M&A: From Sony-Zee to WarnerMedia-Discovery, the big unions of media industry in 2021
Apart from broadcasting, there were murmurs of further consolidation in the DTH industry
2021 was a quiet year for the media & entertainment (M&E) sector from a mergers & acquisitions (M&A) point of view until the Zee-Sony merger deal was announced on 22nd September. The impending merger between the two companies will create a media behemoth which will have combined revenues of $2 billion and over 25% market share in the broadcast space.
The merged entity will boast of 75 TV channels, two OTT platforms, and two film production & distribution companies. According to experts, Zee-Sony is a perfect marriage as the two broadcasters have minimum overlap. Zee is a fiction powerhouse while Sony has a strong slate of non-fiction properties. Sony doesn't have a presence in regional markets while Zee is a strong player in key regional markets. Likewise, Zee is not present in sports broadcasting while Sony has a strong foothold in the market.
Speaking recently at APOS India 2021, Zeel MD & CEO Punit Goenka had said that consolidation is going to benefit the M&E industry in the long run, while adding that the competition in the sector has been intense for the last 30 years. "I believe this (Zee-Sony deal) is another step towards the Zee 4.0 transformation journey that I took on last year and I hope that we will be able to generate significant value for the stakeholders, which includes not just our shareholders but our employees and customers as well."
As per the non-binding Term Sheet signed by both the companies, Sony Pictures Entertainment, the parent company of SPNI, would invest growth capital so that SPNI has a cash balance of approximately $1.575 billion at closing for use to enhance the combined company’s digital platforms across technology and content, ability to bid for broadcasting rights in the fast-growing sports landscape and pursue other growth opportunities.
Sony Pictures Entertainment will hold a 52.93% stake in the entity, while Zeel shareholders will keep the remaining 47.07% stake. The promoters will hold a 3.99% stake in the merged entity with an option to increase it to 20%.
The merger deal was announced amid a tussle between Zee's promoter family and its biggest investor, Invesco. The private equity firm has been seeking an Extraordinary General Meeting (EGM) to bring in new directors on Zeel board besides removing Punit Goenka as the MD & CEO of the company.
During the war of words between Zeel and Invesco, it came to light that the latter was facilitating a deal to merge Reliance Industries' media business with Zeel. The merger talks didn't proceed further since the Zeel promoters had reservations about the terms of the deal. As per the deal that was facilitated by Invesco, Zeel shareholders would have held 40% in the merged entity while Reliance would have controlled 60% following a cash infusion of Rs 14,000 crore in the merged entity.
Further, Punit Goenka would have continued as the MD & CEO of the merged entity while the promoter group would have received 3.99%. Goenka was also offered employee stock options (ESOPs) representing up to 4% of the shareholding of the merged entity. The Zeel promoter group would have held up to 7-8% in the merged entity.
Even as the Reliance-Zee deal didn't take off, analysts believe that the Zee-Sony deal might go through as Invesco has also softened its stance. Once the deal is sealed and signed, the combined Zee-Sony entity will emerge as the biggest media company in India based on the topline figures for FY21. In FY21, ZEEL and SPNI had a combined topline of Rs 13,452 crore, which is well above Disney-owned Star India's consolidated revenue of Rs 12,664.36 crore.
During the year, AT&T-owned WarnerMedia and Discovery inked a $43 billion deal to merge their assets. The merged entity will be called Warner Bros. Discovery with AT&T shareholders holding a 71% stake and Discovery owning 29%.
Despite the deal, the merged entity will not have much of an impact on the Indian TV broadcasting or OTT market as both are niche players. In India, the combined revenue of WarnerMedia-Discovery duo stood at roughly Rs 1300 crore in FY20. Further, the two companies will have 18 channels across infotainment, kids, and lifestyle genres besides the discovery+ streaming service. WarnerMedia is also gearing up to launch its OTT service HBO Max in India.
Apart from broadcasting, there were murmurs of further consolidation in the DTH industry with media reports claiming that Bharti Airtel is looking to acquire a majority stake in Dish TV and merge it with its DTH arm Bharti Telemedia (Airtel Digital TV). Dish TV has stated that it is not aware of any such talks while Airtel has said that it doesn't comment on speculation.
During the year, Bharti Airtel acquired a Warburg Pincus affiliate’s 20% equity stake in its DTH arm Bharti Telemedia for a total consideration of Rs 3126 crore which was discharged primarily via issuance of 36.47 million equity shares of Airtel at a price of Rs 600 per share and up to Rs 1037.8 crore in cash. In December 2017, a Warburg Pincus affiliate had agreed to acquire a 20% equity stake in Bharti Telemedia Limited, the DTH arm of Airtel, for approximately $350 million.
The DTH industry in India has already gone from being a six player market to just four players following the merger of Videocon d2h with Dish TV and the closure of Independent TV (formerly Reliance Digital TV). Aside from this, there was a talk of Tata Sky going public to allow Walt Disney to exit the company. The American entertainment giant holds a 30% stake in Tata Sky and wants to offload this stake so that it can concentrate on its primary media business in India.
Apart from these, most of the M&A deals in the media sector happened in the digital space. Digital music company Believe strengthened itself in the fast-growing Indian market with the acquisition of Think Music, a South India- based music label. Print, radio, and OOH didn't see any M&A deals.
Further, digital news entity Quint Digital Media had entered into definitive agreements to acquire a) 100% ownership of Quintillion Media Private Limited (QMPL) and b) 47.92% stake in Spunklane Media Private Limited, which operates a digital news platform thenewsminute.com. The stakes will be acquired for a total consideration of Rs 24.5 crore, subject to necessary closing adjustments. The consideration will be discharged by Quint Digital on a deferred basis, 5% on closing and balance 95% within a period of 12 months from closing.
VerSe Innovation, India’s biggest local language technology platform, had made two acquisitions during the year. It had acquired Bengaluru-based AI solutions provider Cognirel Technologies to bring on-board its founder Ram Prakash to head its newly instituted AI Lab. Further, it had acquired GolBol, a made-in-India social networking app and brought on board GolBol’s entire team including co-founders Shanu Vivek, Karandeep Singh Gujral and Kaushik Mahato to help accelerate the work being done to modernize and multiply the impact of Josh.
According to an M&E expert with one of the leading consulting firms, broadcast, digital, and exhibition will see M&A deals going forward. "A lot of deals in the M&E industry have happened in segments like broadcast, music, and digital. Television is seeing consolidation, and we can see some more consolidation happening going forward. The large networks have become very strong, so you are going to need that kind of scale to consolidate. Digital might see a lot of activity. A lot of acquisitions are happening in this space. You will see a lot more in the near future also," he stated.
The expert noted that there are some sectors like FM radio where deal making is very difficult due to regulation. Further, print companies that were bleeding money last year have returned to profitability, therefore, the need for a distress sale or a merger is not there. "It won't be so easy to create a behemoth in print because there are various other factors that are also there," he added.
He also stated that companies consolidate to acquire scale or for cost efficiencies. "Consolidation for scale will keep happening and more and more digital companies will merge and create large networks. TV companies will merge and create large networks. It might happen in exhibition also. Internationally, cost efficiency is a big driver for M&A deals but in India that is not the case. From a cost efficiency point of view, these companies are doing a lot of non-merger related initiatives like they may share facilities, they may outsource or share content creation (ALTBalaji-ZEE5 deal). These companies are leveraging each other's capabilities rather than setting up their own," the expert elaborated.
Kurate Digital Consulting senior partner Uday Sodhi believes that there will be consolidation in the traditional media as the ad pie is shrinking due to the growth in digital advertising. "Traditional media companies will do M&As to survive and also to gain scale. In emerging sectors like OTT and gaming, the acquisition deals will be focussed on growing the overall business. Contrary to popular opinion, I don't think OTT has too many players. In fact there is enough space for more players to service 130 crore individuals. OTT will see the launch of new platforms just like what we saw in satellite TV."
He further stated that there are three key trends in the advertising industry after two years of Covid-19. "First, digital media is king as 55% of all advertising worldwide is digital. India is also expected to follow as digital is already closing the gap with TV and will surpass it in the next few years. Second, with the rise of Consulting vs Agencies, technology is now central to advertising and adtech drives digital advertising. Accenture now is one of the largest companies in this space. Traditional agencies will need to focus on technology, data, and creativity to survive against consultancy firms.
"Third, digital is driving digital. Digital businesses like fintech, e-commerce, online grocery, online gaming and crypto are driving digital advertising spends. Just as traditional advertisers are skewed towards traditional mediums, the digital brands are skewed towards digital since it offers brand building as well as performance marketing."
Elara Capital SVP - Research Analyst Karan Taurani said that there are three key changes that are taking place in the M&E industry. This includes 1) Shift to digital, 2) converging ad growth, and 3) regulation on broadcast tariff. "Consolidation is the need of the hour to maintain the growth rate and have a say in the market. If the market remains fragmented even if it is 5 or 6 players, but the market is fragmented and growth rates are converging then everybody is a loser because everybody will end up spending more on content cost. Consolidation is needed because you can get the best of the market, and you will have a situation where 2 or 3 larger players have a large control of the market, and they can command a large share and compete with each other. If competitive intensity comes down your costs are also arrested in the form of marketing or content."
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