Zee bouquet has better breadth - JP Morgan CAS report

MUMBAI: JP Morgan India's report on Indian cable industry titled: "CAS: The Medicine for a chronic ailment" claims that Zee would be a beneficiary of the passing of the CAS Bill for two reasons (1) due to its ownership of Siticable, its MSO, and (2) the long-term increase in the transparency of the distribution system, which would boost pay revenues.

JP Morgan analysts give the Zee Telefilms scrip an 'overweight' rating at the price level of Rs 103. See chart 10 showing the fluctuations since FY 1999. The report also claims that the Zee-Turner bouquet's strength is its breadth and the bouquet's overall offerings are as popular if not more than the Star and One Alliance bouquets.

The report claims that a study of the bouquets of various networks revealed three features:

o The other channels in the Zee bouquet provide a much more sustainable set of drivers for the bouquet compared to the Star and Sony packages, which are one channel or event driven.

o Cable operators and MSOs believe that Zee ratings have bottomed out and they are seeing improvement in the visibility of the channel after the movie strategy.

o The demand for the Zee bouquet is in no way lower than the others and, as such, the implementation of CAS would not be detrimental to the bouquet.

Zee-Turner bouquet's strength is its breadth

The fact that Star Plus is the most popular channel is clear. Additionally, SET MAX with the cricketing rights is likely to draw large viewership during World Cup in February and March 2003 and the flagship Sony channel has usurped the No. 2 position from Zee TV.

However, the report claims that the Zee-Turner bouquet provides the strongest value for the customer. Despite the current drop in popularity of the flagship channel Zee TV, the analysts believe that the drivers for the Zee-Turner bouquet are much more sustainable than the Star bouquet or One Alliance (Sony).

The report reasons that broadcasters have gained through increasing pay revenues in the last 3-4 years. As the revenues come without much attendant costs, the "pay revenues" have helped profitability of channels significantly.

A case referred to in the report was Zee. The report estimates that the company would have close to Rs1.6 billion from the domestic pay market in FY03. These revenues would be the key driver of profits in years that advertising revenues of the network are weak. The report also adds that for Star TV, pay revenues form about one third of total revenues.

And people on the ground corroborate findings

The report claims that it has checked its hypothesis with several cable operators. Nearly all of them felt that, ratings notwithstanding, the popularity of the Zee bouquet is certainly comparable to the Star and Sony bouquets. The operators opine that Zee TV has bottomed out and that they have definitely noticed an increase in Zee TV's visibility. Additionally, these operators feel that there is a demand for other channels in the bouquet like Zee Cinema, Zee News, Alpha.

Assessing the strength of each bouquet

Over the last two years, Star Plus has firmly established itself as the numero uno Hindi general entertainment channel. The ratings of programs on the channel are far better than its nearest competitors. However, the other channels in the Star bouquet are not among the audience favorites in their respective segments. Thus, its flagship channel is the only driver in the Star bouquet. However, the channels are not available a la carte, thus ensuring a good reach of all the channels.

The Sony bouquet was the last one of the three mainline channels to go pay. In the last few months the flagship Sony channel has overtaken Zee TV as the No. 2 Hindi entertainment channel. Set MAX which initially started as a Hindi movie channel has now diversified into cricket and has the telecast rights of the World Cup cricket in India. The bouquet has recently signed in HBO to be a part of the bouquet from January 2003.

Zee TV was the undisputed leader of general entertainment in the end 90s. However, over the last two years the flagship channel of the Zee-Turner bouquet has seen a steady decline in its popularity. Though Zee TV has taken several initiatives to retrieve the top position, it hasn't so far been able to.

The silver lining for the Zee bouquet has been the performance of the other channels in the bouquet. The Alpha channels have been regional favorites. The addition of the Turner channels and ETC (the music segment leader) has added more stability to the bouquet.

Apart from these three main bouquets, there is the sports bouquet of ESPN-Star Sports, the regional Sun Network bouquet and the MEN bouquet. ESPN Star Sports has the highest connectivity among the bouquets. Sun TV draws mostly a regional audience. The MEN network has lacked a consistent following from the audience and is still some way from being a mainline bouquet.

The Morgan report adds that all the companies could be investment opportunities as shown in chart 9.

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