We had a detailed meeting with the top management of Zee Entertainment and covered areas including the advertising outlook; impact of increased competition in the Hindi GEC genre.
Besides this, we also discussed ramp-up potential in subscription revenues and outlook for the sports business and movie production business, among others.
We expect the company to register 5% y-o-y growth in ad revenues next year, with growth expected to be back-ended through FY3/10.
For ZEEL, we are building in 5% y-o-y advertising growth in FY3/10, significantly lower than the 15% ZEEL is expected to deliver in FY3/09. We are already building in a 2.3% y-o-y decline in ad revenues for 4Q FY3/09 in our model, compared with the 1.7% growth it registered in 3Q FY3/09.
We are in line with management’s 15% ad revenue growth for FY3/09, and management agrees with our view that 4Q could see a y-o-y decline in ad revenues.
We expect ~5% TV ad revenue growth in CY09 for the market. Different agencies have varying estimates of TV ad growth in CY09. Group M, a leading global media investment management company, is forecasting 11% y-o-y growth in TV advertising for CY09.
However, Madison Media expects TV advertising revenue growth of 7% for CY09. The recent FICCI-KPMG Annual Media and Entertainment report pegs TV advertising revenue growth at 7% y-o-y to $1.7 billion.
If Colors sustains its weekly GRPs and strong No. 2 rank, it may hurt Zee TV in the next 6–12 months in the form of a reduced share of advertising in the Hindi GEC genre.
We maintain our 16.8% growth forecast in subscription revenues for ZEEL in FY3/10, 620bp lower than the 23% growth expected in FY3/09.
ZEEL management clarified the reasons for the disconnect between market expectations of a sharp ramp-up in subscription revenue growth for ZEEL in line with the reported increases in DTH subscribers in India in last three to four quarters.
We maintain our UNDERPERFORM rating on Zee Entertainment and recommend that investors switch to Zee News.
We continue to favour exposure to regional TV broadcasters. In the current macro environment, we believe that regional players are better placed than Hindi GECs. As such, we advocate a switch from Zee Entertainment to Zee News.