India-based entertainment broadcaster, Zee Entertainment Enterprises Limited (ZEEL) has said that the embargo on broadcast tariff change due to New Tariff Order (NTO) 2.0 litigation has impacted the domestic subscription revenue of the company.
The Telecom Regulatory Authority of India (TRAI) had notified NTO 2.0 on 1st January 2020, however, the matter is now in the Supreme Court of India.
In Q1 FY22, the company’s subscription revenue was up 2 percent at Rs 813 crore compared to Rs 797.4 crore in the same quarter of the previous fiscal. The company’s digital business contributed to the small growth in subscription revenue, the company said.
“Embargo on pricing change due to NTO 2.0 litigation continued to hurt domestic television pay revenue growth. The 2 percent growth over Q1FY21 is driven primarily by digital business,” ZEEL said in its Q1 earnings presentation.
According to reports the TV broadcasters have challenged the Bombay High Court’s judgment upholding the NTO 2.0 and TRAI’s powers to fix tariffs in the larger public interest before the SC.
The broadcasters have not got any relief as the matter has been adjourned to 18th August. The NTO 2.0, meanwhile, comes into effect from 12th August.
ZEEL MD and CEO Punit Goenka spoke about the impact of the pricing freeze on the company’s subscription revenue during his recent interaction with analysts. ZEEL, which is planning to increase its content investments, will see its EBITDA margin drop to 25 percent from 30 percent earlier.
Goenka further added that the impact of higher investments would have been less severe had there not been a freeze on TV channel pricing due to NTO 2.0.
“The impact of these investments on our margins would have been lesser had there not been an embargo on subscription price hikes. The loss of more than a year of subscription revenue growth is one of the most important reasons for the 5 percent reduction in our margins as we make investments.”
The reports further added that Goenka stated that the subscription revenue growth will be back to low teens once the NTO 2.0 settles down.
“To expect any significant growth to come from that revenue stream is highly unlikely. But if this matter is resolved, and I have maintained this always that barring maybe a quarter or two-quarters of disruption till the new tariff order settles down, we should be back to our low teens kind of growth number in the subscription revenue,” Goenka said.
The ZEEL chief had also underlined that the company was not able to benefit from the traction that its Tamil movie channel had seen due to NTO 2.0.
“The Tamil movie channel has certainly given us more traction in the market because now we have a bouquet offering in the Tamil Nadu market from a subscription point of view. Unfortunately, because of the NTO 2.0, the pricing has not changed because the inclusion of the movie channels is currently not priced, and therefore that benefit is not yet flowing to us.”
