India’s Zee needs strategy shift in aftermath of Sony merger collapse
• Pressure is on for company to find new way ahead
The collapse of a planned $10bn merger with Sony’s unit has heaped pressure on Zee Entertainment, one of India’s most popular TV networks, to pursue deals with new partners or focus on areas such as digital entertainment to revive its fortunes.
A Zee-Sony India merger would have created a media powerhouse in the world’s most populous nation with 90-plus channels across sport, entertainment and news segments, which India’s antitrust body at one time said could have “unparalleled bargaining power” when backed by Sony’s global reach.
But after two years of talks, the Japanese company scrapped the deal this week, saying terms were not met and is demanding $90m in termination fees via arbitration. Zee denies any lapses and has started its own counter-challenge legally.
Neither company responded to requests for comment.
Both firms lose out because the merger could have helped them emerge stronger in India’s $28bn media and entertainment space, especially when rivals — billionaire Mukesh Ambani’s Reliance and Walt Disney — are discussing a merger of their India media assets.
The scrapping of the merger and the legal fight with Sony is seen jolting Zee more as it already faces a host of regulatory, business and financial challenges, according to analysts and three industry executives with direct knowledge of its thinking.
Zee’s advertising revenues fell to $488m for the 2022/23 year from about $600m five years ago. Cash reserves dropped to $86m from $116m over the same period.
CEO Punit Goenka is facing the market regulator’s investigation for suspected diversion of company funds — allegations he has denied, but which became a key sticking point leading to the collapse of the Sony talks.
“Running Zee independently and reviving it looks tough. Lots of stakeholder trust has been eroded, rebuilding that is the priority,” said one of the industry executives, who added Zee may now need to look for other buyers to revive itself.
Analysts at Emkay Global agreed, saying in a report this week that Zee is likely to attract other suitors “with ‘going it alone’ being a low-probability event ... The potential RelianceDisney merger can further weaken Zee’s position, leaving it at a vulnerable spot in the overall industry”.
A second industry source said Zee’s priority now is to revive its business and challenge allegations legally. Zee’s shares have fallen just more than 31% since the deal collapse.
HINDI MELODRAMAS
In a letter to employees this week, Sony India CEO NP Singh said the company “will actively explore new organic and inorganic possibilities to strengthen” its India presence.
Started in 1992 by CEO Goenka’s father, Subhash Chandra — referred to as the “father of Indian television ”— Zee was the country’s first private TV channel that quickly rose to become a household name by offering melodramatic Hindi dramas.
Shashi Shekhar Vempati, a former CEO of state-run Indian broadcaster Prasar Bharati, said Zee could still leverage its archive of popular shows, create more entertainment content — its “core strength ”— and promote its streaming platform that has lagged market leaders such as Netflix.
Zee digital revenue accounted for 9% of overall income in 2022/23, much lower than 16% for Disney India and 15% for Sony, analysts at Ambit Capital said in a report.
“Zee hasn’t lost its core strength of producing compelling entertainment content, which it should focus on,” Vempati said, adding it could “carve out a niche” with its digital streaming platform.