How benefits of scale will make ZEE-Sony a TV & digital powerhouse

In FY21, the combined revenue of Sony and ZEE stood at Rs 13,451.5 crore which included Rs 6311.8 crore of ad revenue and Rs 5572 crore of subscription revenue

e4m by Javed Farooqui
Published: Sep 24, 2021 8:24 AM  | 6 min read

The merger deal between Zee Entertainment Enterprises Limited (ZEEL) and Sony Pictures Networks India (SPNI) will allow the two companies to achieve economies of scale in a rapidly changing media landscape marked by the rise of digital, say industry experts.

ZEEL and SPNI are the second and third-largest TV broadcasting companies in the country by revenue. According to  industry watchers, their merger will create a media behemoth that will transcend linear channels, video streaming, and film production. It will emerge as the main challenger to Disney-owned Star India that has become the top M&E company in India, thanks in part due to its acquisition of Indian Premier League (IPL) media rights and a profitable TV entertainment business.

During a conference call with analysts on Wednesday, ZEEL MD and CEO Punit Goenka, who will also head the merged entity as its MD and CEO, had made it clear that sports will be a major focus area for the new entity. Three major cricket rights — IPL, BCCI, and ICC — which drive the sports broadcasting economy in India are coming up for bidding in the next six to 12 months. The Sony-Zee combo will be up against an aggressive Reliance-backed Viacom18 and the incumbent rights' holder Star India for the three cricket properties.

With a combined bouquet of 75 TV channels across genres, the Sony-ZEE combine will be a must-have bouquet in pay-TV homes. It will also have significant leverage when it comes to negotiating ad deals with clients. The presence of two strong OTT platforms, SonyLIV and ZEE5, will help the merged entity to put up a strong fight against the likes of Netflix, Amazon Prime Video, and Disney+ Hotstar, feel the experts.

In FY21, the combined revenue of Sony and ZEE stood at Rs 13,451.5 crore which included Rs 6311.8 crore of ad revenue and Rs 5572 crore of subscription revenue, as per company filings. In FY20, Star India's revenue was Rs 14,337.46 crore which included ad revenue of Rs 7901.30 crore and subscription revenue of Rs 5262.81 crore.

The merged entity will also have a strong movie business, with a healthy mix of Bollywood and Hollywood movies, which will come mainly from the Sony Pictures stable. Compared to SPNI, ZEEL has been investing aggressively in films due to the strategic value that it brings to the company's TV, streaming, and music businesses.

“The merger will have ramifications for the advertising market due to the bouquet strength. The best thing about the merger is that both the networks complement each other. They don't have any competing products, so everything gets added. ZEEL is strong in regional, while SPNI doesn't have a presence in regional. The merged entity will virtually capture the Hindi movie genre. In Hindi GEC, ZEEL is strong in fiction while SPNI has great non-fiction properties. Plus, SPNI has sports and kids, whereas ZEEL doesn't have these channels,” a senior TV broadcasting executive said on condition of anonymity. “In OTT, SonyLIV and ZEE5 will complement each other as the former has live sports while the latter has originals and regional content. Plus, it's better to have two OTT platforms rather than one.”

According to a veteran media executive, the merger has also been necessitated due to the changing landscape where digital is gaining prominence. Scale, he said, is very important for any company that wants to compete with the emerging giants in the media space. “The merged entity will have lots of synergies, but the main game is about digital, as linear television is on the dip. In the next few years, the landscape will completely change. It's no longer only about aggregating channels, now content aggregation on digital is the name of the game,” the executive averred.

A top executive from a leading media company said that the two companies will have significant scale, but the biggest challenge will be integration since both have diverse cultures. The executive further stated that the merger will lead to cost rationalisation even as it will bring synergies. “The two companies don't overlap from a product point of view, but there will be overlap from a people point of view. This will necessitate rationalisation since you can't have separate offices or two different sets of people running the same business whether it is ad sales, distribution or programming,” the executive noted.

The CFO of a DTH company said that the ZEE-Sony merger only means that distribution platform operators (DPOs) will have one player less to negotiate with. He further stated that the merger is akin to Vodafone-Idea merger in telecom and the success of the merger will depend on how well the new entity adapts to a new culture. “What happens typically when two players integrate is that there is a lot of synergy. In this case, they have synergies, but they will not become a monopoly since there are other strong players in the market. In a non-monopolistic scenario, the benefits of synergy will pass on to the rest of the chain. The combined entity will have huge scale, but for distributors there is nothing to worry about,” he noted.

A senior ad sales executive stated that it is too early to talk about the synergies since these are two very different companies. He also said that integrating two companies from day one is not a good idea. “Cultural synergy will be an important factor apart from cost and revenue synergies. On the face of it, you can say that there are 75 channels therefore there is an aggregation and there is merit in this, but that's the end product and not the beginning of the synthesis. In order to get the maximum value from the merger, the two companies should be allowed to run independently for some more time and identify which is the model that you want to take and then universalise that model.”

Having said that, the executive further stated that the two organisations also have certain cultural similarities. “Both organisations have people who have been working here for many years. Both the companies operate with an owner-driven mindset. ZEEL is promoter-driven, but even Sony is very owner-driven, although it is owned by an MNC.

The CEO of a cable distribution company said that there will be no impact of the merger on the DPOs since there is no price disparity and the incentive structure is the same for everyone. He, however, noted that the merged entity will have a rich product portfolio. “As a DPO, we don't care where the content is coming from, whether it is Zee and Sony separately or as a merged entity. That said, Sony + ZEE will have a strong portfolio with channels like Zee TV, SET and Sab, but that is not enough to be attractive to subscribers. Content is ever evolving and the quality of content needs to be continuously upgraded. Viewers keep shifting from one channel to another depending on the content,” the executive said.

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