Zee Entertainment-Sony Pictures merger: Making of a media behemoth

What could the entry of a Rs 14,000-crore media company into the Indian market mean?

One, more investment in streaming. Two, a fiercer bidding war for the Indian Premier League (IPL), Board of Control for Cricket in India (BCCI) rights and other sporting events. Three, more consolidation as other firms scramble to scale up in a market that is increasingly being dominated by tech-media giants like Google, Facebook, Apple and Jio. Four, a ray of hope and some fresh capital in the Rs 1,383-billion Indian media market battered by the pandemic.

On Wednesday this week, the Rs 5,900-crore Sony Pictures Networks India and the Rs 7,730-crore Zee Entertainment Enterprises announced that they have entered into an exclusive, non-binding agreement to merge through a share-swap deal. The term sheet provides 90 days for due diligence and negotiation. Sony would hold 52.93 per cent and Zee the rest in the combined, listed entity. Punit Goenka, managing director and CEO, Zee Entertainment will lead it.

There could be counter-bids and even a bidding war; Zee has a hold over a fifth of TV viewership in India, a movie and OTT business. Ever since founder Subhash Chandra and his family lost control of the company in 2019, there has been speculation that it would be acquired by a strategic investor. All sorts of names — Sony, Comcast, Reliance (which owns Viacom18) — have been thrown around. If there are no counter-bids or a bidding war, Zee will become an MNC in three months. It gives Zee’s investors, some of who had been wanting to shake the last vestiges of promoters from the firm, what they wanted — a strategic foreign investor to take the firm to the next level. The Zee share jumped from Rs 281 to over Rs 350 within hours of the deal being announced.

“From a TV market and content perspective, the new entity will have significant scale, great operating leverage and is more than a sum of the parts,” says Vivek Couto, executive director of Singapore-based consulting firm Media Partners Asia (MPA).

Going by Broadcast Audience Research Council data for 2020, the duo will have a 28 per cent share of viewership in a market where TV reaches over 892 million people. That puts it firmly ahead of leader Disney Star (See chart). 

On revenue, it would be almost on par with Disney-Star. “The timing is great. On content and production, they complement each other and could bring in efficiencies on cost and revenues,” adds Mihir Shah, vice-president, MPA.

Unlike Sony, Zee has a strong presence across Hindi, Marathi, Tamil, Telugu and other Indian languages and also has a global footprint. But it lacks sports and kids programming that Sony has. Both of them have a strong film business and OTT platforms. SonyLiv had a breakthrough 2020 with Scam1992.

The most important part of the deal is the $1.57 billion that will be infused into the new entity by Sony. 

Couto reckons that deals like these are happening across large TV markets, as broadcasters consolidate to take on streaming giants like Netflix. In many ways, says Couto, Rupert Murdoch selling Fox to Disney in 2017 is what set the ball rolling on the redrawing of the global media map. As luck would have it, around the same time, Zee went through its debt crisis and is now owned by institutional investors. “This deal has been done by an international investor (the $82.5 billion Sony) that owns a media company in India. It is the only country where they have a large broadcast asset and have invested in SonyLiv. The Japanese have believed in India ever since Kunal (Dasgupta, former Sony CEO) first invested in the IPL,” says Couto.

Who will run the new company?

The big questions are on culture and control. While the press releases put Goenka in charge, the fact is, managing director and CEO, NP Singh, has run Sony for a long time. What role would he play? By choosing not to front this announcement, is Sony sending a message? Note that it would retain the right to choose a majority of the board members. The question is how a company that Sony controls will have a CEO from the acquiree company that still hankers for control. The Zee press release says that the promoter family is free to increase its shareholding from the current 4 per cent up to 20 per cent within the parameter of existing laws. This one is puzzling, say analysts.