ZOO recorded its fourth consecutive year of strong top-line growth, with revenues increasing 28% to USD 90.3m. Adjusted EBITDA more than doubled to USD 15.5m, and EBITDA margin increased to 17.1%.
Revenues from media localization (subtitling and dubbing) increased 34% to USD 56.6m, while the company’s media services segment contributed USD 32.1m, an increase of 22% from the previous year.
Within media localization, subtitling grew by 15% and dubbing by 73%. ZOO’s CFO, Phillip Blundell, told Slator that demand for dubbing grew strongly primarily because there was an increase in new productions in FY23 compared to FY22 (the early part of which continued to be impacted by Covid).
After putting in a strong performance in FY23, ZOO warned in its results that current trading is feeling the effects of a double blow from Hollywood.
Firstly, “cost-saving measures […] were initiated by several of ZOO’s largest clients beginning early 2023.” This has led to client-side headcount reductions, operational reorganizations, and, ultimately, “a temporary disruption of new title production and its distribution across streaming platforms.”
Hollywood on Strike
Secondly, ZOO noted, there is “the first simultaneous strike of US writers and actors in 60 years,” which is “temporarily having an impact on the current volume of localization and media services work on new titles that is being commissioned.”
It is unclear how and when the writers’ and actors’ strikes will be resolved. However, sooner or later streaming platforms will need to take action to fill the content void.
ZOO’s CEO, Stuart Green said the strike, if prolonged, could prompt content producers to refocus on their back catalogs — as they did during the pandemic — or license third-party content to keep content flowing through to audiences. But “we haven’t seen it yet on any scale,” he said.
Streaming platforms may also look to acquire content from countries unaffected by strikes, contributing to the longer-term demand for non-English content, which involves a wider range of source languages and simultaneously drives the need for localization into English.
Meanwhile, to capitalize on the local content trend, ZOO is continuing to invest in international expansion, with a focus on its new hubs in India, South Korea, and Turkey. In Europe, the company acquired a 30% stake in AM Group in Spain in 2023 and has a small office in Denmark. ZOO also raised USD 15.5m in a share placement in July 2023 to acquire a Japan-based media localization provider based in Japan.
AI Concerns and Opportunities
Discussing the AI-related concerns of the striking actors and writers, Green said “under current arrangements, an actor’s likeness or voice could be reused without their consent or compensation.” In the case of writers, matters of rights and ownership need to be clarified including “the rights to the material on which [large language models] are being trained and the legal position on anything that is essentially derived from such content.”
ZOO has also been exploring the application of LLMs and AI in its own operations. Green explained, “In a nutshell, our approach will be to use AI in a way that enhances current practices rather than displacing them.”
The company also shared its take in the results: “At present, while technologies such as ChatGPT may be effective in processing certain genres of media content (such as documentaries, where the commentary may suit a literal translation) or low value catalogs […] they are not viable for the type and caliber of content processed by ZOO.”
“Under current arrangements, an actor’s likeness or voice could be reused without their consent or compensation.” — Stuart Green, CEO, ZOO Digital
On the topic of automated (or machine) dubbing, ZOO said, “the technology is not currently capable of displacing traditional practices for premium entertainment content,” even though the quality of the output is improving.
With client-side cost-saving measures and writers’ and actors’ strikes leading to a slowdown in the production of new content by streaming platforms, it is little surprise that ZOO’s shares have suffered. ZOO’s share price has more than halved since the start of 2023 and its shares continue to trade well below the March 2023 peak. Investors were encouraged by the results, however, sending shares up by 5% on the day of the announcement.
Yet, ZOO is undeterred by the cost-saving initiatives being undertaken by many of its clients. Green pointed out that big buyers will likely streamline their international operations and centralize previously autonomous functions, which will see them move away from operating a big pool of subtitling and dubbing vendors in favor of a smaller pool of end-to-end providers, such as ZOO.
ZOO also remains confident of the long-term tailwinds both for the industry and its business, and expects normal levels of demand to resume in its second half. The company is pursuing its goal of achieving USD 400m in revenues by 2030.