Zee Telefilms Ltd today announced its third quarter results (ended December 31, 2001). The Income from sales and services has gone down by 18 per cent from Rs 1031.2 million to Rs 853.3 million in Q3. Other Income (Interest) has gone up from Rs 101.6 million to Rs 165 million. Net profit has taken a hit. It has gone down by 25.64 % to Rs 239 million from 321.4 million in last corresponding quarter.

Sales declined to Rs 853.3 million from Rs 1031.2 million last year, probably because advertising revenues were hit badly as none of the Zee shows made any impact on the ratings charts.

NO RATINGS LINKED AD DEALS: On the issue of ratings, Sandeep Goyal, Zee Group Broadcast CEO Sandeep Goyal, has gone on record to say that as of 1 January 2002, all advertising deals would be delinked from ratings. Goyal's argument is that the ratings do not adequately reflect the performance of Zee's shows. He further stated that this would help in reducing spot bonuses. This is a complete turnaround in ad sales strategy from the deals that were entered into at the time of Zee TV's grand relaunch of 27 August 2001, when a lot of inventory was sold with a commitment to deliver a minimum TRP level.

PROGRAMMING COSTS: On the programming front costs for Zee TV have gone down by a huge 42 per cent from Rs 490.9 million in DQ 2000 to Rs 284.5 million in DQ 2001. This is certainly surprising because though the only launches of note during the quarter were the mythological Mahabharat and Jai Santoshi Maa, these are high cost productions. And servicing programmes like Aap Jo Bolein..., Sarhadein and Chotti Maa to name just three of the shows on air would appear to require substantial monies.

The channel's explanation is that during the quarter, the overall programming cost of the network remained under control with a better mix of cost effective programmes under the various genres like soaps, sitcoms, talk shows, game shows, interactive shows and musicals.

Odd though because the average per quarter programming cost for the last six quarters has been around RS 450 million so how this massive cost cut was achieved remains a mystery.

INTEREST: The interest burden, meanwhile, has gone up from Rs 28.7 million to Rs 160.5 million, a whopping 550 per cent increase. It may be recalled that after the Q2 results were declared, Rajesh Jain, president, corporate finance & strategy, Zee Telefilms, when asked how far the Ketan Parekh factor worked towards increasing the interest burden, had admitted it was a factor. He had however pointed out that the major cost increase was because of capital costs incurred for purchasing set top boxes and other equipment for the company's DTO project. The amount was between RS 700 to RS 800 million, Jain had said then.

ZEE NETWORK'S RESULTS: The Zee Network's consolidated results are also not too attractive. Even though the total income has gone up by 11 per cent to Rs 2957.6 million from Rs 2654.8 million in the last corresponding quarter, it is largely because of the healthy growth in subscription revenues. Revenues went up 72 per cent from Rs 523.1 million to Rs 901.9 million.

Sales and services were up by 16 per cent from Rs 143.8 million to Rs 167.4 million.

Ad revenues are the most worrisome part of the results though. It has gone down by 8 per cent from Rs 1871.6 million to Rs 1721.4 million.

On the expenses front they have gone down marginally by 3 per cent from Rs 1902.3 million to Rs 1843.2 million. Profit after tax however has gone up 10 per cent to Rs 521.1 million from Rs 473.8 million.

In today's trading on the Bombay Stock Exchange, the Zee Telefilms scrip was steady with volumes of just over 4 million shares. The share opened at Rs 127 and moved between a narrow band of Rs 129 and Rs 121 and closed at Rs 125.15. The BSE's Sensitive index was down by .01 per cent at the end of the day's trading at 3348.

LOOKING AHEAD: While the the company remains cautiously optimistic on the advertising revenue front, there doesn't seem to be any great prospects of the current situation changing dramatically. Aside from the mythos, only action reality show Romance Adventure Aap Aur Hum (Raaah) is new on the Zee plate. And these certainly do not look like providing the viewership turnaround that Zee is looking for.

The plus is that Zee has undertaken an internal organisational restructuring for better business and revenue mix, which it expects will positively reflect through improved efficiency and delivery.

The company has also undertaken corporate restructuring of its business under various holding and operating subsidiaries and aims to reduce the number of subsidiaries. This will also bring better operational efficiency and better corporate governance compliance. During the quarter, the company also initiated steps for starting a separate encrypted broadcast beam for Zee TV in the Middle East, Pakistan, Bangladesh and Nepal, which will open up these markets for advertising and for enhanced pay revenues. The separate beam allows Zee TV to tailor content to coincide with the prime time in different markets, while concurrently valuating air-time inventory at locally relevant and competitively attractive rates.

Domestic up-linking is expected to have a positive impact, both by lowering costs and improving efficiency as well as by higher revenues through a larger client base.