Chairman's Message
Dear Shareholders,
It has been a significant year for the television media industry in India. More than six million households converted to digital pay TV and total households on digital pay TV are estimated at 14 million. It gives me great satisfaction to present the fact that India is the third largest television market in the world and despite the size, is one of the fastest growing markets. TV penetration in India is currently only 55%, and cable and satellite TV penetration is a mere 35%. Going forward consumption growth fuelled by a steady growth in Indian economy would ensure a much greater number of television households.
Your company is one of the foremost players in the television media and entertainment space in the country. Zee's strong strategic and financial position gives us great confidence in our ability to benefit from this growth opportunity.
A year of turmoil for the global economy
In the financial year 2009, the world economy went through difficult times. The International Monetary Fund (IMF) has stated that the global economy faces its worst crisis since World War II and will shrink by 1.3 per cent in 2009. In today's business environment, it is seldom possible for large corporations to be insulated off pressures faced by the global macro-economy. The comforting part for us is that India is relatively unaffected and trends indicate that the country's GDP growth will outperform that of many other emerging economies.
Indian media was impacted, though to a relatively lesser extent
While India remained largely unaffected during the first half of the fiscal, we did see the impact of global economic meltdown during the second half. Coming after several years of continued growth, the year brought its own set of challenges. Spends from sectors like real estate and banking and financial services were severely affected and advertising revenue growth of most media companies saw a dramatic slowdown. While the calendar year 2008 witnessed an 18% growth in television advertising spends, the opinion is divided on the expected growth during calendar 2009.
Media and entertainment sector: Entertainment Unlimited
The Indian media and entertainment industry continued to grow in scale and size during the year. Within the media and entertainment sector, television, given its wider spread and ever increasing reach, showed higher growth as compared to other media vehicles. An important trend in the broadcasting industry was the growing preference for digital services.
India now has over 120 million television homes and over 80 million of these homes have cable and satellite connections. Digital pay TV homes have also grown to significant numbers with an estimated 12 million homes on DTH alone as of March 2009. There were several new channels launched during the year both in Hindi and regional languages and the appetite for entertainment continued to grow. The Hindi GEC genre attracted new players owing to its popularity among viewers and advertisers.
The entertainment industry is witnessing a big transformation lead by technological advancements, new delivery platforms and growing diversity of content. Consumer expectations are also changing rapidly. While consumers are spending more on media and entertainment, they also want more control, choice and pricing flexibility. While these changes are posing new challenges for media companies, they also open up new opportunities.
Zee performance, year of consolidation
Fiscal year 2009 saw improvements across a number of key operating metrics. We continued to deliver strong operating results, with most of our businesses performing as per expectations. The year also saw emergence of new competition in the Hindi entertainment space. While Hindi entertainment genre recorded higher viewership, television penetration increased and there was greater adoption of digital television, advertising revenue growth was impacted due to the overall economic slowdown. Zee focused on consolidating its market share across genres and continued to build on its lead in international markets across the globe.
It has been a very unique year for us and for the industry. On the one hand we witnessed a considerable slowdown in the advertising revenue growth trajectory, particularly during the second half of the fiscal, while on the other we continued to record robust growth in subscription revenues. From a 30% plus growth in advertising revenues in the first half, we saw the growth fade away during the second half of fiscal 2009. Increased competition has also impacted industry margins during the second half of fiscal 2009.
During the year the overall revenues of the company grew by 18% over the last year. Of the two primary sources of revenues, advertising revenues grew by 14% over the previous year while the subscription revenues grew by 23%. It was encouraging to note that our subscription revenues earned from various DTH operators increased by 93% over last year. International subscription contributed 21% to our revenues. The overall operating profits of the company were flat as compared to the previous year and the profit after tax increased by 31% on a yearly basis.
We took a series of steps to streamline our operations. Towards the end of the year, we were able to reduce our selling, general and administrative expenses. We have also consciously focused on improving efficiencies in content acquisition, one of the biggest cost elements. With the steps we have taken last year, Zee is now a leaner and more tightly focused company.
Focus on People and human capital
We believe that having the right people in the right positions doing the right things is critical for success of any enterprise. We need a very creative and technology savvy leadership team to tap the opportunities. Every media executive needs to balance creativity with technology and yet be mindful of the costs. Those who can balance these skill sets would create value in the long term. We continue to work towards enhancing the capabilities of our global workforce.
Your company has taken a series of initiatives to consolidate the talent management initiatives. The Board has recommended issuing of Employee Stock Options Plan (ESOPs) to deserving employees to create a greater degree of ownership. We have also initiated creation of a talent map for all the positions which will be synchronized with talent map of employees who are holding these positions. These efforts have already started showing positive results in the Company.
Corporate Governance
Sound principles of corporate governance are vital in the long term success of any Company. Our endeavour continues to maintain transparency and secure trust of our investors, employees, customers and public at large. Your company is in full compliance of the Corporate Governance Code laid down by SEBI and stock exchanges.
Looking ahead - Committed to sustained growth
Over the past 17 years, we have built a history of delivering growth. Our content businesses are leading players in each of their genres and our strong strategic position gives us great confidence in our ability to succeed in the medium term, despite a weak economic climate. Given the growing television penetration in India and the rapid digitization of distribution through DTH and digital cable, your company would continue to focus on aligning its strategy to take a significant share of emerging subscription revenues.
Zee's objective is to create long term sustainable shareholder value. During the year, we have taken important steps to move out of areas which were not yielding results and move into areas of greater long term potential. We continue to make judicial investments in our core assets. We plan to build on the success of our businesses by continuing to produce the most compelling content for our consumers. While the times are difficult, we are hopeful of an early recovery. Collaboration, consolidation and digitization are the key words for the industry in the coming year.
I want to end on a note of thanks to all of our shareholders, employees, customers and partners for the continued support in our journey.
Sincerely,
Subhash Chandra