India’s media and entertainment industry is still on the cusp of a strong long-term structural growth phase due to rising consumer demand and improving macroeconomic factors such as reach. digital and content accessibility, said Rohit Gupta, CFO of ZEEL. He was speaking to analysts on the Q4FY22 earnings call.
“We will continue to invest aggressively in FY23 to support our growth ambitions. Our successes so far have given us the confidence to be at the forefront of our investment approach to improve our long-term relevance and, as we expand our investment, we will continue to focus on generating returns from these investments with the budgetary prudence that has been a DNA of Zee.
According to Gupta, the company expects FY23 to be a year of investment for the network. He also mentioned that this will be a year where they will have to deal with short-term headwinds like inflation. “We will do our best to balance the company’s short-term financial profile while making room for longer-term investments. Overall, while we expect our margins to be healthy, a meaningful recovery from current levels will be more gradual due to a combination of these factors. That said, this doesn’t reset our mid-term margin aspiration or reach that we’ve talked about in the past. It just pushes forward a lot of investments driven by a desire to build for the future and therefore pushes our margin recovery a bit far.
He talked about some key themes they are navigating through FY23. These themes relate to investments, broadly aligned to boost their digital/OTT ambitions and some of the headwinds they will face throughout FY23. 23 while making these investments.
Gupta shared that Zee has always been proud of its content DNA and will aggressively invest in content to create a differentiated value proposition, especially in the OTT digital space. They are increasing their investments by focusing on regional content and increasing our partnership with global studios, independent creators and premium content production houses in all regions. Additionally, they will continue to launch new TV shows in all markets to gain market share in our broadcast business. “As we will bring more original content and shows, we will also aggressively ramp up marketing to increase our content expansion with brand marketing and broader reach.”
The second area of investment, Gupta said, was going to be technology and products, with a particular focus on delivering world-class entertainment. “We believe there is an opportunity to personalize content and delivery, thereby increasing our reach across all platforms. To support this ambition, we are investing in expanding and accelerating our digital platforms roadmaps and in improving consumer engagement.
Gupta mentioned that they have also consciously streamlined their presence in the Free-to-Air segment to shape and grow their paid ecosystem, and this will have a short-term impact on their ad revenue. “We believe this will be a more transitory impact and that we can eventually recoup it as the expected benefits accrue on the compensation side of the business,”
Finally, they would follow that India’s annual retail inflation hit an 8-year high in April at 7.79% and that the high inflation scenario is creating headwinds for them both on the revenue side only costs. “This is leading to a moderation in brand ad spend to counter rising costs that are putting pressure on our ad revenue. We are starting to see the first signs of this in this quarter. High inflation is also negatively impacting our costs in programming, salaries, etc. These two inflation-induced headwinds on revenues and costs will impact profitability in the short term.”
According to Gupta, in FY23, from a quarter-over-quarter growth perspective, they expect the margin profile to improve as they grow through the year. ‘year. “The first quarter will have the most immediate impact of inflationary dynamics, lower free-to-air, accelerated investment, and some of the necessary seasonal costs, like increased salaries, etc.”
He further added, “As revenues increase in subsequent quarters, we expect margins to begin to gradually increase in the latter part of the year. We do not provide specific guidance on margins at this stage as many factors come into play and the impact of some of these macro factors is difficult to predict. I will add here that our confidence in the medium-term margin outlook is strong, and we will provide a more specific update when the operating environment is more stable.
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