Table of Contents Premia Research NSE Table of Contents Page No. Sectoral Outlook 2 Key Global markets trends 3-7 India’s growth on global trends 8-11 Favorable factors for sector 12-14 Digitization to drive mid-term growth 15-16 OTT platforms in India and its Impact 17-18 Zee Entertainment Enterprises Ltd 19-24 Sun TV Network Ltd 25-30 Shemaroo Entertainment Ltd 31-35 TV Today Network Ltd 36-40 Disclaimer 41 1 | P a g e Weaving a digital story Premia Research Zee Entertainment Enterprises– BUY The ‘Digital’ wave in India (as a medium of entertainment) on the back CMP Target Upside of higher internet penetration will drive the next leg of growth for the 539 691 28% Media and Entertainment (M&E) industry. The launch of Jio has made Sun TV Network – BUY mobile data accessible and affordable for masses (avg. mobile data CMP Target Upside price has dipped from ~`200/GB two years back to `3.2/GB currently). 782 984 26% Further, rising internet subscribers (from ~45cr in December, 2017 to Shemaroo Entertainment – BUY ~83cr in FY21E) coupled with declining internet costs is leading the CMP Target Upside consumption pattern towards digital. Moreover, with advent of Over 481 580 21% the Top (OTT) platforms, content has become an ‘Anytime, Anywhere’ TV Today Network – BUY service, benefiting broadcasters and content aggregators/producers. CMP Target Upside Robust internet consumption to propel digital growth 412 517 25% Prices as on 02/07/2018 Given the favorable infrastructure, the total Indian mobile data Financials (`cr) traffic/month is expected to increase to 14 Exabyte (EB) by CY23E ZEE Enter. FY19E FY20E (2.4EB in December, 2017). Moreover, rising affordability of devices Rev. 7,868 9,190 and falling data cost would result in ~3x growth of the digital platform EBITDA Mar (%) 31.4 32.1 subscribers over CY17-20E. Hence, digital subscription revenue would PAT 1,738 2,076 P/E x 29.8 24.9 register CAGR of 72.7% over CY17-20E. Sun TV FY19E FY20E Advertisement spends to shift towards digital Rev. 3,515 4,062 The rising online video viewing audience in India is expected to EBITDA Mar (%) 68.1 67.4 increase at CAGR of ~26% over CY17-20E to ~500mn, resulting in PAT 1,401 1,649 higher time spent on internet. The trend of rising online video P/E x 22.0 18.7 consumption would lead to higher advertisement spends in the digital Shemaroo FY19E FY20E Rev. 566 635 space. Hence, digital advertising revenue would grow at CAGR of 21% EBITDA Mar (%) 29.9 30.4 over CY17-20E and is projected to contribute ~22% of total advertising PAT 99 113 revenues of M&E sector in CY20E (~17% in CY17). P/E x 13.2 11.6 We prefer (1) Zee Entertainment Enterprises, owing to launch of ZEE5 TV Today Net. FY19E FY20E (OTT platform) with strong content inventory (1,00,000+ hours) and Rev. 786 871 EBITDA Mar (%) 29.1 30.1 portfolio of channels; (2) Sun TV Network, a similar player in south PAT 154 183 region with digital platform SunNXT (4,000+ movies) and stable P/E x 16.0 13.4 financial position aiding its expansion plan; (3) TV Today Network, Source: IIFL Research given leadership of its flagship brand AajTak and acquisition of digital Analyst – Tushar Jain business from parent; and (4) Shemaroo Entertainment, considering [email protected] its huge content inventory (3,400+ titles) driving robust growth of its July 03, 2018 digital segment. 2 | P a g e Key Global markets trends Premia Research Global internet users reached 3.6bn in CY17 Favorable infrastructure combined with rising affordability of devices is driving overall internet consumption globally. Further, overall cost of internet is also declining and global internet penetration has reached ~49% in CY17 from ~24% in CY09. Exhibit 1: Rising global internet users 400 16 14 300 12 10 200 8 6 100 4 2 0 0 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 Global Internet Users (cr) LHS yoy growth (%) RHS Source: Internet Trends 2018, IIFL Research Rising digital media usage in developed countries The hours spent (daily basis) on digital media grew at CAGR of ~9% to ~6hours over CY08-17 in US. This growth is led by time spent on mobile, which grew at CAGR of ~31% over the same period. The advertisement spends have followed the consumption pattern and mobile internet advertising revenue stood at $49.9bn in CY17 in US compared to negligible in CY08. Exhibit 2: Daily time spent on digital media in US (hours) 7 6 5 4 3 2 1 0 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 Other Connected devices Desktop/Laptop Mobile Considered adult users only Source: Internet Trends 2018, eMarketer, IIFL Research 3 | P a g e Key Global markets trends Premia Research Exhibit 3: Internet advertising growth in US (US$ bn) 100 90 80 70 60 50 40 Facebook’s annualized revenue per 30 daily user reached to US$34 in Q1CY18 20 from US$ 16 in Q1CY15 10 0 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 Non Mobile Mobile Source: IAB internet advertising revenue report 2017, IIFL Research Investment in content leading to subscriber addition Leading Global digital M&E company, Netflix’s content cost has increased at CAGR of 23.9% over CY12-17 and subscribers have grown from 33mn to 117mn over the same period. However, same has helped the company in attaining a revenue CAGR of 26.5% over CY12-17. Hence, adaptability and ability of a company to produce relevant content and predict customer behavior is of vital importance for the digital industry. Exhibit 4: Netflix subscribers (mn) 140 120 100 80 60 Continuous focus on relevant content 40 has led to rapid geographical 20 expansion 0 CY12 CY13 CY14 CY15 CY16 CY17 US users Rest of the world Source: Netflix, Valuewalk.com, IIFL research Geographical expansion In CY10, Netflix launched its services in Canada, while in CY12, it became available in Europe (including UK, Ireland and Nordic countries). Further, in CY15, it was launched in Australia and New Zealand and since CY16 onwards, Netflix is available worldwide. 4 | P a g e Key Global markets trends Premia Research Exhibit 5: Netflix’s financial highlights (US$ mn) 12,000 10,000 8,000 6,000 4,000 2,000 0 CY12 CY13 CY14 CY15 CY16 CY17 Total revenue Content cost Operating income Source: Netflix, Bloomberg, IIFL Research Staying relevant is the key This FAANG (Facebook, Apple, Amazon, Netflix, Google) stock with Market Cap of ~US$170bn has managed to grow by staying relevant to the market and transforming its products according to consumer preferences. M&E sector, one of the highest dynamic sectors, demands huge degree of prediction of consumer behavior and their responses to technological changes. Netflix Timeline From a DVD rental company to FAANG stock, Netflix has managed to become Year Event/Initiative Reed Hastings and Marc Randolph co-found Netflix to offer online world’s biggest entertainment 1997 company by staying relevant movie rentals 1998 Launches the first DVD rental and sales site, netflix.com Debuts a subscription service, offering unlimited DVD rentals for one 1999 low monthly price Introduces a personalized movie recommendation system, which uses 2000 Netflix members’ ratings to accurately predict choices for all Netflix members Makes its IPO on Nasdaq under the ticker “NFLX” with 600,000 2002 members in the US Introduces streaming, which allows members to instantly watch 2007 television shows and movies on their PCs Partners with consumer electronics companies to stream on the Xbox 2008 360, Blu-ray disc players and TV set-top boxes Partners with consumer electronics companies to stream on PS3, 2009 internet connected TVs and other internet connected devices Netflix is available on the Apple devices, the Nintendo Wii, and other 2010 internet connected devices 2013 Launches its first original content “House of Cards” 2016 Netflix is available worldwide Source: Netflix, IIFL Research 5 | P a g e Key Global markets trends Premia Research Better quality of content leads to higher paid subscribers Globally, subscribers are moving towards paid content. This can be witnessed by the rise in the revenues of key players like Netflix, Spotify, etc. Further, Global Music/Audio giant Spotify’s paid subscribers stood This conversion to paid subscribers is at ~45% of monthly active users (MAU) in CY17 vs. ~26% in CY14. dependent on user experiences Exhibit 6: Spotify subscribers (mn) 75 60 50 40 25 20 0 - CY14 CY15 CY16 CY17 Subscribers(LHS) % of MAU (RHS) Source: Spotify, Internet Trends 2018, IIFL Research Ad-spends to shift towards digital In CY17, proportion of daily time spent on digital media by an individual in US stood at ~49% of total time spent on media. While proportion of advertising spends on digital media in US stood at ~41% of total media advertising spends. Going forward, the advertisement spends would move towards digital from traditional media given the popularity and rising customer base of digital media. Exhibit 7: Time spent on media vs. advertising spending (US) 70 60 50 40 30 20 10 - Traditional media Mobile Other digital platforms % of time spent % of advertisement spent Source: IAB internet advertising revenue report 2017, emarketer, Statista, IIFL Research 6 | P a g e Key Global markets trends Premia Research China’s online video subscribers to increase 1.6x in 3 years China’s subscription Video-on-demand (SVOD) viewers are expected to reach ~234mn by CY20E (~144mn in CY17) aided by favorable internet infrastructure.