There is significant difference in margins between Sun and Zee. Our analysis suggests that Sun’s margins when adjusted for the difference in accounting are only ~8-10% higher than Zee's.
The two key differences are: (1) the accounting for movies, whereby Zee charges them over a five-year period but does so above EBITDA, whereas Sun amortises it the first time a movie is shown; and (2) outsourcing of content by Sun—which means only a third of the advertising revenue on prime-time slots gets captured in its revenue, thus lowering the base on which margins are calculated.
While advertising it own serials and content accounts for ~5% of revenue for Zee, these costs are very small for Sun as Sun does not advertise much for its shows.
Zee also has a few sports channels in its bouquet which are a loss making proposition.
BUY Sun TV Around between Rs 385 to Rs 400 and ZEE Entertainment between Rs 180 to Rs 195.
