The dance of the media elephants

As the big boys of media push for consolidation, scale is emerging as the killer app

Sony to acquire Viacom18; Subhash Chandra resigns as chairman of Zee Entertainment. What does all the action in India’s Rs 1,67,400 crore media and entertainment industry last week mean? 

It means that the fundamental changes in the way media is distributed and consumed are finally catching up in corporate structures. That the convergence of media, telecom and technology is complete and that scale is the killer app at this stage of market evolution.

In 2017 Rupert Murdoch sold most of Twenty First Century Fox’s entertainment assets to the $69 billion The Walt Disney Company giving up control of a group he’d nurtured ferociously for six decades. It was, say observers, a result of the realisation that as the entertainment market was being redrawn, at under $29 billion in revenues, Fox would end up fighting for relevance.

The new competitors were simply bigger and had more staying power. These include the $260 billion Apple, $233 billion Amazon, $184 billion AT&T and $137 billion Alphabet (parent of Google and YouTube). These tech and telecom heavies are blowing up billions to capture an audience that the $16 billion Netflix has so far walked away with. As cord-cutting grew the margins in the pay TV business which drove bottom line were bound to go down. Most analysts hailed the move — Murdoch had future-proofed Fox, they said. 

 

The internet and the on-demand entertainment it offers, however, operate in a global market. While India is decades behind on corporate maturity or an evolved media ecosystem, the internet took off in the country in 1995, with the rest of the world. And it grew discontinuously skipping several stages of market growth to become one of the largest video consuming countries in the world — not just online but on TV too. 

More than 836 million Indians watch just under four hours of linear TV every day, a number that keeps rising. And there are over 600 million of them online watching increasingly large amounts of drama series, films and user generated stuff. Google’s YouTube (275 million unique visitors), the Times Group’s MX Player (95 million), Disney’s Hotstar (91 million) among others are the biggest gainers going by comScore data. Unlike the US where a bulk of OTT consumption happens on cable pipes, in India, it happens on telecom pipes. Broadcast TV is 45 per cent of India’s total media and entertainment market. The top two media groups, Zee and Star are primarily broadcasters that also own other media assets. 

Disney’s acquisition of Fox meant that Star India is now owned by a company that is over two times Fox in size. There is the threat from a rising Jio owned by the $90 billion Reliance Industries, the $12 billion Bharti Airtel and of course, Google. At roughly Rs 10,000 crore in India revenues (this includes over Rs 2,000 crore for YouTube) it is among the country’s largest media firms. For broadcasters then the push for consolidation has become urgent.

Late last year when Zee needed to pare down debt at a group level it decided to bring in a strategic investor. The $84.5 billion Comcast and $78 billion Sony were reported as probables but eventually the pressure from debtors meant that over 95 per cent of Zee Entertainment ended up with a clutch of financial investors. These are bound to sell to a strategic one soon. Zee, one of the most profitable broadcasters with a leading audience share, will be a great asset for any tech or telecom major. 

Sony that has been on the prowl in order to plug the gaps in its portfolio will probably acquire a majority in Viacom18 making it the second largest media firm. Disney Star, Sony-Viacom18, Google, Times Group and Zee Entertainment -- that is how the list of India’s top five media firms would read if events play to script. That leaves Kalanithi Maran’s Sun TV, a tiger in the south, particularly vulnerable.  

Notice the top line numbers for the global and Indian companies — they are huge. And all of them are in the land-grab phase. For now, the media and entertainment game is about pure scale. It will take several more mergers and acquisitions and the burning of a few billion dollars before the real winners emerge.

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