Television viewership update. Zee network’s viewership share has significantly improved over the past two quarters driven by viewership gains of Zee TV and steady strength across regional genres. This share gain will drive strong outperformance versus industry ad growth starting 3Q. Sun network’s viewership share has recovered from 2Q lows but is a tad soft due to ratings weakness of Tamil and Telugu GECs. Rising competition in the South is a key medium-term risk to Sun. In the near-term, we expect Sun’s ad revenue growth to accelerate aided by management focus on monetization. We prefer Zee (ADD, TP `625).
Zee—viewership gain for Zee TV, steady strength in regional markets
Zee’s flagship channel, Zee TV’s average weekly viewership in 3QFY18 increased 2%/38% (qoq/yoy) to 646 GVMs (gross viewership in mn) translating into 80/600 bps gain in viewership market share to 20.9% in the Hindi GE genre (see Exhibit 3). Zee network’s viewership share in the Hindi movie genre was broadly flat whereas that in the Hindi FTA GE genre dropped a bit due to increase in competition (Star rebranded Life Ok to Star Bharat and added it to the DD Free Dish platform in August 2017). On the regional front, Zee continued to make gradual progress in the Tamil market and its ratings in other regional markets are steady and healthy.
Sun—Sun TV partially recovers from 2Q lows, mixed bag in other regional markets
The flagship channel, Sun TV’s viewership share increased 230 bps qoq to 52.8% in 3QFY18 on completion of Star Vijay’s blockbuster show ‘Bigg Boss’; we note that Sun TV’s viewership share is down 950 bps yoy and 470 bps as compared to 1QFY18. Star Vijay has built up on the success of ‘Bigg Boss’ (its viewership held well in 3Q even after the completion of Bigg Boss season 1 in September 2017). In other regional markets, Sun network made progress in Malayalam and Kannada markets but lost a bit of viewership share in the Telugu market.
We track weighted viewership share of Zee and Sun network
Ad revenue growth of Zee and Sun in any quarter is a function of viewership trends across genres and monetization of ‘viewership’ in each genre which in turn is a function of ad market size of the genre. For instance, ad revenue per rating point in the movie genre is less than half that in the corresponding GEC. Likewise, ad rates/GRP vary significantly across Hindi and regional GECs. We track weighted average viewership share which is a function of viewership share in key genres and ad market size of respective genres. This metric is a lead indicator of ad revenue growth (ad revenue lag viewership trends by one to two months). Exhibit 1 highlights the improving weighted viewership trend of Zee indicating share-gain led outperformance for at least a couple of quarters (3Q and 4QFY18). Even though Sun’s weighted viewership share is a tad soft, the company may be able to offset this headwind given management’s focus on improving monetization (fixing pricing inefficiency).
TV ad spend recovery broadly on track; Expect Zee and Sun to outperform industry ad growth
Our industry interactions indicate that TV ad spend growth bounced back to 13-14% yoy in December 2017 quarter on low base. We estimate Zee to deliver organic ad revenue growth of 17% yoy and 21% yoy including acquisition (RBNL and IWPL); both like-for-like (adjusted for sports business sale). Fortuitously for Zee, Zee TV’s ratings bounced back strongly in 2Q just ahead of the ad spend recovery; Zee will reap significant benefit from strength in Zee TV’s ratings and weakness in ratings of leader Star Plus. We expect Sun to report 15% yoy growth in ad revenues driven by management’s focus on ad inventory monetization, improved viewership share in Kannada and Malayalam markets partly offset by rating softness in the Telugu market.
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