MOSL: ZEE ENTERTAINMENT (Buy)-ZEE launches digital app – ZEE5

Zee Entertainment: ZEE launches digital app – ZEE5

(Z IN, Mkt Cap USD8.4b, CMP INR571, TP INR705, 23% Upside, Buy)

• Zee Entertainment (ZEE) has launched its digital platform ZEE5, with 8-9 original titles across genre and languages to start with. It targets to subsequently come up with six original titles every month. Viewers can subscribe to this service at a promotional offer price of INR99/month – at ~50% discount to Hotstar’s pricing.
• We believe the incremental cost toward ZEE5 could be INR500-700m, implying an 80-100bp impact on the EBITDA margin. Despite this, we believe it can improve the EBITDA margin by 200bp over FY18-20, led by healthy operating leverage.
• We assign 35x P/E on Dec’19E EPS of INR20 to arrive at a TP of INR705. Maintain Buy.

Focusing on original content to benefit from shift toward OTT consumption

• ZEE has launched its digital platform ZEE5 – a move that will merge its current free content TV digital app Ozee and subscription-based digital app Ditto. The app plans to combine original and exclusive content, targeting the young audience. ZEE5 would offer content across genre and languages, catch-up and live TV, movies and English shows/movies, with a huge library of over 1 lakh hours. This is a big positive for ZEE as it fills one of the key product gaps, placing the company in line with Hotstar and other top original content providers in the OTT space. It would also allow ZEE to capitalize on the shift toward OTT consumption in India.

 Offering original content at initial price of INR99/month

• ZEE5 initially will have 8-9 original titles, including short movies and web series. Of these, three shows are in Hindi and rest in regional languages (Bengali, Telugu, Tamil, Malayalam and Marathi). ZEE plans to add at least six new titles (web series, short movies) every month across genre and languages. This implies ~80-100 hours of original content – which is quite significant, in our view. ZEE5 will be offered at a promotional price of INR99/month, as against Hotstar monthly subscription at INR199, Netflix at INR500/month, Sony LIV at INR40/month and Balaji ALT at INR25/month. TVF Play and Voot offer ad-based free content.