Zee Entertainment Enterprises Limited (ZEEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '24 earnings conference call of Zee Entertainment Enterprises Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mahesh Pratap Singh, the Head of Investor Relations for Zee Entertainment Enterprises Limited. Thank you, and over to you, sir.

Thanks, [ Sanjay. ] Hello, everyone. Welcome to our Q2 FY '24 earnings discussion. We hope you had an opportunity to glance through our earnings. Today, we are joined by our Managing Director and CEO, Mr. Punit Goenka, along with the senior management team. We will start the call with opening remarks from Mr. Goenka, followed by commentary on operating and financial performance by Mr. Rohit Gupta, our Chief Financial Officer. We will subsequently open the floor for questions-and-answer session. Before we get started, let me remind everyone that some of the statements made or discussed on today's conference call will be forward-looking in nature and must be viewed in conjunction with risks and uncertainties we face. The company does not undertake to update any of these forward-looking statements publicly. With that, I'll now hand the call over to Mr. Goenka for his opening remarks. Over to you.

Thank you, Mahesh. Good evening, everyone. I hope all of you are doing well and are gearing up for the long Diwali celebration weekend. Thank you for taking the time to join us this evening. I'm pleased to connect with all of you as we discuss our company's performance in the second quarter of the financial year 2023, 2024. Let me give you a macro level overview on the industry and our performance during the quarter gone by; post which, our CFO, Mr. Rohit Gupta, will take you through the financial and the operating metrics. Before we begin, let me share a quick update on the proposed merger with Sony. As you all must have noted, during the quarter, we received the approval from the Mumbai bench of the Honorable National Company Law Tribunal for the composite scheme of arrangement. From our perspective, we are committed towards ensuring that all points in the composite scheme of arrangement are duly addressed. We recognize the value that this merger holds and our focus remains on unlocking the opportunity for all the shareholders. Coming back to the company's performance. Let's begin with the movie segment. The second quarter brought in a lot of excitement for the industry at large, with audiences returning to theaters and movies delivering a blockbuster performance at the box office. We witnessed a good quarter on the back of an extremely encouraging response received for our films. These included Gadar 2 in Hindi, Bro in Telegu and King of Kotha in Malayalam, which boosted our overall performance. Zee Studio is a strategic piece of our portfolio, and it plays a very synergistic and complementary role in the success of our linear and digital businesses. Our investment focus continues to remain sharp on films across all languages, enabling these Zee Studios to emerge as a truly pan-India studio. The industry is going through a rapid evolution and several changes can be expected at a structural level in the years to come. It is an exciting time for the media and entertainment ecosystem and the increasing investment and competition will only lead to higher opportunities for growth. Amidst this scenario, our company remains well positioned to capitalize on any shifts as a resultant opportunities with a well-diversified portfolio. What we have built at Zee is truly unique as a valuable asset that harbors capabilities to continue delivering returns to its shareholders unless such changes. As the industry contends with advertising revenue and subscription revenue recovery, our performance in other key business segments helped offset the slow growth rate displaying the fundamental strength of our business. The quarter gone by has certainly approved higher value than the previous quarter, and we remain cautiously optimistic on the outlook going forward. We are seeing a gradual recovery in the advertising sentiment which led to gains during the quarter. But the recovery mode has just begun, and we are yet to witness rural sentiments improve entirely, thereby keeping us cautious on the overall growth. The festive season is expected to spur growth in the third quarter and we remain optimistic of delivering higher growth, albeit with some caution towards the overall macroeconomic environment. On the subscription side as well, with NTO 3.0 implementation having stabilized, we find ourselves on a better footing and remain hopeful of sustaining positive growth levels in the coming quarters. We continue to make significant efforts along with the industry to drive growth of pay TV ecosystem. We are enthused by the results of those efforts whereas TV viewership continues to grow, the share of pay TV is at its peak of the past 7 quarters are increased by nearly 300 basis points in the last 1 year. Coming to our digital performance. All the usage metrics for ZEE5 continue to remain healthy on the back of key originals and direct-to-digital films, driving higher subscriber acquisition and retention. Our revenues are suitable reflection of the platform's growth quarter-on-quarter and are in line with the external industry reporting standards. We also witnessed a healthy reduction in ZEE5's EBITDA losses, in line with our indication of the platform already being close to its peak investment level. Overall, the second quarter has displayed positive signs of growth compared to the start of this fiscal, and we remain hopeful of the sentiment further improving as we move forward. I would now like to hand over the session to Rohit to take you through the financial and operating metrics of the company's performance in detail. I would also like to take this opportunity to wish all of you and your loved ones a very happy and a prosperous Diwali. I look forward to interacting with you during the Q&A session later. Over to you, Rohit.

Thank you, Punit. Good evening, everyone, and great to connect with all of you. We had a good all-around operating and financial performance in quarter 2, and I will briefly touch upon some of the key highlights. As Punit alluded, the industry landscape is transforming, and we are very excited about longer-term growth prospects for our broad content portfolio and diversified offering. We are continuing to shape our business with focused investments for the future while navigating some of the near-term headwinds around the soft ad environment. During the quarter, while we saw some gradual pickup in ad spending led by FMCG, pace of recovery is still slow. Asia Cup cricket in September, took some share of FMCG ad money. Our ad revenues were 3.3% lower year-on-year and grew at a moderate pace of 4.1% quarter-on-quarter, reflecting nascent pace of ad spend recovery. Looking forward, we are optimistic of gradual recovery to continue in quarter 3 on back of festive season. However, Cricket World Cup will take some share away. With NTO 3.0, having paved way for TV subscription revenue growth and step up in ZEE5 subscription, our subscription revenues were up 8% year-on-year. On a quarter-on-quarter basis, there is a slight moderation of 2.2% decline, given we had a lumpy base in quarter 1 for TV subscription revenue, which was the first full quarter post NTO 3.0 implementation. TV industry landscape remains healthy, and post NTO implementation, we remain optimistic of modest growth in our TV subscription revenues. Quarter 2 was another strong story for our TV viewership's share performance, wherein we have gained 90 bps share quarter-on-quarter to take our network share to 17.9%. It's happy to note that this gain is fairly broad based across several key markets, including Zee TV, Marathi platform, Hindi movie channels and certain channels like Zee Kannada and Keralam. We remain market leaders in Hindi and Marathi movies, Kannada, Odia, Bangla and Punjabi. From a competitive landscape perspective, our 90 bps share gain is highest amongst all major TV networks in India. Overall, we are extremely pleased with team's concentrated efforts to bring back share and hope to keep the momentum in coming quarters. Specific to Q3, please keep in mind that GEC share in December quarter will be adversely impacted by Cricket World Cup. On digital side, ZEE5 had a strong quarter with 59% year-on-year and 37% quarter-on-quarter digital revenue growth. We have seen growth in ZEE5 subscription and a digital syndication deal has further aided the revenue growth. Our original content continues to resonate well with viewers and we released 22 shows and movies, including 4 originals during the quarter. Driven by operating leverage and prudent cost management, we find EBITDA loss has narrowed by INR 882 million quarter-on-quarter. Coming to the movies business, quarter 2 FY '24 was a blockbuster part of our Zee Studios, which created new records in terms of footfalls and box office collections. Zee Studios released 6 movies, 2 Hindi and 4 regional during the quarter with Gadar 2, Bro, King of Kotha being some of the headline names. Gadar 2 went on to become the highest-ever grossing movie on box office for Zee Studios. As a result of strong performance of theatrical releases and syndication, other sales and services revenues are up 201% year-on-year and 322% quarter-on-quarter. Our music business, Zee Music Company is seeing consistent growth in video views and subscribers, highlighting strength of Zee Music Company, new age music catalogue with rich library. ZMC is now #2 music channel with over 142 million subscribers on YouTube and over 45 billion total video views during the quarter 2. Moving to cost and profitability. In quarter 2 FY '24, overall, operating costs have increased by 23.2% year-on-year and 15.1% quarter-on-quarter due to higher content cost, movie releases and investment in ZEE5. Given strong revenue growth and -- led operating leverage and effective cost management, EBITDA margins have improved to 13.6%, highered by 580 bps quarter-on-quarter. PAT from continued operations for the quarter came in at INR 1,299 million. Net profit for the quarter and the year was impacted by merger expenses related exceptional items, which for quarter 2 stood at [ INR 118 million ]. This quarter, merger-related expenses also include a one-time provision for stamp duty with respect to the post-merger fee. On balance sheet side, content inventory has declined in quarter 2, driven by movie releases and syndication. September '23 content inventory advances and deposits are lower by INR 2.9 billion at INR 76.7 billion. The cash and treasury investments of the company as of September '23, stood at INR 5,655 million, which include cash balance of INR 3,649 million and fixed deposits of INR 2,006 million. Also quickly touching upon receivables from DISH outstanding balance is at INR 691 million as of September 2023. Moving to the rest of FY '24. We are expecting gradual recovery in consumption sentiment and are optimistic based on FMCG commentary with respect to ad funding. While quarter 3 will see some effective pickup, we are still cautious and would monitor how the pace of recovery settles post Diwali. As quarter 2 has shown, we have a high degree of operating leverage in our business and are confident that as revenue picks up. We will also have more tailwinds on profitability as the year progresses. Back to you, Mahesh.

Thanks, Rohit. And we now open the call for questions-and-answer session.

[Operator Instructions] The first question is from the line of Abneesh Roy from Nuvama Institutional Equities.

My first question is on ZEE5. So the sharp reduction in losses quarter-on-quarter, so what is new here? Is it because of the impending merger, you would like to have a more nuanced look at the merged entity difference overall strategy? Or is it because the competitive intensity from the global OTT is reducing? Or is it because the overall OTT revenue potential itself seems to be slowing down much earlier than initial expectation?

Abneesh, this position is not as grim as the 3 options that you are giving. We are still operating this entity as if we are a stand-alone Zee entity. And the impending merger has not had any impact on what may have transpired. But the increase in revenue, and as we have said that our investments have peaked in ZEE5 already, as I said in my opening remarks as well. Our investments levels are not going up at that level. And therefore, this trend will continue, and you will see only better operating metrics coming at ZEE5.

So one follow-up on that was, and that's also on your movie production business. So Q2, we saw the entire movie industry do really well, multiplex industry had all time their numbers. And you yourselves did well across 3 different languages and very good numbers. So are there any learnings from what you did, which can be seen as a playbook for your Zee movies because the same movie industry in October has again seen very tough times. So your comment on that. And second one was what we have picked up OTTs now are bidding for movies once they are actually released. So then they'll get a sense of how the movie is and the rights also -- bidding rights also are much more sensible. So how does that impact you both as a buyer of content and as a seller of content?

I think first and foremost, Abneesh, as I've always maintained, content is king. So if you make the right content, then this connects with the hearts of people, it will do well. And then, of course, marketing is the second key mantra behind films. So I think we've had key learnings from our last 3, 4 films that we have released in terms of the marketing strategy, et cetera, and how that has paid off. So it's not rocket science, whether it's something we have tried differently, et cetera, and that has paid off for us. So we will continue to work on that going forward, [indiscernible] learning, but we'll continue to work on that. I think you're absolutely right. The OTT market, et cetera, is also settling down now. The pricing wars will end very soon, and things will find -- the water level will find its best place for the right content with a right price.

Okay. Last question on the news article which came today and similar article [ from few days ago ] also. So I understand you got the reprieve from SAT. So if you could comment on -- is there any disconnect between you and Sony at the -- [indiscernible] recognition level. Is there a [ change ] which can happen to the merger because of this? And what are the prices that you're looking at given almost all of the [indiscernible] have come. Do you see the delisting and the listing of the merged [indiscernible].

I'll just take the first part, Abneesh and others can take the rest of it. We don't, as you know, comment on speculation that happens in press. So I would not like to comment on that. We are in active engagement with Sony on various parts for the entire scheme to be finally implemented after getting all the approvals that we've got. On the listing part, Mahesh, Rohit, you guys can take it.

Yes, sure. So on your other questions, Abneesh. Right now, we are focusing on implementing the scheme as approved by the NCLT, by the shareholders and other regulatory bodies. So we are focusing on that and trying to get that at the earliest. We're not putting any condition [ precedent ] and closing conditions, which will have to complete on which we are working right now. So in terms of the time lines, probably we may take a few next weeks in order to complete this.

The next question is from the line of Vivekanand Subbaraman from AMBIT Private Limited.

Punit, I wanted your comments on the competitive landscape that is currently prevalent. Reliance is infusing more capital, but then Disney globally has been on the back foot as far as the linear TV and perhaps also their ability to tolerate longer gestation in India is concerned, how should one think about the TV industry given the competitive dynamics?

So Vivekanand, as I said in my opening remarks, within -- in the last 7 quarters, we have seen the TV viewership peaking by almost 300 basis points. So I cannot comment on the global scenario for television, but I can certainly comment on the Indian scenario for television. It's going to be continuing to be a very healthy environment for television in this country, at least for the foreseeable future. So from that perspective, I think your company and our company is well poised to take advantage of that and therefore, continue to deliver on what we have promised all the time. As far as the pressures of Disney what they are facing, I can only speculate on the basis of what I hear in the press just like you. So I'm sure those press articles are not incorrect, but that will be all speculation. And certainly, we have seen Reliance investing a lot of capital behind this business. But I have maintained that to win in the media landscape, capital is not the only thing. We need a lot of creativity. We need a lot of talent that is required to make that happen. So we will continue to be focused on delivering and working towards delivering our market share and therefore, our business from that point of time.

Okay. Second question is on the OTT business. Currently, it contributes around 10% of your revenue. If one were to think about this business maybe 5 years sense, what do you expect the revenue contribution of OTT to the overall business from the point of view of, let's say, the merged entity or ZEE alone?

So it's difficult to speculate that Vivekanand, but I would say what I would like and not what I think it will happen -- what I would like and I'd be happy with is that the OTT business would contribute about 30% of the top line of this company, that will be something that will be satisfactory in my view, and that will be a successful business from my perspective [ at that point of time. ]

Okay. Fair enough. And where do you think the growth comes from incrementally? Is it more from advertising or just the subscription part scaling up the way you've done it in the last couple of years?

It's a combination of both, Vivekanand, so it's not just one thing. The larger part of it will come from subscription, but there will be a significant part coming from advertising as well.

The next question is from the line of Kunal Vora from BNP Paribas.

Yes. First, I wanted to understand the pay TV subscription mix. So how many subscribers will you now have for cable, DTH and FTTH. And if you also can provide some insights on how are the ARPUs in all of these 3 channels.

Kunal, sorry, you think what's the industry split in terms of...

Yes, not industry, but if you can, like say, industry or your mix from cable, DTH and Fiber to the Home. And if you can talk about the ARPU realizations on all of these 3 channels.

We haven't given that sort of [indiscernible] or split on our subscription side of things, Kunal, but suffice it to say that a large part of this would be DTH and cable and that's clearly -- number of subscribers, they would be reasonably close to each other.

Cable, DTH and FTTH will be similar or cable, DTH will be similar?

Cable, DTH.

And how are these number standing, are they -- let's say, cable and DTH, are they declining year-on-year or they are holding up.

There was -- I mean, if you look at recent -- on the DTH side of things, numbers are largely holding up. After -- I mean if you look at last 4 to 5 months data post NTO sort of -- I think DTH, et cetera, numbers have largely held up.

Okay. That's it, fine. I will take more on that offline. But next one is what will be the contribution of movies to profitability in this quarter? And also, if you can talk about the margin outlook for the second half.

So let me take the movie and I'll then hand it over to Rohit for margin outlook. So if you look at the way we report other sales and services has largely performance from what we do on movies on the theatrical side and the broader syndication and so on. So that line items largely captures it but it's not just movies from the theatrical side of it, there will also be syndication. And if I see where you're getting the question too, if this quarter's performance is not entirely movies, so even if you would have had a relatively lean movie performance, the underlying operating performance with the linear and digital would have still improved. Movies have, of course, added and given it a little bit more boost to it. But even without movies, the underlying performance has improved really on linear and digital side.

Yes. And Kunal, to your question on the margin, we are refraining from giving any guidance on that. But like I already mentioned in my opening remarks, we have a very good operating leverage. And as the ad recovery starts coming in, I think the margin improvement is given. So one is -- just, there are 3 factors. One is the movies have done well in quarter 2, in H2 as well, there are movies which will come out, which will help. Secondly, ad recovery and subscription, as you see 8% growth has covered in H1 already. So that will continue as well.

Sure. This is on margin, what I wanted to understand was the 13.6% which you reported, what would that number have been if the recent performance has not been [indiscernible].

Look, Mahesh here, Kunal, we haven't given the split, but let me just point you to a number you can validate, right? Leave the movies aside for a minute. Just go and look at ZEE5, which is where we have given EBITDA. You see quarter-on-quarter roughly INR 82 crores, INR 88 crores, I think INR 88 crores. The swing has just come from quarterly performance there. So yes, we wouldn't be able to break it down by content in terms of movie, linear, digital, but even if you take movies out, underlying performance like-to-like would have improved.

Okay. Okay. Understood. And last couple of small questions. Receivables have increased from INR 16 million to INR 22 million during the last 6 months, so what's driving that?

So, 3 things. One is that the movies, all the revenue that is accrued from the movies in September. Actually, a lot of it has got liquidated in quarter 3 in October, specifically. And these are large collections, which came in -- in the month end. Similarly subscription revenues, we've seen an increase, and there has been a bit of at the quarter end, which got a lead in quarter 3 and for expense. So there has been a little seasonal aspect to it. Most of it is getting released in the quarter 3.

Understood. Understood. Okay. Basically a timing issue. And on ad revenue, FMCG companies have spent like much larger amounts this quarter compared to last year, so year-on-year sizable increase in ad spend by then -- but we haven't seen that kind of increments to you. So in your case, is FMCG has done well or even FMCG has not done very well.

So Kunal, I think a couple of things has happened. One, FMCG has done well. So the only thing which you're talking about relatively is the pace of improvement. Keep in mind that when you look at September, October, November time, it's also a fairly busy cricket season, right? And given at this point in time, the hot money funded start-ups have been not that active and so on, the pricing on the sports property has also been a little bit more lucrative. So there's a little bit more money compared to what you typically see in a busy sports season, which has gone from FMCG to sports. So underlying, yes, we see the improvement, but we would want to monitor and see how things settle down post Diwali because then the festive will be out of the way and a busy sport calendar will be out of the way. Underlying, yes, there is improvement. But keep in mind that there's some [ bit which has gone ] to cricket as well.

The next question is from the line of Karan Taurani from Elara Capital.

I have 2, 3 questions. The first one was on the advertising front. So you mentioned that second half, you'll see some demand because of festive start, but you also mentioned the sports part, right? Which is correct, as in, a lot of the sports properties will attract a lot of ad spend. So what is the kind of growth that we can see maybe in the next quarter or maybe in the second half, not for the guidance, but could we expect high single digit, double digit or low single digits? Any indication or color there?

I can only tell you this much, Karan that the industry will see a high single-digit growth.

Right. That's helpful. Secondly, in terms of subscription revenue, of course, this year is going to be good because of the ARPU and the price hike after NTO 3.0, but what we are seeing is that the number of pay TV households specifically on the cable and the MSO side is declining. And let's assume that if we take a 3% to 4% price hike going ahead structurally and then the number of households decline by 13 percentage points, then the growth rate there is flattish. Any indication there in terms of where subscription revenue is heading for Indian TV in terms of growth?

Here also Karan, we have to look at the fact that even if the cable TV households are shifting, they are shifting to either connected TVs or to DTH. And therefore, we are present on that -- those platforms as well. So it's not like we are losing out on those revenues. We are pretty much capturing those also in our revenue line. And I do not expect that the subscription revenue on the linear side will slow down any time soon. And Rohit stated that we have already seen an 8% growth in H1, and we expect that to continue. The next round of revision to the NTO pricing will happen in February, March of the coming year. And we will be working on the back as to how much price increase, et cetera, we'll be able to take and work towards that so that we can continue to deliver, if not good growth, at least modest growth for the [ going ] future.

Right. And lastly, on ZEE5, I mean, what led to this reduction in the losses? Is it revenue numbers scaling up, to a certain extent, I do believe the revenue [indiscernible] numbers have kind of surged or is it the cost control measures, is it some kind of industry doing the right thing in terms of content cost coming down? What led to this entire change in terms of losses coming down.

It is a combination of all that you have said. So it's not just one thing. It's not so much of cost control, but prudent cost spending.

Right. And anything on the positive buy side that maybe you all have now find a quarter indication in terms of what content work, what doesn't work, experimentation probably has come off. Just any color on that.

Difficult for us to comment here right now on that. There is a lot of content we put out there. You will see from our presentation, almost 22 pieces of content were put out in this quarter, some work, some don't work. And in the content business, not just on ZEE5, but even on television. It's a constant trial and error that we work with. We are -- as I've maintained always that as long as you're getting [ probably ] 40% in time, you're okay. If you're getting [indiscernible] better than that, you're doing wonderfully well. If anything is below the 40% mark, then we could be having some pain.

The next question is from the line of Abhisek Banerjee from ICICI Securities.

Yes, am I audible?

Yes, you are Abhisek.

Yes. So my first question, please, all the -- see, the ZEE5, ad monetization, right? So is there -- I mean, if we think about the post-merger also, do you think ad monetization can be a much bigger lever to drive profitability in this business.

So I think we should leave the merged entity aside right now and talk only about our position as we exist today. There is potential to monetize advertising more, but it's a function of traffic and then also the right amount of traffic that is getting generate. So there is potential to make a lot more -- a lot more monetization on the advertising side. But yes, so we will be working on that to generate the traffic that we need to -- to monetize that better. But as I've said in the past, the subscription line is far more lucrative and far more profitable for us than the advertising line -- in this business.

Understood. And if I am talking about ad spends from FMCG companies, obviously, there has been a very heavy cricket season. But -- what is your outlook on the second half of this quarter?

I think when you take it slightly medium term, let's say, 3, 4, 5 months out, we feel quite optimistic about the potential on which ad spends can structurally recover. I think at this point in time, there are very early green shoots. But as soon as -- at least in our channel checks, in our conversations with clients, there is a lot more optimism about volumes and generally the rural demand recovers when you really take it to quarter 2, so to that extent, I think as you really look out calendar year '24, there is optimism. The only debate here is the pace of the recovery. But clearly, given how much the spending has historically been cut out of ads and as volumes come in and everyone acknowledging and recognizing that A&P has to be a driver to drive volume and demand. All goes well, when you really look at, let's say, calendar year '24 point of view.

Understood. But in your conversations with these companies, do they look at linear TV advertising as a driver of only rural demand? Or do they think that it can still drive high-quality urban demand?

Both actually, right? I think when you look at -- even on the TV, right, there are a fair bit of impact properties. The demographics is fairly broad based. So it's not just a rural play, right? When we really look at any brand building effort, any national outreach kind of plan, it gets figured and factored in demographics and reach and the kind of shows getting picked and time slot getting picked and all. It's quite broad-based. It's not an either-or situation.

Understood. And just one final question. So in terms of longer time ad cycle, would you have any observation on how advertising has typically been in pre-election years?

Sorry, how advertising has been?

In pre-election years.

Okay, yes. Advertising pre-election years, it certainly has spiked, and it was brought up significantly from the political advertising point of view. But our company does not get impacted by that, either positively or negatively because a large part of that or significant part of that goes towards the news network and does not come to the entertainment channel.

The next question is from the line of Arun Prasath from Avendus Spark.

My first question is on the costs in ZEE5. If you look at the run rate, today, we are at around INR 2,000 crore annual run rate in terms of costs. Just obviously, last year, it was around INR 1,500 crore and before it was around INR 1,000 crores. So this large part of this incremental run rate, can we attribute it to the unit cost going up or the customer acquisition costs? Or is it like more towards the volume of the content produced?

A significant part of this Arun would be towards the technology cost, which we have to incur on a variable basis because things like CDN, hosting and all those things are variable costs. And as you get more consumption, as you get more user base, this cost continues to go up. I do not think -- we only has a part that Rohit can talk about a little bit in detail. There's also some of the catch-up amortization cost that's coming in because we are still running the amortization cycle and it is not like premier business where it's pretty much running in line with our businesses because [indiscernible].

Yes, sure. So Arun, as we have mentioned, we have been making investments in the 3 key areas, primarily in ZEE5. The first has been the platform and the technologies [indiscernible]. The second has been content and then marketing. There were some initial investments we had to make, which was always supposed to be coming down. So from that standpoint, those quick investments have been made. Content investments will go on. And like we said, we are producing all kinds of content and 22 pieces of content, which got transmitted this quarter. So it depends on that. And then, of course, marketing spends, we have been prudent and will continue to be prudent on that.

So if I had to put it in 2 buckets, there were variable costs and fixed costs. Variable costs typically is what percentage of your revenue, ZEE5 revenue?

Arun, we haven't given that like in terms of fixed and variable cost structure [indiscernible] given the competition landscape we are in, that's basically the heart of the cost structure in a way.

Right, right. No, no. At least on the -- you said that -- understand...

Let me put it this way -- I think the way when you think of this modeling and going forward, think of it, let's say that business was in fairly early stages from coming out of COVID, '21, '22, a large part of heavy lifting in terms of building the cost 0 to 1 is done with. From here on, the increases will largely be usage linked, right? You don't have to really go from 0 to a few hundred people in tech centers. You don't have to go and start from 0 to start building some of our initial content catalogs and all that, right? So a large part of heavy lifting from a fixed cost standpoint is behind us. From now on, cost increases will be function of how the uses in consumption [indiscernible] to that extent, there is going to be a lot more correlation of revenues to cost as we go forward.

Okay. All right. All right. And talking about the revenue itself in ZEE5. Our understanding is this is still largely a subscription-based platform. But still, we are seeing the -- usually subscription is very sticky in nature. But still, we are seeing quarterly fluctuations even on -- I mean, on a sequential basis, which shouldn't be ideally be there if there is a largely driven by sticky subscriptions, so how should we look at this volatility on this revenue part?

I think B2C, what you said is largely true in terms of recurring nature and all that. There's always been a little bit of churn, but you've always acquired more. So I think what you said is true in B2C. But keep in mind that B2B are lumpy, sometimes when you sort of complete a term on a B2B deal, [indiscernible] or sometime when you renew a new B2B, you see an increase and so on. So that's one part, which causes volatility. And then there could be potentially other service line items that generates revenues [indiscernible] [ indication ] come in a few quarters of the digital property and so on, [indiscernible] other lumpiness will come from.

Ideally as a business you prefer more B2C revenue, right?

Sorry, more what revenue?

More revenue from B2C rather than a B2B in this -- at least in this side of the business.

I mean, in early stage, you need both. You need B2B to give you certain scale and sampling but you need B2C structurally to drive a lot more user engagement and lifetime sort of data insight knowing your customer what you could do with that data, eventually on the advertising side and other things. So -- do you have -- I mean, we've spoken about this in past without giving [indiscernible], we have a slightly highest Q2 B2C compared to where the industry is, that's what I believe it is.

Okay, all right. Okay. My second question is on the linear TV. Again, broadly taking your financials and excluding the ZEE5, we get a sense that the margin is in the declining trend even in the linear TV but it's ZEE5 business. Is it more related to the mix change in the revenue? Or it's, again, cost of content is increasing, how should we look at it?

So 2 points on that. One, if you look at where our viewership share is trending, you come to 17.9% and you're coming on the journey. So yes, we're going through a phase where that is focused marketing investment, even on the TV side of things to revise viewership in specific pockets. So that's one, again, not structural, so I wouldn't really make a broader call out on the underlying margins of the business. It's just a conscious choice we're making, and the results are showing in terms of how viewership share is coming. Second, typically, when you are in Q2 and heading into a festive season, you will invest behind some of those properties in terms of viewership and all of it to take advantage of stronger festive season coming in. So those are the factors which you played out, nothing broader to extrapolate beyond that.

The next question is from the line of Aditya Chandrasekar from UBS.

A couple of questions on my side. The first one, following up with what I think Abhisek was asking. So we are seeing FMCG companies, they have kind of increased their ad spends over the last, say, a year or so, but not a lot of that has translated to our ad revenues. For one reason is, of course, sports because some of the sporting events because they are [indiscernible] to allocate some of it to sports. But are we seeing any kind of structural trends that allocating more of their ad spend to digital, and so it's not kind of flowing through to our linear TV advertising. That's 1 question. Second question is that on a sequential basis, we have seen our TV subscription revenues come down. I think you mentioned there was some kind of lumpiness in Q1. I just wanted to clarify because I missed that.

So Aditya, I'll take the first one, and then I'll give Mahesh to go for the second one. As I've many times said that linear television is the best suited television of -- best suited medium, sorry, for the reach that you can achieve for advertising. No amount of digital advertising can still achieve the kind of reach television can achieve. Therefore, for brand building exercise, television still remains to be the most focused and most effective from both reach and pricing point of view medium. And therefore, we are not seeing that shift happening. Yes, when advertisers have limited budgets and they are looking at only transaction-based gains for the short term or for the medium term, they were looking at digital because that gives them a far more focused reach towards the clients or the viewers that they want to reach. But I don't think we are seeing any structural change happening so far. It's still early days. As I said earlier in my opening remarks and also answering somebody else that we are seeing gains in TV viewership, even as we speak, last quarter, we have seen a 300 basis points gain in the absolute viewership of television. So therefore, there is no structural change that we can talk about. Mahesh, do you want to take the second one.

Sure. So I think second question about subscription lumpiness, yes, you got that right. [Technical Difficulty] got implemented, it implemented from Feb 1, so to that extent, we had some bit of base effect there in lumpiness and when you compare Q1 to Q2, you're seeing some sequential sort of moderation and that is where you're pointing people to look at Y-o-Y sort of growth rate.

The next question is from the line of Jinesh Joshi from Prabhudas Lilladher Private Limited.

I have a small bookkeeping question. If I look at our interest cost, it appears to be a tad high when I compare it with the historical run rate. And also the figure for 1Q and 2Q appears to be quite similar in nature. So is there an element of amortization over here?

So Jinesh, the interest cost that we have is very similar to what we had in quarter 1 as well. And as we have disclosed, we are paying a certain amount of interest on the Star ICC contract, where we have -- I mean, the ICC contract where we have association with Star, so that is forming part of that. And therefore, you see on a year-on-year, you see the growth, but on a quarter-on-quarter, it's pretty flat.

So a INR 23 crore is the run rate, which one should be building in, right?

There is about INR 18 crores, which are finance charges and other things, which are approximately there and et cetera. And we are okay. And then the other part is that there is a lease accounting uptick based on which some long-term leases do get classified and there is an interest agreement, which is also forming a part of this.

Got that. My second question pertains to your remark to one of the questions which was asked earlier pertaining to build up in receivables. And I think we mentioned that the buildup is predominantly because of the movie business and liquidation should happen soon. But I just want to get this right. Gadar released on 15th of August, and we still had 45 days for collection, so just wanted to understand how does this receivable accounting basically work with the multiplex owners?

So generally, typically, Jinesh, the receivables starts within 2 to 3 weeks of the movie release. But you have to keep in mind that Gadar also ran for 56 days, which means it was not just the 15th August, one-day release. And therefore, the collections accounted for -- accumulated over the 45-day period including even running into October. From that point of view, it's not just a simple mathematics of 15th August. Actually, the movie released on 11th August, so it's not really just simple this thing because the revenue buildup is on a daily basis, and therefore, the billing also happens on that basis.

Sorted. I just wanted 1 small clarification. I think with respect to ZEE5 revenues, it was mentioned in the opening remarks that there was some digital syndication deal as well, if I heard it right. If you can just clarify what does this pertain to?

Yes, Mahesh, go ahead.

Yes. So that pertains to a content piece which we have syndicated out Jinesh. So what happens is when you do something like this, you take -- you basically have corresponding cost and revenue coming in the P&L?

Okay. I mean I...

I will just elaborate that Jinesh. So we continuously -- see we buy content, a lot of content, which is even bundled with our television content, right? And therefore, at times, we believe closer to realizing that this content may not be suitable for our platform in the best form and that's why we decided to go and syndicate it out. And our teams felt that we were getting a positive return on that piece of content if we were to syndicate it out rather than keep it for our own platform, and that's what we are seeing there.

As that was the last question for today from the participants, I now hand the conference over to Mr. Mahesh Pratap Singh for closing comments. Over to you, sir.

Thanks, [ Sanjay. ] Thank you, everyone. Thanks for joining us today and wish you and your family a very happy and prosperous Diwali. Do feel free to reach out to us if there are any follow-up questions as you do a deeper study of numbers. We'll be available and look forward to speaking to you. Thank you so much, and have a great festive season.

On behalf of Zee Entertainment Enterprises Limited, that concludes this conference. Thanks for joining us, and you may now disconnect your lines. Thank you, everybody.