Zee

India continued to be the fastest growing major economy despite the challenges faced during the year. In FY19, the GDP of the country grew by 6.6% on GVA basis, a marginal deceleration from the previous year. While the growth in the first half of the fiscal was strong, it moderated during the second half due to liquidity concerns and stress in the agriculture sector. This impacted consumption and discretionary spending, especially in the rural markets, during the latter half of the year. However, after a strong mandate, the expectation is that the new government will address these concerns on priority and inject stimulus to revive economic activity. Three consecutive interest rate cuts by the Reserve Bank of India and their accommodative stance will help revive consumption and growth in the near term. Forecast of a normal monsoon in 2019 also bodes well for the agriculture sector and is expected to drive rural consumption. From a medium-term perspective, the government’s focus on infrastructure development, job creation and banking reforms will support growth. One of the biggest structural reforms, Goods and Services Tax (GST), despite transient issues, is already helping formalize the economy and will go a long way in improving the business environment in the country.

While the Indian economy has expanded at an average annualized growth rate of around 7% over the past several years, there have been patches of slower growth in-between. However, consumption growth has remained quite resilient throughout this period. During FY19, despite a slowdown in overall GDP growth, private final consumption (PFCE) accelerated to 12.0% from 10.6% in FY18. Over the last five-year period, PFCE has grown at a CAGR of 11.8% in nominal terms. This, along with the trend of organized businesses gradually gaining market share in various sectors, augurs well for the growth of the media industry.

India's GDP growth GVA basis (%)

Nominal growth in private final consumption (%)

The Indian media and entertainment (M&E) industry witnessed another year of all-round growth. The pace of growth accelerated marginally in CY18 despite the challenges faced by the economy towards the end of the year. According to the FICCI-EY Report 2019, (the Report), the M&E industry grew by 13.4% YoY in CY18, to ₹ 1,674 billion. India is witnessing a significant increase in content consumption due to increase in availability and improvement in affordability. Be it the growing number of mobile and television sets, improving multiplex penetration or smaller cities getting their own radio stations, availability of content is improving across platforms and is expected to get better going ahead. However, India’s per capita entertainment consumption is still lower than most of its peers, representing a significant room for sustained growth which would be driven by rising disposable incomes and increasing access to content. According to the Report, the Indian M&E industry is expected to grow at a CAGR of 12.0% to ₹ 2,349 billion over the next three years, with growth in all the segments.

During the year, television increased its reach and engagement with the audience, retaining its position as the default entertainment medium for Indian consumers. Growth in online video consumption accelerated, helped by the increased availability of affordable data and content on digital platforms. Print media continued to grow, albeit at a much slower pace. The movie industry surpassed all the previous box-office records on the back of strong performances in both domestic and international markets. Radio, in addition to entering new cities, is diversifying into new business offerings like concerts and activations. Growth in live events was led by premium properties, sports events and digital integration.

M&E Industry Composition

TV AND DIGITAL TO LEAD INDIAN M&E GROWTH

Of all the entertainment options at Indian consumer’s disposal, content consumption scores high on two important parameters - availability and affordability. With these two aspects becoming increasingly consumer- friendly, we are witnessing an exponential growth in content consumption, driven by increasing choices and easy access. As consumption rises, more content producers are coming forward to meet the demand. This virtuous cycle is fuelling India’s content consumption story.

In India, due to low levels of penetration, all forms of media are seeing an increase in consumption. That said, television and digital are appropriating an overwhelming proportion of this incremental growth. Television continues to witness an increase in subscriber base as well as time spent, and remains the mainstay for family entertainment. Digital, on the other hand, is becoming the default second screen for many in the predominantly single TV household environment of India. Consumption on television as well as digital is on a secular growth path.

ACCELERATED GROWTH IN CONTENT CONSUMPTION TO CONTINUE

In India, television viewership has been steadily growing for several years. The emergence of digital platforms has added another dimension to content consumption growth and is driving up the total video viewership. While television provides entertainment for every member of a family at an affordable price, digital offers convenience and differentiated content. Both the mediums have unique value propositions to the users and are well placed to grow. It is estimated that by 2021, India will have around 5 million digital-only consumers, which is less than 1% of India’s viewer base. Improving ease of access and production of more content will drive consumption on both platforms, albeit at different rates.

Improving ease of access

India’s device penetration is low. With 66% TV penetration and 35% smartphone penetration, a large population has not even started consuming content on a regular basis. As income levels in India increase and prices of these devices fall, penetration will improve, leading to higher content consumption. Digital also makes it possible to consume content anywhere and anytime. As such, it is taking away time from other activities like reading or making it possible to consume content while travelling. Separately, increasing power availability in small towns and rural India is giving a boost to television viewership.

Average daily time spent on video (minutes)

Penetration of TV and Broadband (March-19)

ADVERTISING: TV AND DIGITAL VIDEO TO DRIVE GROWTH

India’s advertising spends grew by 13% in CY18 and as per the Report, it is expected to grow at a CAGR of 11.4% over the next 3 years. Despite the double-digit growth over several years, India’s ad-spends are significantly low relative to the size of the economy. India’s strong economic growth, rising income levels, and consequent increase in consumption provide a solid foundation for advertising growth. In this conducive macro environment, the emergence of new advertising categories, increasing share of organized sector, and tapping of SME advertisers will drive sustained growth in ad-spends.

Television and digital offer different propositions to advertisers. Television’s high engagement levels and a weekly reach of 780 million individuals makes it the default medium for reaching out to a large consumer base. This makes television the preferred media for brand-building. On the other hand, digital’s ability to target consumers based on their profile and interests is more suited for a certain set of brands and transaction- based advertising. Digital also enables small enterprises to advertise, thereby expanding the advertiser base significantly. It is estimated that over 300,000 businesses advertised on digital as compared to 12,000 advertisers on television and 180,000 on print. Advertisers are leveraging the power of both the mediums together to meet their marketing objectives.

Globally, video is gaining share from all other forms of content consumption. This, in turn is driving higher share of ad spends to television and digital video. India is also witnessing similar trends, and over the next three years television and digital video are likely to capture 53% of incremental ad spends.

India’s Ad Spend - Growth Drivers

Reach of TV and Broadband (March-19)

Advertising spends (₹ billion)

SUBSCRIPTION: DIGITAL OPPORTUNITY SUPPLEMENTING TELEVISION

Historically, India’s subscription revenues have been significantly small relative to the size of the market and the amount of premium content on offer. A fragmented distribution space and analogue delivery of content hampered the growth. However, structural improvements in television distribution space and the emergence of digital opportunity will drive subscription revenue growth for the industry.

Television subscription has multiple growth drivers in place. The digitisation of Indian distribution space over the past few years has improved transparency in the value chain. Implementation of the new tariff order gives consumers an option to choose and pay for content while simultaneously allowing pricing flexibility to broadcasters. These initiatives have laid down a solid foundation for growth in the coming years. Rising penetration of television and high-definition channels will further add to the subscription growth for the industry.

Digital opportunity is expected to become sizable, driven by the rapidly growing number of smartphones and broadband penetration. So far, advertising video on demand (AVOD) has dominated online content consumption due to low television ARPUs, a price-sensitive consumer base and aversion to online payments. To capitalize on the subscription opportunity, the platforms will have to establish a strong value proposition by offering a vast array of differentiated content. This will need to be complemented with innovation in pricing and bundling of content with other services, especially telecom. We are already witnessing a lot of activities on both these fronts which will help develop the subscription market gradually.

Subscription Revenue - Growth Drivers

After multiple disruptions which marred the growth in the previous fiscal, FY19 began on a strong note. Advertising as well as subscription growth accelerated during the first nine months. However, the momentum was impacted in the last quarter due to the implementation of the long-awaited tariff order. It required migration of over 160 million pay-TV subscribers to new subscription packages. The challenges posed by the enormity of this exercise were amplified by multiple shifts in deadline. This hurt the reach and viewership of pay channels in the transitory period, impacting revenues in the last quarter. As per the Report, in CY18 the television industry grew by 12% to ₹ 740 billion.

After a couple of years of slow growth, India’s ad-spends reverted to its normal growth trajectory. The advertisers who had temporarily held back their campaigns and product launches due to demonetization and the implementation of GST started reinvesting in their brands. The rebound in consumer companies’ volume growth and a reinvigorated launch pipeline led to a surge in ad-spends. In the fourth quarter, the uncertainty related to implementation of tariff order and its immediate impact on viewership forced advertisers to curtail spends. They also allocated a part of their ad-spends to sporting events which offered a better reach compared to entertainment channels during the implementation phase. The impact of tariff order on ad-spend growth is transient and the underlying demand remains strong.

During the year, the industry witnessed acceleration in subscription revenue growth. This was primarily driven by the improved monetisation of digitised subscribers in phase- III markets, which account for around 50 million households. These markets saw an increase in ARPU after digitisation, which benefitted all the stakeholders in the media value chain. Besides digitization, increasing uptake of high definition channels, growth in households, and rising TV penetration continue to drive subscription revenue growth. In the fourth quarter, the implementation of tariff order led to a slower growth, which in our view is transient.

Tariff order – overcoming implementation challenges

After two and a half years of consultations, litigation and shifts in timelines, the new tariff order was finally implemented in March’19. Given that India’s pay-TV market has over 160 million subscribers, it was a herculean task to migrate every subscriber to new packages created by distributors or customers. The enormity of this exercise was worsened by the inability of distributors’ infrastructure to handle such a quantum of requests, resulting in multiple shifts in timelines. As per the TRAI guidelines to avoid inconvenience to consumers, a large proportion of subscribers were shifted to ‘best-fit packages’ as a stopgap arrangement. The ‘best-fit package’ was designed in a way that kept consumers’ monthly outgo largely unchanged. In most cases, these packages had a lesser number of channels compared to earlier plans. The distributors are gradually migrating subscribers from ‘best-fit plans’ to bouquets and channels of their choice and this exercise is expected to get completed over the next few months.

We believe that once the implementation issues are overcome, this regulation will be beneficial for all the stakeholders. The consumer will have the ability to choose and pay for the content they like, making pay-TV service more relevant to them. For the first time, broadcasters have the power to price their products directly for the consumers. It also ensures uniform pricing of content for all distributors. The improved value proposition for consumers and increased transparency in the system will accelerate the growth of the overall subscription pie.

Time spent continues to move upward

Television in India remains by far the most popular medium for entertainment in terms of reach and engagement. During 2018, it reached 780 million viewers on a weekly basis with an average daily time-spent of 226 minutes per individual. Continuous innovation, more content and new formats are driving up the engagement levels. In the year gone by, the television universe added 56 million viewers and the time-spend registered a marginal growth. More importantly, time-spend on television is on a growth trajectory across all age-groups, geographies, socio-economic classes and gender. With a viewership of 989 billion man-minutes a week, TV continues to lead video consumption with 93% share.

Daily time spent across age groups (minutes)

Domestic Broadcast Business Performance Review

In FY19, our Domestic Broadcast Business continued its viewership share gains and further strengthened its position as India’s #1 entertainment network. Over the past two years, we have improved our viewership share by an average ~200 bps every year as against 100 bps increase for several preceding years. This strong growth was driven by the success in regional markets and movie genre while the performance of our Hindi entertainment portfolio continued to be robust. Consistent improvement in viewership share has enabled us to grow our advertising and subscription revenues higher than the industry. This performance is the result of our commitment to deliver all-encompassing entertainment to viewers, offering cost-effective reach and brand solutions to advertisers, and driving innovation in distribution through value pricing. These key tenets of our strategy have enabled us to expand our network gradually and be amongst the top-two players in most of the markets we operate in.

Viewers

At ZEEL, understanding the consumer is central to the process of content creation. We have devised a systematic process to comprehend the socio-cultural milieu and day-to-day lives of our viewers. This process starts with selecting people for content teams belonging to similar sociocultural backgrounds. We use insights from cultural profiling to select storylines, build characters and render engaging narratives that connect with our viewers subliminally. Our content is complemented with several on-ground events and customer outreach initiatives. We get continuous feedback on our content from viewership data, social listening, and focused group studies, amongst others. This meticulous process has enabled us to replicate success in multiple markets as evidenced by the current strength of our network in Hindi as well as regional genres.

Advertisers

Our wide bouquet of 41 entertainment channels attracts viewers of all demographics across India. Coupled with the viewership strength of our portfolio, it enables us to offer our advertisers a cost-effective reach and share of voice in each of the markets. Over the years, companies have used our platforms to create brands and build recall. Our programming range allows us to offer our customers a mix of a sustained and shortterm spike in reach. Our strong value proposition to advertisers has helped us grow even during the phases of disruption or slow growth, and to consistently improve our revenue market share.

Distribution

Our channels have been an integral part of cable and DTH offerings for over 25 years. Our longstanding relationship with our distribution partners enables us to reach consumers and monetize our viewership effectively. As an important stakeholder in the development of Indian broadcast and distribution industry, ZEEL has an in-depth understanding of consumers and intricacies of distribution. We used these learnings to lead the implementation of the new tariff regime and created cost-effective consumer packs which set the benchmark for the industry. We also led the way in initiating consumer communication and educating our distribution partners about this radical change.

Our focus on consumers, advertisers and distribution eco-system has been rewarding which is reflected in our viewership and revenues. As we intend to fortify our position, we are working to further improve our core skills and build new capabilities. To refine our consumer understanding, we have identified 53 distinct socio-cultural groups, and we are trying to understand and document their important aspects. These insights will be extensively used for content creation and experimentation. To enhance our value proposition to the advertisers, we are focusing on native solutions by integrating brands seamlessly within storylines. We are also using technology for comprehensive meta-tagging of the shows, which in combination with ratings’ data, can be used to analyse show performance in greater detail. It will also help in offering customized brand integration opportunities to our advertisers. We are confident that our initiatives will help us in further consolidating our leadership position.

Cluster - wise Operational Review

Hindi General Entertainment

ZEEL’s Hindi general entertainment bouquet of 6 channels caters to the Hindi-Speaking Markets (HSM) that make up around 70% of the overall TV market.

Zee TV, our flagship channel, witnessed a marginal increase in viewership share and maintained its #1 position in the Hindi GEC genre during the year. The channel’s line-up of fiction shows, a mix of new launches and shows running for over 12 months, performed well and helped strengthen its lead in the weekday prime time. Weekend non-fiction shows launched in FY19 did not perform as well as in the previous year.

&TV’s market share declined marginally during the year due to the increased competitive intensity and the below-par performance of the newly launched shows. The channel aims to increase loyalty among the urban audience with its differentiated programming initiatives.

Zee Anmol remained the #1 channel in the FTA genre till February’19. From 1st March, the channel was converted to a pay channel and was taken off from the DD Freedish platform which impacted its reach and viewership. The channel continues to run on the network’s library content and is available on all the pay-TV platforms.

Big Magic, the FTA channel, is focused on kids’ content and improved its market share during FY19.

Hindi Movie Cluster

ZEEL’s Hindi Movie cluster of 8 channels – Zee Cinema, &pictures, Zee Bollywood, Zee Action, Zee Classic, Zee Anmol Cinema, Zee Cinema HD and &pictures HD, reached its highest ever viewership share and retained its leadership position.

Zee Bollywood was launched during the year with the tagline, ‘101% Shuddh Bollywood.’ The channel’s core proposition is blockbuster Bollywood movies of the past. It has received positive response from both the viewers and the advertisers.

Zee Anmol Cinema was converted to a pay channel on 1st March’19. It was pulled off from DD Freedish platform and is now available on all pay-TV platforms. The success of movie portfolio was driven by premieres of hit Bollywood movies such as Padman, Dhadak, Parmanu, Gold, and Veere Di Wedding, amongst others, and the performance of its library titles. With the acquisition of movie library rights, including future rights and the rights of movies under production, the Hindi Movie cluster continues to expand its catalogue, which will provide an impetus for future growth.

Regional Entertainment Channels

Regional GECs further strengthened their competitive positions in respective markets and were the key drivers for improving the overall network share. ZEEL’s regional portfolio caters to 8 linguistically diverse markets – Marathi, Bengali, Tamil, Kannada, Telugu, Malayalam, Oriya, and Bhojpuri.

Zee Marathi continued to be the #1 channel in the Marathi speaking markets with leadership in all prime-time slots. The brand visibility of the channel continued to improve through on-ground consumer connect programs. Zee Yuva, the only Marathi channel in the youth entertainment space, was the channel with the third highest reach.

Zee Bangla became the #1 channel during the year in the Bengali speaking markets. The channel gained significant viewership share and widened the gap with its nearest competitor. It undertook ground connect events to increase its rural base which is yielding results.

Zee Tamil continued its growth trajectory of the past two years and was a close #3 channel in the Tamil market. The channel’s fiction shows showed a significant improvement in ratings and for the first time, three of its core prime-time shows attained leadership. The #1 show in the Tamil market during the year belonged to Zee Tamil.

Zee Telugu maintained its position as the #2 channel despite a significant increase in competitive intensity in the market. The channel gained traction in the fiction genre and consolidated its share in this space during the year.

Zee Kannada became the #1 channel in the Kannada market towards the end of the year. The channel refreshed its brand with the new proposition of ‘Open Doors to Possibilities’ to inspire viewers, especially women. It also launched new shows to reflect this proposition which helped it to achieve the leadership position. Zee Kannada HD was also launched for premium subscribers.

Zee Keralam was launched in the Malayalam speaking market in November’18. With this launch, ZEEL expanded its presence across all the four southern states and became the only television network with presence in 9 Indian languages. The channel received a good response in a highly competitive market. Comparing the first 20 weeks’ performance of new channels launched over the last two years in India, Zee Keralam garnered the highest market share.

Zee Sarthak witnessed a marginal decline in market share towards the fourth quarter, largely due to distribution challenges faced post the implementation of TRAI tariff order.

Big Ganga was the #2 Bhojpuri entertainment channel.

Regional Movie Cluster

ZEEL has a portfolio of five movie channels in the regional markets. As part of our stated strategy, we have been aggressively building a sizable movie library across languages over the past couple of years. In addition to helping the existing channels improve their viewership share, it will help us launch movie channels in three regional markets during FY20.

Zee Talkies continued to be the #1 movie destination for the Marathi audience. Along with premiering the best Marathi movies, the channel launched a first-ever professional-level wrestling league in India, Zee Maharashtra Kusti Dangal.

Zee Bangla Cinema maintained its position as the #2 channel in the Bengali movie genre. In addition to premiering movies and ZBC Originals, the channel worked on building its reach through 360° campaigns.

Zee Cinemalu, in its third year of operations, gained viewership share during the year and became the second most-watched Telugu movie channel. With a strong movie catalogue, the channel is quickly ramping up to challenge the established players.

English and Music channels

The English cluster witnessed a tepid performance during the year. This is partly due to a lower reach of the channels after the implementation of the new tariff order. Our English cluster channels - Zee Café, &prive HD and &flix continued to bring the latest English shows and movies from around the world to the audiences.

Zing, our youth entertainment channel, airs a mix of music and Bollywood-based shows. From 1st March’19, the channel has been converted to freeto-air (FTA) and is available on DD Freedish.

In 2018, India’s digital media revenues grew by 42%, significantly ahead of the M&E growth, and this trend is likely to continue. With a device connected to a high-speed network perennially at viewers’ disposal, the opportunity to consume content has multiplied. Video has emerged as the biggest beneficiary of data availability and is the largest growing segment within digital. This presents an additional avenue to connect with the existing audience and also to reach viewers not accessible on other platforms. The fastgrowing video consumption represents a sizeable opportunity for OTT platforms, content creators, content aggregators, and advertisers.

Digital video opportunity to double

In 2018, internet users grew by 28% to 570 million and online video viewers increased by 25% to 325 million. India currently has around 400 million smartphone users and this number is expected to more than double by 2022. With a projected 60% smartphone penetration and close to 70% highspeed network coverage, total data consumption is set to grow ~5x during this period. Online video viewing will be the main driver for this increase and will account for 75% of data consumption. This will be led by new users, primarily from rural markets, and an increase in per-capita time-spend. As consumers prefer to watch content on big screens, the availability of wired broadband at an affordable price would be critical for the next phase of growth.

Average Data Usage per user per month (in GB)

Digital original content set to explode

At present, all major digital platforms offer TV content for free, which accounts for 70-90% of digital content consumption. Simultaneously, there is a big push for original content for the digital audience. In 2018, the industry produced around 1,200 hours of digital exclusive content, exploring new formats and concepts. Though this number is a fraction of the 100,000+ hours of content produced for TV every year, it caters to audience segments that are not served adequately by television. Original content on digital is primarily comprised of finite series based on topical and sometimes controversial themes, with relatively high production value and well-known talent, which makes it more like movies than TV shows. Given that ~90% of digital content is consumed in Indian languages, a bulk of India’s online opportunity resides in regional markets. While most of the platforms are focused on the Hindispeaking audience, some have started creating content for regional markets. With a multitude of OTT platforms vying for consumer timeshare, the pace of content creation and innovation is set to explode.

Video to lead digital ad growth

Advertising is the primary revenue stream for digital, with a share of over 90%. In 2018, digital advertising grew by 34% to ₹ 154 billion and increased its share in the overall advertising pie to 21%. Digital advertising is becoming integral to marketing plans for all brands. It enables small businesses to advertise on affordable budgets, thereby expanding the market. While some small and localised advertisers might spend their entire marketing budget on digital, several large advertisers are using it to complement their television campaigns. Among the large advertisers, BFSI, telecom, consumer durables and e-commerce have emerged as the top spending categories. Digital has also brought more than 300,000 small and medium enterprises into the advertising fold. It also offers the capability for viewer to transact, thus making it convenient to measure ROI. That said, ad-measurement and fraud are two key concerns for the digital advertising industry. An independent thirdparty measurement system and improvement in transparency would be crucial for sustaining the growth momentum.

The stellar growth of digital over the past several years was driven by search and display, but now video advertising is emerging as the growth leader. So far, India has been primarily an AVOD market with most OTT platforms relying on advertising revenues. The surge in online video consumption has led to a huge growth in ad inventory and as per the Report, digital video advertising opportunity will grow at a CAGR of 28% to ₹ 105 billion by 2021. Innovative ad formats, better targeting and retargeting, sponsored content, regional content and focus on performance marketing would help this growth.

Subscription opportunity to become sizable

In 2018, subscription contributed less than 10% of the digital revenue but it is expected to grow ~4x by 2021. It is estimated that only 5% of the total video viewers in India are paid subscribers currently. This is understandable as digital platforms are competing for subscribers with television, which offers content at a very competitive price. Adoption of paid-OTT services is also impeded by the fact that Indian consumers are cost conscious and as-yet uncomfortable with online payment. To make users pay, OTT platforms will have to establish a value proposition by offering an extensive range of differentiated content. Bundling of some OTT content with telecom services will provide an opportunity for consumers to view content from different platforms and decide which standalone services are worth paying for. Telecom companies are already playing an important role by aggregating content which is the key driver for growth of their data services. Innovations aimed at enhanced ease of payments and price tiering would play an important role in the development of the subscription market. As per the Report, digital video subscription opportunity will grow at a CAGR of 56% to ₹ 50.5 billion by 2021.

Digital video ad and subscription revenue (₹ billion)

ZEE5 – a strong start

Launched in February 2018, ZEE5 is one of the fastest growing digital entertainment platforms in India. Despite a late entry in the crowded OTT space, it has been gaining traction across all viewership parameters. ZEE5 registered 61.5 million monthly active users (MAUs) in March 19 with an average of 31 minutes spent on the platform. It has consistently ranked as one of the top-5 free and grossing entertainment apps in India, as per the Google Play store rankings. ZEE5 will continue to scale up its user base on three pillars – content, partnerships and technology.

ZEE5 - Monthly Active Users (million)

Comprehensive content offering

Diversity and depth of content offering are the biggest strengths and differentiators of ZEE5. To serve the varied entertainment needs of viewers, ZEE5 offers a comprehensive content catalogue covering all the genres of entertainment. To cater to India’s multi-lingual audience, ZEE5 offers content in 12 languages. ZEE5 leverages the vast library of Domestic Broadcast business that adds about 500 hours of content every week in 9 languages, enabling consumers to view their favourite TV shows on demand. It also hosts one of the biggest movie libraries across 12 languages with exclusive movie premieres every week. ZEE5’s offering of Originals, news, music videos, international content, live events, and cine-plays help increase engagement with viewers.

ZEE5 Originals, the catalogue of exclusive content for ZEE5 consumers, differentiates it from the other OTT platforms. While most of its peers are focussed on Hindi market, ZEE5 is the only platform producing original content in 5 regional languages, in addition to Hindi. ZEE5 has released 60+ finite-format fiction shows, reality shows, original movies and short movies, making it the biggest producer of digital content in India. It plans to release over 70 shows and movies in 6 languages in FY20, which will further help to consolidate its position. ZEE5 Originals has been experimenting and pushing the content boundaries, as exhibited through critically acclaimed shows and films such as Rangbaaz, Kaafir, The Final Call, Karenjit Kaur-The Untold Story of Sunny Leone, Abhay, The Sholay Girl, 377-Ab Normal in Hindi; Sharate Aaj, The Lovely Mrs. Mookherjee (Bengali); Sex, Drugs & Theatre, Date with Saie (Marathi); Auto Shankar, Thiravam (Tamil) and Mrs.Subbalakshmi, High Priestess (Telugu). ZEE5’s extensive content catalogue will enable it to become the go-to platform for consumers looking for differentiated content across languages.

ZEE5 Content Catalogue

Partnerships for multiple touch points and convenience

ZEE5 has partnered with multiple players in the digital ecosystem to reach maximum number of consumers and to make it easy for them to consume content. These partnerships can be primarily classified into three categories - internet and data service providers, device manufacturers, and digital businesses with sizable consumer base. ZEE5 has partnered with all major telecom operators and ISPs through app-in-app integration, selective content sharing, or customized apps. The rapid pace of growth of smart TVs present another touch-point for OTT platforms and it helps to drive subscription and higher consumption. ZEE5 has partnered with all the leading smart TV manufacturers and connected devices including Amazon Fire Stick, Samsung, LG, Xiaomi, Vewd, Cloudwalker and AOSP powered TVs. It is also tying-up with cable and DTH companies to be available on connected STBs. To drive paid subscription adoption and make payments easy, ZEE5 has partnered with e-wallets, travel portals, music streaming apps, and hospitality platforms, amongst others. Along with driving higher reach and convenience, these partnerships also help in joint marketing campaigns.

Leveraging technology to enhance experience

ZEE5 has been built keeping the intricacies of Indian landscape in mind. Interface in 12 languages and voice search are the key features helping enhance the experience for an Indian consumer. To enable a customized experience to its large user base and improve content discovery, ZEE5 has partnered with over 30 technology companies from around the world, with a strong expertise in the OTT space. The other big advantage of digital medium is the data it generates, allowing greater insights into consumers’ preferences and behaviours. Use of data has allowed consumer segmentation to move to preference-based cohorts, and feedback from viewership data acts as input for content selection and creation on a consistent basis. While we are still ramping up our data analytics capabilities, we made changes to our original content slate for FY19 based on the viewership trends. Another area where we are harnessing the power of data is to offer customized solutions to our advertisers. To improve the transparency of ad impression data, we have tied up with MOAT and Nielsen Digital Ad ratings (DAR), two leading standards for viewability and measurements of digital ads.

ZEE5 has adopted a hybrid revenue model to monetise its viewership. A part of our extensive content bouquet - television shows, non-premium movie library, news, and music videos, is available to viewers without any fees and gets monetized through advertising. The vast library of premium content – ZEE5 Originals, movies, and international content is accessible only on subscription of pay-service. At present, ZEE5 MAU base primarily comprises of free viewers and its monetisation is already leading to an acceleration in the company’s ad revenue growth. While the contribution to subscription revenues has been marginal so far, as we continue to expand our exclusive content catalogue and partnerships, the growth in paid user-base will drive subscription revenues.

Movies

The growth of Indian movie industry has accelerated over the past couple of years from mid-single digit to low-double digits. This acceleration is primarily driven by a significant improvement in monetisation of digital rights. The sharp increase in content consumption on digital devices and the emergence of multiple OTT platforms have driven up the price of digital rights of movies. Digital is emerging as the largest and in some cases the only revenue stream for several low-budget and niche movies. For large movies, the price of digital rights is now comparable to satellite rights. Besides digital, the international theatrical market for Indian movies, especially China, is growing rapidly. Multiplex proliferation and regional cinema continue to play their roles in driving industry growth. Growing in popularity, Hollywood movies are also competing with Indian movies for viewership share. In 2018, the Indian movie industry grew by 12.2% to 174.5 billion, driven by a 59% increase in the market for digital rights and 20% growth in overseas theatrical revenues. The industry is estimated to grow at 11% CAGR over CY18-21 as per the Report.

Composition of Indian Film Industry – CY18

Movie Business Review

Zee Studios, ZEEL's film production and distribution arm, continued to grow, establishing a strong position as India's leading content studio. In FY19, the studio released 13 movies across 3 languages—Hindi, Marathi and Punjabi —of which 7 were produced or co-produced by Zee Studios. Our focus is to create diverse content that is commercially successful as well as applauded by world-wide audience. The studio not only received box office success last year, but its portfolio of varied films such as Beyond the Clouds, Nude, Parmanu, and Love Sonia also received critical acclaim. Beyond the Clouds and Nude were selected for multiple International festivals. Dhadak, starring two debutants and Manikarnika-The Queen of Jhansi, with a female protagonist, helped Zee Studios establish a strong mark in the market. Manikarnika and Kesari featured among the top-15 highest grossing Hindi films of the year. The studio also strengthened its regional slate with movies like Anandi Gopal, Nude and Naal in Marathi, and Kala Shah Kala in Punjabi. Zee Studios is a dominant player in Marathi language movies.

Zee Studios continues its focus on building a robust slate for the next few years with a mix of in-house productions, co-productions and acquisitions across languages. It is also exploring concepts from new genres or ones that re-define existing genres. The distribution business will acquire, uniquely market and distribute content across geographies. It will also identify and target micro markets, especially in the regional space. Zee Studios is ramping up its in-house team to develop movies and original shows for OTT platforms as well. Zee Studios is focussed on owning 100% IP rights for projects to explore multiple revenue streams.

FY19 Highlights

Movies released and distributed domestically

Hindi - Parmanu, Dhadak, Beyond the Clouds, Paltan, Manikarnika, Kesari, Love Sonia
Marathi –Anandi Gopal, Naal, Nude, Pushpak Viman, Aa Bb Kk
Punjabi – Kala Shah Kala

22 Movies distributed internationally in
50+ territories across 5 languages

Zee Studios' Approach

Music

The exponential growth of music consumption in India continued in 2018. Rising smartphone penetration, affordable mobile data, and the growing adoption of music streaming platforms are drivers for this growth. In 2018, music streaming userbase grew by 50% to reach 150 million. As per the Report, Indian internet users spent an average of over three hours a day listening to music, 20% higher than the global average. Introduction of smart speakers and voice search has made the music consumption experience more pleasant and convenient. Ad-supported free music streaming platforms are helping to bring down piracy. Most of these platforms also offer ad-free subscription but have seen limited uptake so far. It is expected that streaming platforms will also start offering music videos.

In India, music produced for movies – both Bollywood and regional, accounts for over 80% of industry revenue. Music publishing labels own the rights, including IP rights, of the music and are able to monetize them across platforms. With the launch of multiple streaming services over the last few years, music publishing labels with diverse music catalogues are in a strong position to monetize it. In 2018, the Indian music industry grew by 11% and is expected to grow at a similar pace over the next three years to reach 19.2 billion.

India generated 5 billion music streams per month towards the end of 2018
50% of listenership was outside of top-8 metros
75% music streamed pertained to music released in past 12 months

Music Business Review

Zee Music Company (ZMC), our music publishing label, is the fastest growing music label in the country. It has acquired an expansive catalogue of music rights across 11 languages and is the only pan-India player. In-house distribution capability and key partnerships with major movie studios and leading music streaming platforms uniquely positions ZMC to acquire content and monetise it. ZMC is the second largest Indian music channel on YouTube with ~40 million subscribers. It witnessed a growth of 130% last year and is now the third most subscribed YouTube channel in India. ZMC has licensed its content to more than 10 music streaming services which generated 3.91 billion streams across platforms, a growth of 82% YoY. ZMC has been building its music catalogue over the last few years, and it acquired rights of over 190 movie titles and more than 500 singles during FY19. As per industry estimates, music released over the last one year contributes to a majority of the music streamed on the platforms and therefore, ZMC will continue to aggressively acquire music rights across languages

Key Highlights

ZMC is the 2nd and 4th most subscribed music YouTube channel in India and World respectively (Source: Social Blade)
Mile Ho Tum – 2nd most video viewed on YouTube in India with 755 million views
190+ movie titles and 500+ singles acquired across 10+ languages in FY19

ZEEL's International Business reaches more than 170 countries with content in 18 languages, including 9 foreign languages. The company has two-pronged strategy for international markets – reaching the Indian and South Asian diaspora with channel offerings in Indian languages and serving the non-Indian audience in their native languages.

International Business Review

During the year, ZEEL continued to increase its reach in international markets and produced local shows in several territories. Our new distribution partnerships across USA, Europe and APAC helped us gain a wider audience. Shows produced in the USA and APAC regions attracted local audience in these markets.

ZEE5, our digital platform, was made available globally in 190+ countries with a soft launch in Oct’18. The platform has commenced roll-out in priority markets like Bangladesh, Sri Lanka, Malaysia, Singapore and Australia. It launched #SharetheLove campaign for the neighboring countries and saw great traction from the Tamil and Bengali speaking audience in these markets. ZEE5 has locked-in partners across the region for telecom bundling, connected device integration and direct billing.

USA

ZEEL has become one of the biggest multi-cultural networks in the USA with 20+ channels.
Zee Mundo further expanded its reach with launch on new platforms and improvement in channel placement.
Shows like Dance India Dance e were locally produced to connect with the South Asian audience

Europe:

Zee TV Russia witnessed an increase in market share and average time spent during the year.
ZEEL channels were launched on Orange platform, further widening their reach.
Zee One, our channel in Germany, continued its strong performance in terms of ratings and reach.

MENA:

Zee Aflam and Zee Alwan, our Arabic channels, maintained their viewership share despite increased competitive intensity.
Zee TV and Zee Cinema were the most watched channels by South Asians in their respective genres.
Zee Keralam, latest launched channel in India, was made available on multiple distribution platforms

Africa:

Zee World produced an Indian show with South African actors, a first-ever integration in the African market.
Zee World was consistently ranked among the top channels in the pay TV market in South Africa.

APAC:

ZEEL channels in Asian markets were launched across distribution platforms, significantly expanding their reach.
25 events & shows were produced across markets to engage local South Asian audiences.

According to the Report, the organized live events industry in India grew by 16% YoY in CY18 to reach ₹ 75 billion, and is expected to grow at a CAGR of 14.3% over the next three years. IP-related events, though a small segment of the total events market, contributed substantially to this segment's revenue. Increasing integration of digital aspects with live events is helping organized players to drive consumer engagement and providing brand solutions to advertisers. Even the smaller cities are witnessing an increase in events and the revenue growth from tier-II/III cities is similar or higher than that of the larger cities. This significantly expands the opportunity for organized players with pan-India capabilities.

Live Events Business Review

Zee Live, the live events arm of ZEEL, is focused on creating memorable on-ground experiences for the audiences. It aims to become the gateway to the world for Indian live experiences, while simultaneously bringing the best concepts from around the globe to India. Zee Live aims to conceptualize IP for entertainment, lifestyle, and education events through differentiated concepts and execution.

During the year, Zee Live held India’s first multi-regional cultural festival, Arth, and LF91, a heritage food festival. Arth hosted 250 speakers from 11 countries, bringing a diverse cultural experience through art, literary activities and performances. The event was attended by more than 15,000 people over three days. It also received 6 million views through live-streaming on ZEE5. LF91, which took place in Delhi and Mumbai, brought together food and entertainment under one roof. The event showcased 250 different recipes from the five Southern states and also held masterclasses by celebrity chefs. Both these events received good response from viewers and sponsors.

In addition to bringing live events, Zee Live is also taking its library of recorded plays to audiences through partnerships with all major DTH platforms. Zee Live is working on creating a strong line-up of events for the coming year.

Consolidated Financials

(₹ Millions)	FY19	FY18	Growth
Operating Revenue	79,339	66,857	18.7%
Expenditure	53,700	46,095	16.5%
EBITDA	25,639	20,762	23.5%
Add: Other Income	2,515	4,403	-42.9%
Less: Depreciation	2,347	1,821	28.9%
Less: Finance Cost	1,304	1,448	-9.9%
Less: Fair Value Through P&L	(36)	68
PBT before exceptional items	24,539	21,827	12.4%
Add: Exceptional Items	(218)	1,346
PBT after exceptional items	24,321	23,173
Less: Tax Expense	8,673	8,409	3.1%
Add: Share of Profit of Associates	24	12
Less: Minority Interest	1	(14)
Profit After Tax (PAT)	15,671	14,791

The Company's consolidated revenues stood at Rs79,339 million for the year ended 31st March 2019, compared to Rs66,857 million in the previous year, a growth of 18.7%. Advertising revenues grew by 19.8% YoY to Rs50,367 million. Domestic advertising revenues witnessed a growth 20.9% YoY during the year ended 31st March 2019. Domestic ad revenue growth in the first nine-months was strong led by market share gains by our broadcast business. In addition, monetization of fast-growing ZEE5 users also aided advertising revenues during the year. The growth slowed during the fourth quarter due to implementation of tariff order and rejigging of ZEEL's FTA portfolio. Subscription revenues grew by 13.9% YoY to Rs23,105 million. Domestic subscription revenues were at Rs19,232 million, a growth of 17.4% YoY. The growth during the first nine-month period was 22.5%, led by monetization of phase-III subscribers. The full year growth came down due to the impact of TRAI tariff order in the fourth quarter. While all the stakeholders are working towards a smooth transition to the new regime, ZEEL has seen satisfactory uptake of its channels and bouquets.

The Company's operating expenses for the year ended 31st March 2019 grew by 16.5% to Rs53,700 million, compared to Rs46,095 million in the previous year. Programming related costs increased 21.7% YoY to Rs30,578 million. This increase was driven by content cost for ZEE5 which was absent in the base year, increase in programming cost for domestic broadcast business due to higher movie amortization cost and increase in original programming hours in regional markets, and elevated costs for the movie production and distribution business. Advertising, publicity and other expenses for the year grew 10.8% YoY to Rs15,693 million despite a higher base, due to increase in marketing and promotion costs associated with ZEE5, new channel launches (Zee Keralam, Zee Keralam HD, Zee Kannada HD) and brand refresh campaign of one English and several regional channels during the year. EBITDA at Rs25,639 million, witnessed an increase of 23.5%. EBITDA margins for the year ended 31st March 2019 stood at 32.3%, as compared to 31.1% for the year ended 31st March 2018.

Depreciation and Amortization expense witnessed an increase of 28.9% YoY, led by higher amortization expense of intangible assets. During the year, the company recorded an exceptional loss of Rs218 million relating to partial impairment of goodwill in its online media business. During the previous year, the company had reported an exceptional gain of Rs1,346 million pertaining to sale of Sports business. Consolidated income tax expense at Rs8,673 million witnessed an increase of 3.1% over the previous year. Effective tax rate for the year ended 31st March 2019 was at 35.6%. Consolidated profits after taxes including exceptional items stood at Rs15,671 million.

Liquidity and Funding

As on 31st March 2019, the Company had cash and cash equivalents of ₹12,218 million and treasury investments of ₹8,576 million. During the year ended 31st March 2019, the Company's consolidated long-term debt reduced to ₹7,429 million from ₹11,452 million during 31st March 2018. Part redemption of preference shares led to the decline in the overall debt position of the Company.

Consolidated cash flow from operations stood at ₹1,352 million for the year ended 31st March 2019 as compared to ₹5,544 million during the previous year. Higher investments in acquisition of movie rights (satellite, digital and international rights, including future rights) led to increase in inventories. The company has given advances to various content aggregators and production houses for acquisition of movie libraries and output deals which led to increase in overall working capital, thereby impacting operating cash flow during the year. Cash flow from financial activities was impacted due to part redemption of preference shares and payment of equity dividend to the shareholders.

RISK FACTORS

External Risk Factors

Industry Risk:

Ever-changing trends in media sector
Audience tastes are constantly evolving and difficult to predict with accuracy. People's tastes are also influenced by new trends and the environment they live in. With the kind of investments made in content, non-performance of the shows/movies would have an adverse impact on the bottom-line of the Company.

Competition from Other Broadcasters
The Company operates in a highly competitive environment that is subject to innovations and changes. Viewership share is the key monitorable for all the advertisers and hence the most relevant metric to all the television broadcasters. Any new competition in the space can have an impact on the Company's revenues.

Faster than expected shift to Digital platforms
With mobile data prices coming down, digital content consumption has grown exponentially. This can lead to a slower growth of advertising revenues for the profitable television business.

Business environment risk:

Macro-economic environment
Macro-economic environment can be a potential source of risk. Moderating growth, along with high inflation, can adversely impact advertising revenues of the Company, which forms it's the largest component of revenues.

Exchange rate fluctuations
Being present in 170+ countries, the Company receives a significant portion of its revenues and incurs a significant portion of its expenses in foreign currencies. As such, the Company is exposed to fluctuations in the exchange rates. Any extreme fluctuations of foreign currencies with Indian Rupee could have a substantial impact on its revenues and expenses.

Regulatory risk:

Uncertainties in rules and regulations
The M&E industry is governed by the rules and regulations framed by the authorities and regulatory bodies of the different countries the Company operates in. The policies and regulations issued by them have a bearing on the industry landscape as well as business of the Company.

Internal Risk Factors

Increase in content costs
The Company spends a significant amount for acquisition of rights to movies and music across its broadcast, digital and international business. With increasing competition, content creation and content acquisitioncosts could rise to a level not commensurate to monetization potential and estimated cost recovery.

Failure to hire and retain best talent
Failure to evolve organization structure and culture could lead to loss of ability to attract, develop and retain key creative, commercial and management talent.

Failure to make proper use of technology
Absence of processes embedded with Big Data technologies and advanced analytics which complement management decision making could restrict the ability to leverage data repositories and tools existing in ecosystem.

HUMAN RESOURCE DEVELOPMENT

ZEEL believes that its people are the biggest driver of success and the Company has a strong focus on attracting, developing and retaining talent. The people strategy of the Company is founded on three pillars – improving the employer brand, creating an organizational context that inspires employees to do their best and being future-ready through capability building and talent pipelining. All current and future interventions are focused on driving one or more of these outcomes. Last year, the focus has been on articulating the people strategy and kicking off the interventions required to deliver on the identified vectors. The Company has inked strategic partnerships with global learning institutions to enable employees to upgrade their skills. Its initiatives for improving employee experience – implementation of Success Factors (leading cloud-tech HR platform), strengthening its wellness offering and enhancing the quality and consistency of employee engagement, have resulted in ZEEL being recognized in the ‘Top 100 Great Places to Work in India' by the GPTW Institute. The Company's people strategy is geared for making ZEEL India's number one entertainment content company.

INTERNAL CONTROL

Company's internal control systems are commensurate with the nature of its business and the size and complexity of its operations. These are routinely tested and certified by Statutory as well as Internal Auditors and cover key business areas. Significant audit observations and follow up actions thereon are reported to the Audit Committee. The Audit Committee reviews adequacy and effectiveness of the Company's internal control processes and monitors the implementation of audit recommendations, including those relating to strengthening of the Company's risk management policies and systems. As part of Enterprise Risk Assessment and Internal Control evaluation and with a view to enhance related effectiveness of control, your Company is modifying its systems and processes with technology enablement for film acquisition.

MANAGEMENT DISCUSSION & ANALYSIS

Download Management Discussion and Analysis Document

Indian Macroeconomic Outlook