is if the OTT business would to contribute about 30% of the top line of this company. That will be something that will be satisfactory in my view, and that will be a, a successful, business from my perspective at that point.
Okay, fair enough. Where do you think the growth comes from incrementally? Is it more from advertising or just the subscription part scaling up the way you've done it in the last couple of years?
It's a combination of both, Vivekanand. So it's not just one thing. The larger part of it will come from subscription, but-
... there will be a significant part coming from advertising as well.
Okay. Thank you, and all the best, and happy early to everyone.
Thank you.
Thanks, Vivek.
Thank you. The next question is from the line of Kunal Vora from BNP Paribas. Please go ahead.
Yeah, and thanks for the opportunity. First I wanted to understand the DTH subscription mix. So how many subscribers do you now have for cable DTH and STTH? And if you also can provide some insights on how are the ARPUs in order these three channels?
Kunal, sorry, you think what's the industry split in terms of-
Yeah, not industry, but if you can, like, say industry or your mix from cable, DTH, and fiber to the home. And if you can talk about the R2 or realization from all of these three channels.
We haven't given that sort of granularity split on our subscription side of things, Kunal, but suffice it to say that a large part of this would be DTH and cable, and that's really... In number of subscribers, they would be reasonably close to each other.
Cable DTH and STTH will be similar, or cable DTH will be similar?
Cable DTH.
How are these numbers trending? Are they, let's say, cable and DTH, are they declining year on year, or they are holding up?
There was, I mean, if you look at recent on the DTH side of things, the numbers are largely holding up.
Okay.
I mean, if you look at last 4-5 months data, post NTO, sort of think, DTH, et cetera, numbers have largely held up.
Okay. Okay, fine. I will take more on that offline, but next one is what will be the contribution of movies to profitability this quarter? And also, if you can talk about the margin outlook for second half.
So let me take the movie and then hand it over to Rohit for the margin outlook. So you look at the way we report, other sales and services has largely performance from what we do on movies on the theatrical side and the broader syndication and so on. So that line item largely captures it, but it's not just movies from the theatrical side of it. There will also be syndication. And if I see where you're getting the question to, this quarter's performance is not entirely movies. So even if you would have had a relatively lean movie performance, the underlying operating performance with the linear and digital would have still improved. Movies have, of course, added and given it a little bit more boost to it, but even without movies, the underlying performance has improved on linear and digital side.
Yeah. And, Kunal, to your question on the margin, we are refraining from giving any guidance on that. But, like I already mentioned in my opening remarks, you know, we have a very good operating leverage, and as the ad recovery starts coming in, I think, the margin improvement is given. So one is, there are three factors. One is the movies, you know, have done well in quarter two. In H2 as well, there are some movies which will come out, which should help. Secondly, ad recovery. And subscription, as you see, 8% growth has come in in H1, H1 already, so that will continue as well.
Sure. Just a question on margin, what I wanted to understand was the 13.6% which you reported, and what would that number have been if the movie performance was not been there too?
Look, Mahesh here. We haven't given the split, but let me just point you to a number you can validate, right? Leave the movies aside for a minute. Just go and look at ZEE5, which is where we have given EBITDA. You see, quarter-on-quarter, roughly INR 80 crore, INR 82 crore, INR 88 crore, I think INR 88 crore. The swing has just come from quarterly performance there. So yes, we wouldn't be able to break it down by content in terms of movie, linear, digital, but even if you take movies out, the underlying performance, like-to-like, would have improved.
Okay. Okay. Understood. Last couple of small questions. Receivables increased from INR 16 billion to INR 22 billion over the last six months. What's driving that?
So, three things. One is that, the movies, you know, all the revenue that is approved for the movies in September, actually, a lot of it has got liquidated in the, in quarter three, in October, specifically. And, these are large collections which came in, in the, you know, in the, in the month end. Similarly, subscription revenues, you know, we've seen an increase, and, you know, there has been a build-up at the quarter end, which got released in, in quarter three and for [audio distortion]. So, there's been a little seasonal aspect to it. Most of it is getting released, in the quarter three.
Understood. Understood. Okay. So it's only a timing issue, okay. And on ad revenue, FMCG companies have spent, like, much larger amounts this quarter compared to last year, so there has been a sizable increase in ad spend by them, but we haven't seen that kind of improvement for you. So in your case, would FMCG have done well or even FMCG has not done very well?
So, Kunal, I think a couple of things have happened. One, FMCG has done well, so the only thing which you're talking about relatively is the pace of improvement. Keep in mind that when you look at September, October, November time, it's also a fairly busy cricket season, right? And even at this point in time, the hot money-funded startups have been not that active and so on. The pricing on the sports property have also been little bit more lucrative, so there's a little bit more money compared to what you typically see in a busy festive sports season, which has gone from FMCG to sports.
So underlying, yes, we've seen the improvement, but we would want to monitor and see how things settle down post Diwali, because then the festive would be out of the way and a busy sports calendar will be out of the way. Underlying, yes, there is improvement, but, keep in mind that there's some bit which we want to, take it aside.
Okay, thanks. That's it for my day. Thank you.
Thank you. The next question is from the line of Karan Taurani from Elara Capital. Please go ahead.
Hi. Thanks for taking my question. I have two, three questions. The first one was on the advertising front. So you mentioned the second half, you will see some demand because of festive, but you also mentioned the sports part, right? Which is kind of as in a lot of these sports properties, it looks like a lot of ad spend. So what is the kind of growth that we can see maybe in the next quarter or maybe in the second half? Not for the guidance, but could we expect, you know, high single digit, double digit, or low single digit? Any indication or color there?
I can only tell you this much, Karan, that the industry will see a high single digit growth.
Right. That's helpful. Secondly, in terms of, you know, subscription revenue, of course, this year is going to be good because of the R2 and the price hike after NTO 3.0. But what we are seeing is that the number of pay TV households, specifically on the cable and the MSO sides, is declining. And let's assume that if we take a 3%-4% price hike, going ahead structurally, and if the number of households declined by two percentage points, then the growth rate there is flattish. Any indication there in terms of where subscription revenue is heading for the TV in terms of growth?
There also, Karan, we have to, we have to look at the fact that even if the cable TV households are shifting, they are shifting to either connected TVs or to DTH. And therefore, we are present on, on, on that, those platforms as well. So it's not like we are losing out on those revenues. We are very much capturing those also in our, in our revenue line. And I do not expect that the subscription revenue on the linear side will slow down anytime soon. And Rohit stated that we have already seen an 8% growth in H1, and we expect that to continue. The next round of revision to the NTO pricing will happen in February, March of the coming year.
We will be working on the fact as to how much price increase, et cetera, we will be able to take and work towards that so that we can continue to deliver, if not good growth, at least modest growth for the going future.
Right. And, lastly, on ZEE5, I mean, what led to this reduction in, in the losses? Is it, revenue numbers scaling up? To a certain extent, I do believe the revenue and scaling numbers have kind of surged. Or is it the cost control measures? Is it, you know, some kind of, industry doing the right thing in terms of content costs coming down? What led to this, advantage in terms of, losses coming down?
It's a combination of all that you have said, so it's not just one thing. It's not so much as cost control, but prudent cost spending.
Right. And anything on the positive buy side that, you know, maybe you have now kind of got an indication in terms of what content works, what doesn't work? Experimentation probably has come out. Just any color on that.
Difficult for us to comment here right now on that. There is a lot of content we put out there. As you'll see from our presentation, almost 22 pieces of content were put out in this quarter. Some work, some don't work. And in the content business, not just on ZEE5, but even on television, it's a constant trial and error that we work with. And as I've maintained always, that as long as you get it right 40% of the time, you're okay. If you get it right better than that, you're doing wonderfully well. If anything is below the 40% mark, then you could be having some pain.
Thank you. Thank you so much.
Thank you. The next question is from the line of Abhishek Banerjee from ICICI Securities. Please go ahead.
Hi, yeah, am I audible?
Yes, you are, Abhishek.
Yeah. Thanks. So, my first question is on the thing, the ZEE5 ad monetization, right? So is there, I mean, and if we think about the post-merger also, so do you think ad monetization can be a much bigger lever to drive profitability in this business?
So I think we should leave the merged entity aside right now and talk only about our position as we exist today. There is potential to monetize advertising more, but it's a function of traffic and then also the right amount of traffic that you can generate. So there is potential to make a lot more monetization on the advertising side. But yeah, so we will be working on that to generate the traffic that we need to monetize that better. But as I have said in the past, the subscription line is far more lucrative and far more profitable for us than the advertising line in this business.
Understood. And if I am talking about ad spends from FMCG companies, obviously, there has been a very heavy cricket season. But what is your outlook on the second half of this quarter?
We think, I think when you look at slightly medium term, let's say 3, 4, 5 months out, we feel quite optimistic about the potential on which ad spends can structurally recover. I think at this point in time, there are very early green shoots, but as soon as... At least in our channel checks, in our conversations with clients, there is lot more optimism about volumes and generally the rural demand recover when you really take it 2, 3 quarters. So to that extent, I think, as you really look out calendar year 2024, there is optimism.
The only debate here is the pace of the recovery, but clearly, given how much the spending has historically been cut out of ads and as volumes come in, and everyone acknowledging and recognizing that A&P has to be a driver to drive volume and demand, bodes well when you really look at, let's say, calendar year 2024, point of view.
Understood. But, in your conversations with these companies, do they look at linear TV advertising as a driver of only rural demand, or do they think that it can still drive, you know, high-quality urban demand?
Both, actually, right? I think when you look at, even on the TV, right, there are a fair bit of impact properties. The demographics is fairly broad-based, so it's not just, a rural play, right? When you really look at any brand building effort, any, national outreach kind of plan, it gets figured and factored in demographics and reach, and the kind of shows getting picked and time slots getting picked and all that. So it's quite broad-based. It's not an either/or situation.
Understood. Just one final question: So, in terms of longer-term ad cycle, would you have any observation on how advertising has typically been in pre-election years?
Sorry, how advertising has been?
In pre-election years.
Okay. Advertising in pre-election years, it certainly has spiked, and it has gone up significantly, from the political advertising point of view. But, our company does not get impacted by that, either positively or negatively, because a large part of that, or a significant part of that, goes towards the news networks. It does not come to the entertainment channel.
Understood. Understood. Thanks. Those are all my questions. Thank you.
Thanks, Abhish.
Thank you so much. The next question is from the line of Arun Prasath from Avendus Spark. Please go ahead.
Thank you, for the opportunity. Amit, my first question is on the, cost in ZEE5. If we look at the run rate, today we are at around INR 2,000 crore annual run rate in terms of costs. So obviously last year it was around INR 1,500 crore, and before it was around INR 1,000 crore. So this large part of this incremental run rate, it can be attributed to the unit costs going up or the customer acquisition costs, or is it, like, more towards the, volume of the content produced?
A significant part of this, would be, towards the technology costs, which we have to incur on a variable basis. Because things like CDN, hosting and all those things are variable costs. And as you get more subscription, as you get more user base, this cost continues to go up. I do not think... The only other part that, Rohit can talk about a little bit in detail, is also some of the catch-up amortization costs that's coming in. Because, you know, we are still running the amortization cycle, and it is not like linear business where we are pretty much running in line with our, businesses because it's still in the
Yeah, sure. So, Arun, as we have mentioned, you know, we have been making investments in the three areas, primarily in Zee5. The first has been the platform and the technology incentive. The second has been content and then marketing. There were some initial investments we had to make, you know, which were always supposed to be coming down. So from that standpoint, those quick investments have been made. Content investments will go on, and, like we said, you know, we are producing all kinds of content and, you know, 22 pieces of content, which got reviewed, which got, you know, transmitted this quarter. So it depend on that. And then, of course, marketing spends, we have been prudent and will continue to be prudent on that.
So, if I had to put it in two buckets, it is variable costs and fixed costs. Variable costs typically is what percentage of your revenue, ZEE5 revenue?
... Arun, we haven't given that split in terms of fixed and variable cost structure. Given the competitive landscape we are in, that's basically the heart of the cost structure in a way.
Right. Right. No, no, at least on the, you said that-
Let me put it this way.
I understand.
I think the way, when you think of this modeling and going forward, think of it this way, that business was entirely early stages from coming out of COVID, 2021, 2022. A large part of heavy lifting in terms of building the cost zero to one is done with. From here on, the increases will largely be usage linked, right? We don't have to really go from zero to a few hundred people in tech centers. We don't have to go and start from zero to start building some of our initial content catalogs and all that, right? So a large part of heavy lifting from a fixed cost standpoint is behind us. From now on, cost increases will be function of how the usage and consumption scales.
So to that extent, there is gonna be a lot more correlation of revenues to cost as we go forward.
Okay. All right. All right. And talking about the revenue itself in ZEE5, our understanding is this is still a largely subscription-based platform, but still, we are seeing usually subscriptions are very sticky in nature, but still we are seeing quarterly fluctuations even on a, I mean, on a sequential basis, which shouldn't ideally be there if there is largely driven by sticky subscriptions. So how should we look at this volatility on this revenue part?
Look, I think B2C, what you said is largely true in terms of recurring nature and all that. There's always been little bit of churn, but you'll always acquire more. So I think what you said is true in B2C. But keep in mind that B2B are lumpy. Sometimes when you sort of complete a term on a B2B, you may see a fall. Sometimes when you renew a new B2B, you see an increase and so on. So that's one part which causes the volatility. And then there could be potentially other service line items which generates revenues, if you had indication come in in a quarter of the digital properties so on, that element of lumpiness will come from.
Ideally, as a business, you would prefer more B2C revenue, right?
Sorry, more what revenue?
More revenue from B2C rather than a B2B in this, at least in this side of the business.
I mean, in early stage, you need both. You need B2B to give you certain scale and sampling, but you need B2C structurally to drive lots more user engagement and lifetime sort of, data insights, knowing your customer, what you could do with that data eventually on the advertising side and other things. So we have... I mean, we've spoken about this in the past without giving split. We have a slightly higher skew to B2C compared to where the industry is, but that's what I believe it is.
Okay. All right. All right. Okay, my second question is on the linear TV. Again, broadly, taking your financials and excluding the ZEE5, we get the sense that the margin is in a declining trend, even in the linear TV, that is, ex-ZEE5 business. Is it more related to the mix change in the revenue or it's again cost of content is increasing? How should we look at it?
So, two points on that. One, we look at where our viewership share is trending. We've come to 17.9%, and we're coming on the journey. So yes, we're going through a phase where there is focused marketing investment, even on the TV side of things, to revive viewership in specific pockets. So that's one. Again, not structural, so I wouldn't really make a broader call out on the underlying margins of the business. It's just a conscious choice we're making, and the results are showing in terms of how viewership share is coming. Second, typically, when you are in Q2 and heading into a festive season, you will invest behind, you know, some of those properties in terms of viewership and all of that, to take advantage of stronger festive season coming in.
Those are the factors which you played out. Nothing broader to extrapolate beyond that.
Okay. All right. All right, Mahesh, and Amit, all the best. Happy delivery.
Thank you.
Thank you.
Thank you.
Thank you so much. The next question is from the line of Aditya Chandrasekar from UBS. Please go ahead.
Hi, thanks for taking my question. A couple of questions on my side. The first one, following up with what I think Abhishek was asking. So we are seeing FMCG companies, they have kind of increased their ad spends over the last, say, a year or so, but not a lot of that has translated to our ad revenues. For one reason is, of course, sports, because some of these sporting events, because they are fancier, they're forced to allocate some of it to sports. But are we seeing any kind of structural trends where they're allocating more of their ad spends to digital, and so it's not kind of flowing through to our linear TV advertising? That's one question. Second question is that, on a sequential basis, we have seen our TV subscription revenues come down.
I think you mentioned there was some kind of lumpiness in Q1. I just wanted to clarify because I missed that. Thank you.
So I'll take, I'll take the first one, and then I'll give Mahesh over to the second one. As I have many times said that linear television is the best-suited television or for best-suited medium, sorry, for the reach that you can achieve for advertising.
... No amount of digital advertising can still achieve the kind of reach television can achieve. Therefore, for brand building exercise, television still remains to be the most focused and most effective from both reach and pricing point of view, medium, and therefore we are not seeing that shift happening. Yes, when advertisers have limited budgets and they are looking at only transaction-based gains, you know, for the short term or for the medium term, they would look at digital, because that gives them a far more focused reach towards the clients or the viewers that they want to reach. But I don't think we are seeing any structural change happening so far. It's still early days.
As I said earlier in my opening remarks, and also, answering somebody else, that we are seeing gains in TV viewership even as we speak. Last quarter, we have seen a 300 basis points gain in the absolute viewership of television, so therefore there is no structural change that we can talk about. Mahesh, you want to take the second one?
Sure. So the second question about subscription month, yes, you got that right.
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You got implemented, it implemented from that first, so to that extent, we had some bit of base effect there in length, and when you compare Q1 to Q2, you're seeing some sequential, sort of moderation, and that is where we are pointing people to look at YOY sort of growth rate.
Perfect. Thank you.
Thank you. The next question is from the line of Jinesh Joshi from Prabhudas Lilladher Private Limited. Please go ahead.
Thanks for the opportunity. I have a small bookkeeping question. If I look at our interest cost, it appears to be a tad high when I compare it with the historical run rate, and also the figure for 1Q and 2Q appears to be quite similar in nature. So is there an element of amortization over here?
So Jinesh, the interest costs that we have is very similar to what we had in quarter one as well. And, as we have disclosed, you know, we are paying a certain amount of interest on the Star ICC contract, where we have, you know, I mean, the ICC contract, where we have association with Star, so that is forming part of that. And therefore, you see on a year-over-year, you see that the growth that, I mean, quarter-over-quarter is pretty flat.
INR 23 crore is the run rate, which one should be building in, right?
Well, there is, there is about INR 8 crore- INR 10 crore, which are finance charges and other things which are, approximately there. And yeah, okay. And then the other part is that, there is, there is a lease accounting aspect based on which some long-term leases do get classified, and there is an interest element which is also, you know, forming part of this.
Got that. My second question pertains to your remark to one of the questions which was asked earlier pertaining to build-up in receivables. And I think we mentioned that the build-up is predominantly because of the movie business and liquidation should happen soon. But I just want to get this right. Gadar released on fifteenth of August, and we still had 45 days for a collection. So just wanted to understand, how does this receivable accounting basically work with the multiplex owners?
So generally, typically, Jinesh, the receivable starts within 2-3 weeks of the movie release. But you have to keep in mind that Gadar also ran for 56 days, which means it was not just a 15th August, one-day release, and therefore, the collections accounted for accumulated over the 45-day period, including even running into October. From that point of view, it's not simple mathematics of 15th August. Actually, the movie released on 11th August, so, it's not really just a simple this thing, because the revenue build-up is on a daily basis, and therefore the billing also happens on that basis.
Sure, sir. I just wanted one small clarification. I think, with respect to ZEE5 revenue, it was mentioned in the opening remarks that there was some digital syndication deal as well, if I heard it right. If you can just clarify, what does this pertain to?
So, yeah, Mahesh, go ahead.
Yeah, so that pertains to a content piece which we have syndicated out, Jinesh. So what happens is when you do something like this, you basically have corresponding cost and revenue coming in the PNL.
Okay. I mean, I—
I will just elaborate that, Jinesh. So we continuously... You see, we buy content, a lot of content, which is even bundled with our television content, right? And therefore, at times, we believe, closer to realizing that this content may not be suitable for our platform in the best form, and that's when we decide to go and syndicate it out. And, our teams felt that we were getting a farther return on that piece of content if we were to syndicate it out rather than keep it for our own platform, and that's what you're seeing there.
This is clear. Thank you so much, and all the best to you.
Thank you.
Thanks, Jinesh.
Thank you. As that is the last question for the day on the part of participants, I now hand the conference over to Mr. Mahesh Pratap Singh for closing comments. Over to you, sir.
Thanks, Anju. Thank you, everyone. Thanks for joining us today and wish you and your family a very happy and prosperous Diwali. Do feel free to reach out to us if there are any follow-up questions as you do a deeper study of numbers. We'll be available and look forward to speaking to you. Thank you so much, and have a great festival season.
Thank you so much. On behalf of Zee Entertainment Enterprises Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you, everybody!