Expect 20% subscription revenue growth in FY13: Zee News

Zee News posted a net loss of Rs 4 crore in Q4FY12 as against profit after tax of Rs 6.6 crore in a year ago period and PAT of Rs 10 crore in Q3FY12.

Barun Das, chief executive officer of Zee News told CNBC-TV18 that loss seen this quarter was on the back of an exceptional item. "For this quarter there is an exceptional item that’s been provided for, which is an investment made in Akash Bangla a couple of years back."

Its revenues increased 14% year-on-year and 11% quarter-on-quarter to Rs 86.4 crore in the quarter ended March 2012.

He further said that the company's advertisement revenues have remained flat in this quarter. "In this quarter we have grown by 5% on like to like basis because Zee Tamil operations have been shutdown, so we were one channel less in this quarter."

Meanwhile, its subscription revenues have improved in this quarter and with digitization set to come into play from July 1, 2012 onwards, Zee News expects 20% growth in subscription revenue in FY13.

Below is the edited transcript of Das’ interview with CNBC-TV18. Also watch the accompanying video.

Q: Your revenues are up 14% year on year and operating margins a tad higher but you are still reporting losses. Should we expect that things will improve in the current quarter?

A: I do not think we are reporting losses. For this quarter there is an exceptional item that’s been provided for, which is an investment made in Akash Bangla a couple of years back. So, with that the net profit is showing loss.

But, at the EBITDA level that has improved even in this quarter compared to last year; we closed to about 20% of EBITDA margin this quarter. So, we continue to be profitable as we have been in the recent past, but barring this exceptional one time provisions which have been made.

Q: Breakup what ad revenues were this time because in Q3 it was sluggish, it was down around 4.6%. How did you do in terms of ad revenues this time as well as subscription revenues?

A: Ad revenue has remained flat once again. In this quarter we have grown by 5% on like to like basis because Zee Tamil operations have been shutdown, so we were one channel less in this quarter. On a like to like basis we have grown by 5% and that itself is commendable. I do not think the industry has faired very well despite elections that were there in this quarter.

For the entire year, our growth is in excess of about 6%, which is again not the kind of growth that we have envisaged in the beginning of this year. But considering the fact that over the last three years we have been growing with a healthy double digit margin in our advertising revenue, we had to settle down for a single digit growth this year.

Q: What about subscription revenues? How did that do in the Q4 and also do you expect things to materially improve now that the terrain has improved?

A: Yes, subscription revenue has improved. The numbers which have been quoted in the earning release are not comparable because last year the commission was included in the revenue. But this year as you know that we have had a fresh agreement with Media Pro ,the new company, the new joint venture. On a like to like basis, we have grown by about 10% for the entire year and Q4 was substantially better than Q3 as well and the trend would continue.

As we earlier shared that the initial problem with the new entity coming into play has been seen through. Going forward as it is through the Media Pro tie up we would have expected significant traction. Digitization which is getting kicked off as of July 1, we all are pretty gung-ho about that. Primarily because the last mile flexibility would no more be a myth now. Therefore, subscription revenues are something which we are very hopeful going forward for.

Q: Any numbers?

A: It is very difficult to put a number through. I will take you through the reality which has happened so far. Back of the envelope calculation would have shown that about 18% to 20% of the entire subscription revenue from the market would have reached broadcasters so far.

Whereas in the global standard it is around 50% to 60%, so the rest was the under declaration and the transition loss. The scope is so much more theoretically, but it will take a bit of time to arrive at theoretical level. It is anybody’s guess, but I would not shy away from quoting about a 20% growth in next year in our subscription revenue that is what I would hope for.

Q: What about the breakeven on the new business channels or the new channels that you own? When do you expect a breakeven on the EBITDA level as well as the bottomline?

A: We planned when we launched these channels between three-four years that’s on news channel breakeven target. But I do not think that we would be close to that as far as our Telugu channel is concerned because the market hasn’t been an ideal market, there are 14 news channels and four are being launched as we speak. So, we are not sure about the breakeven targets for that channel. But as far as the other news channel which is Zee News UP is concerned, we would be on within our targeted timeline.

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Q: The other point of concern which is now come up recently in the past couple of days is the regulations which are put out by TRAI with regards to the regulation of ad time where it is contracted to around 12 minutes per hour and is expected to hit news channels the most. Just give us the sense of what you made out of the TRAI regulations? What the impact would be on business?

A: We have gone through that. I have always been proponent of the fact that advertising volume on television channels is something which need not be regulated because it is a choice of the viewers. Imagine if I get away with showing 29 minutes of advertising out of 30 minutes of content time so be it, I will show that but I don’t think any viewers will see that. I have exhibited that.

One of the biggest irritants today for any viewers is the amount of advertising that we run on our channels especially news channels and Hindi and regional they are the primary defaulters. We as Zee News our flagship channel. As of April we have decided and cut our inventory by 30%. I just wanted to say that we are not governed by any regulators to do that.

We realized that that is something, which should give us certain edge over our competitions. Therefore, a meticulous planning was put together and we have taken this call. It is something which should have been left to the market forces in the era of choices, you have choice of channels, you have choice of media, you have choice of platform.

The second thing which left me wondering that why the timing is now. We are going through one of the most important phases of broadcast industry in our country which digitization, something which is failed earlier an attempt. This time everybody supported, everybody has committed to it so we are confident that it will go through. But suddenly bring in something else which is not really related to this digitization process and creating another set of confusion so that is where I am.

Q: If this is the law and you have to manage with 12 minutes then what is the potential impact on the P&L as and when it starts ticking?

A: On behalf of the industry where I do not want to sound that I am bragging, most of the news operations those who are listed and those who are not listed are not profitable as yet and despite running additional inventory. I also do not think that running 11-12 minutes of advertising inventory out of half an hour is something, which would have been sustainable in the long-term.

So therefore some cap was to be necessitated by the broadcaster but a six minutes cap or a 12 minutes cap would be a huge pressure on all the news operations in the country. Advertising rate going by normal law of economics could go up but then there would be a certain gestation period from the inventory gets limited and advertising rates started getting traction. So, there would be a tough time in the era of economic recession.

It’s something that would put lot of players out of business and therefore you would again have less competition. So we got to see that when it is being implemented, when the law come into force and whether we could have meaningful discussions with the authorities and try and explain them the position that the news channels are going through. Otherwise it’s going to be a tough time.

Q: Considering its going to be a tough environment and the news broadcasters will possibly lobby. Have you all started discussions at the government level in order to curb the TRAI norm?

A: Not yet. But we have gone through it. We have discussed among ourselves. We are preparing ourselves to have some series of meetings with the authorities.