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Business News/ Market / Mark-to-market/  The Zee-MediaPro break-up
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The Zee-MediaPro break-up

The end of a three-year-old relationship with MediaPro will cause some pain to Zee Enterprises

Shareholders would do well to watch for advertising revenue growth in the March quarter, which is expected to be slower than the fantastic 34% growth seen in the December quarter.Premium
Shareholders would do well to watch for advertising revenue growth in the March quarter, which is expected to be slower than the fantastic 34% growth seen in the December quarter.

Zee Entertainment Enterprises Ltd has decided to discontinue the distribution of its channels through the joint venture (JV) Media Pro Enterprise India Pvt. Ltd. (MediaPro). This is following a change in regulation to disallow aggregation of channels of multiple broadcasters in one bouquet. Zee will now set up an independent sales team.

MediaPro was set up between Zee Turner Ltd and Star Den Media Services Pvt. Ltd to jointly distribute their channel bouquets.

But the end of a three-year-old relationship with MediaPro will cause some pain. For one, independent distribution of channels could very well mean lower bargaining power compared with aggregate channel distribution under MediaPro. Analysts maintain that the MediaPro JV did help Zee’s subscription revenue performance to some extent. As pointed out by ICICI Securities Ltd, “The domestic subscription revenues of Zee had exhibited impressive growth of 21% and 34% in FY12 and FY13. Though the robust growth was primarily on back of digitization, better negotiations through MediaPro also contributed positively." Moreover, setting up an independent sales team could entail some additional costs.

The exact impact on the financials is difficult to tell as of now. In a note to clients, Elara Securities (India) Pvt. Ltd said, “while we acknowledge the still-significant bargaining power of Zee vis-à-vis distributors, given its presence as the second most dominant national broadcasters, our interactions with industry participants indicate a likely dent on Zee’s standing in the industry post this event." The brokerage has cut its subscription revenue growth estimates for FY15 and FY16 by 1% and 6%, respectively, leading to a similar cut to earnings estimates as well.

Zee’s shares have declined by 2.5% since this announcement on Friday suggesting that shareholders aren’t too jittery. Since the beginning of 2014, Zee’s shares have underperformed the benchmark S&P BSE Sensex, but shareholders have no reason to complain, as Zee’s stock had gone up about 25% in 2013.

At 268, the company’s shares trade at 25 times estimated earnings for the current financial year. Current valuations seem to be capturing most of the positives (for example: benefits to subscription revenue due to digitization).

Shareholders would do well to watch for advertising revenue growth in the March quarter, which is expected to be slower than the fantastic 34% growth seen in the December quarter. Another important factor to watch out for in the March quarter earnings would be the performance of Zee’s sports segment, which includes sports channels.

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ABOUT THE AUTHOR
Pallavi Pengonda
Pallavi is a deputy editor at Mint and heads the Mark to Market team. This column covers wide-ranging topics related to the stock markets, offering an in-depth analysis of financial reports of companies. She writes and edits across verticals, covering the breadth of the Indian stock market. Pallavi has done her master of management studies, specializing in finance.
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Published: 16 Apr 2014, 07:29 PM IST
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