The first half results of Indian broadcasters have been disrupted by the country's sweeping tax reforms. Zee Entertainment's consolidated advertising revenue increased by a relatively modest 2.9% year-on-year to INR 9.9 billion ($152 million) in the quarter ending on 30 September, while subscription revenue dropped 14% year-on-year to INR 5 billion ($77 million). Operating cost was down 24.7% on the same period the year before to INR 5.8 billion, a result of its sale of Ten Sports to Sony Pictures.
Viacom18, a 50/50 joint venture between Viacom and Mumbai-based TV 18 Broadcast, reported that consolidated revenue grew 4% in the same quarter, attributed the modest growth to pullback by advertisers in the wake of the tax transition.
An advertising slowdown in India was a consequence of the goods and services tax (GST) rollout in July. In the early stage of implementation, the new regime has disrupted advertisers’ value chain and created complications for agencies. However, we expect this to be short term and advertising revenue will regain momentum by the end of 2018, if not earlier. Under the new regime, industries including fast-moving consumer goods and consumer durables are expected to benefit from claims of input tax credit, which may be ploughed back into advertising.
The double-digit decrease in subscription revenue for Zee was a result of the disposal of its sports business. Zee announced the sale of Ten Sports Network to Sony for $385 million in September 2016 and the deal concluded in September 2017. Sports contributed to 13.8% of Zee’s broadcasting revenues in Q3 2016, however, it had been a loss-making business, according to Zee. The sale marked a consolidation in the Indian sports broadcasting business, now controlled by Star India and Sony.
After the sale of Ten Sports, Zee shifted its focus to other genres including entertainment, regional and niche content. Despite the steep reduction in operating costs, Zee said that adjusted spending on other programming had gone up due to the launch of new channels and an increase in original programming hours. For instance, it will revamp the programming line-up of Big Magic, a channel it acquired from Reliance Broadcast Business in November 2016, to become Zee Magic and feature new shows.
With the loss-making sports business now gone and Zee enjoying higher liquidity, we expect to see more investments from Zee. It acquired 9X Media in October 2017 for $24.4 million in cash to boost its music broadcast business. At the same time, it paid $4,000 for the 26% stake it did not already own in Zee Turner Limited, a joint venture set up in 2001 to distribute Zee and Turner channels but which became dormant a few years ago.