zee telefilms limitedakamai.vidz.zeecdn.com/zeetele/pdfs/transcript1qfy2007...zee telefilms limited...

ZEE TELEFILMS LIMITED

of 27

1Q FY2007 TELECONFERENCE JULY 25 2006, 12:15 P.M. INDIA TIME

Moderator: Good afternoon ladies and gentlemen. I am Monali the moderator for this conference. Welcome to the Zee TV conference call. For the duration of the presentation, all participants’ lines will be in the listen-only mode. After the presentation, the question and answer session will be conducted for participants connected to SingTel. After that the question and answer session will be conducted for participants in India. I would now like to hand over to Mr. Atul Das of Zee Telefilms. Thank you and over to you sir.

Atul: Good afternoon and good morning ladies and gentlemen and thank you for

joining us today to discuss the results for the quarter ended June 30, 2006, which is the first quarter of our fiscal year 2007. We do hope that you had a chance to go through the earnings release and copy of the results, which is uploaded on our web site www.zeetelevision.com. Joining me from a conference room in Mumbai is Mr. Subhash Chandra, Chairman of Zee, and members of senior management team of Zee including Mr. Punit Goenka, Whole Time Director, Mr. Pradeep Guha, CEO of our Content business, Mr. Rajiv Garg, CEO Corporate Strategy and Finance, Mr. Hitesh Vakil, Director Finance, and Mr. Sanjay Agrawal. We will start with a brief statement from Mr. Chandra on the first quarter performance and outlook for the quarter and year ahead, and then we will open up the discussion for question and answers. I would like to remind everybody that anything we say during this call that refers to our outlook for the future, is a forward-looking statement that must be taken in context of the risks that we face. With this, I hand over to Mr. Chandra.

Subhash: Thank you, Atul and I would like to welcome everybody on this call. Ladies and

gentlemen, we appreciate your joining us for our first quarter report. We are pleased to report the strong recovery in our market position and continuing uptrend in ratings of our flagship channel. The performance reflects our success in delivering superior content to the viewers and we have regained our relationship with the viewers and our customers. Let me first summarize the results of the first quarter.

http://www.zeetelevision.com/

1Q FY2007 TELECONFERENCE JULY 25, 2006

Our total consolidated revenues have grown to 3.88 billion, which is up 24% from the corresponding quarter last fiscal. Total expenditure has gone up by 47.6% to 3.16 billion. During the quarter, we have fully expensed the start up investments of 571 million on new activities like Zee Smile, Zee Telugu, Zee Sports and others. Our operating profit has reduced by 27% to 726 million due to the investments in the new business. What is notable is that the operating profits on continuing businesses has grown by 8.4% to 1.3 billion and which is also after a absorbing all the higher operational cost during this period and the operating profit margin on the continuing business was at 33.4%. The profit after tax has come down to Rs 562 million from Rs 779 million in the first quarter last year. Moving on to the performance during the first quarter. Overall, the advertising revenue for the quarter ended June 30, 2006 has shown a growth of 31.5%, which stands to 1.73 billion. It is satisfying to see that the growth in advertising revenues has shown depth and covers most of our channels. The growth has come about due to different levels of growth in various Zee channels. Zee TV has grown from viewership share of 21% in the previous years to 25% and to 29% very recently. Zee TV has introduced many new initiatives which focuses on the improving inventory utilizations, attracting higher yielding categories of business and increasing effective rates across time bands. These efforts have resulted in the revenue growth faster than that of industry. We hope to further buildup the momentum in future. Our content and marketing initiatives have continued from existing channel while new channels are doing well as per plans. As a result, corresponding revenue build-up is to be realized in the next several quarters. The decline is operating profits to be seen exceeding this context. As we have said earlier, we are confident that our new investments would soon start to pay rich dividends. Now moving on to business update. Over the last few quarters we have focused attention on Zee TV, the flagship product, and invested across genres of programming including soaps, musical shows and comedy shows, etc. Zee TV, as I said earlier, is the only general entertainment channel which continues to gain viewership and has grown from 21% in the fourth quarter to 25% during this quarter and we have clocked 15% to 20% growth in GRPs every quarter. Last week, it has improved its share from 25% to 29%. And the other

of 27


competitors have dropped in ratings, that is to be noted. Zee TV now conclusively occupies second place is general entertainment area. In the Cinema space, Zee Cinema continues to maintain its undisputed number one movie channel status with average weekly GRP of 171. Also, we have been able to establish Zee Cinema as a reach channel instead of frequency channel, which will help in the coming quarters to garner more advertising revenue. Zee Sports has showcased the first two ODIs, one day matches between India and Pakistan from BCCI contract and other ODI matches are planned during this year. As you are aware, that Delhi High Court has ordered the Government Of India to implement the conditional access system. The Government of India took meetings with all the stake holders - the cable operators, consumers, MSOs broadcasters and everybody and they all together came up with implementation plan and last week High Court has put stamp of approval on it and these three metro cities, Delhi, Mumbai, and Kolkata, the digitalization of cable has to be implemented by December 31, 2006. As you know that Siticable now has been named Wire And Wireless India Limited. We have identified cable business as a thrust area. With digitization, it will also result in greater transparency and Zee is looking forward to reinvention of its business for substantial revenue enhancement plan are being chalked out under CEO, Mr., Jagjit Singh Kohli. The cable business is also like to pursue new technology initiatives including digital cable, broadband and triple play. Direct to home business, DTH, Dish TV has an enhanced its offering from June 2006 because of The One Alliance bouquet which is being offered. The TDSAT had come down strongly on Star Network to force them to respect the law of the land which they were avoiding from the last two and half years. TDSAT has given them (Star) 15 days time to give their content to Dish TV, I am sure they would still try to avoid but we are prepared to do everything possible so that the law is implemented. Coming to the developments on corporate restructuring of Zee Telefilms, the court has already directed the process and it is proceeding very satisfactorily. Infact today is the shareholders meeting to get the vote as per the direction of the high court. The illustrative Proforma Financials as of June 30, 2006 assuming as if there are four different entities has already been provided to you in the earnings release and is also posted on the web site.

of 27


With expending financial and strategic flexibility we continue to look at investments that will build our current competencies and enable us to take advantage of the exciting growth opportunities ahead. With this I would like to thank you all and now I would like to open the floor for questioning Atul, so you can start taking the questions. Thank you.

Atul: Ladies and gentlemen, we are now open for questions and I would like to

request all participants to please limit themselves to two questions, so that we can get as many people on the session as possible, thank you.

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

Participants corrected to the SingTel Bridge may please press 01 to ask a question. Participants connected to the India Bridge may please press *1 to ask a question.

I repeat, participants connected to the SingTel Bridge may please press 01 to ask a question and participants connected to the India Bridge may please press *1 to ask a question.

Female speaker: Thank you Monali. First question is from Mr. Deepesh, go ahead sir. Deepesh: Hello. Female speaker: Mr. Deepesh go ahead please with our question. Devi: This is Devi. There is a question basically on you know the losses which you

have reported from new businesses whether it includes any loss from you know the Sports business, specially cricket and if so, can you share what the amount is.

Subhash: Yeah. This includes the losses of cricket also. The breakup of that is not there

but we have told you 571 million is the losses of the new business which includes the loss of sport business.

Devi: Okay, you do not want to share exactly how much is from sports. Subhash: We are not sharing individual businesses but Sport business would have about

30 crores losses roughly.

of 27


Devi: Secondly, sir, going forward we understand the payment on you know the cricket would be much higher than the first year, so how do you plan to cover up this you know, higher expenditure through incremental revenues, if you can just give a broad outline as to what you know what your business strategies on that .

Subhash: You see, cricket per se, they will not carry any losses then we would not be

losing proposition, but towards channel as a whole it is a new business that we just started at last year so it will take time before it comes to break-even, where I really wish we had some magic with us that we make the channel profitable from day one.

Devi: Okay. Subhash: Does that clear your question? Devi: Thank you, sir. Moderator: Thank you very much mam. Next in line we have Mr. Princy Singh from Citi

Group. Princy: Yeah, good morning Mr. Chandra. I have two questions, one is on cricket and

the second one is on your restructuring. On cricket, I just wanted to get a sense on what kind of profits you are looking at from you know cricket, as a standalone property what would be the payment schedule and what would be the amortization schedule, I mean what do you amortize as you pay or about payment and amortization would there be a timing difference and finally in the event of any matches being canceled or postponed you know we are hearing that the next series which is due in Canada there may be some issues there, I mean if there are clause where we can be compensated or you know we can be protected against any events where matches are canceled that is my first question sir.

Subhash: 1. See if the matches are canceled we do not pay anything.

2. If there are matches where they start and due to any weather problems or anything if it is aborted in between, then yes we are liable but those are insured in advance.

3. The third thing is that the amortization of the payment is 100% when we make payment, per match we are paying certain amount of money in the first year, second year it is different, third year, fourth year like that there are difference per match pay out. And that is paid and 100% expensed at

of 27


the same time. The profitability out of cricket cannot be looked at in isolation because of cricket we will be able to garner substantial subscription revenues for the whole channel. So in sports, cricket per se is still I would say, would be making profit based on the advertising revenues and syndication in the international arena.

Princy: Thanks sir, my second question is on restructuring you have given the proforma

profit and loss account, but could you just share some more details on balance sheet and you know DTH and cable are making losses is there any kind of a you know capitalization that would be required for these businesses and what could be the extent of that capitalization.

Subhash: In one question you are asking many questions in that, but anyway you are

smart. The balance sheet etc., we would be posting on the web site because that is very long explanation. The investments required would be only in distribution side of the business, which is Dish TV as well as Wire and Wireless India Limited which is in the cable businesses and they would be a raising both debt and equity in their own rights without having recourse to Zee Telefilms except that under the scheme Zee Telefilms Board has agreed subject to shareholders approvals to give some corporate support in terms of issuing comfort letter etc to the vendors.

Princy: Sir, what could be the tune of these investments in terms of size? Subhash: WWIL investment is in a modular form, you can make any investments. Princy: Okay. Subhash: But currently the plans which have been approved by the board yesterday and

this has been about Rs 300 crores investment. And on the Dish there will be about Rs 200 crores.

Princy: Okay, thank you very much sir. Moderator: Thank you very much sir. Next in line is Mr. Omprakash from ICICI Securities. Omprakash Good afternoon sir. My question is about the DTH business. We see that the

ARPU for the Dish TV has fallen, but the EBIDTA has improved so could you please explain how has this happened.

of 27


Subhash: I do not know how you get that Omprakash jee. Omprakash: On a quick take we realize that the revenues have come down to, I mean as per

the segmental breakup given yesterday, the revenues have come to 158 million which is lesser in line with the revenues of last year which were 818 million for the whole year last year, given the increase in subscribers the average revenue seems to have fallen, correct me if I am wrong sir, but EBIDTA has definitely improved, so if you could just give a sense of what is happening in that business.

Rajiv: See it is in a way structurally so, Mr. Omprakash, the service actually is in the

initial phase not revenue oriented because we were acquiring customers and there is a subsidy element which equals the subscription revenues of the first year, so it actually the what you see for the previous year that revenue come form 100% subscription bearing subscribers that we had because we had not introduced the scheme until last year, now that we have the scheme going you would see that the revenues would start to accrues with one year lag. The first quarter revenues do not reflect you know this factor because we introduced the scheme in the first quarter of the last year, but from the second quarter onwards you would see a very substantial growth in the subscription revenues.

Omprakash: Sir could you explain a bit more about this scheme sir. Rajiv: The scheme is that we charge you know fixed amount, which is about 3,000

rupees which is between 2-4000 rupees just now to provide the set up box, the installation, the dish, the LNB, all the consumer premises hardware and also subscription varying between three months and one year, so most of the subscriptions may be sold until the end of the last financial year all of it in fact was on a one year basis, so the subscription starts to accrue with lag of one year and then of course it builds up rapidly in line with the growth in subscription numbers from one year ago. The money that we recovered between 3,000 and 4,000 rupees is all of that we appropriate really towards the capital cost of the equipment.

Omprakash: And sir, just one question on the new business on the Zee Telefilms side, after

the performance of this quarter would you be revising the kind of break-even schedule that you had planned earlier which was more that most of these businesses would break-even by end FY07 except for Zee Sports which you expected to break-even by FY08.

Subhash: Now, we maintain the same guidelines we are not revising it.

of 27


Omprakash: Okay, thank you sir. Moderator: Thank you very much sir. Next in line is Mr. Nikhil Vora from SSKI Securities. Nikhil: Hi, can you explain when was the re-cast of numbers; I am not able to get

through the other sales and services number what we have given for the corresponding quarter last year, with that of the published numbers last year.

Hitesh: Well if the include that extra items one is syndication, sale for cricket rights and

there has been various marketing services which has been charged to Dish TV and hence these two item has been extra on this other sales and services.

Nikhil: Okay, second what the reason for the increase in the overall finance cost in the

current quarter. Subhash: Well there has been some bank guarantee and other things, which are tied up

for the Sports bank guarantee. Nikhil: And what would be the gross debt right now. Atul: Gross debt is Rs 6.3 billion rupees. Nikhil: 6.3 billion, okay. Atul: Nikhil, there were some translation losses also in case of Forex translation losses

that is also the reason why interest has gone up. Nikhil: Okay. Second is on you know if you just add up all the numbers on the various

subsegments of business that you have given. The EBIDTA and profit numbers do not seem to add up.

Hitesh: Well, the four entities split that we have given at the bottom includes the ASCEL

component of the Dish TV business, which is not part of the Zee Telefilms consolidated numbers.

Nikhil: Yeah but the revenue accrued for…

of 27


Subhash: Not necessarily, because revenue also is only to the extent to Zee Channel and the services which is offered from Zee Telefilms that is captured in the consolidated reporting.

Nikhil: If I just read the numbers right, 158 million that is reported in ASC as revenues. Subhash: Right. Nikhil: Is the entire revenue, which is also booked in Zee consolidated right now. Hitesh: No it is not, that revenue is exclusive to ASC Enterprise. Nikhil: Okay, so what would be the overall revenue of the ASC. Hitesh:That is what recorded here 15.8. Nikhil: Okay may be I will take it off-line later. Just one more issue, Mr. Pradeep Guha

has talked about this fact that yield per 10 seconds has been historically the lowest last year, how you see it shaping up in the current year, how much would be the differential in yields of Star, Zee and that of Sony.

Subhash: Sorry, I did not get you question. Nikhil: What is differential in the yields right now of Star, Zee, and Sony. Subhash: Our yields have crossed Sony’s. Nikhil: Okay. Subhash: But these are on the new deals, but obviously we are also servicing on lot of old

deals which were made last year prior to the change in the rating scenario and those deals go in to this year at different levels one quarter, two quarter, and so on. So, all the new deals are definitely are way ahead of Sony and below Star.

Nikhil: And how will it be below Star, just on a percentage. Subhash: See right now on ratings we are about 40% of Star Plus ratings, so we are trying

to go as closer possible to that ratio. Nikhil: Okay got it sir. Thanks for this.

of 27


Moderator: Thank you very much sir. Next in line is Mr. Vipul Prasad from JM Morgan

Stanley. Vipul: Good afternoon everybody. Sir, can you tell me like how much of your

advertising growth can be attributed to advertising rate hikes or may be on a QoQ basis on an average basis, by how much your asset gone up by?

Subhash: Well if you see the standalone of operation there is a 40% growth as on services

and by and large subscription revenue is pretty much flat with almost entirely attributed to advertising.

Vipul: No, out of advertising, how much have come due to advertising rate increase. Subhash: It would be about 60:40 in favor of rate to volume. Vipul: Okay and a quarter-on-quarter basis can you give me some sense, how much on

an average basis your add rate has increased. Subhash: As I said, on a QoQ basis it is not possible to give you, I do not have the average

right now, but as I said that all the new deals are been signed at price increase of close to 25%.

Vipul: Okay. And sir my second question is like if you can give me some sense on the

revenues from the cricket telecast in the quarter some percent figure or some absolute number if you can throw.

Subhash: Well as I side the sports channel as a whole might be about 25 to 30 crores

losses over all. Vipul: Okay, Sir and one more question like in this quarter we have seen a sharp

decline in the selling and other expenses on a QoQ basis or even if you see over the last quarters, this quarter selling and other expenses is much lower than what we have seen in the last three quarters, I mean, can you give me some reason why it has fallen so dramatically.

Subhash: Well this quarter we really did not see that kind of marketing spends this quarter,

when you have large properties to offer to the audiences. Vipul: Okay. Thanks a lot sir.

of 27


Moderator: Thank you very much sir. Next in line is Mr. Sanjeev from Kotak. Sanjeev: Good afternoon every body, I had a question on the first quarter results. If I

look at the consolidated EBIDTA of the company that is somewhere about 73 crores and if I look at the standalone Zee Telefilms EBIDTA, that is about 24 crores, which would suggest that the rest of Zee is making about you know 48 crores as far as EBIDTA is concerned. I just wanted to understand, which are these entities, which are so profitable and you know twice in terms of contribution to the EBIDTA of the growth.

Subhash: Well the international operation is normally contributing to the bottomline. ETC

is also there as a profit making entity. Sanjeev: No, I would have though that if you include Zee Sports in rest of the entities,

really the profits of the rest of the entities should be quite be quite low. Subhash: No, Zee sports is included in Zee Telefilms standalone results. Sanjeev: And why is that? Hitesh: See it was transferred from Zee Sports to Zee Telefilms Limited last year itself. Sanjeev: Okay, I was not aware of that. Subhash: It is a channel now owned and operated by Zee Telefilms directly. Sanjeev: So there is nothing like an entity called Zee Sports or what? Subhash: Right. Sanjeev Okay, thank you. Moderator: Thank you very much sir. Participants connected to SingTel Bridge may press 01

to ask a question. Participants connected to India Bridge may press *1 to ask a question. Next in line we have Mr. Girish from ASK Raymond James.

Girish: Good afternoon everybody. My first question is the finance cost in this quarter

has gone up drastically, so is it possible to sort of give a reason for that?

of 27


Hitesh: As mentioned earlier it has got two large components, one is interest and guarantee commission for the bank guarantee that we tied up for the BCCI rights and other is due to forex fluctuation, which was not there last quarter.

Girish: Going ahead would you say that the interest cost would come down because

normally it has been between 20 and 30. Hitesh: It will remain at this level. Girish: Okay, it will remain at this level. Hitesh: Yes. Girish: Okay. The margin has been coming down since quarter one FY06, do you see

improvement in this or else would you sort of the margins would be more under pressure?

Subhash: Sorry, let us come back again Mr. Girish on this question. Girish: The margins have been declining since quarter one FY06, so do we see a reverse

from this or do we expect you know sort of the margins to be hanging around 18% to 20%?

Subhash: No there you should see the improvement as the new businesses start turning

profitable. The profit margins will improve it cannot remain on these levels. Girish: What would be the Capex for the new entities as well as Zee TV for FY07. If you

can have some numbers on that? Subhash: Zee Telefilms and the Zee News Limited there is no capex, other than

maintenance capex. The Capex required is only for distribution business of Dish TV and cable (WWIL).

Girish: And that you mentioned about 300 crores and 200 crores. Subhash: That is correct. Girish: Okay thank you sir. Moderator: Thank you very much sir. Next in line is Mr. Amit Shah from DSP Merrill Lynch.

of 27


Amit: Good afternoon sir. I just wanted to understand the accounting treatment for

the cricket rights that you have acquired, as you said sorry, as I understand the cricket rights are for five years and in this quarter as mentioned now some of the operating expenses have gone up because of the amortization of the cricket rights, I just wanted to understand the accounting treatment for the whole amount that was paid for acquiring this right?

Subhash: Well payment to BCCI for this right are for 25 matches, so as and when the

match takes place before all that we will have to release the payments and that is when we expense out from that day, so as per the accounting standards we are not required to amortize anything it is thus expensed out fully on the day of the match.

Amit: Right, sir, could you also share the subscription revenues for the DTH business. Subhash: Well subscription revenue has reported in the box is 158 million, but this is not

the full year subscription, this is just an incremental that has started flowing in as a paid subscription.

Amit: Okay sir, thank you very much. Moderator: Thank you very much sir. Next in line is Mr. Rajesh Mayani from Citigroup. Rajesh: Good afternoon everybody. Sir I have two questions first is on the core

broadcasting business given that the ratings are moving up in the core Zee channel and also there are a lot of investments that you are making in some of the other channels. I just wanted to get a sense of margins over the next couple of year, do you think you know the increase in ratings and consequently add revenues will more than offset all this cost and we could potentially hit historic high margins again and number two was on the DTH business, could you give us a sense of what is kind of ramp up that we can see in the subscriber ways over the next couple of years with or without start?

Subhash: See margins will definitely improve and if you look at the earnings release what

we have given, the existing businesses EBIDTA margins are at 33.4% approximately and as the new businesses start breaking-even and start making profit, the broadcasting business per se historically the Zee will make 35% of gross margin.

of 27


Rajesh: Sir do we see this going up further when all these businesses you know break-even in the sports etc?

Subhash: Yes. Rajesh: Thanks and the DTH. Subhash: Well DTH in April we had hit one million mark; now it is at 1.2 million. This year,

as per plans they will add about 1.4 million subscribers. Rajesh: Irrespective of whether Star joins in or not. Subhash: Yes Rajesh: And do you see any significant ramp up if you can offer Star on the package as

well. Subhash: Yeah, we should see that. Rajesh: So what is the kind of up side that you can see for that? Subhash: Our estimation is only about 10% increase because Star does not have anything

other than three hours of prime time of Star Plus. Subhash: Thank you. Moderator: Thank you very much sir. Next in line is Mr. H.R. Gala from Quest Investment. Gala: Yeah. My question pertain to this year’s roll-out when it takes place in the

metros as directed by the high court what kind of subscription revenue increase are we expecting?

Subhash: Currently, we see metros are declaring only 10%. Gala: Right. Subhash: And our estimation is that although the total number of homes in these, for

example as the Zee, today is declared by 5 million subscribers all over country. Gala: Okay.

of 27


Subhash: That should increase by at least a million, million and half out of these three

cities alone. Gala: So out of 5 million subscribers what we are currently getting is only 10% based

on the declaration by the local cable operators. Subhash: No, see we are getting paid out of 61 million subscribes throughout. Gala: Okay. I followed. 61 million what we are getting is 5 million. Subhash: Yes, I think with these three metros we will immediately definitely jump at least

by one million subscribers. Gala: Okay. These three metros, is how many out of 61 million. Subhash: Three metros was about 10 million. Gala: Around 10 million. Subhash: 10 million may se abhi yahan pe jo declaration hai who less than a million.

(Translation: The declaration is less than one million out of the 10 million) Gala: Okay. Subhash: And we expect the declaration to go to about three million out of this. Gala: Three million, okay, so one million will become four million. You said there are

10 million homes three metros and the declaration is one million. Subhash: Yeah. Gala: And you are saying it will increase by around three million. Subhash: No. Gala: I am not getting it properly sir. Subhash: I am saying that this one million declaration.

of 27


Gala: Yeah that is in three metros. Subhash: In three metros. Gala: Yeah. Subhash: While December once the role out happens. Gala: Yeah. Subhash: It should definitely go to at least 2 million to 3 million. Gala: Okay. Subhash: But over a period of time, which may take about a year or year and a half, two

years, this will go to about six to six and half million because we feel that there would be 30 to 35% homes, which will now be the pay channels they will be happy with free-to-air channel.

Gala: Right, right, okay. Subhash: But, do sal main ek million jo hai abhi woh che saade che million tak jayega.

(Translation: In two years time, the one million declared subs in these metro would go upto 6.0-6.5 million subs).

Gala: I followed. Sir, is there any formula of this total subscription that this people

collect from viewers to be shared between say broadcasters, MSO, and LCO, has any formula being worked out which is agreeable to all?

Subhash: Abhi in teen shehron me kiya hai, Government has worked out some kind of

sharing. (Translation: Right now, in these three cities, Government has worked out some kind of sharing).

Gala: Can you throw some light on that sir? Subhash: We will check out and revert back to you. Gala: Okay fine, thank you very much. Moderator: Thank you very much sir. Next in line is Mr. Ritesh from KR Choksi

of 27


Ritesh: Good afternoon sir. I have a question on Wire and Wireless and on Dish TV both

going forward would be triple convergence like it would have a cable plus internet plus video on demand, so what would be the basic differentiation between this digital cable business and the DTH, is there any difference between ARPU of these business?

Subhash: Well there might be some what difference in the ARPUs that we have really

experiment it, but our projections are that we are getting ARPUs of about Rs 180 on Dish TV, we will gradually slowly go up 350 rupees.

Ritesh: Okay. Subhash: And so will be the cable, but real experience we have to gain because we do not

know how much value added services people will take or not take, but at the same time cable would have higher ARPUs because cable can give internet services where Dish TV cannot give internet services.

Ritesh: Okay. Subhash: And the reverse path from DTH would still be through a telephone operator, so

we will have to share some revenue with them also. Ritesh: Okay. Sir just one question, what would be the subscriber base of Wire and

Wireless as of now? Subhash: Abhi toh it is only one million paying subscribers out of six million being served. Ritesh: Okay and just one more broad level question. Out of 61 million subscribes given

a choice as of now, what do you expect they would turn into pay, like what percentage of that subscribers who are done to the pay channels?

Subhash: About 65 to 70%. Ritesh: Okay, thanks a lot sir. Moderator: Next in line is Mr. Harrish from HSBC Securities.

of 27


Harrish: Yeah, the question actually pertains to the accounting for ASC when ASCEL pays Zee TV for content, how is that accounting done and in the first quarter have any revenues come to Zee as content charges from ASCEL?

Hitesh: Yeah, it has come but it is very negligible at this moment and it is reported as a

subscription income under Zee Telefilms Limited. Harrish: How much would that be even if it is negligible? Hitesh: It is roughly around 1.5 crores rupees for the quarter. Harrish: Okay and does it happen that when you initially get a subscriber in and the

revenue that he pays under the scheme say 3,000 rupees you would account that as whatever as infrastructure revenues and start paying the content only next year or is it like when the deal with Sony is now done you would be paying Sony, Zee, and Star Plus as and when it happens from that year itself?

Subhash: As and when the pay services start. Harrish: Yeah. Subhash: From that connection, the revenue will start flowing in and pay channel cost will

be paid out of that. Harrish: Okay and secondly, when in the recently TDSAT decision they have said half of

cable rates is what Star Plus has got the supply to you, does it mean that the break-even of DTH happens quicker?

Subhash: Sorry say it again. Harrish: Yeah, basically, the TDSAT decision, which implied that Star has to supply

contented half of what it is supplying to cable operates, does it imply that you can break-even on the DTH part of the business quicker than expected.

Subhash: No as I said earlier, we do not expect miracles out of Star bouquet because I

said the pull of the Star bouquet is only in a single channel and which also is getting now slowly getting negated because Zee TV’s ratings are going up, but on the other hand the reason for giving it at half the cable price is because cable declaration is only 10% to 15% now.

of 27


Harrish: Yeah. Subhash: And because DTH business world over the programming cost to the subscription

should not be more than 50%. Harrish: Just one more question on cost of Zee Smile would they be included in the new

business of Zee Telefilms and if so how much? Hitesh: Well yes it is included in Zee Smile but then I am sorry we do not share the

product wise details. Harrish: Fair enough and you have a tie-up with BSNL in Gurgaon any reason for that tie-

up, I mean I am asking in the context that yes DTH could very well have gone into Gurgaon, why a tie-up with BSNL for triple play?

Subhash: Which agreement in Gurgaon. Harrish: You apparently have a tie up with BSNL, the telecom operator. Now this is what

I have like heard that there is a telecom play as well that you would tie up with the telecom payers to offer triple play, so is that on and why and is Gurgaon the staring point would you like go further ahead and offer in the four metros as well?

Subhash: See we are testing a new technology with BSNL. Harrish: Okay. Subhash: But there is no commercial service yet. Harrish: That is the ADSL-2. Subhash: I beg your pardon. Harrish: The technology is ADSL-2? Subhash: It is a new technology and we cannot discuss the details at the moment when

we see the results of that. Harrish: Okay, fine.

of 27


Subhash: Only if experimentation is successful then yes we will implement through out the country.

Harrish: Okay, three years ago sir, there head-end in the sky by which like 6,800 head-

ends on the ground could get negated to some extent via a satellite signal, now is it possible that outside of the four metros you do Head-end In The Sky and in the four metros or in the six metros you go wire or optical fiber is that a feasible thing or is it dead?

Subhash: No it is feasible. We are revising the same again. Earlier Star and Sony they

were not giving their contents for Head-end in the sky, but now I think they will agree to give and WWIL is going to revive it.

Harrish: Okay, so the Capex, which you mentioned for WWIL partly, could go in

spreading head-end in the sky out side of the metros. Subhash: Yes. Harrish: Okay thank you very much sir. Moderator: Thank you very much sir. Next in line is Mr. Pankaj Murarka from DSP Merrill

Lynch. Pankaj: Sir last quarter while reporting the number of the new business, we had a given

a line item wise break up of the revenues in terms of what is the break up of the total revenue between the advertising and subscription, so if you would share that that will help us to?

Hitesh: Pankaj, we have decided that we will not be able to share the product wise

details and I think I had mentioned it to you when we met. Pankaj: Sir, if you would just share you know what has been the growth in the

advertising revenue from continuing business, meaning while 30% is good, but I am sure that includes some delta from new businesses to for us to get some perspective and you know.

Subhash: Pankaj repeat the questions again. Pankaj: Sir, if you can give us some sense in terms of what has been the overall

adverting growth this quarter has been whatever 30% if you could give us some

of 27


sense of what has been the add revenue growth from the continuing business, if strip off the new business the add revenue has been from this quarter then what has been the growth on a year on year basis in the continuing basis.

Subhash: See the ad rate has been increased of 30% in April; well we will roughly apply to

about 25% of the total business in this quarter. Pankaj: Okay. Subhash: Remaining would be towards the old deals being filled being done at the same

kind of pricing. Pankaj: Right. Subhash: So that means because of price increase, there will be about 7 to 8% increment

to revenue and which you will see in the coming quarters getting more and more and the overall advertising growth in the industry is 10 to 11%, so from existing businesses it will be roughly about 18% of there.

Pankaj: Sure thank you sir. Moderator: Thank you very much sir. Next is Mr. Priyank Singhal from Edelweiss Securities. Priyank: Good afternoon sir, what I want to understand is like you know I believe that the

cost per match for the cricket rights is about 24.3 crores per match, which is applicable in the first year. So does it mean that for the two matches that have been played we have already you know expensed full 48 to 49 crores in this quarter itself?

Subhash: That is correct. Priyank: Okay and would it be possible for you to provide you know some sort of a

breakup between the of the subscription revenues in international and domestic and within domestic you know how much of it would be from you know Zee Turner and how much of it would be from you know Zee UK?

Hitesh: International subscription has been 759 million. Priyank: Sorry.

of 27


Hitesh: International substitution has been 759 million last quarter. Priyank: Okay. Hitesh: And domestic revenue had been 1,038 million. Priyank: Is it possible to further provide a breakup of domestic in terms of you know how

much it could be you know through the distribution business of Zee Turner. Subhash: Zee Turner has earned about 704 million. Priyank: Out of 1,038 million okay thanks a lot. Moderator: Thank you very much sir. Next in line is Mr. Prabhat from BRICS Securities. Prabhat: Hello, I just have one question after the TDSAT judgment are you looking at

revising some of your old contracts for example you have ESPN, Star Sports on your DTH platform and you had a deal which you stuck with Sony before the TDSAT judgment came out, so is there a possibility of rate revision downwards for the content that ASCEL is getting from these content suppliers?

Subhash: Prabhat, have a little bit patience. Prabhat: I mean, see it has law of the land, so I am just... Subhash: Yes, we will do that and I can only say this and yes we will do that, but Sony has

already negotiated and done deal but we will definitely again re-look at it, let us first get these Star complaint.

Prabhat: Alright sir, thank you. Moderator: Thank you very much sir. Next is Mr. Nithin Gupta from Karma Capital. Nithin: Hi, good afternoon sir. I just had a question that at what point of timeline are

you looking at offering tripleplay and how much investment would you have to incur?

Subhash: See as I said earlier that investment in the cable business is going to be modular.

We are in the first phase implementation in that three to six months is going to

of 27


be about 50 crores investment. But overall the plan which has been approved by the board yesterday is for Rs 300 crores investment.

Nithin: And what is the timeline. Subhash: In two years. Nithin: Two years, okay and will the local cable operators be co-operating with you for

offering triple play. Subhash: Yes, we are going to have a more or less a takeover of the local cable. Nithin: Okay and one more question related to CAS sir what are you thoughts on that,

will this time it will be implemented? Subhash: Yes. It will be. Nithin: Okay, thank you. Moderator: Thank you very much sir. Next in line is Mr. Dipen Mehta from Dipen Mehta

Shares. Dipen: Yes sir, we had a rather slow growth in the subscription revenue, just wanted to

understand that did the cost also more or less remained the same or the cost also you know went up significantly on that particular business.

Subhash: Cost on which business? Dipen: The subscription revenues which were 179 crores for the year were the costs

generally steady for that division or that segment? Subhash: Not very much, only up to I mean they earn commission of 15% that company

and in that they have made some money, which is paid back to the parent company Zee Teleflims at the end of the year.

Dipen: Okay, that means that most of the cost increases which came in for the quarter

were mainly on the account of advertising and content business. Subhash: Yeah, marketing, promotion, and additional money spent in the content yes.

of 27


Dipen: You know there was a 30% increase in advertising income, but if you look at the operating profit in the continuing businesses, existing businesses that was up hardly 8% year on year from 119 crores up to 129 crores so if you could just elaborate you know reasons for such slow growth in the operating profit despite having significant jump in the advertising revenue and I am assuming that the subscription and other pay income and the profit allocable to that segment more and less remain the same.

Subhash: No if you remove the losses of the new businesses Zee Sports, Telegu, Kannada,

Smile, etc., which is in this quarter alone 57 crores, if you add that back then the profits are not less.

Dipen: No sir in the advertisement, which you are releasing, it is showing breakup of

operating profits form existing businesses it has gone up from 119 to 129, which is just 8% increase.

Subhash: Mr. Mehta, I would just like to put it that on an average for both the revenue

advertising and subscription put together company is operating it about 38% of the margin and which has been more or less constant, yes that has been a content cost growing up, marketing cost growing up in the first quarter, results of which will definitely be seen.

Dipen: No but actually the operating profits have gone down that means because when

you had a growth…. Subhash: Calculate the percentage to the total income and perhaps you will be realizing it

that it is more or less same. Dipen: So the main aspect is the higher cost in marketing or what will attribute it to. Subhash: Well Mr. Mehta there has been additional investment as we say of normal

investment in the content of Zee TV that has been increase cost of promoting the programs before launch and you will see them, today we have viewers it use to be a 20% of market share of general entertainment. Today we have reached to 30% almost 29 to 30%. So once you have your one channel reaching to more number of people we have to take lesser help from the other mediums like news paper or hoardings, so slowly those expenses will come down and then even programming costs are going to get normalized once we regained additional business.

of 27


Dipen: Right sir, thank you and all the best. Moderator: Thank you very much sir. Next in line is Mr. Nithin Gupta from Karma Capitals. Nithin: Hi, sir this is a follow-up question in my reply to my question on triple play, you

mentioned that you are looking to acquire the local cable operators and what is your strategy on this front and are you looking to control the last point by this?

Subhash: We are directly or indirectly we will like to control the last point that is correct. Nithin: Okay but how are you going to acquire these local cable operators? Subhash: There are some strategies with us to have our operators to go down there. We

will give you results, do not worry. Nithin: And what is the timeline you are looking for acquiring the local cable operators? Subhash: We have already started it. Nithin: Okay fine thank you. Moderator: Thank you very much sir. Atul: Can we have one last question please? Moderator: Yeah sure sir. The last question is from Mr. Nilang Mehta of HSBC AMC. Nilang: Sir very good afternoon to you. I just wanted to check since when Conditional

Access System (CAS) comes in how would subscription revenues behave in terms of per subscriber revenue but disclosures, number of subscribers being disclose increase will that be a scope of reduction there in terms of what we are charging to customers and second question is sir, relating to programming cost and employee cost, how do you see the trend going forward as percentage of revenue at current levels or you see it improving further?

Subhash: The percentage cost per employee percentage will improve because of the

increase in the revenues of the new businesses and it should come back down to the earlier levels of I think it used to be 5% to 6%.

Nilang: Okay.

of 27


Subhash: The conditional access implementation, as I maintained that our estimation is

these three metros 30 to 35% homes will not take pay channels, they will just be happy with the free-to-air channels.

Nilang: Okay sir, no sir, in terms of the disclosure levels, which will increase because of

CAS, will there be a scope of reduction in pay channel rates which are there? Subhash: Not necessarily, there might be 10 to 20% homes, which take basic package of

programming and there will be another 40 to 50% homes, which will take everything so, kuch reduction hoga toh dosri jaga badega toh average prices will increase actually. (Translation: Some reduction will take place, while at other places, people will pay more also, so average prices will tend to increase).

Nilang: Okay should not decrease. Subhash: No it may not decrease. Nilang: Okay, okay. and sir Nilang: Correct sir, and sir on the programming cost how do you see it growing sir, do

you see tend to increasing programming cost with our more and more serials coming in to top TRP, so are we trying to do something on that front?

Subhash: See programming cost is a function of as we increased industry we always

maintain that the programming cost should be our margin should not go below 35% that is the overall benchmark.

Nilang: Okay Subhash: As long as we maintain that, even if content people spend more money we

should not be worried. Nilang: Okay, okay thank you very much sir. Moderator: Thank you very much sir. At this moment, I would like to hand over the floor

back to Mr. Atul Das for final remarks. Atul: Thank you everybody for joining us today. We hope to have a transcript to the

call very soon on our web site. We look forward to speaking to all of you again

of 27


at the end of the second quarter and before that on one-on-one basis. Thank you and have a nice day.

Moderator: Ladies and gentlemen, 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 and have a nice day.

of 27

zee telefilms limitedakamai.vidz.zeecdn.com/zeetele/pdfs/transcript1qfy2007...zee telefilms limited...

Documents