Zee sees slow recovery in ad spending, expects some impact of cricket World Cup in Q3

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Advertisement revenue was muted for broadcaster Zee in the September quarter of FY24 as the pace of recovery in ad spending remained slow  despite increased spending by FMCG category.

The company reported a decline of 3.3 percent year-on-year in advertisement revenues to Rs 980 crore.

"During the quarter (Q2 FY24), there was gradual pickup in ad spending led by FMCG. However, the pace of recovery is still slow. Our ad revenue was 3.3 percent lower YoY and grew at a modest pace of 4.1 percent quarter-on-quarter (QoQ). Looking forward, we are optimistic in gradual recovery in Q3 due to festive season. However, cricket World Cup will take some share away," said Rohit Gupta, Chief Financial Officer (CFO), Zee Entertainment during earnings call on November 9, 2023.

Analysts estimate the company to report ad spend growth of 5-6 percent YoY in the second half of FY24 (H2 FY24), as large portion of spends are expected to be diverted to sports due to the Cricket World Cup.

Also read: Zee Entertainment Q2 results: PAT declines to Rs 130 crore annually, ad revenue under pressure

Punit Goenka, Managing Director (MD) and Chief Executive Officer (CEO) pointed out that the TV advertisement industry is likely to see high single-digit growth in H2 FY24.

Goenka also said that they are cautiously optimistic for upcoming quarters. "There is gradual recovery in ad spends. Recovery mode in advertisement has just begun. But Z is yet to see rural recovery. Festive season is expected to show growth in Q3."

The star performer in Q2 for Zee was Sunny Deol-starrer Gadar 2 which is the highest ever box office movie for Zee Studios. "Zee's revenue grew a sharp 20.2 percent YoY, largely led by performance of Gadar 2. Excluding the film's performance, overall revenue grew mere 5.4 percent YoY," Karan Taurani, senior Vice-President, Elara Capital said.

Gadar 2 that released in theatres on August 11 has grossed over Rs 500 crore in India alone.

"Gadar 2 and other films boosted our performance. Our investment focus continues to be sharp in films. Our performance in other segments has offset the slow growth rate in advertising," said Goenka.

Other sales and services revenue grew 194.7 percent YoY to Rs

570.8 crore aided by theatrical revenue from movie releases.

The company also highlighted the performance of its streaming service which contributes 10 percent to Zee's overall business.

Zee5 revenue came in at Rs 270 crore, up over 59 percent YoY and driven by improved subscription. Operating losses narrowed to Rs 280 crore, led by improved operating leverage and cost control.

While the improvement in profitability in Zee5 is positive, brokerage firm Motilal Oswal said that the digital segment remains in investment mode.

Also read: Zee, SUN TV continued to face pressure in September quarter due to weak ad spends

Zee has indicated that investments in the streaming segment is likely to have peaked.

Goenka also said that he hopes that the streaming business would contribute 30 percent to the topline of the company.

He further said that on the subscription side, NTO (New Tariff Order) 3.0 implementation has stabalised and that they find themselves on a better footing and hope to sustain the growth in the coming quarters.

Subscription revenue fell 2.2 percent QoQ but increased 8 percent YoY to Rs 887.83 crore. Along with the pick-up in subscription revenue post

NTO 3.0, the growth was led by Zee5 as well. Domestic subscription revenue stood at Rs 779 crore and international subscription revenue stood at Rs 108.8 crore.

The company also said that they do not expect subscription revenue on the linear side (TV) to slow down. "The next price increase may happen in February or March, 2024," the company's management said.