Morgan Stanley bullish on Zee FPC revamp

NEW DELHI: Has Zee Telefilms, almost always in the news for all the wrong reasons, seemingly hit the winning strategy via its latest programming revamp?

Morgan Stanley believes that the revamp is different from the past and may succeed if the whole strategy is executed well. "The latest revamp appears to be well thought out, different and interesting, in our view. We believe that the downside from the current strategy will be limited," says Morgan Stanley's recent report on Zee Telefilms, a copy of which is available with

"The current (programming) revamp is different from those in the past and we like this. The management appears to be moving in the right direction, in our view," states the report, dated 3 October. It further adds that the company, which has made changes in the past two years, had been unable to deliver the goods for various reasons. However the company has significantly improved the quality of its primetime content in the past six months, and two programs are now among the Top 100.

The report further clarifies that the two (Zee) prime-time programmes (in the Top 100) have not yet been able to garner viewership anywhere close to that of leader Star's prime-time shows.

Zee Telefilms' new strategy for flagship Zee TV entails Thursday premieres of recently released and unreleased Hindi movies and appointment viewing by broadcasting weekly primetime programmes starting from Sunday to Wednesday rather than Monday to Thursday on the flagship channel.

"The acquisition cost of the 16 movies was not disclosed by the (Zee) management. We believe that it is likely to be in the Rs 300-330 million range," the reports adds.

Commenting on Zee Management's claim that the revamp backed by extensive research, will be an effective strategy , Morgan Stanley believes that the upside from the revamp could be "significant for the company's sagging broadcasting business."

The report goes on to say that success depends on the management's ability to effectively market the changes and new programs to viewers, advertisers and media buyers, which was not done in the past. "Whether the consumer accepts the changes in viewing patterns and habits will be key for the company's new strategy," it has been argued.

But sounding a word of caution, Morgan Stanley has also stated that movies, especially newly released movies, always attract audiences irrespective of the channel on which they are broadcast but they do not build channel loyalty.

"While Zee TV may succeed in increasing its viewership on Thursdays, it is unlikely to bring viewers to its channel for other primetime shows, in our view. The movies will likely increase revenues as Zee TV will probably gain viewership share. We believe that the viewership for movies will likely be higher than that for Zee's current shows," the report says.

More importantly, Morgan Stanley analysts say that profits from movies may be frontloaded and substantial as the company plans to recover the entire cost of acquisition in the first screening, while the cost will be amortized over five years or period of rights acquired, whichever is less.

Zee TV has already signed in four associate sponsors for the movies - Coca-Cola, Cadbury India, Whirlpool and Paras. "The company will also be able to exploit these rights on Zee Cinema and in the international markets," the report states, dwelling on the importance of the movie rights acquired.

Zee Telefilms is India's largest vertically integrated media and entertainment company, with revenues of $ 220 million and a presence in film, music and education. It is a large producer and aggregator of Hindi programming, with an extensive library housing television, news content and movie titles. Zee is also one of the largest cable distributors in the country through its wholly owned subsidiary, Siti Cable.

According to the Zee management's own research, audience availability on weekends is the same as weekdays, but the weekend programme viewership is "highly fragmented on account of lack of quality content." Thus, it is trying to bring in audiences to sample its prime time content on Sundays and to retain them until Wednesday. The Sunday rationale is that it is the least competitive slot and inventory is currently used for bonusing (free airtime for commercials) inventory. Airing primetime content on Sunday will allow higher viewership to be gained as well as revenues, according to the management, says the report.

Stating reasons as to why authors of the report are not confident of the success of the aforementioned strategy are as follows:

# it requires viewers to change their habits of appointment viewing
# Sunday is not a routine day for women and
# the entire family is at home and may have other plans for the evening entertainment.

"Predicting which shows will succeed and which will fail in the media business is very difficult," the report adds. Morgan Stanley expects the company's earnings to grow at 31 per CAGR (compounded annual growth rate) over the next two years and be mainly driven by growth in the domestic subscription business.

"We like the stock on account of its recent underperformance, attractive valuation and the company's strong earnings growth," the report says.

The Morgan Stanley report, as a footnote has also said that the present offering does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it.

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