In the first quarter, the network’s ad de-growth was 60% while in the second quarter, the de-growth was 25-26% Even as TV broadcasters are bullish about the return of ad revenue to pre-COVID 19 levels soon, the top management at South India’s leading broadcaster Sun TV Network doesn’t share the same optimism. During the Q2 FY21 earnings conference call with analysts, the company’s top management didn’t mince words while stating that the company will see an ad revenue de-growth in FY21. In his opening remarks, Sun TV Network Group CFO SL Narayanan said that the industry, in general, has seen encouraging recovery signs in recent months.

“There has been considerable progress in the recovery of the overall market. The de-growth, which was 60%+ in Q1, has reduced to 25-26% in Q2. Subscription revenue continues to be strong. We have almost come to near normalcy in the production of all serials. The movie theatres are opening in a phased manner. We are stepping up activity in both content and movie production,” Narayanan told analysts. “Just one note of caution. We are still not out of the woods. The ad revenue market is still an uncertain game. We had considerably better prospects in Q3 as compared to Q2. But we still hold the view that this year, we will post a de-growth in advertising. There is a lot of optimism all around. People think that everything is behind us. We don't share that optimism yet.” While he is pleased that the Indian Premier League (IPL) did take place albeit, with a delay, he also noted that the IPL franchises will take a hit in profit this year. Sun TV Network owns the Sunrisers Hyderabad franchise of the IPL. “Each team will lose Rs 12.75 crore due to change in title sponsor. Vivo was paying Rs 440 crore per year, which came down to Rs 222 crore which is what Dream11 is paying. IPL franchises get 45% of the amount which translates to Rs 13 crore or less to each team. Loss in ticket sales will cost us Rs 25-30 crore. So, the profit margin will be substantially lower than last year,” he divulged. Sun TV Network president R Mahesh Kumar noted that October has been a good month for the broadcaster in terms of advertising. He also said that the fill levels are going up. “In terms of ad revenue, we have seen a sharp recovery. In the month of October, we have seen 80% of pre-COVID-19 levels and we are seeing encouraging trends. We are tracking very well as of now,” Kumar said. “Advertisement, we should see some better numbers as we go forward. If you look at month-on- month basis, we are seeing very traction in the fill levels and the festive season will be very optimistic and bullish.” In terms of advertiser mix, Kumar stated that the national advertisers led by FMCG comprise 95% of the total advertisers while the remaining 5% are retail advertisers. FMCG makes up 65% of the total advertising. OTT business Buoyed by Sun NXT’s revenue growth, the company said that it will be able to spend Rs 200 crore per year on original OTT content without incurring losses from the OTT operations. “We are making a decent margin on Sun NXT operation by keeping costs under control. We have been able to reach a significant monthly run rate on revenue. It's now possible for us to invest up to Rs 200 crore a year on the content exclusively for Sun NXT without reporting a loss on OTT operations,” Narayanan averred. He also said that the company will have to spend more on Sun NXT once it goes the whole hog as marketing, subscriber acquisition and CDN costs will go up. Narayanan revealed that Sun NXT has about 18 million active users but the bulk of it is on the back of tie-ups with other players. Pure organic subscription is just a fraction of it. The company will start working on original content as early as January 2021. Sun NXT originals are expected to roll-out in FY22. The focus initially will be on Tamil and Telugu content. “We will start originals with Tamil and Telugu and look at the other three languages in a phased manner. Tamil and Telugu will be a priority because if you look at South Indian diaspora, two of the biggest markets are Tamil and Telugu,” he added. He also said that OTT will be one of the fastest legs of the network’s subscription business. According to Narayanan, OTT will be subscription-driven and less of an ad model. Subscription revenue and NTO 2.0 Queried about the likely impact of NTO 2.0 on the broadcaster’s subscription revenue, Kumar said that the network is well placed, and it will not see any impact on the subscription revenue. “Even if NTO 2.0 is implemented, we will have very marginal or no impact at all. NTO 2.0 is not a concern for us as far as subscription revenue is concerned.” Pressed by analysts as to why the DTH subscription revenue has stagnated, Narayanan said NTO 1.0 had a role to play in it. “Earlier, we were selling bouquets to DTH operators. But NTO 1.0 came and disrupted everything. They forced us to price every channel and we had to price it accordingly to protect the erstwhile ARPU. It may seem like our DTH revenue has stagnated but if you see overall revenues, we are still growing at 13.5-14%,” he explained. He also noted that subscribers are taking fewer channels in the NTO 1.0 regime. “Some people are not taking additional languages because of the way the whole pricing mechanism has been revamped. What we are concerned about is that we should be able to protect a certain ARPU from the subscriber.” Narayanan stated that cable ARPU has gone up while the DTH ARPU has declined following the tariff revamp. “We have revamped our pricing because of which our ARPU from cable has gone up slightly whereas ARPU from DTH has gone down. Within DTH, there was a lot of homogeneity in pricing patterns. A la carte has completely changed the revenue character.” Content plan Kumar said that the network will rejig the programming on its flagship GEC Sun TV. The company is hopeful that Sun TV will bounce back and will grab 45-50% of the total viewership share of the market. He added that the broadcaster didn’t launch new shows during the IPL as it would have been a wasted effort. “We are rejigging our FPC and we are confident that we will bounce back to 45-50% viewership share for Sun TV. We have a very strong pipeline. Any show which is below a certain threshold will be removed and will be replaced with good content,” he said. The company is also removing producer slots from Sun TV and is planning to have 100% in-house produced shows on the channel. “We have very few private producer slots left. We have removed two more producers’ slot. Currently, 80% of content on Sun TV is in-house production,” Kumar said. Sun TV Network pioneered the programming slot sale model which helped it to keep content costs under control. Under this model, the company charges a fixed fee from the producers to air their shows in specific slots on Sun TV channels. In return, the producers are given a part of ad inventory to meet their costs and make a profit. However, rising competition and the emergence of OTT has forced the broadcaster to relook at the strategy and focus on owning IP. Movie production plan The company has a slate of eight movies which will be released next year. It will spend Rs 300-400 crore on these movies. “We have produced a movie during lockdown which will release during Diwali. We have eight movies under production. These are sure shot blockbusters with Rajinikanth, Dhanush, Vijay, and Surya. Our priority now is getting these movies off the block. We will spend Rs 300 to 400 crore in eight movies. These movies will be released between Pongal and next Diwali,” the management said. Q2 FY21 revenue break-up Sun TV Network's net profit for the quarter ended 30th September declined 5.62% to Rs 345.91 crore from Rs. 366.51 crore in Q2 FY20. Revenue for the quarter stood at Rs 756.16 crore compared to Rs 773.93 crore. EBITDA was up 7.10% at Rs 502.03 crore from Rs 468.74 crore. In Q2, the advertisement and broadcast revenue stood at Rs 245 crore while pay channel digital and DTH revenue were Rs 195 crore and Rs 232 crore respectively. The international revenue was Rs 37 crore. Revenue from IPL came in at Rs 45 crore.