'Zee5' will be Zee Entertainment's next big bet in terms of investments and viewers and it is on track to be the number one entertainment app in India over the next 12 months, said Punit Goenka, MD and CEO of the company.
"We are seeing a lot of traction on the OTT platforms and there is no worry yet on the television side of consumption. If you look at the television growth itself, over the last year, we have seen growth in the number of television households. We have seen growth in time consumption per consumer on a daily basis," Goenka said.
Watch: Zee Entertainment bets big on video streaming platform Zee5
Zee is making investments in Zee5 but they are still very confident that the company will be able to deliver upwards of 30 percent margin for the company as a whole despite these investments, he said.
Edited Excerpts: There is clearly a tectonic shift in the way entertainment is getting consumed now. People are moving more to OTT platforms such as Netflix, Amazon, and Zee also launched Zee5. However, the fear in the market is to ward off competition, you will have to incur significant cost on Zee5 which will impact your margins. Your thoughts on the same.
I must say here that while we are seeing a lot of traction on the OTT platforms, there is no worry yet about the consumption of television. If you look at the TV growth itself over the last year, we have seen growth in the number of households having TV, we have seen growth in the time consumption per consumer on a daily basis.
However, having said that, Zee5 is definitely going to be our next big bet in terms of investments and garnering incremental or additional viewers. We will be making investments in that business but we are still very confident that we will be able to deliver upwards of 30 percent margin for the company as a whole despite these investments.
One of the concerns on the street is that this particular business might take a while to break even. What is your own estimate of when will this Zee5 business break even?
I have gone on record to say that it will be a three to five year journey, maybe towards the five-year mark we are seeing great traction on Zee5 for ourselves.
Currently, if you could tell us where does Zee5 stand when compared to the competition in the pecking order of paid subscribers and what would your target be in terms of garnering market share as well as subscribers and how do you see the pricing play out?
As I have said in the past as well that Zee5 is on track to be the number one entertainment app in India over the next 12 months. We are tracking well on that. Q2 results are just around the corner, so I would not be in a position to give you exact numbers. But I can highlight this part to you for sure that the analysis in the Morgan Stanley report has estimated revenues for Zee5 for FY21, it will beat those in this quarter.
What are your own estimates of Zee5 financials will look like given the trajectory?
Zee5 will definitely start adding towards the advertising growth by this quarter itself and towards subscription growth of the company within FY19 itself.
What do you make of the overall trend in the industry and in the US also we had seen that the ad revenue had shifted from TV to the OTT platforms. Is that something that you would also say might happen to the Indian industry?
One cannot estimate over what period it will happen. I am pretty confident that TV itself is growing both on advertising as well as on the subscription side.
If you look at, I have said in my last quarter commentary as well that phase three monetisation has started and we are seeing good traction coming on the subscription that side as well. My own estimate is that Zee5 will only contribute positively towards the entire company’s revenue as well as profitability in the long term.
You had also mentioned in the last call that you are looking at the overall ad revenue growth in double-digit as well as the TV market to grow at 11-12 percent with low teen subscription growth for FY19. Do you still maintain that view?
Absolutely, I still maintain that view and that number was for the industry. Definitely, Zee will beat the industry number itself.
If you could just throw some more light on your confidence of achieving and maintaining these 30 percent plus margins because there is clearly a lot of competition, we have got Netflix CEO Reed Hastings also indicating that India is clearly a big market, they want to tap into those 100 million subscribers of India. They could in the future look at even differentiated pricing and not just the premium pricing. We do not know how the situation will play out in the coming few years. Tell us where this confidence of holding on to these 30 percent margins come in from because Morgan Stanley believes in the bare case your margins by FY21 could go down to even 22 percent.
I think that is not a well-researched report of Morgan Stanley. I am pretty confident that on the television itself the kind of margins we are delivering today are upwards of 36 percent plus.
Given the kind of investments we are going to make on Zee5, we are pretty confident that it will still continue to deliver upwards of 30 percent even in FY21.
How has been the initial response to Zee5, how much was the number of downloads, what is the paid subscription volume that you are looking at as of now?
I can share with you that monthly active sers (MAU) have tripled, since the last three months, our video views are growing on 50 percent basis month-on-month since it is launched in February of this year.
Our numbers are tracking well beyond. As I said, I am again repeating it, what the analyst has said that the revenue for Zee5 will be in FY21 for the full year, I will beat that number this quarter. So that is my confidence.
What are your own estimates for FY19 revenues from Zee5?
Just bear with me for one more month, we will be giving you those numbers.
If you could tell us what is the war chest that you have lined up for investments in Zee5? How much are you willing to spend or you anticipate spending?
It will be close to about 400 basis points of our topline that we will be investing in Zee5.
On an annual basis?
For the current year and then it will decrease going forward. If you look at the revenue that Zee5 is generating is ahead of our expectation and that gives us even more confidence to invest behind Zee5.
Overall you have been very aggressive when it comes to the acquisitions, etc. Is there anything more in the pipeline that we should watch out for?
Nothing that I can talk about right now, nothing has been finalised yet.
Let me come back to the point about TV ad spend growth. Currently, it is in mid-teens for you?
Yes, it is. Ahead of mid-teens actually.
How do you expect the landscape to play out, is the ad share going to switch more to digital? Are you confident of sustaining TV ad revenue growth of mid-teens?
We are very confident of maintaining the mid-teens kind of growth for FY19. As I said earlier, digital will only add to that to grow further.
FY20 onwards you do not see it deteriorating to single digits, ad spend growth?
I do not see that happening even in the next financial year.
Would you be able to give us a sense of what is your market share like in the digital space against other players like Netflix, etc...
Just bear with me for one more month, I will give you those numbers at the end of Q2 results.
Currently, what is the kind of subscriber growth that you have seen for Zee5 and your market share?
Since our original content started only in the month of July, we have seen a doubling of numbers month-on-month.
What would the subscriber number stand at on an absolute basis?
We will be the number one entertainment app at the end of 12 months from now. I will give you the numbers next month itself.
What is your focus point when it comes to Zee5, what are you chasing, is it the paid subscriber growth, is it critical mass, or is it EBITDA?
We are chasing both advertising as well as subscription revenue.
Your contract with Reliance Jio did not take off according to certain reports. If you could tell us what happened there because you have entered into a tie-up with Airtel and there were initial plans of a tie-up and a contract with Reliance Jio?
We did have a deal with Reliance Jio and it was up for renewal and our negotiations failed. Hence, we had to pull our content out. Conversations are still on, and I am sure we will find an amicable solution with them as well.
Disclosure: RIL, the promoter of Reliance Jio, also controls Network18, the parent company of CNBCTV18.com.