 "demerger, merger")
Will they marry, or will they call it off at the altar? The drama of the Sony-Zee merger, much like their daily soaps, keeps ending on a cliffhanger every few weeks. “Either we will have a merger or we will have a web-series,” quipped one insider.
The merger, announced on December 21, 2021, could create a Rs 14,851 crore, or $1.8 billion (FY23 revenues), firm. The merged company will be India’s fourth-largest media company after Google, Meta and Disney-Star.
All regulatory formalities and paperwork for the Composite Scheme of Arrangement, as the merger is referred to legally, are complete. However, at the last minute, it got stuck over the question of who will be the chief executive officer (CEO)? In December 2021, it was agreed that Punit Goenka, currently the managing director and CEO of Zee Entertainment Enterprises, would be the head of the combined entity with no ambiguity about it.
Somewhere towards the end of 2023, Sony changed its mind because of an ongoing Securities and Exchange Board of India investigation into financial wrongdoings when Zee was part of Subhash Chandra’s Essel Group. According to legal opinion, sought by a shareholder from the former chief justice Uday U Lalit, the agreement between the companies states that the only way for the merger to be complete is for Mr Goenka to be appointed CEO. Insiders say Mr Goenka is willing to let go, provided the merger plan is implemented. He has, reportedly, volunteered to help look for a new CEO. If he is not appointed CEO, the merger process will have to be redone. That is two years down the drain.
Whichever way it goes, this drama, playing out in international newspapers and magazines, is bad news for India’s Rs 2.1 trillion media and entertainment business, and for both Sony and Zee.
India is hardly a hot destination for media investments. Many international companies — across news, digital, film and other segments — have tried and failed to make money for myriad reasons. In cable TV distribution, for example, more than eight years after 100 per cent foreign investment was allowed, not a single international cable company has come. The lack of clarity on who owns the last mile, the regulatory controls over pricing and fragmentation has put off even interested cable majors such as Comcast. Without fresh investments that can convert a cable TV connection to a broadband, one that could offer streaming too, the business is in serious decline. From about over 100 million about four years ago, cable TV homes have dropped to under 55 million. The time for investment into cable has gone.
This might soon become true for broadcasting, one of the few segments where international firms have done well in India. Television reaches almost 900 million people, generating Rs 70,900 crore in revenue (2022). It remains the largest chunk of the Indian media and entertainment industry. But it is a mature business, growing in low single-digits as it battles tech-media giants that have globally muscled into every part of media and entertainment.
Google and Meta are among the largest video players, walking away with about 70 per cent of all digital advertising across countries, except China. Google, with revenues of $278 billion in the financial year ending September 2023, uses search as the glue to keep audiences. Meta, with revenues of $127 billion, uses socialising to keep users coming to WhatsApp, Facebook or Instagram, the brands it owns.
For the $554 billion Amazon, its video business is small change. It is one of the carrots it uses to get people to buy more things on Amazon. This brings in not just more sales, but also, increasingly, more advertising. Amazon has become globally and in India one of the biggest challengers to the Google-Meta hegemony over digital advertising.
Where in this club of $100 billion-plus businesses does an industry that is just about $25 billion in revenue fit? That is the conundrum that every major media player across the world, including in the US, faces. The tech-media firms are bigger, better and have money that will last until every competitor fades away and beyond. While regulators in Europe and the US are grappling with how to control them and facilitate competition, they continue to rule.
It will take size and capital to take them on. Fox’s Rupert Murdoch probably realised that and sold his entertainment business to Disney in 2018. It triggered a wave of consolidation that continues. Now Disney is reportedly selling its television business piecemeal to buy out its partners in Hulu and to finance Disney+Hotstar. Warner and Discovery merged in 2022. Late last year, there were reports that Paramount Global (earlier ViacomCBS) was in talks for a merger with Warner Discovery.
In India, Paramount has already exited partially by giving up its majority in Viacom18. There are now just a handful of large players left — Google, Meta, Disney Star, Sony, Zee and Reliance Industries’ Viacom18.
The top three are in the Rs 18,000 crore and above (revenue) range. If Disney and Viacom18 merge, as is being speculated, the combine will equal Google in revenue. If Sony and Zee merge, it would make it to the top five firms. But separate them and they could either become takeover targets or dissipate into irrelevance. Remember the Times Group, which seemed like such a colossus in the eighties and nineties. It is now about Rs 8,000 crore in top line and doesn’t look as impressive as it did even a decade ago. That is what new technology and competition does — unless one adapts.
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