Several analysts have held out hope that with the ongoing digitization in the country, media stocks are poised for a major bull run in the next few years.
But in the face of a weak economy, revenue growth at least for now has been sluggish.
In an interview with Zee Entertainment Enterprises MD and CEO Punit Geonka, CNBC-TV18's Shereen Bhan discussed the company's growth prospects over the medium term and challenges that the industry as a whole faces.
Goenka said that even as the first two phases of digitization was complete, the complete benefits were yet to trickle down to the entire media spectrum, and especially to the multiple system operators (MSOs) and local cable operators (LCOs).
Goenka also discussed the closure of the distribution joint venture that Zee had started with Star.
Below is the edited transcript of the interview on CNBC-TV18.
Q: 2013 was a difficult year for the industry. We saw regulatory changes, weak advertising environment and slow economic growth which sort of curtailed the kind of numbers that we would have liked to see as far as our business is concerned. The hope and the assumption is that in 2014, acche din aayenge. Does that look like it is going to bear out?
A: I am an optimist. I think things will improve. There is no way to go but up from here. The industry has had its issues in the last one year but definitely things will go in the right direction.
Q: What is the big hope for you? Is digitization the big hope because we are done with phase I and phase II. There are still question marks on whether you have fully be able to juice out what phase I and phase II has offered or whether you are going to see the results of this over the next two years or so. First let me get your comments on that, the full monetization of the first two phases.
A: According to me, phase I and phase II are also not done because while broadcasters may have been able to get some of the value of digitization for themselves but the entire value chain is still suffering because the last mile billing is still not taking place.
Hence the MSOs are further bleeding in this business. Until the entire value chain doesn't make money it is not in the interest for even broadcasters in the long term. My view is that digitization, even phase I, phase II have to be fully completed over the period of lets say next three-six months where enforcement of the law has to happen now.
Post which phase III, phase IV kick in, let's say during the early part of next year and that will take its own time because logistically to cover that kind of ground will have its own challenges.
So, over the next couple of years we do expect digitization to further play out.
Q: When do you actually see at least as far as value accretion on account of phase i and phase ii to start kicking in?
A: From a broadcaster perspective a lot of it has already come in. It is the distribution entities that have not seen that coming in for themselves. So, over the next six months, if we can fix that issue, the MSO business becomes healthy, the LCOs also can have a good, robust enough business model.
Q: What is coming in the way at this point in time of that happening?
A: It is the sheer will of the distribution channels or the fear that they may lose subscribers to competition such as DTH that one is facing.
However, if the industry can come together, the MSOs and the DTH industry can work together to say that the pie is large enough for all of us to make enough money here rather than trying to eat into each others markets, this business can be fixed.
Q: There has been a lot of talk and lot of discussion on the splitting up [of MediaPro, the joint venture distribution business of Star and Zee]. How does life change now for you? There has been a fair degree of concern on what this is actually going to mean as far as Zee is concerned. Analysts believe that the impact is going to be largely limited on your business. What is your own assessment and what do we expect now from here on for you?
A: Let's rewind back to first before the joint venture was formed and the reasons for the JV being created. The two primary reasons for the JV coming together was that both of us in the analog business were not getting the kind of growth that we wanted.
Both were struggling with single digits, mid-single-digit numbers 5 and 6 percent for each other. Digitization was not really getting pushed as competition would have…
Q (Interrupts): So it was necessity that brought you and STAR together?
A: Absolutely and today when the rules have been set, each of us has found the prize point that we are going to operate at. We have demonstrated that not just in DTH but even in cable at least in phase 1 and phase 2, the true benefits of MediaPro have already been derived.
Now going forward, given the regulation; given that we need to consolidate within our own organization by which I mean the sport businesses needs to get consolidated, we just felt that it has lived its purpose and now we both should go on our way.
Q: So, it was a marriage of convenience. Did irreconcilable differences finally lead to the two of you splitting apart?
A: I don't think so. We had our differences in the first year of operations and as far as I can remember there was not a single issue that we couldn't resolve within 15 minutes. We never had to negotiate, we never had to go fight with each other and the joint venture (JV) was there for three years. Regulation timed itself pretty well for us to complete the three years before we had to call it off.
Q: From a market perspective, the question is that is this going to hit you and your profitability in any form or fashion.
A: I don't think it will hit our profitability in any way. There will be opportunists in the market who will try and take advantage of this separation and that may cause some issues in for a quarter or two where our contracts don't get done and there are delays but eventually my value is what I deliver and therefore I will demand that and get that.
Q: So this process of contract renegotiation, there is a lot of buzz around it on how much you are going to be able to make this process at this point in time, how much leverage you enjoy. What can we expect and how much of an upside do you believe there is to renegotiate contracts today?
A: I had said even before the decision of MediaPro going away [was taken] that this year is going to be a slow year for subscription given that we have seen the kind of growth in the last three years and that phase III and phase IV has definitely got delayed with phase I and phase II having its own problems that we just talked about.
However, if you look at the track record, a healthy teen number -- 15-16 percent growth rate over the next two-three years is definitely doable in subscription.
Q: What about advertising because there is hope in general that there is expected to be a pick-up as far as the economy is concerned. You have actually outperformed the industry when it comes to advertising revenues. Do you anticipate strong double-digit growth as far as advertising revenues are concerned?
A: It will take time. I don't think it is an overnight thing that people are expecting the economy to turn just because the elections got over and people are excited about it.
Q: Obviously not. But, the sense is as you pointed out it can only get better from here on.
A: Maybe not in the immediate year for [advertising revenue to grow in] the healthy teens but definitely going forward it should come back. This year I will still be cautious and say I see 11-12 percent kind of growth levels.
Q: For the industry or for you?
A: I will always try and beat the industry.
Q: That's what I am saying so should we expect what a 20 percent kind of growth rate as far as advertising revenues, you have done that in the past.
A: I have so I should just restrain myself and say I will try and beat the industry as I have done in the past -- by how much, let's see.
