labels: zee group
Zee may be down, but not outnews
Alok Agarwal
29 September 2001

Mumbai: Zee Telefilms held its 19th annual general meeting in Mumbai on 28 September. Nothing extraordinary about it. But what was unusual was, despite the shareholders request, company chairman Subhash Chandra declined to give any detail whatsoever of Zee Telefilms working in the first five months of the current year.

Giving indications of their performance in AGMs by companies between two working periods is an accepted practice - a usual affair. Chandra, however, chose to skirt such requests maintaining that the shareholders were already aware of the company's working in the first quarter ended 30 June 2001 and that of the second to end on 30 September 2001 would be made known to them sometime in the month of October 2001.

Chandra also declined to give any details on the impact new programmes have had on the channel, except for the fact that the viewership for the network stood at 32 per cent in comparison to 22 per cent of its nearest rival.

Now, domain-B sees this as a forewarning of a bad performance in the current quarter. Why? Zee had introduced 24 new programmes on its main channel last month, effective 27 August, as part of its new programming initiative to drive viewership and therefore advertisement revenues, which however have not gone down well with the viewers - this is evident from low TRPs that most of the new programmes have got.

To be fair to Zee, TRPs themselves are under a cloud with most broadcasters contesting efficacy and legitamacy of the system through which TRPs are procured. Despite all its new programmes having sponsors from the very beginning, chances are that advertising revenues might have taken a hit. This is coupled with the cost of programming having gone up just a little too much. As part of its strategy, Zee had also earmarked an advertising outlay of Rs 15 crore to relaunch its channel, which has added to the cost without, possibly, a corresponding increase in advertisement revenues. Significantly, Chandra did announce to shareholders that the company may end up achieving a lower growth in the current year to end on 31 March 2002, onaccount of a downtrend in advertisement revenues. He, however, painted a rosy picture of pay revenues saying there could be a 200-per cent growth, which were placed at Rs 32 crore in fiscal 2001. Said he: As part of its strategy, Zee Telefilms had decided to go pay and collect revenues from cable operators in May 2000. We are now surging ahead in terms of collecting pay revenues.

He predicts a growth of anything between 100 to 150 per cent on a year-to-year basis in pay revenues over the next two-to-three years. I also foresee significant contribution to revenues from syndication of our programmes.

Sources in Zee told domain-B: The company has been getting revenues of around Rs 6 crore to Rs 7 crore every month, all of which would go directly to the bottomline. Chandra made his point clear when he said there would be no negative growth. One may not see the kind of growth one used to see in the past - say, the kind of 45 to 60 per cent growth.

Now, lets look at the other observations made by Chandra at the AGM:

US operations, Gadar and film business:
Chandra said there is no dislocation in his company's operations in the US, post-terror attack on 11 September 2001. In fact, he expects the company to perform better. Chandra also talked about Gadar, the feature film venture of Zee Telefilms, which reportedly had a huge box-office success. Admitting the film was a big commercial success, he struck a note of caution: The way entertainment tax is structured and revenue sharing arrangements have been worked out with distributors, I dont want shareholders to raise too much hope on the profit front from the film. As producers, our profits are unlikely to be more than 25 per cent of the incremental revenues.

Chandra told the shareholders that the company had produced seven to eight films in the past, all of which however were low-budget films. Every film had turned out to be cash positive. Gadar was our first big budget film; with its success we have decided to produce one big budget film every year.

Corporate governance and management issues:
Refuting all charges of graft and shrugging off allegations that he had perpetuated any wrong doing in the company in any manner whatsoever, he said: There have been loads of reports in the media and our detractors have been trying to elude that there is some hanky-panky in our various deals in the past. All of them are my rivals' attempt to malign the company. There has been no violation of any law, no insider-trading and no investigations are pending against us. We have written to the joint parliamentary committee that if we are being discussed, then we should be called to present our case.

No member of the Essel Group had indulged in any trading activity as far as Zee shares are concerned since February last year, he said. In April 2001, when I needed funds for group expansion my oversees corporate body took RBIs permission to sell stake.

On the Goldman Sachhs issue he said the company had issued convertible bonds amounting to 2 per cent of the equity to Goldman Sachhs on 24 January 2000, when the shares were being traded at Rs 1,200 on the Bombay Stock Exchange. These were converted to shares on 31 March 2000 and on 24 April 2000 at a premium of Rs 999, when the same were trading at around Rs 700 to Rs 800 on the BSE. We had actually received Rs 800 crore in cash from private placement to Goldman Sachhs. All talks about the deal being dubious are humbug. I dont know why Goldman Sachhs valued our equity so high. Ask them.

On the Ketan Parikh issue, he said his company had decided to buy stakes held by the Big Bull in some media companies. At that point it looked like a good commercial decision. However, as events unfolded, we decided it was not a good decision after all. The entire balance amount will be returned back to Zee Telefilms in the next 30 days.

He also said Zee Telefilms had to recover about Rs 100 crore from the promoters of Budhha Films, after the company decided to do away with its sports channel project. This, he said, would also come over a period of time.

Internet over the cable and capital expenditure programme:

Chandra said Zee had made a breakthrough by providing the Internet over the cable in Bangalore. He said the project had hit a roadblock earlier due to some technical snags and foreign experts had provided some very expensive solutions. But the companys in-house engineers worked hard and did a good job by sorting out problems through indigenous means. The project is successful and the feedback is very good from the users.

About the companys capital expenditure programme, he said it would not exceed Rs 130 crore; this would be met through debt and internal accruals. On the content side, capital expenditure is expected to be of the order of Rs 20 crore.

Stake sale:

Chandra said in April 2000, the company had decided to get its shares listed on the international markets to garner funds for its hybrid fibre cable project. But the downtrend on the international markets forced the company to cancel the issue. The company had also decided to do away with trying to get a strategic partner for Siticable, post-downtrend. In the US and Europe, cable companies have also been facing a downtrend. One international major, with whom we had had been talking to, has suffered an erosion of 7 to 8 per cent in its share price due to which the possible deal has had to be put on hold.

Education business:

About the companys educational channel, Chandra said: Zed TV, launched in November 2000, had not been able to do well as expected and is yet to get wide acceptance. In times to come we feel it will add substantial value to our bottomline. He foresees a growth of 35 to 40 per cent in the current year in Zee Interactive Learning System, its educational subsidiary.

Tax provisions:

Chandra said the company is contesting tax demands made by the department of income-tax, which had classified it as a foreign broadcasting company, necessitating tax provisioning at 48 per cent. The company however has gone ahead and made provisions for tax at the rate of 48 per cent.


* Chandra finally accepted that the company had made a mistake by trying to copy a rival channel through its Sawal Dus Crore Ka programme, which inevitably flopped.

* He said the decision, taken in November 2000, to sell 30 per cent stake to MGM was a good one as the Zee Movie channel has been getting a much larger share of eyeballs.

* Chandra also made a mention of management consultants AT Kearny who, he said, had validated the companys business and organisational structure. Whatever suggestions they had made have been incorporated.

* Chandra said his company has decided to reduce the number of subsidiaries from 24 to 12, which will save auditing time and facilitate early annual general meetings. Chakra, the lifestyle channel, has been deferred for the time being in view of the global slowdown.

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Zee may be down, but not out