ZEE ENTERTAINMENT ENTERPRISES LIMITED Call/105537_20080130.pdf · Welcome to the Zee Entertainment Enterprises Limited conference call. For the duration of the presentation, ... In

ZEE ENTERTAINMENT ENTERPRISES LIMITED

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3Q FY2008 TELECONFERENCE

JANUARY 30 2008, 12:00 P.M. INDIA TIME

Moderator: Good afternoon Ladies and Gentlemen. I am Rita, the Moderator for this

conference. Welcome to the Zee Entertainment Enterprises Limited conference

call. For the duration of the presentation, all participant lines will be in a listen

only mode. I will be standing by the question and answer session. I would now

like to hand over the floor to Mr. Atul Das. Thank you and over to you sir.

Atul: Thank you. Good afternoon, ladies and gentlemen and thank you for joining us

today to discuss the results for the quarter ended December 31, 2007, which is

the third quarter for the fiscal year 2008 for our company. We do hope that you

had a chance to go through the earnings release and the copy of results, which

is available on our website www.zeetelevision.com. This is the third earnings call

we are conducting for Zee Entertainment Enterprises Limited for the fiscal year

2008. To discuss the results and performance, joining me today is Mr. Subhash

Chandra, Chairman of Zee Entertainment and members of the senior

management team of Zee including Mr. Puneet Goenka, Whole-Time Director;

Mr. Pradeep Guha, CEO of Zee; Mr. Hitesh Vakil, Director finance; Mr. Himanshu

Modi, Head of sports business and Mr. Sanjay Jain, President and group CFO of

Essel Group.

We will start with a brief statement from Mr. Chandra on the third quarter

performance and then we will open up the discussion for questions and answers.

I would like to remind everybody that anything we say during the call that refers

to our outlook for the future is a forward-looking statement that must be taken

in the context of the risks that we face. With this, now I hand over to Mr.

Chandra.

Subhash: Thank you Atul. Good morning and good afternoon ladies and gentlemen. Thank

you very much for joining us today to discuss the results for the quarter ended

December 31, 2007, which is the third for this fiscal year 2008. We have

recorded a robust growth of 24.1% in operating revenues, which is led by

advertising revenue growth of 25.3%. Our television broadcasting business

continues to lead industry in converting rating success into strong revenue

growth.

ZEEL 3Q FY2008 TELECONFERENCE JANUARY 30, 2008

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Let me summarize the results of the third quarter, the consolidated revenues

have grown to Rs 5.18 billion, which is up 24.1% compared to the corresponding

quarter last fiscal. Total expenditure was Rs 3.61 billion, up 28.8%. Operating

profit has gone up by 15.6% to Rs 1.56 billion, while the operating margin stood

at 30.3%. Profit after tax before minority interest has gone to Rs 1.13 billion

compared to Rs 958 million in the corresponding quarter last fiscal.

Now I will summarize the results of the third quarter of FY08 versus FY07 in

detail to get a clear picture of our third quarter performance. Advertising revenue

was Rs 2.638 billion for the quarter ended December 31, 2007, an increase of

25% as compared to the corresponding period last fiscal. This, as can be seen, is

again higher than the industry growth rate, but we believe for the full year the

growth could be in the region of 30% to 32%. The growth is led by our channel’s

continuous improvement in the ratings. Flagship channel, Zee TV averaged 279

GRPs during the quarter and has improved its channel share to 31% for the all

day’s rating. Other channels have also improved their individual ratings during

the quarter and we believe that we can take this momentum forward in the

quarters to come.

Subscription revenue was Rs 1.95 billion for the quarter ended December 31,

2007, an increase of 20% over the previous quarter of the current fiscal.

EBITDA for the third quarter is Rs 1.569 billion and the profit before tax is Rs

1.592 billion. Ladies and gentlemen, in case we add back exceptional item of Rs

100 million with regards to the loss on foreign exchange arbitrage then PBT is

actually Rs 1.7 billion, which is 23% higher in comparison to the corresponding

quarter last year.

Coming to our business performance during the third quarter, as I said earlier

that Zee TV has taken a rating share gain of 2% over the last quarter and has

improved its channel share to 31% in the general entertainment genre. On

competitive position, our focused approach towards content, quality, and

differentiation has given us the right impetus to create best of the shows in the

country today. If you look at December 2005, where we had only one or two

properties in top 50, we now have more than 24 properties in the top 50, which

means that around 49% of the top 50 properties in the Hindi GEC belong to Zee

TV. Recent weeks in the top 100, we had more than 39 programs in the tally. I

would also like to explain that so far we have been concentrating our efforts on

GEC or Zee TV, during the primetime from Monday to Thursday. Now, we have

expanded the original programming offering to more number of hours in addition


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to prime time hours, which is reflected in the programming cost increase in the

afternoon and weekend programs.

On the other channels in the bouquet, Zee Cinema won the “Best Hindi movie

channel” and the “Best Telefilm” award for the short promotional movie “Pyaar Ki

Shuruaat” at the Indian Television Academy Awards in Mumbai on November 24,

2007, and it continues to remain number one in its genre. During the quarter, to

further propel our growth popularity in the Hindi general entertainment segment,

we launched Zee Next in December 2007, a new channel that reflects the

changing preference for youth. It is aimed at bridging the existing gap in GEC

wherein programming genre like thriller, comedy, and actions are absent or

minimal. Zee Next will complement the flagship channel Zee TV through the

differential content, also its unique content treatment of story telling with mass

appeal, blending modern and progressive societal outlook with traditional Indian

middle class value system resonates the value of the emerging India.

In the English language offering, this quarter Zee Café has been successful in

strengthening its position amongst its English-speaking target audiences. Further

capitalizing on its niche offering, channel has launched 11 new programs during

the quarter. Zee Café today is the first channel in the country to run popular

sitcom simultaneously with their launch in the United States, thereby realizing its

core proposition to its viewers. In English language cinema, Zee Studio has

started showing movies with English language subtitles which resulted in growing

stickiness of the viewers with the channel during the quarter.

Now, let me summarize the sports business performance, the sports business

revenues during the third quarter was Rs 854 million, recording a growth of

102% over previous quarter of the current fiscal and the EBITDA of the third

quarter stood at about Rs 59 million in comparison to Rs 3.5 million during the

second quarter of the current fiscal year. During the quarter, Zee Sports

successfully launched Indian Cricket League and the all-new I-League in the

football in the end of November 2007. Zee Sports channel share reached an all-

time high in the week 51 and 52, just second only to our own channel Ten

Sports. All this has happened despite the other channels were showing Pakistan

tour of India. This has been actually helped by, as I said earlier with the ICL or

Indian Cricket League and I-League of football.

Coming back to the revenue streams, our other sales and services was Rs 594

million, which recorded a substantial increase of 414%, compared to the

corresponding quarter of the last fiscal, due to higher syndication revenue of the


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Ten Sports cricket events during this quarter. The domestic subscription

revenues stood at Rs 878 million, a 13% growth over previous quarter of the

current fiscal, while the international revenues were Rs 1,072 million, recording a

growth of 26% over the previous quarter of the current fiscal. The revenue from

DTH increased to Rs 175 million for the third quarter, up from Rs 125 million in

the second quarter of this fiscal.

We look forward to the rest of this year with optimism and assure you that we

will continue to deliver more value to viewers and our stakeholders. Thank you.

Atul, now we can open the floor for question and answers.

Atul: Thank you sir. Ladies and gentlemen, we are ready for questions now, but

before that we will request as usual, all participants should limit themselves to

two questions each, so that we can get on as many people as possible. Thank

you.

Moderator: Thank you very much sir. We will now begin the Q&A interactive session.

Participants connected to the India Bridge who wish to ask questions, kindly

press *1 on your telephone keypad. Participants connected to the International

Bridge who wish to ask questions, kindly please press 01 on your telephone

keypad. On pressing *1 or 01, participants will get a chance to present their

questions on a first in-line basis. Participants are requested to use only handsets

while asking a question. To ask a question, kindly press *1 or 01 now. First in

line we, have Mr. Abneesh Roy from Religare Securities. Over to you sir.

Abneesh: Congratulations on the good set of numbers. If you see your other sales and

service, there was a huge increase of 414% Y-o-Y due to higher syndication

sales of Ten Sports. Could you tell me how sustainable is it and in the coming

quarters does it depend on Ten Sports telecasting big cricket sports events?

Subhash: Yes, you are right. These are seasonal. Whenever there is an event of cricket,

syndication revenue comes in. It is not one time rather it is seasonal.

Abneesh: DTH revenues which are from India, in Q1 we had Rs 180 millions, in Q2 of this

financial year Rs 125, and in Q3 it has again become Rs 175 millions. So, could

you tell us why it is reducing and again increasing? Why is there no definite

trend available out there?


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Atul: The numbers declared by us are Rs 125 million during the first quarter, Rs 125

million during the second quarter, and third quarter it is Rs 175 million and so it

is an increase in trend.

Abneesh: Do we expect similar trend in the coming quarter, increasing trend?

Atul: Yeah, it will...

Abneesh: Okay, thanks.

Moderator: Thank you very much sir. Next in line we have Mr. Princy from CitiGroup. Over

to you sir.

Princy: Good afternoon Mr. Chandra. I have two questions. Firstly, on the content and

programming costs, could you throw some light on why the costs have increased

dramatically? I would suspect that part of it is because of Zee Next and also

probably some programming costs associated on the sports channels. If you

could just let us know whether there are one-offs in this quarter and how this

trend would look going forward?

Subhash: See, the second quarter to the third quarter, I would give you back-of-the-

envelope comparison that about Rs 20 crores is the extra cost from the previous

quarter which is as per the budget on Zee Cinema as well as on Zee TV, which

are our main channels. Rest can be distributed, as Rs 40 crores odd in Ten

Sports, Zee Next is Rs 15 crores. Of course, in the sports business, ICL is another

Rs 5 crores. So, only about Rs 20 crores is what is incremental over previous

quarter, which is as per the budget.

Princy: Okay. Moreover, going forward one can of course assume that cricket is other

big event on Ten Sports, probably costs should not increase as much, but how

do you look at budgets for Zee Next going forward. This also brings me to my

second question, how has Zee Next performance been so far, especially in the

context of the aggressive marketing activity from some of the new players like

9X or Bindaas channel.

Subhash: See, new players have to do more advertising and aggressive marketing because

they do not have established television networks. We have our own network to

promote the new properties, so that is why you may have the perception that we

are doing less of marketing, otherwise, the Zee Next channel has been well

received. It is just few weeks old, so we have to still see the ratings and

viewership data.


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Princy: Okay. And sir finally on DTH, can you throw some light on possibly how many

subscribers are you getting paid for currently and also in the CAS areas, how is

the progress and also let us know what kind of subscriber numbers you know are

being captured in your subscription revenues?

Atul: Princy, specific data relating to number of subscribers would be difficult, but it is

a combined revenue stream from both Tata Sky and Dish TV and that has been

growing as per the overall revenue growth being recorded by these individual

companies.

Princy: Okay, one final question. Mr. Chandra mentioned some currency losses, I could

not catch it properly. Could you just throw some light on what are these

currency-related losses?

Hitesh: That is one hedging transactions that we had entered about three years back, for

which this year we are suffering a forex loss and this quarter has seen abnormal

increase in that loss.

Princy: Could you quantify that loss sir?

Hitesh: It is Rs 105 million for the current quarter, it used to be average about Rs 30

million in previous quarters. We are working on it to arrest and recover these

loses.

Princy: Okay fine. Thank you very much sir.

Moderator: Thank you very much sir. Next in line, we have Ms. Devi from MIRAE Asset

Management. Over to you ma’am.

Devi: Hi. Thank you for your call. First question to Mr. Chandra. You know, we have

been hearing about quarters for the government saying that they would like CAS

to be implemented across the country. Given how it was implemented in this first

phase, what do you think, is it supportive for broadcasters and for investors in

general and your outlook on that. And secondly, at some point do you think DTH

is going to grow whereas revenues from cable would decline because as of now

we are seeing cable revenue kind of flat, so if we are having aggressive plans on

DTH and it is eating into cable segment, where do you think the balance will

strike?


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Subhash: See, the CAS the way it was implemented in the first phase did not yield any

positive results for the broadcasters. It rather yielded positive results for the last

mile cable operator, but now when regulators have recommended the digitization

of the cable, across the country starting from 55 additional cities without even a

notification, this certainly would yield positive results for all of us whether it is a

content broadcaster like ZEEL or an MSO like Wire and Wireless India Limited.

Going forward, the eating of the revenue in cable is possible because their

under-declaration will slowly vanish and revenues from cable would then be

more transparent. However, this complete digitization process will take another 4

to 5 years, whether through DTH or through digital cable, and then you will be

able to see the full transparency in the overall system.

Devi: What do you think actually went wrong with CAS implemented in the first place

and why isn’t it getting corrected?

Subhash: Because in these three cities, part of the city is still not notified so as a result

cable operators are still pirating the signals from the non-notified areas.

Devi: Okay, and if I can ask one more question, in the press release, when you said

your EBITDA from sports business is 59 million, does it include ICL as well?

Subhash: Yes.

Devi: Okay, thanks.

Moderator: Thank you very much ma’am. Next in line we have Ms. Ayesha from Goldman

Sachs. Over to you ma’am.

Ayesha: Hi there. I just had two questions. Firstly, in terms of CAS, do you actually have

any CAS revenues staying in as of this quarter and basically just wanted to know

what were the reported number for analogue cable revenues and the second

question was in terms of your international subscriber split, where is the growth

coming from? Is it mainly from the US?

Hitesh: Well CAS revenue at this moment is miniscule as compared to the analogue and

it is not significant.

Subhash: Right. And about international subscriber numbers, Atul if you can…

Atul: Yeah growth is mainly from US.


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Ayesha: Could you give us the split out of the number of subscribers and nature of the

market.

Atul: Yeah, we have in the European market 155,000 subscribers, in America, we have

544,000 subscribers, in Africa, we have 118,000 subscribers, and the rest of Asia

is around 4.4 million subscribers.

Ayesha: And also, the split between the analogue cable and CAS revenues and should

CAS revenues start to pick up from next quarter onwards?

Hitesh: Till the time government mandates all the 55 cities, the progress may be slow.

Otherwise, whatever voluntary CAS that is happening will move further and we

will be able to see the full impact in the next financial year.

Subhash: Ayesha, this is slow process. As I said, it is going to take four to five years

before there is a 60% to 70% conversion from analogue to digital.

Atul: As far as Zee Entertainment is concerned, Ayesha, I mean we should look at the

total digitization whether it comes from conditional access on cable or on DTH,

so as things are going forward DTH is going aggressively at this stage, but we do

expect lot of momentum coming through on cable going forward from the

financial year 2009.

Ayesha: Sure. What would be your guidance for the full year in terms of subscription

revenue?

Subhash: For this fiscal, we have so far grown 10% from the previous year and we should

close the year about 12% growth.

Ayesha: Right, thank you very much.

Subhash: Thank you very much ma’am. Next in line we have Mr. Vikas Mantri from ICICI

Securities. Over to you sir.

Vikas: Good afternoon sir. I had just two short questions, one is that our total DTH

revenue is Rs 175 million. What would be the share of the industry that we have

in terms of revenues?


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Subhash: We cannot be sure about that because these are only our estimates because we

do not know how much Tata Sky pays to whom.

Vikas: Okay, but sir Dish TV we would have reported close to Rs 650 million of content

cost, so assuming 1 billion we would be at 17% odd?

Atul: These are all rough estimates and we cannot comment on that.

Vikas: Okay. And sir on the forex losses that we take, last quarter we took a decline in

our international revenues because of forex decline, so if we have hedged it, was

it reflecting last quarter as a profit in our interest cost, the forex profit?

Subhash: Last quarter was about Rs 30 million of forex losses and this quarter we have

seen Rs 105 million.

Vikas: Okay, but then why is there a dip in international, are we hedging or we are

taking an aggressive position?

Subhash: This is a different hedging. It is a treasury operation loss, not due to the revenue

and dollar losses. Those are anyway reflected in the international subscription

revenues when we convert from dollar to rupee.

Vikas: Okay sir. Thanks a lot.

Moderator: Thank you very much sir. Next in line we have Mr. Sandeep Bhatia from UBS.

Over to you sir.

Sandeep: On the trend line advertising revenue growth, you had shown very strong growth

also this year, but if you look at the nine month numbers, the advertising

revenue is up 32% while for the third quarter it is up 25%. Is this showing the

impact of the new channel launch, or is it that now the growth is coming to a

lower plateau as the base is catching up or it would still continue to be in a

quarterly run rate of over 30%?

Subhash: We will not go below 32% when we close the year. The quarters are always up

and down and if you look at previous comparable quarter, that was also very

high. If you recollect, during that quarter only, we had started or rather second

quarter previous year we started seeing traction in the Zee TV rating and the

first impact was noticed in the third quarter of last year.


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Sandeep: Yes.

Subhash: So that is how you see lower growth of 25% over that period.

Sandeep: Right, so you would still expect 30% plus growth for the full year, but for FY09,

would you think that because the base are now higher and the transition has

happened from a reach channel to a much stronger channel, will that base be

now catching up with you going forward.

Subhash: We will give you guidance at the end of fourth quarter.

Sandeep: Just one last accounting question. The Rs 105 million losses, which are

exceptional, is that going to recur going forward and for how long.

Subhash: Well, that largely depends on the projections for the forex rates. We are

working on the hedging so that we can minimize our losses and recover some

existing losses.

Sandeep: Thank you.

Moderator: Thank you very much sir. Next in line we have Mr. Nishit Dholakia from IDFC

Investment. Over to you sir.

Nishit : If you could just explain the logic of merging ETC with Zee interactive and at the

same time if you can share your thoughts on the business plan and outlook for

the education business?

Subhash: Well, education sector is definitely a growing sector and logic of merger was

simple that there were some structural benefits like taxation planning and so on,

so forth. However, we would be having an investor conference on the education

business sometime very soon, to discuss with you in greater details.

Nishit : Okay fine.

Moderator: Thank you very much sir. Next in line we have Mr. Amnish Agarwal from Motilal

Oswal Securities. Over to you sir.

Amnish: Congrats sir on good set of numbers. I have couple of questions for you. There

have been two to three channel launches from other players in the last couple of

months, so can you throw some light on the TRP ratings if you have any, post

the launch of these channels. Sir, what is the trend in the TRP rating of Zee after


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the launch of channels like 9X, Bindaas, and also the NDTV Imagine, if you have

any data on that?

Subhash: See, as I said in my briefing, that from previous quarter we have increased our

rating of Zee TV by 2%, but if you want weekly data, then I do not have it

presently, you can discuss it separately.

Amnish: Okay sir and second thing is that regarding the international subscription

revenue which has increased during this quarter, is that a sustainable trend

going forward, what was the driver?

Hitesh: International subscription revenue basically US has given further strength and

the Zee Sports launch in the US market also is one of the main drivers.

Amnish: Okay sir, thanks a lot.

Moderator: Thank you very much sir. Next in line we have Mr. Ritesh from Dolat Capital.

Over to you sir.

Ritesh: Good afternoon sir. I have a question on CAS implementation. Could you update

us like when do you feel finally CAS would be implemented across India?

Atul: Ritesh, we will probably discuss this in details if you join us on the Wire and

Wireless call because this is Zee Entertainment and we have already given our

views as to how it impacts our revenues.

Ritesh: Okay, no problem. Secondly, have we declared ala-carte rates for the non-CAS

areas?

Subhash: Yes, we have filed the rates.

Ritesh: Okay, that would be available on the website?

Subhash: Yes.

Ritesh: Okay, thank you very much sir.

Moderator: Thank you very much sir. Next in line we have Mr. Siddhant Goenka from JM

Financial. Over to you sir.


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Siddhant: Yes, we had one or two questions. Firstly, if you could give us some idea about

the ad revenues. How do you see the growth in that business, with respect to

are you seeing more ad spends increasing or you are seeing TV as a media kind

of taking market share away from the media. That was one question and the

second question was on the pricing outlook if you can give us a sense between

CAS and DTH, you know how you see the pricing evolving and how that would

impact your business?

Subhash: Pradeep, can you take the first question?

Pradeep: As we had explained earlier, this 30%, we should be able to maintain that till the

end of this year and the industry growth is still about 12% to 15%, so we are

growing at twice the industry growth rate.

Siddhant: So when you say industry it means the TV or any thing else?

Pradeep: No, only TV industry.

Siddhant: And how is the total ad space growing in volume?

Pradeep: You see the print was growing pretty fast, going at a slightly faster rate than

television until last year, but this year they have slowed down a bit and they are

also around the same region of about 15%.

Siddhant: How do you see it evolving going forward on the market?

Pradeep: Well, I think this 15% is more or less what all the reports that you see are

indicating, but some of the new industries like FM, etc., may see a slightly

sharper growth, but at a much lower base.

Subhash: Your second part of the question on the pricing on the CAS and DTH, as we have

been maintaining that on the digital environment the broadcasters must get 35%

to 40% of the consumer spend on the television, which currently through

analogue cable comes only to 5%. This transition is a time-taking process, it will

take about 4 to 5 years to reach to that balanced stage. However, if you take our

previous guidance, then you should definitely see 25% to 30% CAGR in the

subscription revenues on a year-on-year basis. This growth in the next year may

be only a 20% growth, following year may be 35% to 40% growth, and then to

50% growth, this is the trend, which we are estimating.


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Siddhant: But in terms of acceptability of CAS versus DTH from a consumer point of view,

given that pricing on CAS is five rupees while in non-CAS there is no cap on

price, do you see that pricing kind of formula changing?

Subhash: There is pricing of 5 rupees in three CAS notified cities but the other cities like

Bangalore, Chandigarh, and cities where the digitalization has just started, there

is no mandatory price.

Siddhant: And the international revenues, you said that US is the largest growth driver?

Subhash: Because of Zee Sports, I said.

Siddhant: So, not because in terms of number of subscribers growing or since the pricing

also improving in the US.

Himanshu: No, a new channel of Zee Sports “Zee Sports America” was launched there in

October earlier in this quarter. We showcased the India versus Australia series

and the India-Pakistan series on that channel, as a result of which, we had a

spurt in the number of subscribers for that quarter that is the reason why you

see that growth.

Subhash: And that is a brand new channel, which was launched in partnership with Dish

Network of USA.

Siddhant: Last question from our side is on you know your views on this Indian Premier

League, how do you see that impacting our business?

Subhash: We do not want to comment on any property, which does not belong to us.

Siddhant: Okay fine, thank you.

Moderator: Thank you very much sir. Next in line we have Mr. Amit Purohit from Motilal

Oswal Securities. Over to you sir.

Amit : Good afternoon sir. Congratulations for good set of numbers. Just one thing on

the subscription revenue front, the DTH subscription revenue was Rs 175 million

which was a strong 40% growth, now I wanted to understand if the subscriber

base disclosed, I mean on a quarterly, or six monthly, or half yearly basis, that is

the reason the spurt has come or is it sustainable in terms of going forward on a

q-on-q basis or how does this work in terms of the subscription?


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Atul: Total revenue this year from the DTH stream as we have declared is around Rs

42.5 crores or Rs 425 million, much of it is obviously going incremental and

getting added. Now, if you scan the environment, you see there are two players

and two more players are coming on.

Amit : Correct.

Atul: Hopefully during the next few months or next one or two quarters. So, that will

add another layer to these existing revenues. So, if you look at the current

revenue stream of expectedly around 60 crores of additional revenue from DTH

itself adding to almost 20% to your domestic subscription revenues of last year,

which is only with two players.

Amit : Okay.

Atul: With two more players coming in, these numbers will increase, I mean we

cannot be precise on that number because we do not know, when they will

launch, what kind of agreements we will be enter into, but we will give you all

that information as we go along.

Subhash: But certainly, you will see quarter-on-quarter improvement in this level.

Amit : Okay and on the subscription revenue since you said that the international

subscription revenue grew largely because of the sports channel launch, now this

would be I mean a seasonality phenomenon because once the series gets over,

the next quarter probably, whenever the series comes in, you will find a spurt in

the subscription revenue in international or how does it work?

Atul: Any sports related revenue stream may typically be related to the events

happened during that quarter.

Amit : Okay and this Rs 107.2 crores of international revenues also takes into impact

the rupee appreciation.

Atul: Right.

Amit : Okay and sir, lastly, on the debt levels and gross block, what would be our debt

levels in the company currently?

Atul: Currently, our debt is around Rs 3,266 million.


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Amit : Okay and gross block would be how much sir?

Atul: Gross block is Rs 15,795 million.

Amit : Okay, okay. Thanks a lot sir.

Moderator: Thank you very much sir. Next in line we have Mr. Anand Gupta from SBI

Mutual Fund. Over to you sir.

Anand: Yeah, good afternoon. One question on advertising revenue growth. Given that

Zee TV already has a viewership share of more than 30%, which is a

commendable share. Is advertising revenue growth going forward will be

function of market share gain in non Zee TV property, which is Zee Cinema and

other channels.

Subhash: Pradeep, you want to take that….

Pradeep: Yeah, I will take this question. Basically, there is a revenue growth in all our

channels, some more, some less depending on the relative position within each

genre, but obviously Zee TV is operating in the larger segment today in the GEC,

the bulk of the growth will come in Zee TV. As you know, we are heading

towards more or less the number one position and the moment that happens,

then there will be a jump in advertising revenue, which will all go to the bottom

line.

Anand: Would it be possible to put a number on optimal market share, which is a leader

in today’s market penetrating, I mean can this 31 go to 35?

Pradeep: This is difficult to say. I mean typically 30% plus should be good in a market

which is now going to have close to eight to nine players, so it is difficult

because in the past we have already talked of about four players, there are

double the number of players, so if you are able to maintain about 30% market

share, I think it is a good position to hold.

Subhash: And only one thing I want to say that though we are not giving breakups of

channel-wise revenues on the advertising, but Zee TV is just less than 50% of

the advertising revenue, so in that sense the company is quite insulated and the

risks are quite spread.


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Anand: Thanks a lot sir.

Moderator: Thank you very much sir. Next in line, we have Mr. Karthik from Edelweiss.

Over to you sir.

Karthik: Hi, good afternoon, and congratulations for good numbers. Is it possible to get a

breakup of you know the ad revenue as it how much of contribution would have

come in from the ICL event in the quarter and also because of the Ten Sports

Cricket that we showed during the quarter?

Atul: We have already given the total revenue and EBITDA performance for the sports

business however, we do not split out these details. Suffice it to say that Zee

Sports is still making a marginal loss in this total of EBITDA and Ten Sports is

profitable and we have said earlier on a combined basis we will be able to deliver

profits on an operating level.

Karthik: Actually, I just want to understand that you know if you were to remove the

impact of these two events that happened during the quarter and are not

recurring in nature, then what the advertising revenue growth on a y-on-y basis

would have been?

Himanshu: For the sporting business as Atul mentioned earlier, it is largely event based. I

mean even if you see the other advertising revenue that we have accrued this

quarter, from the Sri Lanka versus England series that Ten Sports showcased

and there was South Africa-New Zealand, South Africa versus West Indies series,

so there are various non-India playing cricket series that are showcased and

which are really depends from quarter to quarter and that is how the revenue

fluctuations come in, so it is entirely event based.

Karthik: Yes, I understand, so is it possible to just get a rough sense of what that

revenue growth would have been had these eve nts not been there in Q3?

Himanshu: See, there are certain properties, which are of a constant nature on any sports

channel and sports channels everywhere in the world, the advertising revenue is

much lesser than the cost of the programming. The major income that comes on

the sports channel is from the subscription revenue.

Subhash: And the syndication of the rights of those properties and in India as you know

that since subscription revenues are still at the development stage, so as a result

if you look at as a company Zee as a whole, we are having an EBITDA margin of


Page 17 of 24

30% plus, but sports as a business gives us only 8% to 10%, so if we were to

remove the sports business, total revenue, top line and bottom line plus, our

EBITDA margin would be 35%.

Karthik: Okay. And the subscription revenues from the international business has grown

on a q-on-q basis by about 26%. Is it possible to quantify how much of it could

have been because of subscriber addition or does it mean that largely 25% kind

of a growth q-on-q is largely on account of higher number of subscribers that we

have seen in this quarter or is it rate hike .If it is only subscriber addition then is

that kind of a subscriber addition in 25% between two quarters, is that

sustainable going forward?

Subhash: No, on a like-to-like basis for international business, we have recorded only a

growth of 8% to 9%, which used to be 15%. In fact, that regular growth is

lower than we have been having in the previous couple of years. This 26% as we

have said earlier is because of the new launch of Zee Sports, which has added

subscribers, almost 20,000 of them in the US market and that is sustainable

because there would be, still people continuing to subscribe to Zee Sports

because there are other properties, which are available on this channel.

Karthik: Is it possible to get a rough idea of how much would have the sports business

contributed in the international subscription revenue for the quarter, Ten Sports

and Zee Sports put together?

Subhash: It would be difficult to quantify, as these are competitive information.

Karthik: Sure, okay. And one last question given the fact that the entire IPL tournament

is scheduled in April-May this and that too most of the matches are going to be

in the evening, do you anticipate any significant impact of that on our GEC genre

and you know therefore the advertising revenues from that particular stream.

Subhash: GEC genre always has faced this competition from sports genre. Generally,

experience so far suggests that, it does not impact the viewership by much, but

depends on how ICL is able to stage their events. I mean so far there were some

question marks as to how ICL is going to happen but on the other hand, now we

have our lineups of ICL matches in place, so it is good that everybody now

knows that how ICL was a valid business plan when we announced,

Karthik: Right. That’s all. Thank you.


Page 18 of 24

Moderator: Thank you very much sir. Next in line we have Mr. Sridhar from Morgan Stanley.

Over to you sir.

Sridhar: Yeah, just a question on the DTH revenues. I mean it is estimated about

4,000,000 DTH subscribers in India and even if I take 30 rupees for Zee as a

bouquet that comes to substantially high number. I am just wondering how it

translates, how it comes into the revenue stream of Zee and how much do you

get from each subscriber on DTH and I would want to believe that there is no

leakage in DTH.

Subhash: There is no leakage, but at the same time, we do give certain incentives to the

DTH players as initial promotional schemes. AS you may be aware that this

industry has just seen a takeoff and both these players have promised us that

from the end of the fourth quarter, they will give us the exact details of churned

subscribers and then we would be able to review our paid subscriber base. So,

you should consider that we are not currently being paid for 4 million.

Sridhar: But are you at least getting everything for the dish part of it or even there you

have to subsidize to promote growth.

Atul: Sridhar, it is not about subsidizing actually, it is the way the industry is evolving.

It is a matter of negotiations and agreements where we try and give certain

discounts for promoting these platforms as we can clearly see that growing

digitization is very beneficial to our business. Therefore, it is a pure business call.

We would not term it as subsidizing, as this is equal for various platforms and

going forward as we mature, I think the revenue streams will be very close to

what the declared total subscriber base is on the DTH industry as a whole.

Sridhar: Sir, how many subscribers do you estimate are actually paying for you right now,

because I assume 4 million, then it comes to only about 15 odd rupees a

subscriber. I am a Dish subscriber and I know that I pay more than 50-60 bucks

for a Zee bouquet, so I am wondering where that difference is going or is it that

may be in years to come, may be next year or the year after that we will get full

subscription money into Zee and we can model that in our expectation for

subscription revenues.

Atul: See, there are two elements Sridhar. One element is of the reported gross

subscriber base, and there is an element of churn which the industry has still not

disclosed and we as a part of Dish also, we have publicly told that we will declare

the churn numbers at the end of the fourth quarter, so there is a difference


Page 19 of 24

between the gross and the net subscriber base and the second difference is

because of the initial discounts that the Dish TV or the Tata Sky service is

providing to its customers for either 3 months, 6 months, or whatever. Because

of that, we also pass on some discounts to the services, so that combinations

because of which the net subscriber base paid to us is a slightly lower number

than what the industry talks about on a gross basis.

Sridhar: Okay.

Atul: That number itself is increase as we can see from our own payments that we are

getting.

Sridhar: Okay, thank you.

Moderator: Thank you very much sir. Next in line we have Mr. Shashank from Kotak

Securities. Over to you sir.

Shashank: My question is pertaining to Zee Next. In terms of Zee Next, what sort of cash

burn have you seen in the last quarter and when do you expect it to breakeven?

Subhash: Well, we are not talking about Zee Next as a standalone, but when we will

breakeven, we have given guidance that it will be three years before the channel

per se starts breaking even.

Shashank: What sort of added cost would you have on Zee Next in terms of programming

cost?

Subhash: Pradeep, you want to answer.

Pradeep: Yes, it will be similar to the other GEC channel. Year one starting we should look

at a cost structure about Rs 150 crores, then going up to Rs 200 odd crores per

year.

Shashank: Okay.

Subhash: And the total budget of the money to be invested in Zee Next before it starts

returning the money would be around Rs 250 crores.

Puneet: That is correct, net investment.


Page 20 of 24

Shashank: Last quarter, what would be the amount of cost, which would have been without

Zee Next.

Atul: Numbers, again we do not disclose product-wise, but as we had explained on the

incremental cost, Mr. Chandra had explained on what is the reason for the

incremental cost. He had explained that large part of that is coming from Ten

Sports and there is an element of Rs 10 to Rs 15 crores of Zee Next.

Shashank: Okay, thank you.

Moderator: Thank you very much sir. Next in line we have Mr. Miten from HDFC Mutual

Fund. Over to you sir.

Miten: Good afternoon sir. I was looking at quarterly ad revenue growth numbers.

Given that Diwali was in quarter 2 or early quarter 3 in the previous fiscal year

and it was properly in Q3 in this fiscal year, the swing in advertising that should

have happened this year, is it way below our own expectations or do you think it

is fine?

Pradeep: I think it is, we have been consistently growing at a rate almost two times that of

industry and we maintained that even during this quarter. During that time, it

meets our expectations.

Miten: So, are we saying that money has generally moved away from GECs towards

other genres or away from TV towards other medium?

Pradeep: The TV as I said is growing at 15% and so is print. Print was growing at about

18%, but it is now more or less doing also at about 15%, so both the industries

are growing at the same rate, so I do not think anything has moved out.

Miten: I will be more specific. If I strip off sports revenue from advertisement, then the

q-on-q delta is only Rs 20 crores this year versus the 40 crores delta last year

from Q2 to Q3, so would that be moving to basically a flattish viewership share

that we would have q-on-q or is there something else to it?

Subhash: No, no. I think you are reading between the lines. Let me explain it to you. If

you look at advertising revenues, on nine-month basis of the previous year, we

have grown 32%, which as we said that the industry has grown by 15%, we

have grown double of that. Now, if you come on to quarter by quarter this year,

Q2 growth over Q1 was only 7%. If you look at Q3 growth over Q2 is 20%. So,


Page 21 of 24

as I have said earlier, that the Zee TV’s traction of the upward movement was in

Q1 of last year and Q2 of last year, but we saw the results of that in the Q3 of

last year. So that is how you are seeing that instead of 28% growth or 47%

growth it is 25%. Therefore, it is a function of extraordinarily high revenue in

third quarter of fiscal year 2006 and 2007.

Miten: Okay sir, thanks very much for that answer.

Moderator: Thank you very much sir. Next in line we have Mr. Himanshu from Hansberger.

Over to you sir.

Himanshu: Good afternoon sir. Just one question regarding subscription revenue. If I really

look at quarter on quarter, the quarter number was in third quarter of last year,

it is kind of flattish, any specific reason for this or are we seeing a slowdown in

subscription revenue?

Hitesh: Well, third quarter last year has seen some abnormality, in the sense lot of

domestic subscription renewal happened in the 3Q and that billing got captured

in the last year third quarter and hence as a result you are not able to see any

growth in this quarter.

Himanshu: Okay, but even on a nine-month basis the subscription revenues seems to have

grown only by about 10% to 11%.

Hitesh: Right.

Himanshu: Whereas I think, the earlier guidance was for about 15% to 20% growth in

subscription revenue on an annual basis. So, do we still hold that number or

there could be revision to that guidance?

Subhash: Well the losses of this year we would be able to make up during the next year.

We had given 15% growth guidance, we will close at 11% to 12%.

Himanshu: Okay.

Subhash: But some of the things have got deferred, so we would be able to bring that

recovery you will see in the next fiscal.

Himanshu: Okay. Thank you sir.


Page 22 of 24

Moderator: Thank you very much sir. Next in line we have Mr. Sadanand Shetty from Kotak

PMS. Over to you sir.

Sadanand: Good afternoon to all. If I look at third quarter operating cost structure,

excluding Ten Sports content cost, is this is the optimal cost level or we would

see a secular rise in this cost over the next few quarters.

Atul: No, I do not think we will see a major rise in the cost except for an element of

what we described at the launch of Zee Next. It has been operational only for 2

weeks during the quarter, so we will see more of its cost impact in the next

quarters.

Sadanand: Okay. I also want to know what is the cost we incurred for ICL considering that

is a property of a different company?

Atul: We cannot comment on that.

Sadanand: Okay. Can I get the channel share for Zee Cinema for our last quarter. You have

been providing this for the first quarter. Has it been substantial, down, up, it

used to be around 30% to 31% if I am not mistaken.

Pradeep: It is maintained at the same level, in fact this quarter it is a little higher. As we

said, you know it has registered number one positions in the quarter three.

Sadanand: And I have seen, that is an impression that you know you are on a content

acquisition spree on the cinema side? What is the strategy there, Mr. Guha if

you can explain to us.

Pradeep: Basically, in the cinema genre we have some experience that what kind of titles

work and what do not work as far as ratings are concerned and we

systematically go after such, that is which we believe will keep giving us the

ratings and that is an internal kind of learning we have and we plan to keep that

proprietary.

Sadanand: What kind of amount you would like to earmark for the content, cinema content

for the next fiscal?

Pradeep: We do not give out individual figures like that, but let’s say we will spend what is

required to be spent to maintain our position in the cinema genre.


Page 23 of 24

Sadanand: Thank you very much.

Atul: Rita, can we have one last question please.

Moderator: Sure sir. Next in line we have Ms. Yasmeen Shah from Alchemy Stock Broking.

Over to you ma’am.

Yasmeen: Good afternoon sir. I had one question on ad rates. What was the extent of ad

rate hikes we have seen in the nine-month period.

Atul: The ad rate hikes is something which we do not declare specifically, but our

overall combined revenue is there to see which is 32% for the nine-month period

over the last year nine-month period and it is a mixture of selective added hikes

during the period as well as better you know inventory utilization. We do not

give out very specific ad rate increase that we have taken.

Yasmeen: And sir has that 25% surcharge been implemented?

Pradeep: No, that is not implemented.

Yasmeen: And sir, one last question on your subscription revenues. In the earlier quarter,

you had said you had some certain renegotiations with the cable operators and

you know Q3 and Q4 would see some kind of traction in the analogue revenues,

but we have not really seen that.

Subhash: Sorry, come again, your question is lost.

Yasmeen: Yeah, sir in the previous quarter all, you had state d that you were having certain

renegotiation with the cable operator regarding the sharing and rates and all and

you were saying that in Q3 and Q4, you will see some traction in the analogue

revenues.

Subhash: Yes.

Yasmeen: Any reason why that has not really happened?

Subhash: It is a continuous process and it is happening and in fact, domestic subscription

has now started showing some improvement on that line.


Page 24 of 24

Yasmeen: Sir, but in this quarter compared to the previous quarter, domestic subsidiaries

are lower?

Subhash: You are right, but we are working on that.

Yasmeen: And how do you see Q4 and probably Q1 for next year?

Subhash: We are tightening our efforts in this regard.

Yasmeen: Right sir. Thank you sir.

Moderator: Thank you very much sir. At this moment, I would like to hand over the floor

back to Mr. Atul Das for the final remarks. Over to you sir.

Atul: Thank you Rita. Thank you ladies and gentlemen for joining us for this third

quarter report. We will soon have a transcript of the call uploaded on our

website. We look forward to speaking to you again at the end of the fourth

quarter of FY2008 or even earlier on a one-to-one basis. Thank you and have a

great day.

Moderator: Ladies and gentleman, thank you for choosing WebEx Conferencing Service.

That concludes this conference call. Thank you for your participation. You may

now disconnect your lines. Thank you.

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