Zee Entertainment Enterprises Limited (ZEEL) Q2 FY23 Earnings Concall Transcript

Zee Entertainment Enterprises Limited (NSE:ZEEL) Q2 FY23 Earnings Concall dated Nov. 11, 2022

Corporate Participants:

Mahesh Pratap Singh — Head of Investor Relations

Punit Goenka — Managing Director and Chief Executive Officer

Rohit Gupta — Chief Financial Officer

Analysts:

Vivekanand S — Ambit Capital — Analyst

Abneesh Roy — Nuvama Institutional Equities — Analyst

Kunal Vora — BNP Paribas — Analyst

Sanjesh Jain — ICICI Securities — Analyst

Abhishek Kumar — JM Financial — Analyst

Jinesh Joshi — Prabhudas Lilladher — Analyst

Aditya Chandrasekar — UBS — Analyst

Arun Prasad — Spark Capital — Analyst

Himanshu Shah — Dolat Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q2 FY ’23 Earnings Conference call of Zee Entertainment Enterprises Limited. [Operator Instructions] I now hand the conference over to Mr. Mahesh Pratap Singh, Head of Investor Relations. Thank you and over to you, sir.

Mahesh Pratap Singh — Head of Investor Relations

Thank you, Tanvir. Hello, everyone and welcome to our Q2 FY 2023 Earnings Discussion. We have with us today our Managing Director and CEO, Mr. Punit Goenka, along with senior management team. We will start with opening remarks from Mr. Goenka, followed by commentary on operating and financial performance by Mr. Rohit Gupta, our Chief Financial Officer. We’ll subsequently take some of your questions during the Q&A session.

Before we get started, I’d like to remind everyone that some of the statements made or discussed on today’s call will be forward-looking in nature and must be viewed in conjunction with risks and uncertainties we faced. The company does not undertake to update any of these forward-looking statements publicly.

With that, I’ll now hand the call over to Mr. Goenka for his opening remarks.

Punit Goenka — Managing Director and Chief Executive Officer

Thank you, Mahesh. Good evening, everyone. I hope all of you are keeping well. Thank you for taking the time out this evening to interact with me and my team members on Zee’s performance in the second quarter of the financial year 2022 – 2023. As you would have noticed, the underlying impact of the macroeconomic headwinds across the industry continued to spillover in the second quarter of the fiscal. That said, we have been able to moderately grow our advertising revenue sequentially in the second quarter on the back of our network share gain and focused effort from our ad sales team.

We’re hopeful of a steady recovery in the advertising environment during the second half of the fiscal, given some of the green shoots due to a good monsoon and the onset of the festive season. We are utilizing this period to further strengthen the resilience and fundamentals of our business across all aspect. Our focused efforts and investments in content and user experience enhancements are just playing positive results.

I would also like to pity a price on the progress of the proposed merger with Sony now called Culver Max Entertainment Private Limited. We have recently received an approval from the Competition Commission of India with their communication dated 4th October 2022 and with subsequent order. The company also conducted a meeting of its equity shareholders on 14th October 2022 to seek approval on the company’s scheme of arrangements in line with the order of the National Company Law Tribunal.

We have received an overwhelming support for the proposed merger with 99.99% of the equity shareholders who participated in the process voting a favorable scheme. We are steadily moving forward with other legal and regulatory approvals required for completion of the merger as per law. Coming back to the company’s performance during the second quarter. In addition to strengthening our current offering, we are also consistently identifying newer growth opportunities for sustained value creation. We took yet another firm step in this direction by sharpening our strategic vision to build the sports business for the company. The strategic licensing agreement linked with Disney Star makes Zee the exclusive TV destination for all ICC events starting 2024.

Going forward, all our investment decisions to make the sport segment a compelling value proposition for the company will continue to be taken with a prudent approach. Our energy has remained focused on enhancing the performance across platforms through compelling content offering and delivering a robust user experience.

For instance, our linear viewership share has increased quarter-on-quarter in our key markets like Hindi and Tamil are showcasing an improvement in the performance. On the digital side, Zee5 continues to post healthy growth across all usage and engagement metrics reflecting the successes of our focused investment towards enhancing the composition of the platform. Going forward we remain cautiously optimistic about the overall advertising sentiment gradually recovering during the second half of the fiscal, which will further aid revenue growth.

On that note, I will hand over the session to our CFO, Rohit Gupta to take you through the finer details. I look forward to interacting with you during the Q&A. Thank you. Over to you, Rohit.

Rohit Gupta — Chief Financial Officer

Thank you, Punit. Welcome, everyone. I hope you had the opportunity to review our positive results which has been uploaded on ours, as well as website of stock exchange. Focus my remarks on providing more context to our quarter two financial performance and our outlook for H2. Given the weak macroeconomic environment and its implications on our operating context, we are pleased with our Q2 FY 2023 performance which showed a sequential improvement from previous quarter and underscores our teams ability to adapt and execute through challenging time.

It is also important to note that we have continued to make room for investments in strategic areas through this space and are confident of emerging as a much stronger business, with marked improvement in underlying health and competitive advantage in our key businesses. Let me briefly talk about the lead indicators fueling our enthusiasm with respect to our business trajectory.

Firstly on linear business, we have gained 30 bps network viewership share in quarter two FY 2023 and continue to be India’s strong number two TV entertainment network. In our assessment, our quarter-on-quarter viewership gain during quarter two FY 2023 is ahead of every other TV networks in the country, reflecting results of our focused efforts to gain network share. Specifically talking about three key standards which we are going to a lean start, in ZeeTV we have now seen consistent performance in viewership share over the last few quarters. Zee Tamil has turned the corner in quarter two of FY 2023 net share gain and we expect to maintain that momentum, while Zee Marathi is still in the process of rebuilding with series of launches and interventions planned throughout FY 2023 in order to stabilize and regain our network share.

On digital side, Zee5 is continuing to gain healthy traction in usage, stickiness and engagement metrics. Our quarter two FY 2023 DAUs are highest ever. Original content is being well-received and Zee5 app user experience has been significantly improved with Zee5 becoming highest-rated OTT app on both iOS and Android. Zee5 iOS app ratings have gone up from 3.9 in early April to 4.8 levels now. Android app rating has gone up from 3.7 to 4.6 for the same period.

All of these are stronger promotions of our investments in content, technology and marketing. Zee5 has dropped a revenue growth of 28% year-on year during quarter two FY 2023, reflecting healthy traction and adoption. Now specifically coming to the financial performance, total revenues for quarter two FY 2023 are up 10% quarter-on-quarter and 2.5% year-on-year, aided by growth in ad revenues, subscription revenues and other sales and services. Our ad revenues for the quarter grew at a healthy rate of 4% Q-on-Q, but are lower than 7% year-on year.

On year-on year ad revenues in addition to the macroeconomic factors, previous year Q2 higher base due to strong spending coming out of COVID and Zee Anmol and Zee ad revenue which we withdrew from 1st April 2022. While macroeconomic environment in quarter two remained challenging, our quarter-on-quarter growth was a result of network share gain and focused efforts from our ad sales team on garnering higher share from active spending categories position deal and other levers such as right client mix to minimize the impact with the sales.

We are cautiously optimistic for ad spending to revive in the second half of the year as demand picks up with onset of festive season. Subscription revenues for the quarter grew by 7.7% year-on-year and 4% quarter-on-quarter. Q2 FY 2023 subscription revenues was aided by catch-up revenue from previous quarter in linear business and underlying organic growth in music and Zee5.

From TV subscription revenue outlook perspective, in September 202 [Phonetic], TRAI has again extended the deadline for implementation of NTO 2.0 to 28 February 2023, in the absence of a clear way ahead of NTO 2.0, near-term outlook for subscription growth remains uncertain and muted. We will continue to monitor NTO 2.0 guidelines and will be prepared to implement the same for improved longer-term revenue outcome. There is also a temporary issue with collection recognition of our subscription revenues from Sippy pending a legal settlement.

Zee Music Company saw 65% year-on-year growth in video views, highlighting strength of ZMC Music catalogue and library. YouTube subscriber base of ZMC increased to 89 million from 78 million in last 12 months. ZMC continues to be number two music channel and has very young and new age catalogue with very high consumption. This quarter we have also reassessed the useful life of music content, looking at our own rev profile and catalogue usage, as well as benchmarking the useful life with global and domestic peers.

Our current definition of useful life of music which until now was three years as per management assistant. Based on the outcome of reassessment and benchmarking process, we have now revised the useful life of the music content to 10 years. The total impact of the change of useful life of music asset was positive INR32 crores on EBITDA. On a recurring basis, in fact is not going to be that material as our music inventory and Fizz music acquisition is relatively small compared to the overall inventory and investment. This reassessment aligns on how music is currently being monetized on a much longer life with more predictable annuity revenue stream.

Coming to the movies business, during the quarter, Zee Studios released ten movies, four Hindi and six regional, aided by these theatrical releases and other syndication deals. Q2 FY 2023 other sales and services were up 92% year-on year. While there has been a good pick-up in revenues theatrical and movies, content performance of movies generally has been softer-than-expected and this has caused a drag on margins.

During the quarter, we have seen inventory increase quarter-on-quarter mainly due to movies acquired for Linear and digital business. Our content inventory and advances stood at INR78.9 billion in quarter two FY 2023 and the majority of this pertains to movies. In H2, we have a strong pipeline of movies under different stages of production.

Switching gears on cost and profitability, during quarter two FY 2023, our EBITDA margin came in at 14.7% quarter-on-quarter, improving by 110 bps, but still lower by 610 bps year-on-year. We continue to be focused on optimizing cost across the businesses and are hopeful that when macroeconomic environment and ad spends improves, our margins will recover from these levels. Zee5’s EBITDA losses for the quarter stand at INR2,769 million, process were high year-on-year and quarter-on-quarter, as we continue to invest in strengthening our Zee5 value proposition in line with our investment strategy.

Also quickly touching upon receivables from Dish and Sippy [Phonetic]. As you will recall, we had agreed a payment plan with Dish and we have continued to collect as per that schedule receiving current collection along with receiving a part of the old outstanding. This outstanding has substantially reduced from INR5.8 billion as of March 2020 to INR1.5 billion in September 2022. On Sippy as we had mentioned earlier, we have been recognizing revenues to the extent of collection on a conservative basis. On account of a pending legal proceeding amount aggregating to INR525 million are yet to be collected and accounted for.

PAT for the quarter came in at INR1,128 million. The cash and treasury investments of the company as of September 2022 stood at INR9.0 billion, the cash and treasury investments include cash and bank balance of INR3.1 billion, fixed deposit of INR5.7 billion and NCDs worth INR255 million.

To sum-up, quarter two has shown some sequential improvement in challenging backdrop which is encouraging. However, we still have a lot of ground to cover and expect our financial performance to gradually improve in H2. Growth revival is our key focus and Q3 will see recovery from Q2 level, given the passive seasonality. However, key factor we are watching is how sustained and strong that underlying macro recovery beyond just seasonality. We will provide you more color when we speak during Q3 earnings.

Back to you, Mahesh.

Mahesh Pratap Singh — Head of Investor Relations

Thank you, Rohit. We’ll now proceed for the Q&A session. I’d request the moderator to take the discussion forward.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] We’ll take the first question from the line of Vivekanand S from Ambit Private Limited, please go ahead.

Vivekanand S — Ambit Capital — Analyst

Hi, thank you for the opportunity. I have two questions from the merger, so one is if you can provide an update on the timelines of merger completion, related point is with respect to the number of days that you all shared with [Technical Issues] that’s point one. Second…

Operator

Sorry to interrupt, Vivekanand your voice is breaking up in between, so the audio is not very clear.

Punit Goenka — Managing Director and Chief Executive Officer

Vivek, if you can just confirm…

Vivekanand S — Ambit Capital — Analyst

I’m using the headset now, is it better?

Punit Goenka — Managing Director and Chief Executive Officer

Yes, it’s better, Vivek. Can you just confirm your second question was it number of days for, just repeat that a bit.

Vivekanand S — Ambit Capital — Analyst

So once the merger approvals are in-place, how many days will be shared, be delisted, do you have clarity on that? And the related question in this context is, have you engaged with your institutional shareholders who have to report — they report their mark-to-market on a daily basis. So, what’s the status from their compliance teams to understand whether they will be able to hold-on to the shares comfortably and how does it work for their reporting perspective? Thank you.

Punit Goenka — Managing Director and Chief Executive Officer

Is that five to six-weeks and engagement with the institutional shareholders, Mahesh?

Mahesh Pratap Singh — Head of Investor Relations

So, at this stage, Vivek, we haven’t had specific concerns or feedback on the timeline, of course, as things progress, we will continue to remain engaged and will continue to articulate this, but at this stage there is not anything which we will gather which is overly significant to talk about.

Vivekanand S — Ambit Capital — Analyst

Okay, thank you. I’ll come back in the queue.

Operator

Thank you. The next question is from the line of Abneesh Roy from Nuvama Institutional Equities, please go ahead.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Yeah. Thanks. My question is on ZEE5, so one part is on the significant improvement in rating in both Android and iOS. What does this translate in terms of impact on say revenue or the subscriber base, it’s good to see that number, but isn’t content the most important thing? Second bit is, last year the run rate quarterly loss run rate was more like INR190 crore to INR200 crore, now this quarter is around INR276 crore. So is this a number we should build for the balance two quarters also in terms of loss?

Punit Goenka — Managing Director and Chief Executive Officer

Yeah, Abneesh, so, the improvement in ratings what it does is that it gives you immediate download is already on the app, when a consumer comes and sees a rating of below four, the likelihood of him downloading the app is low. And therefore that is the first hurdle that is in trough. Of course, after that content is the most important thing for the consumer to convert from just on the downloads to actually becoming a subscriber. But ratings on the app store is very, very important and crucial. Yeah and on the run rate of the — for the current year, yes, that’s I think what you should factor in. But obviously post this next year we expect it to plateau and then come down.

Mahesh Pratap Singh — Head of Investor Relations

Also, Abneesh, this is Mahesh, just to add-on the content reading as well when you look at and I think both Rohit and PG alluded to it, lot of our recent shows content performance has also been very healthy, when you look at on Zee5 something like [Indecipherable] or something like Rangbaaz or TripLink [Phonetic]. So there is equally part of recognition and validation of content as well when you look at the ratings on third party rating site.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Sure. Thanks. My second question is on the viewership rating good to see, finally, it’s turning around and just is reasonable start, but still versus pre-COVID, there is still a lot of gap available. So wanted to understand on the Tamil and Hindi, now are you fairly confident or are these very initial days so we need to — we need a bit more and you also mentioned on Marathi it is still WIP. So if you could tell us what has done well in Tamil and Hindi, is that possible to replicate in Marathi to reverse there also?

Punit Goenka — Managing Director and Chief Executive Officer

So, both in Tamil and Hindi it is basically implementation of picking the right shows, that has worked for it and NB particularly both fiction and non-fiction have done well for us. Tamil is still largely fiction driven and we are pretty confident that these will now continue to grow from here, they are stabilized at this level and all in should see more growth coming. In Marathi, as I had mentioned in the earlier calls also, Abneesh, because the implementation issue and a team issue, a lean team has been put in place about a quarter back, they are working on the plans for getting the turnaround happen in Marathi also. I’m quite hopeful that in the next couple of quarters we’ll see something turnaround there.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Sir, one follow-up was on the NTO 2 in your opening remarks, so that has kept on getting delayed, so what was the reason for delay this time and industry is quite capable of putting forth is viewpoints being the fourth estate. So why we are not seeing any success, any resolution here either way, so when can we see this getting normalized because then only you can start thinking of normalcy and growth in this part of the business.

Punit Goenka — Managing Director and Chief Executive Officer

NTO, reason for delay, I don’t know what TRAI was planning to do, but as I understand it from informal sources that they were trying to build consensus amongst all the stakeholders. And as you understand consensus in this industry between broadcast and cable operators or DTOs is not easy to build. I think that is largely reason for delay. My view is that, they have finished with all the discussion raising, so we should see the NTO guidelines come out anytime now. And as Mahesh mentioned that 28 February is the deadline they have kept. And we’re quite confident that they will not lift this deadline.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Okay, Punit. Thanks, that’s all from my side.

Operator

Thank you. The next question is from the line of Kunal Vora from BNP Paribas, please go ahead.

Kunal Vora — BNP Paribas — Analyst

Yeah, hi. Thanks for the opportunity. My first question is on the ICC events right, can you talk about the amount you will be paying and the returns that you expect and which channels the content will be broadcasted in? Also the cash which who much who will, what’s the plan to deploy that?

Punit Goenka — Managing Director and Chief Executive Officer

Yeah, so ICC the amount is confidential, we are not on a position to declare it right now. But as and when we have those clearance from ICC, we will share that with you. If the merger happens, Kunal, then you know that we will have a formidable sports network in the merged group. And there’s no reason why we would not use that as the platform. In the unlikely event that the merger does not take place, we will have to launch some channels.

Kunal Vora — BNP Paribas — Analyst

Okay. And my second question is on inventory, which is a further increase in the first-half, it’s gone beyond INR7,000 crore. Where does that — at what level that is stabilized, when do you expect it to start moderating and also in terms of accounting policies on inventory, have you engaged with Sony and are there any differences in the inventory accounting, is there like possibility that you might have to write it down at some stage, that’s it from me.

Punit Goenka — Managing Director and Chief Executive Officer

I’ll let Rohit answer the first part, I’ll take the second.

Rohit Gupta — Chief Financial Officer

Yeah, let’s say the inventory increase like I said in my opening remarks primarily is on account of you know the movies that have been added during the quarter. So a number of movies have been added and the monetization is generated if now. To your question whether the levels will remain? I think for at least couple of quarters, yes, we will keep, we’ll have to invest into digital content, but like I’ve said earlier also. We want to actually you know have the inventory additions only to the extent that we amortize, so that the inventory actually stabilizes at a certain point. Regarding the policy with Sony, maybe, yeah, so all the accounting policy with Sony, I can confirm that there are differences and the differences are largely on the movie side, KPMG that is growing the entire road for Sony and Zee is engaged on that exercise as we speak closer to the merger getting completed, we’ll come back to you as to what will be the quantum on that value.

Kunal Vora — BNP Paribas — Analyst

Okay, thanks. Just one last question if I can on Zee5, your costs have increased almost 50% year-on year. What are your thoughts in the main area of investment and how should we look at the cost increase going forward?

Punit Goenka — Managing Director and Chief Executive Officer

There are only three areas of major increases in ZEE5, Kunal, this is basically technology content and marketing.

Kunal Vora — BNP Paribas — Analyst

Yeah, but what kind of increase should we expect going forward because while the revenue is increasing the cost is increasing at even higher pace, but when do we start the cost stabilize and revenue like continue to move up driving improvement in performance?

Punit Goenka — Managing Director and Chief Executive Officer

As I said earlier to, on earlier question I answered that for next couple of quarters the loss revenue will be where it is at quarter two, after that it will plateau for some time and then you’ll start to see it falling.

Kunal Vora — BNP Paribas — Analyst

Okay. Thank you, thanks, Punit. Thank you.

Operator

Thank you. The next question is from the line of Sanjesh Jain from ICICI Securities, please go ahead.

Sanjesh Jain — ICICI Securities — Analyst

Thanks for the opportunity and good evening to everyone. First from the ad revenue, just wanted to understand now that this time the festive season was early and we had a positive rating improvement as well. I understand the headwind from not having the FTA channel, but I thought that the tailwinds from these two are much even stronger and the point is there is a decline on a Y-o-Y basis. Do you still think that the sentiments are weak enough and how should we see then for the H2 because I think some part of the festive season already started in the Q2 itself, yeah that’s my first one.

Punit Goenka — Managing Director and Chief Executive Officer

No, you’re right, Sanjesh, sentiments work in Q2 and this is largely driven on the back of the CPG or the FMCG companies, taking a hit on their volumes because of the pricing of the input cost. So therefore it was weak in the Q2 itself, yes, you’re right, Q3 started-off very well with government being good, but there are headwinds again that we’re seeing in the [Technical Issues] etc.

Sanjesh Jain — ICICI Securities — Analyst

And this overall scheme of thing, the things we will have a flattish this year in terms of advertisement revenue?

Punit Goenka — Managing Director and Chief Executive Officer

I think we will see some marginal growth, Sanjesh, basically.

Sanjesh Jain — ICICI Securities — Analyst

Great, sir. Second on the capital allocation towards movie, till now at least Hindi movies are not performing very well. And we also mentioned in our initial remark that we are dragging a bit on the margin. Are we re-thinking on our capital allocation towards movie? What’s the thought process there?

Punit Goenka — Managing Director and Chief Executive Officer

We are rethinking or re-studying our movie portfolio strategy and maybe rejig the capital allocation within that. So instead of spending a lot more on let’s say Hindi for example, do we want to spend little bit more on the regional languages which are doing much better than the Hindi side. But we’ll be completely look at reducing capital allocation to movies, no that’s not yet to confirm.

Sanjesh Jain — ICICI Securities — Analyst

Got it. One related thing, correlating it with the inventory, I thought we were investing a lot of more in the music, so we have to buy lesser movies from the market, but our movie inventory within the — our inventory continues to rise. So how should we see this, the movies which we are making and buying so much of movies from the market, it’s more to feed the digital or it takes to fill the rating, so what’s driving that kind of investment in the inventory as well?

Punit Goenka — Managing Director and Chief Executive Officer

It’s predominantly digital, Sanjesh, if you look at the last quarter, on the ZEE5 platform, we released almost 60 films across languages. So that is the animal that you have to feed and that’s what is driving the movie now.

Sanjesh Jain — ICICI Securities — Analyst

Great, great. So at A&P spend rise this quarter sequentially also is because of the movie launches we have done or what’s driving that cost line item?

Punit Goenka — Managing Director and Chief Executive Officer

Yes, yes, you’re absolutely right, it is a movie that is driving them.

Sanjesh Jain — ICICI Securities — Analyst

Okay. Thanks, thank you, that’s it from my side and best of luck for the coming quarter.

Punit Goenka — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Abhishek Kumar from JM Financial, please go ahead.

Abhishek Kumar — JM Financial — Analyst

Yeah, thanks for taking my question. Actually most of my questions have been answered, just couple of more. So one on Zee5, I think we have taken — last quarter if I’m not wrong. So I mean how much of the growth can be attributed to just for price and lease and how much of it is actually in a user, that is question number one. And second on music, I mean I think in the opening remarks, as you mentioned, INR32 crore impact on EBITDA. So just want to understand a bit more, is it a change in amortization because that is the case then probably incrementally also we will have some impact. And if you take that out looks like on a Q-o-Q basis also the margin is flat. So how should we look at the margin going forward for the second half and probably if you can give a direction of when can we go back to normalized levels going forward?

Punit Goenka — Managing Director and Chief Executive Officer

So the Zee5 price hike contribution of those two that is miniscule, we said because we account for the revenue on a realized basis not on receipt basis. So even if you take INR100 price hike that will see attributable very limited on a one month basis. So therefore the growth on the fee side subscription is pretty much coming on the back of new subscribers. I’ll take the last one, but then music I will tell Rohit to answer. So on the margins, I think this year we should not expect any normalization of margins like we used to have at 25 — 24%, 25% levels. This year will be subdued returns of margins because unlike last year when the margins came under pressure we significantly cut costs and that is further impacted the arrival of our channels market share. So this year we have consciously taken a decision not to cut the cost down to the bone and leave some on, so that we have a LV entry into the next year when the things are more doddle.

Rohit, music?

Rohit Gupta — Chief Financial Officer

So Abhishek on the music like I mentioned in my opening remarks, we were actually estimating and amortizing the music inventory in free. And like how we reassess all our investments periodically, we’ve also reassessed music, we have best marked with various Indian companies and global companies and we’ve seen that most of them are — actually the amortization happens between 10 to 25 years. And therefore you know, we have changed this from three years to 10 years. The impact of that one-time impact in this quarter is INR32 crores, there will be some impact, but it will not be of course, it will not be that substantial in the coming quarters.

Abhishek Kumar — JM Financial — Analyst

Sure, thanks. One last if I may, what is this exceptional item in the P&L?

Rohit Gupta — Chief Financial Officer

Yeah, so I’ll take that one. See the exceptional item has two components to it, so — the one is the continuing provisions that we make for the industrial guarantee that has been given for Sippi, whatever the amount becomes due every quarter, we continue to provide for it and then disclose it every quarter in our quarterly accounts. So INR16 crores is that. And then secondly, obviously, give the right disclosures, whatever merger-related expenses are there, that also we account for separately and show it as exceptional items.

Abhishek Kumar — JM Financial — Analyst

Sure. Thank you and all the best.

Operator

Thank you. The next question is from the line of Jinesh Joshi from Prabhudas Lilladher Private Limited, please go ahead.

Jinesh Joshi — Prabhudas Lilladher — Analyst

Yeah, thanks for the opportunity. I have a question on the FTA withdrawal side. I found this is the second quarter oops to FTA withdrawal. So can you highlight where are we in terms of regional equipment especially on the subscription side or given that suppose an FTA channel pricing would have been lower as content not be as fresh. So that’s the type of content finding it depends on the PD side. I just thought of asking this because I mean adding just lot from FTA is also what is the reason that’s why our overall EBITDA margins have been slightly lower over the last two quarter, yeah, your thoughts on that.

Punit Goenka — Managing Director and Chief Executive Officer

Yes, Jinesh, the FTA channels that we’re running, they were running reruns of our pay channels and because the FTA universe doesn’t get the pay channels, for them it was like fresh content. The moment we just put this content on the pay ecosystem, the audience has already seen it or it’s dated, it’s dated by almost a year. So therefore just not finding any traction there.

And therefore I don’t think that would have had any impact on that side.You’re right that a large part of the FTA revenue shows directly down to the bottom line and has an impact on our EBITDA.

Jinesh Joshi — Prabhudas Lilladher — Analyst

Since we are not able to find a recoupment from the subscription site, what would have been the region of withdrawing it from the FTA as such?

Punit Goenka — Managing Director and Chief Executive Officer

Jinesh, if you would block the subscription — subscriber number for the DTH industry over the last two years, you will see the rapid fall that they have written us, it has gone from 58.7 million some subscribers down to 53 million odd subscribers. This was the sole reason for us to withdraw because we were seeing a lot of the deep subscribers migrate to DT field.

Jinesh Joshi — Prabhudas Lilladher — Analyst

Okay, sir. And I just need one small clarification, I think this was explained previously as well, this is with respect to this INR32 crores of EBITDA bump-up which we have seen in this quarter due to change in the accounting policy from three years to ten years, but if you can just highlight the reason behind it because suppose three years the revenue and cost proportion happened over that time frame and now it will happen over a ten year time frame. So, how does this actually meet to a bump in EBITDA?

Rohit Gupta — Chief Financial Officer

Yeah, so I just actually responded to this query before, let me repeat it, Jinesh. So for the like I said for the music investments and the songs that we acquire, we were actually amortizing them over three years. And when we have benchmarked this with all other players and also seeing the revenue profile and all the revenue accrues, we realize that you know clearly, actually not the right time frame. And we have now changed it to 10 years. So there is — because there is an opening inventory, so there is a one-time impact that we have of INR32 crores in this quarter and that’s why this has disturbed. Going forward the impact because we do not add that much music inventory as compared to our other movies and so on, the impact will be much lower.

Punit Goenka — Managing Director and Chief Executive Officer

So, Jinesh, there is also the fact that because we were new entrants into the music business, we did not know what the global practices were. And this was then discussed with our auditors, they did an extensive exercise and told us that the natural amortization for music is between 10 to 25 years. So we’ve taken the lower of what the global standard is.

Jinesh Joshi — Prabhudas Lilladher — Analyst

So basically to sum it up, inventory adjustment has led to this EBITDA bump right?

Rohit Gupta — Chief Financial Officer

Yeah, you can say that, yeah.

Jinesh Joshi — Prabhudas Lilladher — Analyst

Okay, thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Aditya Chandrasekar from UBS, please go ahead.

Aditya Chandrasekar — UBS — Analyst

Yeah, hi. Couple of quick question. So on the subscription side after we withdrew from FTA have we seen a reduction in churn as and in terms of users moving from PayTV to FTA not necessarily fuzzy, but for the industry as a whole sense all broadcasters have kind of pulled out of FTA. And a related question, so we have a 7% Q-o-Q increase in subscription revenue, so is that mostly coming from digital or has linear side also grown a little bit?

Punit Goenka — Managing Director and Chief Executive Officer

No, significant or maximum part of it is coming from digital. Linear has not shown any growth. What we have seen on the first question on the reduction in churn, absolutely the churn has been reduced, the subscriber base is now stable at the 53 plus mark, in fact in September if I remember I saw 53.8. So it’s a healthy sign. We were hoping it will increase but that is not translated yet, let’s say industry is going to wait-and-watch before we take a decision what way we want to go.

Aditya Chandrasekar — UBS — Analyst

Got it. And I’m sorry, one more question, I dropped off for a few minutes, so I missed it. How many days when the stock be delisted for in the merger process?

Punit Goenka — Managing Director and Chief Executive Officer

Five to six weeks.

Aditya Chandrasekar — UBS — Analyst

Five to six weeks?

Punit Goenka — Managing Director and Chief Executive Officer

That’s fairly long, I’m just quoting what is in the policy.

Aditya Chandrasekar — UBS — Analyst

Okay, got it. Yeah, that’s it from my side, thanks a lot.

Operator

Thank you. The next question is from the line of Arun Prasad from Spark Capital, please go ahead.

Arun Prasad — Spark Capital — Analyst

Thank you. My first question is on synergy is 84 [Phoentic] I’m sure you have touched upon this many times quantitatively, but qualitatively what is pulses of getting from say distribution partners or advertisement again these advertisers. Can you give some update on that qualitatively? And which are those areas we will be prioritizing or?

Punit Goenka — Managing Director and Chief Executive Officer

Yeah, Arun, it will be largely revenue driven and we are expecting about 6% odd percent synergy benefit of Zee revenues, Zee alone revenue. And if you look at on a combined basis, it will be between 3% and 4% of the combined much close revenues. The area is obviously the most lucrative area is the advertising and based on how the new NTO shapes up and how we bring the two bouque’s together, we’ll determine whether even in a subscription we can see a bump-up, but right now we got factored that in this is largely driven from the international market, digital business and the advertising.

Arun Prasad — Spark Capital — Analyst

And on advertising it is more on the EV side or the inventory filling, how we should look at it because…

Punit Goenka — Managing Director and Chief Executive Officer

Combination of both.

Arun Prasad — Spark Capital — Analyst

Combination of both? Understood. Second question is on the movie production in that in-line with the previous participant’s question. I’m sure that it’s a contentious decision because it’s always build versus acquire, but unlike other markets in India we have, you don’t have that much dependent on the Hollywood and we have no list of companies that are producing movie in this country. So wouldn’t it make sense more, more sense to buy rights post the digital release so that we only pay for the content that is like the audience at large and how we should look at it quality versus quantity balance, isn’t it more towards quality and how it has impacted so far your acquisitions and user acquisition at Zee5?

Punit Goenka — Managing Director and Chief Executive Officer

Unfortunately the industry doesn’t work that way because these movies get sold even during production. And if we were to wait for the film to be released in theater and then take the chance of buying the film, there is a risk to that as well. So therefore the industry is behaving in a manner that it does therefore we have to participate and play the game as per the industry. And our view is that we would also like to continue to build and buy as little as possible at times that’s not possible, but we are working on that side.

Arun Prasad — Spark Capital — Analyst

Okay. So what will change this scenario, what will change — what will make you to revisit this movie production business because lot of capital seems to be getting wrong in this business and also negative in terms of margin?

Punit Goenka — Managing Director and Chief Executive Officer

Well that is being — it will be diluted to margin we knew always, that is not the factor which will make us decide whether to be in this business or not. I think what we will decide is, what kind of films we want to participate in and what kind of language and what is our capital allocation to languages, based on how the box office is performing market-by-market, so that will what will help us in realigning or rethinking our portfolio approach.

Arun Prasad — Spark Capital — Analyst

Okay, thanks. I’ll get back to queue.

Punit Goenka — Managing Director and Chief Executive Officer

Thank you, Arun.

Operator

The next question is from the line of Himanshu from Dolat Capital, please go ahead.

Himanshu Shah — Dolat Capital — Analyst

Yeah, thanks thanks for the opportunity. Sir, can you just let us know the contribution of three channels that we will let go off in terms of their viewership share and contribution to add revenue?

Operator

Himanshu, we’ve lost your lost connection. [Operator Instructions] Yes please go ahead, Himanshu.

Himanshu Shah — Dolat Capital — Analyst

Yes, thank you. Sir, can you just let us know the contribution of three channels that we will let go off as part of merger, their contribution to our current viewership share and ad revenue count?

Punit Goenka — Managing Director and Chief Executive Officer

The ad revenue part I cannot share, it is confidential. As you understand that we have to still go and divest these channels. The viewership share is about 1%, all India level.

Himanshu Shah — Dolat Capital — Analyst

Okay. Fine, sir. That’s it from my side, thank you.

Operator

Thank you. That was the last question for today. I now hand the conference over to Mr. Mahesh Pratap Singh for closing comments.

Himanshu Shah — Dolat Capital — Analyst

Thanks, Sanghvi. Thank you everyone for your interest and thanks for joining us today. We hope all your questions were answered. Should you have any further clarification or questions, feel free to reach out to us. Thanks again and look forward to speaking with you post our Q3 earnings.

Operator

[Operator Closing Remarks]

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