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Zee to face problems in becoming pay channel, say analysts

NetScribes/Rajiv Banerjee

Low TRP ratings and tough competition will adversely affect Zee Telefilms' decision to change flagship Zee TV from a free-to-air channel to a pay channel, say analysts. However, the move will definitely help Zee Telefilms move into the more lucrative pay TV market, thus reducing dependence on advertising revenues.

"The decision will definitely help Zee Telefilms improve its revenues as pay TV is virtually untapped market and can rake in much more than advertising revenues," said Manish Gaur, media analyst at Credit Suisse First Boston. He said the decision augurs well for the company as it faces a squeeze on advertising revenues given the tough competition that it is presently facing.

Varsha Agrawal, media analyst at Pranav Securities, concurred saying that revenues from the pay TV market were far greater than advertising revenues. "Reduced advertising spending by FMCG companies has been reflecting on TV channels' advertising revenues, prodding Zee Telefilms into becoming a pay channel," she said.

In a report on the pay TV market, Agrawal has projected a 65 per cent rise in the total pay TV revenues. "Pay TV will yield Rs 50 billion worth revenues in 2002, up from Rs 30 billion in 1999. The number of TV households will rise from 65 million to 85 million in 2002. Cable and subscription households will rise from 25 million to 35 million," she said.

"Zee Telefilms already has a well-established network with subsidiary Siticable, and will thus be able to push through its pay channel," said CSFB's Gaur. Siticable is one of the largest cable network in the country with 8,000 km of two-way cable and a reach of around 5 million households of the 35 million subscribers in the country.

Siticable had begun upgrading its cable network in 26 cities to the hybrid fiber coaxial (HFC) network covering 10 million households. But the plan has been cut down to four major metros as Zee Telefilms is facing a severe cash crunch hampering the finance of the projects.

However, analysts feel that before changing from a free-to-air channel to an encrypted one, the channel will have to drastically improve its performance vis-à-vis its competitors. The company's performance in the coming quarters will have to be keenly watched before Zee TV becomes a pay channel in financial year 2001-2002.

"Right now, the company is facing tough times with low TRP ratings for its programmes as competitors have weaned away audiences on the basis of good programming. So Zee Telefilms will have to get its strategies right before becoming a pay channel," said Agrawal. She added that the company couldn't hope to become a pay channel if it continued with its current poor performance.

"Given the current scenario, one has to see whether the company will be able to extract the subscription fee from subscribers," said CSFB's Gaur.

On the Bombay Stock Exchange, the Zee scrip closed at Rs 230.90, down Rs 8.05 from the previous close of Rs 238.95. A total of 10 million shares have been traded at the counter.

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