TRAI tariff order, slowdown maul Zee Entertainment’s results

Zee Entertainment, the second-biggest broadcasting company in India, continued to bleed under the combined impact of a slowing economy and the company’s decision to increase channel prices under the new TRAI tariff order.

While the slowdown in the economy has resulted in companies cutting down on advertising, this has been exacerbated by Zee’s decision to price its popular channels in the premium band, which has hurt their reach and dragged down advertising rates on these channels further.

Under the dual impact, Zee Entertainment’s domestic advertising revenue fell by a whopping 15.8% during the three months ended December — something that was more or less unthinkable a year ago for one of the most successful TV companies in India.

At the time, the company’s advertising numbers seemed to defy gravity and always grew by between 14-22% even when competitors like Sun Network had trouble breaking out of their low-single-digit growth rates.

Zee was able to do this with a dual strategy that involved charging premium rates for ads on its popular channels like Zee TV, supplemented by lower priced, but higher volume advertising sales on ‘flanking channels’ such as Rishtey and Anmol.

While the flagship channel, Zee TV, provided stability, the ‘extra channels’ — which could re-use programming from the flagship — helped provide volumes and growth.

However, that strategy has been seemingly upended by the new TRAI tariff rules, which gave Zee Entertainment the full right to set the final price for its channel.

Zee Entertainment chose to use this freedom by pricing popular channels such as Zee TV, Zee Marathi, Zee Bangla, Zee Telugu and Zee Kannada at the maximum permissible level of Rs 19 (Rs 22.40 including tax) each. This led to many subscribers tuning out of these channels, slashing their reach and ad rates.

Zee also converted some of its free channels, such as Zee Anmol, into paid channels, and pulled them out of the massively popular free platform, DD Free Dish.

Meanwhile, advertising rates on previously unknown channels, such as Dangal — which is now watched by more than twice as many viewers as Zee TV — have sky rocketed, helping smaller broadcasters.

According to BARC, Dangal is the top Hindi entertainment channel in India with a viewership of 1.29 billion, followed by Star Plus at 0.74 billion and Colors at 0.68 billion. Zee TV was at 0.58 billion, at No.4.

“Domestic advertising revenues declined by 15.7% YoY to Rs. 11,570 million,” the company said today, adding that it was impacted by “continued slow-down in key consumer sectors”.

“As the volume growth for most consumer companies did not see any uptick during the quarter, they cut advertising spends to protect their margins. While the festive month of October saw a pick-up in advertising spends, the growth slumped post that. The growth was also impacted due to a higher base and the effect of conversion of two channels from FTA to pay in March,” it pointed out.

Sector regulator TRAI has tried to intervene by forcing broadcasters such as Zee, Sony and Star to bring down the prices of their popular channels from the current Rs 22.40 to Rs 14.16. However, the premium broadcasters have resisted the move and taken TRAI to court.

“During the quarter the regulator announced changes to the Tariff Order which are proposed to be implemented from 1 sl March. All the major broadcasters, under the aegis of India Broadcasting Foundation, have challenged the proposed regulation in the Bombay High Court. While the case is sub-judice, we are confident that our strong bouquet of channels, which has multiple content offerings for audience across the country, will enable us to navigate these regulatory changes in the most optimum fashion,” Zee Entertainment said today.


The massive hit to advertising revenue has ravaged the company’s profit margins.

While the falling ad revenue dragged company revenue by 5.5%, it had a bigger impact on its profit lines.

The 5.5% decline in revenue — in a fiercely competitive industry like media where salaries and costs are always going up — was enough to bring down operating profit (EBITDA) by 25% and pretax profit down by 37% (see chart below).

Despite the downbeat tone of the numbers, the company held out the hope that it was a passing phase, and the days of growth are only a quarter away.

“We believe that the worst phase is behind us and the growth should revert to normal trajectory from next fiscal,” it said.

Managing Director and CEO Punit Goenka too echoed the sentiments.

“Third quarter is normally a strong growth period for us, however, the tough macro-economic environment led to a decline in our ad revenues,” he said.

“Most of our advertisers are going through a slow-growth period and that has led to a cut in advertising spends. I believe that the worst phase is behind us and we will start seeing an improvement from the next quarter.”

He said the company was continuing with its strategy of investing in growth, especially in regional markets where it has limited presence.

“Despite the slowdown, we continue to make investments in businesses where we see potential for growth. Working with our strategy to entrench ourselves deeper into the regional markets, we have launched 3 regional channels that will make our content more accessible to audience across the country.”

He said Zee now has the biggest movie channel portfolio in the country after it launched two more regional movie channels.

“We are preparing for the launch of two more channels over the next few months,” promised, adding that the company was also creating new content for its online app Zee5.

“These investments will help us grow ahead of the industry once this transient slowdown phase has passed.”