The market was expecting the merger and it finally happened. Zee Entertainment Enterprises (ZEEL) and Sony Pictures Network India (SPNI), a couple of days ago, said they had signed a deal to merge their operations and assets. SPNI, a subsidiary of the $82 billion Japanese, California-based conglomerate Sony Pictures Network (SPN), and Zee, a home-grown entertainment powerhouse, will now become the second largest media group in the country, giving it the heft to challenge the reigning Disney-Star combination.
The consolidation comes at a time when OTT or streaming entertainment platforms like Netflix, Hotstar and Prime Video are increasingly threatening the broadcast business and taking away subscribers from the traditional entertainment TV channels.
For the country’s media and entertainment landscape, the deal is an important signal of the growing consolidation. In a challenging market, just a handful of players survive as lateral growth after a point becomes tough. Sony as a broadcaster in India has always been a distant third behind Star and Zee, even though it kicked off in the late 1990s.
Sony has tried everything. It bought out KBC rights, and went aggressively after cricketing properties. However, it failed to achieve the audience following Star and Zee have. The takeover of Zee and the emergence of a unified programming of over 100 channels, with combined revenues of over $2 billion will be a game changer.
Sony stays the course
What’s worked in favour of Sony is it has stayed the course. It has bet on the Indian market with the belief that it is tough but it will ultimately pay back. This is quite the opposite of the other international entertainment behemoth Viacom, who played around for a decade, got fed up and exited selling its interests in 2018 to its partner, the Mukesh Ambani-owned TV18 Group.
However, SPNI also knows that you cannot forever be No.3 in the race. In a niche business like entertainment, after the spoils - ad and subscriber revenue - is divided among the two big players, there is very little left. That is why it has opted to weather the hostile bid by the Invesco Group, Zee’s largest shareholder. In fact, the legal battle is still far from over. If the merger finally goes through, Sony has a lot to gain.
At the turn of the century, when private TV broadcasting gained traction and film making began attracting corporate funds, there were nearly a dozen significant players. Two decades later, the high capital burn and regulations have whittled the entertainment industry down to a three-horse race. In 2014, after Mukesh Ambani took over Raghav Bahl’s TV18 with its regional and entertainment network of 45 channels, the Reliance Group emerged as a significant media and entertainment player.
Then followed the big takeover of Rupert Murdoch’s News Corp by Disney in 2019. In India, the Walt Disney Co, a minnow, swallowed up local No.1 Star India by the default of the latter being owned by News Corp. Disney, for over 2 decades has struggled in India, and has not made it past a couple of kids channels.
In this churn, a number of big boys we expected some action from have fallen by the wayside. The Times Group (Bennett, Coleman & Co) with their Zoom channel, and a few non-starter movie channels; and the Anil Ambani-promoted ADAG Entertainment are some of the casualties. They have not committed the deep pockets and have lacked the sharp vision required in this game. Perhaps the only ones who have survived this bloodbath are a few regional companies like the Sun Group.
Thwarting a Reliance takeover
Zee’s journey to the merger has followed a different path. The promoters, the Subhash Chandra family, over-extended themselves in other businesses and had to forfeit their holdings in ZEEL they had used as collateral. Down to less than 4%, they became the target of a hostile takeover bid. The Invesco Group, the largest shareholder in ZEEL with about 18%, had been brought in by the Chandras in mid-2019 to stabilize the ship; but as has been startingly revealed in recent months, Invesco became a proxy for Reliance to oust Punit Goenka, the current MD, and take over Zee.
To save its management team and to keep a foothold in what the family so assiduously built up over three decades, patriarch Subhash Chandra has gone for the sweeter deal.The new merged entity will have Sony infusing $1.5 billion and holding the lion’s share of 51%; the Chandra family will, using Rs 1,000 crore payment from Sony as a non-compete fee, will up its stake and hold about 4% with an option to raise it to 20%. Important to the Chandra family, Punit Goenka from the old guard will continue as MD.
All this is subject to regulatory approvals and Invesco’s legal battle. Invesco’s attempt to call an SGM and vote out Punit Goenka and his group has been thwarted by a single judge bench of the Bombay High Court. The matter is before an appeal bench and will probably be heard next month.
The merger has to also run the gauntlet of the Competition Commission (CCI). But the Zee family has bought time where it is hoping it can bring Invesco, and perhaps those behind Invesco, to the table. The plot will get thicker; and exciting enough for a good pot boiler movie!