Zee-Sony behemoth will have pricing leverage in selling ad inventory: Industry watchers
The merger will lead to a colossal 75-channel entity claiming 25-30% of the TV viewership pie in India
After their much talked-about merger, the two broadcast giants -- Zee Entertainment Enterprise Ltd (ZEEL) and Sony Pictures Network India (SPNI) -- will own 75 TV channels across genres including general entertainment, movies, kids, sports, infotainment, and music genres with around 25-30% of the total TV viewership in India. Since the merged entity will have major channels in each genre, it is likely to claim a large portion of advertising bucks spent in each market.
According to a senior media planner, two of the largest groups are coming together, which will definitely strengthen the position for the consolidated group. “Selling one big channel versus three big channels, obviously, there will be the leverage they will get as a result of this merge. Also, the investment in content is going to be big as a whole group which is something to look out for. The number of channels and the reach that they will offer as a group will benefit the channels to grab big chunks of ad revenue.”
Currently, SPNI reaches out to over 700 million viewers in India and is available in 167 countries whereas ZEEL has a presence in over 173 countries and a reach of more than 1.3 billion people around the globe.
A former COO of the leading broadcast company believes that the merged entity will become a massive player especially in the Hindi Speaking Market (HSM). “Majority of the advertising money is spent in HSM and with channels like Sony Entertainment Television (SET), Sony SAB and ZEE TV, the group will enjoy the larger pie. Similar is the case with movies channels or regional channels.”
The industry experts also believe the merger will also make it a strong contender for the IPL rights, which is up for renewal next year. “It should also open up a very interesting race for IPL. Now there will be three broadcasters who will be bidding aggressively for the rights.” With this merger, SPNI will have a presence in regional as well.
ZEEL and SPNI have entered into a non-binding term sheet to combine both companies' linear networks, digital assets, production operations, and program libraries. The term sheet provides an exclusive period of 90 days during which ZEEL and SPNI will conduct mutual diligence and finalize definitive agreement(s). The merged entity will be a publicly listed company in India.
Another senior executive shared that consolidation was anticipated. However, he feels that since ZEE and Sony India have agreed to a binding exclusivity for a period of 90 days and in this 90-day period whether the deal will go through or not is yet to be seen. Although he believes that from a strategic perspective it's a right fit but the market will be defined by the quality content and not the number of channels. “The game is more about what you are offering and will they dominate the market depends on the quality of the product.”
The merged entity will also have two OTT apps- SonyLiv and ZEE5. “This means that they will have two large customer bases now. The impact is going to be huge and the benefit will be significant. Not just the TV shows content but ZEE also has a huge movie library in local languages whereas Sony has access to the international library. Along with sports, kids, infotainment and other content as well.”
According to the press note, the shareholders of SPNI will hold a majority stake in the merged entity. The shareholders of SPNI will also infuse growth capital into SPNI as part of the merger such that SPNI has approximately S1.575 billion at closing, for use in pursuing other growth opportunities. Basis the existing estimated equity values of ZEEL and SPNI, the indicative merger ratio would have been 61.25% in favour of ZEEL. However, with the proposed infusion of growth capital into SPNI, the resultant merger ratio is expected to result in 47.07% of the merged entity to be held by ZEEL shareholders and the balance 52.93% of the merged entity to be held by SPNI shareholders.
According to the industry observer, SPNI might hold a majority stake in the merged entity, but he strongly feels that in terms of running the business ZEE may have the upper hand. He also feels that this merger will also be led to layoffs in both companies. “There will be duplication of role, one can’t have two business or revenue heads in one company. Unfortunately, it's happening with every merger and we can expect some layoffs across departments.”
The Board of Directors of ZEEL present and voting in its board meeting held on September 21, 2021, unanimously provided in-principle approval for the merger between Sony Pictures Networks India (SPNI) & ZEEL. The Board has evaluated not only on financial parameters but also on the strategic value which the partner brings to the table. The Board concluded that the merger will be in the best interest of all the shareholders & stakeholders. The merger is in line with ZEEL's strategy of achieving higher growth and profitability as a leading Media & Entertainment Company across South Asia. The Board has authorized the management of ZEEL to activate the required due diligence process
As part of the transaction, Punit Goenka will continue to be the Managing Director and CEO of the merged entity. Further, certain non-compete arrangements will be agreed upon between the promoters of ZEEL and the promoters of SPNI. According to the term sheet, the promoter family is free to increase its shareholding from the current - 4% to up to 20%, in a manner that is in accordance with applicable law.
The majority of the Board of Directors of the merged entity will be nominated by Sony Group. It is anticipated that the final transaction would be subject to the completion of customary due diligence and execution of definitive agreements and required corporate, regulatory, and third-party approvals, including the votes of ZEEL's shareholders. ZEEL's strong expertise in content creation and its deep consumer connect established over the last 3 decades, coupled with SPNI's success across entertainment genres (including gaming and sports) will add significant value to the merged entity and its management team, thereby increasing shareholder value multifold.
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